<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997
REGISTRATION NO. 333-13667
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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)
<TABLE>
<S> <C> <C>
DELAWARE 6141 65-0688619
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
------------------------
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, $0.01 par value....................................................... $20,700,000 $6,273
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) The Company previously paid $4,849 of this registration fee.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
SUBJECT TO COMPLETION DATED JANUARY 9, 1997
PROSPECTUS
2,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
The shares of Common Stock offered hereby are being issued and sold by
National Auto Finance Company, Inc. (the 'Company'). Application has been 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 $7 and $9. 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.
<TABLE>
<CAPTION>
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 Underwriters 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 Underwriters 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 Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
other conditions including the right of the Underwriters 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 , 1997 at the offices of Raymond
James & Associates, Inc., St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC. CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1997.
<PAGE>
[MAP OF U.S. MARKETS SERVED BY THE COMPANY]
------------------
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 UNDERWRITERS 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 Underwriters'
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 strategic referral and marketing alliances with financial
institutions which have 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 1,200 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 that
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 Investors 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 that 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 initially
provided 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 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 $18.9 million. On
4
<PAGE>
December 13, 1996, First Union exercised its option to expand the scope of the
First Union Strategic Alliance to include approximately 1,500 additional Dealers
throughout five northeastern states (the 'Northeastern Franchise') with which
FUSF has existing relationships. The Company anticipates commencing the
introduction of its products and services throughout the Northeastern Franchise
in March 1997.
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 62.89% of the Common Stock of the
Company. As a limited partner of the NAFCO Partnership, the First Union Partner
currently has an economic interest with respect to approximately 15% of the
Common Stock of the Company held by the NAFCO Partnership (or 9.43% of the
outstanding shares of Common Stock upon consummation of this 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 September 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 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' or 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
<TABLE>
<S> <C>
Common Stock offered hereby............... 2,000,000 shares
Common Stock to be outstanding after this
Offering................................ 6,726,000 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
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, 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 (loss) per share $ (.07) .33(4) .28(4) .29
Pro forma weighted average shares outstanding(5).......... 6,726,000 6,726,000 6,726,000 6,726,000
</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 38% as if the Company had been taxed
as a C corporation for all periods presented. For the periods ended December
31, 1995 and September 30, 1995, taxes have been calculated at 38% after
netting prior years net operating losses from pro forma net income.
(4) Includes approximately $0.07 per share attributable to gains on Loans
purchased between the Company's commencement of operations on October 12,
1994 and January 16, 1995, when the Company initiated its Revolving
Securitization program.
(5) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock in
this Offering.
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 28,445 38,602
Senior Subordinated Notes.............................................. 12,000 12,000 12,000
Junior Subordinated Notes.............................................. 7,218 7,218 2,934
Total liabilities...................................................... 20,292 22,475 18,191
Partners' preferred equity............................................. 2,251 0 0
Partners' equity....................................................... 5,903 0 0
Stockholders' equity................................................... 0 5,970 20,411
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 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 DECEMBER 31, AS OF 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 2,000,000 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. The Company believes that a
significant portion of the Loans in its portfolio will, by the end of calendar
year 1997, be 'seasoned' and that the delinquency and loss rates with respect to
such Loans will then more meaningfully reflect the portfolio's overall
ongoing delinquency and loss experience. 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
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NEED FOR ADDITIONAL CAPITAL
The Company's ability to continue to increase the number of Loans it
purchases depends, 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 to
fund operations for approximately 12 months following this Offering, assuming
the Company completes regular securitizations during such 12-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 two Permanent
Securitizations, completed to date, in November 1995 and November 1996, the
asset-backed securities issued were credit-enhanced by financial guaranty
insurance policies 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 each 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
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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 costs of financing such Loans may exceed those estimated, necessitating
write-downs in the Company's excess spread receivables and decreases in cash
flows that 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 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 $50 million renewable multi-year
commitment with First Union National Bank of North Carolina that expires on June
30, 1999. The Revolving Securitization facility may be increased to a $75
million facility upon request of the Company and subject to the consent of First
Union National Bank of North Carolina. The amount of funds available under the
Revolving Securitization is governed by a borrowing base formula that provides
availability as a multiple of the overcollateralization capital pledged and is
restricted by a number of financial covenants. Interest under such facility is
charged (i) during the month in which the Loan is sold to the Master Trust, at
First Union National Bank of North Carolina's prime rate of interest, and (ii)
thereafter, at the London Interbank Offered Rate ('LIBOR') plus, based upon a
formula, between 75 and 300 basis points. 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.
GAIN ON SALES 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.
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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 that 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 expansion of
the scope of such alliance to FUSF's Northeastern Franchise) and the 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 its development and growth 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 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,
to limit interest rates, fees and other charges related to Loans purchased,
require specified disclosures by Dealers to consumers and to limit rights to
repossess and sell collateral. Such regulations exist 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
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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 rates lower
than those 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 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 that 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 can 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.'
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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 in effect from time to time. The
First Union Strategic Alliance also generally provides that 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. Although the Company
believes that these restrictions are reasonable in light of the advantages
afforded by the First Union Strategic Alliance, the effect of these restrictions
may be to limit in certain respects the Company's ability to seek or to 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 this Offering, the NAFCO Partnership will own
approximately 62.89% of the Company's outstanding Common Stock (60.20% if the
Underwriters' 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 approximately 9.43% of the
outstanding shares of Common Stock upon consummation of this 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, a Delaware corporation and the general partner of the NAFCO
Partnership ('National Auto'), 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 that 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 this 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 this Offering. The initial
public offering price of the Common Stock offered hereby has been established
through negotiation between the Company and the Underwriters. 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
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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 this Offering, the Company will have outstanding an
aggregate of 6,726,000 shares of Common Stock. All of the shares sold in this
Offering (plus an additional 300,000 shares if the over-allotment option granted
to the Underwriters is exercised in full) will be freely tradeable without
restriction or further 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 Underwriters,
180 days after the date of this Prospectus (or earlier upon the written consent
of Raymond James & Associates, Inc.), 4,726,000 shares of Common Stock
outstanding prior to this 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, 500,000 shares of Common
Stock have been reserved for issuance under the National Auto Finance Company,
Inc. 1996 Share Incentive Plan (the '1996 Share Incentive Plan'). Options to
acquire an aggregate of 260,000 of such shares have been granted to certain key
employees and directors of the Company, and upon completion of this Offering any
shares of Common Stock issuable upon the exercise of such options (subject to
certain vesting terms and other limitations on exercise with respect to such
options) will be eligible for sale in the future pursuant to registration on
Form S-8. 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 496,000 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,'Management--1996 Share Incentive Plan,' 'Principal Stockholders' 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 $5.11 per share (based upon an
assumed offering price of $8.00 per share) in net tangible book value per share
of Common Stock from the offering price. See 'Dilution.'
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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 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 INDEBTEDNESS
In August 1996, the Company completed a $12 million senior subordinated
debt financing. In connection therewith, the Company executed, as of August 9,
1996, a Note Purchase Agreement (the 'Note Purchase Agreement') with 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 ('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, as Investment Manager
and Agent for the Alfred P. Sloan Foundation (Multi-Market Account) ('MGAS,' and
together with MGTC and MGMM, the 'Morgan Group'). Pursuant to the Note Purchase
Agreement, the Company issued to the Morgan Group $12 million aggregate
principal amount of its senior subordinated notes due 2001 (the 'Senior
Subordinated Notes') and related deferred additional interest notes due 2006
(the 'Deferred Additional Interest Notes' and collectively with the Senior
Subordinated Notes, the 'Morgan Notes'). See 'Certain Transactions--Senior
Subordinated Indebtedness.'
ASSET TRANSFERS
Immediately prior to the sale of the shares of Common Stock offered hereby,
the respective assets and liabilities of the Partnerships were 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 entailed the following transfers:
(a) The partners of the ACCH Partnership (other than the NAFCO
Partnership) transferred 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 transferred all of its assets, subject to
all of its liabilities, to the Company in exchange for 4,229,000
shares of Common Stock (which together with the 1,000 shares of
Common Stock acquired by the NAFCO Partnership in connection with
the initial organization of the Company in October 1996 increased
the NAFCO Partnership's holdings to 4,230,000 shares of Common
Stock) and all of the outstanding preferred stock of the Company.
(c) Upon the transfer of the assets of the NAFCO Partnership to the
Company, the Company issued to the Morgan Group 470,000 shares of
Common Stock (representing 10% of the outstanding Common Stock of
the Company immediately following the Reorganization) in exchange
for the Deferred Additional Interest Notes.
SUBSEQUENT DEVELOPMENTS
Upon completion of the Reorganization and immediately prior to this
Offering, the Company granted options to acquire an aggregate of 260,000 shares
of Common Stock to certain key employees and directors of the Company. Pursuant
to the terms of the Note Purchase Agreement, the holders of the Senior
Subordinated Notes were entitled, prior to this Offering, to receive additional
shares of Common Stock upon the grant of options to key employees and directors
of the Company. Accordingly, upon such grant of options, the Company issued to
the Morgan Group an additional 26,000 shares of Common Stock. Immediately
following the Reorganization and immediately prior to this Offering, all of the
Common Stock of the Company was directly owned by the NAFCO Partnership and the
Morgan Group. See 'Principal Stockholders,' and 'Certain Transactions--Senior
Subordinated Indebtedness.'
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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 $8.00
per share and after deducting estimated underwriting discounts and commissions
and expenses payable by the Company, are estimated to be approximately $14.3
million (approximately $16.5 million if the Underwriters' over-allotment option
is exercised in full). The Company anticipates that, of the net proceeds of this
Offering, approximately $6.0 million will be used to support securitizations and
other long-term financing arrangements, approximately $4.3 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 final maturity
date of January 31, 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 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 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.
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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 $14.3 million from this Offering (based upon an assumed initial
public offering price of $8.00 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
Common Stock, $.01 par value, 20,000,000 shares authorized; 4,726,000 pro
forma; 6,726,000 pro forma (as adjusted) issued and outstanding......... 0 47 67
Preferred Stock, $.01 par value, 1,000,000 shares authorized;
2,250 pro forma and pro forma (as adjusted) issued and outstanding...... 2,250 2,250
Additional paid-in capital (pro forma as adjusted)(1)...................... 0 3,673 18,094
--------- -------------
Total stockholders' equity................................................... 0 5,970 20,411
------- --------- -------------
Total long-term borrowings and capitalization........................... $27,372 25,188 35,345
------- --------- -------------
------- --------- -------------
</TABLE>
- ------------------
(1) In connection with the Reorganization, $3,620,000 of retained earnings (pro
forma) and $3,718,000 of retained earnings (pro forma as adjusted) were
transferred to additional paid-in capital to reflect a constructive
distribution to the partners of the NAFCO Partnership followed by a
contribution to the capital of the Company.
17
<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 $4,966,000, or approximately $1.05 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 this 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 $19,407,000, or
$2.89 per share. This represents an immediate increase in net tangible book
value per share of $1.84 to existing holders of Common Stock as a result of this
Offering and an immediate dilution of net tangible book value per share of $5.11
to new investors in this Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................................ $8.00
Pro forma net tangible book value before this Offering............................... 1.05
Increase in pro forma net tangible book value per share attributable to
new investors..................................................................... 1.84
-----
Pro forma net tangible book value after this Offering.................................. 2.89
Dilution in pro forma net tangible book value to new investors......................... $5.11
-----
-----
</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..................... 4,726,000 70.3% $ 150,000 .9% $ .03
New investors............................. 2,000,000 29.7 16,000,000 99.1 $8.00
--------- ------- ----------- -------
Total 6,726,000 100% $16,150,000 100%
--------- ------- ----------- -------
--------- ------- ----------- -------
</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
-------------- ------ ------ ------
(IN THOUSANDS)
<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 (loss) per share....................... $ (.07) .33(4) .28(4) .29
Pro forma weighted average shares outstanding(5).......... 6,726,000 6,726,000 6,726,000 6,726,000
</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 38% as if the Company had been taxed
as a C corporation for all periods presented. For the periods ended December
31, 1995 and September 30, 1995, taxes have been calculated at 38% after
netting prior years net operating loss from pro forma net income.
(4) Includes approximately $0.07 per share attributable to gains on Loans
purchased between the Company's commencement of operations on October 12,
1994 and January 16, 1995, when the Company initiated its Revolving
Securitization program.
(5) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock in
this Offering.
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 12-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 12, 1994 to January 16, 1995 and sold to the Master Trust
in January 1995. The Company would have reported $2.0 million of pro forma net
income after a provision for income taxes for the nine months ended September
30, 1996, an increase of 43% as compared to pro forma net income of $1.4 million
for the nine months ended September 30, 1995, after excluding approximately
$439,000 of pro forma net income from Loans purchased from October 12, 1994 to
January 16, 1995 and sold to the Master Trust in January 1995.
Gain on Sales 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 SEPTEMBER 30,
DECEMBER 31,
---------------- --------------------------------------
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, from 50.71% of revenues as of September 30, 1995 to 65.05% as of
September 30, 1996, reflected the growth in the number 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. Management currently expects that
operating costs will continue to rise throughout fiscal year 1997 as the result
of anticipated growth in the number of Loans purchased and serviced by the
23
<PAGE>
Company and the hiring of additional personnel in connection with the expansion
of the First Union Strategic Alliance to FUSF's Northeastern Franchise. In
addition, operating costs may also increase if the Company develops its own
in-house servicing capabilities.
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, the hiring of additional senior management and the other start-up costs
associated with the 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 and related
Deferred Additional Interest Notes. The Junior Subordinated Notes bear interest
at a rate of 8% per annum, payable quarterly in arrears, commencing September
30, 1996. The Senior Subordinated Notes bear interest at a rate of 10% per annum
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 ESRs 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. In
connection with the Reorganization, the Deferred Additional Interest Notes were
exchanged for 470,000 shares of Common Stock, representing 10% of the
outstanding Common Stock immediately following the Reorganization, 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 that 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 2.43%, of the aggregate principal balance of
Loans purchased since October 1994, as compared to $244,000, or 0.64%, 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 AS OF SEPTEMBER
31, 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 1,447 534 5,734
Liquidation recoveries......................................... 0 (797) (290) (3,163)
------ ------ ------ -------
Net charge-offs................................................ 0 650 244 2,571
------ ------ ------ -------
------ ------ ------ -------
Net charge-offs as a percentage of aggregate principal balance
of Loans purchased........................................... 0.00% 1.31% .64% 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 of each year. 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 funded its operations and the growth of
its Loan purchasing activities primarily 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 Notes 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 received from the
issuance of the Senior Subordinated Notes and the Junior Subordinated Notes and
from the capital contributions of certain affiliates of the Company will be
sufficient to meet the Company's cash requirements and to fund operations for
approximately 12 months following the Offering, assuming the Company completes
additional Permanent Securitizations during such 12-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. In such transaction, the 1995-1 Trust was formed and
issued $42.0 million of asset-backed securities to various private investors. In
November 1996, the 1996-1 Trust was formed and the Master Trust refinanced $68.0
million of its receivables in a public offering by the 1996-1 Trust of
asset-backed securities through a Permanent Securitization. Payment of principal
of, and interest on, $38.0 million and $62.0 million, respectively, of the
securities issued in such transactions is insured by payment guarantees issued
by FSA, and such securities are 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 the 1996-1 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 the 1996-1
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 to the Company) some protection against
rising interest rates, these agreements also reduce the benefits to the Master
Trust (and therefore to 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 therefore
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 strategic
referral and marketing alliances with financial institutions that have
established relationships with Dealers.
Since the commencement of the Company's operations in October 1994, the
Company has established contractual relationships with over 1,200 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 consistent and efficient underwriting
and Loan approval functions. The Company's centralized underwriting
policy has enabled the Company to purchase a portfolio of Loans that
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 of such warehoused Loans from time to time through
Permanent Securitizations, thereby creating additional availability of
capital from the Master Trust. Specifically, pursuant to the Revolving
Securitization, the
28
<PAGE>
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 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 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 (including the expansion of the scope thereof to FUSF's
Northeastern Franchise). The Company believes that the net proceeds of this
Offering, together with the net proceeds received from the issuance of the
Senior Subordinated Notes and the Junior Subordinated Notes and from the capital
contributions of certain affiliates of the Company will be sufficient to meet
the Company's cash requirements and fund operations for approximately 12 months
following this Offering, assuming the Company completes additional Permanent
Securitizations during such 12-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 ten 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 1,200 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 with 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.
29
<PAGE>
Each Dealer doing business with the Company enters into a non-exclusive
written agreement with the Company that governs 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
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 that serves as collateral
for the Loan (e.g., that it is properly registered and for which 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 that (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 that include (i)
reviewing Dealer inventories to determine adequate inventory levels along 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 that
specifically service the Non-Prime Consumer.
The Company has also developed specific products for Dealers that are
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 to 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 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 that 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,
30
<PAGE>
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.
The Company's direct marketing strategy is centered around experienced
management and field sales personnel who are 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 that 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 that 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 that 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's financing policies and
the 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 services and support, including training
and education with respect to both 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 initially provided 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 that fall 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 had 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. On December 13, 1996, First Union exercised its
option to expand the scope of the First Union Strategic Alliance to include
approximately 1,500 additional Dealers in FUSF's Northeastern Franchise.
31
<PAGE>
CREDIT UNDERWRITING AND ADMINISTRATION
Target Market and Customer Profile
The Company seeks to identify customers with stable and predictable
incomes, 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:
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION
- -------- ----------------------------------------------------------------------
<S> <C>
'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.
</TABLE>
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 at 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% downpayment 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 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>
32
<PAGE>
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 50 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 five years and
have in-depth knowledge relating to the development and use of management
information systems for the automobile finance industry. The Company currently
is considering its options with respect to developing its own servicing
capability and enhancing its management information systems.
33
<PAGE>
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
increase significantly 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>
34
<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 1% 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, 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 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. In such transaction, the 1995-1 Trust was formed and
issued $42 million of asset-backed securities to various private investors. In
November 1996, the 1996-1 Trust was formed and the Master Trust refinanced $68
million of its receivables in a public offering by the 1996-1
35
<PAGE>
Trust of asset-backed securities through a Permanent Securitization. Payment of
principal of, and interest on, $38 million and $62 million, respectively, of the
securities issued in such transactions is insured by payment guarantees issued
by FSA, and such securities are rated AAA and Aaa by S&P and Moody's,
respectively. The proceeds of each such Permanent Securitization 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 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 the 1996-1 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 the 1996-1
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 to the Company) some protection against
rising interest rates, these agreements also reduce the benefits to the Master
Trust (and therefore to 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.
36
<PAGE>
Flow Chart of a Securitization Transaction by the Company
The diagram below (which omits certain intermediate steps) generally
illustrates the Company's securitization of a Loan:
----------
| NAFCO | <------------
---------- |
| /|\ |
| | |
-------------------------- | | |
| lender (First Union) with| sale | | payment | servicing
| respect to revolving | of | | for | fees
| securitization facility | loans | | loans |
-------------------------- | | |
| /|\ | | |
| | Class B \|/ | |
| | Certificates ------------ |
| ------------------------- | master | |
---------------------------> | trust | -----------
funding of ------------
payment for loans | /|\
| |
| |
transfer | | payment
of | | for
loans | | loans
| |
| |
\|/ |
--------------------------
| permanent securitization |
| trust |
--------------------------
| /|\
| |
payment issuance of | | payment
guarantor (FSA) ---> asset-backed | | for
securities | | securities
| |
\|/ |
--------------
| investors |
--------------
37
<PAGE>
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 to 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.
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 Regulations 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 who
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses that 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
38
<PAGE>
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 so
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.
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 that is likely to have a significant negative
impact on the business, income, assets or operation of the Company.
39
<PAGE>
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 G. 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
Tim W. Carter................................... 46 Vice President--Planning and Development
Edgar A. Otto................................... 66 Director
Peter Offermann................................. 52 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 G. 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
40
<PAGE>
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 Vice President--Finance of National Financial Companies LLC. Mr.
Adams served from September 1983 to June 1992 as a Vice President and Chief
Financial Officer of National Tool.
Stephen 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.
Tim W. 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.
Peter Offermann has been a Director of the Company since January 6, 1997.
From 1968 to 1994, Mr. Offermann held a number of positions with Bankers Trust
Company and its affiliates, including as Managing Director of BT Investment
Partners, Inc. from October 1992 through May 1994, Managing Director of BT
Securities Corporation from October 1991 through October 1992 and Managing
Director of Bankers Trust Company from 1986 through 1991. From 1994 to 1995, Mr.
Offermann was President of Offermann Financial Inc., a provider of strategic
financial advice. From 1995 to date, Mr. Offermann has served as Executive Vice
President and Chief Financial Officer of TLC Beatrice International Holdings,
Inc., a food manufacturing and distribution business. Since 1996, Mr. Offermann
has served as a Director of Jan Bell Marketing, Inc., a jewelry distribution
company.
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 number of directors of the Board of
Directors is set at seven and currently consists of five directors.The directors
are divided into three classes. The initial term of office of the first class of
directors ('Class I Directors'), the second class of directors ('Class II
Directors') and the third class of directors ('Class III Directors') will expire
at the annual meeting of the Company's stockholders in 1997, 1998 and 1999,
respectively. After the expiration of such initial terms, the term of office for
each class of directors will be for 3 years, and at each annual meeting of the
Company's stockholders, directors for a particular class shall be chosen for a
full term to succeed those whose terms expire. The number of directors of the
Class I Directors currently is set at three directors consisting of Mr. Stein,
Vice Chairman, Treasurer and Secretary of the Company, Mr. Offermann and one
vacancy. The number of directors of the Class II Directors currently is set at
two directors consisting of Mr. Tipton, President of the Company, and Mr. Otto.
The number of directors of the Class III Directors currently is set at two
directors consisting of Mr. Shapiro, Chief Executive Officer of the Company, and
one vacancy. The Class I Director and Class III Director vacancies will each be
filled with one independent director following this Offering.
Following this Offering, 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
Share Incentive Plan. 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.
41
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no remuneration for
service as members of the Board or any committee of the Board. Independent
outside directors of the Company will receive an annual retainer of $10,000 plus
$1,000 for each meeting of the Board attended and $500 for each meeting of a
Committee attended, plus, in each case, expenses incident to attendance at such
meetings and be granted stock options for 5,000 shares of Common Stock on the
date on which the annual meeting of the Company's stockholders is held each
year. The purchase price of the Common Stock covered by such options will be the
fair market value of such Common Stock on the date of grant. These options will
be fully exercisable on the first anniversary of 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>
1996 ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(6) COMPENSATION
- ---------------------------------------------------------- -------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Gary L. Shapiro(2)(3)
Chief Executive Officer................................. $ 0 $0 $ 0 $ 0
Roy E. Tipton(4)
President............................................... 130,002 (1) 700 0
William G. Magro(5)
Executive Vice President................................ 110,571 (1) 84 30,379
Blane H. MacDonald(4)
Vice President and Chief Operating Officer.............. 103,000 (1) 889 0
Kevin G. Adams(4)
Vice President and Chief Financial Officer.............. 99,403 (1) 811 0
</TABLE>
- ------------------
(1) Bonuses for the following executive officers for services rendered in a
given year are determined after the Company's Board of Directors has
approved the audited financial statements for that year. These bonuses are
paid at the end of March of the following year. Accordingly, Roy E. Tipton,
Blane H. MacDonald, and Kevin G. Adams were paid in March of 1996 a bonus
for services rendered in 1995 in the amount of $40,000, $27,500, and
$25,000, respectively. In addition, bonuses for services rendered in 1996
are expected to be paid to Messrs. Tipton, MacDonald, Magro and Adams in
March of 1997. The maximum bonus to which Messrs. Tipton, MacDonald and
Magro are entitled for services rendered in 1996 are $78,000, $51,500 and
$55,285, respectively. See '--Employment Agreements.' The bonus amount for
Mr. Adams is discretionary.
(2) No compensation was received from the Company in 1996. 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 ACCH Partnership.
(6) Reflects the 401(k) contributions made by the Company in accordance with the
Company's 401(k) Plan. See '401(k) Profit Sharing Plan.'
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, 1996.
42
<PAGE>
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 was $130,000 from
January 1, 1996 to December 31, 1996, and will be (i) $155,000 from January 1,
1997 to December 31, 1997 and (ii) $180,000 from January 1, 1998 to December 31,
1998. Mr. MacDonald's annual base salary was $103,000 from January 1, 1996 to
December 31, 1996, and will be (i) $116,000 from January 1, 1997 to December 31,
1997 and (ii) $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 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, $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 G. Magro, Executive Vice President of the Company. Mr.
Magro's annual base salary from the effective date of his agreement through
December 31, 1996 was $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 1997, 1998, 1999 and 2000. 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.
Effective December 30, 1996, the Company entered into a three-year
employment agreement with Stephen R. Stack, Senior Vice President of the
Company. Mr. Stack's annual base salary from the effective date of his agreement
through December 31, 1996 was $105,000 and will be (i) $115,000 from January 1,
1997 to December 31, 1997, (ii) $128,000 from January 1, 1998 to December 31,
1998 and (iii) $144,000 from January 1, 1999 to June 30, 1999. Mr. Stack will
receive an incentive bonus based upon the achievement of certain performance
goals, payable on or before March 31 of each of 1997, 1998, 1999 and 2000. 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, $52,500, (ii) in 1997,
$57,500, (iii) in 1998, $64,000 and (iv) in 1999, $72,000. Mr. Stack's agreement
provides for his participation in any stock option plan adopted by the Company
or its successors.
1996 SHARE INCENTIVE PLAN
On November 20, 1996, the Board of Directors of the Company adopted the
1996 Share Incentive Plan. The 1996 Share Incentive Plan is intended to provide
incentives which will attract, retain and motivate highly competent persons,
each of whom will contribute to the success and future growth and profitability
of the Company, as executive management, employees and directors of the Company
and of any parent or subsidiary of the Company, by providing them the
opportunity to acquire shares of Common Stock or to receive monetary payments
based on the value of such shares pursuant to certain benefits contemplated by
the 1996 Share Incentive Plan. Furthermore, the 1996 Share Incentive Plan is
intended to assist in aligning the interests of the Company's executive
management, employees and directors with those of its stockholders.
Administration
The 1996 Share Incentive Plan will be administered by the Board of
Directors of the Company or, if the Board of Directors of the Company so
determines, by a committee appointed by the Board of Directors of the Company
from among its members (such committee administering the 1996 Share Incentive
Plan, the 'Committee'; and the Board of Directors and the Committee
administering the 1996 Share Incentive Plan, as the case may be, the 'Plan
Administrator'). If the Board of Directors designates a Committee to administer
the 1996 Share Incentive Plan, the Committee (which may include members of the
Compensation Committee of the Board of Directors, if any) may be comprised
solely of not less than two members who are (i) 'non-employee directors' within
the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Exchange Act and (ii) unless otherwise determined by the Board of Directors,
'outside directors' within the meaning of
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Section 162(m) of the Code. The Plan Administrator is authorized, subject to the
provisions of the 1996 Share Incentive Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the 1996
Share Incentive Plan. The Plan Administrator is authorized to delegate such
administrative duties as it deems advisable.
The 1996 Share Incentive Plan provides for the granting of certain benefits
in any one or a combination of (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Stock Awards, (iv) Performance Awards and (v) Stock Units (each as
more particularly described below, and collectively, the 'Benefits'). The
aggregate number of shares of Common Stock that may be subject to such Benefits,
including Stock Options, is 500,000 shares of Common Stock (subject to
adjustment in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split, split up,
spinoff, combination of shares, exchange of shares, dividend in kind or other
like change in capital structure or distribution). Additionally, if there is a
'change in control' (as such term is defined in the 1996 Share Incentive Plan)
of the Company all then outstanding stock options and stock appreciation rights
become immediately exercisable.
The Company granted stock options in respect of an aggregate of 260,000
shares of Common Stock under the 1996 Share Incentive Plan to certain key
employees and directors of the Company, including Gary L. Shapiro, Chairman of
the Board and Chief Executive Officer of the Company (stock options to acquire
27,500 shares of Common Stock), Roy E. Tipton, President and a Director of the
Company (stock options to acquire 50,000 shares of Common Stock), William G.
Magro, Executive Vice President of the Company (stock options to acquire 35,000
shares of Common Stock), Blane H. MacDonald, Vice President and Chief Operating
Officer of the Company (stock options to acquire 30,000 shares of Common Stock)
and Kevin G. Adams, Vice President and Chief Financial Officer of the Company
(stock options to acquire 27,000 shares of Common Stock), contemporaneously with
this Offering. See 'Principal Stockholders.'
The Board of Directors may amend the 1996 Share Incentive Plan from time to
time or may suspend or terminate the 1996 Share Incentive Plan at any time,
except that unless approved by the stockholders of the Company, no such
amendment may (i) increase the total number of shares which may be issued under
the 1996 Share Incentive Plan or the maximum number of shares with respect to
Stock Options, Stock Appreciation Rights and other Benefits that may be granted
to any individual under the 1996 Share Incentive Plan or (ii) modify the
requirements as to eligibility for Benefits under the 1996 Share Incentive Plan.
In addition, no amendment may be made without approval of the stockholders of
the Company if the amendment will disqualify any Incentive Stock Options granted
under the 1996 Share Incentive Plan. By mutual agreement between the Company and
a participant under the 1996 Share Incentive Plan, Benefits may be granted to
such participant in substitution and exchange for, and in cancellation of, any
Benefits previously granted under the 1996 Share Incentive Plan. No Benefit may
be granted more than ten years after the effective date of the 1996 Share
Incentive Plan. The terms applicable to any Benefit granted prior to such
effective date may thereafter be amended by mutual agreement between the Company
and the participant or such other persons who then have an interest in such
Benefit.
Benefits may be transferred by a participant only by will or the laws of
descent and distribution, and may be exercisable, during the participant's
lifetime, only by the participant. If a participant dies, each Stock Option or
Stock Appreciation Right previously granted to him becomes exercisable during
such period after such participant's death as the Plan Administrator, in its
discretion, set forth in the applicable option or right agreement.
Provided the 1996 Share Incentive Plan is not terminated or materially
modified, the Company intends to rely on the special transition rule contained
in the Treasury regulations for private corporations that complete an initial
public offering to deduct all compensation expenses related to awards or grants
made under the 1996 Share Incentive Plan before the annual meeting of
stockholders in 2001. Thereafter, the deductibility of compensation expenses
related to awards or grants made under the 1996 Share Incentive Plan which
result in total covered compensation in excess of $1 million for the chief
executive officer and certain other executive officers will depend on whether
the Company and the 1996 Share Incentive Plan comply with the performance-based
exception to Section 162(m).
Stock Options
Stock Options granted under the 1996 Share Incentive Plan consist of awards
from the Company that enable the holder to purchase a specific number of shares
of Common Stock at set terms and at a fixed purchase price. Determinations with
respect to the exercise price, exercise period and method of payment of the
Stock Options are made in the discretion of the Plan Administrator. Stock
Options may be 'incentive stock options' ('Incentive Stock Options') within the
meaning of Section 422 of the Code, or Stock Options which do not
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<PAGE>
constitute Incentive Stock Options ('Nonqualified Stock Options'). The Plan
Administrator has the authority to grant to any participant one or more
Incentive Stock Options, Nonqualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights).
Certain limitations apply with respect to Incentive Stock Options:
Incentive Stock Options may be granted only to participants who are employees of
the Company or a parent or subsidiary of the Company at the date of grant.
Furthermore, the aggregate market value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by a participant during any calendar year (under
all option plans of the Company) may not exceed $100,000. Except under limited
circumstances, Incentive Stock Options may not be granted to any participant
who, at the time of grant, owns stock possessing more than 10% of the total
combined voting power of all outstanding classes of stock of the Company or any
subsidiary corporation of the Company.
Stock Appreciation Rights
Stock Appreciation Rights may be granted, in the discretion of the Plan
Administrator, to holders of Stock Options granted under the 1996 Share
Incentive Plan. Holders of such Stock Appreciation Rights are entitled to
receive a payment in cash, Common Stock or a combination thereof in an amount
equal to the excess of the fair market value of a specified number of shares of
Common Stock on the date the right is exercised over the fair market value of
such shares of Common Stock on the date the right was first granted.
Stock Awards
Stock Awards consisting of Common Stock issued or transferred to
participants with or without other payments therefor as additional compensation
for services rendered to the Company may be granted in the discretion of the
Plan Administrator. Stock Awards (which may constitute Performance-Based Awards,
as described in the immediately succeeding paragraph) may be subject to such
terms and conditions as the Plan Administrator determines appropriate,
including, without limitation, restrictions as to the sale or other disposition
of such shares and the right of the Company to reacquire such shares for no
consideration upon termination of the participant's employment within specified
periods.
Performance Awards
Performance Awards may be granted to participants in the discretion of the
Plan Administrator and may, as determined by the Plan Administrator, constitute
Performance-Based Awards, which, as more particularly described below, consist
of Benefits granted under the 1996 Share Incentive Plan in such a manner that
they qualify for the performance based compensation exemption of Section 162(m)
of the Code ('Performance-Based Awards'). The number, amount and timing of
Performance Awards granted to each participant are determined in the sole
discretion of the Plan Administrator. Payment of earned Performance Awards are
made in accordance with terms and conditions prescribed or authorized by the
Plan Administrator. Participants may elect to defer, or the Plan Administrator
may require or permit the deferral of, the receipt of Performance Awards upon
such terms as the Plan Administrator deems appropriate. Performance Awards may
be in the form of shares of Common Stock or Stock Units and may be awarded as
short-term or long-term incentives.
With respect to those Performance Awards that constitute Performance-Based
Awards, the Plan Administrator may set performance targets which serve to
determine the number and/or value of Performance Awards paid out to the
participants, and may attach to such Performance Awards one or more
restrictions. Performance targets may be based upon, without limitation,
Company-wide, divisional and/or individual performance. With respect to those
Performance Awards that are not intended to constitute Performance-Based Awards,
the Plan Administrator has the authority at any time to make adjustments to
performance targets for any outstanding Performance Awards which the Plan
Administrator deems necessary or desirable unless at the time of establishment
of goals the Plan Administrator has precluded its authority to make such
adjustments.
Stock Units
Stock Units (accounts representing one share of Common Stock) may be
granted to participants under the 1996 Share Incentive Plan in the sole
discretion of the Plan Administrator. Stock Units may, as determined by the Plan
Administrator in its sole discretion, constitute Performance-Based Awards. The
Plan Administrator is authorized to determine the criteria for the vesting of
Stock Units. A Stock Unit granted by the Plan Administrator provides payment in
shares of Common Stock at such time as the award agreement specifies. Shares of
Common Stock issued in connection with the granting of Stock Units may be issued
with or without other payments therefor, as may be required by applicable law or
such other consideration as may be determined
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<PAGE>
by the Plan Administrator. The Plan Administrator is authorized to determine
whether a participant granted a Stock Unit may be entitled to a right to receive
the amount of any dividend paid on the share of Common Stock underlying a Stock
Unit, which is payable in cash or in the form of additional Stock Units.
Upon vesting of a Stock Unit, unless the Plan Administrator has determined
to defer payment with respect to such unit or a participant has elected to defer
payment, shares of Common Stock representing the Stock Units may be distributed
to the participant unless the Plan Administrator, with the consent of the
participant, provides for the payment of the Stock Units in cash or partly in
cash and partly in shares of Common Stock equal to the value of the shares of
Common Stock which would otherwise be distributed to the participant. Prior to
the year with respect to which a Stock Unit may vest, the participant may elect
not to receive Common Stock upon the vesting of such Stock Unit and for the
Company to continue to maintain the Stock Unit on its books of account, in which
event, the value of a Stock Unit becomes payable in shares of Common Stock
pursuant to the agreement of deferral.
Performance-Based Awards
As determined by the Plan Administrator in its sole discretion, the
granting or vesting of Performance-Based Awards will be based upon one or more
factors including, but not limited to, net sales, pretax income before
allocation of corporate overhead and bonus, budget and earnings per share. The
Plan Administrator is authorized to establish (i) the objective
performance-based goals applicable to a given period and (ii) the individual
employees or class of employees to which such performance-based goals apply. No
Performance-Based Awards are payable to or may vest with respect to any
participant for a given fiscal period until the Plan Administrator certifies
that the objective performance goals have been satisfied.
The 1996 Share Incentive Plan is intended to be qualified under Rule 16b-3
promulgated under the Exchange Act.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Reorganization, there was no Compensation Committee of the
Board of Directors. During fiscal 1996, 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, Edgar A. Otto and
Stephen L. Gurba, a limited partner of the NAFCO Partnership.
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 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 Company. All
active full-time
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employees who 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
that 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 that 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, and the Company is not aware of any pending or
threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 6, 1997, and as adjusted
to reflect the sale of the 2,000,000 shares of 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(1) AFTER OFFERING(1)
--------------------------- --------------------
NAME AND ADDRESS NUMBER OF NUMBER OF
OF BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT
- ----------------------------------------- ----------------------- ----------------------- --------- -------
<S> <C> <C> <C> <C>
National Auto Finance Company
L.P.(2)(3)............................. 4,230,000 89.50% 4,230,000 62.89%
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
The Bank of New York, as trustee(4)...... 496,000 10.50% 496,000 7.37%
One Wall Street
New York, New York 10005
Gary L. Shapiro(5)(6).................... 9,167 * 9,167 *
Keith B. Stein(5)(7)..................... 7,500 * 7,500 *
Roy E. Tipton(5)(8)...................... 16,667 * 16,667 *
William G. Magro(5)(9)................... 11,667 * 11,667 *
Blane H. MacDonald(5)(10)................ 10,000 * 10,000 *
Kevin G. Adams(5)(11).................... 9,000 * 9,000 *
Stephen R. Stack(5)(12).................. 9,334 * 9,334 *
Tim W. Carter(5)(13)..................... 3,333 * 3,333 *
All directors and executive officers
as a group (10 persons)............. 76,668 1.81% 76,668 1.14%
</TABLE>
- ------------------
* Represents less than 1%.
(1) Except as otherwise indicated, includes total number of shares outstanding
and the number of shares that each person has the right to acquire within
60 days through the exercise of options. Percentage of ownership is based
on 4,726,000 shares of Common Stock outstanding prior to this Offering and
6,726,000 shares of Common Stock outstanding after this Offering.
(2) 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.
(3) 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 G. Magro, Blane H.
MacDonald, Stephen R. 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 (or an aggregate of approximately 49% when added
to the First Union Partner's current vested economic limited partner
interest), thus diluting the other limited partners but not diluting the
public stockholders of the Company, 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. Except for the First
Union Partner, each limited
(Footnotes continued on next page)
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<PAGE>
(Footnotes continued from previous page)
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.
(4) 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. Of these shares, 470,000 were issued by the
Company in exchange for the Deferred Additional Interest Notes and 26,000
were issued by the Company pursuant to the terms of the Note Purchase
Agreement upon the grant of options to key employees and directors of the
Company immediately prior to this Offering.
(5) Excludes shares held by the NAFCO Partnership. Each such person disclaims
beneficial ownership with respect to such shares.
(6) Includes stock options to acquire an aggregate of 27,500 shares of Common
Stock, of which stock options to acquire 9,167 shares are immediately
exercisable and stock options to acquire 9,167 shares vest in 1998, and
stock options to acquire 9,166 shares vest in 1999.
(7) Includes stock options to acquire an aggregate of 22,500 shares of Common
Stock, of which stock options to acquire 7,500 shares are immediately
exercisable and stock options to acquire 7,500 shares vest in 1998, and
stock options to acquire 7,500 shares vest in 1999.
(8) Includes stock options to acquire an aggregate of 50,000 shares of Common
Stock, of which stock options to acquire 16,667 shares are immediately
exercisable and stock options to acquire 16,667 shares vest in 1998, and
stock options to acquire 16,666 shares vest in 1999.
(9) Includes stock options to acquire an aggregate of 35,000 shares of Common
Stock, of which stock options to acquire 11,667 shares are immediately
exercisable and stock options to acquire 11,667 shares vest in 1998, and
stock options to acquire 11,666 shares vest in 1999.
(10) Includes stock options to acquire an aggregate of 30,000 shares of Common
Stock, of which stock options to acquire 10,000 shares are immediately
exercisable and stock options to acquire 10,000 shares vest in 1998, and
stock options to acquire 10,000 shares vest in 1999.
(11) Includes stock options to acquire an aggregate of 27,000 shares of Common
Stock, of which stock options to acquire 9,000 shares are immediately
exercisable and stock options to acquire 9,000 shares vest in 1998, and
stock options to acquire 9,000 shares vest in 1999.
(12) Includes stock options to acquire an aggregate of 28,000 shares of Common
Stock, of which stock options to acquire 9,334 shares are immediately
exercisable and stock options to acquire 9,333 shares vest in 1998, and
stock options to acquire 9,333 shares vest in 1999.
(13) Includes stock options to acquire an aggregate of 10,000 shares of Common
Stock, of which stock options to acquire 3,333 shares are immediately
exercisable and stock options to acquire 3,333 shares vest in 1998, and
stock options to acquire 3,334 shares vest in 1999.
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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 transaction 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 that 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
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 interest. The First Union Partner may earn up to an
additional 34% limited partner economic interest (or an aggregate of
approximately 49% when added to the First Union Partner's current vested
economic interest) thus diluting the other limited partners but not the public
stockholders of the Company over a period of time expiring on January 31, 1999
based upon various factors, including the overall performance of the First Union
Strategic Alliance and the total market value of the Company. 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 and the
Northeastern 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 that preclude the Company from purchasing Loans
from FUSF Dealers through alliances with other financial institutions and that
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 that 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 Corp., 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 and acted as
underwriter for a public offering of 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
50
<PAGE>
Company's future securitization activities. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
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 and (ii) the Deferred Additional Interest Notes to the Morgan
Group. In connection with the Reorganization and immediately prior to 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 following the Reorganization and the Senior Subordinated
Notes became the obligation of the Company. Immediately following the
Reorganization and immediately prior to this Offering, the Company granted to
certain key employees and directors of the Company options to acquire an
aggregate of 260,000 shares of Common Stock. Pursuant to the terms of the Note
Purchase Agreement, the holders of the Senior Subordinated Notes were entitled,
prior to this Offering, to receive additional shares of Common Stock upon the
grant of options to key employees and directors of the Company. Accordingly,
upon the grant of such options, the Company issued to the Morgan Group an
additional 26,000 shares of Common Stock. 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 the 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.
The Morgan Group is 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 Underwriters' request, not to sell or
distribute shares of Common Stock during the ten-day period prior to and the
180-day period beginning on the closing date of this Offering.
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
51
<PAGE>
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 date of January 31, 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 1996, the Company paid National Auto a fixed fee of
$500,000 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 partner 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 to (i) dissolve the NAFCO
Partnership, (ii) sell or exchange 100% of the interests of the NAFCO
Partnership, (iii) sell or exchange 100% of the property of the NAFCO
Partnership or (iv) offer publicly the equity securities of the NAFCO
Partnership. In addition, in December 1996, the NAFCO Partnership Agreement was
amended to provide that upon receipt from the First Union Partner of a put
notice referred to in the immediately preceding sentence, the NAFCO Partnership
may redeem the First Union Partner's interest in shares of Common Stock or in
such other form of consideration as may be agreed upon.
The Partnership Agreement provides for certain adjustments to the First
Union Partner's interest in the NAFCO Partnership. See '--First Union.'
52
<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 forms 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 outstanding at the time, 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 2,250
outstanding shares of Series A Preferred Stock have certain dividend,
liquidation and redemption rights. See Note 11 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.
53
<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 this Offering, the Company will have 6,726,000 shares of
Common Stock outstanding and an additional 13,274,000 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, which 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 acquiror 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, 496,000 shares of Common Stock will be
entitled to registration rights, which rights will be exercisable after 180 days
from the consummation of this Offering. See 'Certain Transactions--Senior
Subordinated Indebtedness.'
Upon completion of this Offering, 4,230,000 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 to
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.
54
<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 Cruttenden Roth Incorporated (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...................
Cruttenden Roth Incorporated......................
----------
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 that 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 an option 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 option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof as 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 option, to sell such shares to the Underwriters. The
Underwriters may exercise their option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered hereby. If
purchased, 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 Underwriters 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 has
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 Representatives. 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 and 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 0.41% limited partner of the NAFCO Partnership, is
the spouse of a Managing Director of Raymond James & Associates.
55
<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 Underwriters by Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A.
EXPERTS
The consolidated financial statements of the Company 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 this 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.
56
<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 2,000,000 shares of
Common Stock at an assumed offering price of $8.00 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 (668) (3) 8,855,368 14,880,000(4) 19,012,368
(600,000)(5)
(4,284,000)(5)
161,000
Net interest spread
receivable................... 10,849,874 10,849,874 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 28,445,495 38,602,495
----------- ----------- -------------
----------- ----------- -------------
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................ 2,250,000(3) 2,250,000 2,250,000
Paid-in Capital(9)............. 53,000(2) 3,673,125 14,260,000(4) 18,094,125
3,620,125(1)(2)(3) -- 161,000(6)(8) --
Retained Earnings -- -- -- -- --
----------- ----------- -------------
Total Stockholders' Equity... 5,970,125 20,411,125
Total Ownership Equity....... 8,154,435 5,970,125 20,411,125
----------- ----------- -------------
Total Liabilities and
Ownership Equity........... $28,446,163 28,445,495 38,602,495
----------- ----------- -------------
----------- ----------- -------------
</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 38%) 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 2,250 shares of Series 'A' 7% Cumulative Preferred Stock and
the payment of $668 in lieu of the issuance of a fractional share of
Preferred Stock, as part of the Reorganization.
(4) Adjustment to reflect the $14,280,000 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 2,250 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.
(9) In connection with the Reorganization, $3,620,000 of retained earnings (pro
forma) and $3,718,000 of retained earnings (pro forma as adjusted) were
transferred to additional paid-in capital to reflect a constructive
distribution to the partners of the NAFCO Partnership followed by a
contribution to the capital of the Company.
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
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>
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 related to the allowance for credit losses recorded at the trust
level is as follows:
<TABLE>
<CAPTION>
UNAUDITED
-----------------------------------------------
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.................. $ 1,761,288 182,000 182,000
Provision for credit losses..................... 2,663,812 1,686,745 2,222,196
Charge-offs, net................................ (1,799,602) (229,912) (642,908)
------------- -------------- ------------
Balance at end of period........................ $ 2,625,498 1,638,833 1,761,288
------------- -------------- ------------
------------- -------------- ------------
</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
$38,000,000 of 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 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.
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)
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
---------------- ---------------- ------------
---------------- ---------------- ------------
Weighted average discount rate of excess spread..... 11% 11% 11%
---------------- ---------------- ------------
---------------- ---------------- ------------
</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 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.
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)
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 4,229,000
shares of common stock (which together with the 1,000 shares of
Common Stock acquired by the NAFCO Partnership in connection with
the initial organization of the Company in October 1996, will
increase the NAFCO Partnership's holdings to 4,230,000 shares of
Common Stock) and all of the outstanding preferred stock of the
Company.
(c) Upon the transfer of the assets of the NAFCO Partnership to the
Company, the Company will issue to the Morgan Group 470,000
shares of Common Stock (representing 10% of the outstanding
Common Stock of the Company immediately following the
Reorganization) in exchange for the Deferred Additional Interest
Notes.
It is anticipated that the NAFCO Partnership will become the owner 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.
It is anticipated that the Board of Directors of the Company will adopt a
share incentive plan (the '1996 Share Incentive Plan'). The 1996 Share Incentive
Plan is intended to provide incentives which will attract, retain and motivate
highly competent persons, each of whom will contribute to the success and future
growth and profitability of the Company, as executive management, employees and
directors of the Company and of any parent or subsidiary of the Company, by
providing them the opportunity to acquire shares of Common Stock or to receive
monetary payments based on the value of such shares pursuant to certain benefits
contemplated by the 1996 Share Incentive Plan. Furthermore, the 1996 Share
Incentive Plan is intended to assist in aligning the interests of the Company's
executive management, employees and directors with those of its stockholders.
The 1996 Share Incentive Plan provides for the granting of certain benefits
in any one or a combination of (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Stock Awards, (iv) Performance Awards and (v) Stock Units. The
aggregate number of shares of Common Stock that may be subject to such Benefits,
including Stock Options, is 500,000 shares of Common Stock (subject to
adjustment in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split, split up,
spinoff, combination of shares, exchange of shares, dividend in kind or other
like change in capital structure or distribution).
The 1996 Share Incentive Plan will be administered by the Board of
Directors of the Company or, if the Board of Directors of the Company so
determines, by a committee appointed by the Board of Directors of the Company
from among its members (such committee administering the 1996 Share Incentive
Plan, the 'Committee'; and the Board of Directors and the Committee
administering the 1996 Share Incentive Plan, as the case may be, the 'Plan
Administrator'). If the Board of Directors designates a Committee to administer
the 1996 Share Incentive Plan, the Committee (which may include members of the
Compensation Committee of the Board of Directors, if any) may be comprised
solely of not less than two members who are (i) 'non-employee directors' within
the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Exchange Act and (ii) unless otherwise determined by the Board of Directors,
'outside directors' within the meaning of
F-20
<PAGE>
Section 162(m) of the Code. The Plan Administrator is authorized, subject to the
provisions of the 1996 Share Incentive Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the 1996
Share Incentive Plan. The Plan Administrator is authorized to delegate such
administrative duties as it deems advisable.
(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 sales 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 sales 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>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Prospectus Summary............................. 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..................................... 40
Principal Stockholders......................... 48
Certain Transactions........................... 50
Description of Capital Stock................... 53
Shares Eligible for Future Sale................ 54
Underwriting................................... 55
Legal Matters.................................. 56
Experts........................................ 56
Available Information.......................... 56
Index to Consolidated Financial Statements..... F-1
</TABLE>
UNTIL , 1997, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[NAFCO LOGO]
COMMON STOCK
------------------------
P R O S P E C T U S
------------------------
RAYMOND JAMES &
ASSOCIATES, INC.
CRUTTENDEN ROTH
INCORPORATED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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........... $ 6,273
NASD Filing Fee............................................... 2,570
Printing and Engraving Expenses............................... 150,000
Blue Sky Fees and Expenses.................................... 15,000
Legal Fees and Expenses....................................... 250,000
Accountants' Fees and Expenses................................ 100,000
NASDAQ National Market Listing Fee............................ 5,000
Transfer Agent and Registrar Fees and Expenses................ 5,000
Miscellaneous................................................. 66,157
--------
Total.................................................... $600,000
--------
--------
</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 provide 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) that 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
NAFCO 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.
In connection with the reorganization and immediately prior to this
Offering, the Deferred Additional Interest Notes were exchanged for 470,000
shares of the Common Stock representing 10% of the outstanding Common Stock at
that time. In addition, 26,000 shares of Common Stock were issued to the holders
of the Senior Subordinated Notes upon the grant to key employees and directors
of options to acquire an aggregate of 260,000 shares of Common Stock.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
**1.1 -- Form of Underwriting Agreement.
*3.1 -- Certificate of Incorporation of the Company.
**3.1-1 -- Certificate of the Designations, Preferences and Rights of the Series A Preferred Stock 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 -- 1996 Share Incentive 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 G. 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 A. 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
*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.
*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 A. 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
*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.
*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 A.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
*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.
*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.
**10.52 -- Employment Agreement, dated as of December 31, 1996, between National Auto Finance Company,
Inc. and Stephen R. Stack.
**10.53 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by National Auto
Finance Company L.P. to the order of Gary L. Shapiro.
**10.54 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by National Auto
Finance Company L.P. to the order of Edgar A. Otto.
**10.55 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by National Auto
Finance Company L.P. to the order of Stephen L. Gurba.
**10.56 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by National Auto
Finance Company L.P. to the order of Nova Financial Corporation.
**10.57 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by National Auto
Finance Company L.P. to the order of Nova Corporation.
**10.58 -- Form of First Amendment, dated as of December 1, 1996, to Second Amended and Restated
Limited Partnership of National Auto Finance Company L.P.
**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).
**27.1 -- Financial Data Schedule for the year ended December 31, 1995.
**27.2 -- Financial Data Schedule for the nine months ended September 30, 1996.
</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.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters 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 of 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-6
<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 January 9, 1997.
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 January 9, 1997
- ------------------------------------------ Board (principal executive officer)
Gary L. Shapiro
* Vice President and Chief Financial Officer January 9, 1997
- ------------------------------------------ (principal financial and accounting officer)
Kevin G. Adams
/s/ KEITH B. STEIN Vice Chairman and Director January 9, 1997
- ------------------------------------------
Keith B. Stein
* Director January 9, 1997
- ------------------------------------------
Edgar A. Otto
* Director January 9, 1997
- ------------------------------------------
Roy E. Tipton
* By: /s/ KEITH B. STEIN
Keith B. Stein
(Attorney-in-Fact)
</TABLE>
II-7
<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.
**3.1-1 -- Certificate of the Designations, Preferences and Rights of the Series A Preferred
Stock 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 -- 1996 Share Incentive 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 G. 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 A. 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------------- ----------------------------------------------------------------------------------------- -----------
<S> <C> <C>
*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 A. 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------------- ----------------------------------------------------------------------------------------- -----------
<S> <C> <C>
*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 A. 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.
**10.52 -- Employment Agreement, dated as of December 31, 1996, between National Auto Finance
Company, Inc. and Stephen R. Stack.
**10.53 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by
National Auto Finance Company L.P. to the order of Gary L. Shapiro.
**10.54 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by
National Auto Finance Company L.P. to the order of Edgar A. Otto.
**10.55 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by
National Auto Finance Company L.P. to the order of Stephen L. Gurba.
**10.56 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by
National Auto Finance Company L.P. to the order of Nova Financial Corporation.
**10.57 -- Amended and Restated Promissory Note, dated as of January 3, 1997, payable by
National Auto Finance Company L.P. to the order of Nova Corporation.
**10.58 -- Form of First Amendment, dated as of December 1, 1996, to Second Amended and Restated
Limited Partnership of National Auto Finance Company L.P.
**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).
**27.1 -- Financial Data Schedule for the year ended December 31, 1995.
**27.2 -- Financial Data Schedule for the nine months ended September 30, 1996.
</TABLE>
- ------------------
* Filed previously
** Filed herewith
*** To be filed by amendment
<PAGE>
GT Draft: 9/21/96
2,000,000 Shares
NATIONAL AUTO FINANCE COMPANY, INC.
Common Stock
FORM OF UNDERWRITING AGREEMENT
St. Petersburg, Florida
, 1997
Raymond James & Associates, Inc.
- --------------------------------
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
National Auto Finance Company, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell an aggregate of 2,000,000 shares of common stock, $.01 par value
per share (the "Common Stock"), of the Company, to the several Underwriters
named in Schedule I hereto (the "Underwriters") (the "Firm Shares"). In
addition, the Company has agreed to sell to the Underwriters, upon the terms
and conditions set forth herein, up to an additional 300,000 shares (the
"Additional Shares") of the Common Stock to cover over-allotments by the
Underwriters, if any. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares."
The Company wishes to confirm as follows its agreement with you and
the other several Underwriters, on whose behalf you are acting, in connection
with the several purchases of the Shares from the Company.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 (File No. 333-13667), including a
prospectus subject to completion, relating to the Shares. Such registration
statement, as amended at the time when it becomes effective and as thereafter
amended by post-effective amendment, is referred to in this Agreement as the
"Registration Statement." The prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
Statement omits information in reliance upon Rule 430A under the Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Act or as part of a post-effective amendment to the
Registration Statement after the Registration Statement becomes effective, the
prospectus as so filed is referred to in this Agreement as the "Prospectus." If
the Company elects to rely on Rule 434 under
<PAGE>
the Act, all references to the Prospectus shall be deemed to include, without
limitation, the form of prospectus and the term sheet contemplated by Rule 434,
taken together, provided to the Underwriters by the Company in reliance on Rule
434 under the Act (the "Rule 434 Prospectus"). If the Company files another
registration statement with the Commission to register a portion of the Shares
pursuant to Rule 462(b) under the Act (the "Rule 462 Registration Statement"),
then any reference to "Registration Statement" herein shall be deemed to
include the registration statement on Form S-1 (File No. 333-13667) and the
Rule 462 Registration Statement, as each such registration statement may be
amended pursuant to the Act. The prospectus subject to completion in the form
included in the Registration Statement at the time of the initial filing of
such Registration Statement with the Commission and as such prospectus is
amended from time to time until the date of the Prospectus, are collectively
referred to in this Agreement as the "Prepricing Prospectus."
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
the Firm Shares to the Underwriters and, upon the basis of the representations,
warranties and agreements of the Company herein contained and subject to all
the terms and conditions set forth herein, each Underwriter agrees, severally
and not jointly, to purchase from the Company at a purchase price of $____ per
Share (the "purchase price per Share"), the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Shares as adjusted pursuant to Section 10 hereof).
The Company hereby also agrees to sell to the Underwriters, and upon
the basis of the representations, warranties and agreements of the Company
contained herein and subject to all the terms and conditions set forth herein,
the Underwriters shall have the right for 30 days from the date of the
Prospectus to purchase from the Company up to 300,000 Additional Shares at the
purchase price per Share for the Firm Shares. The Additional Shares may be
purchased solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the Firm Shares. If any Additional Shares are
to be purchased, each Underwriter, severally and not jointly, agrees to
purchase the number of Additional Shares (subject to such adjustments as you
may determine to avoid fractional shares) which bears the same proportion to
the total number of Additional Shares to be purchased by the Underwriters as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Firm Shares as adjusted pursuant to
Section 10 hereof) bears to the total number of Firm Shares.
3. Terms of Public Offering. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, on , 1996
(the "Closing Date"). The place of closing for the Firm Shares and the Closing
Date may be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the offices of Raymond
James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at
10:00 a.m., St. Petersburg, Florida time, on such date or dates (the
"Additional Closing Date") (which may be the same as the Closing Date but shall
in no event be earlier than the Closing Date nor earlier than three nor later
than ten business days after the giving of the notice hereinafter referred to)
as shall be specified in a written notice from you on behalf of the
Underwriters to the Company of the Underwriters' determination to purchase a
number, specified in such notice, of Additional Shares. Such notice may be
given to the Company by you at any time within 30 days after the date of the
Prospectus. The place of closing for the Additional Shares and the Additional
Closing Date may be varied by agreement between you and the Company.
2
<PAGE>
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, not
later than the second full business day preceding the Closing Date or the
Additional Closing Date, as the case may be. Such certificates shall be made
available to you in St. Petersburg, Florida for inspection and packaging not
later than 9:30 a.m., St. Petersburg, Florida time, on the business day
immediately preceding the Closing Date or the Additional Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Additional Closing Date, as the case may be, against payment of the
purchase price therefor by certified or official bank check or checks payable
in New York Clearing House (next day) funds.
5. Covenants and Agreements of the Company. The Company covenants and
agrees with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise you
promptly and, if requested by you, will confirm such advice in writing
(i) when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (ii) if Rule 430A
under the Act is employed, when the Prospectus has been timely filed
pursuant to Rule 424(b) under the Act, (iii) of any request by the
Commission for amendments or supplements to the Registration
Statement, any Prepricing Prospectus or the Prospectus or for
additional information, (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
or of the suspension of qualification of the Shares for offering or
sale in any jurisdiction or the initiation of any proceeding for such
purposes and (v) within the period of time referred to in Section 5(e)
below, of any change in the Company's condition (financial or other),
business, prospects, properties, net worth or results of operations,
or of any event that comes to the attention of the Company that makes
any statement made in the Registration Statement or the Prospectus (as
then amended or supplemented) untrue in any material respect or that
requires the making of any additions thereto or changes therein in
order to make the statements therein not misleading in any material
respect, or of the necessity to amend or supplement the Prospectus (as
then amended or supplemented) to comply with the Act or any other law.
If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make
every reasonable effort to obtain the withdrawal of such order at the
earliest possible time. If the Company elects to rely on Rule 434
under the Act, the Company will provide the Underwriters with copies
of the form of Rule 434 Prospectus (including copies of a term sheet
that complies with the requirements of Rule 434 under the Act), in
such number as the Underwriters may reasonably request, and file with
the Commission in accordance with Rule 424(b) of the Act the form of
Prospectus complying with Rule 434(b)(2) of the Act before the close
of business on the first business day immediately following the date
hereof. If the Company elects not to rely on Rule 434 under the Act,
the Company will provide the Underwriters with copies of the form of
Prospectus, in such number as the Underwriters may reasonably request,
and file with the Commission such Prospectus in accordance with Rule
424(b) of the Act before the close of business on the [first] business
day immediately following the date hereof.
(b) The Company will furnish to you, without charge, two
signed duplicate originals of the Registration Statement as originally
filed with the Commission and of each amendment thereto, including
financial statements and all exhibits thereto, and will also furnish
to you, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment
thereto as you may reasonably request.
(c) The Company will not file any Rule 462 Registration
Statement or any amendment to the Registration Statement or make any
amendment or supplement to the Prospectus unless (A) you shall have
previously been advised thereof and given a reasonable opportunity to
review such filing,
3
<PAGE>
amendment or supplement, and (B) you have not reasonably objected to
such filing, amendment or supplement after being so advised.
(d) Prior to the execution and delivery of this Agreement,
the Company has delivered or will deliver to you, without charge, in
such quantities as you have requested or may hereafter reasonably
request, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and
with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by dealers, prior
to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Company.
(e) As soon after the execution and delivery of this
Agreement as is practicable and thereafter from time to time for such
period as in the reasonable opinion of counsel for the Underwriters a
prospectus is required by the Act to be delivered in connection with
sales by any Underwriter or a dealer, and for so long a period as you
may request for the distribution of the Shares, the Company will
deliver to each Underwriter, without charge, as many copies of the
Prospectus (and of any amendment or supplement thereto) as they may
reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such
period of time thereafter as the Prospectus is required by the Act to
be delivered in connection with sales by any Underwriter or dealer. If
at any time prior to the later of (i) the completion of the
distribution of the Shares pursuant to the offering contemplated by
the Registration Statement or (ii) the expiration of prospectus
delivery requirements with respect to the Shares under Section 4(3) of
the Act and Rule 174 thereunder, any event shall occur that in the
judgment of the Company or in the opinion of counsel for the
Underwriters is required to be set forth in the Prospectus (as then
amended or supplemented) or should be set forth therein in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with the Act or any other
law, the Company will forthwith prepare and, subject to Sections 5(a)
and 5(c) hereof, file with the Commission and use its best efforts to
cause to become effective as promptly as possible an appropriate
supplement or amendment thereto, and will furnish to each Underwriter
who has previously requested Prospectuses, without charge, a
reasonable number of copies thereof.
(f) The Company will cooperate with you and counsel for the
Underwriters in connection with the registration or qualification of
the Shares for offering and sale by the several Underwriters and by
dealers under the securities or Blue Sky laws of such jurisdictions as
you may reasonably designate and will file such consents to service of
process or other documents as may be reasonably necessary in order to
effect and maintain such registration or qualification for so long as
required to complete the distribution of Shares; provided that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
which would subject it to service of process in suits, other than
those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject. In the event that the
qualification of the Shares in any jurisdiction is suspended, the
Company shall so advise you promptly in writing.
(g) The Company will make generally available to its security
holders a consolidated earnings statement (in form complying with the
Provisions of Rule 158), which need not be audited, covering a
twelve-month period commencing after the effective date of the
Registration Statement and the Rule 462 Registration Statement, if
any, and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
4
<PAGE>
(h) During the period ending five years from the date hereof,
the Company will furnish to you and, upon your request, to each of the
other Underwriters, (i) as soon as available, a copy of each proxy
statement, quarterly or annual report or other report of the Company
mailed to shareholders or filed with the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or The Nasdaq
Stock Market or any securities exchange and (ii) from time to time
such other information concerning the Company as you may reasonably
request.
(i) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provision hereof (except pursuant to a
termination under Section 10 hereof) or if this Agreement shall be
terminated by the Underwriters because of any inability, failure or
refusal on the part of the Company to perform any agreement herein or
to comply with any of the terms or provisions hereof, the Company
agrees to reimburse you and the other Underwriters for all
out-of-pocket expenses (including travel expenses and fees and
expenses of counsel for the Underwriters but excluding wages and
salaries paid by you) reasonably incurred by you in connection
herewith.
(j) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder for the purposes set forth under
"Use of Proceeds" in the Prospectus.
(k) If Rule 430A under the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act.
(l) For a period of 180 days after the date of the Prospectus
first filed pursuant to Rule 424(b) under the Act, without your prior
written consent, the Company will not, directly or indirectly, issue,
sell, offer or contract to sell or otherwise dispose of or transfer
any shares of Common Stock or securities convertible into or
exchangeable or exercisable for shares of Common Stock (collectively,
"Company Securities") or any rights to purchase Company Securities,
except (i) to the Underwriters pursuant to this Agreement, (ii)
pursuant to and in accordance with the Company's 1996 Stock Option
Plan referenced in the Registration Statement under the caption
"Management - Stock Option Plans," (iii) pursuant to the [J.P. Morgan
equity interests], or (iv) up to an aggregate of __________ shares of
Common Stock issued as consideration to __________ in connection with
the transactions described in the Prospectus under the caption "The
Reorganization" (such transactions are referred to herein as the
"Reorganization").
(m) Prior to the Closing Date or the Additional Closing Date,
as the case may be, the Company will furnish to you, as promptly as
possible, copies of any unaudited interim consolidated financial
statements of the Company and its subsidiaries for any period
subsequent to the periods covered by the financial statements
appearing in the Prospectus.
(n) The Company will comply with all provisions of any
undertakings contained in the Registration Statement.
(o) The Company will not at any time, directly or indirectly
take any action designed, or which might reasonably be expected to
cause or result in, or which will constitute, stabilization or
manipulation of the price of the shares of Common Stock to facilitate
the sale or resale of any of the Shares.
(p) The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under
(or obtain exemptions from the application of) the Blue Sky laws of
each state where necessary to permit market making transactions and
secondary trading, and will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect
for a period of five years after the date hereof.
5
<PAGE>
(q) The Company will timely file within the National
Association of Securities Dealers Automated Quotation National Market
System ("NASDAQ/NMS") all documents and notices required by the
NASDAQ/NMS of companies that have issued securities that are traded in
the over-the-counter market and quotations for which are reported by
the NASDAQ/NMS.
(r) The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 under the Act.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter on the date hereof, and shall be
deemed to represent and warrant to each Underwriter on the Closing Date and the
Additional Closing Date, that:
(a) The Company satisfies all of the requirements of the Act
for use on Form S-1 and for the offering of Shares contemplated
hereby. Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424(a) under the Act,
complied when so filed in all material respects with the provisions of
the Act, except that this representation and warranty does not apply
to statements in or omissions from such Prepricing Prospectus (or any
amendment or supplement thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein. The Commission has not issued any order
preventing or suspending the use of any Prepricing Prospectus.
(b) The Registration Statement (including any Rule 462
Registration Statement), in the form in which it becomes effective and
also in such form as it may be when any post-effective amendment
thereto shall become effective, and the Prospectus, and any supplement
or amendment thereto when filed with the Commission under Rule 424(b)
under the Act, will comply in all material respects with the
provisions of the Act and will not at any such times 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, except that this representation and warranty does not
apply to statements in or omissions from the Registration Statement or
the Prospectus (or any amendment or supplement thereto) made in
reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) The capitalization of the Company is and will be as set
forth in the Prospectus as of the date set forth therein. All the
outstanding shares of Common Stock of the Company have been, and as of
the Closing Date will be, duly authorized and validly issued, are
fully paid and nonassessable and are free of any preemptive or similar
rights; except as set forth in the Prospectus, the Company is not a
party to or bound by any outstanding options, warrants, or similar
rights to subscribe for, or contractual obligations to issue, sell,
transfer or acquire, any of its capital stock or any securities
convertible into or exchangeable for any of such capital stock; the
Shares to be issued and sold to the Underwriters by the Company
hereunder have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free
of any preemptive or similar rights; the capital stock of the Company
conforms to the description thereof in the Registration Statement and
the Prospectus (or any amendment or supplement thereto); and the
delivery of certificates for the Shares against payment therefor
pursuant to the terms of this Agreement and payment for the Shares
will pass valid title to the Shares, free and clear of any claim,
encumbrance or defect in title to the several Underwriters purchasing
the Shares in good faith and without notice of any lien, claim or
encumbrance. The certificates for the Shares are in valid and
sufficient form.
6
<PAGE>
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with
full power and authority to own, lease and operate its properties and
to conduct its business as presently conducted and as described in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure
to so register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiaries (as
hereinafter defined) taken as a whole.
(e) The Company does not own a material interest in or
control, directly or indirectly, any other corporation, partnership,
joint venture, association, trust or other business organization.
(f) There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened, against the Company
or its predecessors, or to which the Company or any of its
predecessors, or to which any of their respective properties, is
subject that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto)
but are not described as required. Except as described in the
Prospectus, there is no action, suit, inquiry, proceeding, or
investigation by or before any court or governmental or other
regulatory or administrative agency or commission pending or, to the
knowledge of the Company, threatened, against or involving the Company
or its predecessors, which might individually or in the aggregate
prevent or adversely affect the transactions contemplated by this
Agreement or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of operations
of the Company or any of its Subsidiaries, nor, to the knowledge of
the Company, is there any basis for any such action, suit, inquiry,
proceeding, or investigation. There are no agreements, contracts,
indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus (or any
amendment or supplement thereto) or to be filed as an exhibit to the
Registration Statement that are not described or filed as required by
the Act. All such contracts to which the Company or its predecessors
is a party have been duly authorized, executed and delivered by the
Company or its predecessors, constitute valid and binding agreements
of the Company and are enforceable against the Company or such
Subsidiary in accordance with the terms thereof, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity), and neither the Company nor its
predecessors, nor to the Company's knowledge, any other party, is in
breach in any material respect of or default under any of such
contracts. With respect to the consumer automobile loan documents that
the Company has acquired in connection with its financing activities
(the "Loan Documents"), any such Loan Documents which contain
provisions that deviate from the standard forms of such contracts that
have been provided to you have not had or will not have, individually
or in the aggregate, a material adverse effect on the condition
(financial or other), business, net worth or results of operations of
the Company and the Subsidiaries taken as a whole.
(g) The Company is not in violation of its certificate or
articles of incorporation or bylaws, or other organizational
documents, nor is the Company or its predecessors in violation in any
material respect of any law, ordinance, administrative or governmental
rule or regulation applicable to the Company or its predecessors or of
any decree of any court or governmental agency or body having
jurisdiction over the Company or its predecessors, or in default in
any material respect in the performance of any obligation, agreement
or condition contained in (i) any bond, debenture, note or any other
evidence of indebtedness, or (ii) any material agreement, indenture,
lease or other instrument to which the Company or its predecessors is
a party or by which any of them or any of their respective properties
may be bound; and there does not exist any state of facts which
constitutes an event of default
7
<PAGE>
on the part of the Company or its predecessors as defined in such
documents or which, with notice or lapse of time or both, would
constitute such an event of default.
(h) The execution and delivery of this Agreement and the
performance by the Company of its obligations under this Agreement
have been duly and validly authorized by the Company, and this
Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(i) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated
hereby (i) requires any consent, approval, authorization or other
order of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official
(except such as may be required for the registration of the Shares
under the Act and compliance with the securities or Blue Sky laws of
various jurisdictions, all of which will be, or have been, effected in
accordance with this Agreement) or conflicts with or will conflict
with or constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws, or
other organizational documents, of the Company or any of the
Subsidiaries or (ii) conflicts or will conflict with or constitutes a
breach of, or a default under, any agreement, indenture, lease or
other instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or any of their respective properties
may be bound, or violates any statute, law, regulation or filing or
judgment, injunction, order or decree applicable to the Company or any
of the Subsidiaries or any of their respective properties, or results
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of the Subsidiaries
pursuant to the terms of any agreement or instrument to which any of
them is a party or by which any of them may be bound or to which any
of the property or assets of any of them is subject.
(j) Except as described in the Prospectus, the Company does
not have outstanding and at the Closing Date (and the Additional
Closing Date, if applicable) will not have outstanding any options to
purchase, or any warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, any shares of Common Stock or any such warrants or
convertible securities or obligations. No holder of securities of the
Company has rights to the registration of any securities of the
Company because of the filing of the Registration Statement that have
not been satisfied or heretofore waived in writing.
(k) KPMG Peat Marwick LLP, the certified public accountants
who have certified the financial statements filed as part of the
Registration Statement and the Prospectus (or any amendment or
supplement thereto) are independent public accountants as required by
the Act.
(l) The financial statements, together with related schedules
and notes, included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in
financial position of the Company and the Subsidiaries on the basis
stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the
other financial and statistical information and data set forth in the
Registration Statement and Prospectus (and any amendment or supplement
thereto) is accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the
Company. No other financial statements or schedules are required to be
included in the Registration Statement.
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information
8
<PAGE>
is given in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent,
or entered into any other transaction which is not in the ordinary
course of business or which could result in a material reduction in
the future earnings of the Company; (ii) the Company has not sustained
any material loss or interference with its businesses or properties
from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared
any dividends or other distributions with respect to its capital stock
and the Company is not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been
any change in the capital stock (other than upon the sale of the
Shares hereunder and upon the exercise of options and warrants
described in the Prospectus) or indebtedness material to the Company
and its Subsidiaries (other than in the ordinary course of business);
and (v) there has not been any material adverse change, or any
development involving or which may reasonably be expected to involve a
potential future material adverse change, in the condition (financial
or otherwise), business, properties, result of operations or prospects
of the Company and its Subsidiaries.
(n) The Company has good and marketable title to all property
(real and personal) described in the Prospectus as being owned by it,
free and clear of all liens, claims, security interests or other
encumbrances except (i) such as are described in the financial
statements included in the Prospectus or (ii) such as are not
materially burdensome and do not interfere in any material respect
with the use of the property or the conduct of the business of the
Company. The property (real and personal) held under lease by each of
the Company and the Subsidiaries is held by it under valid, subsisting
and enforceable leases with only such exceptions as in the aggregate
are not materially burdensome and do not interfere in any material
respect with the conduct of the business of the Company.
(o) The Company has not distributed and will not distribute
any offering material in connection with the offering and sale of the
Shares other than the Prepricing Prospectus, the Prospectus, or other
offering material, if any, as permitted by the Act and the Rules and
Regulations.
(p) The Company has not taken, directly or indirectly, any
action which constituted, or any action designed, or which might
reasonably be expected to cause or result in or constitute, under the
Act or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Shares.
(q) The Company is not an "investment company," an
"affiliated person" of, or "promoter" or "principal underwriter" for
an investment company within the meaning of the Investment Company Act
of 1940, as amended.
(r) The Company has all permits, licenses, franchises,
approvals, consents and authorizations of governmental or regulatory
authorities (hereinafter "permit" or "permits") as are necessary to
own their respective properties and to conduct their respective
businesses in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus, except where the
failure to have obtained any such permit has not and will not have a
material adverse effect upon the condition (financial or other) or the
business of the Company; the Company and its predecessors have
fulfilled and performed all of their material obligations with respect
to each such permit and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination of any
such permit or result in any other material impairment of the rights
of the holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as
described in the Prospectus, such permits contain no restrictions that
are materially burdensome to the Company.
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(s) The Company and its predecessors have complied and the
Company will comply in all material respects with wage and hour
determinations issued by the U.S. Department of Labor under the
Service Contract Act of 1965 and the Fair Labor Standards Act in
paying its employees' salaries, fringe benefits, and other
compensation for the performance of work or other duties in connection
with contracts with the U.S. government. The Company and its
predecessors have complied and the Company will comply in all material
respects with the terms of all certifications and representations made
to the U.S. government in connection with the submission of any bid or
proposal or any contract. The Company and its predecessors have
complied and the Company will comply with the requirements of the
American with Disabilities Act of 1990, the Family and Medical Leave
Act of 1993, the Employee Retirement Income Security Act, the Civil
Rights Act of 1964 (Title VII), as amended, the Age Discrimination in
Employment Act and other applicable federal and state employment and
labor laws.
(t) The Company and its predecessors maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(u) Neither the Company nor its predecessors has, directly or
indirectly, at any time during the past five years (i) made any
unlawful contribution to any candidate for political office, or failed
to disclose fully any contribution in violation of law, or (ii) made
any payment to any federal, state or foreign governmental official, or
other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States
or any jurisdiction thereof or applicable foreign jurisdictions.
(v) The Company and its predecessors have obtained all
required permits, licenses, and other authorizations, if any, which
are required under federal, state, local and foreign statutes,
ordinances and other laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants,
chemicals, or industrial, hazardous, or toxic materials or wastes into
the environment (including, without limitation, ambient air, surface
water, ground water, land surface, or subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, hazardous, or toxic materials or wastes, or
any regulation, rule, code, plan, order, decree, judgment, injunction,
notice, or demand letter issued, entered, promulgated, or approved
thereunder ("Environmental Laws"). The Company and its predecessors
are in material compliance with all terms and conditions of all
required permits, licenses, and authorizations, and are also in
material compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in the Environmental Laws. There
is no pending or, to the best knowledge of the Company, threatened
civil or criminal litigation, notice of violation, or administrative
proceeding relating in any way to the Environmental Laws (including
but not limited to notices, demand letters, or claims under the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"),
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Emergency Planning and
Community Right to Know Act of 1986, as amended ("EPCRA"), the Clean
Air Act, as amended ("CAA"), or the Clean Water Act, as amended
("CWA") and similar federal, foreign, state, or local laws) involving
the Company or the Subsidiaries. There have not been and there are not
any past, present, or foreseeable future events, conditions,
circumstances, activities, practices, incidents, actions, or plans
which may interfere with or prevent continued compliance, or which may
give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, study,
or investigation, based on or related to the manufacture, processing,
distribution, use, treatment,
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storage, disposal, transport, or handling, or the emission, discharge,
release, or threatened release into the environment, of any pollutant,
contaminant, chemical, or industrial, hazardous, or toxic material or
waste, including, without limitation, any liability arising, or any
claim, action, demand, suit, proceeding, hearing, study, or
investigation which may be brought, under RCRA, CERCLA, EPCRA, CAA,
CWA or similar federal, foreign, state or local laws.
(w) The Company owns and has full right, title and interest
in and to, or have valid licenses to use, each material trade name,
trademark or service mark under which the Company or any of its
predecessors conducts its business, and the Company and its
predecessors have created no lien or encumbrance on, or granted any
right or license with respect to, any such trade name, trademark or
service mark; there is no claim pending against the Company or its
predecessors with respect to any trade name, trademark or service mark
and neither the Company nor any of its predecessors has received
notice that any trade name, trademark or service mark which it uses or
has used in the conduct of its business infringes upon or conflicts
with the rights of any third party.
(x) All offers and sales of the Company's and its
Subsidiaries' capital stock prior to the date hereof were made in
compliance with the Act and all other applicable state and federal
laws or regulations (or in compliance with exemptions available under
such laws and regulations).
(y) The Shares have been duly authorized for trading on the
NASDAQ/NMS subject to notice of issuance and upon consummation of the
offering contemplated hereby the Company will be in compliance with
the designation and maintenance criteria applicable to Nasdaq National
Market issuers.
(z) All federal, state and local tax returns required to be
filed by or on behalf of the Company or any of its predecessors with
respect to all periods ended prior to the date of this Agreement have
been filed (or are the subject of valid extension) with the
appropriate federal, state and local authorities and all such tax
returns, as filed, are accurate in all material respects. All federal,
state and local taxes (including estimated tax payments) required to
be shown on all such tax returns or claimed to be due from or with
respect to the business of the Company or any of its predecessors have
been paid or reflected as a liability on the financial statements of
the Company and its predecessors for appropriate periods, except for
those taxes or claims therefor which are being contested by the
Company in good faith and for which appropriate reserves are reflected
in the Company's financial statements. All deficiencies asserted as a
result of any federal, state or local tax audits have been paid or
finally settled and no issue has been raised in any such audit which,
by application of the same or similar principles, reasonably could be
expected to result in a proposed deficiency for any other period not
so audited. No state of facts exists or has existed which would
constitute grounds for the assessment of any tax liability with
respect to the periods which have not been audited by appropriate
federal, state or local authorities. There are no outstanding
agreements or waivers extending the statutory period of limitation
applicable to any federal, state or local tax return for any period.
On the Closing Date, and Additional Closing Date, if any, all stock
transfer and other taxes which are required to be paid in connection
with the sale of the shares to be sold by the Company to the
Underwriters will have been fully paid by the Company and all laws
imposing such taxes will have been complied with.
(aa) Except as set forth in the Prospectus, there are no
transactions with affiliates, as defined in Rule 405 promulgated under
the Act, which are required by the Act and the applicable rules and
regulations thereunder to be disclosed in the Registration Statement.
(bb) The Company has procured the written agreement of each
of the officers and directors and shareholders of the Company as set
forth in the Prospectus not to (i) directly or indirectly sell, offer
or contract to sell or otherwise dispose of or transfer any shares of
Common Stock or securities of the Company convertible into or
exchangeable or exercisable for Common Stock (collectively, "Company
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<PAGE>
Securities") owned or controlled by such persons now or hereafter or
any rights to purchase Company Securities for a period of 180 days
after the date of the Prospectus first filed pursuant to Rule 424(b)
under the Act (the "Restriction Period"), without your prior written
consent, or (ii) exercise or seek to exercise or effectuate in any
manner any rights of any nature that such persons have or may
hereafter have to require the Company to register under the Act any
such person's sale, transfer or other disposition of any Company
Securities or other securities of the Company held by any such
persons, or to otherwise participate as a selling securityholder in
any manner in any registration effected by the Company under the Act,
including the registration to which this Agreement relates, before the
expiration of the Restriction Period.
(cc) Neither the Company nor any of its predecessors (i)
conduct business or have affiliates which conduct business in or with
Cuba, (ii) plan to commence doing business in or with Cuba after the
effective date of the Registration Statement or (iii) are required by
Florida law to report a material change in information previously
reported to the State of Florida regarding business conducted in or
with Cuba.
(dd) All of the following transactions shall occur on or
before the Closing Date as described in the Prospectus (i) National
Auto Finance Company, L.P., a Delaware limited partnership (the "NAFCO
Partnership") and Auto Credit Clearinghouse L.P., a Delaware limited
partnership (the "ACCH Partnership" and together with the NAFCO
Partnership, the "Partnerships") will transfer all of their assets and
liabilities to the Company _______________________ as described in the
Prospectus, and (iii) the Company's Certificate of Incorporation, in
the form previously presented to and approved by the Representatives,
shall be duly approved by the Company's Board of Directors and
security holders in accordance with applicable law and shall have
become effective upon the filing thereof with the Secretary of State
of the State of Delaware (which Certificate of Incorporation provide
for, among other things, the authorization of _________ shares of
Common Stock and __________ shares of "blank check" preferred stock),
(the foregoing transactions described in this paragraph (dd) are
referred to herein collectively as the "Company Transactions").
7. Expenses. Whether or not the transactions contemplated hereby are
consummated or this Agreement becomes effective or is terminated, the Company
will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement and the
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof and of any Prepricing Prospectus to the
Underwriters and dealers; (ii) the printing and delivery (including, without
limitation, postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, the Prospectus, each
Prepricing Prospectus, the Blue Sky memoranda, the Power of Attorney, the
Master Agreement Among Underwriters, this Agreement, the Selected Dealers
Agreement and all amendments or supplements to any of them as may be reasonably
requested for use in connection with the offering and sale of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering
and sale under state securities laws or Blue Sky laws, including the fees of
the counsel for the Underwriters in connection therewith; (iv) the filing fees
incident to securing any required review by the NASD of the terms of the sale
of the Shares and the reasonable fees and disbursements of the Underwriters'
counsel relating thereto; (v) the cost of preparing stock certificates; (vi)
the costs and charges of any transfer agent or registrar; (vii) the cost of the
tax stamps, if any, in connection with the issuance and delivery of the Shares
to the respective Underwriters; (viii) all other fees, costs and expenses
referred to in Item 13 of the Registration Statement and (ix) all other costs
and expenses incident to the performance of the obligations of the Company
hereunder which are not otherwise specifically provided for in this Section.
Notwithstanding the foregoing, in the event that the proposed offering is
terminated for the reasons set forth in Section 5(i) hereof, the Company agrees
to reimburse the Underwriters as provided in Section 5(i).
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8. Indemnification and Contribution. The Company agrees to indemnify
and hold harmless you and each other Underwriter, the directors, officers,
employees and agents of each Underwriter, and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") from and
against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
in any Prepricing Prospectus or in the Registration Statement or the Prospectus
or in any amendment or supplement thereto, 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 not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon an untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information furnished in writing to
the Company by or on behalf of any Underwriter through you expressly for use in
connection therewith, or (ii) any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder or under law; provided, however, that with
respect to any untrue statement or omission made in any Prepricing Prospectus,
the indemnity agreement contained in this subsection shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) from whom the person asserting any such losses, claims, damages or
liabilities purchased the Shares of Stock concerned if both (A) a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such Shares of Stock to such person as required by
the Act, and (B) the untrue statement or omission in the Prepricing Prospectus
was corrected in the Prospectus.
In addition to its other obligations under this Section 8, the Company
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any inaccuracy in the representations and warranties
of the Company herein or failure to perform its obligations hereunder, all as
described in this Section 8, it will reimburse each Underwriter on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse each
Underwriter for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, each Underwriter shall promptly return it to the Company together
with interest, compounded daily determined on the basis of the base lending
rate announced from time to time by Chase Manhattan Bank, N.A. (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within 30 days of a request for reimbursement shall bear interest
at the Prime Rate from the date of such request.
If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Company such Underwriter or such controlling person shall promptly
notify in writing the party(s) against whom indemnification is being sought
(the "indemnifying party" or "indemnifying parties"), and such indemnifying
party(s) shall assume the defense thereof, including the employment of counsel
reasonably acceptable to such Underwriter or such controlling person and
payment of all fees and expenses. Such Underwriter or any such controlling
person shall have the right to employ separate counsel (but the Company shall
not be liable for the fees and expenses of more than one counsel) in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the indemnifying party(s) has (have) agreed in writing to pay
such fees and expenses, (ii) the indemnifying party(s) has (have) failed to
assume the defense and employ counsel reasonably acceptable to the Underwriter
or such controlling person or (iii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party(s), and such Underwriter or such
controlling person shall have been advised by its counsel that one or more
legal defenses may be available to the Underwriter which may not be available
to the Company, or that representation of such indemnified party and any
indemnifying party(s) by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not
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such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying
party(s) shall not have the right to assume the defense of such action on
behalf of such Underwriter or such controlling person (notwithstanding its
(their) obligation to bear the fees and expenses of such counsel)). The
indemnifying party(s) shall not be liable for any settlement of any such action
effected without its (their) written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any such action,
the indemnifying party(s) agrees to indemnify and hold harmless any Underwriter
and any such controlling person from and against any loss, claim, damage,
liability or expense by reason of such settlement or judgment, but in the case
of a judgment only to the extent stated in the immediately preceding paragraph.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but
only with respect to information furnished in writing by or on behalf of such
Underwriter through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action or claim shall be brought or asserted against the
Company, any of its directors, any such officers, or any such controlling
person based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph,
such Underwriter shall have the rights and duties given to the Company by the
preceding paragraph (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officers, and any such controlling persons
shall have the rights and duties given to the Underwriters by the immediately
preceding paragraph.
In addition to its other obligations under this Section 8, each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 8 which relates to information furnished to the
Company in writing by or on behalf of the Underwriters through you expressly
for use in the Registration Statement, it will reimburse the Company (and, to
the extent applicable, each officer, director or controlling person) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to
the extent applicable, each officer, director or controlling person) shall
promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date
of such request.
If the indemnification provided for in this Section 8 is unavailable
or insufficient for any reason whatsoever to an indemnified party under the
first or fourth paragraph hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an 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 or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares 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 the Underwriters on the other hand in connection with the
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statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company or the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, and the underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters 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 or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or by the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 was determined by a pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in the immediately
preceding paragraph 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. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8 are several in proportion to the respective numbers of Firm Shares
set forth opposite their names in Schedule I hereto (or such numbers of Firm
Shares increased as set forth in Section 10 hereof) and not joint.
Notwithstanding the second and fifth paragraphs of this Section 8, any
losses, claims, damages, liabilities or expenses for which an indemnified party
is entitled to indemnification or contribution under this Section 8 shall be
paid by the indemnifying party to the indemnified party as such losses, claims,
damages, liabilities or expenses are incurred. The indemnity, contribution and
reimbursement agreements contained in Section 8 and the representations and
warranties of the Company set forth in this Agreement shall remain operative
and in full force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter, the
Company, its directors or officers or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in the second and fifth paragraphs
of this Section 8, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an
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arbitration tribunal in such demand or notice, then the party responding to
said demand or notice is authorized to do so. Such an arbitration would be
limited to the operation of the interim reimbursement provisions contained in
the second and fifth paragraphs of this Section 8, and would not resolve the
ultimate propriety or enforceability of the obligation to reimburse expenses
which is created by the provisions of the second and fifth paragraphs of this
Section 8.
9. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) The Registration Statement shall have become effective
not later than 12:00 noon, New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by
you, and all filings required by Rules 424(b), 430A and 462 under the
Act shall have been timely made.
(b) You shall be reasonably satisfied that since the
respective dates as of which information is given in the Registration
Statement and Prospectus, (i) there shall not have been any change in
the capital stock (other than pursuant to the Company Transactions as
described in Section 6(dd) hereof and the Prospectus) of the Company
or any of its Subsidiaries or any material change in the indebtedness
(other than in the ordinary course of business) of the Company or any
of its Subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or
written agreement or other transaction shall have been entered into by
the Company or any of its Subsidiaries, which is not in the ordinary
course of business or which could reasonably be expected to result in
a material reduction in the future earnings of the Company and its
Subsidiaries, (iii) no loss or damage (whether or not insured) to the
property of the Company or any of its Subsidiaries shall have been
sustained which materially and adversely affects the condition
(financial or otherwise), business, or results of operations of the
Company and its Subsidiaries, (iv) no legal or governmental action,
suit or proceeding affecting the Company or any of its Subsidiaries
which is material to the Company and its Subsidiaries or which affects
or could reasonably be expected to affect the transactions
contemplated by this Agreement shall have been instituted or
threatened, and (v) there shall not have been any material change in
the condition (financial or otherwise), business, management, results
or operations or prospects of the Company and its Subsidiaries which
makes it impractical or inadvisable in your judgment to proceed with
the public offering or purchase the Shares as contemplated hereby.
(c) The Company, shall deliver an opinion of counsel, dated
the Closing Date, reasonably satisfactory to you and your counsel.
(d) You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., as counsel for the
Underwriters, dated the Closing Date with respect to the issuance and
sale of the Firm Shares, the Registration Statement and other related
matters as you may reasonably request and the Company and its counsel
shall have furnished to your counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters.
(e) You shall have received letters addressed to you and
dated the date hereof and the Closing Date from KPMG Peat Marwick LLP,
independent certified public accountants, substantially in the forms
heretofore approved by you.
(f)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall be pending or, to the knowledge of the Company,
shall be threatened or contemplated by the Commission at or prior to
the Closing Date; (ii) no order suspending the effectiveness of the
Registration Statement or the qualification or registration of the
Shares under the securities or Blue Sky laws of any jurisdiction shall
be in effect and no proceeding for such purpose shall be pending or,
to the knowledge of the Company, threatened or contemplated by the
Commission or the authorities of any jurisdiction; (iii) any request
for additional information on the part of the staff of the Commission
or any such authorities shall have been complied with to the
satisfaction of the staff of the Commission or such authorities; (iv)
after the date hereof no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to you and you did not object thereto in
good faith; and (v) all of the representations and warranties of the
Company contained in this Agreement shall be true and correct in all
respects on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief
executive officer
19
<PAGE>
and the chief financial officer of the Company (or such other officers
as are acceptable to you) to the effect set forth in this Section 9(g)
and in Sections 9(b) and 9(h) hereof.
(g) The Company shall not have failed in any respect at or
prior to the Closing Date to have performed or complied with any of
its agreements herein contained and required to be performed or
complied with by it hereunder at or prior to the Closing Date.
(h) The Company shall have furnished or caused to have been
furnished to you such further certificates and documents as you shall
have reasonably requested.
(i) At or prior to the Closing Date, you shall have received
the written commitment of each of the Company's officers and directors
and shareholders not to (i) directly or indirectly sell, offer or
contract to sell, or otherwise dispose of or transfer any shares of
Common Stock or securities of the Company convertible into or
exchangeable or exercisable for Common Stock (collectively, "Company
Securities") owned or controlled by such persons now or hereafter or
any rights to purchase Company Securities, for a period of 180 days
after the date of the Prospectus first filed pursuant to Rule 424(b)
under the Act (the "Restriction Period"), without your prior written
consent, or (ii) exercise or seek to exercise or effectuate in any
manner any rights of any nature that such persons have or may
hereafter have to require the Company to register under the Act any
such person's sale, transfer or other disposition of any Company
Securities or other securities of the Company held by any such
persons, or to otherwise participate as a selling securityholder in
any manner in any registration effected by the Company under the Act,
including the registration to which this Agreement relates, before the
expiration of the Restriction Period.
(j) At or prior to the effective date of the Registration
Statement, you shall have received a letter from the Corporate
Financing Department of the NASD confirming that such Department has
determined to raise no objections with respect to the fairness or
reasonableness of the underwriting terms and arrangements of the
offering contemplated hereby.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of the Additional
Closing Date of the conditions set forth in this Section 9, except that, if the
Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (i) shall be dated
as of the Additional Closing Date and the opinions called for by paragraphs (c)
and (d) shall be revised to reflect the sale of Additional Shares.
If any of the conditions hereinabove provided for in this Section 9
shall not have been satisfied when and as required by this Agreement, this
Agreement may be terminated by you by notifying the Company of such termination
in writing or by telegram at or prior to such Closing Date, but you shall be
entitled to waive any of such conditions.
10. Effective Date of Agreement. This Agreement shall become effective
upon the later of (a) the execution and delivery hereof by the parties hereto,
and (b) release of notification of the effectiveness of the Registration
Statement by the Commission; provided, however, that the provisions of Sections
7 and 8 shall at all times be effective.
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Shares which it or they have agreed to purchase hereunder, and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of the Firm Shares, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the
20
<PAGE>
number of Firm Shares set forth opposite its name in Schedule I hereto bears to
the aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
the Agreement Among Underwriters, to purchase the Firm Shares which such
defaulting Underwriter or Underwriters agreed, but failed or refused to
purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares
and arrangements satisfactory to you, the Company for the purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven (7) days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any such default of any such Underwriter under this Agreement.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date or the Additional Closing Date (if different from the Closing Date and
then only as to the Additional Shares), as the case may be, in your sole
judgment, (i) trading in the Company's Common Stock shall have been suspended
by the Commission or the NASDAQ/NMS, (ii) trading in securities generally on
the New York Stock Exchange, American Stock Exchange or NASDAQ/NMS shall have
been suspended or materially limited, or minimum or maximum prices shall have
been generally established on such exchange, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by any such exchange or
by order of the Commission or any court or other governmental authority, (iii)
a general moratorium on commercial banking activities shall have been declared
by either federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions or other material event the effect of which on the financial markets
of the United States is such as to make it, in your judgment, impracticable or
inadvisable to market the Shares or to enforce contracts for the sale of the
Shares. Notice of such cancellation shall be promptly given to the Company and
its counsel by telegraph, telecopy or telephone and shall be subsequently
confirmed by letter.
12. Information Furnished by the Underwriters. The Company
acknowledges that the statements set forth under footnote (3) on the cover page
of the Prospectus and under the second paragraph under the caption
"Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute
the only information furnished by or on behalf of the Underwriters through you
or on your behalf as such information is referred to in Sections 6(a), 6(b) and
8 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5 and 12
hereof, notice given pursuant to any of the provisions of this Agreement shall
be in writing and shall be delivered (i) if to the Company, to the office of
the Company at 621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487,
Attention: Keith B. Stein (with copy to Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, New York 10153, Attention: Howard Chatzinoff and Salim Day)
or (ii) if to you, as Representatives of the Underwriters, to Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716,
Attention: Fred E. Whaley and John L. Forney; (with copy to Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami, Florida
33131, Attention: Jorge L. Freeland).
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 8 hereof, and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
of the terms "successor" and "successors and assigns" as used in this Agreement
shall include a purchaser from you of any of the Shares in his status as such
purchaser.
21
<PAGE>
14. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of Florida without
reference to choice of law principles thereunder.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
This Agreement shall be effective when, but only when, at least one
counterpart hereof shall have been executed on behalf of each party hereto.
The Company and the Underwriters each hereby irrevocably waive any
right they may have to a trial by jury in respect to any claim based upon or
arising out of this Agreement or the transactions contemplated hereby.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
National Auto Finance Company, Inc.
By:________________________________
Name:______________________________
Title:_____________________________
CONFIRMED as of the date first above mentioned, on behalf of itself and the
other several Underwriters named in Schedule I hereto.
RAYMOND JAMES & ASSOCIATES, INC.
By:_____________________________
Name:___________________________
Title:__________________________
The undersigned agrees to indemnify and hold harmless the Company and
the directors, officers, employees and agents of the Company from and against
any and all losses, claims, damages, liabilities and expenses arising out of or
based upon [Title of Shareholder litigations], together with any related
controversy or successor litigation.
NATIONAL AUTO FINANCE COMPANY, L.P.
By:_____________________________
Name:___________________________
Title:__________________________
22
<PAGE>
SCHEDULE I
Number
of Firm
Name Shares
- ---- -------
Raymond James & Associates, Inc.......................................
TOTAL.................................................................
=======
23
<PAGE>
CERTIFICATE OF THE DESIGNATIONS,
PREFERENCES AND RIGHTS, OF
SERIES A PREFERRED STOCK
($.01 Par Value)
OF
NATIONAL AUTO FINANCE COMPANY, INC.
------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-----------------
NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation
(the "Corporation"), does hereby certify that the following resolution was duly
adopted by the Board of Directors of the Corporation pursuant to authority
conferred upon the Board of Directors by Article IV of the Certificate of
Incorporation of the Corporation, which authorizes the issuance of up to
1,000,000 shares of preferred stock, and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware:
RESOLVED, that the issue of a series of preferred stock, $.01
par value, of the Corporation is hereby authorized and the designation and
amount thereof and the powers, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions thereof
are hereby fixed as follows:
(1) Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting such series shall be 2,400.
(2) Definitions. For purposes of the Series A Preferred Stock, the
following terms shall have the meanings indicated:
"Board of Directors" shall mean the board of directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of
<PAGE>
its responsibilities with respect to the Series A Preferred Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock of the Corporation,
par value $.01 per share.
"Depositary" shall mean a bank or trust company having a
combined capital, surplus and undivided profits aggregating at least
$50,000,000.
"Dividend Periods" shall mean quarterly dividend periods
commencing on the first day of January, April, July and October of each
year and ending on and including the day preceding the first day of the
next succeeding Dividend Period (other than the initial Dividend Period
which shall commence on the Issue Date and end on and include March 31,
1997).
"Issue Date" shall mean the first date on which shares of
Series A Preferred Stock are issued.
"Mandatory Redemption Date" shall mean the eighth anniversary
date of the Issue Date.
"Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by merger
or otherwise) of such entity.
"Stated Capital" shall mean $1,000 per share of Series A
Preferred Stock.
(3) Dividends. (a) The holders of shares of Series A Preferred Stock
shall be entitled to receive, when and if declared by the Board of Directors out
of funds legally available therefor, cash dividends at the rate per annum
(computed on the basis of a 360-day year of twelve 30-day months) of $70.00 per
share of Series A Preferred Stock. Such dividends shall be cumulative from the
Issue Date, whether or not in any Dividend Period or Periods there shall be
funds of the Company legally available for the payment of such dividends, and
shall be payable quarterly, when and as declared by the Board of Directors, on
the last Business Day
2
<PAGE>
of March, June, September and December of each year (commencing on the last
Business Day of March 1997), or at such additional times and for such interim
periods, if any, as determined by the Board of Directors. Each such dividend
shall be payable in arrears to the holders of record of shares of the Series A
Preferred Stock, as they appear on the stock records of the Corporation at the
close of business on such record dates, not more than 60 days preceding the
payment dates thereof, as shall be fixed by the Board of Directors. Accrued and
unpaid dividends for any past Dividend Periods may be declared and paid at any
time, without reference to any regular dividend payment date, to holders of
record on such date, not exceeding 45 days preceding the payment date thereof,
as may be fixed by the Board of Directors.
(b) The amount of dividends payable for each full Dividend
Period for the Series A Preferred Stock shall be computed by dividing the annual
dividend rate by four. The amount of dividends payable for the initial Dividend
Period on the Series A Preferred Stock shall be computed on the basis of twelve
30-day months and a 360-day year. Shares of Series A Preferred Stock purchased
by the Corporation between a dividend payment record date and the dividend
payment date shall not be entitled to receive the dividend payable on such
dividend payment date. Holders of shares of Series A Preferred Stock shall not
be entitled to any dividends, whether payable in cash, property or stock, in
excess of cumulative dividends, as herein provided, on the Series A Preferred
Stock.
(c) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, senior to or on a parity with
the Series A Preferred Stock, for any period, nor shall any shares ranking
senior to or on a parity with the Series A Preferred Stock be purchased by the
Corporation, unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series A Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of such full cumulative
dividends. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, upon the shares of the Series A
Preferred Stock and any other class or series of stock
3
<PAGE>
ranking senior to or on a parity as to dividends with the Series A Preferred
Stock, all dividends declared upon shares of the Series A Preferred Stock and
all dividends declared upon such other stock shall be declared pro rata so that
the amounts of dividends per share declared on the Series A Preferred Stock and
such other stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of the Series A Preferred Stock and
such other stock bear to each other.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of Common
Stock or other stock ranking junior to the Series A Preferred Stock, as to
dividends) shall be declared or paid or set apart for payment or other
distribution declared or made upon the Common Stock or any other stock of the
Corporation ranking junior to the Series A Preferred Stock, as to dividends, nor
shall any Common Stock nor any other such stock of the Corporation ranking
junior to the Series A Preferred Stock, as to dividends, be redeemed, purchased
or otherwise acquired for any consideration by the Corporation (except by
conversion into or exchange for stock of the Corporation ranking junior to the
Series A Preferred Stock, as to dividends) unless, in each case (i) the full
cumulative dividends on all outstanding shares of the Series A Preferred Stock
and any other stock of the Corporation ranking senior to or on a parity with the
Series A Preferred Stock, as to dividends, shall have been paid or set apart for
payment of all past Dividend Periods and dividend periods with respect to such
other stock and (ii) sufficient funds shall have been set apart for the payment
of the dividend for the current Dividend Period with respect to the Series A
Preferred Stock and the dividend period with respect to any other stock of the
Corporation ranking senior to or on a parity with the Series A Preferred Stock,
as to dividends.
(4) Optional Redemption.
(a) The Corporation may, at its option and at any time and
from time to time redeem all or any of the shares of Series A Preferred Stock at
a price of One Thousand Dollars ($1,000) per share, together with all accrued
and unpaid cumulative dividends thereon, whether or not declared or earned, to
the date of redemptions provided that immediately prior to authorizing or making
any such
4
<PAGE>
redemption with respect to shares of Series A Preferred Stock, the Corporation,
by resolution of its Board of Directors or a duly authorized committee thereof,
shall, to the extent of any funds legally available therefor, declare a dividend
on shares of Series A Preferred Stock payable on the redemption date in an
amount equal to any accrued and unpaid dividends on shares of Series A Preferred
Stock as of such date.
(b) Notice of any proposed redemption under paragraph 4(a) of
any shares of Series A Preferred Stock shall be given by the Corporation by hand
delivery, or by mailing a copy of such notice, postage prepaid, to the holders
of record of the shares of Series A Preferred Stock to be redeemed at their
respective addresses then appearing on the books of the Corporation, not less
than 20 days nor more than 60 days prior to the date fixed for redemption, but
neither the failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceeding for the redemption of any
shares of Series A Preferred Stock to be redeemed. On the date fixed for
redemption of any shares of Series A Preferred Stock, the Corporation shall, and
at any time not more than 90 days prior to such date may, deposit the aggregate
of the redemption price (together with accrued and unpaid dividends to such
redemption date) for the shares of Series A Preferred Stock to be redeemed with
a Depositary, designated in the notice of such redemption, in trust for payment
to the holders of the shares to be redeemed, and deliver irrevocable written
instructions authorizing the Depositary to apply such deposit solely to the
redemption of the shares to be redeemed. Such written instructions may provide
that any of such deposit remaining unclaimed, at the expiration of six months
after the date fixed for such redemption, by the holder of any such shares,
shall be returned to the Corporation, after which return such holder shall have
no claim against the Depositary, but shall (subject to applicable escheat laws)
have a claim as an unsecured creditor against the Corporation for the redemption
price (together with accrued and unpaid dividends to such redemption date)
therefor, without interest. Notice of redemption having been duly given, or the
Depositary having been irrevocably authorized by the Corporation to give said
notice, and the redemption price (together with accrued and unpaid dividends to
such redemption date) for the shares to be redeemed having been deposited, all
as aforesaid, then all shares of Series A Preferred Stock with respect to which
such deposit shall have been made shall forthwith, whether
5
<PAGE>
or not the date fixed for such redemption shall have occurred or the certificate
for such shares shall have been surrendered for cancellation, be deemed no
longer to be outstanding for any purpose and shall have no right to receive
dividends payable to holders of record of shares of Series A Preferred Stock on
any record date falling after the date fixed for redemption, and all rights with
respect to such shares shall thereupon cease and terminate (provided that the
Corporation has declared and paid to the holders of record of shares of Series A
Preferred Stock being redeemed as of the redemption date a dividend equal to the
dividends accrued and unpaid thereon to the redemption date), except the right
of the holders of such shares to receive on the redemption date the redemption
price (together with accrued and unpaid dividends to such redemption date) to
which they are entitled, without interest.
(c) In every case of redemption of less than all of the
outstanding shares of Series A Preferred Stock pursuant to paragraph 4(a) the
shares to be redeemed shall be selected on a pro rata basis or in accordance
with any other method the Board of Directors of the Corporation considers fair
and appropriate (and in such manner as complies with applicable legal
requirements).
(5) Mandatory Redemption
(a) The Corporation shall redeem on the Mandatory Redemption
Date, out of funds legally available therefor under the Delaware General
Corporation Law, at a price of One Thousand Dollars ($1,000) per share, together
with all accrued and unpaid dividends thereon, whether or not declared or
earned, to the date of redemption, all outstanding shares of Series A Preferred
Stock in the manner provided in paragraph 5(c).
(b) If on the Mandatory Redemption Date the Corporation shall
fail to redeem all of the outstanding shares of Series A Preferred Stock, the
Corporation shall, to the extent permitted, effect a partial redemption of
Series A Preferred Stock on the Mandatory Redemption Date. The shares of Series
A Preferred Stock to be redeemed shall be selected on a pro rata basis or in
accordance with any other method the Board of Directors of the Corporation
considers fair and appropriate (and in such manner as complies with applicable
legal and stock exchange requirements, if any). In the event that the
Corporation does not redeem all of the shares of Series A Preferred
6
<PAGE>
Stock on the Mandatory Redemption Date, the Corporation's mandatory redemption
obligations shall not be discharged until the Corporation has satisfied all of
its obligations under paragraph 5(a). Dividends shall continue to accrue on any
mandatory redemption obligation that has not been discharged by the Corporation
pursuant to 5(a).
(c) Notice of any proposed redemption under paragraph 5(a) or
5(b) of any shares of Series A Preferred Stock shall be given by hand delivery,
or by mailing a copy of such notice, postage prepaid, to the holders of record
of the shares of Series A Preferred Stock to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 20 nor
more than 60 days prior to the date fixed for redemption, but neither the
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceeding for the redemption of any shares of
Series A Preferred Stock to be redeemed. On the date fixed for redemption of any
shares of Series A Preferred Stock, the Corporation shall, and at any time not
more than 90 days prior to such date may, deposit the aggregate of the
redemption price (together with accrued and unpaid dividends to such redemption
date) for the shares of Series A Preferred Stock to be redeemed with the
Depositary in trust for payment to the holders of the shares to be redeemed, and
deliver irrevocable written instructions authorizing the Depositary to apply
such deposit solely to the redemption of the shares to be redeemed. Such written
instructions may provide that any of such deposit remaining unclaimed, at the
expiration of six months after the date fixed for such redemption, by the holder
of any such shares shall be returned to the Corporation, after which return such
holder shall have no claim against the Depositary, but shall (subject to
applicable escheat laws) have a claim as an unsecured creditor against the
Corporation for the redemption price (together with accrued and unpaid dividends
to such redemption date) therefor, without interest. Notice of redemption having
been duly given, or the Depositary having been irrevocably authorized by the
Corporation to give said notice, and the redemption price (together with accrued
and unpaid dividends to such redemption date) for the shares to be redeemed
having been deposited, all as aforesaid, then all shares of Series A Preferred
Stock with respect to which such deposit shall have been made shall forthwith,
whether or not the date fixed for such redemption shall have occurred or the
certificates for such shares shall have been surrendered for cancellation, be
deemed no longer to be
7
<PAGE>
outstanding for any purpose and shall have no right to receive dividends payable
to holders of record of shares of Series A Preferred Stock on any record date
falling after the date fixed for redemption, and all rights with respect to such
shares shall thereupon cease and terminate (provided that the Corporation has
declared and paid to the holders of record of Series A Preferred Stock being
redeemed as of the redemption date a dividend equal to the dividends accrued and
unpaid thereon to the redemption date), except the right of the holders of such
shares to receive on the redemption date the redemption price (together with
accrued and unpaid dividends to such redemption date) to which they are
entitled, without interest.
(6) Voting. (a) Holders of shares of Series A Preferred Stock shall not
be entitled to vote upon any matter upon which stockholders of the Corporation
are entitled to vote, except to the extent required by law, or to authorize,
effect or validate any material adverse amendment, alteration or repeal of any
of the powers, preferences or special rights of shares of Series A Preferred
Stock, in which case holders of record of shares of Series A Preferred Stock
shall have one vote per share and shall vote as a single class. The
establishment of a class or series of stock ranking senior to, or pari passu
with, the Series A Preferred Stock in order of priority of payment of dividends
or the distribution of assets upon the liquidation, dissolution or winding up of
the Corporation shall be deemed to be a material adverse amendment and
alteration of the preferences and special rights of the Series A Preferred
Stock.
(b) In addition to the voting rights set forth in paragraph
6(a), in the event accrued dividends on Series A Preferred Stock shall not have
been paid, or declared and a sum sufficient for the payment thereof set aside,
in an amount equivalent to six consecutive quarterly dividends on all shares of
Series A Preferred Stock at the time outstanding, the number of directors
constituting the Board of Directors of the Corporation shall be increased by one
and the holders of Series A Preferred Stock, voting as a class, shall be
entitled to elect one director at a special meeting of the holders of the Series
A Preferred Stock. Such right of the holders of Series A Preferred Stock to
elect one director may be exercised until the dividends in default on Series A
Preferred Stock shall have been reduced so that they do not exceed the
equivalent of five consecutive quarterly dividends on all shares of Series A
8
<PAGE>
Preferred Stock outstanding and, thereupon, the director elected by the holders
of Series A Preferred Stock shall immediately cease to be a director and the
number of directors constituting the Board of Directors shall be reduced by one.
At any time that the holders of Series A Preferred Stock have special voting
power pursuant to this paragraph, the proper officers of the Corporation shall,
upon written request of the holders of record of at least fifty percentum (50%)
of the outstanding Series A Preferred Stock, addressed to the Secretary of the
Corporation, call a special meeting of the holders of such Series A Preferred
Stock for the purpose of electing such director. Such meeting shall be held at
the earliest practicable date thereafter and shall be held at the place for the
holding of annual meetings of the stockholders of the Corporation. If such
meeting shall not be called by the officers of the Corporation within five (5)
days after personal service of the above request upon the Secretary of the
Corporation, or within thirty (30) days after mailing of same within the United
States of America by registered mail addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities) then the holders of record of
at least fifty percentum (50%) of Series A Preferred Stock in which voting power
is vested pursuant to this paragraph then outstanding may designate in writing
one of their number to call such meeting, and such meeting may be called by such
person so designated upon the giving of notice to stockholders as provided in
the Certificate of Incorporation or By-Laws of the Corporation for a special
meeting of stockholders. Any holder so designated shall have access to the stock
books of the Corporation for the purpose of causing such meeting to be called
pursuant to these provisions. At any meeting held for the purpose of electing a
director at which the holders of Series A Preferred Stock shall have the special
right, voting separately as a class, to elect such director, the presence, in
person or by proxy, of the holders of one-third (1/3) of the shares entitled to
vote at such meeting shall be required to constitute a quorum. At any such
meeting or adjournment thereof, (i) the absence of a quorum of holders of Series
A Preferred Stock shall not prevent the election of directors other than such
additional director and the absence of a quorum of holders of any other class of
capital stock shall not prevent election of such additional director, and (ii)
in the absence of either or both such quorums, the holders of a majority of the
shares present in person or by proxy of the class of stock or classes of stock
which lack a quorum shall
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have power to adjourn, until a quorum shall be present, the meeting for the
election of directors which they are entitled to elect from time to time without
notice other than announcement at the meeting unless otherwise required by law.
(7) Liquidation, Dissolution or Winding Up. (a) Upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or otherwise the
holders of shares of Series A Preferred Stock shall be entitled to receive and
to be paid out of the assets of the Corporation available for distribution to
its stockholders, before any payment or distribution shall be made on the Common
Stock or any other class of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) the amount of One Thousand Dollars
($1,000) per share (or a pro rata portion thereof in the case of fractional
shares), plus a sum equal to all accrued and unpaid dividends thereon.
(b) The sale of all or substantially all the property or
business of the Corporation (which sale shall not include the transfer of loans
or other assets in the ordinary course of business pursuant to securitizations),
the merger or consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other corporation into or with
the Corporation or any liquidation, dissolution, winding up or reorganization of
the Corporation immediately followed, in each case, by reincorporation of
another corporation succeeding to the business and obligations of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
(voluntary or otherwise) for the purposes of this paragraph (7).
(c) After the payment to the holders of shares of Series A
Preferred Stock of the full preferential amounts provided for in this paragraph
(7), the holders of Series A Preferred Stock as such shall have no right or
claim to any of the remaining assets of the Corporation.
(8) Record Holders. The Corporation may deem and treat the record
holder of any shares of Series A Preferred Stock as the true and lawful owner
thereof for all purposes, and the Corporation shall not be affected by any
notice to the contrary.
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IN WITNESS WHEREOF, the Corporation has caused
this Certificate to be signed by Keith B. Stein, its Vice Chairman this 7th
day of January, 1997.
NATIONAL AUTO FINANCE COMPANY, INC.
By:__________________________
Name: Keith B. Stein
Title: Vice Chairman
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NATIONAL AUTO FINANCE COMPANY, INC.
1996 SHARE INCENTIVE PLAN
1. Purpose. The National Auto Finance Company, Inc. 1996 Share
Incentive Plan (the "Plan") is intended to provide incentives which will
attract, retain and motivate highly competent persons as executive management,
employees and directors of National Auto Finance Company, Inc. (the "Company")
and of any parent or subsidiary now existing or hereafter formed or acquired, by
providing them opportunities to acquire shares of the common stock, par value
$.01 per share, of the Company ("Common Stock") or to receive monetary payments
based on the value of such shares pursuant to the Benefits (as defined below)
described herein. Furthermore, the Plan is intended to assist in aligning the
interests of the Company's executive management, employees and directors to
those of its stockholders.
2. Administration.
(a) The Plan will be administered by the Board of Directors of the
Company (the "Board of Directors") or, if the Board of Directors so determines,
by a committee appointed by the Board of Directors from among its members (such
committee administering the Plan being hereinafter referred to as the
"Committee"; and the Board of Directors or the Committee administering the Plan,
as the case may be, being hereinafter referred to as the "Plan Administrator").
In the event the Board of Directors designates a Committee to administer the
Plan, the Committee (which may include members of the compensation committee of
the Board of Directors, if any) shall be comprised solely of not less than two
members who shall be (i) "Non-Employee Directors" within the meaning of Rule
16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and (ii) unless otherwise
determined by the Board of Directors, "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Plan Administrator is authorized, subject to the provisions of the Plan, to
establish such rules and regulations as it deems necessary for the proper
administration of the Plan and to make such determinations and interpretations
and to take such action in connection with the Plan and any Benefits (as defined
below) granted hereunder as it deems necessary or advisable. All determinations
and interpretations made by the Plan Administrator shall be binding and
conclusive on all participants and their legal representatives. No member of the
Board of the Directors, no member of the Committee and no employee of the
Company shall be liable for any act or failure to act hereunder, except in
circumstances involving his or her bad faith, gross negligence or willful
misconduct, or for any act or failure to act hereunder by any other member or
employee or by any agent to whom duties in connection with the administration of
<PAGE>
this Plan have been delegated. The Company shall indemnify members of the Plan
Administrator and any agent of the Plan Administrator who is an employee of the
Company, against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's bad faith,
gross negligence or willful misconduct.
(b) The Plan Administrator may delegate to one or more of its members,
or to one or more agents, such administrative duties as it may deem advisable,
and the Plan Administrator, or any person to whom it has delegated duties as
aforesaid, may employ one or more persons to render advice with respect to any
responsibility the Plan Administrator or such person may have under the Plan.
The Plan Administrator may employ such legal or other counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion or computation received from any such counsel, consultant or
agent. Expenses incurred by the Plan Administrator in the engagement of such
counsel, consultant or agent shall be paid by the Company, or the subsidiary
whose employees have benefitted from the Plan, as determined by the Plan
Administrator.
3. Participants. Participants will consist of such executive
management, employees and directors of the Company and of any parent or
subsidiary of the Company as the Plan Administrator in its sole discretion
determines to be significantly responsible for the success and future growth and
profitability of the Company and whom the Plan Administrator may designate from
time to time to receive Benefits under the Plan. Designation of a participant in
any year shall not require the Plan Administrator to designate such person to
receive a Benefit in any other year or, once designated, to receive the same
type or amount of Benefit as granted to the participant in any other year. The
Plan Administrator shall consider such factors as it deems pertinent in
selecting participants and in determining the type and amount of their
respective Benefits.
4. Type of Benefits. Benefits under the Plan may be granted in any one
or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Awards and (e) Stock Units (each as described below, and
collectively, the "Benefits"). Stock Awards, Performance Awards and Stock Units
may, as determined by the Plan Administrator in its discretion, constitute
Performance-Based Awards, as described in Section 11 below. Benefits shall be
evidenced by agreements (which need not be identical) in such forms as the Plan
Administrator may from time to time approve; provided, however, that in the
event of any conflict between the provisions of the Plan and any such
agreements, the provisions of the Plan shall prevail.
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<PAGE>
5. Common Stock Available under the Plan. The aggregate number of
shares of Common Stock that may be subject to Benefits, including Stock Options,
granted under this Plan shall be 500,000 shares of Common Stock, which may be
authorized and unissued or treasury shares, subject to any adjustments made in
accordance with Section 12 hereof. The maximum number of shares of Common Stock
with respect to which Benefits may be granted to any individual participant
under the Plan shall be 500,000. Other than those shares of Common Stock subject
to Benefits that are cancelled or terminated as a result of the Plan
Administrator's exercise of its discretion with respect to Performance-Based
Awards as provided for in Section 11, any shares of Common Stock subject to a
Stock Option or Stock Appreciation Right which for any reason is cancelled or
terminated without having been exercised, any shares subject to Stock Awards,
Performance Awards or Stock Units which are forfeited, any shares subject to
Performance Awards settled in cash or any shares delivered to the Company as
part of full payment for the exercise of a Stock Option or Stock Appreciation
Right shall again be available for Benefits under the Plan. The preceding
sentence shall apply only for purposes of determining the aggregate number of
shares of Common Stock subject to Benefits.
6. Stock Options. Stock Options will consist of awards from the Company
that will enable the holder to purchase a specific number of shares of Common
Stock, at set terms and at a fixed purchase price. Stock Options may be
"incentive stock options" ("Incentive Stock Options"), within the meaning of
Section 422 of the Code, or Stock Options which do not constitute Incentive
Stock Options ("Nonqualified Stock Options"). The Plan Administrator will have
the authority to grant to any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options (in each case with or
without Stock Appreciation Rights). Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose from
time to time, subject to the following limitations:
(a) Exercise Price. Each Stock Option granted hereunder shall have
such per-share exercise price as the Plan Administrator may determine
at the date of grant; provided, however, subject to subsection (d)
below, that the per-share exercise price shall not be less than 100% of
the Fair Market Value (as defined below) of the Common Stock on the
date the option is granted.
(b) Payment of Exercise Price. The option exercise price may be
paid in cash or, in the discretion of the Plan Administrator determined
at the date of grant and set forth in the option agreement, by the
delivery of shares of Common Stock of the Company then owned by the
participant, by the withholding of shares of Common Stock for which a
Stock Option is exercisable, or by a combination of these methods. In
the discretion of the Plan Administrator determined at the date of
grant and set forth in
3
<PAGE>
such option agreement, payment may also be made by delivering a
properly executed exercise notice to the Company together with a copy
of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds to pay the exercise price.
To facilitate the foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms. The Plan
Administrator may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the
purpose of the Plan, including, without limitation, in lieu of the
exercise of a Stock Option by delivery of shares of Common Stock of the
Company then owned by a participant, providing the Company with a
notarized statement attesting to the number of shares owned, where upon
verification by the Company, the Company would issue to the participant
only the number of incremental shares to which the participant is
entitled upon exercise of the Stock Option. In determining which
methods a participant may utilize to pay the exercise price, the Plan
Administrator may consider such factors as it determines are
appropriate.
(c) Exercise Period. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Plan Administrator; provided,
however, that no Stock Option shall be exercisable later than ten years
after the date it is granted. All Stock Options shall terminate at such
earlier times and upon such conditions or circumstances as the Plan
Administrator shall in its discretion set forth in such option
agreement at the date of grant.
(d) Limitations on Incentive Stock Options. Incentive Stock
Options may be granted only to participants who are employees of the
Company or a parent or subsidiary of the Company at the date of grant.
The aggregate market value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a participant during any
calendar year (under all option plans of the Company) shall not exceed
$100,000. For purposes of the preceding sentence, Incentive Stock
Options will be taken into account in the order in which they are
granted. Incentive Stock Options may not be granted to any participant
who, at the time of grant, owns stock possessing (after the application
of the attribution rules of Section 424(d) of the Code) more than 10%
of the total combined voting power of all outstanding classes of stock
of the Company or any subsidiary of the Company, unless the option
price is fixed at not less than 110% of the Fair Market Value of the
Common Stock on the date of grant and the exercise of such option is
prohibited by its terms after the expiration of five years from the
date of grant of such option. Notwithstanding anything to the contrary
contained herein, no Incentive Stock Option may be exercised later than
ten years after the date it is granted.
4
<PAGE>
7. Stock Appreciation Rights. The Plan Administrator may, in its
discretion, grant Stock Appreciation Rights to the holders of any Stock Options
granted hereunder. In addition, Stock Appreciation Rights may be granted
independently of, and without relation to, options. A Stock Appreciation Right
means a right to receive a payment, in cash, Common Stock or a combination
thereof, in an amount equal to the excess of (x) the Fair Market Value, or other
specified valuation, of a specified number of shares of Common Stock on the date
the right is exercised over (y) the Fair Market Value, or other specified
valuation (which shall be no less than the Fair Market Value), of such shares of
Common Stock on the date the right is granted, all as determined by the Plan
Administrator; provided, however, that if a Stock Appreciation Right is granted
retroactively in tandem with or in substitution for a Stock Option, the
designated Fair Market Value in the award agreement may be the Fair Market Value
on the date such Stock Option was granted. Each Stock Appreciation Right shall
be subject to such terms and conditions as the Committee shall impose from time
to time.
8. Stock Awards. The Plan Administrator may, in its discretion, grant
Stock Awards (which may include mandatory payment of bonus incentive
compensation in stock) consisting of Common Stock issued or transferred to
participants with or without other payments therefor as additional compensation
for services to the Company. Stock Awards may be subject to such terms and
conditions as the Plan Administrator determines appropriate, including, without
limitation, restrictions on the sale or other disposition of such shares, the
right of the Company to reacquire such shares for no consideration upon
termination of the participant's employment within specified periods, and may
constitute Performance-Based Awards, as described below. The Plan Administrator
may require the participant to deliver a duly signed stock power, endorsed in
blank, relating to the Common Stock covered by such an Award. The Plan
Administrator may also require that the stock certificates evidencing such
shares be held in custody or bear restrictive legends until the restrictions
thereon shall have lapsed. The Stock Award shall specify whether the participant
shall have, with respect to the shares of Common Stock subject to a Stock Award,
all of the rights of a holder of shares of Common Stock of the Company,
including the right to receive dividends and to vote the shares.
9. Performance Awards.
(a) Performance Awards may be granted to participants at any time and
from time to time, as shall be determined by the Plan Administrator. Performance
Awards may, as determined by the Plan Administrator in its sole discretion,
constitute Performance-Based Awards. The Plan Administrator shall have complete
discretion in determining the number, amount and timing of awards granted to
each participant. Such Performance Awards may be in the form of shares of Common
Stock or Stock Units. Performance Awards may be awarded as short-term or
long-term incentives. With respect to those Performance Awards that are intended
to constitute Performance-Based Awards, the Plan Administrator shall set
5
<PAGE>
performance targets at its discretion which, depending on the extent to which
they are met, will determine the number and/or value of Performance Awards that
will be paid out to the participants, and may attach to such Performance Awards
one or more restrictions. Performance targets may be based upon, without
limitation, Company-wide, divisional and/or individual performance.
(b) With respect to those Performance Awards that are not intended to
constitute Performance-Based Awards, the Plan Administrator shall have the
authority at any time to make adjustments to performance targets for any
outstanding Performance Awards which the Plan Administrator deems necessary or
desirable unless at the time of establishment of goals the Plan Administrator
shall have precluded its authority to make such adjustments.
(c) Payment of earned Performance Awards shall be made in accordance
with terms and conditions prescribed or authorized by the Plan Administrator.
The participant may elect to defer, or the Plan Administrator may require or
permit the deferral of, the receipt of Performance Awards upon such terms as the
Plan Administrator deems appropriate.
10. Stock Units.
(a) The Plan Administrator may, in its discretion, grant Stock Units to
participants hereunder. Stock Units may, as determined by the Plan Administrator
in its sole discretion, constitute Performance-Based Awards. The Plan
Administrator shall determine the criteria for the vesting of Stock Units. A
Stock Unit granted by the Plan Administrator shall provide for payment in shares
of Common Stock at such time as the award agreement shall specify. Shares of
Common Stock issued pursuant to this Section 10 may be issued with or without
other payments therefor as may be required by applicable law or such other
consideration as may be determined by the Committee. The Plan Administrator
shall determine whether a participant granted a Stock Unit shall be entitled to
a Dividend Equivalent Right (as defined below).
(b) Upon vesting of a Stock Unit, unless the Plan Administrator has
determined to defer payment with respect to such unit or a Participant has
elected to defer payment under subsection (c) below, shares of Common Stock
representing the Stock Units shall be distributed to the participant unless the
Plan Administrator, with the consent of the participant, provides for the
payment of the Stock Units in cash or partly in cash and partly in shares of
Common Stock equal to the value of the shares of Common Stock which would
otherwise be distributed to the participant.
6
<PAGE>
(c) Prior to the year with respect to which a Stock Unit may vest, the
participant may elect not to receive Common Stock upon the vesting of such Stock
Unit and for the Company to continue to maintain the Stock Unit on its books of
account. In such event, the value of a Stock Unit shall be payable in shares of
Common Stock pursuant to the agreement of deferral.
(d) A "Stock Unit" means an account representing one share of Common
Stock. A "Dividend Equivalent Right" means the right to receive the amount of
any dividend paid on the share of Common Stock underlying a Stock Unit, which
shall be payable in cash or in the form of additional Stock Units.
11. Performance-Based Awards. Certain Benefits granted under the Plan
may be granted in a manner such that the Benefits qualify for the performance
based compensation exemption of Section 162(m) of the Code ("Performance-Based
Awards"). As determined by the Plan Administrator in its sole discretion, either
the granting or vesting of such Performance-Based Awards are to be based upon
one or more of the following factors: net sales, pretax income before allocation
of corporate overhead and bonus, budget, earnings per share, net income,
division, group or corporate financial goals, return on stockholders' equity,
return on assets, attainment of strategic and operational initiatives,
appreciation in and/or maintenance of the price of the Common Stock or any other
publicly-traded securities of the Company, market share, gross profits, earnings
before interest and taxes, earnings before interest, taxes, dividends and
amortization, economic value-added models and comparisons with various stock
market indices, reductions in costs or any combination of the foregoing. With
respect to Performance-Based Awards, (i) the Plan Administrator shall establish
in writing (x) the objective performance-based goals applicable to a given
period and (y) the individual employees or class of employees to which such
performance-based goals apply no later than 90 days after the commencement of
such fiscal period (but in no event after 25% of such period has elapsed) and
(ii) no Performance-Based Awards shall be payable to or vest with respect to, as
the case may be, any participant for a given fiscal period until the Plan
Administrator certifies in writing that the objective performance goals (and any
other material terms) applicable to such period have been satisfied. With
respect to any Benefits intended to qualify as Performance-Based Awards, after
establishment of a performance goal, the Plan Administrator shall not revise
such performance goal or increase the amount of compensation payable thereunder
(as determined in accordance with Section 162(m) of the Code) upon the
attainment of such performance goal. Notwithstanding the preceding sentence, the
Plan Administrator may reduce or eliminate the number of shares of Common Stock
or cash granted or the number of shares of Common Stock vested upon the
attainment of such performance goal.
7
<PAGE>
12. Adjustment Provisions; Change in Control.
(a) If there shall be any change in the Common Stock of the Company,
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, reverse stock split, split up, spinoff, combination of shares,
exchange of shares, dividend in kind or other like change in capital structure
or distribution (other than normal cash dividends) to stockholders of the
Company, an adjustment shall be made to each outstanding Stock Option and Stock
Appreciation Right such that each such Stock Option and Stock Appreciation Right
shall thereafter be exercisable for such securities, cash and/or other property
as would have been received in respect of the Common Stock subject to such Stock
Option or Stock Appreciation Right had such Stock Option or Stock Appreciation
Right been exercised in full immediately prior to such change or distribution,
and such an adjustment shall be made successively each time any such change
shall occur. In addition, in the event of any such change or distribution, in
order to prevent dilution or enlargement of participants' rights under the Plan,
the Plan Administrator will have authority to adjust, in an equitable manner,
the number and kind of shares that may be issued under the Plan, the number and
kind of shares subject to outstanding Benefits, the exercise price applicable to
outstanding Benefits, and the Fair Market Value of the Common Stock and other
value determinations applicable to outstanding Benefits. Appropriate adjustments
may also be made by the Plan Administrator in the terms of any Benefits under
the Plan to reflect such changes or distributions and to modify any other terms
of outstanding Benefits on an equitable basis, including modifications of
performance targets and changes in the length of performance periods. In
addition, other than with respect to Stock Options, Stock Appreciation Rights
and other awards intended to constitute Performance-Based Awards, the Plan
Administrator is authorized to make adjustments to the terms and conditions of,
and the criteria included in, Benefits in recognition of unusual or nonrecurring
events affecting the Company or the financial statements of the Company, or in
response to changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Stock Option shall comply with the rules of Section 424(a) of the
Code, and (ii) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder other than an incentive stock option
for purposes of Section 422 of the Code.
(b) Notwithstanding any other provision of this Plan, if there is a
Change in Control of the Company, all then outstanding Stock Options and Stock
Appreciation Rights shall immediately become exercisable. For purposes of this
Section 12(b), a "Change in Control" of the Company shall be deemed to have
occurred upon any of the following events:
(i) A person or entity or group of persons or entities, acting in
concert, shall become the direct or indirect beneficial owner (within
the meaning of Rule 13d-3 of the Exchange Act) of securities of the
Company representing fifty percent (50%) or more
8
<PAGE>
of the combined voting power of the issued and outstanding common stock
of the Company (a "Significant Owner"), unless such shares are
originally issued to such Significant Owner by the Company; or
(ii) The majority of the Company's Board of Directors is no longer
comprised of the incumbent directors who constitute the Board of
Directors on the Effective Date (as hereinafter defined) and any other
individual(s) who becomes a director subsequent to the date of this
Agreement whose initial election or nomination for election as a
director, as the case may be, was approved by at least a majority of
the directors who comprised the incumbent directors as of the date of
such election or nomination; or
(iii) The Company's Common Stock shall cease to be publicly
traded; or
(iv) A sale of all or substantially all of the assets of the
Company; or
(v) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of the
Company, the consummation of which would result in the occurrence of
any event described in clause (ii) or (iii) above, and such transaction
shall have been consummated.
The Plan Administrator, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, each Stock Option and Stock
Appreciation Right outstanding hereunder shall terminate within a specified
number of days after notice to the holder, and such holder shall receive, with
respect to each share of Common Stock subject to such Stock Option or Stock
Appreciation Right, an amount equal to the excess of the Fair Market Value of
such shares of Common Stock immediately prior to the occurrence of such Change
in Control over the exercise price per share of such Stock Option or Stock
Appreciation Right; such amount to be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or in a
combination thereof, as the Plan Administrator, in its discretion, shall
determine. The provisions set forth in the preceding sentence shall be
inapplicable to a Stock Option or Stock Appreciation Right granted within six
(6) months before the occurrence of a Change in Control if the holder of such
Stock Option or Stock Appreciation Right is subject to the reporting
requirements of Section 16(a) of the Exchange Act and no exception from
liability under Section 16(b) of the Exchange Act is otherwise available to such
holder.
13. Transferability. Each Benefit granted under the Plan to a
participant shall not be transferable otherwise than by will or the laws of
descent and distribution, and shall be exercisable, during the participant's
lifetime, only by the participant. In the event of the death of a participant,
each Stock Option or Stock Appreciation Right theretofore granted to him or
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<PAGE>
her shall be exercisable during such period after his or her death as the Plan
Administrator shall in its discretion set forth in such option agreement or
right agreement at the date of grant and then only by the executor or
administrator of the estate of the deceased participant or the person or persons
to whom the deceased participant's rights under the Stock Option or Stock
Appreciation Right shall pass by will or the laws of descent and distribution.
Notwithstanding the foregoing, at the discretion of the Plan Administrator, an
award of a Benefit other than an Incentive Stock Option may permit the
transferability of a Benefit by a participant solely to members of the
participant's immediate family or trusts or family partnerships for the benefit
of such persons, subject to any restriction included in the award of the
Benefit.
14. Other Provisions. The award of any Benefit under the Plan may also
be subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Plan Administrator determines at the
date of grant, appropriate, including, without limitation, for the installment
purchase of Common Stock under Stock Options, for the installment exercise of
Stock Appreciation Rights, to assist the participant in financing the
acquisition of Common Stock, for the forfeiture of, or restrictions on resale or
other disposition of, Common Stock acquired under any form of Benefit, for the
acceleration of exercisability or vesting of Benefits in the event of a change
in control of the Company, for the payment of the value of Benefits to
participants in the event of a change in control of the Company, or to comply
with federal and state securities laws, or understandings or conditions as to
the participant's relationship with the Company in addition to those
specifically provided for under the Plan.
15. Fair Market Value. For purposes of this Plan and any Benefits
awarded hereunder, Fair Market Value shall be the closing price of the Company's
Common Stock on the date of calculation (or on the last preceding trading date
if Common Stock was not traded on such date) if the Company's Common Stock is
readily tradeable on a national securities exchange or other market system, and
if the Company's Common Stock is not readily tradeable, Fair Market Value shall
mean the amount determined in good faith by the Plan Administrator as the fair
market value of the Common Stock of the Company.
16. Withholding. All payments or distributions of Benefits made
pursuant to the Plan shall be net of any amounts required to be withheld
pursuant to applicable federal, state and local tax withholding requirements. If
the Company proposes or is required to distribute Common Stock pursuant to the
Plan, it may require the recipient to remit to it or to the corporation that
employs such recipient an amount sufficient to satisfy such tax withholding
requirements prior to the delivery of any certificates for such Common Stock. In
lieu thereof, the Company or the employing corporation shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
such corporation to the recipient as the Plan Administrator shall prescribe. The
Plan Administrator may, in its discretion and subject
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<PAGE>
to such rules as it may adopt (including any as may be required to satisfy
applicable tax and/or non-tax regulatory requirements), permit an optionee or
award or right holder to pay all or a portion of the federal, state and local
withholding taxes arising in connection with any Benefit consisting of shares of
Common Stock by electing to have the Company withhold shares of Common Stock
having a Fair Market Value equal to the amount of tax to be withheld, such tax
calculated at rates required by statute or regulation.
17. Tenure. A participant's right, if any, to continue to serve the
Company as a director, officer, employee, or otherwise, shall not be enlarged or
otherwise affected by his or her designation as a participant under the Plan.
18. Unfunded Plan. Participants shall have no right, title, or interest
whatsoever in or to any investments which the Company may make to aid it in
meeting its obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and any
participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be paid
from the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in the Plan. The Plan is not intended to
be subject to the Employee Retirement Income Security Act of 1974, as amended.
19. No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Benefit. The Plan Administrator
shall determine whether cash, or Benefits, or other property shall be issued or
paid in lieu of fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
20. Duration, Amendment and Termination. No Benefit shall be granted
more than ten years after the Effective Date; provided, however, that the terms
and conditions applicable to any Benefit granted prior to such date may
thereafter be amended or modified by mutual agreement between the Company and
the participant or such other persons as may then have an interest therein.
Also, by mutual agreement between the Company and a participant hereunder, under
this Plan or under any other present or future plan of the Company, Benefits may
be granted to such participant in substitution and exchange for, and in
cancellation of, any Benefits previously granted such participant under this
Plan, or any other present or future plan of the Company. The Board of Directors
may amend the Plan from time to time or suspend or terminate the Plan at any
time. However, no action authorized by this Section 20 shall reduce the amount
of any existing Benefit or change the terms and conditions thereof without the
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participant's consent. No amendment of the Plan shall, without approval of the
stockholders of the Company, (i) increase the total number of shares which may
be issued under the Plan or the maximum number of shares with respect to Stock
Options, Stock Appreciation Rights and other Benefits that may be granted to any
individual under the Plan or (ii) modify the requirements as to eligibility for
Benefits under the Plan; provided, however, that no amendment may be made
without approval of the stockholders of the Company if the amendment will
disqualify any Incentive Stock Options granted hereunder.
21. Governing Law. This Plan, Benefits granted hereunder and actions
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflict of laws).
22. Effective Date. (a) The Plan shall be effective as of November 20,
1996, the date on which the Plan was adopted by the Board of Directors and
approved by the stockholders of the Company (the "Effective Date").
(b) This Plan shall terminate on November 19, 2006 (unless sooner
terminated by the Board of Directors).
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EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into and effective this 1st day of
July, 1996 by and between AUTO CREDIT CLEARINGHOUSE L.P., a Delaware limited
partnership with its principal offices located in Boca Raton, Florida
(hereinafter referred to as the Limited Partnership") and WILLIAM G. MAGRO,
with an address at 912 John Fox Court, Lexington, South Carolina 29O72
(hereinafter referred to as the "Employee.").
WITNESSETH
WHEREAS, the Limited Partnership currently employs
Employee as its Executive Vice President;
WHEREAS, the Limited Partnership wishes to reduce to
writing the terms and conditions of Employee's employment; and
WHEREAS, Employee wishes also to reduce to writing the terms
and conditions of his employment by the Limited Partnership.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements and obligations contained herein, and intending to be legally bound,
the parties hereto agree as follows:
1. Employment and Term. The Limited Partnership
hereby employs Employee and Employee hereby accepts employment with the
Limited Partnership as its Executive Vice President. The term of such
employment shall begin on the effective date hereof and end on June 30,
1999, unless sooner terminated as provided in Section 10 herein (the
"Term").
2. Duties. During the Term, Employee shall in his
capacity as Executive Vice President, serve the Limited Partnership
faithfully and to the best of his ability a:nd devote such time to the
business of the Limited Partnership, subject to the provisions of
Section 3 herein, as (i) is necessary to carry out the duties and
responsibilities customarily incident to such position, including,
without limitation, the supervision of the other executive officers and
employees of the Limited Partnership who are subordinate to Employee,
and (ii) may be reasonably assigned to him from time to time by the
Board of Directors or Chairman, Chief Executive Officer and/or
President, if any, of National Auto Finance Corporation, the general
partner of the Limited Partnership (the "General Partner"), by the
Chairman, Chief Executive Officer and/or President, if any, of National
Auto Finance Company L.P. ("NAFCO"), or by the Chairman, Chief Executive
Officer and/or
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President, if any, of the Limited Partnership. Employee shall report to the
Board of Directors and Chairman, Chief Executive Officer and President, if any,
of the General Partner, to the Chainman, Chief Executive Officer and President,
if any, of NAFCO, and to the Chairman, Chief Executive Officer and President,
if any, of the Limited Partnership.
3. Other Business Activities. During the Term, Employee
shall not, without the prior written consent of the Limited Partnership,
directly or indirectly engage in any other business activities or pursuits,
except activities in connection with charitable or civic activities, personal
investments, service as an executor, trustee or in other similar fiduciary
capacities and such other activities as are not inconsistent with his positions
with the Limited Partnership and do not interfere with the performance of
Employee's duties, responsibilities and obligations pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Limited Partnership
shall pay Employee, and Employee hereby agrees to accept, as compensation for
all services rendered hereunder and for Employee's covenant not to compete as
provided for in Section 9 hereof, a base salary (the "Base Salary") at an annual
rate as follows:
(i) $110,571 through December 31, 1996;
(ii) $118,000 from January 1, 1997 through
December 31, 1997;
(iii) $127,500 from January 1, 1998 through
December 31, 1998; and
(iv) $137,000 from January 1, 1999 through June
30, 1999.
Payment of the Base Salary shall be made in the same manner as the Limited
Partnership routinely pays its other executive employees. All applicable
income, social security and other taxes and charges which are required by law
to be withheld by the Limited Partnership or which are requested to be withheld
by Employee, shall be deducted from the Base Salary in accordance with the
Limited Partnership's normal payroll practice for its salaried executives from
time to time in effect.
(b) Incentive Bonus. The Limited Partnership shall pay
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to Employee an incentive bonus for each of calendar years 1996,1997, 1998 and
1999. Such incentive bonus shall be calculated as follows:
(A) net income before taxes for the year(1) (as
determined by the independent auditors of the
Limited Partnership in accordance with Generally
Accepted Accounting Principles consistently
applied) divided by $7,000,000 for 1996;
$12,400,000 for 1997; $19,600,000 for 1998; and
$34,000,000 for 1999, with the resulting fraction
multiplied by $ $55,285.50 for 1996;$64,900 for
1997; $76,500 for 1998; $82,200 for 1999 or
(B) 1996 - $55,285.50
1997 - $64,900.00
1998 - $76,500.00
1999 - $82,200.00
Such incentive bonus earned for calendar years 1996, 1997,
1998 and 1999 shall be paid on or before March 31 of the next succeeding year.
5. Stock Option Plan. In the event that the Limited
Partnership or any successor entity adopts a stock option plan (other than the
current 1994 Award Units Plan), or in the event any stock option plan is
offered to the Limited Partnership or successor entity employees by a parent
organization (within the meaning of Rule 12 b-2 under the Securities Exchange
Act of 1934), Employee shall be entitled to participate in such stock option
plan.
6. Benefits and Expenses.
(a) Benefits. Employee shall be entitled to participate in
such benefit plans and programs, including pension, hospitalization, medical
and dental insurance, life and disability insurance, and vacation, as are made
available to the executive employees of the Limited Partnership from time to
time during the Term.
- --------
(1) In determining net income before taxes independent auditors shall
exclude any deductions to net income attributable either to intercompany
management fees (other than reimbursement for actual expenses including the net
of pocket expenses for such affiliate) or to any bonus payable to Employee.
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<PAGE>
(b) Expenses. Employee shall be reimbursed by the Limited
Partnership for all reasonable out-of-pocket expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of
his duties and responsibilities hereunder upon submission w the Limited
Partnership of receipts supporting such expenses.
(c) Automobile. The Limited Partnership will provide Employee
with a car allowance of Five Hundred and Fifty Dollars ($550.00) per month and
reimburse Employee for gasoline and oil expenses for his automobile upon
submission to the Limited Partnership of receipts supporting such expenses.
7. Confidentiality
(a) Non-Disclosure. Employee recognizes and acknowledges that
the Proprietary information (as hereinafter defined) of the Limited Partnership
is a valuable, special and unique asset of the Limited Partnership. As a
result, both during the Term and thereafter, Employee shall not, without the
prior written consent of the Limited Partnership, for any reason, either
directly or indirectly, divulge to any third party or use for Employee's own
benefit, or for any purpose other than the exclusive benefit of the Limited
Partnership, any and all confidential, proprietary, business or technical
information, or trade secrets of the Limited Partnership which are revealed,
obtained or developed in the course of Employee's employment with the Limited
Partnership (the "Proprietary Information"). Such Proprietary Information shall
include, but shall not be limited to, marketing and development plans and
efforts, cost information, pricing information, marketing methods and plans,
identities of the Limited Partnership's dealers, the Limited Partnership's
relationship with or potential its dealers, and any other confidential
information relating to the business of the Limited Partnership; provided,
however, that nothing herein contained shall restrict Employee's ability to
make such disclosures during the course of his employment as may be necessary
or appropriate to the effective and efficient discharge of his duties or as
such disclosures may be required by law; and further provided, that nothing
herein contained shall restrict Employee from divulging or using for his own
benefit or for any other purpose any Proprietary Information which is readily
available to the general public so long as such information did not become
available to the general public as a direct or indirect result of Employee's
breach of this Section 7.
(b) Inventions, Designs and Product Developments. All
inventions, discoveries, concepts, improvements, formulas, processes, devices,
methods, innovations, designs, ideas and
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<PAGE>
product developments (collectively, the "Developments"), developed or conceived
by Employee, solely or jointly with others, whether or not patentable or
copyrightable, at any time during the Term or within one (1) year after the
termination of this Agreement and which relate to the actual or planned
business activities of the Limited Partnership and all of the Employee's right,
title and interest therein, shall be the exclusive property of the Limited
Partnership. The Employee hereby assigns, transfers and conveys tot he Limited
Partnership all of his right, title and interest in and to any and all such
Developments. Employee shall disclose fully, as soon as practicable and in
writing, all Developments to the Chairman, Chief Executive Officer or President
of the Limited Partnership. At any time and from time to time, upon the request
of the Limited Partnership, the Employee shall execute and deliver to the
Limited Partnership any and all instruments, documents and papers, give
evidence and do any and all other acts which, in the opinion of counsel for the
Limited Partnership, are or may be necessary or desirable to document such
transfer or to enable the Limited Partnership to file and prosecute
applications for and to acquire, maintain and enforce any and all patents,
trademarks registrations or copyrights under United States or foreign law with
respect to any such Developments or to obtain any extension, validation,
reissue, continuance or renewal of any such patent1 trademark or copyright. The
Limited Partnership will, at its expense, be responsible for the preparation of
any such instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses the
Employee incurs in connection therewith upon submission to the Limited
Partnership of invoices with respect thereto.
8. Property of Limited Partnership. All Proprietary
Information and Developments shall be and remain the sole property of the
Limited Partnership. During the Term of this Agreement, Employee shall not
remove from the Limited Partnership's offices or premises any documents,
records, notebooks, files, correspondence, reports, memoranda or similar
materials containing information of the type identified in Section 7 hereof, or
other materials or property of any kind unless necessary or appropriate in
accordance with his duties and responsibilities and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or the contents of
any of the foregoing or of any other oral or written information
5
<PAGE>
to which he may have access or with which for any reason he may become
familiar, except as disclosure shall be necessary in the performance of his
duties; and upon the termination of his employment with the Limited
Partnership, he shall leave with or return to the Limited Partnership, all
originals and copies of the foregoing then in his possession, whether prepared
by Employee or by others.
9. Covenant Not to Compete.
(a) Employee shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of
Employee would, in the judgment of the Board of Directors of the General
Partner, be competitive with the automotive finance business of the Limited
Partnership, do any of the following, directly or indirectly, without the prior
written consent of the Limited Partnership:
(1) solicit, either directly or indirectly, business
from any dealer with whom the Limited Partnership shall
have dealt at any time;
(2) influence or attempt to influence any dealer with whom
the Limited Partnership shall have dealt at any time or
potential dealer of the Limited Partnership to terminate or
modify any written or oral agreement, arrangement or course
of dealing with the Limited Partnership; or
(3) influence or attempt to influence any person to either
(i) terminate or modify his employment, consulting, agency,
distributorship or other arrangement with the Limited
Partnership or (ii) employ or retain, or arrange to have any
other person or entity employ or retain, any person who has
been employed or retained by the Limited Partnership as an
employee, salesman, consultant or agent of the Limited
Partnership at any time during the one (1) year period
immediately preceding the effective date of Employee's
termination if the actions enumerated in clauses (i) and (ii)
would negatively affect the business and/or operations of the
Limited Partnership or the General Partner for a period of
one (1) year following the effective date of Employee's
termination.
(a) The Limited Partnership shall have the right, but not the
obligation, to require Employee, for a six month period of time following the
termination of Employee' S employment (for
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<PAGE>
whatever reason), anywhere within the United States of America or in any other
location where the activities of Employee would, in the judgment of the Board
of Directors of the General Partner, be competitive with the automotive finance
business of the Limited Partnership, not to engage in the conduct proscribed by
Section 9(a)(1), (2) and (3) by payment to Employee, over the extended covenant
period, of fifty percent (50%) of the amount paid to Employee (as reflected in
Employee's W-2) by the Limited Partnership in the full calendar year
immediately preceding Employee's termination. Any payments required by this
Section 9(b) shall be paid by check in the same time intervals as the Limited
Partnership routinely pays its executive employees. The Limited Partnership's
option to extend Employee's covenant not to compete may be exercised only by
providing Employee a minimum of one hundred twenty (120) days written notice.
Any exercise of the option shall be irrevocable.
(b) If the employment of Employee shall either expire
pursuant to Section 1 hereof, or shall be terminated pursuant to Section 10 of
this Agreement, Employee shall not, for a one (1) year period of time following
such termination, employ or retain, or arrange to have any other person or
entity employ or retain, any person who has been employed or retained by the
Limited Partnership any time during the one (1) year period immediately
preceding the' effective date of Employee's termination.
10. Termination. This Agreement may be terminated
during the Term upon the occurrence of any of the events described
in this Section 10. Upon termination, Employee shall be entitled to
such compensation and benefits as are described in this Section 10.
10.1 Termination for Disability.
(a) In the event of the disability of the Employee such that
Employee is unable to perform his duties and responsibilities hereunder to the
full extent required by this Agreement by reason of illness, injury or
incapacity for a period of more than one hundred twenty (120) consecutive days
or for a cumulative period of one hundred twenty (120) days within a twelve
(12) month period ("Disability" or "Disabled"), this Agreement may be
terminated by the Limited Partnership.
(b) In the event of a termination of Employee's employment
pursuant to Section 10.1(a), Employee will be entitled to receive (i) all
accrued but unpaid (as of the date of such termination) Base Salary and
Benefits and other forms of compensation and benefits payable or provided in
accordance with the terms of any then existing Limited Partnership compensation
or
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<PAGE>
benefit plan or arrangement, including payments prescribed under any disability
benefit or life insurance plan or arrangement in which Employee is a
participant or to which Employee is a party as an employee of the Limited
Partnership (Other Compensation"), and (ii) an amount equal to Employee's Base
Salary for a three (3) month period (at the rate then in effect at the time of
such termination). Except as specifically set forth in this Section 10.1(b) the
Limited Partnership shall have no liability or obligation to Employee for
compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 10.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event
that the Board of Directors of the General Partner disagrees with such
physician's conclusion, the Board of Directors of the General Partner may
require that Employee submit to a full physical examination by another licensed
physician selected by Employee and approved by the Board of Directors of the
General Partner. If the two opinions shall be inconsistent, a third opinion
shall be obtained after full physical examination by a third licensed physician
selected by Employee and approved by the Board of Directors of the General
Partner. The majority of the three opinions shall be conclusive.
10.2 Termination by Death. In the event that Employee dies
during the Term, Employee's employment shall be terminated thereby and the
Limited Partnership shall pay to Employee's executors, legal representatives or
administrators an amount equal to all accrued but unpaid (as of the date of
such termination) Base Salary, Benefits and Other Compensation. Except as
specifically set forth in this Section 10.2, the Limited Partnership shall have
no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or to any other person
claiming under or through him by reason of Employee's death.
10.3 Termination for Cause.
(a) The Limited Partnership may terminate this Agreement at
any time for "cause" upon written notice to Employee, which termination shall
become effective on the date specified in such notice. For purposes of this
Agreement, cause" shall mean: (i) any material breach by Employee of any of his
obligations under Sections ?, 8 or 9 of this Agreement; (ii) failure by
Employee to perform satisfactorily the duties assigned to him pursuant to this
Agreement; (iii) other conduct of Employee involving gross
8
<PAGE>
disloyalty or wilful misconduct with respect to the Limited Partnership,
including, without limitation, fraud, embezzlement, theft or proven dishonesty
in the course of his employment, or conviction of a felony; (iv) Employee's
willful engagement in conduct materially injurious to the economic interests or
reputation of the Limited Partnership; or (v) Employee's other gros's
misconduct or insubordination.
(b) In the event of a termination of Employee's employment
pursuant to clauses (i) or (iii) of Section 10.3(a), Employee shall be entitled
to receive all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Other Compensation, and all Base Salary, Benefits and
Other Compensation shall then cease at the time of such termination.
(c) In the event of a termination of Employee's employment
pursuant to clause (ii) of Section 10.3(a), Employee shall be entitled to
receive all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Other Compensation. Employee shall also be entitled to
receive an amount equal to his Base Salary (at the rate than in effect at the
time of such termination) for a twelve (12) month period, such amount to be
paid over the applicable period at times corresponding to the Limited
Partnership's normal payroll periods for executive officers as if no such
termination had occurred. Except as specifically set forth in this Section
10.3(c) all Base Salary, Benefits and Other Compensation shall then cease at
the time of such termination.
10.4 Termination By Employee For Good Reason
(a) Employee may terminate this Agreement at any time for
Good Reason (as defined below) effective upon the date designated by Employee
in written notice of his termination of employment pursuant to this Section
10.4(a); provided, that the effective date of such termination shall not be
less than ninety (90) days after such notice is given, unless the Board of
Directors of the General Partner declares such effective date to be earlier
than that designated by Employee, which such Board shall be entitled to do (but
not earlier than the date such notice is received). For purposes of this
Agreement, Good Reason shall mean a material breach by the Limited Partnership
of its obligations under this Agreement, including, but not limited to, the
following: (i) the failure by the Limited Partnership to pay Base Salary or any
other material form of compensation or material benefit to be paid or provided
to Employee hereunder, which failure is not cured by the Limited Partnership
within ten (10) days after the Limited Partnership's receipt of written
notification from Employee of such failure; and (ii) any material breach. not
encompassed within
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<PAGE>
clause (i) of this Section, 10.4(a), of the obligations of the Limited
Partnership under this Agreement which breach is not cured within thirty (30)
days after the Limited Partnership's receipt of written notification from the
Employee of such material breach.
(b) In the event of a termination of Employee's employment
pursuant to Section 10.4(a), Employee shall be entitled to receive all accrued
but unpaid (as of the date of such termination) Base Salary, Benefits and Other
Compensation. Employee shall also be entitled to receive an amount equal to his
Base Salary at the time of termination for a six (6) month period, such amount
to be paid over the applicable period at times corresponding to the Limited
Partnership's normal payroll periods for executive officers as if no such
termination had occurred. Except as specifically set forth in this Section
10.4(b), all Base Salary, Benefits and Other Compensation shall then cease at
the time of such termination.
10.5 Successor Party
The Limited Partnership shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Limited Partnership, by
agreement in form and substance satisfactory to Employee, to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Limited Partnership would be required to perform it. If no such
agreement prior to or simultaneously with the effectiveness of any such
succession is executed and delivered to Employee, such failure shall constitute
a material breach of this Agreement.
11. Survival of Provisions. The rights and obligations
of Employee pursuant to Sections 7, 8, 9, 10 and 14 of this
Agreement shall survive the termination of Employee's employment
hereunder.
12. Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the Limited Partnership and
Employee and their respective successors, executors, administrators, heirs
and/or permitted assigns; provided, however, that neither Employee nor the
Limited Partnership may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other parties hereto, except that, without such consent, the Limited
Partnership may assign this Agreement to any successor to all or substantially
all of its assets and business by means of liquidation, dissolution, merger,
consolidation, transfer of
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assets, or otherwise, provided that such successor assumes in writing all of
the obligations of the Limited Partnership under this Agreement.
13. No Conflicting Agreements. Employee represents to the
Limited Partnership that (i) Employee is not currently under contract to
provide services to any other party or entity; (ii) the execution, delivery and
performance of this Agreement by Employee will- not conflict with any other
agreement to which Employee is bound or to which Employee is a patty; (iii)
Employee is not currently bound by any form of restrictive covenant which would
restrict or limit the performance of his duties pursuant to this Agreement Upon
the execution and delivery of this Agreement by each of the parties hereto,
that certain Offer of Employment Letter dated September 12, 1994 between
Employee and NAFCO shall be superseded and of no further force or effect.
14. Employee Benefits. This Agreement shall not be construed
to be in lieu of or to the exclusion of any other rights, benefits and
privileges to which Employee may be entitled as an employee of the Limited
Partnership under any retirement, pension, profit-sharing, insurance, hospital
or other plans or benefits which may now be in effect or which may hereafter be
adopted.
15. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, or hand delivery, addressed as
follows or to such other address as any party may from time to time duly
specify by notice given to the other party in the manner specified above:
If to Employee:
Bill Magro
912 John Fox Court
Lexington, SC 29072
If to the Limited Partnership:
Auto Credit Clearinghouse L.P.
621 N.W. 53rd Street, Suite 390
Boca Raton, FL 33487
Attention: Gary L. Shapiro
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16. Entire Agreement: Amendments. This Agreement contains the
entire Agreement and understanding of the parties hereto relating to the
subject matter hereof, and merges and supersedes all prior discussions,
agreements and understandings of every nature between the partieS hereto
relating to the employment of Employee with the Limited Partnership. This
Agreement may not be changed or modified, except by an agreement in writing
signed by both of the parties hereto. In the event of any conflict between the
terms of this Agreement and the 1994 Award Units Plan offered by National Auto
Finance Company L.P., the terms of this Agreement shall control.
17. Waiver. The waiver of the breach of any term or
provision of this Agreement shall not operate as or be construed to
be a waiver of any other or subsequent breach of this Agreement.
18. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Florida, excluding its
choice of law provisions.
19. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
20. Section Heading. The section headings in this
Agreement are for convenience only. They form no part of this
Agreement and shall not affect, its interpretation.
21. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any
time period falls on a Saturday, Sunday or day which is a holiday in the State
of Florida, then such final day shall be deemed to be the next day which is not
a Saturday, Sunday or legal holiday.
22. Specific Enforcement. Employee acknowledges that the
restrictions contained in Sections 7, 8, and 9 hereof are reasonable and
necessary to protect the legitimate interests of the Limited Partnership and
its affiliates and that the Limited Partnership would not have entered into
this Agreement m the absence of such restrictions. Employee also acknowledges
that the nature of both his services to the Limited Partnership and the
obligations undertaken by Employee in Sections 7, 8, and 9 hereof
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are unique and that any breach by him of Sections 1, 8, and 9 hereof will cause
continuing and irreparable injury to the Limited Partnership for which monetary
damages would not be adequate remedy. In the event of such breach by Employee,
the Limited Partnership shall have the right to specific enforcement of the
provisions of Sections 7, 8, and 9 of this Agreement, or injunctive or other
relief in any court, and this Agreement shall not in any way limit remedies of
law or in equity otherwise available to the Limited Partnership. In the event
that the provisions of Sections 7, 8, and 9 hereof should ever be adjudicated
to exceed the time, geographic, or other limitations permitted by applicable
law in any jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic, or other limitations permitted by
applicable law.
23. Arbitration. Any controversy or claim arising out of or
relating to Section 10 hereof, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
Arbitration may be entered into any court having jurisdiction thereof. The
arbitration shall be heard by a single Arbitrator, and shall be conducted in
Boca Raton, Florida.
23. Notice of Renewal. The Limited Partnership shall send
written notice within 120 days of the end of the Term to the Employee of its
intent to enter into negotiations with the Employee for the possible renewal
("Renewal") of this Agreement. If within 90 days prior to the end of the Term,
the terms of Renewal have not been committed to writing then this Agreement
shall expire at the end of the 'Term.
IN WITNESS WHEREOF, the parties hereto have executed or
caused this Agreement to be duly executed on the date first above written.
WITNESS: EMPLOYEE:
/s/ William G. Magro
- -------------------------- -----------------------------
William G. Magro
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ATTEST: LIMITED PARTNERSHIP:
AUTO CREDIT CLEARINGHOUSE L.P.
By: /s/ Gary L. Shapiro
- -------------------------- ---------------------------------------
Gary L. Shapiro
Chairman
National Auto Finance Corporation
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EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into and effective this 16th day of
September, 1995 by and between NATIONAL AUTO FINANCE COMPANY L.P., a Delaware
limited partnership with its principal offices located in Boca Raton, Florida
(hereinafter referred to as the "Limited Partnership") and ROY E. TIPTON, with
an address at 9781 Majorca Place, Boca Raton, FL 33434 (hereinafter referred to
as the "Employee").
WITNESSETH
WHEREAS, the Limited Partnership currently employs
Employee as its President;
WHEREAS, the Limited Partnership wishes to reduce to
writing the terms and conditions of its employment of Employee;
and
WHEREAS, Employee wishes also to reduce to writing the terms
and conditions of his employment by the Limited Partnership.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements and obligations contained herein, and intending to be legally bound,
the parties hereto agree as follows:
1. Employment and Term. The Limited Partnership hereby
employs Employee and Employee hereby accepts employment with the Limited
Partnership as its President. The term of such employment shall begin on the
effective date hereof and end on December 31, 1998, unless sooner terminated as
provided in Section 10 herein (the "Term").
2. Duties. During the Term, Employee shall in his capacity as
President, serve the Limited Partnership faithfully and to the best of his
ability and devote such time to the business of the Limited Partnership,
subject to the provisions of Section 3 herein, as (i) is necessary to carry out
the duties and responsibilities customarily incident to such positions,
including, without limitation, the supervision of the other executive officers
and employees of the Limited Partnership who are subordinate to Employee and
(ii) may be reasonably assigned to him from time to time by the Board of
Directors or Chairman, Chief Executive Officer, and/or President, if any, of
National Auto Finance Corporation, the general partner of the Limited
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Partnership (the "General Partner"), or by the Chairman, and/or Chief Executive
Officer, if any, of the Limited Partnership. Employee shall report to the Board
of Directors and Chairman, and Chief Executive Officer, if any, of the General
Partner, and to the Chairman and/or Chief Executive Officer of the Limited
Partnership.
3. Other Business Activities. During the Term, Employee shall
not directly or indirectly engage in any other business activities or pursuits,
except activities in connection with charitable or civic activities, personal
investments, service as an executor, trustee or in other similar fiduciary
capacities and such other activities as are not inconsistent with his positions
with the Limited Partnership and do not interfere with the performance of
Employee's duties, responsibilities and obligations pursuant to this Agreement.
Employee may serve, with the consent of the Chairman of the Limited
Partnership, as a member of the board of directors of organizations not in
competition with the Limited Partnership.
4. Compensation.
(a) Salary. During the Term, the Limited Partnership shall
pay Employee, and Employee hereby agrees to accept, as compensation for all
services rendered hereunder and for Employee's covenant not to compete as
provided for in Section 9 hereof, a base salary (the "Base Salary"), at an
annual rate as follows:
(1) $115,000 through December 31, 1995;
(2) $130,000 from January 1, 1996 through December 31,
1996;
(3) $155,000 from January 1, 1997 through December 31,
1997; and
(4) $180,000 from January 1, 1998 through December 31,
1998.
Payment of the Base Salary shall be made by check in the same time intervals as
the Limited Partnership routinely pays its other executive employees but in no
case less frequently than once per month. All applicable income, social
security and other taxes and charges which are required by law to be withheld
by the Limited Partnership or which are requested to be withheld by Employee,
shall be deducted from the Base Salary in accordance
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with the Limited Partnership's normal payroll practice for its salaried
executives from time to time in effect.
(b) Incentive Bonus. The Limited Partnership may, at the
discretion of the Board of Directors of the General Partner, for calendar year
1995, pay to Employee an incentive bonus based upon the achievement of certain
performance goals with respect to the period beginning May 31, 1995 and ending
December 31, 1995. Such incentive bonus, shall be paid on or before March 31,
1996. For each of calendar years 1996, 1997 and 1998, Employee shall also be
paid an incentive bonus. Such incentive bonus shall be calculated as the lesser
of:
(A) net income taxes for the year(1) (as determined by the
independent auditors of the Limited Partnership in accordance
with Generally Accepted Accounting Principles consistently
applied) divided by $6,200,000 for 1996; $10,500,000 for
1997; and $15,000,000 for 1998, with the resulting fraction
multiplied by $78,000 for 1996; $96,875 for 1997; and
$117,000 for 1998; or
(B) 1996 - $78,000
1997 - $96,875
1998 - $117,000
Such incentive bonus earned for calendar years 1996, 1997, or
1998 shall be paid on or before March 31 of the next
succeeding year.
5. Stock Option Plan. In the event that the Limited
Partnership or any successor entity adopts a stock option plan (other than the
current 1994 Award Units Plan), or in the event any stock option plan is
offered to the Limited Partnership or successor entity employees by a parent
organization (within the meaning of Rule 12 b-2 under the Securities Exchange
Act of 1934), Employee shall be entitled to participate in such stock option
plan.
- --------
1. In determining net income before taxes independent auditors shall
exclude any deductions to net income attributable either to intercompany
management fees (other than reimbursement for actual expenses including the out
of pocket expenses for such affiliate) or to any bonus payable to Employee.
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6. Benefits and Expenses.
(a) Benefits. Employee shall be entitled to participate in
such benefit plans and programs, including pension, hospitalization, medical
and dental insurance, life and disability insurance, and vacation, as are made
available to the executive employees of the Limited Partnership from time to
time during the Term.
(b) Expenses. Employee shall be reimbursed by the Limited
Partnership for all reasonable out-of-pocket expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of
his duties and responsibilities hereunder upon submission to the Limited
Partnership of receipts supporting such expenses.
(c) Automobile. The Limited Partnership will provide Employee
with a car allowance of Six Hundred Dollars ($600.00) per month and reimburse
Employee for gasoline and oil expenses for his automobile upon submission to
the Limited Partnership of receipts supporting such expenses.
7. Confidentiality/Non-Disclosure. Employee recognizes and
acknowledges that the Proprietary Information (as hereinafter defined) of the
Limited Partnership is a valuable, special and unique asset of the Limited
Partnership. As a result, both during the Term and thereafter, Employee shall
not, without the prior written consent of the Limited Partnership, for any
reason, either directly or indirectly, divulge to any third party or use for
Employee's own benefit, or for any purpose other than the exclusive benefit of
the Limited Partnership, any and all confidential, proprietary, business or
technical information, or trade secrets of the Limited Partnership which are
revealed, obtained or developed in the course of Employee's employment with the
Limited Partnership (the "Proprietary Information"). Such Proprietary
Information shall include, but shall not be limited to, marketing and
development plans and efforts, cost information, pricing information, marketing
methods and plans, identities of dealers, the Limited Partnership's
relationship with actual or potential dealers, and any other confidential
information relating to the business of the Limited Partnership; provided,
however, that nothing herein contained shall restrict Employee's ability to
make such disclosures during the course of his employment as may be necessary
or appropriate to the effective and efficient discharge of his duties or as
such disclosures may be required by law; and further provided, that nothing
herein contained shall restrict Employee from divulging or using for his own
benefit or for any other purpose any
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Proprietary Information which is readily available to the general public so
long as such information did not become available to the general public as a
direct or indirect result of Employee's breach of this Section 7. The
proscriptions of this Section 7 shall not apply to Employee's disclosure of
information of the Limited Partnership to his independent legal counsel in
connection with the negotiation or enforcement of this Agreement, provided
Employee directs such counsel to maintain the confidentiality of such
information.
8. Property of Limited Partnership. All Proprietary
Information and Developments shall be and remain the sole property of the
Limited Partnership. During the Term of this Agreement, Employee shall not
remove from the Limited Partnership's offices or premises any documents,
records, notebooks, files, correspondence, reports, memoranda or similar
materials containing information of the type identified in Section 7 hereof, or
other materials or property of any kind unless necessary or appropriate in
accordance with his duties and responsibilities and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or the contents of
any of the foregoing or of any other oral or written information to which he
may have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of his duties; and upon the
termination of his employment with the Limited Partnership, he shall leave with
or return to the Limited Partnership, all originals and copies of the foregoing
then in his possession, whether prepared by Employee or by others. The
proscriptions of this Section 8 shall not apply to Employee's disclosure of
information of the Limited Partnership to his independent legal counsel in
connection with the negotiation or enforcement of this Agreement, provided
Employee directs such counsel to maintain the confidentiality of such
information.
9. Covenant Not to Compete.
(a) Employee shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of
Employee would, in the judgment of the Board of Directors of the General
Partner, be competitive with the automotive finance business of the Limited
Partnership, other
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than the "prime" automotive finance business should the Limited Partnership
elect to engage in this business sector in the future, do any of the following,
directly or indirectly, without the prior written consent of the Limited
Partnership:
(1) solicit, either directly or indirectly, automotive
finance business, other than prime automotive finance
business, from any dealer with whom the Limited Partnership
shall have dealt at any time during the one (1) year period
immediately preceding the effective date of Employee's
termination;
(2) discourage or attempt to discourage any dealer with whom
the Limited Partnership shall have dealt at any time during
the one (1) year period immediately preceding the effective
date of Employee's termination from doing business with the
Limited Partnership;
(3) influence or attempt to influence any person to either
(i) terminate or modify his employment, consulting, agency,
distributorship or other arrangement with the Limited
Partnership, or (ii) employ or retain, or arrange to have any
other person or entity employ or retain, any person who has
been employed or retained by the Limited Partnership as an
employee, salesman, consultant or agent of the Limited
Partnership at any time during the one (1) year period
immediately preceding the effective date of Employee's
termination if the actions enumerated in clauses (i) and (ii)
would negatively affect the business and/or operations of the
Limited Partnership or the General Partner.
(b) The Limited Partnership shall have the right, but not the
obligation, to require Employee, for a six month period of time following the
termination of Employee's employment (for whatever reason), anywhere within the
United States of America or in any other location where the activities of
Employee would, in the judgement of the Board of Directors of the General
Partner, be competitive with the automotive finance business of the Limited
Partnership, including the "prime" automotive finance business if the Limited
Partnership is engaged in such business upon the date of termination of
Employee's employment, not to engage in the conduct proscribed by Section
9(a)(1) (except that Employee also shall not be permitted to solicit prime
automotive finance business), (2) and (3) by payment to Employee, over the
extended covenant period, of fifty percent (50%) of the amount paid to Employee
(as reflected in Employee's W-2) by the Limited
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Partnership in the full calendar year immediately preceding Employee's
termination. Any payments required by this Section 9(b) shall be paid by check
in the same time intervals as the Limited Partnership routinely pays its
executive employees but not less frequently than once per month. The Limited
Partnership's option to extend Employee's covenant not to compete may be
exercised only by providing Employee a minimum of one hundred twenty (120) days
written notice. Any exercise of the option shall be irrevocable.
(c) If the employment of Employee shall either expire
pursuant to Section 1 hereof, or shall be terminated pursuant to Section 10 of
this Agreement, Employee shall not, for a one (1) year period of time following
such termination, employ or retain, or arrange to have any other person or
entity employ or retain, any person who has been employed or retained by the
Limited Partnership any time during the one (1) year period immediately
preceding the effective date of Employee's termination.
10. Termination. This Agreement may be terminated during the
Term upon the occurrence of any of the events described in this Section 10.
Upon termination, Employee shall be entitled to such compensation and benefits
as are described in this Section 10.
10.1 Termination for Disability.
(a) In the event of the disability of the Employee such that
Employee is unable to perform his duties and responsibilities hereunder to the
full extent required by this Agreement by reason of illness, injury or
incapacity for a period of more than one hundred eighty (180) consecutive days
or for a cumulative period of one hundred eighty (180) days within a twelve
(12) month period ("Disability" or "Disabled"), this Agreement may be
terminated by the Limited Partnership.
(b) In the event of a termination of Employee's employment
pursuant to Section 10.1(a), Employee will be entitled to receive (i) all
accrued but unpaid (as of the date of such termination) Base Salary and
Benefits and other forms of compensation and benefits payable or provided in
accordance with the terms of any then existing Limited Partnership compensation
or benefit plan or arrangement, including payments prescribed under any
disability benefit or life insurance plan or arrangement in which Employee is a
participant or to which employee is a party as an employee of the Limited
Partnership ("Other Compensation"), and (ii) an amount as calculated in Section
10.3. Except as specifically set forth in this Section
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10.1(b), the Limited Partnership shall have no liability or obligation to
Employee for compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 10.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event
that the Board of Directors of the General Partner disagrees with such
physician's conclusion, the Board of Directors of the General Partner may
require that Employee submit to a full physical examination by another licensed
physician selected by Employee and approved by the Board of Directors of the
General Partner. If the two opinions shall be inconsistent, a third opinion
shall be obtained after full physical examination by a third licensed physician
selected by Employee and approved by the Board of Directors of the General
Partner. The majority of the three opinions shall be conclusive.
10.2 Termination by Death. In the event that Employee dies
during the Term, Employee's employment shall be terminated thereby and the
Limited Partnership shall pay to Employee's executors, legal representatives or
administrators an amount equal to all accrued but unpaid (as of the date of
such termination) Base Salary, Benefits and Other Compensation. Except as
specifically set forth in this Section 10.2, the Limited Partnership shall have
no liability or obligations hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or to any other person
claiming under or through him by reason of death to pay any further Base
Salary, Benefits or Other Compensation as set forth herein.
10.3 Termination for Cause.
(a) The Limited Partnership may terminate this Agreement at
any time for "cause" upon written notice to Employee, which termination shall
become effective on the date specified in such notice. For purposes of this
Agreement, "cause" shall mean: (i) any material breach by Employee of any of
his obligations under Sections 7, 8, or 9 of this Agreement; (ii) failure by
Employee to perform satisfactorily the duties assigned to him pursuant to this
Agreement; (iii) Employee's conviction of a felony or misappropriation of
assets of the Limited Partnership for personal use; (iv) Employee's willful
engagement in conduct materially injurious to the economic interests or
reputation of the Limited Partnership; or (v) Employee's other gross misconduct
or insubordination. Except in
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the case of Section 10.3(a)(i) and (iii) Employee shall be entitled to cure his
performance within thirty (30) days after written notice from the Chairman of
the Board of Directors of the Limited Partnership. In the event a cure is not
effected, Employee shall be entitled to an opportunity to be heard by the Board
of Directors of the Limited Partnership.
(b) In the event of a termination of Employee's employment
pursuant to Section 10.3(a), Employee shall be entitled to receive all accrued
but unpaid (as of the date of such termination) Base Salary, Benefits and Other
Compensation, and all Base Salary, Benefits and Other Compensation shall then
cease at the time of such termination except as set forth in Section 10.3(c).
(c) In the event of a termination of Employee's employment
pursuant to clause (ii) of Section 10.3(a), Employee shall also be entitled to
receive an amount equal to his annual Base Salary (at the rate then in effect
at the time of such termination) such amount to be paid in a lump sum (less
mandatory withholdings) on the tenth day following Employee's termination.
10.4 Termination By Employee For Good Reason.
(a) Employee may terminate this Agreement at any time for
Good Reason (as defined below) effective upon the date designated by Employee
in written notice of his termination of employment pursuant to this Section
10.4(a); provided, that the effective date of such termination shall not be
less than ninety (90) days after such notice is given, unless the Board of
Directors of the General Partner declares such effective date to be earlier
than that designated by Employee, which such Board shall be entitled to do (but
not earlier than the date such notice is received). For purposes of this
Agreement, Good Reason shall mean a material breach by the Limited Partnership
of its obligation under this Agreement, including, but not limited to, the
following: (i) the failure by the Limited Partnership to pay Base Salary or any
other form of compensation or benefit to be paid or provided to Employee
hereunder, which failure is not cured by the Limited Partnership within ten
(10) days after the Limited Partnership's receipt of written notification from
Employee of such failure; and (ii) any material breach, not encompassed within
clause (i) of this Section 10.4(a), of the obligations of the Limited
Partnership under this Agreement which breach is not cured within thirty (30)
days after the Limited Partnership's receipt of written notification from the
Employee of such material breach.
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(b) In the event of a termination of Employee's employment
pursuant to Section 10.4(g), Employee shall be entitled to receive all accrued
but unpaid (as of the date of such termination) Base Salary, Benefits and Other
Compensation. Employee shall also be entitled to receive an amount equal to the
remaining unpaid balance of his Base Salary for the full remaining term of this
Agreement at the time of termination, such amount to be paid over the
applicable period at times corresponding to the Limited Partnership's normal
payroll periods for executive officers as if no such termination had occurred.
Except as specifically set forth in this Section 10.4(b), all Benefits and
Other Compensation shall then cease at the time of such termination.
10.5 Successor Party. The Limited Partnership shall require
any successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of the
Limited Partnership, by agreement in form and substance satisfactory to
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Limited Partnership would be required to
perform it. If no such agreement prior to or simultaneously with the
effectiveness of any such succession is executed and delivered to Employee,
such failure shall constitute a material breach of this Agreement.
11. Survival of Provisions. The rights and obligations of
Employee pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall
survive the termination of Employee's employment hereunder.
12. Successors and Assigns. This Agreement shall insure to
the benefit of and be binding upon the Limited Partnership and Employee and
their respective successors, executors, administrators, heirs and/or permitted
assigns; provided, however, that neither Employee nor the Limited Partnership
may make any assignment of this Agreement or any interest herein, by operation
of law or otherwise, without the prior written consent of the other parties
hereto, except that, without such consent, the Limited Partnership may assign
this Agreement to any successor to all or substantially all of its assets and
business by means of liquidation, dissolution, merger, consolidation, transfer
of assets, or otherwise, provided that such successor assumes in writing all of
the obligations of the Limited Partnership under this Agreement.
13. No Conflicting Agreements. Employee represents to the
Limited Partnership that (i) Employee is not currently under
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contract to provide services to any other party or entity; (ii) the execution,
delivery and performance of this Agreement by Employee will not conflict with
any other agreement to which Employee is bound or to which Employee is a party;
(iii) Employee is not currently bound by any form of restrictive covenant which
would restrict or limit the performance of his duties pursuant to this
Agreement. Upon the execution and delivery of this Agreement by each of the
parties hereto, that certain Offer of Employment Letter dated May 6, 1994
between Employee and the Limited Partnership shall be superseded and of no
further force or effect.
14. Employee Benefits. This Agreement shall not be construed
to be in lieu of or to the exclusion of any other rights, benefits and
privileges to which Employee may be entitled as an employee of the Limited
Partnership under any requirement, pension, profit-sharing, insurance, hospital
or other plans or benefits which may now be in effect or which may hereafter be
adopted.
15. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, or hand delivery, addressed as
follows or to such other address as any party may from time to time duly
specify by notice given to the other party in the manner specified above:
If to Employee:
Roy E. Tipton
9781 Majorca Place
Boca Raton, FL 33434
If to Limited Partnership:
National Auto Finance Company, L.P.
621 N.W. 53rd Street, Suite 340
Boca Raton, FL 33487
Attention: Gary L. Shapiro
16. Entire Agreement; Amendments; Conflicts. This Agreement
contains the entire Agreement and understanding of the parties hereto relating
to the subject matter hereof, and merges and supersedes all prior discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of Employee with the Limited Partnership. This
Agreement may not be changed or modified, except by an agreement in writing
signed by both of the parties
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hereto. In the event of any conflict between the terms of this Agreement and
the 1994 Awards Units Plan offered by the Limited Partnership, the terms of
this Agreement shall control.
17. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
18. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Florida, excluding its
choice of law provisions.
19. Invalidity. In case of any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
20. Section Headings. The section headings in this Agreement
are for convenience only. They form no part of this Agreement and shall not
affect its interpretation.
21. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any
time period falls on a Saturday, Sunday or day which is a holiday in the State
of Florida, then such final day shall be deemed to be the next day which is not
a Saturday, Sunday or legal holiday.
22. Specific Enforcement. Employee acknowledges that the
restrictions contained in Sections 7, 8, and 9 hereof are reasonable and
necessary to protect the legitimate interests of the Limited Partnership and
its affiliates and that the Limited Partnership would not have entered into
this Agreement in the absence of such restrictions. Employee also acknowledges
that the nature of both his services to the Limited Partnership and the
obligations undertaken by Employee in Sections 7, and 8, and 9 hereof are
unique and that any breach by him of Sections 7, 8, and 9 hereof will cause
continuing and irreparable injury to the Limited Partnership for which monetary
damages would not be adequate remedy. In the event of such breach by Employee,
the Limited Partnership shall have the right to specific enforcement of the
provisions of Sections 7, 8, and 9 of this Agreement, or injunctive or other
relief in any court, and this Agreement shall
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not in any way limit remedies of law or in equity otherwise available to the
Limited Partnership. In the event that the provisions of Sections 7, 8, and 9
hereof should ever be adjudicated to exceed the time, geographic, or other
limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, or other limitations permitted by applicable law.
23. New Auto Finance Entities. If National financial
Corporation, National Auto Finance Company L.P. or National Auto Finance
Corporation or any successor entities thereto form, during the Term, one or
more entities intended to engage either in the business of "D" grade automobile
financing or substandard automobile financing utilizing primarily referrals
from financial institutions, and Employee wishes to participate in any such
entities, Employee shall be offered without charge, two and one half percent
(2.5%) of any such entities.
24. Arbitration. Any controversy or claim arising out of or
relating to Section 10 hereof, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by this
Arbitration may be entered in any court having jurisdiction thereof. This
arbitration shall be heard by a single Arbitrator, and shall be conducted in
Boca Raton, Florida.
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IN WITNESS WHEREOF, the parties hereto have executed or
caused this Agreement to be duly executed on the date first above written.
WITNESS: EMPLOYEE:
/s/ Roy E. Tipton
- ------------------------ --------------------------------------
Roy E. Tipton
ATTEST: LIMITED PARTNERSHIP:
NATIONAL AUTO FINANCE COMPANY L.P.
By: /s/ Gary L. Shapiro
- ------------------------ -----------------------------------
Gary L. Shapiro
Chairman
National Auto Finance Corporation
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EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into and effective this 19th day of
October, 1995 by and between NATIONAL AUTO FINANCE COMPANY L.P., a Delaware
limited partnership with its principal offices located in Boca Raton, Florida
(hereinafter referred to as the "Limited partnership") and BLANE H. MACDONALD,
with an address at 1212 N.W. 102nd Way, Coral Springs, FL 33071 (hereinafter
referred to as the "Employee").
WITNESSETH
WHEREAS, the Limited Partnership currently employs
Employee as its Chief Operating Officer;
WHEREAS, the Limited Partnership wishes to reduce to
writing the terms and conditions of Employee's employment; and
WHEREAS, Employee wishes also to reduce to writing the terms
and conditions of his employment by the Limited Partnership.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements and obligations contained herein, and intending to be legally bound,
the parties hereto agree as follows:
1. Employment and Term. The Limited Partnership hereby
employs Employee and Employee hereby accepts employment with the Limited
Partnership as its Chief Operating Officer. The term of such employment shall
begin on the effective date hereof and end on December 31, 1998, unless sooner
terminated as provided in Section 10 herein (the "Term").
2. Duties. During the Term, Employee shall in his capacity as
Chief Operating Officer-serve the Limited Partnership faithfully and to the
best of his ability and devote such time to the business of the Limited
Partnership, subject to the provisions of Section 3 herein, as (i) is necessary
to carry out the duties and responsibilities customarily incident to such
position, including, without limitation, the supervision of the other executive
officers and employees of the Limited Partnership who are subordinate to
Employee and (ii) may be reasonably assigned to him from time to time by the
Board of Directors or Chairman, Chief Executive Officer and/or President, if
any, of National Auto Finance Corporation, the general partner of the
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Limited Partnership (the "General Partner"), or by the Chairman, Chief
Executive Officer and/or President, if any, of the Limited Partnership.
Employee shall report to the Board of Directors and Chairman, Chief Executive
Officer and President, if any, of the General Partner, and to the Chairman,
Chief Executive Officer and President, if any, of the Limited Partnership.
3. Other Business Activities. During the Term, Employee shall
not, without the prior written consent of the Limited Partnership, directly or
indirectly engage in any other business activities or pursuits, except
activities in connection with charitable or civic activities, personal
investments, service as an executor, trustee or in other similar fiduciary
capacities and such other activities as are not inconsistent with his positions
with the Limited Partnership and do not interfere with the performance of
Employee's duties, responsibilities and obligations pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Limited Partnership shall
pay Employee, and Employee hereby agrees to accept, as compensation for all
services rendered hereunder and for Employee's covenant not to compete as
provided for in Section 9 hereof, a base salary (the "Base Salary") at an
annual rate as follows:
(1) $88,000 through December 31, 1995;
(2) $103,000 from January 1, 1996 through
December 31, 1996;
(3) $116,000 from January 1, 1997 through
December 31, 1997; and
(4) $126,000 from January 1, 1998 through
December 31, 1998.
Payment of the Base Salary shall be made in the same manner as the Limited
Partnership routinely pays its other executive employees. All applicable
income, social security and other taxes and charges which are required by law
to be withheld by the Limited Partnership or which are requested to be withheld
by Employee, shall be deducted from the Base Salary in accordance with the
Limited Partnership's normal payroll practice for its salaried executives from
time to time in effect.
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(b) Incentive Bonus. The Limited Partnership may, at the
discretion of the Board of Directors of the General Partner, pay to Employee an
incentive bonus based upon the achievement of certain performance goals with
respect to calendar year ending December 31, 1995. Such incentive bonus if any,
shall be paid on or before March 31, 1996. For each of calendar years 1996,
1997 and 1998, Employee shall also be paid an incentive bonus. Such incentive
bonus shall be calculated as the lesser of:
(A) net income before taxes for the year(1) (as
determined by the independent auditors of
the Limited Partnership in accordance with
Generally Accepted Accounting Principles
consistently applied) divided by $6,200,000
for 1996; $10,500,000 for 1997; and
$15,000,000 for 1998, with the resulting
fraction multiplied by $51,500 for 1996,
$58,000 for 1997 and $63,000 for 1998; or
(B) 1996 - $51,500
1997 - $58,000
1998 - $63,000
Such incentive bonus earned for calendar years 1996, 1997, or 1998 shall be
paid on or before March 31 of the next succeeding year.
5. Stock Option Plan. In the event that the Limited
Partnership or any successor entity adopts a stock option plan (other than the
current 1994 Award Units Plan), or in the event any stock option plan is
offered to the Limited Partnership or successor entity employees by a parent
organization (within the meaning of Rule 12 b-2 under the Securities Exchange
Act of 1934), Employee shall be entitled to participate in such stock option
plan.
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1. in determining net income before taxes independent auditors shall exclude any
deductions to net income attributable either to intercompany management fees
(other than reimbursement for actual expenses, including the out-of-pocket
expenses for such affiliate), payment of fees or bonuses to National Financial
Corporation shareholders or to any annual bonus payable to Employee or other
employees of the Limited Partnership.
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6. Benefits and Expenses.
(a) Benefits. Employee shall be entitled to participate in
such benefit plans and programs, including pension, hospitalization, medical
and dental insurance, life and disability insurance, and vacation, as are made
available to the executive employees of the Limited Partnership from time to
time during the Term.
(b) Expenses. Employee shall be reimbursed by the Limited
Partnership for all reasonable out-of-pocket expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of
his duties and responsibilities hereunder upon submission to the Limited
Partnership of receipts supporting such expenses.
(c) Automobile. The Limited Partnership will provide Employee
with a car allowance of Five Hundred Dollars ($500.00) per month and reimburse
Employee for gasoline and oil expenses for his automobile upon submission to
the Limited Partnership of receipts supporting such expenses.
7. Confidentiality.
(a) Non-Disclosure. Employee recognizes and acknowledges that
the Proprietary information (as hereinafter defined) of the Limited Partnership
is a valuable, special and unique asset of the Limited Partnership. As a
result, both during the Term and thereafter, Employee shall not, without the
prior written consent of the Limited partnership, for any reason, either
directly or indirectly, divulge to any third party or use for Employee's own
benefit, or for any purpose other than the exclusive benefit of the Limited
Partnership, any and all confidential, proprietary, business or technical
information, or trade secrets of the Limited Partnership which are revealed,
obtained or developed in the course of Employee's employment with the Limited
Partnership (the "Proprietary Information"). Such Proprietary information shall
include, but shall not be limited to, marketing and development plans and
efforts, cost information, pricing information, marketing methods and plans,
identities of the Limited Partnership's dealers, the Limited Partnership's
relationship with or potential its dealers, and any other confidential
information relating to the business of the Limited Partnership; provided,
however, that nothing herein contained shall restrict Employee's ability to
make such disclosures during the course of his employment as may be necessary
or appropriate to the effective and efficient discharge of his duties or as
such disclosures may be required by law; and
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<PAGE>
further provided, that nothing herein contained shall restrict Employee from
divulging or using for his own benefit or for any other purpose any Proprietary
information which is readily available to the general public so long as such
information did not become available to the general public as a direct or
indirect result of Employee's breach of this Section 7.
(b) Inventions Designs and Product Developments. All
inventions, discoveries, concepts, improvements, formulas, processes, devices,
methods, innovations, designs, ideas and product developments (collectively,
the "Developments"), developed or conceived by Employee, solely or jointly with
others, whether or not patentable or copyrightable, at any time during the Term
or within one (1) year after the termination of this Agreement and which relate
to the actual or planned business activities of the Limited Partnership and all
of the Employee's right, title and interest therein, shall be the exclusive
property of the Limited Partnership. The Employee hereby assigns, transfers and
conveys to the Limited Partnership all of his right, title and interest in and
to any and all such Developments Employee shall disclose fully, as soon as
practicable and in writing, all Developments to the Chairman, Chief Executive
Officer or President of the Limited Partnership. At any time and from time to
time, upon the request of the Limited Partnership, the Employee shall execute
and deliver to the Limited Partnership any and all instruments, documents and
papers, give evidence and do any and all other acts which, in the opinion of
counsel for the Limited Partnership, are or may be necessary or desirable to
document such transfer or to enable the Limited Partnership to file and
prosecute applications for and to acquire, maintain and enforce any and all
patents, trademarks registrations or copyrights under United States or foreign
law with respect to any such Developments or to obtain any extension,
validation, reissue, continuance or renewal of any such patent, trademark or
copyright. The Limited Partnership will, at its expense, be responsible for the
preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse the Employee for all
reasonable expenses the Employee incurs in connection therewith upon submission
to the Limited Partnership of invoices with respect thereto.
8. Property of Corporation. All Proprietary Information and
Developments shall be and remain the sole property of the Limited Partnership.
During the Term of this Agreement, Employee shall not remove from the Limited
Partnership's offices or premises any documents, records, notebooks, files,
correspondence, reports, memoranda or similar
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<PAGE>
materials containing information of the type identified in Section 6 7 hereof,
or other materials or property of any kind unless necessary or appropriate in
accordance with his duties and responsibilities and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or the contents of
any of the foregoing or of any other oral or written information to which he
may have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of his duties; and upon the
termination of his employment with the Limited Partnership, he shall leave with
or return to the Limited Partnership, all originals and copies of the foregoing
then in his possession, whether prepared by Employee or by others.
9. Covenant Not to Compete.
(a) Employee shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of
Employee would, in the judgment of the Board of Directors of the General
Partner, be competitive with the automotive finance business of the Limited
Partnership, do any of the following, directly or indirectly, without the prior
written consent of the Limited Partnership:
(1) solicit, either directly or indirectly,
business from any dealer with whom the Limited
Partnership shall have dealt at any time;
(2) influence or attempt to influence any dealer
with whom the Limited Partnership shall have dealt
at any time or potential dealer of the Limited
Partnership to terminate or modify any written or
oral agreement, arrangement or course of dealing
with the Limited Partnership; or
(3) influence or attempt to influence any person to
either (i) terminate or modify his employment,
consulting, agency, distributorship or other
arrangement with the Limited Partnership, or (ii)
employ or retain, or arrange to have any other
person or entity employ or retain, any person who
has been employed or retained by the Limited
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Partnership as an employee, salesman, consultant
or agent of the Limited Partnership at any time.
(b) The Limited Partnership shall have the right, but not the
obligation, to require Employee, for a six month period of time following the
termination of Employee's employment (for whatever reason), anywhere within the
United States of America or in any other location where the activities of
Employee would, in the judgment of the Board of Directors of the General
Partner, be competitive with the automotive finance business ~f the Limited
Partnership, not to engage in the conduct proscribed by Section 9(a)(1), (2)
and (3) by payment to Employee, over the extended covenant period, of fifty
percent (50%) of the amount paid to Employee (as reflected in Employee's W-2)
by the Limited Partnership in the full calendar year immediately preceding
Employee's termination. Any payments required by this Section 9(b) shall be
paid by check in the same time internals as the Limited Partnership routinely
pays its executive employees. The Limited Partnership's option to extend
Employee's covenant not to compete may be exercised only by providing Employee
a minimum of one hundred twenty (120) days written notice.
(c) If the employment of Employee shall either expire
pursuant to Section 1 hereof, or shall be terminated pursuant to Section 10 of
this Agreement, Employee shall not, for a one (1) year period of time following
such termination, employ or retain, or arrange to have any other person or
entity employ or retain, any person who has been employed or retained by the
Limited Partnership any time during the one (1) year period immediately
preceding the effective date of Employee's termination.
10. Termination. This Agreement may be terminated during the
Term upon the occurrence of any of the events described in this Section 10.
Upon termination, Employee shall be entitled to such compensation and benefits
as are described in this Section 910.
10.1 Termination for Disability.
(a) In the event of the disability of the Employee such that
Employee is unable to perform his duties and responsibilities hereunder to the
fill extent required by this Agreement by reason of illness, injury or
incapacity for a period of more than one hundred twenty (120) consecutive days
or for a cumulative period of one hundred twenty (120) days within a twelve
(12) month period ("Disability" or "Disabled"), this Agreement may be
terminated by the Limited Partnership.
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<PAGE>
(b) In the event of a termination of employee's employment
pursuant to Section 10.1(a), Employee will be entitled to receive (i) all
accrued but unpaid (as of the date of such termination) Base Salary and
Benefits and other forms of compensation and benefits payable or provided in
accordance with the terms of any then existing Limited Partnership compensation
or benefit plan or arrangement, including payments prescribed under any
disability benefit or life insurance plan or arrangement in which Employee is a
participant or to which Employee is a party as an employee of tile Limited
Partnership ("Other Compensation"), and (ii) an amount equal to Employee's Base
Salary for a three (3) month period (at the rate then in effect at the time of
such termination). Except as specifically set forth in this Section 10.1(b),
the Limited Partnership shall have no liability or obligation to Employee for
compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 10.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event
that the Board of Directors of the General Partner disagrees with such
physician's conclusion, the Board of Directors of the General Partner may
require that Employee submit to a fun physical examination by another licensed
physician selected by Employee and approved by the Board of Directors of the
General Partner. If the two opinions shall be inconsistent, a third opinion
shall be obtained after full physical examination by a third licensed physician
selected by Employee and approved by the Board of Directors of the General
Partner. The majority of the three opinions shall be conclusive.
10.2 Termination by Death. In the event that Employee dies
during the Term, Employee's employment shall be terminated thereby and the
Limited Partnership shall pay to Employee's executors, legal representatives or
administrators an amount equal to all accrued but unpaid (as of the date of
such termination) Base Salary, Benefits and Other Compensation. Except as
specifically set forth in this Section 10.2, the Limited Partnership shall have
no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or to any other person
claiming under or through him by reason of Employee's death.
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<PAGE>
10.3 Termination for Cause.
(a) The Limited Partnership may terminate this Agreement at
any time for "cause" upon written notice to Employee, which termination shall
become effective on the date specified in such notice. For purposes of this
Agreement, "cause" shall mean: (i) any material breach by Employee of any of
his obligations under Sections 7, 8 or 9 of this Agreement, (ii) failure by
Employee to perform satisfactorily the duties assigned to him pursuant to this
Agreement, or (iii) other conduct of Employee involving gross disloyalty or
willful misconduct with respect to the Limited Partnership, including, without
limitation, fraud, embezzlement, theft or proven dishonesty in the course of
his employment, or conviction of a felony.
(b) In the event of a termination of Employee's employment
pursuant to clauses (i) or (iii) of Section 10.3(a), Employee shall be entitled
to receive all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Other Compensation, and all Base Salary, Benefits and
Other Compensation shall then cease at the time of such termination.
(c) In the event of a termination of Employee's employment
pursuant to clause (ii) of Section 10.3(a), Employee shall be entitled to
receive all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Other Compensation. Employee shall also be entitled to
receive an amount equal to his Base Salary (at the rate than in effect at the
time of such termination) for a twelve (12) month period, such amount to be
paid over the applicable period at times corresponding to the Limited
Partnership's normal payroll periods for executive officers as if no such
termination had occurred. Except as specifically set forth in this Section
10.3(c), all Base Salary, Benefits and Other Compensation shall then cease at
the time of such termination.
10.4 Termination By Employee For Good Reason.
(a) Employee may terminate this Agreement at any time for
Good Reason (as defined below) effective upon the date designated by Employee
in written notice of his termination of employment pursuant to this Section
10.4(a); provided, that the effective date of such termination shall not be
less than ninety (90) days after such notice is given, unless the Board of
Directors of the General Partner declares such effective date to be earlier
than that designated by Employee, which such Board shall be entitled to do (but
not earlier than the date such notice is received). For purposes of this
Agreement, Good Reason
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<PAGE>
shall mean a material breach by the Limited Partnership of its obligations
under this Agreement, including, but not limited to, the following: (i) the
failure by the Limited Partnership to pay Base Salary or any other material
form of compensation or material benefit to be paid or provided to Employee
hereunder, which failure is not cured by the Limited Partnership within ten
(10) days after the Limited Partnership's receipt of written notification from
Employee of such failure; and (ii) any material breach, not encompassed within
clause (i) of this Section 10.4(a), of the obligations of the Limited
Partnership under this Agreement which breach is not cured within thirty (30)
days after the Limited Partnership's receipt of written notification from the
Employee of such material breach.
(b) In the event of a termination of Employee's employment
pursuant to Section 10.4(a), Employee shall be entitled to receive all accrued
but unpaid (as of the date of such termination) Base Salary, Benefits and Other
Compensation. Employee shall also be entitled to receive an amount equal to his
Base Salary at the time of termination for a twelve (12) month period, such
amount to be paid over the applicable period at times corresponding to the
Limited Partnership's normal payroll periods for executive officers as if no
such termination had occurred. Except as specifically set forth in this Section
10.4(b), all Base Salary, Benefits and Other Compensation shall then cease at
the time of such termination.
11. Survival of Provisions. The rights and obligations of
Employee pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall
survive the termination of Employee's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Limited Partnership and Employee and their
respective successors, executors, administrators, heirs and/or permitted
assigns; provided, however, that neither Employee nor the Limited Partnership
may make any assignment of this Agreement or any interest herein, by operation
of law or otherwise, without the prior written consent of the other parties
hereto, except that, without such consent, the Limited Partnership may assign
this Agreement to any successor to all or substantially all of its assets and
business by means of liquidation, dissolution, merger, consolidation, transfer
of assets, or otherwise, provided that such successor assumes in writing all of
the obligations of the Limited Partnership under this Agreement.
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13. No Conflicting Agreements. Employee represents to the
Limited Partnership that (i) Employee is not currently under contract to
provide services to any other party or entity; (ii) the execution, delivery and
performance of this Agreement by Employee will not conflict with any other
agreement to which Employee is bound or to which Employee is a party; (iii)
Employee is not currently bound by any form of restrictive covenant which would
restrict or limit the performance of his duties pursuant to this Agreement.
Upon the execution and delivery of this Agreement by each of the parties
hereto, that certain Offer of Employment Letter dated June 24, 1994 between
Employee and the Limited Partnership shall be superseded and of no further
force or effect.
14. Employee Benefits. This Agreement shall not be construed
to be in lieu of or to the exclusion of any other rights, benefits and
privileges to which Employee may be entitled as an employee of the Limited
Partnership under any retirement, pension, profit-sharing, insurance, hospital
or other plans or benefits which may now be in effect or which may hereafter be
adopted.
15. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, or hand delivery, addressed as
follows or to such other address as any party may from time to time duly
specify by notice given to the other party in the manner specified above:
If to Employee:
Blane H. McDonald
1212 N.W. 102nd Way
Coral Springs, FL 33071
If to the Limited Partnership:
National Auto Finance Company L.P.
621 N.W. 53rd Street, Suite 200
Boca Raton, FL 33487
Attention: Gary L. Shapiro
16. Entire Agreement: Amendments. This Agreement contains the
entire Agreement and understanding of the parties hereto relating to the
subject matter hereof, and merges and supersedes all prior discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of Employee with the Limited Partnership. This
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<PAGE>
Agreement may not be changed or modified, except by an agreement m writing
signed by both of the parties hereto.
17. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
18. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Florida, excluding its
choice of law provisions.
19. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
20. Section Headings. The section headings in this Agreement
are for convenience only. They form no part of this Agreement and shall not
affect its interpretation.
21. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any
time period falls on a Saturday, Sunday or day which is a holiday in the State
of Florida, then such final day shall be deemed to be the next day which is not
a Saturday, Sunday or legal holiday.
22. Specific Enforcement. Employee acknowledges that the
restrictions contained in Sections 7, 8, and 9 hereof are reasonable and
necessary to protect the legitimate interests of the Limited Partnership and
its affiliates and that the Limited Partnership would not have entered into
this Agreement in the absence of such restrictions. Employee also acknowledges
that the nature of both his services to the Limited Partnership and the
obligations undertaken by Employee in Sections 7, 8, and 9 hereof are unique
and that any breach by him of Sections 7, 8, and 9 hereof will cause continuing
and irreparable injury to the Limited Partnership for which monetary damages
would not be adequate remedy. In the event of such breach by Employee, the
Limited Partnership shall have the right to specific enforcement of the
provisions of Sections 7, 8, and 9 of this Agreement, or injunctive or other
relief in any court, and this Agreement shall not in any way limit remedies of
law or in equity otherwise
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<PAGE>
available to the Limited Partnership. In the event that the provisions of
Sections 7, 8, and 9 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic, or other limitations permitted by
applicable law.
23. New Auto Finance Entities. If National Financial
Corporation, National Auto Finance Company L.P. or National Auto Finance
Corporation or any successor entities thereto, not including successor entities
of third party acquirors, form, during the Term, one or more entities intended
to engage either in the business of "D" grade automobile financing or
substandard automobile financing utilizing primarily referrals from financial
institutions, and Employee wishes to participate in any such entities, Employee
shall be offered without charge, one percent (1%) of any such entities.
24. Arbitration. Any controversy or claim arising out of or
relating to Section 10 hereof, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
Arbitration may be entered into any court having jurisdiction thereof. The
arbitration shall be heard by a single Arbitrator, and shall be conducted in
Boca Raton, Florida.
25. Notice of Renewal. The Limited Partnership shall send
written notice within 120 days of the end of the Term to the Employee of its
intent to enter into negotiations with the Employee for the possible renewal
("Renewal") of this Agreement. If within 90 days prior to the end of the Term,
the terms of Renewal have not been committed to writing then this Agreement
shall expire at the end of the Term.
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IN WITNESS WHEREOF, the parties hereto have executed or
caused this Agreement to be duly executed on the date first above written.
WITNESS: EMPLOYEE:
/s/ Blane H. MacDonald
- ---------------------- -------------------------------------
Blane H. MacDonald
ATTEST: LIMITED PARTNERSHIP:
NATIONAL AUTO FINANCE
COMPANY L.P.
By: /s/ Gary L. Shapiro
- ---------------------- ----------------------------------
Gary L. Shapiro
Chief Executive Officer
National Auto Finance Corporation
14
<PAGE>
FINANCIAL GUARANTY
INSURANCE POLICY
TRUST: National Auto Finance 1995-1 Trust Policy No. 50410-N
CERTIFICATES: $38,220,000 6.36% Automobile Loan, Date of Issuance: 11/21/95
Asset-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
<PAGE>
Policy may not be cancelled 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)
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<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 1995-1 TRUST
CERTIFICATES: $38,220,000 6.36% Automobile Loan Asset-Backed Certificates
Policy No.: 50410-N
Date of Issuance: November 21, 1995
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 or Chicago,
Illinois 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
Distribution 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.
3
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"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 1, 1995 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, 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. Notice 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 Policy Payment Account established pursuant
to the Pooling and Servicing Agreement or, if no such Policy Payment Account has
been established, to the Trustee.
4
<PAGE>
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 Guaranteed Distribution is
avoided as a preference payment under applicable bankruptcy, insolvency,
receivership or 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 of the court or other governmental
body which exercised jurisdiction to the effect that the Holder is required to
return principal or interest distributed with respect to the Certificates during
the Term of this Policy because such distributions were avoidable as preference
payments under applicable bankruptcy law (the "Order"), (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.
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<PAGE>
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 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, New York 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.
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<PAGE>
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
7
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into and effective this 31st day of
December, 1996 by and between NATIONAL AUTO FINANCE COMPANY L.P., a Delaware
limited partnership with its principal offices located in Boca Raton, Florida
(hereinafter referred to as the "Limited Partnership") and STEPHEN R. STACK,
with an address at 13776 Exotica Lane, Wellington, Florida (hereinafter referred
to as the "Employee").
WITNESSETH
WHEREAS, the Limited Partnership currently employs Employee as
a member of its senior management;
WHEREAS, the Limited Partnership wishes to reduce to writing
the terms and conditions of Employee's employment; and
WHEREAS, Employee wishes also to reduce to writing the terms
and conditions of his employment by the Limited Partnership.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements and obligations contained herein, and intending to be legally bound,
the parties hereto agree as follows:
1. Employment and Term. The Limited Partnership hereby employs
Employee and Employee hereby accepts employment with the Limited Partnership as
a member of its senior management. The term of such employment shall begin on
the effective date hereof and end on June 30, 1999 unless sooner terminated as
provided in Section 10 herein (the "Term").
2. Duties. During the Term, Employee shall serve the Limited
Partnership faithfully and to the best of his ability and devote such time to
the business of the Limited Partnership, subject to the provisions of Section 3
herein, as (i) is necessary to carry out the duties and responsibilities
customarily incident to a position in senior management, including, without
limitation, the supervision of other executive officers and employees of the
Limited Partnership who are subordinate to Employee, and (ii) may be reasonably
assigned to him from time to time by the Board of Directors or Chairman, Chief
Executive Officer and/or President of National Auto Finance Corporation, the
general partner of the Limited Partnership (the "General Partner") or by the
Chairman, Chief Executive Officer and/or President of the Limited Partnership.
Employee shall
<PAGE>
report to the Board of Directors and Chairman, Chief Executive Officer and
President, if any, of the General Partner, to the Chairman, Chief Executive
Officer and President, if any, of NAFCO, and to the Chairman, Chief Executive
Officer and President of the Limited Partnership.
3. Other Business Activities. During the Term, Employee shall
not, without the prior written consent of the Limited Partnership, directly or
indirectly engage in any other business activities or pursuits, except
activities in connection with charitable or civic activities, personal
investments, service as an executor, trustee or in other similar fiduciary
capacities and such other activities as are not inconsistent with his positions
with the Limited Partnership and do not interfere with the performance of
Employee's duties, responsibilities and obligations pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Limited Partnership shall pay
Employee, and Employee hereby agrees to accept, as compensation for all services
rendered hereunder and for Employee's covenant not to compete as provided for in
Section 9 hereof, a base salary (the "Base Salary") at an annual rate as
follows:
(i) $105,000 through December 31, 1996;
(ii) $115,000 from January 1, 1997 through December 31,
1997;
(iii) $128,000 from January 1, 1998 through December 31,
1998; and
(iv) $144,000 from January 1, 1999 through June 30, 1999.
Payment of the Base Salary shall be made in the same manner as the Limited
Partnership routinely pays its other executive employees. All applicable
income, social security and other taxes and charges which are required by law
to be withheld by the Limited Partnership or which are requested to be withheld
by Employee, shall be deducted from the Base Salary in accordance with the
Limited Partnership's normal payroll practice for its salaried executives from
time to time in effect.
(b) Incentive Bonus. The Limited Partnership shall pay to
Employee an incentive bonus for each of calendar years 1996, 1997, 1998 and
1999. Such incentive bonus shall be calculated as the lesser of:
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<PAGE>
(A) net income before taxes for the year(1) (as
determined by the independent auditors of the
Limited Partnership in accordance with Generally
Accepted Accounting Principles consistently
applied) divided by $7,000,000 for 1996;
$12,400,000 for 1997; $19,600,000 for 1998; and
$34,000,000 for 1999, with the resulting fraction
multiplied by $52,500 for 1996; $57,500 for 1997;
$64,000 for 1998; $72,000 for 1999 or
(B) 1996 - $52,500.00
1997 - 57,500.00
1998 - 64,000.00
1999 - 72,000.00
Such incentive bonus earned for calendar years 1996, 1997,
1998 and 1999 shall be paid on or before March 31 of the next succeeding year.
5. Stock Option Plan. In the event that the Limited Partnership or any
successor entity adopts a stock option plan, in the event any stock option plan
is offered to the Limited Partnership or successor entity employees by a parent
organization (within the meaning of Rule 12 b-2 under the Securities Exchange
Act of 1934), Employee shall be entitled to participate in such stock option
plan.
6. Benefits and Expenses.
(a) Benefits. Employee shall be entitled to participate in such
benefit plans and programs, including pension, hospitalization, medical and
dental insurance, life and disability insurance, and vacation, as are made
available to the executive employees of the Limited Partnership from time to
time during the Term.
(b) Expenses. Employee shall be reimbursed by the Limited
Partnership for all reasonable out-of-pocket expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of his
duties and responsibilities
- ------------------
(1) In determining net income before taxes independent auditors shall exclude
any deductions to net income attributable either to intercompany management fees
(other than reimbursement for actual expenses including the net of pocket
expenses for such affiliate) or to any bonus payable to Employee.
3
<PAGE>
hereunder upon submission to the Limited Partnership of receipts supporting
such expenses.
(c) Automobile. The Limited Partnership will provide Employee with
a car allowance of Five Hundred Dollars ($500.00) per month and reimburse
Employee for gasoline and oil expenses for his automobile upon submission to the
Limited Partnership of receipts supporting such expenses.
7. Confidentiality.
(a) Non-Disclosure. Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) of the Limited Partnership is a
valuable, special and unique asset of the Limited Partnership. As a result, both
during the Term and thereafter, Employee shall not, without the prior written
consent of the Limited Partnership, for any reason, either directly or
indirectly, divulge to any third party or use for Employee's own benefit, or for
any purpose other than the exclusive benefit of the Limited Partnership, any and
all confidential, proprietary, business or technical information, or trade
secrets of the Limited Partnership which are revealed, obtained or developed in
the course of Employee's employment with the Limited Partnership (the
"Proprietary Information"). Such Proprietary Information shall include, but
shall not be limited to, marketing and development plans and efforts, cost
information, pricing information, marketing methods and plans, identities of the
Limited Partnership's dealers, the Limited Partnership's relationship with or
potential its dealers, and any other confidential information relating to the
business of the Limited Partnership; provided, however, that nothing herein
contained shall restrict Employee's ability to make such disclosures during the
course of his employment as may be necessary or appropriate to the effective and
efficient discharge of his duties or as such disclosures may be required by law;
and further provided, that nothing herein contained shall restrict Employee from
divulging or using for his own benefit or for any other purpose any Proprietary
Information which is readily available to the general public so long as such
information did not become available to the general public as a direct or
indirect result of Employee's breach of this Section 7.
(b) Inventions, Designs and Product Developments. All inventions,
discoveries, concepts, improvements, formulas, processes, devices, methods,
innovations, designs, ideas and product developments (collectively, the
"Developments"), developed or conceived by Employee, solely or jointly with
others, whether or not patentable or copyrightable, at any time
4
<PAGE>
during the Term or within one (1) year after the termination of this Agreement
and which relate to the actual or planned business activities of the Limited
Partnership and all of the Employee's right, title and interest therein, shall
be the exclusive property of the Limited Partnership. The Employee hereby
assigns, transfers and conveys to the Limited Partnership all of his right,
title and interest in and to any and all such Developments. Employee shall
disclose fully, as soon as practicable and in writing, all Developments to the
Chairman, Chief Executive Officer or President of the Limited Partnership. At
any time and from time to time, upon the request of the Limited Partnership,
the Employee shall execute and deliver to the Limited Partnership any and all
instruments, documents and papers, give evidence and do any and all other acts
which, in the opinion of counsel for the Limited Partnership, are or may be
necessary or desirable to document such transfer or to enable the Limited
Partnership to file and prosecute applications for and to acquire, maintain and
enforce any and all patents, trademarks registrations or copyrights under
United States or foreign law with respect to any such Developments or to obtain
any extension, validation, reissue, continuance or renewal of any such patent,
trademark or copyright. The Limited Partnership will, at its expense, be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses the Employee incurs in connection therewith upon
submission to the Limited Partnership of invoices with respect thereto.
8. Property of Limited Partnership. All Proprietary Information and
Developments shall be and remain the sole property of the Limited Partnership.
During the Term of this Agreement, Employee shall not remove from the Limited
Partnership's offices or premises any documents, records, notebooks, files,
correspondence, reports, memoranda or similar materials containing information
of the type identified in Section 7 hereof, or other materials or property of
any kind unless necessary or appropriate in accordance with his duties and
responsibilities and, in the event that such materials or property are removed,
all of the foregoing shall be returned to their proper files or places of
safekeeping as promptly as possible after the removal shall serve its specific
purpose. Employee shall not make, retain, remove and/or distribute any copies
of any of the foregoing for any reason whatsoever except as may be necessary in
the discharge of his assigned duties and shall not divulge to any third person
the nature of and/or the contents of any of the foregoing or of any other oral
or written information to which he may have access or with which for any
5
<PAGE>
reason he may become familiar, except as disclosure shall be necessary in the
performance of his duties; and upon the termination of his employment with the
Limited Partnership, he shall leave with or return to the Limited Partnership,
all originals and copies of the foregoing then in his possession, whether
prepared by Employee or by others.
9. Covenant Not to Compete.
(a) Employee shall not, during the Term, anywhere within the United
States of America or in any other location where the activities of Employee
would, in the judgment of the Board of Directors of the General Partner, be
competitive with the automotive finance business of the Limited Partnership, do
any of the following, directly or indirectly, without the prior written consent
of the Limited Partnership:
(1) solicit, either directly or indirectly, business from any
dealer with whom the Limited Partnership shall have dealt at any time;
(2) influence or attempt to influence any dealer with whom the
Limited Partnership shall have dealt at any time or potential dealer of
the Limited Partnership to terminate or modify any written or oral
agreement, arrangement or course of dealing with the Limited
Partnership; or
(3) influence or attempt to influence any person to either (i)
terminate or modify his employment, consulting, agency, distributorship
or other arrangement with the Limited Partnership, or (ii) employ or
retain, or arrange to have any other person or entity employ or retain,
any person who has been employed or retained by the Limited Partnership
as an employee, salesman, consultant or agent of the Limited
Partnership at any time during the one (1) year period immediately
preceding the effective date of Employee's termination if the actions
enumerated in clauses (i) and (ii) would negatively affect the business
and/or operations of the Limited Partnership or the General partner for
a period of one (1) year following the effective date of Employee's
termination.
(b) The Limited Partnership shall have the right, but not the
obligation, to require Employee, for a six month period of time following the
termination of Employee's employment (for whatever reason), anywhere within the
United States of America or in any other location where the activities of
Employee would, in the judgment of the Board of Directors of the General
Partner, be
6
<PAGE>
competitive with the automotive finance business of the Limited Partnership,
not to engage in the conduct proscribed by Section 9(a)(1), (2) and (3) by
payment to Employee, over the extended covenant period, of fifty percent (50%)
of the amount paid to Employee (as reflected in Employee's W-2) by the Limited
Partnership in the full calendar year immediately preceding Employee's
termination. Any payments required by this Section 9(b) shall be paid by check
in the same time intervals as the Limited Partnership routinely pays its
executive employees. The Limited Partnership's option to extend Employee's
covenant not to compete may be exercised only by providing Employee a minimum
of one hundred twenty (120) days written notice. Any exercise of the option
shall be irrevocable.
(c) If the employment of Employee shall either expire pursuant to
Section 1 hereof, or shall be terminated pursuant to Section 10 of this
Agreement, Employee shall not, for a one (1) year period of time following such
termination, employ or retain, or arrange to have any other person or entity
employ or retain, any person who has been employed or retained by the Limited
Partnership any time during the one (1) year period immediately preceding the
effective date of Employee's termination.
10. Termination. This Agreement may be terminated during the Term
upon the occurrence of any of the events described in this Section 10. Upon
termination, Employee shall be entitled to such compensation and benefits as are
described in this Section 10.
10.1 Termination for Disability.
(a) In the event of the disability of the Employee such that
Employee is unable to perform his duties and responsibilities hereunder to the
full extent required by this Agreement by reason of illness, injury or
incapacity for a period of more than one hundred twenty (120) consecutive days
or for a cumulative period of one hundred twenty (120) days within a twelve (12)
month period ("Disability" or "Disabled"), this Agreement may be terminated by
the Limited Partnership.
(b) In the event of a termination of Employee's employment
pursuant to Section 10.1(a), Employee will be entitled to receive (i) all
accrued but unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and benefits payable or provided in accordance
with the terms of any then existing Limited Partnership compensation or benefit
plan or arrangement, including payments prescribed under any disability benefit
or life insurance plan or
7
<PAGE>
arrangement in which Employee is a participant or to which Employee is a party
as an employee of the Limited Partnership ("Other Compensation"), and (ii) an
amount equal to Employee's Base Salary for a three (3) month period (at the
rate then in effect at the time of such termination). Except as specifically
set forth in this Section 10.1(b), the Limited Partnership shall have no
liability or obligation to Employee for compensation or benefits hereunder by
reason of such termination.
(c) For purposes of this Section 10.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event that
the Board of Directors of the General Partner disagrees with such physician's
conclusion, the Board of Directors of the General Partner may require that
Employee submit to a full physical examination by another licensed physician
selected by Employee and approved by the Board of Directors of the General
Partner. If the two opinions shall be inconsistent, a third opinion shall be
obtained after full physical examination by a third licensed physician selected
by Employee and approved by the Board of Directors of the General Partner. The
majority of the three opinions shall be conclusive.
10.2 Termination by Death. In the event that Employee dies
during the Term, Employee's employment shall be terminated thereby and the
Limited Partnership shall pay to Employee's executors, legal representatives or
administrators an amount equal to all accrued but unpaid (as of the date of such
termination) Base Salary, Benefits and Other Compensation. Except as
specifically set forth in this Section 10.2, the Limited Partnership shall have
no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or to any other person
claiming under or through him by reason of Employee's death.
10.3 Termination for Cause.
(a) The Limited Partnership may terminate this Agreement at
any time for "cause" upon written notice to Employee, which termination shall
become effective on the date specified in such notice. For purposes of this
Agreement, "cause" shall mean: (i) any material breach by Employee of any of his
obligations under Sections 7, 8 or 9 of this Agreement; (ii) failure by Employee
to perform satisfactorily the duties assigned to him pursuant to this Agreement;
(iii) other conduct of Employee involving gross disloyalty or willful misconduct
with
8
<PAGE>
respect to the Limited Partnership, including, without limitation, fraud,
embezzlement, theft or proven dishonesty in the course of his employment, or
conviction of a felony; (iv) Employee's willful engagement in conduct
materially injurious to the economic interests or reputation of the Limited
Partnership; or (v) Employee's other gross misconduct or insubordination.
(b) In the event of a termination of Employee's employment
pursuant to clauses (i) or (iii) of Section 10.3(a), Employee shall be entitled
to receive all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Other Compensation, and all Base Salary, Benefits and Other
Compensation shall then cease at the time of such termination.
(c) In the event of a termination of Employee's employment
pursuant to clause (ii) of Section 10.3(a), Employee shall be entitled to
receive all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Other Compensation. Employee shall also be entitled to receive an
amount equal to his Base Salary (at the rate then in effect at the time of such
termination) for a twelve (12) month period, such amount to be paid over the
applicable period at times corresponding to the Limited Partnership's normal
payroll periods for executive officers as if no such termination had occurred.
Except as specifically set forth in this Section 10.3(c), all Base Salary,
Benefits and Other Compensation shall then cease at the time of such
termination.
10.4 Termination By Employee For Good Reason.
(a) Employee may terminate this Agreement at any time for Good
Reason (as defined below) effective upon the date designated by Employee in
written notice of his termination of employment pursuant to this Section
10.4(a); provided, that the effective date of such termination shall not be less
than ninety (90) days after such notice is given, unless the Board of Directors
of the General Partner declares such effective date to be earlier than that
designated by Employee, which such Board shall be entitled to do (but not
earlier than the date such notice is received). For purposes of this Agreement,
Good Reason shall mean a material breach by the Limited Partnership of its
obligations under this Agreement, including, but not limited to, the following:
(i) the failure by the Limited Partnership to pay Base Salary or any other
material form of compensation or material benefit to be paid or provided to
Employee hereunder, which failure is not cured by the Limited Partnership within
ten (10) days after the Limited Partnership's receipt of written notification
from Employee of such failure; and (ii) any material
9
<PAGE>
breach, not encompassed within clause (i) of this Section 10.4(a), of the
obligations of the Limited Partnership under this Agreement which breach is not
cured within thirty (30) days after the Limited Partnership's receipt of
written notification from the Employee of such material breach.
(b) In the event of a termination of Employee's employment
pursuant to Section 10.4(a), Employee shall be entitled to receive all accrued
but unpaid (as of the date of such termination) Base Salary, Benefits and Other
Compensation. Employee shall also be entitled to receive an amount equal to his
Base Salary at the time of termination for a six (6) month period, such amount
to be paid over the applicable period at times corresponding to the Limited
Partnership's normal payroll periods for executive officers as if no such
termination had occurred. Except as specifically set forth in this Section
10.4(b), all Base Salary, Benefits and Other Compensation shall then cease at
the time of such termination.
10.5 Successor Party.
The Limited Partnership shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Limited Partnership, by
agreement in form and substance satisfactory to Employee, to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Limited Partnership would be required to perform it. If no such
agreement prior to or simultaneously with the effectiveness of any such
succession is executed and delivered to Employee, such failure shall constitute
a material breach of this Agreement.
11. Survival of Provisions. The rights and obligations of
Employee pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall survive
the termination of Employee's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Limited Partnership and Employee and their
respective successors, executors, administrators, heirs and/or permitted
assigns; provided, however, that neither Employee nor the Limited Partnership
may make any assignment of this Agreement or any interest herein, by operation
of law or otherwise, without the prior written consent of the other parties
hereto, except that, without such consent, the Limited Partnership may assign
this Agreement to any successor to all or substantially all of its assets and
business
10
<PAGE>
by means of liquidation, dissolution, merger, consolidation, transfer of
assets, or otherwise, provided that such successor assumes in writing all of
the obligations of the Limited Partnership under this Agreement.
13. No Conflicting Agreements. Employee represents to the
Limited Partnership that (i) Employee is not currently under contract to
provide services to any other party or entity; (ii) the execution, delivery and
performance of this Agreement by Employee will not conflict with any other
agreement to which Employee is bound or to which Employee is a party; (iii)
Employee is not currently bound by any form of restrictive covenant which would
restrict or limit the performance of his duties pursuant to this Agreement.
Upon the execution and delivery of this Agreement by each of the parties
hereto, that certain Offer of Employment Letter dated December 6, 1995 between
Employee and the Limited Partnership shall be superseded and of no further
force or effect.
14. Employee Benefits. This Agreement shall not be construed
to be in lieu of or to the exclusion of any other rights, benefits and
privileges to which Employee may be entitled as an employee of the Limited
Partnership under any retirement, pension, profit-sharing, insurance, hospital
or other plans or benefits which may now be in effect or which may hereafter be
adopted.
15. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, or hand delivery, addressed as
follows or to such other address as any party may from time to time duly
specify by notice given to the other party in the manner specified above:
If to Employee:
Stephen R. Stack
13776 Exotica Lane
Wellington, FL 33414
If to the Limited Partnership:
Auto Credit Clearinghouse L.P.
621 N.W. 53rd Street, Suite 595
Boca Raton, FL 33487
Attention: Gary L. Shapiro
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<PAGE>
16. Entire Agreement; Amendments. This Agreement contains the
entire Agreement and understanding of the parties hereto relating to the
subject matter hereof, and merges and supersedes all prior discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of Employee with the Limited Partnership. This
Agreement may not be changed or modified, except by an agreement in writing
signed by both of the parties hereto.
17. Waiver. The waiver of the breach of any term or
provision of this Agreement shall not operate as or be construed to be a waiver
of any other or subsequent breach of this Agreement.
18. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Florida, excluding its
choice of law provisions.
19. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
20. Section Headings. The section headings in this
Agreement are for convenience only. They form no part of this
Agreement and shall not affect its interpretation.
21. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any
time period falls on a Saturday, Sunday or day which is a holiday in the State
of Florida, then such final day shall be deemed to be the next day which is not
a Saturday, Sunday or legal holiday.
22. Specific Enforcement. Employee acknowledges that the
restrictions contained in Sections 7, 8, and 9 hereof are reasonable and
necessary to protect the legitimate interests of the Limited Partnership and
its affiliates and that the Limited Partnership would not have entered into
this Agreement in the absence of such restrictions. Employee also acknowledges
that the nature of both his services to the Limited Partnership and the
obligations undertaken by Employee in Sections 7, 8, and 9 hereof are unique
and that any breach by him of Sections 7, 8, and 9 hereof will cause continuing
and irreparable injury to the
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Limited Partnership for which monetary damages would not be adequate remedy. In
the event of such breach by Employee, the Limited Partnership shall have the
right to specific enforcement of the provisions of Sections 7, 8, and 9 of this
Agreement, or injunctive or other relief in any court, and this Agreement shall
not in any way limit remedies of law or in equity otherwise available to the
Limited Partnership. In the event that the provisions of Sections 7, 8, and 9
hereof should ever be adjudicated to exceed the time, geographic, or other
limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, or other limitations permitted by applicable law.
23. Arbitration. Any controversy or claim arising out of or
relating to Section 10 hereof, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
Arbitration may be entered into any court having jurisdiction thereof. The
arbitration shall be heard by a single Arbitrator, and shall be conducted in
Boca Baton, Florida.
REST OF THE PAGE INTENTIONALLY LEFT BLANK
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed o
caused this Agreement to be duly executed on the date first above written.
WITNESS: EMPLOYEE:
/s/ Stephen R. Stack
- ----------------------- --------------------------------
Stephen R. Stack
ATTEST: LIMITED PARTNERSHIP:
AUTO CREDIT CLEARINGHOUSE
L.P.
By: /s/ Gary L. Shapiro
- ------------------------ ------------------------------
Gary L. Shapiro
Chairman
National Auto
Finance
Corporation
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<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE COMPANY L.P., a
Delaware limited partnership, promises to pay to the order of GARY L. SHAPIRO,
the principal sums set forth on Exhibit A attached hereto, with interest on the
unpaid balance thereof from the date such amounts are advanced until the entire
indebtedness evidenced by this Note is paid in full at the rate of eight percent
(8%) per annum, both principal and accrued interest payable in accordance with
the terms and provisions of this Note, in lawful money of the United States of
America at the address of Gary L. Shapiro in Boca Raton, Florida or at such
other place in Boca Raton, Florida as from time to time may be designated by the
holder of this Note.
1. Amendment to Exhibit A. Set forth on Exhibit A is the original amount
advanced by the payee of this Note to the undersigned as of the date hereof. The
undersigned and the payee of this Note agree that the payee may advance
additional funds to the undersigned from time to time, which shall be evidenced
by this Note. When, as, and if such additional funds are advanced to the
undersigned by the payee of this Note, the undersigned hereby authorizes the
payee of this Note to set forth the amount of such advance and the date such
advance is made on Exhibit A attached hereto. Absent manifest effort, the
information set forth on Exhibit A shall constitute prima facie evidence of the
amount of the principal indebtedness advanced to the undersigned pursuant to
this Note. The failure of the payee of this Note to update the information set
forth on Exhibit A shall not affect, in any way whatsoever, the liability of the
undersigned for any advances, together with accrued and unpaid interest thereon,
which are made to such undersigned by the payee of this Note.
2. Interest Payments. The undersigned shall pay the holder of this Note
accrued interest, in arrears, at the rate of interest set forth above on a
calendar quarter basis commencing April 1, 1997 and continuing thereafter until
January 31, 2002, at which time, the entire principal balance hereof and the
interest accrued hereon shall be immediately due and payable. Any past due
interest shall accrue and shall be payable by the undersigned at the rate which
is the lesser of (1) the maximum rate of interest permitted under applicable law
and (2) eighteen percent (18%) per annum.
3. Maturity Date. The entire principal balance of, and accrued interest on,
this Note shall be due and payable, without notice or demand, on January 31,
2002.
4. Prepayment. The undersigned shall have the right to prepay, without
penalty, at any time and from time to time prior to maturity, all or any part of
the unpaid principal balance of this Note and/or all or any part of the unpaid
interest accrued to the date of such prepayment, provided that any such
principal thus paid is accompanied by accrued interest on such principal.
1
<PAGE>
5. Waiver. The undersigned and any endorsers, sureties, guarantors and all
others who are or may become liable for the payment hereof severally waive
notice of intent to accelerate, presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest with
respect to this Note, notice of acceleration and all other notices in connection
with the delivery, acceptance, performance, default or enforcement of or
consideration for this Note.
6. Stipulation of Jurisdiction. The parties hereby irrevocably and
unconditionally stipulate and agree that the Federal Courts in the State of
Florida or the State Court of the State of Florida shall have non-exclusive
jurisdiction to hear and finally determine any dispute, claim, or controversy or
action arising out of or connected (directly or indirectly) with this Note.
7. Usury Savings Provision. Neither the undersigned nor any guarantors,
endorsers or other parties now or hereafter becoming liable for payment of this
Note shall ever be required to pay interest on this Note at a rate in excess of
the maximum interest that may be lawfully charged under applicable law, and the
provisions of this paragraph shall control over all other provisions of this
Note and any other instruments now or hereafter executed in connection herewith
which may be in apparent conflict herewith.
8. Governing Law. This Note and the rights and duties of the parties
hereunder shall be governed for all purposes by the law of the State of Florida
and the law of the United States applicable to transactions within such State.
9. Non-Recourse Note. Notwithstanding anything to the contrary contained
herein or in any instrument securing this Note, none of the partners of the
undersigned (including, without limitation, the general partner and any limited
partner of the undersigned) shall have any personal liability for the payment of
this Note or for the performance or observance of the covenants, representations
and warranties of the undersigned contained in this Note or in any instrument
now or hereafter securing this Note and the payee and each holder of this Note
agree not to seek any damages or personal money judgment against any of the
partners of the undersigned for any default under this Note or under any
instrument now or hereafter securing this Note but in such event will look
solely to the assets of the undersigned and any assets which may hereafter be
pledged by the undersigned to secure this Note.
2
<PAGE>
10. Amendment and Restatement. This Amended and Restated Promissory Note
amends, restates, and supercedes, in its entirety, the terms and provisions of
that certain Promissory Note, dated as of October 31, 1994, by and between the
undersigned and the payee of this Note.
EXECUTED AND AGREED as of January 3, 1997.
NATIONAL AUTO FINANCE COMPANY L.P.,
a Delaware limited partnership
By: National Auto Finance Corporation, a
Delaware corporation, its general partner
By: /s/ Roy Tipton
_____________________________
Roy Tipton, Vice President
3
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE COMPANY
L.P., a Delaware limited partnership, promises to pay to the order of EDGAR
OTTO, the principal sums set forth on Exhibit A attached hereto, with interest
on the unpaid balance thereof from the date such amounts are advanced until the
entire indebtedness evidenced by this Note is paid in full at the rate of eight
percent (8%) per annum, both principal and accrued interest payable in
accordance with the terms and provisions of this Note, in lawful money of the
United States of America at the address of Edgar Otto in Boca Raton, Florida or
at such other place in Boca Raton, Florida as from time to time may be
designated by the holder of this Note.
1. Amendment to Exhibit A. Set forth on Exhibit A is the original
amount advanced by the payee of this Note to the undersigned as of the date
hereof. The undersigned and the payee of this Note agree that the payee may
advance additional funds to the undersigned from time to time, which shall be
evidenced by this Note. When, as, and if such additional funds are advanced to
the undersigned by the payee of this Note, the undersigned hereby authorizes the
payee of this Note to set forth the amount of such advance and the date such
advance is made on Exhibit A attached hereto. Absent manifest effort, the
information set forth on Exhibit A shall constitute prima facie evidence of the
amount of the principal indebtedness advanced to the undersigned pursuant to
this Note. The failure of the payee of this Note to update the information set
forth on Exhibit A shall not affect, in any way whatsoever, the liability of the
undersigned for any advances, together with accrued and unpaid interest thereon,
which are made to such undersigned by the payee of this Note.
2. Interest Payments. The undersigned shall pay the holder of this Note
accrued interest, in arrears, at the rate of interest set forth above on a
calendar quarter basis commencing April 1, 1997 and continuing thereafter until
January 31, 2002, at which time, the entire principal balance hereof and the
interest accrued hereon shall be immediately due and payable. Any past due
interest shall accrue and shall be payable by the undersigned at the rate which
is the lesser of (1) the maximum rate of interest permitted under applicable law
and (2) eighteen percent (18%) per annum.
3. Maturity Date. The entire principal balance of, and accrued interest
on, this Note shall be due and payable, without notice or demand, on January 31,
2002.
4. Prepayment. The undersigned shall have the right to prepay, without
penalty, at any time and from time to time prior to maturity, all or any part of
the unpaid principal balance of this Note and/or all or any part of the unpaid
interest accrued to the date of such prepayment, provided that any such
principal thus paid is accompanied by accrued interest on such principal.
1
<PAGE>
5. Waiver. The undersigned and any endorsers, sureties, guarantors and
all others who are or may become liable for the payment hereof severally waive
notice of intent to accelerate, presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest with
respect to this Note, notice of acceleration and all other notices in connection
with the delivery, acceptance, performance, default or enforcement of or
consideration for this Note.
6. Stipulation of Jurisdiction. The parties hereby irrevocably and
unconditionally stipulate and agree that the Federal Courts in the State of
Florida or the State Court of the State of Florida shall have non-exclusive
jurisdiction to hear and finally determine any dispute, claim, or controversy or
action arising out of or connected (directly or indirectly) with this Note.
7. Usury Savings Provision. Neither the undersigned nor any guarantors,
endorsers or other parties now or hereafter becoming liable for payment of this
Note shall ever be required to pay interest on this Note at a rate in excess of
the maximum interest that may be lawfully charged under applicable law, and the
provisions of this paragraph shall control over all other provisions of this
Note and any other instruments now or hereafter executed in connection herewith
which may be in apparent conflict herewith.
8. Governing Law. This Note and the rights and duties of the parties
hereunder shall be governed for all purposes by the law of the State of Florida
and the law of the United States applicable to transactions within such State.
9. Non-Recourse Note. Notwithstanding anything to the contrary
contained herein or in any instrument securing this Note, none of the partners
of the undersigned (including, without limitation, the general partner and any
limited partner of the undersigned) shall have any personal liability for the
payment of this Note or for the performance or observance of the covenants,
representations and warranties of the undersigned contained in this Note or in
any instrument now or hereafter securing this Note and the payee and each holder
of this Note agree not to seek any damages or personal money judgment against
any of the partners of the undersigned for any default under this Note or under
any instrument now or hereafter securing this Note but in such event will look
solely to the assets of the undersigned and any assets which may hereafter be
pledged by the undersigned to secure this Note.
2
<PAGE>
10. Amendment and Restatement. This Amended and Restated Promissory
Note amends, restates, and supercedes, in its entirety, the terms and provisions
of that certain Promissory Note, dated as of October 6, 1994, by and between the
undersigned and the payee of this Note.
EXECUTED AND AGREED as of January 3, 1997.
NATIONAL AUTO FINANCE COMPANY L.P.,
a Delaware limited partnership
By: National Auto Finance Corporation, a
Delaware corporation, its general partner
By: /s/Roy Tipton
-----------------------------------------
Roy Tipton, Executive Vice President
3
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE COMPANY
L.P., a Delaware limited partnership, promises to pay to the order of STEPHEN L.
GURBA, the principal sums set forth on Exhibit A attached hereto, with interest
on the unpaid balance thereof from the date such amounts are advanced until the
entire indebtedness evidenced by this Note is paid in full at the rate of eight
percent (8%) per annum, both principal and accrued interest payable in
accordance with the terms and provisions of this Note, in lawful money of the
United States of America at the address of Stephen L. Gurba c/o National
Financial Companies LLC in Boca Raton, Florida or at such other place in Boca
Raton, Florida as from time to time may be designated by the holder of this
Note.
1. Amendment to Exhibit A. Set forth on Exhibit A is the original
amount advanced by the payee of this Note to the undersigned as of the date
hereof. The undersigned and the payee of this Note agree that the payee may
advance additional funds to the undersigned from time to time, which shall be
evidenced by this Note. When, as, and if such additional funds are advanced to
the undersigned by the payee of this Note, the undersigned hereby authorizes the
payee of this Note to set forth the amount of such advance and the date such
advance is made on Exhibit A attached hereto. Absent manifest effort, the
information set forth on Exhibit A shall constitute prima facie evidence of the
amount of the principal indebtedness advanced to the undersigned pursuant to
this Note. The failure of the payee of this Note to update the information set
forth on Exhibit A shall not affect, in any way whatsoever, the liability of the
undersigned for any advances, together with accrued and unpaid interest thereon,
which are made to such undersigned by the payee of this Note.
2. Interest Payments. The undersigned shall pay the holder of this Note
accrued interest, in arrears, at the rate of interest set forth above on a
calendar quarter basis commencing April 1, 1997 and continuing thereafter until
January 31, 2002, at which time, the entire principal balance hereof and the
interest accrued hereon shall be immediately due and payable. Any past due
interest shall accrue and shall be payable by the undersigned at the rate which
is the lesser of (1) the maximum rate of interest permitted under applicable law
and (2) eighteen percent (18%) per annum.
3. Maturity Date. The entire principal balance of, and accrued interest
on, this Note shall be due and payable, without notice or demand, on January 31,
2002.
4. Prepayment. The undersigned shall have the right to prepay, without
penalty, at any time and from time to time prior to maturity, all or any part of
the unpaid principal balance of this Note and/or all or any part of the unpaid
interest accrued to the date of such prepayment, provided that any such
principal thus paid is accompanied by accrued interest on such principal.
1
<PAGE>
5. Waiver. The undersigned and any endorsers, sureties, guarantors and
all others who are or may become liable for the payment hereof severally waive
notice of intent to accelerate, presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest with
respect to this Note, notice of acceleration and all other notices in connection
with the delivery, acceptance, performance, default or enforcement of or
consideration for this Note.
6. Stipulation of Jurisdiction. The parties hereby irrevocably and
unconditionally stipulate and agree that the Federal Courts in the State of
Florida or the State Court of the State of Florida shall have non-exclusive
jurisdiction to hear and finally determine any dispute, claim, or controversy or
action arising out of or connected (directly or indirectly) with this Note.
7. Usury Savings Provision. Neither the undersigned nor any guarantors,
endorsers or other parties now or hereafter becoming liable for payment of this
Note shall ever be required to pay interest on this Note at a rate in excess of
the maximum interest that may be lawfully charged under applicable law, and the
provisions of this paragraph shall control over all other provisions of this
Note and any other instruments now or hereafter executed in connection herewith
which may be in apparent conflict herewith.
8. Governing Law. This Note and the rights and duties of the parties
hereunder shall be governed for all purposes by the law of the State of Florida
and the law of the United States applicable to transactions within such State.
9. Non-Recourse Note. Notwithstanding anything to the contrary
contained herein or in any instrument securing this Note, none of the partners
of the undersigned (including, without limitation, the general partner and any
limited partner of the undersigned) shall have any personal liability for the
payment of this Note or for the performance or observance of the covenants,
representations and warranties of the undersigned contained in this Note or in
any instrument now or hereafter securing this Note and the payee and each holder
of this Note agree not to seek any damages or personal money judgment against
any of the partners of the undersigned for any default under this Note or under
any instrument now or hereafter securing this Note but in such event will look
solely to the assets of the undersigned and any assets which may hereafter be
pledged by the undersigned to secure this Note.
2
<PAGE>
10. Amendment and Restatement. This Amended and Restated Promissory
Note amends, restates, and supercedes, in its entirety, the terms and provisions
of that certain Promissory Note, dated as of November 8, 1994, by and between
the undersigned and the payee of this Note.
EXECUTED AND AGREED as of January 3, 1997.
NATIONAL AUTO FINANCE COMPANY L.P.,
a Delaware limited partnership
By: National Auto Finance Corporation, a
Delaware corporation, its general partner
By: /s/ Roy Tipton
------------------------------------
Roy Tipton, President
3
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE COMPANY
L.P., a Delaware limited partnership, promises to pay to the order of NOVA
FINANCIAL CORPORATION, a Delaware corporation, the principal sums set forth on
Exhibit A attached hereto, with interest on the unpaid balance thereof from the
date such amounts are advanced until the entire indebtedness evidenced by this
Note is paid in full at the rate of eight percent (8%) per annum, both principal
and accrued interest payable in accordance with the terms and provisions of this
Note, in lawful money of the United States of America at the address of Nova
Financial Corporation c/o National Financial Companies LLC in Boca Raton,
Florida or at such other place in Boca Raton, Florida as from time to time may
be designated by the holder of this Note.
1. Amendment to Exhibit A. Set forth on Exhibit A is the original
amount advanced by the payee of this Note to the undersigned as of the date
hereof. The undersigned and the payee of this Note agree that the payee may
advance additional funds to the undersigned from time to time, which shall be
evidenced by this Note. When, as, and if such additional funds are advanced to
the undersigned by the payee of this Note, the undersigned hereby authorizes the
payee of this Note to set forth the amount of such advance and the date such
advance is made on Exhibit A attached hereto. Absent manifest effort, the
information set forth on Exhibit A shall constitute prima facie evidence of the
amount of the principal indebtedness advanced to the undersigned pursuant to
this Note. The failure of the payee of this Note to update the information set
forth on Exhibit A shall not affect, in any way whatsoever, the liability of the
undersigned for any advances, together with accrued and unpaid interest thereon,
which are made to such undersigned by the payee of this Note.
2. Interest Payments. The undersigned shall pay the holder of this Note
accrued interest, in arrears, at the rate of interest set forth above on a
calendar quarter basis commencing April 1, 1997 and continuing thereafter until
January 31, 2002, at which time, the entire principal balance hereof and the
interest accrued hereon shall be immediately due and payable. Any past due
interest shall accrue and shall be payable by the undersigned at the rate which
is the lesser of (1) the maximum rate of interest permitted under applicable law
and (2) eighteen percent (18%) per annum.
3. Maturity Date. The entire principal balance of, and accrued interest
on, this Note shall be due and payable, without notice or demand, on January 31,
2002.
4. Prepayment. The undersigned shall have the right to prepay, without
penalty, at any time and from time to time prior to maturity, all or any part of
the unpaid principal balance of this Note and/or all or any part of the unpaid
interest accrued to the date of such prepayment, provided that any such
principal thus paid is accompanied by accrued interest on such principal.
1
<PAGE>
5. Waiver. The undersigned and any endorsers, sureties, guarantors and
all others who are or may become liable for the payment hereof severally waive
notice of intent to accelerate, presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest with
respect to this Note, notice of acceleration and all other notices in connection
with the delivery, acceptance, performance, default or enforcement of or
consideration for this Note.
6. Stipulation of Jurisdiction. The parties hereby irrevocably and
unconditionally stipulate and agree that the Federal Courts in the State of
Florida or the State Court of the State of Florida shall have non-exclusive
jurisdiction to hear and finally determine any dispute, claim, or controversy or
action arising out of or connected (directly or indirectly) with this Note.
7. Usury Savings Provision. Neither the undersigned nor any guarantors,
endorsers or other parties now or hereafter becoming liable for payment of this
Note shall ever be required to pay interest on this Note at a rate in excess of
the maximum interest that may be lawfully charged under applicable law, and the
provisions of this paragraph shall control over all other provisions of this
Note and any other instruments now or hereafter executed in connection herewith
which may be in apparent conflict herewith.
8. Governing Law. This Note and the rights and duties of the parties
hereunder shall be governed for all purposes by the law of the State of Florida
and the law of the United States applicable to transactions within such State.
9. Non-Recourse Note. Notwithstanding anything to the contrary
contained herein or in any instrument securing this Note, none of the partners
of the undersigned (including, without limitation, the general partner and any
limited partner of the undersigned) shall have any personal liability for the
payment of this Note or for the performance or observance of the covenants,
representations and warranties of the undersigned contained in this Note or in
any instrument now or hereafter securing this Note and the payee and each holder
of this Note agree not to seek any damages or personal money judgment against
any of the partners of the undersigned for any default under this Note or under
any instrument now or hereafter securing this Note but in such event will look
solely to the assets of the undersigned and any assets which may hereafter be
pledged by the undersigned to secure this Note.
2
<PAGE>
10. Amendment and Restatement. This Amended and Restated Promissory
Note amends, restates, and supercedes, in its entirety, the terms and provisions
of that certain Promissory Note, dated as of March 27, 1995, by and between the
undersigned and the payee of this Note.
EXECUTED AND AGREED as of January 3, 1997.
NATIONAL AUTO FINANCE COMPANY L.P.,
a Delaware limited partnership
By: National Auto Finance Corporation, a
Delaware corporation, its general partner
By: /s/ Roy Tipton
-----------------------------------
Roy Tipton, President
3
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE COMPANY
L.P., a Delaware limited partnership, promises to pay to the order of NOVA
CORPORATION, a Delaware corporation, the principal sums set forth on Exhibit A
attached hereto, with interest on the unpaid balance thereof from the date such
amounts are advanced until the entire indebtedness evidenced by this Note is
paid in full at the rate of eight percent (8%) per annum, both principal and
accrued interest payable in accordance with the terms and provisions of this
Note, in lawful money of the United States of America at the address of Nova
Corporation c/o National Financial Companies LLC in Boca Raton, Florida or at
such other place in Boca Raton, Florida as from time to time may be designated
by the holder of this Note.
1. Amendment to Exhibit A. Set forth on Exhibit A is the original
amount advanced by the payee of this Note to the undersigned as of the date
hereof. The undersigned and the payee of this Note agree that the payee may
advance additional funds to the undersigned from time to time, which shall be
evidenced by this Note. When, as, and if such additional funds are advanced to
the undersigned by the payee of this Note, the undersigned hereby authorizes the
payee of this Note to set forth the amount of such advance and the date such
advance is made on Exhibit A attached hereto. Absent manifest effort, the
information set forth on Exhibit A shall constitute prima facie evidence of the
amount of the principal indebtedness advanced to the undersigned pursuant to
this Note. The failure of the payee of this Note to update the information set
forth on Exhibit A shall not affect, in any way whatsoever, the liability of the
undersigned for any advances, together with accrued and unpaid interest thereon,
which are made to such undersigned by the payee of this Note.
2. Interest Payments. The undersigned shall pay the holder of this Note
accrued interest, in arrears, at the rate of interest set forth above on a
calendar quarter basis commencing April 1, 1997 and continuing thereafter until
January 31, 2002, at which time, the entire principal balance hereof and the
interest accrued hereon shall be immediately due and payable. Any past due
interest shall accrue and shall be payable by the undersigned at the rate which
is the lesser of (1) the maximum rate of interest permitted under applicable law
and (2) eighteen percent (18%) per annum.
3. Maturity Date. The entire principal balance of, and accrued interest
on, this Note shall be due and payable, without notice or demand, on January 31,
2002.
4. Prepayment. The undersigned shall have the right to prepay, without
penalty, at any time and from time to time prior to maturity, all or any part of
the unpaid principal balance of this Note and/or all or any part of the unpaid
interest accrued to the date of such prepayment, provided that any such
principal thus paid is accompanied by accrued interest on such principal.
1
<PAGE>
5. Waiver. The undersigned and any endorsers, sureties, guarantors and
all others who are or may become liable for the payment hereof severally waive
notice of intent to accelerate, presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest with
respect to this Note, notice of acceleration and all other notices in connection
with the delivery, acceptance, performance, default or enforcement of or
consideration for this Note.
6. Stipulation of Jurisdiction. The parties hereby irrevocably and
unconditionally stipulate and agree that the Federal Courts in the State of
Florida or the State Court of the State of Florida shall have non-exclusive
jurisdiction to hear and finally determine any dispute, claim, or controversy or
action arising out of or connected (directly or indirectly) with this Note.
7. Usury Savings Provision. Neither the undersigned nor any guarantors,
endorsers or other parties now or hereafter becoming liable for payment of this
Note shall ever be required to pay interest on this Note at a rate in excess of
the maximum interest that may be lawfully charged under applicable law, and the
provisions of this paragraph shall control over all other provisions of this
Note and any other instruments now or hereafter executed in connection herewith
which may be in apparent conflict herewith.
8. Governing Law. This Note and the rights and duties of the parties
hereunder shall be governed for all purposes by the law of the State of Florida
and the law of the United States applicable to transactions within such State.
9. Non-Recourse Note. Notwithstanding anything to the contrary
contained herein or in any instrument securing this Note, none of the partners
of the undersigned (including, without limitation, the general partner and any
limited partner of the undersigned) shall have any personal liability for the
payment of this Note or for the performance or observance of the covenants,
representations and warranties of the undersigned contained in this Note or in
any instrument now or hereafter securing this Note and the payee and each holder
of this Note agree not to seek any damages or personal money judgment against
any of the partners of the undersigned for any default under this Note or under
any instrument now or hereafter securing this Note but in such event will look
solely to the assets of the undersigned and any assets which may hereafter be
pledged by the undersigned to secure this Note.
2
<PAGE>
10. Amendment and Restatement. This Amended and Restated Promissory
Note amends, restates, and supercedes, in its entirety, the terms and provisions
of that certain Promissory Note, dated as of May 1, 1995, by and between the
undersigned and the payee of this Note.
EXECUTED AND AGREED as of January 3, 1997.
NATIONAL AUTO FINANCE COMPANY L.P.,
a Delaware limited partnership
By: National Auto Finance Corporation, a
Delaware corporation, its general partner
By: /s/ Roy Tipton
--------------------------------------
Roy Tipton, President
3
<PAGE>
FIRST AMENDMENT TO SECOND AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF NATIONAL AUTO FINANCE COMPANY L.P.
The undersigned partners of National Auto Finance Company, L.P., a
Delaware limited partnership (the "Partnership") owning the required
combined voting interest to approve the action set forth below, (the
"Partners") do hereby approve the following actions and adopt the
following amendments to the Second Amended and Restated Agreement of
Limited Partnership of National Auto Finance Company L.P., (the
"Partnership Agreement") by signing our written consent hereto:
STATEMENT OF PURPOSE
The Partnership was established pursuant to a certificate of
limited partnership dated as September 30, 1994 and an agreement of
limited partnership dated as of October 1, 1994. Said agreement of
limited partnership was amended and restated as of December 29, 1994,
and, by the Partnership Agreement, as of September 1, 1995.
In connection with a proposed initial public offering of Company
Shares, counsel for the underwriter requests that the Partnership
Agreement be amended to provide that the Partnership may purchase
IronBrand's Interest in the Partnership by tendering Company Shares upon
IronBrand's exercise of its put option under Article XI of the
Partnership Agreement.
The Partners hereby agree to make such an amendment to the
Partnership Agreement as set forth below and to authorize the General
Partner, and its proper officers, to take such action as they reasonably
deem necessary or appropriate to effect the foregoing.
NOW, THEREFORE, BE IT RESOLVED AND AGREED BY THE PARTNERS, AS
FOLLOWS:
1. Unless otherwise defined herein, all capitalized terms used
herein shall have the meanings ascribed thereto in the Partnership
Agreement.
2. Section 11.4 of the Partnership Agreement hereby is amended
and restated in its entirety as follows:
1
<PAGE>
Section 11.4 Closing.
In the event the Partnership elects to redeem IronBrand's
Partnership Interest, the closing of such redemption under this Article
XI shall take place no later than twenty (20) days following the date
the Redemption Price is determined. At such closing, the Redemption
Price for IronBrand's Partnership Interest shall be payable (a) at the
discretion of the General Partner, either (i) by wire transfer of
immediately available funds or (ii) in Company Shares that are Public
Securities as described in Section 11.6A(iv)(b)(1) and having an
aggregate fair market value equal to the Redemption Price or (b) in such
other form of consideration as may be agreed upon by IronBrand and the
General Partner on behalf of the Partnership.
3. Except as otherwise provided herein, this First Amendment
to Second Amended and Restated Agreement of Limited Partnership of
National Auto Finance Company L.P. (the "First Amendment") shall be
effective as of December 1, 1996.
4. The proper officers of the Partnership, or of the General
Partner, as the General Partner may determined and direct, shall be, and
they hereby are, authorized, empowered and directed to take any and all
actions and to execute and deliver any and all documents, agreements and
certificates in the name, and on behalf, of the Partnership and to
deliver and file such documents, agreements and certificates when
executed, and take such other action with any Person (including, without
limitation, to pay all fees, expenses and charges) as they, or any of
them, may deem to be necessary or appropriate to effect the foregoing
preambles, resolutions and agreements, and the full intent and purposes
thereof, and to perform or cause to be performed all of the obligations
of the Partnership related thereto.
5. Any actions as may have been taken or caused to have been
taken by the General Partner or the proper officers of the Partnership
or of the General Partner, as the case may be, prior to the effective
date of this First Amendment, which actions were in connection with the
matters contemplated by the foregoing preambles, resolutions and
agreements, hereby are ratified, confirmed and approved in all respects
as the acts and deeds of the Partnership.
6. Except as amended hereby, the Partnership Agreement, as
heretofore amended, is continued in full force and effect.
The undersigned, owning the required combined voting interest to
approve the foregoing, do consent to all of the actions described in the
foregoing preambles,
2
<PAGE>
resolutions and agreements, and said preambles, resolutions and
agreements shall have the same force and effect as though adopted and
agreed at duly called and convened meetings of the General Partner and
the Limited Partners (and thereby, all partners of the Partnership shall
be bound by and subject to all aof the terms and provisions set forth
herein) and direct that a copy hereof be filed with and made a part of
the permanent records of the Partnership. This document may be executed
by the undersigned in separate counterparts, including by means of
facsimile transmission, all of which counterparts shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals effective as of [December 1, 1996].
GENERAL PARTNER:
NATIONAL AUTO FINANCE CORPORATION
By:_____________________________[SEAL]
Title:________________________________
LIMITED PARTNERS:
IRONBRAND CAPITAL, LLC
By: FIRST UNION COMMERCIAL
CORPORATION, General Manager
By:________________________[SEAL]
Name:__________________________
Title:_________________________
3
<PAGE>
NATIONAL AUTO FINANCE CORPORATION, as
attorney-in-fact for each Limited Partner
other than IronBrand Capital, LLC, The O
Associates Limited Partnership, The S
Associates Limited Partnership and Stephen
L. Gurba
By:________________________[SEAL]
Name:__________________________
Title:_________________________
THE O ASSOCIATES LIMITED PARTNERSHIP
By: LAKE ESTATES CORPORATION, a
Nevada corporation
By:_______________________[SEAL]
Name: Edgar Otto
Title: President
THE S ASSOCIATES LIMITED PARTNERSHIP
By: ADDISON PARK CORPORATION, a
Nevada corporation
By:_______________________[SEAL]
Name: Gary L. Shapiro
Title: President
________________________________[SEAL]
Stephen L. Gurba
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 headings "Selected Consolidated
Financial Data" and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Miami, Florida
January 7, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form S-1 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 8,856,036
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 17,673,638
<INVESTMENTS-MARKET> 17,673,638
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 28,446,163
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,291,728
<LONG-TERM> 12,000,000
0
0
<COMMON> 0
<OTHER-SE> 8,154,435
<TOTAL-LIABILITIES-AND-EQUITY> 28,446,163
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 56,412
<INTEREST-TOTAL> 56,412
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 676,153
<INTEREST-INCOME-NET> 619,741
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 8,679,759
<EXPENSE-OTHER> 6,077,799
<INCOME-PRETAX> 3,101,814
<INCOME-PRE-EXTRAORDINARY> 3,101,814
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,101,814
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
<YIELD-ACTUAL> 0.000
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form S-1 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 824,388
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 10,313,770
<INVESTMENTS-MARKET> 10,313,770
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 12,002,830
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,556,019
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 3,446,811
<TOTAL-LIABILITIES-AND-EQUITY> 12,002,830
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 7,907
<INTEREST-TOTAL> 7,907
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 356,008
<INTEREST-INCOME-NET> (348,101)
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 5,698,997
<EXPENSE-OTHER> 2,741,965
<INCOME-PRETAX> 2,749,405
<INCOME-PRE-EXTRAORDINARY> 2,749,405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,749,405
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
<YIELD-ACTUAL> 0.000
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
