<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-22067
NATIONAL AUTO FINANCE COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 65-0688619
- -------------------------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487
- -------------------------------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(561) 997-2413
----------------------------------------------------
(Registrant's telephone number, including area code)
No Change
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
There were 9,030,762 shares of common stock, $.01 par value, outstanding as of
August 14, 1998.
<PAGE> 2
NATIONAL AUTO FINANCE COMPANY, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)........................................................ 4
Balance Sheets:
June 30, 1998 and December 31, 1997................................................. 4
Statements of Operations:
Three and Six Months Ended June 30, 1998 and 1997................................... 5
Statement of Stockholders' Equity as of June 30, 1998 and 1997........................ 6
Statements of Cash Flows:
Six Months Ended June 30, 1998 and 1997............................................. 7
Notes to Financial Statements......................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................ 27
SIGNATURES......................................................................................... 28
EXHIBIT INDEX...................................................................................... 29
Exhibit 11. Computation of Earnings Per Common Share.......................................... 30
Exhibit 27. Financial Data Schedule........................................................... 31
</TABLE>
2
<PAGE> 3
FORWARD-LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q or future filings by the Company
(as hereinafter defined) with the Securities and Exchange Commission (the
"Commission"), in the Company's press releases or other public or stockholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "intend," "foresee," "expected,"
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities, competitive and regulatory
factors, and changes in generally accepted accounting principles could affect
the Company's actual and/or reported financial performance and could cause the
Company's actual and/or reported results for future periods to differ materially
from those anticipated by any forward looking statement.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
3
<PAGE> 4
- --------------------------------------------------------------------------------
Part I
- --------------------------------------------------------------------------------
Item I. Financial Statements
NATIONAL AUTO FINANCE COMPANY, INC.
Balance Sheets
June 30, 1998 and December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(unaudited) 1997
------------ ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 15,167 $ 26,467
Retained interest in securitizations, at fair value 51,427 31,569
Furniture, fixtures and equipment, net 3,667 2,262
Deferred financing costs 3,020 2,539
Related party receivables -- 155
Other assets 946 1,883
------------ ------------
Total assets $ 74,227 $ 64,875
============ ============
LIABILITIES:
Accounts payable and accrued expenses $ 2,158 $ 3,260
Accrued interest payable-related parties 39 39
Accrued interest payable-senior subordinated notes -- 132
Accrued interest payable-notes -- 50
Junior subordinated notes-related parties 1,940 1,940
Senior subordinated notes 53,043 34,546
Notes payable 1,251 1,614
------------ ------------
Total liabilities 58,431 41,581
------------ ------------
Mandatorily redeemable preferred stock series A-$0.01 par value;
$1,000 stated value; 1,000,000 shares authorized; 2,295 shares
outstanding; redeemable in January 2005, stated at redemption value 2,336 2,336
STOCKHOLDERS' EQUITY:
Common stock -$0.01 par value; 20,000,000 shares authorized;
9,030,762 shares outstanding 90 90
Paid-in-capital 36,341 34,417
Accumulated deficit (22,971) (13,549)
------------ ------------
Total stockholders' equity 13,460 20,958
------------ ------------
Total liabilities, mandatorily redeemable preferred stock and
stockholders' equity $ 74,227 $ 64,875
============ ============
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE> 5
NATIONAL AUTO FINANCE COMPANY, INC.
Statements of Operations (unaudited)
For the Three and Six Months Ended June 30, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
--------- -------- -------- --------
(Restated) (Restated)
<S> <C> <C> <C> <C>
REVENUE:
Securitization related income $ 1,380 $ 4,119 $ 1,454 $ 6,171
Servicing income 1,643 838 2,915 1,375
Interest income 599 202 1,295 369
Other income 78 93 156 134
-------- -------- -------- --------
Total revenue 3,700 5,252 5,820 8,049
-------- -------- -------- --------
EXPENSES:
External servicing expenses 1,221 763 2,685 1,375
Internal servicing expenses 1,105 -- 1,945 --
Interest expense 2,112 345 3,643 760
Salaries and employee benefits 1,659 1,671 3,302 2,995
Direct loan acquisition expenses 573 865 1,223 1,566
Depreciation and amortization 232 214 419 393
Other operating expenses 1,088 1,069 2,025 1,822
-------- -------- -------- --------
Total expenses 7,990 4,927 15,242 8,911
-------- -------- -------- --------
Income (Loss) before income taxes (4,290) 325 (9,422) (862)
Income taxes (benefit) -- 125 -- (332)
-------- -------- -------- --------
Net income (loss) before taxes from reorganization
of partnership (4,290) 200 (9,422) (530)
-------- -------- -------- --------
Income taxes from reorganization of partnership -- -- -- 5,416
-------- -------- -------- --------
Net income (loss) (4,290) 200 (9,422) (5,946)
Preferred stock dividends 40 41 80 67
-------- -------- -------- --------
Income (Loss) attributed to common shareholders $ (4,330) $ 159 (9,502) (6,013)
======== ======== ======== ========
PER SHARE DATA:
Earnings (Loss) per common share - basic $ (0.48) $ 0.02 (1.05) (0.86)
Earnings (Loss) per common share - diluted $ (0.48) $ 0.02 (1.05) (0.86)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 9,031 7,026 9,031 6,976
Diluted 9,031 7,026 9,031 6,976
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE> 6
NATIONAL AUTO FINANCE COMPANY, INC.
Statements of Stockholders' Equity (unaudited)
For the Six Months Ended June 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Common Paid-in Accumulated
Stock Capital Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance as of December 31, 1997 $ 90 $ 34,417 $ (13,549) $ 20,958
Issuance of 593,671 Warrants to purchase Common Stock
in connection with the issuance of Senior
Subordinated Notes -- 2,004 -- 2,004
Dividends on mandatorily redeemable preferred stock -- (80) -- (80)
Net loss -- -- (9,422) (9,422)
----------- ----------- ----------- -----------
Balance as of June 30, 1998 $ 90 $ 36,341 $ (22,971) $ 13,460
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE> 7
NATIONAL AUTO FINANCE COMPANY, INC.
Consolidated Statements of Cash Flows (unaudited)
For the Six Months Ended June 30, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
-------- --------
(Restated)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,422) $ (5,946)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Securitization related income (1,454) (6,171)
Depreciation expense 318 90
Provision for credit losses -- 313
Purchases of loans held for sale (81,080) (77,509)
Proceeds from transfer of loans to Master Trust 81,080 73,045
Cash flows from Retained Interest released to Company 3,679 4,941
Cash deposits to Spread Accounts (22,082) (6,819)
Amortization and write-off of deferred financing costs 276 74
Amortization of deferred placement costs -- 163
Amortization of warrants 500 --
Changes in other assets and liabilities:
Other assets 1,091 (1,625)
Accounts payable and accrued expenses (1,103) 774
Accrued interest payable-related parties -- (105)
Accrued interest payable-senior subordinated notes
and other notes (181) (139)
Deferred income taxes -- 5,084
-------- --------
Net cash used in operating activities (28,378) (13,830)
CASH FLOW FROM INVESTING ACTIVITIES:
Fixed assets purchased (1,722) (593)
-------- --------
Net cash used in investing activities (1,722) (593)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated notes 19,243 --
Principal payments on junior subordinated notes-related parties -- (5,206)
Principal payments on notes (363) --
Proceeds from initial public offering -- 17,615
Due to National Auto Finance Corporation -- (178)
Payment of preferred stock dividends (80) (27)
-------- --------
Net cash provided by financing activities 18,800 12,204
-------- --------
Net decrease in cash and cash equivalents (11,300) (2,219)
Cash and cash equivalents at beginning of period 26,467 5,066
-------- --------
Cash and cash equivalents at end of period $ 15,167 $ 2,847
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 3,323 $ 835
======== ========
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
------ ------
(Restated)
<S> <C> <C>
NON-CASH FINANCING ACTIVITIES:
Offering costs deferred in 1996 transferred to paid-in capital in 1997 $ -- $ 775
Accrued mandatorily redeemable preferred stock dividends 80 41
Conversion of deferred interest on senior subordinated debt to common
stock and paid-in capital -- 169
Conversion of predecessor entity capital to mandatorily redeemable preferred stock -- 2,295
Conversion of predecessor entity capital to common stock and
paid-in capital -- 7,225
Deferred taxes from reorganization considered reduction in paid-in capital -- 5,416
Income earned in 1997 prior to reorganization included in
paid-in capital -- 526
Issuance of 593,671 warrants in conjunction with senior subordinated
notes considered paid-in-capital 2,004 --
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE> 9
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
(1) BASIS OF PRESENTATION
During July 1998, National Auto Finance Company, Inc. (the "Company")
restated its financial statements for each of the first, second and third
quarters of 1997. The comparative amounts included herein reflect the
restated amounts for 1997. Further information regarding the restatement
is provided in Note 2 below.
The accompanying unaudited interim financial statements at June 30, 1998
and December 31, 1997 and for the three and six months ended June 30, 1998
and 1997 have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnotes required by generally accepted accounting principles for
complete financial statements are not included herein. The interim
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's latest Annual Report on Form 10-K
(capitalized terms used herein and not defined shall have the meanings
ascribed to them in such Form 10-K).
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the full year 1998; in the
Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and
recurring nature. The results for the interim periods are not necessarily
indicative of results for a full year. Certain amounts in the 1997
financial statements have been reclassified to conform with current
financial statement presentation.
(2) RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
As discussed above, the Company has restated its quarterly consolidated
financial statements for 1997. The restatement resulted from applying the
Company's December 31, 1997 model pursuant to Statement of Financial
Standards No. 125 ("SFAS No. 125") relating to the calculation of
securitization income and the related valuation of the Company's "Retained
Interest in Securitizations" based upon facts and assumptions as of March
31, June 30 and September 30, 1997.
The significant changes in methodologies and assumptions at June 30,
1997 include:
1) Present valuing in conjunction with the implementation of SFAS
No. 125 on January 1, 1997 of the Company's Spread Accounts
that includes "Cash Spread Accounts" and
"Over-Collateralization Accounts" and is a component of the
Company's Retained Interest in Securitizations;
2) Expensing of certain previously capitalized fees and costs
incurred in connection with prior securitization transactions;
3) Accruing of certain anticipated costs associated with future
securitizations; and
4) Increasing the cumulative net loss rate from 7% to 9%.
9
<PAGE> 10
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
Balance Sheet (Unaudited)
As of June 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Reported As Adjusted
-------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,847 $ 2,847
Retained interest in securitizations, at fair value 35,922 31,353
Finance receivables, net 4,228 4,228
Furniture, fixtures and equipment, net of depreciation 690 1,016
Deferred financing costs 1,000 1,000
Other assets 1,215 1,992
-------- --------
Total assets $ 45,902 $ 42,436
======== ========
LIABILITIES:
Accounts payable and accrued expenses $ 1,813 $ 2,545
Accrued interest payable-related parties 39 39
Accrued interest payable-senior subordinated notes 200 200
Junior subordinated notes-related parties 2,012 2,012
Senior subordinated notes 12,000 12,000
Deferred income taxes 5,788 5,084
-------- --------
Total liabilities 21,852 21,880
-------- --------
Mandatorily redeemable preferred stock series A-$0.01 par value;
$1,000 stated value; 1,000,000 shares authorized; 2,295 shares
outstanding; redeemable in January 2005, stated at redemption value 2,295 2,335
STOCKHOLDERS' EQUITY:
Common stock -$0.01 par value; 20,000,000 shares authorized;
7,026,000 shares outstanding 70 70
Paid-in-capital 20,220 19,207
Retained earnings (accumulated deficit) 1,465 (1,056)
-------- --------
Total stockholders' equity 21,755 18,221
-------- --------
Total liabilities, mandatorily redeemable preferred stock and
stockholders' equity $ 45,902 $ 42,436
======== ========
</TABLE>
10
<PAGE> 11
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
Statements of Operations
For the Three and Six Months Ended June 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------------------------- --------------------------
Reported As Adjusted Reported As Adjusted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Securitization related income $ 5,799 $ 4,119 $ 10,786 $ 6,171
Servicing income 468 838 862 1,375
Interest income 202 202 369 369
Other income 93 93 134 134
----------- ----------- ----------- -----------
Total revenue 6,562 5,252 12,151 8,049
=========== =========== =========== ===========
EXPENSES:
Servicing expenses 763 763 1,375 1,375
Interest expense 345 345 760 760
Salaries and employee benefits 1,622 1,671 2,921 2,921
Direct loan acquisitions expenses 865 865 1,566 1,566
Depreciation and amortization 214 214 393 393
Other operating expenses 1,036 1,069 1,789 1,822
----------- ----------- ----------- -----------
Total expenses 4,845 4,927 8,804 8,911
----------- ----------- ----------- -----------
Income (loss) before income taxes 1,717 325 3,347 (862)
Income taxes (benefit) 658 125 1,289 (322)
----------- ----------- ----------- -----------
Net income (loss) before taxes from reorganization
of partnership 1,059 200 2,058 (530)
Income taxes from reorganization of partnership -- -- 4,500 5,416
----------- ----------- ----------- -----------
Net income (loss) 1,059 200 (2,422) (5,946)
Preferred stock dividends 41 41 67 67
----------- ----------- ----------- -----------
Loss attributed to common shareholders $ 1,018 $ 159 (2,509) (6,013)
=========== =========== =========== ===========
PER SHARE DATA:
Loss per common share - basic $ 0.15 $ 0.02 (0.36) (0.86)
Loss per common share - diluted $ 0.15 $ 0.02 (0.36) (0.86)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 7,026 7,026 6,976 6,976
Diluted 7,026 7,026 6,976 6,976
</TABLE>
11
<PAGE> 12
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
(3) RETAINED INTEREST IN SECURITIZATIONS
Retained Interest in Securitizations were as follows at June 30, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(dollars in thousands)
<S> <C> <C>
Spread Accounts $ 30,590 $ 14,846
Excess Spread Receivable ("ESR") 20,837 16,723
----------- -----------
$ 51,427 $ 31,569
=========== ===========
</TABLE>
Assumptions used to value the Retained Interests in Securitizations at
June 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Weighted average cumulative net loss rate 12.88% 12.88%
Weighted average cumulative prepayment rate 22.51% 20.89%
Discount rate 14.00% 14.00%
Level of required Cash Spread Account 5% to 11% 5% to 11%
Rate of interest on Cash Spread Account 5.50% 5.50%
Weighted average interest rate on Loans 19.07% 19.01%
Weighted average yield on bonds and notes
held by securitization investors 6.13% 6.15%
</TABLE>
The Company has historically funded its purchases of motor vehicle retail
installment sale contracts ("Loans") primarily through an asset
securitization program consisting of (i) the securitized warehousing of
all of its Loans through their daily sale ("Revolving Securitization") to
a bankruptcy-remote master trust ("Master Trust") pursuant to the
Revolving Securitization, followed by (ii) the transfer of such warehoused
Loans from time to time by the Master Trust to a discrete trust
("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 cash and 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, deposits 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 ("First Union") currently owns 100% of the
outstanding Class B Certificates. Collectively, the restricted cash
account and the Class C Certificate portion of Loan principal
(Over-Collateralization Accounts, which are held by the Company) that
collateralize the Master Trust are the components of the Spread Accounts.
The Spread Accounts and ESRs are reflected collectively on the balance
sheet as "Retained Interest in Securitizations."
Periodically the Master Trust transfers Loans and Spread Account balances
to Permanent Securitizations in exchange for cash, which is used to repay
the Class B Certificates. Debt securities representing interests in the
Permanent Securitizations are sold to third-party investors, who are
repaid from cash flows from the Loan receivables in the applicable
Permanent Securitization. Excess Spread Receivables and return of Spread
Accounts attributable to such Loans flow from the Permanent Securitization
to the Company to the extent such funds are available.
In January 1998, the National Auto Finance 1998-1 Trust (the "1998-1
Trust") was formed and the Master Trust refinanced approximately $93.6
million of its receivables in a public offering of asset-back securities
through their transfer by the Master Trust to the 1998-1 Trust, as part of
a Permanent Securitization. Payment of principal of, and
12
<PAGE> 13
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
interest on, the $85.2 million of the securities issued in that
transaction is insured by payment guarantees by Financial Security
Assurance Inc. ("FSA"), and such securities are rated AAA and Aaa by
Standards & Poor's Rating Service and Moody's Investors Service, Inc.,
respectively. The proceeds of that 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.
Under the financial structures the Company has used to date in its
securitizations, certain excess cash flows generated by the Loans are
retained in the Spread Accounts within the securitization trusts to
provide liquidity and credit enhancement. While the specific terms and
mechanics of the Spread Accounts can vary depending on each transaction,
the Company's agreements with FSA, the financial guaranty insurer that has
provided credit enhancements in connection with the Company's
securitizations, generally provide that the Company is not entitled to
receive any excess cash flows unless the level of certain Spread Account
balances, comprised of cash and generally a 9% interest in the principal
balance of the Loans in the trust (the "Over-Collateralization Accounts"),
have been attained and/or the delinquency or losses related to the Loans
in the pool are below certain predetermined levels. Additionally, the
Company is currently required to maintain a minimum equity position in the
Revolving Securitization of 14.0% of the net serviced receivables in the
Master Trust, or 2.5 times net losses, whichever is greater. This equity
currently consists of cash invested by the Company and
over-collateralization in the form of the discount from the face amount of
a Loan at which the Company is willing to purchase the Loan from an
automobile dealer ("Dealer Discount") related to the principal balance of
Loans. As of June 30, 1998, the Company had a 14.18% equity investment in
the Revolving Securitization.
In the event delinquencies or losses on the Loans exceed certain levels in
the Permanent Securitizations ("Trigger Events"), the terms of the
Permanent Securitization may: (i) require increased Cash Spread Account
balances to be accumulated for the particular pool; (ii) restrict the
distribution to the Company of excess cash flows associated with the pool
in which asset-backed securities are insured by FSA; and (iii) in certain
circumstances, require the transfer of servicing on some or all of the
Loans in FSA-insured pools to another servicer. The imposition by FSA of
any of these conditions could materially adversely affect the Company's
liquidity and financial condition by delaying the timing of cash flows to
the Company, thus reducing the value of the Retained Interest in
Securitizations. Certain portfolio performance tests were not met at
various times during the second quarter of 1998 with respect to the
Permanent Securitization trusts formed in November 1995, November 1996,
and July 1997 resulting in additional cash being required to be retained
in the Spread Accounts related to such Permanent Securitization trusts
until the violation of such performance tests are cured. No performance
test has been violated in the Permanent Securitization formed in January
1998 and no additional cash has been required to be deposited into its
related Spread Account. In the event that a performance test is violated
in the future, an additional deposit will be required to increase the
1998-1 Trust Spread Account to a total of 9% of the outstanding principal
balance from the future cash flows of all the Permanent Securitizations.
Upon the occurrence of a Permanent Securitization failing to meet
portfolio performance tests of the nature described above but at
significantly higher levels (an Insurance Agreement Event of Default), the
Company will be in default under its insurance agreements with FSA. Upon
an Insurance Agreement Event of Default, FSA may: (i) permanently suspend
distributions of cash flow to the Company from the related securitization
trust and all other FSA-insured trusts until the asset-backed securities
have been paid in full; (ii) capture all excess cash flows from performing
FSA-insured trusts; (iii) increase its premiums; and (iv) replace the
Company as servicer with respect to all FSA-insured trusts. In April 1997,
the Permanent Securitization trust formed in November 1995 experienced an
Insurance Agreement Event of Default. In October 1997, the Company entered
into an agreement with FSA that: (i) permanently waived the April 1997
Insurance Agreement Event of Default; (ii) modified the portfolio
performance tests described above to increase the thresholds through June
1998 for the Permanent Securitization trusts formed in November 1995 and
1996 (temporary revisions); (iii) increased the amount required to be
retained in the Spread Account related to the November 1995 and 1996 trust
to an amount generally equal to 11% of the then outstanding balance held
by the securitization trust if the modified portfolio performance tests
are not met; (iv) required the Company to cause the Spread Account for
each FSA-insured securitization trust to be cross-collateralized to the
Spread Accounts established in connection with each of its other
FSA-insured securitization trusts; (v) permitted the Company to enter into
an agreement with BankBoston, N.A. (the "BankBoston Agreement"); (vi)
provided that FSA would consider providing credit enhancement for the
Company's next Permanent Securitization; and (vii) provided for the
issuance of 100,000 shares of Common Stock to FSA. In consideration for
such agreement, the Company
13
<PAGE> 14
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
issued 100,000 shares of the Company's common stock, par value $0.01 per
share (the "Common Stock") to FSA and reduced securitization-related
income by $700,000 in 1997. As a result of the aforementioned
cross-collateralization, the excess cash flow from a performing
FSA-insured trust may be required to be used to support negative cash
flow from, or to replenish a deficient Spread Account in connection with,
a non-performing FSA-insured securitization trust, thereby further
restricting excess cash flow available to the Company. If excess cash
flow from all FSA-insured securitization trusts is not sufficient to
replenish all these Spread Accounts, no cash flow would be available to
the Company for that month. The Company's right to service the Loans sold
in FSA-insured securitizations is generally subject to the discretion of
FSA. Accordingly, there can be no assurance that the Company will
continue as servicer for such Loans and receive related servicing fees.
Additionally, there can be no assurance that there will not be additional
Insurance Agreement Events of Default in the future, or that, if such
events of default occur, waivers will be available. If the Company does
not meet such requirements in 1998, the carrying value of the Company's
Retained Interest in Securitizations would be materially impacted in a
negative manner. As of June 30, 1998, the Company was not in violation of
any Insurance Agreement Event of Default.
The Company is in violation of certain covenants with respect to the
Master Trust, including specifically, the covenant that the Master Trust
maintain certain interest rate hedging agreements and covenants related to
allowable repossession and recovery limits. As of June 30, 1998, the
Company is in the process of seeking a waiver of such covenant breaches
and modification of certain terms of the Master Trust to continue
availability under the Master Trust. If such a waiver is not granted, the
Company may cease receiving the cash flows the Company would otherwise
ordinarily receive from the Master Trust and the Company may be terminated
as a servicer of the Loans held in the Master Trust. Notwithstanding such
covenant violations, the company has been allowed to continue borrowing
under the Master Trust.
In addition, any increase in limitations on cash flow available to the
Company from Permanent Securitization trusts, the Company's inability to
obtain any necessary waivers from FSA or the termination of servicing
arrangements could materially adversely affect the Company's financial
condition, results of operations and cash flows.
During the six months ended June 30, 1998 and 1997, the following
activity took place with respect to securitizations:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
--------- --------
(dollars in thousands)
<S> <C> <C>
Principal balance of Loans sold...................... $ 73,475 $ 75,005
========= ========
Securitization related income........................ $ 2,915 $ 1,375
========= ========
Remaining principal balance of Loans sold since
Inception, as of period end........................ $ 260,888 $127,094
========= ========
Weighted average coupon rate on Loans
sold during the period........................... 19.35% 19.54%
========= ========
</TABLE>
(4) SENIOR SUBORDINATED DEBT
In December 1997, the Company completed a private placement (the "December
Private Placement") of $10 million in Common Stock and $40 million
principal amount of Senior Subordinated Notes with detachable Warrants.
The December Private Placement of the $10 million in Common Stock resulted
in the issuance of 1,904,762 shares in the aggregate of the Company's
Common Stock at $5.25 per share. Additionally, a representative of each of
two of the senior subordinated debt lenders who were also stock purchasers
was elected to the Company's Board of Directors. In March 1998, the
Company completed a private placement (the "March Private Placement") of
$20 million principal amount of Senior Subordinated Notes with detachable
Warrants under terms similar to that of the December Private Placement.
The principal amount of the aggregate $60 million of Senior Subordinated
Notes is due in December 2004 and the Senior Subordinated Notes bear
interest at 11.875% per annum for the first three years, 12.875% per annum
for year four, 13.875% per annum for year five, and 14.875% per annum
thereafter, with interest payable quarterly. In connection with the
December Private Placement and the March Private Placement, the Company
issued an aggregate of 1,632,685 detachable Warrants with a ten-year life,
exercisable into Common Stock of the Company at $0.01 per share. The fair
value of such Warrants was estimated to be based upon a share value of
14
<PAGE> 15
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
$5.25 for the December Private Placement and $3.37 for the March Private
Placement, for a total of $7.5 million. Such amount is recorded as a
discount to the related debt and additional paid-in capital, and is being
amortized over the life of the debt using the interest method. The
effective interest rate, including the value of the Warrants, is
approximately 15%.
The Company is in violation of the Minimum Consolidated Net Worth and
Adjusted Interest Expense covenants contained in the Securities Purchase
Agreements pursuant to which it issued $60,000,000 aggregate principal
amount of Senior Subordinated Notes. The Minimum Consolidated Net Worth
covenant requires that the Company maintain Consolidated Net Worth (as
defined) of not less than (a) $25,890,000 plus (b) on a cumulative basis
commencing with the fiscal quarter ending March 31, 1998, 50% of net
income (if positive) for each fiscal quarter plus (c) 100% of the net
proceeds from any public offering or private placement of common stock.
The Adjusted Interest Expense covenant requires generally that the sum of
the Company's Net Income (as defined), Consolidated Total Interest Expense
(as defined) and income and franchise taxes divided by its Consolidated
Total Interest Expense (as defined) for each period of four fiscal
quarters ending December 31, 1997 and thereafter be at least 1.4:1. The
Company is in discussions with the lenders under such debt agreements to
obtain waivers of the breach of such covenant violations. If such waivers
are not obtained, the holders of the indebtedness represented thereby may
declare a default and accelerate the payment of the principal amount of
such indebtedness.
(5) JUNIOR SUBORDINATED NOTES
The Junior Subordinated Notes are payable to certain affiliates on January
31, 2002, and accrue interest at 8% per annum. Such debt is subordinated
to all other debt of the Company. Interest expense recognized for this
debt for the six months ended June 30, 1998 and 1997 was $77,000 and
$123,000, respectively.
(6) NOTES PAYABLE
The Company has entered into a $1.5 million credit agreement ("FUNB Note")
dated as of August 25, 1997 with First Union National Bank to fund the
purchase of furniture and equipment ("collateral") for the Company's
service center and corporate headquarters. FUNB retains a security
interest in the collateral. The FUNB Note accrues interest at the one
month London Interbank offered rate plus 2.5% (8.16% at June 30, 1998),
payable monthly. The principal amount of the FUNB Note is payable monthly
beginning March 1998 and matures March 2001. As of June 30, 1998, the
principal amount owed by the Company was $877,000. Interest expense
recognized for this debt for the three and six months ended June 30, 1998
was $20,000 and $41,000, respectively.
As of September 29, 1997, the Company entered into the BankBoston
Agreement, a three year, $10.0 million revolving credit facility secured
by Loans. The Company repaid the remaining balance in April 1998 and has
terminated the BankBoston Agreement. Interest expense recognized for this
debt for the six month period ended June 30, 1998 was $17,500.
The Company has entered into a four year capital lease for furniture for
the Company's service center. The lease accrues interest at 7.05%.
Principal and interest are payable monthly. As of June 30, 1998, the
principal amount owed by the Company was $324,000. Interest expense
recognized for this debt for the three and six months ended June 30, 1998
was $5,900 and 11,300, respectively.
(7) STOCK OPTION PLAN
During the first six months of 1998, stock options with respect to an
aggregate of 232,500 shares of Common Stock were granted to key employees
and employees of affiliates of the Company at the fair market value at the
date of grant. The amount of shares granted in excess of the shares
available under the 1996 Share Incentive Plan and the granting of options
to employees of affiliates of the Company are subject to shareholder
approval at the next Annual Meeting.
(8) RECENT EVENTS
As previously described in the Company's Form 8-K filed on May 20, 1998,
Gary L. Shapiro resigned as Chairman and Chief Executive Officer of the
Company, and Keith B. Stein was appointed interim Chief Executive Officer
effective May 15, 1998. Mr. Shapiro remains a director of the
15
<PAGE> 16
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
Company. Effective June 1, 1998, Mr. Stein entered into a three-year
employment agreement with the Company, assuming the full time position of
Chief Executive Officer. On June 12, 1998, the Company, National Financial
Companies LLC ("NFC") and certain NFC affiliates entered into an agreement
terminating the Company's management and services agreements with NFC.
As previously described in the Company's Form 8-K filed on June 9, 1998,
Roy E. Tipton resigned as President and as a director of the Company
effective June 5, 1998. In connection with Mr. Tipton's resignation, the
Company entered into a severance agreement with Mr. Tipton that resulted
in Mr. Tipton's employment agreement with the Company being terminated and
Mr. Tipton receiving a $125,000 lump sum severance payment.
On June 19, 1998, the Company converted its Servicing Portfolio computer
data from its outside servicer's computer systems to its new Consumer Loan
Asset Servicing System ("CLASS") developed by BNI, Inc. ("BNI"). The CLASS
system is composed of separate modules integrating loan origination, loan
servicing, operational accounting, portfolio performance analysis and loan
securitization functions. The installation of certain modules of the CLASS
system is still ongoing, and a number of the modules are still not
completed or fully functioning. The continuing delays in completing this
installation has had and may continue to have a negative impact on the
performance of the Loans for which the Company performs servicing and
collections (the "Servicing Portfolio").
A company controlled by Gary L. Shapiro, the Company's former Chairman
and Chief Executive Officer and a continuing director of the Company, has
acquired an option to purchase a controlling stock ownership interest in
BNI and a related company, also controlled by Gary L. Shapiro, has made a
loan to BNI.
(9) SUBSEQUENT EVENTS
As discussed in Note 4, the Company is in violation of certain financial
covenants in agreements with certain of its lenders. As of August 14,
1998, the lenders have not declared a default or accelerated the payment
of the principal amount of the debt owed to them by the Company. The
Company is in discussions with its lenders to obtain waivers of those
covenant violations.
The Company also is in discussions with First Union to continue Loan
financing availability under its Master Trust facility warehouse line. As
of August 14, 1998, the Company has continued to fund Loans under the
Master Trust facility warehouse line. The amount available under the
Master Trust for purchase of Loans was $2.1 million as of August 11, 1998.
Additionally, the Company and the automobile finance division of First
Union ("First Union Auto Finance") are still in discussions regarding
First Union Auto Finance's renewal or non-renewal of its referral
agreement with the Company for an additional year. Currently, the referral
agreement expires on April 15, 2000.
The Company continues to undergo a restructuring of its operations,
including, without limitation, the reduction of personnel, the
modification of its underwriting criteria and product offerings, and the
increasing of its loan yields. The Company is continuing to develop a
revised business model reflective of these strategies and expects to
announce in the near future additional steps to reposition its business.
As part of that restructuring, the Company is consolidating all operations
in Jacksonville, Florida. Accordingly, by August 31, 1998, the Company
intends to move all of its loan origination activities to its Jacksonville
facility. Further, by October 30, 1998, the Company intends to transition
all of its accounting, legal, executive and remaining activities to its
Jacksonville facility.
On August 12, 1998, The Nasdaq Stock Market, Inc. ("NASDAQ") advised the
Company that unless the closing bid price of the Company's common stock
allows for the maintenance of a greater than $5 million public float, for
at least 10 consecutive trading days during the period ending on November
13, 1998, the Company's Common Stock will be delisted on November 17,
1998. In addition, the NASDAQ'S letter identifies other listing standards
that the Company is not satisfying, any one of which is a possible basis
for delisting, but none of which NASDAQ has specifically identified as the
current basis for a potential delisting.
16
<PAGE> 17
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
During July 1998, the Company restated its financial statements for each of
the first, second and third quarters of 1997. The discussion below reflects the
restated amounts for 1997. Further information regarding the restatement is
provided in Note 2 of the Notes to the unaudited interim Consolidated Financial
Statements contained elsewhere herein.
The following management's discussion and analysis provides information
regarding the Company's financial condition as of June 30, 1998 compared to
December 31, 1997 and its results of operations for the three and six months
ended June 30, 1998 and the restated three and six months ended June 30, 1997.
This management's discussion and analysis should be read in conjunction with (i)
the Company's Consolidated Financial Statements and the related notes included
elsewhere herein and (ii) the Company's Annual Report on Form 10-K with respect
to the fiscal year ended December 31, 1997. The ratios and percentages provided
below are calculated using detailed financial information contained in the
Company's Financial Statements, the notes thereto and the other financial data
included elsewhere in this report.
SECURITIZATION ACTIVITIES
The Company currently finances its purchases of Loans primarily through a
two-step asset securitization program that involves (i) the securitized
warehousing of substantially all of its Loans through their daily sale to the
Master Trust pursuant to a Revolving Securitization followed by (ii) the
transfer of such warehoused Loans from time to time through Permanent
Securitizations. In connection with the securitization of the Loans sold by the
Company, the Company is required to establish and maintain certain credit
enhancements to support the timely payment of interest and principal on the
bonds and notes issued to investors by the securitization trusts, which credit
enhancements include, among other things, funding and maintaining spread
accounts, which are monies held on deposit (Cash Spread Accounts), and
maintaining a residual interest in the pools of receivables held by such
securitization trusts (Over-Collateralization Accounts). The following
discussion summarizes the effect of the Company's securitization activities on
its revenues, expenses and cash flows.
Revenues
In January 1997, the Company adopted Statement of Financial Accounting
Standards SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" (SFAS No 125). Since then, the Company
has undertaken a continuing process of refining the assumptions and
methodologies used to measure the fair value of its Retained Interest in
Securitizations based upon the historical performance of its Loan portfolio.
Specifically, the Company has increased the cumulative net loss estimate from
9.00% as of June 30, 1997 to 12.88% as of June 30, 1998, increased the discount
rate applied to estimated cash flows from the securitizations from 11.00% at
June 30, 1997 to 14.00% at June 30, 1998, and increased assumptions related to
levels of cash required to be maintained in spread accounts to reflect
anticipated changes in such required amounts over time. The increase in the
cumulative net loss estimate results primarily from an increase in default rates
expected to be experienced over the life of the Loans, lower expected recovery
rates on the underlying collateral and changes in prepayment speeds, compared to
the rates of such items estimated in earlier periods.
The Company also receives monthly payments from the securitization trusts
in cash as a fee paid for the Company's servicing of the Loans. Servicing income
is recognized as earned and typically offsets the direct expenses the Company
incurs in connection with the servicing of the Servicing Portfolio. Finally, the
Company also earns interest income on its cash investments and from Loans it
temporarily holds for sale pending their securitization.
Distributions of Cash from Securitization
When the Company securitizes Loans, it is required to establish and
maintain credit enhancements on a trust-specific basis to support the timely
payment of interest and principal on the notes issued to investors by such
securitization trusts. These credit enhancements include, among other things,
funding and maintaining the Cash Spread Accounts and maintaining the
Over-Collateralization Accounts. The Cash Spread Accounts are funded through
initial cash deposits by the Company, plus a portion of the excess cash flows
from the Loans (that is, the difference between cash received by the relevant
trust and its interest and principal payments on the asset-backed securities and
trust expenses). Once the funds in the Cash Spread Accounts meet specified
levels (which may be increased if the performance of the relevant Loan pool
deteriorates), any subsequent excess cash flows thereafter will be released to
the Company on a monthly basis. Any remaining cash in the Cash Spread Accounts
after the asset-backed securities have been paid in full also will be released
to
17
<PAGE> 18
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
the Company. The amount of excess cash available for distribution to the
Company will be affected by the Servicing Portfolio's actual loss and prepayment
experience. See Note 3 to the Financial Statements -- Retained Interest in
Securitizations.
During the three and six months ended June 30, 1998 and 1997, the
following activity took place with respect to securitizations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
(restated) (restated)
(dollars in thousands)
<S> <C> <C> <C> <C>
Number of Loans purchased............................ 2,577 3,831 6,663 6,709
Principal balance of Loans purchased................. $ 34,723 $ 43,777 $ 83,714 $ 79,549
Principal amount of Loans funded (1)................. $ 33,682 $ 42,600 $ 81,104 $ 77,509
Securitization related income ....................... $ 1,380 $ 4,119 $ 1,454 $ 6,171
Servicing income..................................... $ 1,643 $ 838 $ 2,915 $ 1,375
</TABLE>
- ------------------------
(1) Amount funded represents the price at which the Company purchases a Loan
from an automobile dealer ("Dealer") or third party originator
("Third-Party Originator") (i.e., the amount actually paid to a Dealer or
Third-Party Originator), calculated as the principal of the Loan purchased
less the Dealer Discount.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 1998, COMPARED TO THE THREE MONTH
PERIOD ENDED JUNE 30, 1997.
Income from Operations
The Company reported a net loss of $4.3 million attributed to common
shareholders for the three month period ended June 30, 1998, compared to net
income of $159,000 attributed to common shareholders for the three month period
ended June 30, 1997.
Securitization Related Income
The Company's Loan purchasing volume declined significantly during the
three month period ended June 30, 1998 compared to the three month period ended
June 30, 1997. This decline in volume was primarily due to the Company's
decision to temporarily curtail Loan originations to allow the Company to
preserve its cash while undertaking a debt and operational restructuring
process, in light of the losses recently incurred by the Company. The Company
purchased 2,577 Loans, having a principal balance of $34.7 million, during the
three month period ended June 30, 1998, compared to 3,831 Loans, having a
principal balance of $43.8 million, for the three months ended June 30, 1997.
These Loan purchases consisted of 1,810 Loans purchased from Dealers ($24.5
million principal balance) and 767 Loans purchased from Third-Party Originators
($10.2 million principal balance) during the three month period ended June 30,
1998. This compares to 2,290 Loans purchased from Dealers ($31.2 million
principal balance) and 1,541 Loans purchased from Third-Party Originators ($12.6
million principal balance) during the three month period ended June 30, 1997.
For the three month periods ended June 30, 1998 and 1997, the Company recognized
securitization related income of $1.4 million and $4.1 million, respectively.
This decrease was impacted by a 20.7% decrease in the dollar volume of Loans
purchased during the three month period ended June 30, 1998, compared to the
three month period ended June 30, 1997. Additionally, securitization income
decreased due to the increase in the cumulative net loss estimate from 9.00% as
of June 30, 1997 to 12.88% as of June 30, 1998. In addition, in the second
quarter of 1998, the Company was required to provide additional credit
enhancements to the Master Trust in the amount of $5.2 million due to increased
production volume funded. As part of the evaluation of the Retained Interest in
Securitizations, the cash deposits were discounted using a rate of 14.00%, which
reduced the securitization income reported for the second quarter.
The Company's model used to calculate the fair value of Retained Interest
in Securitizations includes an amount equal to an estimate of cumulative net
losses to be experienced with respect to the Loans securitized. Significant
changes in such cumulative net loss estimate will result in adjustments to the
carrying value of Retained Interest in Securitizations.
18
<PAGE> 19
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
Servicing Income
The Company receives a servicing fee in cash of approximately 4.0% of the
principal amount of the Loans sold to the Master Trust and 2.0% for the
principal amount of the Loans subsequently sold to the Permanent
Securitizations, which typically offsets actual servicing expenses incurred by
the Company. This income is recognized as received. Servicing income for the
three month periods ended June 30, 1998 and 1997 was $1.6 million and $838,000,
respectively. The growth in servicing income was attributable to the increase in
the size of the Servicing Portfolio.
Total Expenses
The Company reported total expenses for the three month periods ended June
30, 1998 and 1997 of $8.0 million and $4.9 million, respectively. These expenses
consisted primarily of servicing expense, interest expense on long-term
indebtedness including the Company's Senior Subordinated Notes, salaries and
employee benefits and direct Loan acquisition expenses. The increase in expenses
was due to the start-up and duplicative expenses associated with the Company's
transition from an outside servicer to in-house servicing and the additional
interest expense associated with the increased debt of the Company.
External servicing expenses for the three month periods ended June 30,
1998 and 1997 were $1.2 million and $763,000, respectively. Servicing costs
consisted primarily of a combination of internal servicing expenses and fees to
an outside servicer for each active Loan not serviced in-house. Additionally,
the Company incurred the cost of vendor's single interest ("VSI") insurance
maintained by the Company. Servicing fees paid to the Company's outside servicer
for the three month period ended June 30, 1998 and 1997 were $760,000 and
$609,000, respectively. The increase in servicing expenses primarily reflected
the growth in the Servicing Portfolio. The Company's Servicing Portfolio grew
from $157.1 million, representing 14,392 outstanding Loans as of June 30, 1997,
to $260.9 million, representing 24,827 outstanding Loans, as of June 30, 1998.
The Company assumed responsibility for all collections and other servicing
of its Loans and Management Information Systems ("MIS") operations on June 20,
1998. For the three months ended June 30, 1998, internal servicing expenses
consisted primarily of salaries and other operating expenses totaling $1.1
million. The Company initially commenced operations in its own internal
servicing center during July 1997, which had 112 employees as of June 30, 1998.
Internal servicing expenses will continue to grow as the transition to in-house
servicing continues.
Interest expense for the three month periods ended June 30, 1998 and 1997
was $2.1 million and $345,000, respectively. The increase in interest expense
resulted from the increases in the long-term debt balances of the Company.
Direct Loan acquisition expenses for the three month periods ended June
30, 1998 and 1997 were $573,000 and $865,000, respectively. These expenses
consisted primarily of Dealer incentives, fees paid to strategic alliance
partners, broker fees, credit information fees and telephone expenses. The
expenses declined due to the reduction in Loan originations during the three
months ended June 30, 1998.
19
<PAGE> 20
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
SIX MONTH PERIOD ENDED JUNE 30, 1998, AS COMPARED TO THE SIX MONTH PERIOD ENDED
JUNE 30, 1997.
Income from Operation
The Company reported a net loss for the six month period ended June 30,
1998 of $9.4 million as compared to a net loss of $5.9 million for the six month
period ended June 30, 1997.
Securitization Related Income
The Company's Loan purchasing activity during the six month period ended
June 30, 1998 was comparable to the six month period ended June 30, 1997. The
Company purchased 4,632 or $62.2 million of principal amount of Loans from
Dealers and $21.5 million or 2,031 Loans were acquired through the Company's
Portfolio Acquisition Program during the six month period ended June 30, 1998,
100% of which were sold to the Master Trust. This compares to 4,407 Loans or
$59.3 million of principal amount of Loans purchased from Dealers and $20.3
million or 2,302 Loans acquired through the Company's Portfolio Acquisition
Program during the six month period ended June 30, 1997.
During the six month period ended June 30, 1998, the Company was required
to provide additional credit enhancements to the Master Trust in the amount of
$20.5 million due to the origination of new Loans and the increase in the
required level of collateralization. As part of the evaluation of the Retained
Interest in Securitizations, the cash deposits were discounted using a rate of
14.00%, which reduced the securitization income reported for the second quarter.
The Company's model used to calculate the fair value of Retained Interest
in Securitizations includes an amount equal to an estimate of cumulative net
losses to be experienced with respect to the Loans securitized. Significant
changes in such cumulative net loss estimate would result in adjustments to the
carrying value of Retained Interest in Securitizations.
Servicing Income
The Company receives a servicing fee in cash of approximately 4.0% of the
principal amount of the Loans sold to the Master Trust and 2.0% for the
principal amount of the Loans subsequently sold to the Permanent
Securitizations, which typically offsets actual servicing expenses incurred by
the Company. This income is recognized as earned. Servicing income for the six
month periods ended June 30, 1998 and 1997 was $2.9 million and $1.4 million,
respectively. The growth in servicing income was attributable to the increase in
the size of the Servicing Portfolio.
Total Expenses
The Company reported operating expenses of $15.2 million for the six month
period ended June 30, 1998, as compared to $8.9 million for the six month period
ended June 30, 1997. These expenses consisted primarily of servicing costs,
subordinated note interest and personnel expenses. Operating expenses, as a
percentage of Loans purchased, increased from 11.2% as of June 30, 1997 to 18.2%
as of June 30, 1998.
Servicing expenses for the six month period ended June 30, 1998 were $4.4
million as compared to $1.4 million for the six month period ended June 30,
1997. This represents an increase in annualized servicing expenses as a
percentage of average Loans serviced, from 1.94% as of June 30, 1997 to 3.71% as
of June 30, 1998. Servicing fees paid to the Company's external servicer for the
six month period ended June 30, 1998 were $1.6 million as compared to $1.1
million for the six month period ended June 30, 1997. The increase in expenses
primarily reflects the growth in the portfolio serviced by the Company and was
impacted by the start-up and overlap by internal servicing and fees incurred
from its external servicer.
The Company assumed responsibility for collecting all of its Loans in July
1997, and assumed responsibility for all other servicing of its Loans and MIS
operations on June 20, 1998. For the six month period ended June 30, 1998,
internal servicing expenses consisted primarily of salaries and other operating
expenses totaling $1.9 million.
Interest expense for the six month period ended June 30, 1998 was $3.6
million, as compared to $760,000 for the six month period ended June 30, 1997.
This increase is a result of the interest expense incurred with respect to the
Company's Senior Subordinated Notes.
20
<PAGE> 21
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
LOAN LOSS AND DELINQUENCY EXPERIENCE
Loan losses and Loan prepayments are continuously monitored on an overall
portfolio and month-of-purchase static pool basis. Pursuant to the requirements
of SFAS No. 125, the Company reviews its actual Loan loss experience in
conjunction with its quarterly revaluation of the carrying value of Retained
Interest in Securitizations. Charge-off of Loans are based upon an
account-by-account review of delinquent Loans by the Company. The Company's
securitized trusts generally charge off a Loan at the time its related
collateral is liquidated, although certain Loans may be charged off sooner if
management deems them to be uncollectable. The following table summarizes the
Company's loan loss experience:
<TABLE>
<CAPTION>
As of June 30,
--------------------------
1998 1997
----------- -----------
(dollars in thousands)
<S> <C> <C>
Average Servicing Portfolio during period........... $ 249,376 $ 142,105
Gross charge-offs................................... 20,683 7,186
Liquidation proceeds from repossessed assets........ 9,949 3,351
----------- -----------
Net charge-offs..................................... $ 10,734 $ 3,835
=========== ===========
Net charge-offs as a percentage of average Servicing
Portfolio (annualized) ......................... 8.60% 5.40%
=========== ===========
</TABLE>
The Company's annualized net charge-offs have significantly increased
during the second quarter because of the Company's outside servicer's
substandard performance once it notified the Company in April 1998 that it would
be removing the Company's Servicing Portfolio data on June 19, 1998 from its
computer systems and due to the delays experienced by the Company in installing
the CLASS system previously described in Note 8.
Prior to July 1997, the Company had not serviced or collected Loans and
therefore continues to be subject to the inherent risks associated with
initiating new operations, such as unforeseen operational, financial and
management problems. There can be no assurance that the Company will be able to
service and collect the Servicing Portfolio on a cost effective and timely basis
or that future delinquency and loss ratios will not increase.
On June 19, 1998, the Company converted its Servicing Portfolio computer
data from its outside servicer's computer systems to its new Consumer Loan Asset
Backed Security System ("CLASS") developed by BNI, Inc. ("BNI"). The CLASS
system is composed of separate modules integrating loan origination, loan
servicing, operational accounting, portfolio performance analysis and loan
securitization functions. The installation of certain modules of the CLASS
system is still ongoing, and a number of the modules are still not completed or
fully functioning. The continuing delays in completing this installation has had
and may continue to have a negative impact on the performance of the Loans for
which the Company performs servicing and collections (the "Servicing
Portfolio").
A company controlled by Gary L. Shapiro, the Company's former Chairman and
Chief Executive Officer and a continuing director of the Company, has acquired
an option to purchase a controlling stock ownership interest in BNI and a
related company, also controlled by Gary L. Shapiro, has made a loan to BNI.
The securitization income the Company recognizes from the sale of Loans to
the Master Trust, and the cash flow from its securitizations are substantially
dependent on the Servicing Portfolio's delinquency and loss performance.
Increase in delinquencies and losses may result in: (i) increased capital and/or
credit enhancement requirements for securitizations; (ii) reductions in cash
flow to the Company; and (iii) additional violations of Permanent Securitization
performance tests. Consequently, the Company's failure to effectively service
and collect the Servicing Portfolio could have a material adverse effect on the
Company's financial condition, results of operations and cash flows. See Note 3
to the Financial Statements - Retained Interest in Securitizations.
Since October 1994, the Company has maintained, at its own expense,
supplemental VSI insurance that protects the Company's interest in Loan
collateral against uninsured physical damage (including total loss) in instances
where neither the automobile nor the borrower can be found.
21
<PAGE> 22
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
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 fifth day following the due date. The
following table summarizes the delinquency and repossession experience with
respect to the Servicing Portfolio:
<TABLE>
<CAPTION>
As of June 30,
------------------------
1998 1997
-------- ---------
(dollars in thousands)
<S> <C> <C>
Period of delinquency:
31 to 60 days...................................... $ 17,432 $ 10,232
61 to 90 days...................................... 3,528 3,191
91 days or more.................................... 2,786 2,420
-------- ---------
Total delinquencies................................... $ 23,746 $ 15,843
======== =========
Total delinquencies as a percentage of the
Servicing Portfolio................................ 9.10% 10.08%
Principal balance of Loans related to repossession
inventory.......................................... $ 5,752 $ 2,919
Repossession inventory as a percentage of the
ending Servicing Portfolio......................... 2.20% 1.90%
</TABLE>
Management believes that the payment practices of Non-Prime Consumers are
partially a function of seasonality. Because 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. 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.
The Company monitors historical loss experience on an overall portfolio
basis and 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 compared to the estimates for net
losses, and adjustments to the carrying value of Retained Interest in
Securitizations for the effect of any anticipated additional losses will be
reflected in the current period earnings.
22
<PAGE> 23
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
The following table summarizes the vintage static pools of the Company's
Servicing Portfolio for all Loans purchased by the Company from inception
through the period ending March 31, 1998, and includes loss data through June
30, 1998:
<TABLE>
<CAPTION>
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997 1997 1997 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
3 0.00% 0.00% 0.00% 0.00% 0.05% 0.00% 0.00% 0.04% 0.00% 0.00% 0.00% 0.02% 0.00% 0.00%
4 0.00% 0.00% 0.00% 0.03% 0.17% 0.00% 0.00% 0.04% 0.01% 0.02% 0.17% 0.02% 0.00% 0.02%
5 0.00% 0.07% 0.00% 0.19% 0.21% 0.10% 0.10% 0.16% 0.00% 0.06% 0.43% 0.07% 0.06% 0.02%
6 0.05% 0.14% 0.27% 0.43% 0.70% 0.39% 0.31% 0.45% 0.25% 0.23% 0.93% 0.22% 0.23% 0.13%
7 0.05% 0.24% 0.67% 0.88% 0.96% 0.60% 0.63% 0.79% 0.61% 0.58% 1.40% 0.41% 0.44%
8 0.31% 0.86% 1.42% 1.24% 1.05% 0.80% 1.14% 1.06% 1.21% 1.19% 1.89% 0.79% 0.78%
9 0.47% 1.34% 1.98% 2.18% 1.57% 1.38% 1.73% 1.92% 1.89% 1.90% 2.58% 1.25% 0.97%
10 0.51% 1.70% 2.40% 2.35% 2.28% 1.81% 2.70% 2.59% 2.55% 2.34% 3.26% 1.69%
11 1.08% 1.73% 2.62% 2.71% 2.40% 2.00% 3.29% 3.36% 3.40% 2.84% 3.51% 2.16%
12 1.36% 2.52% 3.14% 3.11% 3.08% 2.43% 4.34% 3.65% 3.69% 3.45% 4.31% 2.50%
13 1.75% 3.04% 3.37% 3.60% 3.48% 3.35% 5.19% 4.47% 4.02% 3.95% 5.10%
14 1.72% 3.39% 3.71% 3.58% 3.69% 3.60% 5.58% 5.04% 4.53% 4.21% 5.76%
15 3.12% 3.90% 3.99% 4.13% 4.24% 4.42% 6.00% 5.38% 5.12% 4.86% 6.24%
16 3.21% 4.20% 4.27% 4.60% 4.58% 4.71% 6.50% 5.95% 5.49% 5.46%
17 3.80% 4.52% 4.49% 4.98% 5.36% 5.38% 6.89% 6.37% 5.89% 6.27%
18 4.45% 4.70% 5.01% 5.14% 5.52% 5.80% 7.19% 6.84% 6.48% 6.74%
19 4.55% 4.94% 5.35% 5.49% 6.09% 6.68% 7.52% 7.32% 7.06%
20 4.91% 5.18% 5.75% 5.96% 6.43% 6.95% 7.85% 8.13% 7.87%
21 4.91% 5.77% 6.13% 6.46% 6.65% 7.16% 8.25% 8.58% 8.24%
22 5.05% 5.75% 6.84% 6.76% 7.10% 7.60% 8.47% 8.97%
23 5.05% 6.24% 7.44% 7.02% 7.51% 8.09% 9.35% 9.52%
24 5.79% 6.34% 7.75% 7.10% 8.06% 8.24% 9.81% 10.05%
25 5.78% 7.01% 8.28% 7.78% 8.34% 8.32% 10.35%
26 6.20% 7.30% 8.52% 8.37% 8.62% 8.71% 10.61%
27 6.80% 7.65% 8.66% 8.63% 8.82% 9.12% 11.02%
28 7.15% 8.00% 9.08% 8.71% 8.97% 9.36%
29 7.49% 9.02% 9.31% 8.86% 9.30% 9.57%
30 8.06% 9.15% 9.36% 8.92% 9.98% 10.14%
31 8.23% 9.73% 9.57% 9.06% 10.28%
32 9.07% 9.90% 9.60% 9.81% 10.55%
33 9.07% 10.08% 9.89% 10.14% 10.97%
34 9.61% 10.07% 9.96% 10.40%
35 9.89% 10.28% 10.33% 10.54%
36 10.38% 10.59% 10.58% 10.69%
37 11.44% 10.81% 10.82%
38 11.48% 11.15% 10.97%
39 11.81% 11.52% 11.02%
40 11.84% 11.55%
41 11.87% 11.58%
42 12.22% 11.62%
43 12.31%
44 12.42%
45 12.48%
</TABLE>
23
<PAGE> 24
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
General
Since inception, the Company has funded its operations and the growth of
its Loan purchasing activities primarily through six 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 indebtedness; (v) capital contributions of certain affiliates of the
Company; and (vi) proceeds from the Company's initial public offering and
subsequent private issuances of Common Stock.
The Company's primary uses of cash are to fund: (i) Spread Accounts; (ii)
securitizations; (iii) Loan purchases; (iv) debt service; (v) issuance costs of
asset securitizations; and (vi) operating expenses.
Net cash used in operating activities increased by $14.6 million from
$13.8 million for the six month period ended June 30, 1997 to $28.4 million for
the six month period ended June 30, 1998, principally due to increased operating
expenses, the change in the credit enhancement requirements of the Company's
securitization facilities and the increase in the volume of Loans purchased.
Operating expenses were impacted by the start-up and overlap of costs by
internal servicing and fees incurred from its external servicer.
Net cash used in investing activities increased from $593,000 for the six
month period ended June 30, 1997, to $1.7 million for the six month period ended
June 30, 1998. This increase is due to the purchase of computers, data systems
and furniture for the Jacksonville facility.
Net cash provided by financing activities increased by $6.6 million from
$12.2 million for the six month period ended June 30, 1997 to $18.8 million for
the six month period ended June 30, 1998. Such increase was primarily the result
of the proceeds received from the Company's sale of the Senior Subordinated
Notes. In addition to net operating losses of $9.4 million, the Company funded
deposits to Spread Accounts totaling $22.0 million.
The Company is currently required to maintain a minimum equity position in
the Revolving Securitization of 14.0% of the net serviced receivables or 2.5
times net losses, whichever is greater. This equity currently consists of cash
invested by the Company and over-collateralization in the form of Dealer
Discounts related to the principal balance of Loans. As of June 30, 1998, the
Company had a 14.18% equity investment in the Revolving Securitization.
As of June 30, 1998, the Company retained approximately $20.8 million of
ESRs, approximately $15.3 million of Cash Spread Accounts and approximately
$15.3 million of Over-Collateralization Accounts, which combined represent
the $51.4 million shown on the balance sheet as Retained Interest in
Securitizations, representing 69.2% of the total assets of the Company. The
value of these assets would be reduced in the event of a future material
increase in the Loan loss or prepayment experience relative to the amounts
previously estimated by the Company.
As of June 30, 1998, the principal amount owed by the Company on the
Junior Subordinated Notes was approximately $2.0 million (including $38,703 of
accrued interest), which bear interest at an annual rate of 8%, and the
principal amount owed by the Company on the Senior Subordinated Notes was $60.0
million. The Senior Subordinated Notes, which mature on December 2004, bear
interest at an annual rate of 11.875% for the first three years, and increase
thereafter. See notes 4 and 5 for further discussions of the notes.
The Company's independent auditors' report for the fiscal year ended
December 31, 1997 contained a going concern qualification. Because of the going
concern qualification and the concomitant likelihood that such a qualification
will make it difficult for the Company to raise additional capital in the
foreseeable future, the Company is developing a business plan (the "Plan").
Although not yet fully developed, the Plan likely will consist of a reduction
in the Company's origination of loans from previously-projected levels and the
emphasis of the Company's use of its servicing capabilities to provide loan
servicing to third parties. Third-party servicing should result in additional
cash flow to the Company and be particularly cost effective because the Company
already has in place much of the infrastructure necessary to support such
servicing. Further, as part of the Plan, the Company has reduced and will
continue to reduce corporate overhead, including but not limited to the planned
closing of the Company's Boca Raton offices by October 31, 1998. The Company
estimates that the net cost savings associated with its new Plan, when
implemented, may result in savings of approximately $5 million to $8 million
annually. Moreover, unlike the past, the Company is now attempting to collect
late fees on past due Loans, as well as deficiency balances on charged-off
Loans.
Further, the Company's future liquidity and financial condition, and its
ability to finance the growth of its business and to repay or refinance its
indebtedness, will depend substantially on distributions of excess cash flow
from the Master Trust and Permanent Securitization trusts. The Company's
agreements with FSA provide that each Permanent Securitization trust must
maintain specified levels of cash in its Cash Spread Account during the life of
the trust. These spread accounts are funded initially out of beginning deposits
and are funded thereafter with excess cash flow from the Loan pool. During each
month, excess cash flow distributable to the Company from all Permanent
Securitization trusts is first used to replenish any Cash Spread Account
deficiencies and then is distributed to the Company. The timing and amount of
distributions of excess cash from securitization trusts varies based on a number
of factors, including loan delinquencies, defaults and net losses, the rate of
disposition of repossession inventory and recovery rates, the age of Loans in
the portfolio, prepayment experience and required spread account levels. A
deterioration of the Company's Loan delinquencies, defaults or net losses, or a
build-up in repossession inventory could reduce excess cash available to the
Company. There can be no assurance that in the future the Company will not
experience an interruption in its receipt of excess cash flows, which could
adversely affect the Company's financial condition, results of operations and
cash flows.
24
<PAGE> 25
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
Each Permanent Securitization trust has certain portfolio performance
tests relating to levels of delinquency, defaults and net losses on the Loans in
such trust ("Maintenance Tests"). Portfolio performance tests require that the
Loan portfolio of each Permanent Securitization trust have: (i) an average
delinquency rate less than a specified percentage; (ii) a cumulative default
rate less than specified percentages that vary based on the aging of the
relevant trust's Loan pool; and (iii) a cumulative net loss less than specified
percentages that vary based on the aging of the relevant trust's Loan pool. If
any Permanent Securitization Loan portfolio fails to satisfy any of these tests,
the amount of cash required to be retained in the Cash Spread Account related to
such securitization trust will be increased to an amount generally equal to 9%
to 11% of the then outstanding balance held by the securitization trust.
Upon the occurrence of a Permanent Securitization failing to meet
portfolio performance tests of the nature described above but at significantly
higher levels (an Insurance Agreement Event of Default), the Company will be in
default under its insurance agreements with FSA. Upon an insurance Agreement
Event of Default, FSA may: (i) permanently suspend distributions of cash flow to
the Company from the related securitization trust and all other FSA-insured
trusts until the asset-backed securities have been paid in full; (ii) capture
all excess cash flows from performing FSA-insured trusts; (iii) increase its
premiums; and (iv) replace the Company as servicer with respect to all
FSA-insured trusts. In April 1997, the Permanent Securitization trust formed in
November 1995 experienced an Insurance Agreement Event of Default. In October
1997, the Company entered into an agreement with FSA that: (i) permanently
waived the April 1997 Insurance Agreement Event of Default; (ii) modified the
portfolio performance tests described above to increase the thresholds through
June 1998 for the Permanent Securitization trusts formed in November 1995 and
1996 (temporary revisions); (iii) increased the amount required to be retained
in the Spread Account related to the November 1995 and 1996 trust to an amount
generally equal to 11% of the then outstanding balance held by the
securitization trust if the modified portfolio performance tests are not met;
(iv) required the Company to cause the Spread Account for each FSA-insured
securitization trust to be cross-collateralized to the Spread Accounts
established in connection with each of its other FSA-insured securitization
trusts; (v) permitted the Company to enter into the $10.0 million BankBoston
Agreement; (vi) provided that FSA would consider providing credit enhancement
for the Company's next Permanent Securitization; and (vii) provided for the
issuance of 100,000 shares of Common Stock to FSA. In consideration for such
agreement, the Company issued 100,000 shares of Common Stock to FSA and reduced
securitization related income by $700,000 in 1997. As a result of the
aforementioned cross-collateralization, the excess cash flow from a performing
FSA-insured trust may be required to be used to support negative cash flow from,
or to replenish a deficient Spread Account in connection with, a non-performing
FSA-insured securitization trust, thereby further restricting excess cash flow
available to the Company. If excess cash flow from all FSA-insured
securitization trusts is not sufficient to replenish all these Spread Accounts,
no cash flow would be available to the Company for that month. The Company's
right to service the Loans sold in FSA-insured securitizations is generally
subject to the discretion of FSA. Accordingly, there can be no assurance that
the Company will continue as servicer for such Loans and receive related
servicing fees. Additionally, there can be no assurance that there will not be
additional Insurance Agreement Events of Default in the future, or that, if such
events of default occur, waivers will be available. If the Company does not meet
such requirements in 1998, the carrying value of the Company's Retained Interest
in Securitizations would be materially impacted in a negative manner.
During the second quarter of 1998, certain modified Management Tests were
not met with respect to the Permanent Securitization trusts formed in November
1995, November 1996 and July 1997, resulting in the Company being required to
retain an additional amount of $2.1 million over the $2.1 million previously
required to be retained in the Cash Spread Accounts as of December 31, 1997
related to such Permanent Securitization trusts until the violation of such
modified performance tests are cured. As of June 30, 1998, the entire $4.2
million in increased spread account funding requirements had been accumulated in
the Cash Spread Accounts of such trusts, in lieu of being distributed to the
Company.
The following is a table showing the portfolio performance tests by Trust
as of June 30, 1998:
<TABLE>
<CAPTION>
Delinquency Test Default Test Loss Test
------------------------------ ------------------------------- ------------------------------
Actual Maintenance Insurance Actual Maintenance Insurance Actual Maintenance Insurance
------ ----------- --------- ------ ----------- --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95-1 10.54% 8.25% 11.00% 15.26% 14.00% 17.00% 5.00% 8.00% 10.00%
96-1 10.95 8.25 11.00 14.77 18.00 25.00 10.01 8.00 11.00
97-1 9.82 8.25 11.00 14.54 18.00 25.00 7.66 8.00 11.00
98-1 7.34 8.25 11.00 14.10 18.00 25.00 3.32 8.00 11.00
</TABLE>
25
<PAGE> 26
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1998
The modified performance test levels for the 95-1 Trust decreased in June
1998 to: (i) 8.25% for the delinquency maintenance test and to 11.00% for the
delinquency insurance test; (ii) 14.00% for the default maintenance test and to
17.00% for the default insurance test; and (iii) 8.00% for the loss maintenance
test and to 10.00% for the loss insurance test. The modified performance test
levels for the 96-1 Trust decreased in June 1998 to: (i) 8.25% for the
delinquency maintenance test and to 11.00% for the delinquency insurance test;
(ii) to 18.00% in July 1998 for the default maintenance test and to 25.00% for
the default insurance test; and (iii) 8.00% in July 1998 for the loss
maintenance test and to 11.00% for the loss insurance test.
Any increase in limitations on cash flow available to the Company from
Permanent Securitization trusts, the Company's inability to obtain any necessary
waivers from FSA or the termination of servicing arrangements could materially
adversely affect the Company's financial condition, results of operations and
cash flows.
The Company is in violation of the Minimum Consolidated Net Worth and
Adjusted Interest Expense covenants contained in the December 1997 and March
1998 Securities Purchase Agreement pursuant to which it issued $60,000,000
aggregate principal amount of Senior Subordinated Notes. The Minimum
Consolidated Net Worth covenant requires that the Company maintain Consolidated
Net Worth (as defined) of not less than (a) $25,890,000 plus (b) on a cumulative
basis commencing with the first fiscal quarter ending June 30, 1998, 50% of net
income (if positive) for each fiscal quarter plus (c) 100% of the net proceeds
from any public offering or private placement of common stock. The Adjusted
Interest Expense covenant requires generally that the sum of the Company's Net
Income (as defined), Consolidated Total Interest Expense (as defined) and income
and franchise taxes divided by its Consolidated Total Interest Expense (as
defined) for each period of four fiscal quarters ending December 31, 1997 and
thereafter be at least 1.4:1. The Company is in discussions with the lenders
under such debt agreements to obtain waivers of the breach of such covenant
violations. If such waivers are not obtained, the holders of the indebtedness
represented thereby may declare a default and accelerate the payment of the
principal amount of such indebtedness.
The Company's business requires substantial cash to support the funding of
Cash Spread Accounts for its securitizations, issuance costs of its asset
securitizations, operating expenses, tax payments, debt service and other cash
requirements. These cash requirements increase as the number of Loans purchased
and serviced by the Company increase. Historically, the Company has operated on
a negative operating cash flow basis and its negative operating cash flow is
expected to continue for the foreseeable future. The Company has funded its
negative operating cash flows principally through borrowings under its secured
financing facilities, issuances of subordinated debt and sales of equity
securities. Assuming the payment of Senior Subordinated Notes are not
accelerated, the Company believes cash currently on hand should be sufficient to
meet the Company's cash requirements and to fund its operations through the
second quarter of 1999. Thereafter, the Company may be required to issue
additional debt or equity, which could dilute the interests of stockholders of
the Company. There can be no assurance 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. 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, results of
operations and cash flows.
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.
YEAR 2000
The Company is in the process of installing in its Boca Raton, Florida and
Jacksonville, Florida facilities the CLASS system for the underwriting and
servicing of its Loan portfolio. CLASS is a fully-integrated finance company
software platform composed of separate modules integrating loan origination,
loan servicing, operational accounting, portfolio performance analysis and loan
securitization functions. The Company believes, and the software developer of
CLASS has represented to the Company, that the CLASS software platform is year
2000 compliant. The Company is also in the process of installing a financial
accounting software package, which the Company believes to be Year 2000
compliant. Once the CLASS system and the financial accounting software package
are fully installed, the Company believes that all of its computer systems will
be year 2000 compliant. There can be no assurance, however, that software
incompatibility with the year 2000 on the part of the Company or any of its
significant suppliers will not have a material adverse effect on the Company,
and a plan for dealing with such incompatibility has not yet been developed by
the Company. The Company intends to develop such a contingency plan by the end
of the third quarter of 1998.
26
<PAGE> 27
- --------------------------------------------------------------------------------
PART II - Other Information
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Number Description Method of Filing
- ------ ----------- ----------------
10.1 Employment Agreement of Keith B. Stein Filed with this document
10.2 Employment Agreement of Willaim G. Magro Filed with this document
10.3 Employment Agreement of Joel B. Ronkin Filed with this document
10.4 Employment Agreement of Thomas Costanza Filed with this document
10.5 Employment Agreement of Martin J. Mattone Filed with this document
10.6 Employment Agreement of James E. Shuler Filed with this document
10.7 Employment Agreement of Brent E. Wombolt Filed with this document
11 Computation of Earnings Filed with this document
Per Common Share
27 Financial Data Schedule Filed with this document
b) Reports on Form 8-K
On April 16, 1998, the Company filed a Form 8-K announcing the Company's
results for the fiscal year ended 1997 and the completion of a $20 million
private placement.
On May 1, 1998, the Company filed a Form 8-K announcing the Company's
strategic restructuring and the filing of its Annual Report on Form 10-K,
which includes a qualified opinion from the Company's former auditor, KPMG
Peat Marwick LLP ("KPMG").
On May 20, 1998, the Company filed a Form 8-K announcing the Company's
first quarter results, the resignation of the Company's Chairman and Chief
Executive Officer, Gary L. Shapiro, the retention of BDO Seidman, LLP as
the Company's auditor for fiscal 1998, and the termination of KPMG as the
Company's auditor.
On June 3, 1998, the Company filed a Form 8-K describing certain
disagreements between the Company and its former auditor, KPMG.
On June 9, 1998, the Company filed a Form 8-K announcing the resignation
of Roy E. Tipton as President and as a director of the Company.
On June 17, 1998, the Company filed Amendment No. 1 to its Form 8-K,
attaching a copy of KPMG's response to the Company's disclosure on Form
8-K regarding certain disagreements between KPMG and the Company.
On June 18, 1998, the Company filed a Form 8-K announcing the resignation
of Stephen L. Gurba as a director of the Company.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL AUTO FINANCE COMPANY, INC.
Date: August 14, 1998 /s/ Keith B. Stein
----------------------------------------
Keith B. Stein
Vice Chairman, Chief Executive Officer
and Treasurer
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Employment Agreement of Keith B. Stein
10.2 Employment Agreement of William G. Magro
10.3 Employment Agreement of Joel B. Ronkin
10.4 Employment Agreement of Thomas Costanza
10.5 Employment Agreement of Martin J. Mattone
10.6 Employment Agreement of James E. Shuler
10.7 Employment Agreement of Brent E. Wombolt
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 1, 1998 (this
"Agreement"), by and between National Auto Finance Company, Inc., a Delaware
corporation (the "Company") and Keith B. Stein, an individual residing at 800
West End Avenue, New York, New York 10025 (the "Executive").
WHEREAS, the Company is engaged in the business of non-prime
automobile (the "Business"); and
WHEREAS, the Executive is currently the Vice Chairman, Chief
Financial Officer and Treasurer of the Company, serving the Company pursuant to
the terms and conditions of that certain Employment Agreement between the
parties hereto dated as of February 19, 1998 (the "Previous Agreement"); and
WHEREAS, the parties hereto desire that the Executive assume
the responsibilities and title of Chief Executive Officer of the Company
commencing immediately; and
WHEREAS, the parties hereto desire to terminate the Previous
Agreement, in order to set forth the new understanding of the employment
relationship between and among such parties on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements made herein, the Company and the Executive agree as follows:
1. Termination of Previous Agreement. The parties hereto
acknowledge and agree that, upon the effectiveness of this Agreement, the
Previous Agreement is hereby terminated and each and every provision thereof
shall be rendered void and of no further force or effect whatsoever, with no
payment obligation of the Company therefor.
2. Employment; Duties. The Company shall employ the Executive
as the Chief Executive Officer of the Company, and the Executive shall serve the
Company as its Chief Executive Officer, for the "Employment Period" as defined
in Section 3 of this Agreement. The Executive, in his capacity as Chief
Executive Officer of the Company, shall report to the Board of Directors of the
Company (the "Board"). The Executive shall have such duties, responsibilities
and authority normally incident to the position of Chief Executive Officer in
accordance with the by-laws of the Company, and as established from time to time
by the Board, and shall devote such time as is necessary to perform such duties
and responsibilities to the best of his ability. The Executive shall be
permitted to engage in other activities (including business, charitable or
civic), provided that such activities are not inconsistent with his position as
Chief Executive Officer of the Company, do not interfere with the performance of
the Executive's duties, responsibilities and obligations pursuant to this
Agreement, and are not violative of Section 9 hereof. Although the Executive
shall not be required to relocate from his current home in New York City to the
principal place of the Company's
<PAGE> 2
Business (the parties hereto acknowledging that it is the intention of the
Company that such Business shall move from Boca Raton, Florida to Jacksonville,
Florida no later than the end of 1998), it is understood and agreed between the
parties hereto that the Executive shall be required to be physically present at
the Company's principal offices on a regular basis, and at least as often as is
necessary or appropriate for the Executive to perform his duties efficiently and
effectively, particularly given the Executive's increased level of
responsibilities as Chief Executive Officer of the Company pursuant to this
Agreement. In addition, the Executive shall be required to travel as reasonably
and necessarily required in connection with his duties as Chief Executive
Officer of the Company.
3. Employment Period. Subject to the provisions of Section 15,
this Agreement shall have a term of three (3) years, commencing as of the date
hereof (the "Effective Date") and ending on the third anniversary of the date
hereof, unless sooner terminated in accordance with the provisions of Section 8.
The parties hereto acknowledge and agree that, except as set forth in Section 8,
no severance or other payments shall be owing or payable to the Executive in the
event of the termination of this Agreement or the Company's non-renewal of the
term of this Agreement upon its expiration. The term of this Agreement, as in
effect from time to time, is referred to herein as the "Employment Period."
4. Compensation and Benefits.
(a) Base Compensation. Commencing on the Effective Date, the
Executive shall be paid a base salary (the "Base Salary") at the rate of
$300,000 per annum. The Base Salary shall be reviewed annually by the Board or
the Compensation Committee of the Board, and may be increased in their sole
discretion. The Base Salary shall be payable in a manner consistent with the
normal payroll practices of the Company in effect or as established from time to
time.
(b) Annual Incentive Bonus. In addition to the Base Salary,
the Executive shall be eligible for an incentive bonus ("Incentive Bonus") for
each of the fiscal years ending December 31 during the Employment Period. For
the fiscal year ending December 31, 1998, the Executive shall be paid an
Incentive Bonus in an amount to be determined by the Board or the Compensation
Committee of the Board, but in no event less than $150,000. For each subsequent
fiscal year ending December 31 during the Employment Period, the Board or the
Compensation Committee of the Board shall adopt an Incentive Bonus program for
the Company's senior executive officers, designed in part to enable the
Executive the opportunity to earn an Incentive Bonus equal to at least 50% of
the Executive's annual Base Salary in each such year. Each such Incentive Bonus
will be paid on or before March 31 of the year following the year to which such
Incentive Bonus relates.
(c) Stock Option Plan. Executive shall be entitled to
participate in and receive grants under the Company's 1996 Share Incentive Plan
(as the same may be amended or modified from time to time), and any other plans
implemented by the Company granting shares of capital stock or options or
warrants to purchase shares of capital stock or other forms of equity or equity
derivative securities, of the Company as such grants may be made from time to
time in the sole
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<PAGE> 3
discretion of the Board or Compensation Committee of the Board governing such
plan, the level of such participation to be at least commensurate with that
granted to other key senior executives. Notwithstanding anything set forth
herein to the contrary, the Compensation Committee of the Board did agree on
June 29, 1998 to grant to the Executive a stock option (the "New Option") upon
closing of the restructuring that is currently contemplated by the Company
involving The 1818 Mezzanine Fund, L.P., PC Investment Company, Progressive
Investment Company, Inc., Manufacturers Life Insurance Company (U.S.A.) and The
Structured Finance High Yield Fund, LLC (the "Restructuring"). The option shall
relate to that number of shares of the common stock of the Company which is
equal to 4.25% of the common stock of the Company outstanding (on a
fully-diluted basis) immediately following the closing of the Restructuring. As
used in this Section 4(c), the phrase "common stock of the Company outstanding
(on a fully-diluted basis)" shall mean, immediately following the closing of the
Restructuring, an amount of shares equal to the aggregate of : (a) the number of
all outstanding shares of the common stock of the Company; (b) the number of
shares of the common stock of the Company issuable upon the exercise of all
outstanding warrants; (c) the number of shares of the common stock of the
Company issuable upon the exercise of all outstanding options (vested or
unvested, and including the options contemplated to be granted to the Executive
and each other member of senior management in connection the execution of
employment agreements prior to the closing of the Restructuring); and (d) the
number of shares of common stock of the Company issuable upon the exercise or
conversion of all other outstanding common equity or common equity derivative
securities. The New Option shall be evidenced by and be subject to a grant
letter from the Company to the Executive. Furthermore, the New Option upon its
grant shall be, and all options previously granted to the Executive by the
Company hereby are, fully vested and immediately exercisable, and the exercise
price of the New Option shall be set, and all such previously granted options
shall be reset, at a price equal to the fair market value of the Company's
common stock immediately following the closing of the Restructuring, as
determined by the Board.
(d) Employee Benefits. Executive 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 Company
from time to time during the Employment Period.
(e) Expenses. Executive shall be promptly reimbursed by the
Company for all reasonable out-of-pocket Business-related expenses (including
but not limited to travel and entertainment expenses, the reasonable cost of an
apartment in Boca Raton, Florida, or, after the move of the principal place of
Business, in Jacksonville, Florida, and the reasonable cost of a single office
and part-time secretary in New York City) incurred by him in furtherance of the
performance of his duties and responsibilities hereunder upon submission to the
Company of receipts supporting such expenses.
(f) Automobile. The Company will provide Executive with a car
allowance of $600 per month and reimburse Executive for gasoline, oil, normal
maintenance and parking expenses for his automobile upon submission to the
Company of receipts supporting such expenses.
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<PAGE> 4
5. Trade Secrets. The Executive recognizes that it is in the
legitimate business interest of the Company to restrict his disclosure or use of
Trade Secrets and Confidential Information relating to the Company for any
purpose other than in connection with his performance of his duties to the
Company, and to limit any potential appropriation of such Trade Secrets and
Confidential Information by the Executive. The Executive therefore agrees that
all Trade Secrets and Confidential Information relating to the Company
heretofore or in the future obtained by the Executive shall be considered
confidential and the proprietary information of the Company. During the
Employment Period, except as may be required by law or due legal process, the
Executive shall not use or disclose, or authorize any other person or entity to
use or disclose, any Trade Secrets or other Confidential Information that has
otherwise not been publicly disclosed, other than as necessary to further the
Business objectives of the Company in accordance with the terms of his
employment hereunder. The term "Trade Secrets or other Confidential Information"
includes, by way of example and without limitation, matters of a technical
nature, such as scientific, trade and engineering secrets, "know-how", formulas,
secret processes, drawings, works of authorship, machines, inventions, computer
programs (including documentation of such programs), services, materials, patent
applications, new product plans, other plans, technical information, technical
improvements, manufacturing techniques, specifications, manufacturing and test
data, progress reports and research projects, and matters of a business nature,
such as Business plans, prospects, financial information, proprietary
information about operating procedures, costs, profits, markets, sales, lists of
customers and suppliers of the Company, procurement and promotional information,
credit and financial data concerning customers or suppliers of the Company,
information relating to the management, operation and planning of the Company,
plans for future development and other information of a similar nature to the
extent not available to the public. After termination of the Executive's
employment with the Company for any reason, the Executive shall not use or
disclose Trade Secrets or other Confidential Information.
6. Return of Documents and Property. Upon the termination of
the Executive's employment with the Company, or at any time upon the request of
the Company, the Executive (or his heirs or personal representatives) shall
deliver to the Company (a) all documents and materials (including, without
limitation, computer files) containing Trade Secrets or other Confidential
Information relating to the Business and affairs of the Company, and (b) all
documents, materials and other property (including, without limitation, computer
files) belonging to the Company, which in either case are in the possession or
under the control of the Executive (or his heirs or personal representatives).
7. Discoveries and Works. All Discoveries and Works made or
conceived by the Executive during his employment by the Company, jointly or with
others, that relate to the present or anticipated activities of the Company, or
are used or usable by the Company shall be owned by the Company. The term
"Discoveries and Works" includes, by way of example but without limitation,
Trade Secrets and other Confidential Information, patents and patent
applications, trademarks and trademark registrations and applications, service
marks and service mark registrations and applications, trade names, copyrights
and copyright registrations and applications.
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<PAGE> 5
The Executive shall (a) promptly notify, make full disclosure to, and execute
and deliver any documents requested by, the Company, to evidence or better
assure title to Discoveries and Works in the Company, as so requested, (b)
renounce any and all claims, including but not limited to claims of ownership
and royalty, with respect to all Discoveries and Works and all other property
owned or licensed by the Company, (c) assist the Company in obtaining or
maintaining for itself at its own expense United States and foreign patents,
copyrights, trade secret protection or other protection of any and all
Discoveries and Works, and (d) promptly execute, whether during his employment
with the Company or thereafter, all applications or other endorsements necessary
or appropriate to maintain patents and other rights for the Company and to
protect the title of the Company thereto, including but not limited to
assignments of such patents and other rights. Any Discoveries and Works which,
within six months after the termination of the Executive's employment with the
Company, are made, disclosed, reduced to a tangible or written form or
description, or are reduced to practice by the Executive and which pertain to
the Business carried on or products or services being sold or developed by the
Company at the time of such termination shall, as between the Executive and, the
Company, be presumed to have been made during the Executive's employment by the
Company. The Executive acknowledges that all Discoveries and Works shall be
deemed "works made for hire" under the Copyright Act of 1976, as amended, 17
U.S.C. Section 101.
8. Termination. Prior to the expiration of this Agreement
pursuant to Section 3, the Executive's employment hereunder may be terminated by
the Executive for Good Reason or by the Company with or without Cause, and shall
automatically terminate upon the Executive's death. Except as provided below, in
the event this Agreement is terminated or expires, the Executive's rights and
the obligations of the Company hereunder shall cease as of the effective date of
the termination; provided, however, that the Executive shall in any case be
entitled to receive any accrued but unpaid Base Salary, any accrued but unpaid
Incentive Bonus for the fiscal year ending prior to such termination, any
accrued but unpaid out-of-pocket Business-related expenses and auto allowances,
and any amount accrued under Company benefit plans as provided pursuant to the
terms of such plans (the "Accrued Obligations").
(a) Termination by the Executive for Good Reason or by the
Company Without Cause. In the event that the Executive terminates his employment
with the Company upon notice for Good Reason (as defined below), or the
Executive is terminated by the Company without Cause (other than pursuant to
Section 8(c)), the Executive shall be entitled to receive the following as
severance benefits hereunder in a lump sum as soon as practicable following such
termination: (i) a pro rata portion of the Executive's target Incentive Bonus,
calculated by multiplying the Base Salary by 50%, and further multiplying such
product by a fraction, the numerator of which is the actual number of days the
Executive was employed during the calendar year of such termination (including
weekends and holidays which occurred during such period) and the denominator of
which is 365, and (ii) $680,000. Except as otherwise set forth herein, all other
compensation and benefits provided for under this Agreement or otherwise from
the Company shall cease upon such termination, and the Executive hereby
acknowledges and agrees that no severance or similar or other damages or
payments of any kind whatsoever shall be payable to the Executive due to, in
connection with, or in the event of, the Executive's termination or resignation
from employment for any reason.
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<PAGE> 6
For purposes of this Agreement, "Cause" shall mean: (i) any
material breach by Executive of any of his obligations under Sections 5, 6, 7 or
9 of this Agreement, that has not been corrected within 30 days of written
notice thereof to Executive by the Company; (ii) willful failure or refusal by
Executive to perform satisfactorily the duties assigned to him pursuant to this
Agreement, that has not been corrected within 30 days of written notice thereof
to Executive by Company; (iii) other conduct of Executive involving gross
disloyalty or willful misconduct with respect to the Company, including, without
limitation, fraud, embezzlement, theft or proven dishonesty in the course of his
employment, or conviction of a felony; or (iv) Executive's willful engagement in
conduct materially injurious to the economic interests or reputation of the
Company; provided that if such breach, failure or refusal described in clauses
(i) and (ii) above cannot reasonably be corrected within 30 days of written
notice thereof, such written notice to state with specificity the nature of the
breach, failure or refusal, correction may be commenced by Executive within such
period and may be corrected within a reasonable period thereafter; and provided,
further, that any such breach, failure or refusal by reason of Good Reason,
disability or death shall not constitute Cause for purposes hereof.
For purposes of this Agreement, "Good Reason" shall mean (i)
any failure by the Company to comply with any of the provisions of Section 4 of
this Agreement, other than any failure that is remedied by the Company prior to
the date of termination specified in the written notice from Executive of
termination of employment by Executive for Good Reason under this provision;
(ii) any requirement that the Executive relocate to the principal offices of the
Company; provided, however, that the parties hereto acknowledge that, given the
expanded scope of the Executive's duties as Chief Executive Officer of the
Company under this Agreement, the Executive's physical presence at the principal
offices of the Company shall be required on a regular basis, and to a greater
extent than Executive's requirements in such respect as existed under the
Previous Agreement; or (iii) any failure by any successor (whether direct or
indirect, by purchase, merger, consolidation, Change in Control or otherwise) to
all or substantially all of the Business and/or assets (without regard to the
inclusion or exclusion of retained interest in securitizations or other loan
receivable related assets in any such purchase, merger, consolidation, Change in
Control or otherwise) of the Company (a "Successor") to comply with this
Agreement.
(b) Termination Following a Change in Control. In the event
that the Executive's employment with the Company is terminated for any reason
other than death or pursuant to Section 8(c) (including voluntarily by action of
the Executive without Good Reason) within 120 days following a Change in Control
(as hereinafter defined), the Executive shall be entitled to receive the
following as severance benefits hereunder in a lump sum as soon as practicable
following such termination: (i) the amount calculated pursuant to clause (i) in
the first paragraph of Section 8(a) hereof, and (ii) $980,000.
For purposes of this Agreement, a "Change in Control" means
the occurrence of any one of the following events: (i) any person or entity,
including any person as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934 (the "Exchange Act"), becoming the beneficial owner, as defined in
the Exchange Act, directly or indirectly, of more than fifty percent (50%) of
the
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<PAGE> 7
total combined voting power of all classes of capital stock of the Company
ordinarily entitled to vote for the election of directors of the Company, (ii)
the Board approving the sale of all or substantially all of the property or
assets of the Company (without regard to the inclusion or exclusion of retained
interest in securitizations or other loan receivable related assets in any such
sale), (iii) the Board approving a consolidation or merger of the Company with
another corporation or business entity, the consummation of which would result
in the occurrence of an event described in clause (i) above, or (iv) a change in
the Board occurring with the result that the members of the Board as constituted
on the Effective Date (the "Incumbent Directors") no longer constitute a
majority of such Board; provided, however, that under no circumstances shall the
consummation of (or the circumstances involving) the Restructuring be deemed,
either directly or indirectly, to constitute a Change in Control hereunder.
(c) Disability. If, prior to the expiration of the Employment
Period or the termination of the Executive's employment hereunder, the Executive
shall be unable to perform his duties by reason of his mental or physical
disability for at least 180 consecutive days or any 180 days (whether or not
consecutive) in any 365 consecutive day period, the Company shall have the right
to terminate the Executive's employment hereunder and the remainder of the
Employment Period by giving written notice to the Executive to that effect, but
only if at the time such notice is given such disability is continuing.
Immediately upon the giving of such notice, the Employment Period shall
terminate. Upon such termination, in addition to the Accrued Obligations, the
Executive shall be paid the amount set forth in clause (i) in the first
paragraph of Section 8(a) hereof, plus an amount equal to the Executive's Base
Salary for a three (3) month period. In the event of a dispute as to whether the
Executive is disabled within the meaning of this Section 8(c), either party may
from time to time request a medical examination of the Executive by a doctor
appointed by the Chief of Staff of a hospital selected by mutual agreement of
the parties, or as the parties may otherwise agree, and the written medical
opinion of such doctor shall be conclusive and binding upon the parties as to
whether the Executive has become disabled and the date when such disability
arose. The cost of any such medical examination shall be borne by the Company.
(d) Death. If, prior to the expiration of the Employment
Period or the termination of this Agreement, the Executive shall die, in
addition to the Accrued Obligations, the Executive's estate shall be paid the
amount set forth in clause (i) of the first paragraph of Section 8(a) hereof.
(e) Any termination of this Agreement under this Section 8
shall be subject to the of Section 15.
9. Non-Competition and Non-Solicitation.
(a) Non-Competition. During the period of the Executive's
employment with the Company, and for the 12-month period thereafter (together,
the "Restricted Period"), the Executive shall not (except as an officer,
director, employee, agent or consultant of the Company) directly or indirectly,
own, manage, operate, join, or have a financial interest in, control or
participate in the ownership, management, operation or control of, or be
employed as an employee, agent or
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<PAGE> 8
consultant, or in any other individual or representative capacity whatsoever, or
use or permit his name to be used in connection with, or be otherwise connected
in any manner with any business or enterprise engaged primarily in non-prime
automobile finance, or any business planned by the Company at any time during
the period of the Executive's employment by the Company, within any portion of
the United States (whether or not such business is physically located within the
United States) or in any other location where activities of the Executive would
be competitive with the Company's Business, unless the Executive shall have
obtained the prior written consent of the Board, provided that the foregoing
restriction shall not be construed to prohibit the ownership by the Executive of
not more than two percent (2%) of any class of securities of any corporation
which is engaged in any of the foregoing businesses, having a class of
securities registered pursuant to the Securities Exchange Act of 1934, which
securities are publicly owned and regularly traded on any national exchange or
in the over-the-counter market, provided further, that such ownership represents
a passive investment and that neither the Executive nor any group of persons
including the Executive in any way, either directly or indirectly, manages or
exercises control of any such corporation, guarantees any of its financial
obligations, otherwise takes part in its business other than exercising his
rights as a shareholder, or seeks to do any of the foregoing.
(b) Non-Solicitation. During the Restricted Period, except in
connection with his employment hereunder, the Executive agrees, directly or
indirectly, whether for his own account or for the account of any other
individual or entity, not to (i) solicit or canvas the trade, business or
patronage of, or sell any products or services which are the same as or similar
to those designed, developed, manufactured, distributed or sold by the Company
to, any individuals or entities that were either customers of the Company during
the time the Executive was employed by the Company, whether during or prior to
the Restricted Period, or prospective customers with respect to whom a sales
effort, presentation or proposal was made by the Company during the twelve
months preceding the date of termination or expiration, as the case may be, (ii)
solicit, induce, enter into any agreement with, or attempt to influence any
individual who was an employee or consultant of the Company at any time during
the time the Executive was employed by the Company, to terminate his or her
employment relationship with the Company or to become employed by the Executive
or any individual or entity by which the Executive is employed, or (iii)
interfere in any other way with the employment, or other relationship, of any
employee or consultant of the Company.
(c) Separate Covenants. The parties hereto intend that the
covenants contained in this Section 9 shall be deemed a series of separate
covenants for each country, state, county and city in which the Company conducts
its Business.
10. Enforcement.
(a) Equitable Relief. The Executive agrees that the remedies
at law for any breach or threat of breach by him of any of the provisions of
Sections 5, 6, 7, and 9 hereof will be inadequate, and that, in addition to any
other remedy to which the Company may be entitled at law or in equity, the
Company shall be entitled to specific performance of its rights under this
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<PAGE> 9
Agreement. The parties agree that the provisions of Sections 5, 6, 7, and 9
hereof shall be specifically enforceable, it being agreed by the parties that
the remedy at law, including monetary damages, for breach of any such provisions
will be inadequate compensation for any loss and that any defense in any action
for specific performance that a remedy at law would be adequate is waived.
Nothing herein contained shall be construed as prohibiting the Company from
pursuing, in addition, any other remedies available to the Company for such
breach or threatened breach.
(b) Reasonable Restrictions. It is expressly understood and
agreed that although the Company and the Executive consider the restrictions
contained in Sections 5, 6, 7, and 9 hereof to be reasonable for the purpose of
preserving the goodwill, proprietary rights and going concern value of the
Company, if a final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction contained in
such Sections 5, 6, 7, and 9 is an unenforceable restriction on the Executive's
activities, the provisions of such Sections 5, 6, 7, and 9 shall not be rendered
void but shall be deemed amended to apply as to such maximum time and territory
and to such other extent as such court may judicially determine or indicate to
be reasonable. Alternatively, if the court referred to above finds that any
restriction contained in Sections 5, 6, 7, or 9 or any remedy provided herein is
unenforceable, and such restriction or remedy cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained therein or the availability of any other remedy. In
addition, and solely with respect to Section 9 hereof, if any such court shall
refuse to enforce all the separate covenants deemed included in Section 9
because, taken together, they cover too extensive a time period, geographic area
or scope, the parties intend that those of such covenants (with respect to
geographic area, taken in other of the cities, counties, states and countries
therein which are least populous) which if eliminated would permit the remaining
separate covenants to be enforced in such proceeding shall, for the purpose of
such proceeding, be deemed eliminated from the provisions of Section 9. The
provisions of Sections 5, 6, 7, and 9 shall in no respect limit or otherwise
affect the Executive's obligations under other agreements with the Company.
11. Assignment. The rights and obligations of the parties
under this Agreement shall not be assignable by either the Company or the
Executive, provided that this Agreement is assignable by the Company to any
affiliate of the Company (without relieving the Company of its obligations
hereunder), to any successor in interest to the Business of the Company, or to a
purchaser of all or substantially all of the assets of the Company.
12. Notices. Any notice required or permitted under this
Agreement shall be deemed to have been effectively made or given if in writing
and personally delivered, mailed properly addressed in a sealed envelope,
postage prepaid by certified or registered mail, delivered by a reputable
overnight delivery service or sent by facsimile. Unless otherwise changed by
notice, notice shall be properly addressed to the Executive if addressed to:
Keith B. Stein
800 West End Avenue, Apt. 3A
New York, New York 10025
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Fax: 212-280-6338
If to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street, Suite 200
Boca Raton, FL 33487
Attention: General Counsel
Fax: 800-436-4178
13. Severability. Wherever there is any conflict between any
provision of this Agreement and any statute, law, regulation or judicial
precedent, the latter shall prevail, but in such event the provisions of this
Agreement thus affected shall be curtailed and limited only to the extent
necessary to bring them within the requirements of the law. In the event that
any provision of this Agreement shall be held by a court of proper jurisdiction
to be indefinite, invalid, void or voidable or otherwise unenforceable, the
balance of the Agreement shall continue in full force and effect unless such
construction would clearly be contrary to the intentions of the parties or would
result in an unconscionable injustice.
14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Effect of Termination. Notwithstanding anything to the
contrary contained herein, if the Executive's employment hereunder is
terminated, or this Agreement expires by its terms, the provisions of Sections
1, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 17 and 18 shall continue in full force
and effect.
16. Definition of the Company in Certain Contexts. When used
in Sections 1, 5, 6, 7, 9 and 10 of this Agreement, the term "the Company" shall
mean the Company and each of the Company's affiliates and its direct or indirect
parents and subsidiaries, along with all successors and assigns of each of such
entities. Each entity with which the Company is permitted to file a consolidated
federal income tax return shall be secondarily liable for the Company's
obligations under Section 4 (other than Section 4(c)) and Section 8.
17. Arbitration. Any claim or controversy arising out of or
relating to this Agreement, or any breach thereof, or otherwise arising out of
or relating to the Executive's employment, compensation and benefits with the
Company or the termination thereof (other than claims of the Company arising out
of Sections 5, 6, 7 or 9 hereof), shall be settled by arbitration in
Jacksonville, Florida in accordance with the rules established by the American
Arbitration Association, provided, however, that the parties agree that (i) the
arbitrator shall be prohibited from disregarding, adding to or modifying the
terms of this Agreement; (ii) the arbitrator shall be required to follow
established principles of substantive law and the law governing burdens of
proof; (iii) only
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legally protected rights may be enforced in arbitration; (iv) the arbitrator
shall be without authority to award punitive or exemplary damages; and (v) the
arbitrator shall be an attorney licensed to practice law in Florida who has
experience in similar matters. Any claim or controversy not submitted to
arbitration in accordance with this Section 17 shall be considered waived and,
thereafter, no arbitration panel or tribunal or court shall have the power to
rule or make any award on any such claim or controversy. The award rendered in
any arbitration proceeding held under this Section 17 shall be final and
binding, and judgment upon the award may be entered in any court having
jurisdiction thereof.
18. Miscellaneous; Choice of Law. This Agreement constitutes
the entire agreement, and supersedes all prior agreements of the parties hereto
relating to the subject matter hereof (including but not limited to any offer
letter or letters offered or executed by the parties hereto), and there are no
binding written or oral terms, representations or agreements made by either
party other than those contained herein with respect to the Executive's
employment with the Company. Both parties hereto represent that they have
jointly participated in the selection of the words and phases set forth in this
Agreement in order to express their joint intentions in entering into this
employment relationship. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Florida, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Florida or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Florida. A waiver by either
party of any breach of any provision hereof shall not operate or be construed as
a waiver of a breach of any other provision of this Agreement or of any
subsequent breach by the other party.
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IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ PETER OFFERMANN
-------------------------
Name Peter Offermann
Title: Director
KEITH B. STEIN
/s/ KEITH B. STEIN
-------------------------
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EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated
and effective as of the 1st day of June, 1998, by and between National Auto
Finance Company, Inc., a Delaware corporation (the "Company"), and William G.
Magro ("Magro"), residing at 13643 Marsh Harbor Drive, Jacksonville, Florida.
WITNESSETH
WHEREAS, the Company is engaged in the business of non-prime specialty
consumer finance, including, without limitation, the purchasing, originating,
financing, securitizing, collecting and servicing of motor vehicle retail
installment sales contracts, and intends to develop service bureau and service
center businesses (collectively, the "Business"); and
WHEREAS, Auto Credit Clearinghouse L.P., a Delaware limited partnership
("ACCH") and Magro entered into an employment agreement dated and effective as
of July 1, 1996 (the "Original Agreement"); and
WHEREAS, ACCH was dissolved as a limited partnership and all of the
liabilities of ACCH (including any liabilities under the Original Agreement)
were transferred to, and assumed by, the Company; and
WHEREAS, the Company and Magro amended certain terms of the Original
Agreement by entering into that certain First Amendment to Employment Agreement
effective as of May 27, 1997 (the "First Amendment"); and
WHEREAS, the Company and Magro desire to amend and restate the Original
Agreement and the First Amendment as set forth herein and to have this Agreement
supersede the Original Agreement and the First Amendment in their entirety; and
WHEREAS, the Company desires to retain the services of Magro in the
capacity of Executive Vice President and Chief Operating Officer of the Company,
and Magro desires to provide such services in such capacity to the Company, on
the terms and subject to the conditions set forth in this Agreement.
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NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, agreements and obligations set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs Magro, and Magro
hereby accepts employment by the Company, in the capacity and on the terms and
subject to the conditions set forth in this Agreement, for the period of time
commencing on June 1, 1998, and ending on May 31, 2001, unless this Agreement is
sooner terminated as provided herein (the "Term").
2. Duties. During the Term, Magro shall, in his capacity as the
Company's Executive Vice President and Chief Operating Officer, serve the
Company faithfully and to the best of his ability and devote his full business
time to the Business of the Company, subject to the provisions of Section 3
herein, as (i) is necessary to carry out the duties and responsibilities
customarily incident to such a position, including, without limitation, the
management of Company's operations and the supervision of other executive
officers and employees of the Company who are subordinate to Magro, and (ii) may
be reasonably assigned to him from time to time by the Board of Directors or the
Chairman, Chief Executive Officer and/or President of the Company, or by anyone
else designated by those officers or directors. Magro shall report to the Board
of Directors and to the Chairman, Chief Executive Officer and/or President, if
any, of the Company, or to anyone else designated by those directors or
officers.
3. Other Business Activities. During the Term, Magro shall not, without
the prior written consent of the Company, 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 position with the Company and do not interfere
with the performance of Magro's duties, responsibilities and obligations
pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Company shall pay Magro, and Magro
hereby agrees to accept, as compensation for all services rendered and for
Magro's covenant not to compete as provided for in Section 9 hereof, a base
salary (the "Base Salary") at an annual rate as follows:
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(i) $180,000 for the period June 1, 1998 through May 31, 1999;
(ii) no less than $192,600 for the period June 1, 1999 through May 31,
2000; and
(iii) no less than $206,082 for the period June 1, 2000 through May
31, 2001.
The sole and final determination of whether Magro will receive an increase of
his Base Salary for the periods June 1, 1999 through May 31, 2000 and June 1,
2000 through May 31, 2001 in excess of the minimum seven (7) percent annual
increase will be made by the Compensation Committee of the Company's Board of
Directors or equivalent committee of any successor entity or parent
organization, pursuant to senior executive compensation plans adopted by such
committee. Payment of the Base Salary shall be made in the same manner as the
Company 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 Company or which are requested to be withheld by Magro, shall be
deducted from the Base Salary in accordance with the Company's normal payroll
practice for its salaried executives from time to time in effect.
(b) Incentive Bonus. Magro shall be eligible for an incentive bonus
("Incentive Bonus") for each of calendar years 1998, 1999 and 2000. For calendar
year 1998, Magro shall be entitled to an Incentive Bonus of $90,000, which is
equal to 50% of Magro's 1998 Base Salary. Such Incentive Bonus earned for
calendar year 1998 shall be paid on or before March 31, 1999. For calendar years
1999 and 2000, the Compensation Committee of the Company's Board of Directors or
equivalent committee of any successor entity or parent organization will adopt a
bonus program designed to allow Magro the opportunity to earn an Incentive Bonus
equal to at least 50% of Magro's annual Base Salary. There is, however, no
guaranteed Incentive Bonus for 1999 or 2000. Any Incentive Bonus earned for
calendar years 1999 or 2000 shall be paid on or before March 31 of the next
succeeding year.
5. Stock Option Plan. Magro shall be entitled to participate in the
Company's 1996 Share Incentive Plan (as the same may be amended or modified from
time to time), and any other plans implemented by the Company or any successor
entity or parent organization (within the meaning of Rule 12 b-2 under the
Securities Exchange Act of 1934) granting shares of capital stock, options or
warrants to purchase shares of capital stock or other forms of equity or equity
derivative securities, of the Company or any successor entity or parent
organization, as such grants may be made from time to time by the Board of
Directors or Compensation Committee governing such plan. While Magro shall be
eligible to participate in such stock option plan(s), the sole and final
determination of whether any grants will be made or the amount of any such grant
will be made by the Compensation Committee of the Company's Board of Directors
or equivalent committee of any successor entity or parent organization.
Notwithstanding anything set forth to the contrary herein, the Compensation
Committee of the Board of Directors of the
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Company did approve on June 29, 1998 granting Magro an option to purchase shares
of the common stock of the Company equal to 2% of the outstanding common stock
of the Company on a fully-diluted basis, subject to the conditions and on the
terms set forth in the grant letter to be sent by the Company to Magro.
6. Benefits and Expenses.
(a) Benefits. Magro shall be entitled to participate in such benefit
plans and programs, including pension, hospitalization, medical and dental
insurance, life and disability insurance, and vacation (collectively,
"Benefits"), as are made available to the executive employees of the Company
from time to time during the Term.
(b) Expenses. Magro shall be reimbursed by the Company for all
reasonable out-of-pocket business-related expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of his
duties and responsibilities hereunder upon submission to the Company of receipts
supporting such expenses.
(c) Automobile. The Company will provide Magro with a car allowance of
Six Hundred Dollars ($600.00) gross per month ("Auto Allowance") and reimburse
Magro for gasoline and normal maintenance expenses for his automobile upon
submission to the Company of receipts supporting such expenses.
7. Confidentiality.
(a) Non-Disclosure. Magro recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) of the Company is a valuable,
special and unique asset of the Company. As a result, both during the Term and
thereafter, Magro shall not, without the prior written consent of the Company,
for any reason, either directly or indirectly, divulge to any third party or use
for Magro's own benefit, or for any purpose other than the exclusive benefit of
the Company, any and all confidential, proprietary, business or technical
information, or trade secrets of the Company which are revealed, obtained or
developed in the course of Magro's employment with the Company (the "Proprietary
Information"). Such Proprietary Information shall include, but shall not be
limited to, business, financial, marketing and development plans, models and
efforts, cost information, pricing information, marketing methods, collection
and servicing methods, procedures and policies, identities of the Company's
dealers or obligors, the Company's relationships with or potential relationships
with its dealers, and any other confidential, proprietary, business or technical
information relating to the Business of the Company or trade secrets of the
Company; provided, however, that nothing herein contained shall restrict Magro'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
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disclosures may be required by law; and further provided, that nothing herein
contained shall restrict Magro 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 Magro's breach of this Section
7.
(b) Inventions, Designs and Product Developments. All inventions,
discoveries, concepts, improvements, formulas, procedures, policies, processes,
devices, methods, innovations, designs, ideas and product developments
(collectively, "Developments"), developed or conceived by Magro, 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization, and
all of Magro's right, title and interest therein, shall be the exclusive
property of the Company. Magro hereby assigns, transfers and conveys to the
Company all of his right, title and interest in and to any and all such
Developments. Magro shall disclose fully, as soon as practicable and in writing,
all Developments to the Chairman, Chief Executive Officer, President and/or
Chief Operating Officer of the Company or to anyone else designated by those
officers. At any time and from time to time, upon the request of the Company,
Magro shall execute and deliver to the Company any and all instruments,
documents and papers, give evidence and do any and all other acts which, in the
opinion of counsel for the Company, are or may be necessary or desirable to
document such transfer or to enable the Company 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
Company 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 Magro for all reasonable expenses Magro incurs in
connection therewith upon submission to the Company of invoices with respect
thereto.
8. Property of Company. All Proprietary Information and Developments
shall be and remain the sole property of the Company. During the Term of this
Agreement, Magro shall not remove from the Company'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
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safekeeping as promptly as possible after the removal shall serve its specific
purpose. Magro 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 Company, he
shall leave with or return to the Company, all originals and copies of the
foregoing then in his possession, whether prepared by Magro or by others.
9. Covenant Not to Compete.
(a) Magro shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of Magro
would, in the judgment of the Board of Directors of the Company or any successor
entity or parent organization, be competitive with the Business of the Company,
its divisions, subsidiaries, sister organizations, or parent organization, do
any of the following, directly or indirectly, without the prior written consent
of the Company:
(1) solicit, either directly or indirectly, business from any
dealer, customer, obligor, financial institution or company with whom the
Company shall have dealt at any time;
(2) influence or attempt to influence any dealer, customer,
obligor, financial institution or company with whom the Company shall have dealt
at any time or potential dealer, financial partner, company, customer or obligor
of the Company to terminate or modify any written or oral agreement, arrangement
or course of dealing with the Company; or
(3) influence or attempt to influence any person to (i) terminate
or modify his employment, consulting, agency, distributorship or other
arrangement with the Company, its divisions, subsidiaries, sister organizations,
or parent organization, 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 Company, its divisions, subsidiaries, sister organizations, or parent as
an employee, salesman, consultant or agent of the Company at any time during the
one (1) year period immediately preceding the effective date of Magro's
termination if the actions enumerated in clauses (i) and (ii) would negatively
affect the Business and/or operations of the Company, its divisions,
subsidiaries, sister organizations, or parent organization for a period of two
(2) years following the effective date of Magro's termination.
(b) The Company shall have the right, but not the obligation,
to require Magro, for a six month period of time following the termination of
Magro's employment (for whatever
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reason), anywhere within the United States of America or in any other location
where the activities of Magro would, in the judgment of the Board of Directors
of the Company or any successor entity or parent organization, be competitive
with the Business of the Company, its divisions, subsidiaries, sister
organizations, or parent organization, not to engage in the conduct proscribed
by Section 9(a)(1), (2) and (3) by payment to Magro, over the extended covenant
period, of fifty percent (50%) of the amount paid to Magro (as reflected in the
Company's payroll records) by the Company in the full calendar year immediately
preceding Magro's termination. Any payments required by this Section 9(b) shall
be paid by check in the same time intervals as the Company routinely pays its
executive employees. Any exercise of the option shall be irrevocable.
(c) If the employment of Magro shall either expire pursuant to
Section 1 hereof, or shall be terminated pursuant to Section 10 of this
Agreement, Magro shall not, for a two (2) 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization any
time during the one (1) year period immediately preceding the effective date of
Magro'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, Magro 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 Magro such that Magro 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"), Magro's employment under this Agreement may
be terminated by the Company.
(b) In the event of a termination of Magro's employment
pursuant to Section 10.1(a), the Company shall be obligated to pay Magro (i) all
accrued but unpaid (as of the date of such termination) Base Salary, Benefits
and Auto Allowance, and to reimburse Magro for all unreimbursed out-of-pocket
business-related expenses and (ii) an amount equal to Magro'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
Company shall have no liability or obligation to Magro for compensation or
benefits hereunder by reason of such termination.
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(c) For purposes of this Section 10.1, except as hereinafter
provided, the determination as to whether Magro is Disabled shall be made by a
licensed physician selected by Magro 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 Company (or any successor entity or parent
organization) disagrees with such physician's conclusion, the Board of Directors
may require that Magro submit to a full physical examination by another licensed
physician selected by Magro and approved by the Board of Directors. If the two
opinions shall be inconsistent, a third opinion shall be obtained after full
physical examination by a third licensed physician selected by Magro and
approved by the Board of Directors. The majority of the three opinions shall be
conclusive.
10.2 Termination by Death. In the event that Magro dies during
the Term, Magro's employment shall be terminated thereby and the Company shall
pay to Magro'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 Auto Allowance and shall reimburse Magro for all
unreimbursed out-of-pocket business-related expenses, all of which payments
shall be paid within thirty (30) days of the date of such death. Except as
specifically set forth in this Section 10.2, the Company shall have no liability
or obligation hereunder to Magro's executors, legal representatives,
administrators, heirs or assigns or to any other person claiming under or
through him by reason of Magro's death.
10.3 Termination for Cause.
(a) The Company may terminate Magro's employment under this
Agreement at any time for "Cause" upon written notice to Magro, which
termination shall become effective on the date specified in such notice. For
purposes of this Agreement, "Cause" (as hereinafter defined) shall mean: (i) any
material breach by Magro of any of his obligations under Sections 7, 8 or 9 of
this Agreement; (ii) failure or refusal by Magro to perform satisfactorily the
duties assigned to him pursuant to this Agreement; (iii) other conduct of Magro
involving gross disloyalty or willful misconduct with respect to the Company,
including, without limitation, fraud, embezzlement, theft or proven dishonesty
in the course of his employment, or conviction of a felony; (iv) Magro's willful
engagement in conduct materially injurious to the economic interests or
reputation of the Company; or (v) Magro's insubordination, acts of moral
turpitude or other gross misconduct.
(b) In the event of a termination of Magro's employment
pursuant to Section 10.3(a), the Company shall be obligated to pay to Magro all
accrued but unpaid (as of the date of such termination) Base Salary, Benefits
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and Auto Allowance shall then cease at the time of such termination. Except as
specifically set forth in this Section 10.3(b), the Company shall have no
liability or obligation to Magro for compensation or benefits hereunder by
reason of such termination.
10.4 Termination without Cause.
(a) The Company may terminate Magro's employment under this
Agreement without Cause upon at least sixty (60) days prior written notice
thereof to Magro, in which case this Agreement shall terminate on the date
specified in such notice.
(b) In the event of a termination of Magro's employment
pursuant to 10.4(a), the Company shall be obligated to pay to Magro all accrued
but unpaid (as of the date of such termination) Base Salary, Benefits and Auto
Allowance and to reimburse Magro for all unreimbursed out-of-pocket
business-related expenses. Magro 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 Company'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), the Company shall have no
liability or obligation to Magro for compensation or benefits hereunder by
reason of such termination.
10.5 Termination by Magro for Good Reason.
(a) Magro may terminate his employment under this Agreement at
any time for Good Reason (as hereinafter defined) effective upon the date
designated by Magro in his written notice of termination of employment pursuant
to this Section 10.5(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 Company (or any successor entity or parent
organization) declares such effective date to be earlier than that designated by
Magro, 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 Company of its obligations under this Agreement,
including, but not limited to, the following: (i) the failure by the Company to
pay Base Salary or any other material form of compensation or material benefit
to be paid or provided to Magro hereunder, which failure is not cured by the
Company within ten (10) days after the Company's receipt of written notification
from Magro of such failure; and (ii) any material breach, not encompassed within
clause (i) of this Section 10.5(a), of the obligations of the Company under this
Agreement which breach is not cured within thirty (30) days after the Company's
receipt of written notification from Magro of such material breach.
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(b) In the event of a termination of Magro's employment for
Good Reason pursuant to Section 10.5(a), the Company shall be obligated to pay
to Magro all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Auto Allowance and to reimburse Magro for all unreimbursed
out-of-pocket business-related expenses. Magro 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 Company's normal payroll
periods for executive officers as if no such termination had occurred. Except as
specifically set forth in this Section 10.5(b), the Company shall have no
liability or obligation to Magro for compensation or benefits hereunder by
reason of such termination.
10.6 Successor Party
The Company 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 Company (a "Successor")
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company 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 Magro, such failure shall constitute a
material breach of this Agreement. Magro agrees that the assumption by any
successor party of the duties and responsibilities of the Company under this
Agreement shall relieve the Company of any and all duties or responsibilities
under this Agreement. Moreover, such a successor party to this Agreement shall
have all rights currently afforded the Company or its Board of Directors under
this Agreement.
11. Survival of Provisions. The rights and obligations of Magro
pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall survive the
termination of Magro's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and Magro and their respective successors,
executors, administrators, heirs and/or permitted assigns; provided, however,
that neither Magro nor the Company 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
Company may assign this Agreement to any Successor to all or substantially all
of the Company's assets and Business or the assets and business of any of the
Company's divisions, subsidiaries, sister organizations or parent organization
by means of liquidation, dissolution,
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merger, consolidation, transfer of assets, or otherwise, provided that such
Successor assumes in writing all of the obligations of the Company under this
Agreement.
13. No Conflicting Agreements. Magro represents to the Company that (i)
Magro is not currently under contract to provide services to any other party or
entity; (ii) the execution, delivery and performance of this Agreement by Magro
will not conflict with any other agreement, except the Original Agreement or the
First Amendment, to which Magro is bound or to which Magro is a party; and (iii)
Magro is not currently bound by any form of restrictive covenant which would
restrict or limit the performance of his duties pursuant to this Agreement.
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 Magro may be entitled as an employee of the Company under any retirement,
pension, profit-sharing, share incentive, insurance, hospitalization 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 Magro:
William G. Magro
13643 Marsh Harbor Drive
Jacksonville, Florida 32225
If to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
Attention: Joel B. Ronkin
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, offer letters,
agreements, the Original Agreement, the First Amendment and understandings of
every nature between the parties hereto relating to the employment of Magro with
the Company. This Agreement may not be changed or modified, except by an
agreement in writing signed by both of the parties hereto.
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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 governed, construed and
enforced in accordance with the laws of the State of Florida, without regard to
conflict of law principles.
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. Magro acknowledges that the restrictions
contained in Sections 7, 8 and 9 hereof are reasonable and necessary to protect
the legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Magro also acknowledges that the nature of both his services to the Company and
the obligations undertaken by Magro 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 Company for which monetary damages would not be
adequate remedy. In the event of such breach by Magro, the Company 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 Company. In the event that the provisions of Sections 7, 8 and 9 hereof
should ever be
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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 Jacksonville, Florida.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to become effective as of the date first above written.
EMPLOYEE:
/s/ William G. Magro
--------------------------------
William G. Magro
COMPANY:
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ Keith B. Stein
----------------------------
Keith B. Stein
Chief Executive Officer
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 1, 1998 (this
"Agreement"), by and between National Auto Finance Company, Inc., a Delaware
corporation (the "Company") and Joel B. Ronkin, an individual (the "Executive").
WHEREAS, the Company is engaged in the business of non-prime
automobile finance (the "Business"); and
WHEREAS, the Executive is the Vice President, Secretary and
General Counsel of the Company; and
WHEREAS, the parties hereto desire to set forth the
understanding of the employment relationship between and among such parties on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements made herein, the Company and the Executive agree as follows:
1. No Conflict. The Executive represents to the Company that
the execution, delivery and performance by the Executive of this Agreement do
not and shall not conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under any
contract or agreement, whether oral or written, to which the Executive is a
party or of which the Executive is or should be aware.
2. Employment; Duties. The Company shall employ the Executive
as the Vice President, Secretary and General Counsel of the Company, and the
Executive shall serve the Company as its Vice President, Secretary and General
Counsel, for the "Employment Period" as defined in Section 3 of this Agreement.
The Executive, in his capacity as Vice President, Secretary and General Counsel
of the Company, shall report to the Chief Executive Officer of the Company and
to the Board of Directors of the Company (the "Board"). The Executive shall have
such duties, responsibilities and authority normally incident to the position of
Vice President, Secretary and General Counsel of the Company, and as established
from time to time by the Chief Executive Officer and/or Board. During the
Employment Period, the Executive shall render his business services solely in
the performance of his duties hereunder, and shall devote his full working time,
attention, knowledge and experience and give his best effort, skill and
abilities, exclusively to promote the business and interests of the Company;
provided, however, that the Executive shall be permitted to engage in other
activities with charitable or civic organizations, as an executor or trustee or
similar fiduciary capacity, or in connection with owning less than two percent
(2%) of any class of equity or debt securities listed on a national securities
exchange or traded in any established over-the-counter securities market,
provided further that such activities are not inconsistent with his position as
Vice President, Secretary and General Counsel of the Company, do not interfere
with the
<PAGE> 2
performance of the Executive's duties, responsibilities and obligations pursuant
to this Agreement, and are not violative of Section 9 hereof. Within a
reasonable period (the "Relocation Period") after written notice is provided to
the Executive by the Company (which notice may not be provided any earlier than
February 1, 1999), the Executive shall be required to relocate his principal
residence to the vicinity of the principal place of the Company's Business (the
parties hereto acknowledging that it is the intention of the Company that such
Business shall move from Boca Raton, Florida to Jacksonville, Florida no later
than the end of 1998); provided, however, that prior to any such relocation it
is understood and agreed between the parties hereto that the Executive shall be
required to be physically present at the Company's principal offices on a
substantially full-time basis, and at least as often as is necessary or
appropriate for the Executive to perform his duties efficiently and effectively.
In addition, the Executive shall be required to travel as reasonably and
necessarily required in connection with his duties as Vice President, Secretary
and General Counsel of the Company.
3. Employment Period. Subject to the provisions of Section 15,
this Agreement shall have a term of three (3) years, commencing as of the date
hereof (the "Effective Date") and ending on the third anniversary of the date
hereof, unless sooner terminated in accordance with the provisions of Section 8.
The parties hereto acknowledge and agree that, except as set forth in Section 8,
no severance or other payments shall be owing or payable to the Executive in the
event of the termination of this Agreement or the Company's non-renewal of the
term of this Agreement upon its expiration. The term of this Agreement, as in
effect from time to time, is referred to herein as the "Employment Period."
4. Compensation and Benefits.
(a) Base Compensation. Commencing on the Effective Date, the
Executive shall be paid a base salary (the "Base Salary") at the rate of
$140,000 per annum. The Base Salary shall be reviewed annually by the Board or
the Compensation Committee of the Board, and may be increased in their sole
discretion. The Base Salary shall be payable in a manner consistent with the
normal payroll practices of the Company in effect or as established from time to
time.
(b) Annual Incentive Bonus. In addition to the Base Salary,
the Executive shall be eligible for an incentive bonus ("Incentive Bonus") for
each of the fiscal years ending December 31 during the Employment Period. For
the fiscal year ending December 31, 1998, the Executive shall be paid an
Incentive Bonus in an amount to be determined by the Board or the Compensation
Committee of the Board, but in no event less than $42,000. For each subsequent
fiscal year ending December 31 during the Employment Period, the Board or the
Compensation Committee of the Board shall adopt an Incentive Bonus program for
the Company's senior executive officers, designed in part to enable the
Executive the opportunity to earn an Incentive Bonus equal to at least 40% of
the Executive's annual Base Salary in each such year. Each such Incentive Bonus
will be paid on or before March 31 of the year following the year to which such
Incentive Bonus relates.
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<PAGE> 3
(c) Stock Option Plan. Executive shall be entitled to
participate in and receive grants under the Company's 1996 Share Incentive Plan
(as the same may be amended or modified from time to time), and any other plans
implemented by the Company granting shares of capital stock or options or
warrants to purchase shares of capital stock or other forms of equity or equity
derivative securities, of the Company as such grants may be made from time to
time in the sole discretion of the Board or Compensation Committee of the Board
governing such plan, the level of such participation to be at least commensurate
with that granted to other key senior executives. Notwithstanding anything set
forth herein to the contrary, the Compensation Committee of the Board did agree
on June 29, 1998 to grant to the Executive a stock option (the "New Option")
upon closing of the restructuring that is currently contemplated by the Company
involving The 1818 Mezzanine Fund, L.P., PC Investment Company, Progressive
Investment Company, Inc., Manufacturers Life Insurance Company (U.S.A.) and The
Structured Finance High Yield Fund, LLC (the "Restructuring"). The option shall
relate to that number of shares of the common stock of the Company which is
equal to 1.25% of the common stock of the Company outstanding (on a
fully-diluted basis) immediately following the closing of the Restructuring. As
used in this Section 4(c), the phrase "common stock of the Company outstanding
(on a fully-diluted basis)" shall mean, immediately following the closing of the
Restructuring, an amount of shares equal to the aggregate of : (a) the number of
all outstanding shares of the common stock of the Company; (b) the number of
shares of the common stock of the Company issuable upon the exercise of all
outstanding warrants; (c) the number of shares of the common stock of the
Company issuable upon the exercise of all outstanding options (vested or
unvested, and including the options contemplated to be granted to the Executive
and each other member of senior management in connection the execution of
employment agreements prior to the closing of the Restructuring); and (d) the
number of shares of common stock of the Company issuable upon the exercise or
conversion of all other outstanding common equity or common equity derivative
securities. The New Option shall be evidenced by and be subject to a grant
letter from the Company to the Executive. Furthermore, the New Option upon its
grant shall be, and all options previously granted to the Executive by the
Company hereby are, fully vested and immediately exercisable, and the exercise
price of the New Option shall be set, and all such previously granted options
shall be reset, at a price equal to the fair market value of the Company's
common stock immediately following the closing of the Restructuring, as
determined by the Board.
(d) Employee Benefits. Executive 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 Company
from time to time during the Employment Period.
(e) Expenses. Executive shall be promptly reimbursed by the
Company for all reasonable out-of-pocket Business-related expenses (including
but not limited to travel and entertainment expenses) incurred by him in
furtherance of the performance of his duties and responsibilities hereunder upon
submission to the Company of receipts supporting such expenses.
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<PAGE> 4
(f) Automobile. The Company will provide Executive with a car
allowance of $600 per month and reimburse Executive for gasoline, oil, normal
maintenance and parking expenses for his automobile upon submission to the
Company of receipts supporting such expenses.
(g) Relocation Costs. In the event that the Executive
establishes his primary residence in Jacksonville, Florida, the Company shall
pay when due: (i) all reasonable sales-related expenses incurred by the
Executive in connection with the sale of his residence at 3085 Lakewood Circle,
Weston, Florida, including, without limitation, real estate commissions,
inspection fees and closing costs; (ii) all reasonable expenses associated with
the moving of the Executive's household goods to Jacksonville; and (iii) all
costs or expenses related to the storage of items or goods for the Executive as
a result of the relocation. Prior to any such relocation (but in no event beyond
expiration of the Relocation Period), the Company shall reimburse the Executive
for the reasonable cost of an apartment in Jacksonville, and the reasonable cost
of weekly commuting from Weston to Jacksonville (including but not limited to
airfare and parking).
5. Trade Secrets. The Executive recognizes that it is in the
legitimate business interest of the Company to restrict his disclosure or use of
Trade Secrets and Confidential Information relating to the Company for any
purpose other than in connection with his performance of his duties to the
Company, and to limit any potential appropriation of such Trade Secrets and
Confidential Information by the Executive. The Executive therefore agrees that
all Trade Secrets and Confidential Information relating to the Company
heretofore or in the future obtained by the Executive shall be considered
confidential and the proprietary information of the Company. During the
Employment Period, except as may be required by law or due legal process, the
Executive shall not use or disclose, or authorize any other person or entity to
use or disclose, any Trade Secrets or other Confidential Information that has
otherwise not been publicly disclosed, other than as necessary to further the
Business objectives of the Company in accordance with the terms of his
employment hereunder. The term "Trade Secrets or other Confidential Information"
includes, by way of example and without limitation, matters of a technical
nature, such as scientific, trade and engineering secrets, "know-how", formulas,
secret processes, drawings, works of authorship, machines, inventions, computer
programs (including documentation of such programs), services, materials, patent
applications, new product plans, other plans, technical information, technical
improvements, manufacturing techniques, specifications, manufacturing and test
data, progress reports and research projects, and matters of a business nature,
such as Business plans, prospects, financial information, proprietary
information about operating procedures, costs, profits, markets, sales, lists of
customers and suppliers of the Company, procurement and promotional information,
credit and financial data concerning customers or suppliers of the Company,
information relating to the management, operation and planning of the Company,
plans for future development and other information of a similar nature to the
extent not available to the public. After termination of the Executive's
employment with the Company for any reason, the Executive shall not use or
disclose Trade Secrets or other Confidential Information.
6. Return of Documents and Property. Upon the termination of
the Executive's employment with the Company, or at any time upon the request of
the Company, the Executive (or
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<PAGE> 5
his heirs or personal representatives) shall deliver to the Company (a) all
documents and materials (including, without limitation, computer files)
containing Trade Secrets or other Confidential Information relating to the
Business and affairs of the Company, and (b) all documents, materials and other
property (including, without limitation, computer files) belonging to the
Company, which in either case are in the possession or under the control of the
Executive (or his heirs or personal representatives).
7. Discoveries and Works. All Discoveries and Works made or
conceived by the Executive during his employment by the Company, jointly or with
others, that relate to the present or anticipated activities of the Company, or
are used or usable by the Company shall be owned by the Company. The term
"Discoveries and Works" includes, by way of example but without limitation,
Trade Secrets and other Confidential Information, patents and patent
applications, trademarks and trademark registrations and applications, service
marks and service mark registrations and applications, trade names, copyrights
and copyright registrations and applications. The Executive shall (a) promptly
notify, make full disclosure to, and execute and deliver any documents requested
by, the Company, to evidence or better assure title to Discoveries and Works in
the Company, as so requested, (b) renounce any and all claims, including but not
limited to claims of ownership and royalty, with respect to all Discoveries and
Works and all other property owned or licensed by the Company, (c) assist the
Company in obtaining or maintaining for itself at its own expense United States
and foreign patents, copyrights, trade secret protection or other protection of
any and all Discoveries and Works, and (d) promptly execute, whether during his
employment with the Company or thereafter, all applications or other
endorsements necessary or appropriate to maintain patents and other rights for
the Company and to protect the title of the Company thereto, including but not
limited to assignments of such patents and other rights. Any Discoveries and
Works which, within six months after the termination of the Executive's
employment with the Company, are made, disclosed, reduced to a tangible or
written form or description, or are reduced to practice by the Executive and
which pertain to the Business carried on or products or services being sold or
developed by the Company at the time of such termination shall, as between the
Executive and, the Company, be presumed to have been made during the Executive's
employment by the Company. The Executive acknowledges that all Discoveries and
Works shall be deemed "works made for hire" under the Copyright Act of 1976, as
amended, 17 U.S.C. Section 101.
8. Termination. Prior to the expiration of this Agreement
pursuant to Section 3, the Executive's employment hereunder may be terminated by
the Executive for Good Reason or by the Company with or without Cause, and shall
automatically terminate upon the Executive's death. Except as provided below, in
the event this Agreement is terminated or expires, the Executive's rights and
the obligations of the Company hereunder shall cease as of the effective date of
the termination; provided, however, that the Executive shall in any case be
entitled to receive any accrued but unpaid Base Salary, any accrued but unpaid
Incentive Bonus for the fiscal year ending prior to such termination, any
accrued but unpaid out-of-pocket Business-related expenses and auto allowances,
and any amount accrued under Company benefit plans as provided pursuant to the
terms of such plans (the "Accrued Obligations").
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<PAGE> 6
(a) Termination by the Executive for Good Reason or by the
Company Without Cause. In the event that the Executive terminates his employment
with the Company upon notice for Good Reason (as defined below), or the
Executive is terminated by the Company without Cause (other than pursuant to
Section 8(b)), the Executive shall be entitled to receive the following as
severance benefits hereunder in a lump sum as soon as practicable following such
termination: (i) a pro rata portion of the Executive's target Incentive Bonus,
calculated by multiplying the Base Salary by 40%, and further multiplying such
product by a fraction, the numerator of which is the actual number of days the
Executive was employed during the calendar year of such termination (including
weekends and holidays which occurred during such period) and the denominator of
which is 365, and (ii) $200,000. If such termination occurs after the date of
the Executive's relocation of his family and principal residence to the
Jacksonville, Florida area, the $200,000 amount in clause (ii) of the previous
sentence shall be increased to $300,000. Except as otherwise set forth herein,
all other compensation and benefits provided for under this Agreement or
otherwise from the Company shall cease upon such termination, and the Executive
hereby acknowledges and agrees that no severance or similar or other damages or
payments of any kind whatsoever shall be payable to the Executive due to, in
connection with, or in the event of, the Executive's termination or resignation
from employment for any reason.
For purposes of this Agreement, "Cause" shall mean: (i) any
material breach by Executive of any of his obligations under Sections 5, 6, 7 or
9 of this Agreement, that has not been corrected within 30 days of written
notice thereof to Executive by the Company; (ii) willful failure or refusal by
Executive to perform satisfactorily the duties assigned to him pursuant to this
Agreement, that has not been corrected within 30 days of written notice thereof
to Executive by Company; (iii) other conduct of Executive involving gross
disloyalty or willful misconduct with respect to the Company, including, without
limitation, fraud, embezzlement, theft or proven dishonesty in the course of his
employment, or conviction of a felony; (iv) Executive's willful engagement in
conduct materially injurious to the economic interests or reputation of the
Company; or (v) the failure of the Executive to relocate his principal residence
as may be required pursuant to Section 2 by the expiration of the Relocation
Period; provided that if such breach, failure or refusal described in clauses
(i) and (ii) above cannot reasonably be corrected within 30 days of written
notice thereof, such written notice to state with specificity the nature of the
breach, failure or refusal, correction may be commenced by Executive within such
period and may be corrected within a reasonable period thereafter; and provided,
further, that any such breach, failure or refusal by reason of Good Reason,
disability or death shall not constitute Cause for purposes hereof.
For purposes of this Agreement, "Good Reason" shall mean (i)
any failure by the Company to comply with any of the provisions of Section 4 of
this Agreement, other than any failure that is remedied by the Company prior to
the date of termination specified in the written notice from Executive of
termination of employment by Executive for Good Reason under this provision;
(ii) any failure by any successor (whether direct or indirect, by purchase,
merger, consolidation, Change in Control or otherwise) to all or substantially
all of the Business and/or assets (without regard to the inclusion or exclusion
of retained interest in securitizations or other loan receivable related assets
in any such purchase, merger, consolidation, Change in Control or otherwise) of
the Company (a
6
<PAGE> 7
"Successor") to comply with this Agreement; or (iii) a Change in Control,
provided that the Executive's termination of employment occurs within 120 days
following the date of such Change in Control.
For purposes of this Agreement, a "Change in Control" means
the occurrence of any one of the following events: (i) any person or entity,
including any person as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934 (the "Exchange Act"), becoming the beneficial owner, as defined in
the Exchange Act, directly or indirectly, of more than fifty percent (50%) of
the total combined voting power of all classes of capital stock of the Company
ordinarily entitled to vote for the election of directors of the Company, (ii)
the Board approving the sale of all or substantially all of the property or
assets of the Company (without regard to the inclusion or exclusion of retained
interest in securitizations or other loan receivable related assets in any such
sale), (iii) the Board approving a consolidation or merger of the Company with
another corporation or business entity, the consummation of which would result
in the occurrence of an event described in clause (i) above, or (iv) a change in
the Board occurring with the result that the members of the Board as constituted
on the Effective Date (the "Incumbent Directors") no longer constitute a
majority of such Board; provided, however, that under no circumstances shall the
consummation of (or the circumstances involving) the Restructuring be deemed,
either directly or indirectly, to constitute a Change in Control hereunder.
(b) Disability. If, prior to the expiration of the Employment
Period or the termination of the Executive's employment hereunder, the Executive
shall be unable to perform his duties by reason of his mental or physical
disability for at least 180 consecutive days or any 180 days (whether or not
consecutive) in any 365 consecutive day period, the Company shall have the right
to terminate the Executive's employment hereunder and the remainder of the
Employment Period by giving written notice to the Executive to that effect, but
only if at the time such notice is given such disability is continuing.
Immediately upon the giving of such notice, the Employment Period shall
terminate. Upon such termination, in addition to the Accrued Obligations, the
Executive shall be paid the amount set forth in clause (i) in the first
paragraph of Section 8(a) hereof, plus an amount equal to the Executive's Base
Salary for a three (3) month period. In the event of a dispute as to whether the
Executive is disabled within the meaning of this Section 8(b), either party may
from time to time request a medical examination of the Executive by a doctor
appointed by the Chief of Staff of a hospital selected by mutual agreement of
the parties, or as the parties may otherwise agree, and the written medical
opinion of such doctor shall be conclusive and binding upon the parties as to
whether the Executive has become disabled and the date when such disability
arose. The cost of any such medical examination shall be borne by the Company.
(c) Death. If, prior to the expiration of the Employment
Period or the termination of this Agreement, the Executive shall die, in
addition to the Accrued Obligations, the Executive's estate shall be paid the
amount set forth in clause (i) of the first paragraph of Section 8(a) hereof.
(d) Any termination of this Agreement under this Section 8
shall be subject to the provisions of Section 15.
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<PAGE> 8
9. Non-Competition and Non-Solicitation.
(a) Non-Competition. During the period of the Executive's
employment with the Company, and for the 12-month period thereafter (together,
the "Restricted Period"), the Executive shall not (except as an officer,
director, employee, agent or consultant of the Company) directly or indirectly,
own, manage, operate, join, or have a financial interest in, control or
participate in the ownership, management, operation or control of, or be
employed as an employee, agent or consultant, or in any other individual or
representative capacity whatsoever, or use or permit his name to be used in
connection with, or be otherwise connected in any manner with any business or
enterprise engaged primarily in non-prime automobile finance, or any business
planned by the Company at any time during the period of the Executive's
employment by the Company, within any portion of the United States (whether or
not such business is physically located within the United States) or in any
other location where activities of the Executive would be competitive with the
Company's Business, unless the Executive shall have obtained the prior written
consent of the Board, provided that the foregoing restriction shall not be
construed to prohibit the ownership by the Executive of not more than two
percent (2%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses, having a class of securities registered
pursuant to the Securities Exchange Act of 1934, which securities are publicly
owned and regularly traded on any national exchange or in the over-the-counter
market, provided further, that such ownership represents a passive investment
and that neither the Executive nor any group of persons including the Executive
in any way, either directly or indirectly, manages or exercises control of any
such corporation, guarantees any of its financial obligations, otherwise takes
part in its business other than exercising his rights as a shareholder, or seeks
to do any of the foregoing.
(b) Non-Solicitation. During the Restricted Period, except in
connection with his employment hereunder, the Executive agrees, directly or
indirectly, whether for his own account or for the account of any other
individual or entity, not to (i) solicit or canvas the trade, business or
patronage of, or sell any products or services which are the same as or similar
to those designed, developed, manufactured, distributed or sold by the Company
to, any individuals or entities that were either customers of the Company during
the time the Executive was employed by the Company, whether during or prior to
the Restricted Period, or prospective customers with respect to whom a sales
effort, presentation or proposal was made by the Company during the twelve
months preceding the date of termination or expiration, as the case may be, (ii)
solicit, induce, enter into any agreement with, or attempt to influence any
individual who was an employee or consultant of the Company at any time during
the time the Executive was employed by the Company, to terminate his or her
employment relationship with the Company or to become employed by the Executive
or any individual or entity by which the Executive is employed, or (iii)
interfere in any other way with the employment, or other relationship, of any
employee or consultant of the Company.
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<PAGE> 9
(c) Separate Covenants. The parties hereto intend that the
covenants contained in this Section 9 shall be deemed a series of separate
covenants for each country, state, county and city in which the Company conducts
its Business.
10. Enforcement.
(a) Equitable Relief. The Executive agrees that the remedies
at law for any breach or threat of breach by him of any of the provisions of
Sections 5, 6, 7, and 9 hereof will be inadequate, and that, in addition to any
other remedy to which the Company may be entitled at law or in equity, the
Company shall be entitled to specific performance of its rights under this
Agreement. The parties agree that the provisions of Sections 5, 6, 7, and 9
hereof shall be specifically enforceable, it being agreed by the parties that
the remedy at law, including monetary damages, for breach of any such provisions
will be inadequate compensation for any loss and that any defense in any action
for specific performance that a remedy at law would be adequate is waived.
Nothing herein contained shall be construed as prohibiting the Company from
pursuing, in addition, any other remedies available to the Company for such
breach or threatened breach.
(b) Reasonable Restrictions. It is expressly understood and
agreed that although the Company and the Executive consider the restrictions
contained in Sections 5, 6, 7, and 9 hereof to be reasonable for the purpose of
preserving the goodwill, proprietary rights and going concern value of the
Company, if a final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction contained in
such Sections 5, 6, 7, and 9 is an unenforceable restriction on the Executive's
activities, the provisions of such Sections 5, 6, 7, and 9 shall not be rendered
void but shall be deemed amended to apply as to such maximum time and territory
and to such other extent as such court may judicially determine or indicate to
be reasonable. Alternatively, if the court referred to above finds that any
restriction contained in Sections 5, 6, 7, or 9 or any remedy provided herein is
unenforceable, and such restriction or remedy cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained therein or the availability of any other remedy. In
addition, and solely with respect to Section 9 hereof, if any such court shall
refuse to enforce all the separate covenants deemed included in Section 9
because, taken together, they cover too extensive a time period, geographic area
or scope, the parties intend that those of such covenants (with respect to
geographic area, taken in other of the cities, counties, states and countries
therein which are least populous) which if eliminated would permit the remaining
separate covenants to be enforced in such proceeding shall, for the purpose of
such proceeding, be deemed eliminated from the provisions of Section 9. The
provisions of Sections 5, 6, 7, and 9 shall in no respect limit or otherwise
affect the Executive's obligations under other agreements with the Company.
11. Assignment. The rights and obligations of the parties
under this Agreement shall not be assignable by either the Company or the
Executive, provided that this Agreement is assignable by the Company to any
affiliate of the Company (without relieving the Company of its obligations
hereunder), to any successor in interest to the Business of the Company, or to a
purchaser of all or substantially all of the assets of the Company.
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<PAGE> 10
12. Notices. Any notice required or permitted under this
Agreement shall be deemed to have been effectively made or given if in writing
and personally delivered, mailed properly addressed in a sealed envelope,
postage prepaid by certified or registered mail, delivered by a reputable
overnight delivery service or sent by facsimile. Unless otherwise changed by
notice, notice shall be properly addressed to the Executive if addressed to:
Joel B. Ronkin
3085 Lakewood Circle
Weston, Florida 33332
Fax: 954-349-1122
If to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street, Suite 200
Boca Raton, FL 33487
Attention: Chief Executive Officer
13. Severability. Wherever there is any conflict between any
provision of this Agreement and any statute, law, regulation or judicial
precedent, the latter shall prevail, but in such event the provisions of this
Agreement thus affected shall be curtailed and limited only to the extent
necessary to bring them within the requirements of the law. In the event that
any provision of this Agreement shall be held by a court of proper jurisdiction
to be indefinite, invalid, void or voidable or otherwise unenforceable, the
balance of the Agreement shall continue in full force and effect unless such
construction would clearly be contrary to the intentions of the parties or would
result in an unconscionable injustice.
14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Effect of Termination. Notwithstanding anything to the
contrary contained herein, if the Executive's employment hereunder is
terminated, or this Agreement expires by its terms, the provisions of Sections
1, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 17 and 18 shall continue in full force
and effect.
16. Definition of the Company in Certain Contexts. When used
in Sections 1, 5, 6, 7, 9 and 10 of this Agreement, the term "the Company" shall
mean the Company and each of the Company's affiliates and its direct or indirect
parents and subsidiaries, along with all successors and assigns of each of such
entities. Each entity with which the Company is permitted to file a consolidated
federal income tax return shall be secondarily liable for the Company's
obligations under Section 4 (other than Section 4(c)) and Section 8.
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17. Arbitration. Any claim or controversy arising out of or
relating to this Agreement, or any breach thereof, or otherwise arising out of
or relating to the Executive's employment, compensation and benefits with the
Company or the termination thereof (other than claims of the Company arising out
of Sections 5, 6, 7 or 9 hereof), shall be settled by arbitration in
Jacksonville, Florida in accordance with the rules established by the American
Arbitration Association, provided, however, that the parties agree that (i) the
arbitrator shall be prohibited from disregarding, adding to or modifying the
terms of this Agreement; (ii) the arbitrator shall be required to follow
established principles of substantive law and the law governing burdens of
proof; (iii) only legally protected rights may be enforced in arbitration; (iv)
the arbitrator shall be without authority to award punitive or exemplary
damages; and (v) the arbitrator shall be an attorney licensed to practice law in
Florida who has experience in similar matters. Any claim or controversy not
submitted to arbitration in accordance with this Section 17 shall be considered
waived and, thereafter, no arbitration panel or tribunal or court shall have the
power to rule or make any award on any such claim or controversy. The award
rendered in any arbitration proceeding held under this Section 17 shall be final
and binding, and judgment upon the award may be entered in any court having
jurisdiction thereof.
18. Miscellaneous; Choice of Law. This Agreement constitutes
the entire agreement, and supersedes all prior agreements of the parties hereto
relating to the subject matter hereof (including but not limited to any offer
letter or letters offered or executed by the parties hereto), and there are no
binding written or oral terms, representations or agreements made by either
party other than those contained herein with respect to the Executive's
employment with the Company. Both parties hereto represent that they have
jointly participated in the selection of the words and phases set forth in this
Agreement in order to express their joint intentions in entering into this
employment relationship. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Florida, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Florida or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Florida. A waiver by either
party of any breach of any provision hereof shall not operate or be construed as
a waiver of a breach of any other provision of this Agreement or of any
subsequent breach by the other party.
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<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ KEITH B. STEIN
------------------------------
Name Keith B. Stein
Title: CFO
JOEL B. RONKIN
/s/ Joel B. Ronkin
-------------------------
12
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), dated and effective as of the 1st day
of August, 1998, by and between National Auto Finance Company, Inc. (the
"Company"), a Delaware corporation, and Thomas Costanza ("Costanza"), residing
at 1655 The Greens Way, #2116, Jacksonville Beach, Florida.
WITNESSETH
WHEREAS, the Company is engaged in the business of non-prime specialty
consumer finance, including, without limitation, the purchasing, originating,
financing, securitizing, collecting and servicing of motor vehicle retail
installment sales contracts, and intends to develop service bureau and service
center businesses (collectively, the "Business"); and
WHEREAS, the Company desires to retain the services of Costanza in the
capacity of Vice President and Chief Financial Officer, and Costanza desires to
provide such services in such capacity to the Company, on the terms and subject
to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, agreements and obligations set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs Costanza, and
Costanza hereby accepts employment by the Company, in the capacity and on the
terms and subject to the conditions set forth in this Agreement, for the period
of time commencing on August 1, 1998, and ending on July 31, 2001, unless this
Agreement is sooner terminated as provided herein (the "Term").
2. Duties. During the Term, Costanza shall, in his capacity as the
Company's Vice President and Chief Financial Officer, serve the Company
faithfully and to the best of his ability and devote his full business time to
the Business of the Company, subject to the provisions of Section 3 herein, as
(i) is necessary to carry out the duties and responsibilities customarily
incident to such a position, including, without limitation, the management of
the Company's financial and accounting matters and the supervision of employees
of the Company who are subordinate to Costanza, and (ii) may be reasonably
assigned to him from time to time by the Board of Directors or the Chairman,
Chief Executive Officer and/or President of the Company,
<PAGE> 2
or by anyone else designated by those officers or directors. Costanza shall
report to the Board of Directors and to the Chairman, Chief Executive Officer
and/or President, if any, of the Company, or to anyone else designated by those
directors or officers.
3. Other Business Activities. During the Term, Costanza shall not,
without the prior written consent of the Company, 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 position with the Company and do not
interfere with the performance of Costanza's duties, responsibilities and
obligations pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Company shall pay Costanza, and
Costanza hereby agrees to accept, as compensation for all services rendered and
for Costanza'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) $110,000 for the period August 1, 1998 through July 31, 1999;
(ii) no less than $117,700 for the period August 1, 1999 through July
31, 2000; and
(iii) no less than $125,939 for the period August 1, 2000 through July
31, 2001.
The sole and final determination of whether Costanza will receive an increase of
his Base Salary for the second and third years of this Agreement in excess of
the minimum seven (7) percent annual increase will be made by the Compensation
Committee of the Company's Board of Directors or equivalent committee of any
successor entity or parent organization, pursuant to senior executive
compensation plans adopted by such committee. Payment of the Base Salary shall
be made in the same manner as the Company 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 Company or which are requested
to be withheld by Costanza, shall be deducted from the Base Salary in accordance
with the Company's normal payroll practice for its salaried executives from time
to time in effect.
(b) Incentive Bonus. Costanza shall be eligible for an incentive bonus
("Incentive Bonus") for each of calendar years 1998, 1999 and 2000. For calendar
year 1998, Costanza shall be entitled to an Incentive Bonus of $13,832.88, which
represents a pro-rated amount based upon an annual bonus of 30% of Costanza's
1998 Base Salary. Such Incentive Bonus earned for calendar year 1998 shall be
paid on or before March 31, 1999. The sole and final determination of whether
any Incentive Bonus will be awarded for calendar years 1999 or 2000 or the
amount
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<PAGE> 3
of any such Incentive Bonus will be made by the Compensation Committee of
the Company's Board of Directors or equivalent committee of any successor entity
or parent organization, pursuant to senior executive compensation plans adopted
by such committee. Any Incentive Bonus earned for calendar years 1999 or 2000
shall be paid on or before March 31 of the next succeeding year.
(c) Signing Bonus: Costanza shall receive a signing bonus of $5,000
payable on the effective date of this Agreement.
5. Stock Option Plan. Costanza shall be entitled to participate in the
Company's 1996 Share Incentive Plan (as the same may be amended or modified from
time to time), and any other plans implemented by the Company or any successor
entity or parent organization (within the meaning of Rule 12 b-2 under the
Securities Exchange Act of 1934) granting shares of capital stock, options or
warrants to purchase shares of capital stock or other forms of equity or equity
derivative securities, of the Company or any successor entity or parent
organization, as such grants may be made from time to time by the Board of
Directors or Compensation Committee governing such plan. While Costanza shall be
eligible to participate in such stock option plan(s), the sole and final
determination of whether any grants will be made or the amount of any such grant
will be made by the Compensation Committee of the Company's Board of Directors
or equivalent committee of any successor entity or parent organization.
Notwithstanding anything set forth to the contrary herein, the Compensation
Committee of the Board of Directors of the Company did approve on June 29, 1998
granting Costanza an option to purchase shares of the common stock of the
Company equal to 0.5% of the outstanding common stock of the Company on a
fully-diluted basis, subject to the conditions and on the terms set forth in the
grant letter to be sent by the Company to Costanza.
6. Benefits and Expenses.
(a) Benefits. Costanza shall be entitled to participate in such benefit
plans and programs, including pension, hospitalization, medical and dental
insurance, life and disability insurance, and vacation (collectively,
"Benefits"), as are made available to the executive employees of the Company
from time to time during the Term.
(b) Expenses. Costanza shall be reimbursed by the Company for all
reasonable out-of-pocket business-related expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of his
duties and responsibilities hereunder upon submission to the Company of receipts
supporting such expenses.
(c) Automobile. The Company will provide Costanza with a car allowance
of Six Hundred Dollars ($600.00) gross per month ("Auto Allowance") and
reimburse Costanza for
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<PAGE> 4
gasoline and normal maintenance expenses for his automobile upon submission to
the Company of receipts supporting such expenses.
(d) Office Location. Costanza shall maintain his principal office with
the Company at its headquarters in Jacksonville, Florida. Costanza will,
however, travel to and from the Company's Boca Raton offices, as necessary to
perform his duties hereunder, up to and including the date of the Company's
closure of its Boca Raton offices.
7. Confidentiality.
(a) Non-Disclosure. Costanza recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) of the Company is a valuable,
special and unique asset of the Company. As a result, both during the Term and
thereafter, Costanza shall not, without the prior written consent of the
Company, for any reason, either directly or indirectly, divulge to any third
party or use for Costanza's own benefit, or for any purpose other than the
exclusive benefit of the Company, any and all confidential, proprietary,
business or technical information, or trade secrets of the Company which are
revealed, obtained or developed in the course of Costanza's employment with the
Company (the "Proprietary Information"). Such Proprietary Information shall
include, but shall not be limited to, business, financial, marketing and
development plans, models and efforts, cost information, pricing information,
marketing methods, collection and servicing methods, procedures and policies,
identities of the Company's dealers or obligors, the Company's relationships
with or potential relationships with its dealers, and any other confidential,
proprietary, business or technical information relating to the Business of the
Company or trade secrets of the Company; provided, however, that nothing herein
contained shall restrict Costanza'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 Costanza 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 Costanza's breach of this Section 7.
(b) Inventions, Designs and Product Developments. All inventions,
discoveries, concepts, improvements, formulas, procedures, policies, processes,
devices, methods, innovations, designs, ideas and product developments
(collectively, "Developments"), developed or conceived by Costanza, 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization, and
all of Costanza's right,
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<PAGE> 5
title and interest therein, shall be the exclusive property of the Company.
Costanza hereby assigns, transfers and conveys to the Company all of his right,
title and interest in and to any and all such Developments. Costanza shall
disclose fully, as soon as practicable and in writing, all Developments to the
Chairman, Chief Executive Officer and/or President of the Company or to anyone
else designated by those officers. At any time and from time to time, upon the
request of the Company, Costanza shall execute and deliver to the Company any
and all instruments, documents and papers, give evidence and do any and all
other acts which, in the opinion of counsel for the Company, are or may be
necessary or desirable to document such transfer or to enable the Company 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 Company 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 Costanza for all reasonable expenses
Costanza incurs in connection therewith upon submission to the Company of
invoices with respect thereto.
8. Property of Company. All Proprietary Information and Developments
shall be and remain the sole property of the Company. During the Term of this
Agreement, Costanza shall not remove from the Company'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. Costanza 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 Company, he shall leave with or
return to the Company, all originals and copies of the foregoing then in his
possession, whether prepared by Costanza or by others.
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<PAGE> 6
9. Covenant Not to Compete.
(a) Costanza shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of
Costanza would, in the judgment of the Board of Directors of the Company or any
successor entity or parent organization, be competitive with the Business of the
Company, its divisions, subsidiaries, sister organizations, or parent
organization, do any of the following, directly or indirectly, without the prior
written consent of the Company:
(1) solicit, either directly or indirectly, business
from any dealer, customer, obligor, financial institution or company with whom
the Company shall have dealt at any time;
(2) influence or attempt to influence any dealer,
customer, obligor, financial institution or company with whom the Company shall
have dealt at any time or potential dealer, financial partner, company, customer
or obligor of the Company to terminate or modify any written or oral agreement,
arrangement or course of dealing with the Company; 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 Company, its divisions,
subsidiaries, sister organizations, or parent organization, 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 Company, its divisions,
subsidiaries, sister organizations, or parent as an employee, salesman,
consultant or agent of the Company at any time during the one (1) year period
immediately preceding the effective date of Costanza's termination if the
actions enumerated in clauses (i) and (ii) would negatively affect the Business
and/or operations of the Company, its divisions, subsidiaries, sister
organizations, or parent organization for a period of two (2) years following
the effective date of Costanza's termination.
(b) The Company shall have the right, but not the obligation,
to require Costanza, for a six month period of time following the termination of
Costanza's employment (for whatever reason), anywhere within the United States
of America or in any other location where the activities of Costanza would, in
the judgment of the Board of Directors of the Company or any successor entity or
parent organization, be competitive with the Business of the Company, its
divisions, subsidiaries, sister organizations, or parent organization, not to
engage in the conduct proscribed by Section 9(a)(1), (2) and (3) by payment to
Costanza, over the extended covenant period, of fifty percent (50%) of the
amount paid to Costanza (as reflected in the Company's payroll records) by the
Company in the full calendar year immediately preceding Costanza's termination.
Any payments required by this Section 9(b) shall be paid by check in the same
time intervals as the Company routinely pays its executive employees. Any
exercise of the option shall be irrevocable.
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<PAGE> 7
(c) If the employment of Costanza shall either expire pursuant
to Section 1 hereof, or shall be terminated pursuant to Section 10 of this
Agreement, Costanza shall not, for a two (2) 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization any
time during the one (1) year period immediately preceding the effective date of
Costanza'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,
Costanza 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 Costanza such that
Costanza 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"), Costanza's employment under this
Agreement may be terminated by the Company.
(b) In the event of a termination of Costanza's employment
pursuant to Section 10.1(a), the Company shall be obligated to pay Costanza (i)
all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Auto Allowance, and to reimburse Costanza for all unreimbursed
out-of-pocket business-related expenses and (ii) an amount equal to Costanza'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 Company shall have no liability or obligation to Costanza 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 Costanza is Disabled shall be made by
a licensed physician selected by Costanza 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 Company (or any successor entity or parent
organization) disagrees with such physician's conclusion, the Board of Directors
may require that Costanza submit to a full physical examination by another
licensed physician selected by Costanza and approved by the Board of Directors.
If the two opinions shall be inconsistent, a third opinion shall be obtained
after full physical examination by a third licensed physician selected by
Costanza and approved by the Board of Directors. The majority of the three
opinions shall be conclusive.
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<PAGE> 8
10.2 Termination by Death. In the event that Costanza dies
during the Term, Costanza's employment shall be terminated thereby and the
Company shall pay to Costanza'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 Auto Allowance and shall reimburse
Costanza for all unreimbursed out-of-pocket business-related expenses, all of
which payments shall be paid within thirty (30) days of the date of such death.
Except as specifically set forth in this Section 10.2, the Company shall have no
liability or obligation hereunder to Costanza's executors, legal
representatives, administrators, heirs or assigns or to any other person
claiming under or through him by reason of Costanza's death.
10.3 Termination for Cause.
(a) The Company may terminate Costanza's employment under this
Agreement at any time for "Cause" upon written notice to Costanza, which
termination shall become effective on the date specified in such notice. For
purposes of this Agreement, "Cause" (as hereinafter defined) shall mean: (i) any
material breach by Costanza of any of his obligations under Sections 7, 8 or 9
of this Agreement; (ii) failure or refusal by Costanza to perform satisfactorily
the duties assigned to him pursuant to this Agreement; (iii) other conduct of
Costanza involving gross disloyalty or willful misconduct with respect to the
Company, including, without limitation, fraud, embezzlement, theft or proven
dishonesty in the course of his employment, or conviction of a felony; (iv)
Costanza's willful engagement in conduct materially injurious to the economic
interests or reputation of the Company; or (v) Costanza's insubordination, acts
of moral turpitude or other gross misconduct.
(b) In the event of a termination of Costanza's employment
pursuant to Section 10.3(a), the Company shall be obligated to pay to Costanza
all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Auto Allowance, and all Base Salary, Benefits and Auto Allowance
shall then cease at the time of such termination. Except as specifically set
forth in this Section 10.3(b), the Company shall have no liability or obligation
to Costanza for compensation or benefits hereunder by reason of such
termination.
10.4 Termination without Cause.
(a) The Company may terminate Costanza's employment under this
Agreement without Cause upon at least sixty (60) days prior written notice
thereof to Costanza, in which case this Agreement shall terminate on the date
specified in such notice.
(b) In the event of a termination of Costanza's employment
pursuant to 10.4(a), the Company shall be obligated to pay to Costanza all
accrued but unpaid (as of the date of such
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<PAGE> 9
termination) Base Salary, Benefits and Auto Allowance and to reimburse Costanza
for all unreimbursed out-of-pocket business-related expenses. Costanza 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 six (6) month period, such
amount to be paid over the applicable period at times corresponding to the
Company'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), the Company shall have no liability or obligation to Costanza for
compensation or benefits hereunder by reason of such termination.
10.5 Termination by Costanza for Good Reason.
(a) Costanza may terminate his employment under this Agreement
at any time for Good Reason (as hereinafter defined) effective upon the date
designated by Costanza in his written notice of termination of employment
pursuant to this Section 10.5(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 Company (or any successor entity or parent
organization) declares such effective date to be earlier than that designated by
Costanza, 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 Company of its obligations under this
Agreement, including, but not limited to, the following: (i) the failure by the
Company to pay Base Salary or any other material form of compensation or
material benefit to be paid or provided to Costanza hereunder, which failure is
not cured by the Company within ten (10) days after the Company's receipt of
written notification from Costanza of such failure; and (ii) any material
breach, not encompassed within clause (i) of this Section 10.5(a), of the
obligations of the Company under this Agreement which breach is not cured within
thirty (30) days after the Company's receipt of written notification from
Costanza of such material breach.
(b) In the event of a termination of Costanza's employment for
Good Reason pursuant to Section 10.5(a), the Company shall be obligated to pay
to Costanza all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Auto Allowance and to reimburse Costanza for all
unreimbursed out-of-pocket business-related expenses. Costanza 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 six (6) month period, such amount
to be paid over the applicable period at times corresponding to the Company's
normal payroll periods for executive officers as if no such termination had
occurred. Except as specifically set forth in this Section 10.5(b), the Company
shall have no liability or obligation to Costanza for compensation or benefits
hereunder by reason of such termination.
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(c) Upon ninety days notice to the Company, Costanza may also
terminate his employment under this Agreement for any other reason not defined
as Good Reason in Section 10.5(a). In the event of such a termination, the
Company shall be obligated to pay all accrued but unpaid (as of the date of such
termination) Base Salary, Benefits and Auto Allowance and to reimburse Costanza
for all unreimbursed out-of-pocket business-related expenses. Except as
specifically set forth in this Section 10.5(c), the Company shall have no
liability or obligation to Costanza for compensation or benefits hereunder by
reason of such termination.
10.6 Successor Party
The Company 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 Company (a "Successor")
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company 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 Costanza, such failure shall constitute
a material breach of this Agreement. Costanza agrees that the assumption by any
successor party of the duties and responsibilities of the Company under this
Agreement shall relieve the Company of any and all duties or responsibilities
under this Agreement. Moreover, such a successor party to this Agreement shall
have all rights currently afforded the Company or its Board of Directors under
this Agreement.
11. Survival of Provisions. The rights and obligations of Costanza
pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall survive the
termination of Costanza's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and Costanza and their respective successors,
executors, administrators, heirs and/or permitted assigns; provided, however,
that neither Costanza nor the Company 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 Company may assign this Agreement to any Successor to all or substantially
all of the Company's assets and Business or the assets and business of any of
the Company's divisions, subsidiaries, sister organizations or parent
organization 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 Company under this Agreement.
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13. No Conflicting Agreements. Costanza represents to the Company that
(i) Costanza is not currently under contract to provide services to any other
party or entity; (ii) the execution, delivery and performance of this Agreement
by Costanza will not conflict with any other agreement to which Costanza is
bound or to which Costanza is a party; and (iii) Costanza is not currently bound
by any form of restrictive covenant which would restrict or limit the
performance of his duties pursuant to this Agreement.
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 Costanza may be entitled as an employee of the Company under any
retirement, pension, profit-sharing, share incentive, insurance, hospitalization
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 Costanza:
Thomas Costanza
1655 The Greens Way, #2116
Jacksonville, Florida 32250
If to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
Attention: Joel B. Ronkin
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, offer letters,
agreements and understandings of every nature between the parties hereto
relating to the employment of Costanza with the Company. This Agreement may not
be changed or modified, except by an agreement in writing signed by both of the
parties hereto.
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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 governed, construed and
enforced in accordance with the laws of the State of Florida, without regard to
conflict of law principles.
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. Costanza acknowledges that the restrictions
contained in Sections 7, 8 and 9 hereof are reasonable and necessary to protect
the legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Costanza also acknowledges that the nature of both his services to the Company
and the obligations undertaken by Costanza 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 Company for which monetary damages
would not be adequate remedy. In the event of such breach by Costanza, the
Company 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 Company. 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.
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<PAGE> 13
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 Jacksonville, Florida.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to become effective as of the date first above written.
EMPLOYEE:
/s/ THOMAS COSTANZA
---------------------------
Thomas Costanza
COMPANY:
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ KEITH B. STEIN
---------------------------
Keith B. Stein
Chief Executive Officer
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), dated and effective as of the 1st day
of August, 1998, by and between National Auto Finance Company, Inc., a Delaware
corporation (the "Company"), and Martin J. Mattone ("Mattone"), residing at 6623
N.W. 72nd Place, Parkland, Florida.
WITNESSETH
WHEREAS, the Company is engaged in the business of non-prime specialty
consumer finance, including, without limitation, the purchasing, originating,
financing, securitizing, collecting and servicing of motor vehicle retail
installment sales contracts, and intends to develop service bureau and service
center businesses (collectively, the "Business"); and
WHEREAS, the Company desires to retain the services of Mattone in the
capacity of Vice President, Loan Originations and Asset Remarketing, and Mattone
desires to provide such services in such capacity to the Company, on the terms
and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, agreements and obligations set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs Mattone, and Mattone
hereby accepts employment by the Company, in the capacity and on the terms and
subject to the conditions set forth in this Agreement, for the period of time
commencing on August 1, 1998, and ending on July 31, 2001, unless this Agreement
is sooner terminated as provided herein (the "Term").
2. Duties. During the Term, Mattone shall, in his capacity as the
Company's Vice President, Loan Originations and Asset Remarketing, serve the
Company faithfully and to the best of his ability and devote his full business
time to the Business of the Company, subject to the provisions of Section 3
herein, as (i) is necessary to carry out the duties and responsibilities
customarily incident to such a position, including, without limitation, the
management of the Company's loan originations department and asset remarketing
department and the supervision of employees of the Company who are subordinate
to Mattone, and (ii) may be reasonably
<PAGE> 2
assigned to him from time to time by the Board of Directors or the Chairman,
Chief Executive Officer, President and/or Chief Operating Officer of the
Company, or by anyone else designated by those officers or directors. Mattone
shall report to the Board of Directors and to the Chairman, Chief Executive
Officer, President and/or Chief Operating Officer, if any, of the Company, or to
anyone else designated by those directors or officers.
3. Other Business Activities. During the Term, Mattone shall not,
without the prior written consent of the Company, 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 position with the Company and do not
interfere with the performance of Mattone's duties, responsibilities and
obligations pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Company shall pay Mattone, and Mattone
hereby agrees to accept, as compensation for all services rendered and for
Mattone'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) $110,000 for the period August 1, 1998 through July 31, 1999;
(ii) no less than $117,700 for the period August 1, 1999 through July
31, 2000; and
(iii) no less than $125,939 for the period August 1, 2000 through July
31, 2001.
The sole and final determination of whether Mattone will receive an increase of
his Base Salary for the second and third years of this Agreement in excess of
the minimum seven (7) percent annual increase will be made by the Compensation
Committee of the Company's Board of Directors or equivalent committee of any
successor entity or parent organization, pursuant to senior executive
compensation plans adopted by such committee. Payment of the Base Salary shall
be made in the same manner as the Company 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 Company or which are requested
to be withheld by Mattone, shall be deducted from the Base Salary in accordance
with the Company's normal payroll practice for its salaried executives from time
to time in effect.
(b) Incentive Bonus. Mattone shall be eligible for an incentive bonus
("Incentive Bonus") for each of calendar years 1998, 1999 and 2000. For calendar
year 1998, Mattone shall be entitled to an Incentive Bonus of $33,000, which is
equal to 30% of Mattone's 1998 Base Salary. Such Incentive Bonus earned for
calendar year 1998 shall be paid on or before March 31,
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<PAGE> 3
1999. For calendar years 1999 and 2000, the Compensation Committee of the
Company's Board of Directors or equivalent committee of any successor entity or
parent organization will adopt a bonus program designed to allow Mattone the
opportunity to earn an Incentive Bonus equal to at least 30% of Mattone's annual
Base Salary. There is, however, no guaranteed Incentive Bonus for 1999 or 2000.
Any Incentive Bonus earned for calendar years 1999 or 2000 shall be paid on or
before March 31 of the next succeeding year.
5. Stock Option Plan. Mattone shall be entitled to participate in the
Company's 1996 Share Incentive Plan (as the same may be amended or modified from
time to time), and any other plans implemented by the Company or any successor
entity or parent organization (within the meaning of Rule 12 b-2 under the
Securities Exchange Act of 1934) granting shares of capital stock, options or
warrants to purchase shares of capital stock or other forms of equity or equity
derivative securities, of the Company or any successor entity or parent
organization, as such grants may be made from time to time by the Board of
Directors or Compensation Committee governing such plan. While Mattone shall be
eligible to participate in such stock option plan(s), the sole and final
determination of whether any grants will be made or the amount of any such grant
will be made by the Compensation Committee of the Company's Board of Directors
or equivalent committee of any successor entity or parent organization.
Notwithstanding anything set forth to the contrary herein, the Compensation
Committee of the Board of Directors of the Company did approve on June 29, 1998
granting Mattone an option to purchase shares of the common stock of the Company
equal to 0.5% of the outstanding common stock of the Company on a fully-diluted
basis, subject to the conditions and on the terms set forth in the grant letter
to be sent by the Company to Mattone.
6. Benefits and Expenses.
(a) Benefits. Mattone shall be entitled to participate in such benefit
plans and programs, including pension, hospitalization, medical and dental
insurance, life and disability insurance, and vacation (collectively,
"Benefits"), as are made available to the executive employees of the Company
from time to time during the Term.
(b) Expenses. Mattone shall be reimbursed by the Company for all
reasonable out-of-pocket business-related expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of his
duties and responsibilities hereunder upon submission to the Company of receipts
supporting such expenses.
(c) Automobile. The Company will provide Mattone with a car allowance
of Six Hundred Dollars ($600.00) gross per month ("Auto Allowance") and
reimburse Mattone for
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<PAGE> 4
gasoline and normal maintenance expenses for his automobile upon submission to
the Company of receipts supporting such expenses.
(d) Relocation. Mattone shall maintain his principal office with the
Company at its headquarters in Jacksonville, Florida, and shall establish his
primary residence in Jacksonville, Florida by August 1, 1998. In connection with
such relocation, the Company shall pay when due: (i) all reasonable
sales-related expenses incurred by Mattone in connection with the sale of his
residence at 6623 N.W. 72nd Place, Parkland, Florida, including, without
limitation, real estate commissions, inspection fees and closing costs; (ii) all
reasonable expenses associated with the moving of Mattone's household goods to
Jacksonville; and (iii) an amount equal to the difference between the purchase
price of Mattone's Parkland residence and the sale price of that residence.
Notwithstanding anything to the contrary set forth herein, the Company shall not
pay or reimburse Mattone for: (i) any expenses or costs related to the purchase,
sale or rental of a residence in Jacksonville for Mattone; (ii) costs or
expenses related to the storage of items or goods for Mattone; or (iii) expenses
or costs for Mattone or his family to travel to or from the South Florida area
once Mattone establishes his primary residence in Jacksonville.
7. Confidentiality.
(a) Non-Disclosure. Mattone recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) of the Company is a valuable,
special and unique asset of the Company. As a result, both during the Term and
thereafter, Mattone shall not, without the prior written consent of the Company,
for any reason, either directly or indirectly, divulge to any third party or use
for Mattone's own benefit, or for any purpose other than the exclusive benefit
of the Company, any and all confidential, proprietary, business or technical
information, or trade secrets of the Company which are revealed, obtained or
developed in the course of Mattone's employment with the Company (the
"Proprietary Information"). Such Proprietary Information shall include, but
shall not be limited to, business, financial, marketing and development plans,
models and efforts, cost information, pricing information, marketing methods,
collection and servicing methods, procedures and policies, identities of the
Company's dealers or obligors, the Company's relationships with or potential
relationships with its dealers, and any other confidential, proprietary,
business or technical information relating to the Business of the Company or
trade secrets of the Company; provided, however, that nothing herein contained
shall restrict Mattone'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 Mattone 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
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<PAGE> 5
information did not become available to the general public as a direct or
indirect result of Mattone's breach of this Section 7.
(b) Inventions, Designs and Product Developments. All inventions,
discoveries, concepts, improvements, formulas, procedures, policies, processes,
devices, methods, innovations, designs, ideas and product developments
(collectively, "Developments"), developed or conceived by Mattone, 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization, and
all of Mattone's right, title and interest therein, shall be the exclusive
property of the Company. Mattone hereby assigns, transfers and conveys to the
Company all of his right, title and interest in and to any and all such
Developments. Mattone shall disclose fully, as soon as practicable and in
writing, all Developments to the Chairman, Chief Executive Officer, President
and/or Chief Operating Officer of the Company or to anyone else designated by
those officers. At any time and from time to time, upon the request of the
Company, Mattone shall execute and deliver to the Company any and all
instruments, documents and papers, give evidence and do any and all other acts
which, in the opinion of counsel for the Company, are or may be necessary or
desirable to document such transfer or to enable the Company 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 Company 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 Mattone for all reasonable expenses Mattone
incurs in connection therewith upon submission to the Company of invoices with
respect thereto.
8. Property of Company. All Proprietary Information and Developments
shall be and remain the sole property of the Company. During the Term of this
Agreement, Mattone shall not remove from the Company'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. Mattone 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
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<PAGE> 6
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 Company, he shall leave with or return to the Company,
all originals and copies of the foregoing then in his possession, whether
prepared by Mattone or by others.
9. Covenant Not to Compete.
(a) Mattone shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of
Mattone would, in the judgment of the Board of Directors of the Company or any
successor entity or parent organization, be competitive with the Business of the
Company, its divisions, subsidiaries, sister organizations, or parent
organization, do any of the following, directly or indirectly, without the prior
written consent of the Company:
(1) solicit, either directly or indirectly, business
from any dealer, customer, obligor, financial institution or company with whom
the Company shall have dealt at any time;
(2) influence or attempt to influence any dealer,
customer, obligor, financial institution or company with whom the Company shall
have dealt at any time or potential dealer, financial partner, company, customer
or obligor of the Company to terminate or modify any written or oral agreement,
arrangement or course of dealing with the Company; 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 Company, its divisions,
subsidiaries, sister organizations, or parent organization, 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 Company, its divisions,
subsidiaries, sister organizations, or parent as an employee, salesman,
consultant or agent of the Company at any time during the one (1) year period
immediately preceding the effective date of Mattone's termination if the actions
enumerated in clauses (i) and (ii) would negatively affect the Business and/or
operations of the Company, its divisions, subsidiaries, sister organizations, or
parent organization for a period of two (2) years following the effective date
of Mattone's termination.
(b) The Company shall have the right, but not the obligation,
to require Mattone, for a six month period of time following the termination of
Mattone's employment (for whatever reason), anywhere within the United States of
America or in any other location where the activities of Mattone would, in the
judgment of the Board of Directors of the Company or any successor entity or
parent organization, be competitive with the Business of the Company, its
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<PAGE> 7
divisions, subsidiaries, sister organizations, or parent organization, not to
engage in the conduct proscribed by Section 9(a)(1), (2) and (3) by payment to
Mattone, over the extended covenant period, of fifty percent (50%) of the amount
paid to Mattone (as reflected in the Company's payroll records) by the Company
in the full calendar year immediately preceding Mattone's termination. Any
payments required by this Section 9(b) shall be paid by check in the same time
intervals as the Company routinely pays its executive employees. Any exercise of
the option shall be irrevocable.
(c) If the employment of Mattone shall either expire pursuant
to Section 1 hereof, or shall be terminated pursuant to Section 10 of this
Agreement, Mattone shall not, for a two (2) 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization any
time during the one (1) year period immediately preceding the effective date of
Mattone'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,
Mattone 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 Mattone such that
Mattone 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"), Mattone's employment under this
Agreement may be terminated by the Company.
(b) In the event of a termination of Mattone's employment
pursuant to Section 10.1(a), the Company shall be obligated to pay Mattone (i)
all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Auto Allowance, and to reimburse Mattone for all unreimbursed
out-of-pocket business-related expenses and (ii) an amount equal to Mattone'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 Company shall have no liability or obligation to Mattone 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 Mattone is Disabled shall be made by a
licensed physician selected by Mattone and shall be based upon a full physical
examination and good faith opinion by such
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<PAGE> 8
physician. In the event that the Board of Directors of the Company (or any
successor entity or parent organization) disagrees with such physician's
conclusion, the Board of Directors may require that Mattone submit to a full
physical examination by another licensed physician selected by Mattone and
approved by the Board of Directors. If the two opinions shall be inconsistent, a
third opinion shall be obtained after full physical examination by a third
licensed physician selected by Mattone and approved by the Board of Directors.
The majority of the three opinions shall be conclusive.
10.2 Termination by Death. In the event that Mattone dies
during the Term, Mattone's employment shall be terminated thereby and the
Company shall pay to Mattone'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 Auto Allowance and shall reimburse
Mattone for all unreimbursed out-of-pocket business-related expenses, all of
which payments shall be paid within thirty (30) days of the date of such death.
Except as specifically set forth in this Section 10.2, the Company shall have no
liability or obligation hereunder to Mattone's executors, legal representatives,
administrators, heirs or assigns or to any other person claiming under or
through him by reason of Mattone's death.
10.3 Termination for Cause.
(a) The Company may terminate Mattone's employment under this
Agreement at any time for "Cause" upon written notice to Mattone, which
termination shall become effective on the date specified in such notice. For
purposes of this Agreement, "Cause" (as hereinafter defined) shall mean: (i) any
material breach by Mattone of any of his obligations under Sections 7, 8 or 9 of
this Agreement; (ii) failure or refusal by Mattone to perform satisfactorily the
duties assigned to him pursuant to this Agreement; (iii) other conduct of
Mattone involving gross disloyalty or willful misconduct with respect to the
Company, including, without limitation, fraud, embezzlement, theft or proven
dishonesty in the course of his employment, or conviction of a felony; (iv)
Mattone's willful engagement in conduct materially injurious to the economic
interests or reputation of the Company; (v) Mattone's insubordination, acts of
moral turpitude or other gross misconduct; or (vi) Mattone's failure or refusal
to establish his permanent residence in Jacksonville, Florida by August 1, 1998.
(b) In the event of a termination of Mattone's employment
pursuant to Section 10.3(a), the Company shall be obligated to pay to Mattone
all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Auto Allowance, and all Base Salary, Benefits and Auto Allowance
shall then cease at the time of such termination. Except as specifically set
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<PAGE> 9
forth in this Section 10.3(b), the Company shall have no liability or obligation
to Mattone for compensation or benefits hereunder by reason of such termination.
10.4 Termination without Cause.
(a) The Company may terminate Mattone's employment under this
Agreement without Cause upon at least sixty (60) days prior written notice
thereof to Mattone, in which case this Agreement shall terminate on the date
specified in such notice.
(b) In the event of a termination of Mattone's employment
pursuant to 10.4(a), the Company shall be obligated to pay to Mattone all
accrued but unpaid (as of the date of such termination) Base Salary, Benefits
and Auto Allowance and to reimburse Mattone for all unreimbursed out-of-pocket
business-related expenses. Mattone 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 six (6) month period, such amount to be paid over the
applicable period at times corresponding to the Company'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), the Company shall have no
liability or obligation to Mattone for compensation or benefits hereunder by
reason of such termination.
10.5 Termination by Mattone for Good Reason.
(a) Mattone may terminate his employment under this Agreement
at any time for Good Reason (as hereinafter defined) effective upon the date
designated by Mattone in his written notice of termination of employment
pursuant to this Section 10.5(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 Company (or any successor entity or parent
organization) declares such effective date to be earlier than that designated by
Mattone, 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 Company of its obligations under this Agreement,
including, but not limited to, the following: (i) the failure by the Company to
pay Base Salary or any other material form of compensation or material benefit
to be paid or provided to Mattone hereunder, which failure is not cured by the
Company within ten (10) days after the Company's receipt of written notification
from Mattone of such failure; and (ii) any material breach, not encompassed
within clause (i) of this Section 10.5(a), of the obligations of the Company
under this Agreement which breach is not cured within thirty (30) days after the
Company's receipt of written notification from Mattone of such material breach.
(b) In the event of a termination of Mattone's employment for
Good Reason pursuant to Section 10.5(a), the Company shall be obligated to pay
to Mattone all accrued but
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<PAGE> 10
unpaid (as of the date of such termination) Base Salary, Benefits and Auto
Allowance and to reimburse Mattone for all unreimbursed out-of-pocket
business-related expenses. Mattone 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 six (6) month period, such amount to be paid over the
applicable period at times corresponding to the Company's normal payroll periods
for executive officers as if no such termination had occurred. Except as
specifically set forth in this Section 10.5(b), the Company shall have no
liability or obligation to Mattone for compensation or benefits hereunder by
reason of such termination.
10.6 Successor Party
The Company 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 Company (a "Successor")
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company 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 Mattone, such failure shall constitute a
material breach of this Agreement. Mattone agrees that the assumption by any
successor party of the duties and responsibilities of the Company under this
Agreement shall relieve the Company of any and all duties or responsibilities
under this Agreement. Moreover, such a successor party to this Agreement shall
have all rights currently afforded the Company or its Board of Directors under
this Agreement.
11. Survival of Provisions. The rights and obligations of Mattone
pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall survive the
termination of Mattone's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and Mattone and their respective successors,
executors, administrators, heirs and/or permitted assigns; provided, however,
that neither Mattone nor the Company 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 Company may assign this Agreement to any Successor to all or substantially
all of the Company's assets and Business or the assets and business of any of
the Company's divisions, subsidiaries, sister organizations or parent
organization 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 Company under this Agreement.
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<PAGE> 11
13. No Conflicting Agreements. Mattone represents to the Company that
(i) Mattone is not currently under contract to provide services to any other
party or entity; (ii) the execution, delivery and performance of this Agreement
by Mattone will not conflict with any other agreement to which Mattone is bound
or to which Mattone is a party; and (iii) Mattone is not currently bound by any
form of restrictive covenant which would restrict or limit the performance of
his duties pursuant to this Agreement.
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 Mattone may be entitled as an employee of the Company under any
retirement, pension, profit-sharing, share incentive, insurance, hospitalization
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 Mattone:
Martin J. Mattone
10135 Gate Parkway North, Apt. 408
Jacksonville, Florida 32246
If to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
Attention: Joel B. Ronkin
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, offer letters,
agreements and understandings of every nature between the parties hereto
relating to the employment of Mattone with the Company. This Agreement may not
be changed or modified, except by an agreement in writing signed by both of the
parties hereto.
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<PAGE> 12
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 governed, construed and
enforced in accordance with the laws of the State of Florida, without regard to
conflict of law principles.
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. Mattone acknowledges that the restrictions
contained in Sections 7, 8 and 9 hereof are reasonable and necessary to protect
the legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Mattone also acknowledges that the nature of both his services to the Company
and the obligations undertaken by Mattone 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 Company for which monetary damages
would not be adequate remedy. In the event of such breach by Mattone, the
Company 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 Company. 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.
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<PAGE> 13
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 Jacksonville, Florida.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to become effective as of the date first above written.
EMPLOYEE:
/s/ MARTIN J. MATTONE
-----------------------------
Martin J. Mattone
COMPANY:
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ WILLIAM G. MAGRO
-------------------------
William G. Magro
Executive Vice President
and Chief Operating Officer
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<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated
and effective as of the 1st day of August, 1998, by and between National Auto
Finance Company, Inc., a Delaware corporation (the "Company"), and James E.
Shuler ("Shuler"), residing at 304 South Millview Way, Ponte Vedra, Florida.
WITNESSETH
WHEREAS, the Company is engaged in the business of non-prime specialty
consumer finance, including, without limitation, the purchasing, originating,
financing, securitizing, collecting and servicing of motor vehicle retail
installment sales contracts, and intends to develop service bureau and service
center businesses (collectively, the "Business"); and
WHEREAS, the Company and Shuler entered into an employment agreement
dated and effective as of March 1, 1998 (the "Original Agreement"); and
WHEREAS, the Company and Shuler desire to amend and restate that
Original Agreement as set forth herein and to have this Agreement supersede the
Original Agreement in its entirety; and
WHEREAS, the Company desires to retain the services of Shuler in the
capacity of Vice President, Collections, and Shuler desires to provide such
services in such capacity to the Company, on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, agreements and obligations set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs Shuler, and Shuler
hereby accepts employment by the Company, in the capacity and on the terms and
subject to the conditions set forth in this Agreement, for the period of time
commencing on August 1, 1998, and ending on February 28, 2001, unless this
Agreement is sooner terminated as provided herein (the "Term").
<PAGE> 2
2. Duties. During the Term, Shuler shall, in his capacity as the
Company's Vice President, Collections, serve the Company faithfully and to the
best of his ability and devote his full business time to the Business of the
Company, subject to the provisions of Section 3 herein, as (i) is necessary to
carry out the duties and responsibilities customarily incident to such a
position, including, without limitation, the management of the collection
activities of the Company and the supervision of employees of the Company who
are subordinate to Shuler, and (ii) may be reasonably assigned to him from time
to time by the Board of Directors or the Chairman, Chief Executive Officer,
President and/or Chief Operating Officer of the Company, or by anyone else
designated by those officers or directors. Shuler shall report to the Board of
Directors and to the Chairman, Chief Executive Officer, President and/or Chief
Operating Officer, if any, of the Company, or to anyone else designated by those
directors or officers.
3. Other Business Activities. During the Term, Shuler shall not,
without the prior written consent of the Company, 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 position with the Company and do not
interfere with the performance of Shuler's duties, responsibilities and
obligations pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Company shall pay Shuler, and Shuler
hereby agrees to accept, as compensation for all services rendered and for
Shuler'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 for the period August 1, 1998 through February 28, 1999;
(ii) no less than $112,350 for the period March 1, 1999 through
February 29, 2000; and
(iii) no less than $120,215 for the period March 1, 2000 through February
29, 2001.
The sole and final determination of whether Shuler will receive an increase of
his Base Salary for the periods March 1, 1999 through February 28, 2000 and
March 1, 2000 through February 28, 2001 in excess of the minimum seven (7)
percent annual increase will be made by the Compensation Committee of the
Company's Board of Directors or equivalent committee of any successor entity or
parent organization, pursuant to senior executive compensation plans adopted by
such committee. Payment of the Base Salary shall be made in the same manner as
the Company routinely pays its other executive employees. All applicable income,
social security
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<PAGE> 3
and other taxes and charges which are required by law to be
withheld by the Company or which are requested to be withheld by Shuler, shall
be deducted from the Base Salary in accordance with the Company's normal payroll
practice for its salaried executives from time to time in effect.
(b) Incentive Bonus. Shuler shall be eligible for an incentive bonus
("Incentive Bonus") for each of calendar years 1998, 1999 and 2000. For calendar
year 1998, Shuler shall be entitled to an Incentive Bonus of $33,705, which is
equal to 30% of Shuler's 1998 Base Salary. Such Incentive Bonus earned for
calendar year 1998 shall be paid on or before March 31, 1999. For calendar years
1999 and 2000, the Compensation Committee of the Company's Board of Directors or
equivalent committee of any successor entity or parent organization will adopt a
bonus program designed to allow Shuler the opportunity to earn an Incentive
Bonus equal to at least 30% of Shuler's annual Base Salary. There is, however,
no guaranteed Incentive Bonus for 1999 or 2000. Any Incentive Bonus earned for
calendar years 1999 or 2000 shall be paid on or before March 31 of the next
succeeding year.
5. Stock Option Plan. Shuler shall be entitled to participate in the
Company's 1996 Share Incentive Plan (as the same may be amended or modified from
time to time), and any other plans implemented by the Company or any successor
entity or parent organization (within the meaning of Rule 12 b-2 under the
Securities Exchange Act of 1934) granting shares of capital stock, options or
warrants to purchase shares of capital stock or other forms of equity or equity
derivative securities, of the Company or any successor entity or parent
organization, as such grants may be made from time to time by the Board of
Directors or Compensation Committee governing such plan. While Shuler shall be
eligible to participate in such stock option plan(s), the sole and final
determination of whether any grants will be made or the amount of any such grant
will be made by the Compensation Committee of the Company's Board of Directors
or equivalent committee of any successor entity or parent organization.
Notwithstanding anything set forth to the contrary herein, the Compensation
Committee of the Board of Directors of the Company did approve on June 29, 1998
granting Shuler an option to purchase shares of the common stock of the Company
equal to 0.5% of the outstanding common stock of the Company on a fully-diluted
basis, subject to the conditions and on the terms set forth in the grant letter
to be sent by the Company to Shuler.
6. Benefits and Expenses.
(a) Benefits. Shuler shall be entitled to participate in such benefit
plans and programs, including pension, hospitalization, medical and dental
insurance, life and
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<PAGE> 4
disability insurance, and vacation (collectively,
"Benefits"), as are made available to the executive employees of the Company
from time to time during the Term.
(b) Expenses. Shuler shall be reimbursed by the Company for all
reasonable out-of-pocket business-related expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of his
duties and responsibilities hereunder upon submission to the Company of receipts
supporting such expenses.
(c) Automobile. The Company will provide Shuler with a car allowance of
Six Hundred Dollars ($600.00) gross per month ("Auto Allowance") and reimburse
Shuler for gasoline and normal maintenance expenses for his automobile upon
submission to the Company of receipts supporting such expenses.
7. Confidentiality.
(a) Non-Disclosure. Shuler recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) of the Company is a valuable,
special and unique asset of the Company. As a result, both during the Term and
thereafter, Shuler shall not, without the prior written consent of the Company,
for any reason, either directly or indirectly, divulge to any third party or use
for Shuler's own benefit, or for any purpose other than the exclusive benefit of
the Company, any and all confidential, proprietary, business or technical
information, or trade secrets of the Company which are revealed, obtained or
developed in the course of Shuler's employment with the Company (the
"Proprietary Information"). Such Proprietary Information shall include, but
shall not be limited to, business, financial, marketing and development plans,
models and efforts, cost information, pricing information, marketing methods,
collection and servicing methods, procedures and policies, identities of the
Company's dealers or obligors, the Company's relationships with or potential
relationships with its dealers, and any other confidential, proprietary,
business or technical information relating to the Business of the Company or
trade secrets of the Company; provided, however, that nothing herein contained
shall restrict Shuler'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 Shuler 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 Shuler's breach of this Section 7.
(b) Inventions, Designs and Product Developments. All inventions,
discoveries, concepts, improvements, formulas, procedures, policies, processes,
devices, methods, innovations, designs, ideas and product developments
(collectively, "Developments"), developed
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<PAGE> 5
or conceived by Shuler, 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 Company, its divisions, subsidiaries, sister organizations, or
parent organization, and all of Shuler's right, title and interest therein,
shall be the exclusive property of the Company. Shuler hereby assigns, transfers
and conveys to the Company all of his right, title and interest in and to any
and all such Developments. Shuler shall disclose fully, as soon as practicable
and in writing, all Developments to the Chairman, Chief Executive Officer,
President and/or Chief Operating Officer of the Company or to anyone else
designated by those officers. At any time and from time to time, upon the
request of the Company, Shuler shall execute and deliver to the Company any and
all instruments, documents and papers, give evidence and do any and all other
acts which, in the opinion of counsel for the Company, are or may be necessary
or desirable to document such transfer or to enable the Company 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 Company 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 Shuler for all reasonable expenses Shuler
incurs in connection therewith upon submission to the Company of invoices with
respect thereto.
8. Property of Company. All Proprietary Information and Developments
shall be and remain the sole property of the Company. During the Term of this
Agreement, Shuler shall not remove from the Company'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. Shuler 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 Company, he shall leave with or
return to
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<PAGE> 6
the Company, all originals and copies of the foregoing then in his
possession, whether prepared by Shuler or by others.
9. Covenant Not to Compete.
(a) Shuler shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of Shuler
would, in the judgment of the Board of Directors of the Company or any successor
entity or parent organization, be competitive with the Business of the Company,
its divisions, subsidiaries, sister organizations, or parent organization, do
any of the following, directly or indirectly, without the prior written consent
of the Company:
(1) solicit, either directly or indirectly, business
from any dealer, customer, obligor, financial institution or company with whom
the Company shall have dealt at any time;
(2) influence or attempt to influence any dealer,
customer, obligor, financial institution or company with whom the Company shall
have dealt at any time or potential dealer, financial partner, company, customer
or obligor of the Company to terminate or modify any written or oral agreement,
arrangement or course of dealing with the Company; 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 Company, its divisions,
subsidiaries, sister organizations, or parent organization, 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 Company, its divisions,
subsidiaries, sister organizations, or parent as an employee, salesman,
consultant or agent of the Company at any time during the one (1) year period
immediately preceding the effective date of Shuler's termination if the actions
enumerated in clauses (i) and (ii) would negatively affect the Business and/or
operations of the Company, its divisions, subsidiaries, sister organizations, or
parent organization for a period of two (2) years following the effective date
of Shuler's termination.
(b) The Company shall have the right, but not the obligation,
to require Shuler, for a six month period of time following the termination of
Shuler's employment (for whatever reason), anywhere within the United States of
America or in any other location where the activities of Shuler would, in the
judgment of the Board of Directors of the Company or any successor entity or
parent organization, be competitive with the Business of the Company, its
divisions, subsidiaries, sister organizations, or parent organization, not to
engage in the conduct proscribed by Section 9(a)(1), (2) and (3) by payment to
Shuler, over the extended covenant period, of fifty percent (50%) of the amount
paid to Shuler (as reflected in the Company's payroll records) by the Company in
the full calendar year immediately preceding Shuler's
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<PAGE> 7
termination. Any payments required by this Section 9(b) shall be paid by check
in the same time intervals as the Company routinely pays its executive
employees. Any exercise of the option shall be irrevocable.
(c) If the employment of Shuler shall either expire pursuant
to Section 1 hereof, or shall be terminated pursuant to Section 10 of this
Agreement, Shuler shall not, for a two (2) 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization any
time during the one (1) year period immediately preceding the effective date of
Shuler'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,
Shuler 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 Shuler such that Shuler
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"), Shuler's employment under this Agreement
may be terminated by the Company.
(b) In the event of a termination of Shuler's employment
pursuant to Section 10.1(a), the Company shall be obligated to pay Shuler (i)
all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Auto Allowance, and to reimburse Shuler for all unreimbursed
out-of-pocket business-related expenses and (ii) an amount equal to Shuler'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 Company shall have no liability or obligation to Shuler 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 Shuler is Disabled shall be made by a
licensed physician selected by Shuler 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 Company (or any successor entity or parent
organization) disagrees with such physician's conclusion, the Board of Directors
may require that Shuler submit to a full physical examination by another
licensed physician selected by Shuler and approved by the Board of Directors. If
the two opinions shall be inconsistent, a third opinion shall be obtained after
full physical examination by a third licensed physician
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<PAGE> 8
selected by Shuler and approved by the Board of Directors. The majority of the
three opinions shall be conclusive.
10.2 Termination by Death. In the event that Shuler dies
during the Term, Shuler's employment shall be terminated thereby and the Company
shall pay to Shuler'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 Auto Allowance and shall reimburse Shuler for all
unreimbursed out-of-pocket business-related expenses, all of which payments
shall be paid within thirty (30) days of the date of such death. Except as
specifically set forth in this Section 10.2, the Company shall have no liability
or obligation hereunder to Shuler's executors, legal representatives,
administrators, heirs or assigns or to any other person claiming under or
through him by reason of Shuler's death.
10.3 Termination for Cause.
(a) The Company may terminate Shuler's employment under this
Agreement at any time for "Cause" upon written notice to Shuler, which
termination shall become effective on the date specified in such notice. For
purposes of this Agreement, "Cause" (as hereinafter defined) shall mean: (i) any
material breach by Shuler of any of his obligations under Sections 7, 8 or 9 of
this Agreement; (ii) failure or refusal by Shuler to perform satisfactorily the
duties assigned to him pursuant to this Agreement; (iii) other conduct of Shuler
involving gross disloyalty or willful misconduct with respect to the Company,
including, without limitation, fraud, embezzlement, theft or proven dishonesty
in the course of his employment, or conviction of a felony; (iv) Shuler's
willful engagement in conduct materially injurious to the economic interests or
reputation of the Company; or (v) Shuler's insubordination, acts of moral
turpitude or other gross misconduct.
(b) In the event of a termination of Shuler's employment
pursuant to Section 10.3(a), the Company shall be obligated to pay to Shuler all
accrued but unpaid (as of the date of such termination) Base Salary, Benefits
and Auto Allowance, and all Base Salary, Benefits and Auto Allowance shall then
cease at the time of such termination. Except as specifically set forth in this
Section 10.3(b), the Company shall have no liability or obligation to Shuler for
compensation or benefits hereunder by reason of such termination.
10.4 Termination without Cause.
(a) The Company may terminate Shuler's employment under this
Agreement without Cause upon at least sixty (60) days prior written notice
thereof to Shuler, in which case this Agreement shall terminate on the date
specified in such notice.
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<PAGE> 9
(b) In the event of a termination of Shuler's employment
pursuant to 10.4(a), the Company shall be obligated to pay to Shuler all accrued
but unpaid (as of the date of such termination) Base Salary, Benefits and Auto
Allowance and to reimburse Shuler for all unreimbursed out-of-pocket
business-related expenses. Shuler 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 six (6) month period, such amount to be paid over the
applicable period at times corresponding to the Company'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), the Company shall have no
liability or obligation to Shuler for compensation or benefits hereunder by
reason of such termination.
10.5 Termination by Shuler for Good Reason.
(a) Shuler may terminate his employment under this Agreement
at any time for Good Reason (as hereinafter defined) effective upon the date
designated by Shuler in his written notice of termination of employment pursuant
to this Section 10.5(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 Company (or any successor entity or parent
organization) declares such effective date to be earlier than that designated by
Shuler, 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 Company of its obligations under this Agreement,
including, but not limited to, the following: (i) the failure by the Company to
pay Base Salary or any other material form of compensation or material benefit
to be paid or provided to Shuler hereunder, which failure is not cured by the
Company within ten (10) days after the Company's receipt of written notification
from Shuler of such failure; and (ii) any material breach, not encompassed
within clause (i) of this Section 10.5(a), of the obligations of the Company
under this Agreement which breach is not cured within thirty (30) days after the
Company's receipt of written notification from Shuler of such material breach.
(b) In the event of a termination of Shuler's employment for
Good Reason pursuant to Section 10.5(a), the Company shall be obligated to pay
to Shuler all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Auto Allowance and to reimburse Shuler for all unreimbursed
out-of-pocket business-related expenses. Shuler 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 six (6) month period, such amount to be paid
over the applicable period at times corresponding to the Company's normal
payroll periods for executive officers as if no such termination had occurred.
Except as specifically set forth in this Section 10.5(b), the Company
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<PAGE> 10
shall have no liability or obligation to Shuler for compensation or benefits
hereunder by reason of such termination.
(c) Shuler may also terminate his employment under this
Agreement if William G. Magro, the Company's Executive Vice President and Chief
Operating Officer, ceases to be employed by the Company, its divisions,
subsidiaries, sister organizations, or parent organization. In the event of such
a termination, the Company shall be obligated to pay all accrued but unpaid (as
of the date of such termination) Base Salary, Benefits and Auto Allowance and to
reimburse Shuler for all unreimbursed out-of-pocket business-related expenses.
Except as specifically set forth in this Section 10.4(c), the Company shall have
no liability or obligation to Shuler for compensation or benefits hereunder by
reason of such termination.
10.6 Successor Party
The Company 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 Company (a "Successor")
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company 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 Shuler, such failure shall constitute a
material breach of this Agreement. Shuler agrees that the assumption by any
successor party of the duties and responsibilities of the Company under this
Agreement shall relieve the Company of any and all duties or responsibilities
under this Agreement. Moreover, such a successor party to this Agreement shall
have all rights currently afforded the Company or its Board of Directors under
this Agreement.
11. Survival of Provisions. The rights and obligations of Shuler
pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall survive the
termination of Shuler's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and Shuler and their respective successors,
executors, administrators, heirs and/or permitted assigns; provided, however,
that neither Shuler nor the Company 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
Company may assign this Agreement to any Successor to all or substantially all
of the Company's assets and Business or the assets and business of any of the
Company's divisions, subsidiaries, sister organizations or parent organization
by means of liquidation, dissolution,
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<PAGE> 11
merger, consolidation, transfer of assets, or otherwise, provided that such
Successor assumes in writing all of the obligations of the Company under this
Agreement.
13. No Conflicting Agreements. Shuler represents to the Company that
(i) Shuler is not currently under contract to provide services to any other
party or entity; (ii) the execution, delivery and performance of this Agreement
by Shuler will not conflict with any other agreement, except the Original
Agreement, to which Shuler is bound or to which Shuler is a party; and (iii)
Shuler is not currently bound by any form of restrictive covenant which would
restrict or limit the performance of his duties pursuant to this Agreement.
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 Shuler may be entitled as an employee of the Company under any retirement,
pension, profit-sharing, share incentive, insurance, hospitalization 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 Shuler:
James E. Shuler
304 South Millview Way
Ponte Vedra, Florida 38082
If to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
Attention: Joel B. Ronkin
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, offer letters,
agreements, the Original Agreement and understandings of every nature between
the parties hereto relating to the employment of Shuler
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<PAGE> 12
with the Company. 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 governed, construed and
enforced in accordance with the laws of the State of Florida, without regard to
conflict of law principles.
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. Shuler acknowledges that the restrictions
contained in Sections 7, 8 and 9 hereof are reasonable and necessary to protect
the legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Shuler also acknowledges that the nature of both his services to the Company and
the obligations undertaken by Shuler 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 Company for which monetary damages would not be
adequate remedy. In the event of such breach by Shuler, the Company 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 Company. In the event that the provisions of Sections 7, 8 and 9 hereof
should ever be
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<PAGE> 13
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 Jacksonville, Florida.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to become effective as of the date first above written.
EMPLOYEE:
/s/ JAMES E. SHULER
--------------------------------
James E. Shuler
COMPANY:
NATIONAL AUTO FINANCE COMPANY, INC.
By: William G. Magro
-----------------------------
William G. Magro
Executive Vice President
and Chief Operating Officer
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<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated
and effective as of the 1st day of August, 1998, by and between National Auto
Finance Company, Inc., a Delaware corporation (the "Company"), and Brent E.
Wombolt ("Wombolt"), residing at 243 Edgewater Branch Drive, Jacksonville,
Florida.
WITNESSETH
WHEREAS, the Company is engaged in the business of non-prime specialty
consumer finance, including, without limitation, the purchasing, originating,
financing, securitizing, collecting and servicing of motor vehicle retail
installment sales contracts, and intends to develop service bureau and service
center businesses (collectively, the "Business"); and
WHEREAS, the Company and Wombolt entered into an employment agreement
dated and effective as of March 1, 1998 (the "Original Agreement"); and
WHEREAS, the Company and Wombolt desire to amend and restate that
Original Agreement as set forth herein and to have this Agreement supersede the
Original Agreement in its entirety; and
WHEREAS, the Company desires to retain the services of Wombolt in the
capacity of Vice President, Operations and Servicing, and Wombolt desires to
provide such services in such capacity to the Company, on the terms and subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, agreements and obligations set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs Wombolt, and Wombolt
hereby accepts employment by the Company, in the capacity and on the terms and
subject to the conditions set forth in this Agreement, for the period of time
commencing on August 1, 1998, and ending on February 28, 2001, unless this
Agreement is sooner terminated as provided herein (the "Term").
<PAGE> 2
2. Duties. During the Term, Wombolt shall, in his capacity as the
Company's Vice President, Operations and Servicing, serve the Company faithfully
and to the best of his ability and devote his full business time to the Business
of the Company, subject to the provisions of Section 3 herein, as (i) is
necessary to carry out the duties and responsibilities customarily incident to
such a position, including, without limitation, the management of operations of
the Company, the customer service department and the servicing of portfolios of
other automobile finance companies or financial institutions and the supervision
of employees of the Company who are subordinate to Wombolt, and (ii) may be
reasonably assigned to him from time to time by the Board of Directors or the
Chairman, Chief Executive Officer, President and/or Chief Operating Officer of
the Company, or by anyone else designated by those officers or directors.
Wombolt shall report to the Board of Directors and to the Chairman, Chief
Executive Officer, President and/or Chief Operating Officer, if any, of the
Company, or to anyone else designated by those directors or officers.
3. Other Business Activities. During the Term, Wombolt shall not,
without the prior written consent of the Company, 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 position with the Company and do not
interfere with the performance of Wombolt's duties, responsibilities and
obligations pursuant to this Agreement.
4. Compensation.
(a) Salary. During the Term, the Company shall pay Wombolt, and Wombolt
hereby agrees to accept, as compensation for all services rendered and for
Wombolt'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) $112,350 for the period August 1, 1998 through February 28, 1999;
(ii) no less than $120,215 for the period March 1, 1999 through
February 29, 2000; and
(iii) no less than $128,630 for the period March
1, 2000 through February 29, 2001.
The sole and final determination of whether Wombolt will receive an increase of
his Base Salary for the periods March 1, 1999 through February 28, 2000 and
March 1, 2000 through February 28, 2001 in excess of the minimum seven (7)
percent annual increase will be made by the Compensation Committee of the
Company's Board of Directors or equivalent committee of any successor entity or
parent organization, pursuant to senior executive compensation plans adopted
-2-
<PAGE> 3
by such committee. Payment of the Base Salary shall be made in the same manner
as the Company 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 Company or which are requested to be withheld by Wombolt,
shall be deducted from the Base Salary in accordance with the Company's normal
payroll practice for its salaried executives from time to time in effect.
(b) Incentive Bonus. Wombolt shall be eligible for an incentive bonus
("Incentive Bonus") for each of calendar years 1998, 1999 and 2000. For calendar
year 1998, Wombolt shall be entitled to an Incentive Bonus of $33,705, which is
equal to 30% of Wombolt's 1998 Base Salary. Such Incentive Bonus earned for
calendar year 1998 shall be paid on or before March 31, 1999. For calendar years
1999 and 2000, the Compensation Committee of the Company's Board of Directors or
equivalent committee of any successor entity or parent organization will adopt a
bonus program designed to allow Wombolt the opportunity to earn an Incentive
Bonus equal to at least 30% of Wombolt's annual Base Salary. There is, however,
no guaranteed Incentive Bonus for 1999 or 2000. Any Incentive Bonus earned for
calendar years 1999 or 2000 shall be paid on or before March 31 of the next
succeeding year.
5. Stock Option Plan. Wombolt shall be entitled to participate in the
Company's 1996 Share Incentive Plan (as the same may be amended or modified from
time to time), and any other plans implemented by the Company or any successor
entity or parent organization (within the meaning of Rule 12 b-2 under the
Securities Exchange Act of 1934) granting shares of capital stock, options or
warrants to purchase shares of capital stock or other forms of equity or equity
derivative securities, of the Company or any successor entity or parent
organization, as such grants may be made from time to time by the Board of
Directors or Compensation Committee governing such plan. While Wombolt shall be
eligible to participate in such stock option plan(s), the sole and final
determination of whether any grants will be made or the amount of any such grant
will be made by the Compensation Committee of the Company's Board of Directors
or equivalent committee of any successor entity or parent organization.
Notwithstanding anything set forth to the contrary herein, the Compensation
Committee of the Board of Directors of the Company did approve on June 29, 1998
granting Wombolt an option to purchase shares of the common stock of the Company
equal to 0.5% of the outstanding common stock of the Company on a fully-diluted
basis, subject to the conditions and on the terms set forth in the grant letter
to be sent by the Company to Wombolt.
-3-
<PAGE> 4
6. Benefits and Expenses.
(a) Benefits. Wombolt shall be entitled to participate in such benefit
plans and programs, including pension, hospitalization, medical and dental
insurance, life and disability insurance, and vacation (collectively,
"Benefits"), as are made available to the executive employees of the Company
from time to time during the Term.
(b) Expenses. Wombolt shall be reimbursed by the Company for all
reasonable out-of-pocket business-related expenses, including travel and
entertainment expenses, incurred by him in furtherance of the performance of his
duties and responsibilities hereunder upon submission to the Company of receipts
supporting such expenses.
(c) Automobile. The Company will provide Wombolt with a car allowance
of Six Hundred Dollars ($600.00) gross per month ("Auto Allowance") and
reimburse Wombolt for gasoline and normal maintenance expenses for his
automobile upon submission to the Company of receipts supporting such expenses.
7. Confidentiality.
(a) Non-Disclosure. Wombolt recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) of the Company is a valuable,
special and unique asset of the Company. As a result, both during the Term and
thereafter, Wombolt shall not, without the prior written consent of the Company,
for any reason, either directly or indirectly, divulge to any third party or use
for Wombolt's own benefit, or for any purpose other than the exclusive benefit
of the Company, any and all confidential, proprietary, business or technical
information, or trade secrets of the Company which are revealed, obtained or
developed in the course of Wombolt's employment with the Company (the
"Proprietary Information"). Such Proprietary Information shall include, but
shall not be limited to, business, financial, marketing and development plans,
models and efforts, cost information, pricing information, marketing methods,
collection and servicing methods, procedures and policies, identities of the
Company's dealers or obligors, the Company's relationships with or potential
relationships with its dealers, and any other confidential, proprietary,
business or technical information relating to the Business of the Company or
trade secrets of the Company; provided, however, that nothing herein contained
shall restrict Wombolt'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 Wombolt 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 Wombolt's breach of this Section 7.
-4-
<PAGE> 5
(b) Inventions, Designs and Product Developments. All inventions,
discoveries, concepts, improvements, formulas, procedures, policies, processes,
devices, methods, innovations, designs, ideas and product developments
(collectively, "Developments"), developed or conceived by Wombolt, 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization, and
all of Wombolt's right, title and interest therein, shall be the exclusive
property of the Company. Wombolt hereby assigns, transfers and conveys to the
Company all of his right, title and interest in and to any and all such
Developments. Wombolt shall disclose fully, as soon as practicable and in
writing, all Developments to the Chairman, Chief Executive Officer, President
and/or Chief Operating Officer of the Company or to anyone else designated by
those officers. At any time and from time to time, upon the request of the
Company, Wombolt shall execute and deliver to the Company any and all
instruments, documents and papers, give evidence and do any and all other acts
which, in the opinion of counsel for the Company, are or may be necessary or
desirable to document such transfer or to enable the Company 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 Company 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 Wombolt for all reasonable expenses Wombolt
incurs in connection therewith upon submission to the Company of invoices with
respect thereto.
8. Property of Company. All Proprietary Information and Developments
shall be and remain the sole property of the Company. During the Term of this
Agreement, Wombolt shall not remove from the Company'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. Wombolt 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
-5-
<PAGE> 6
may become familiar, except as disclosure shall be necessary in the performance
of his duties; and upon the termination of his employment with the Company, he
shall leave with or return to the Company, all originals and copies of the
foregoing then in his possession, whether prepared by Wombolt or by others.
9. Covenant Not to Compete.
(a) Wombolt shall not, during the Term, anywhere within the
United States of America or in any other location where the activities of
Wombolt would, in the judgment of the Board of Directors of the Company or any
successor entity or parent organization, be competitive with the Business of the
Company, its divisions, subsidiaries, sister organizations, or parent
organization, do any of the following, directly or indirectly, without the prior
written consent of the Company:
(1) solicit, either directly or indirectly, business
from any dealer, customer, obligor, financial institution or company with whom
the Company shall have dealt at any time;
(2) influence or attempt to influence any dealer,
customer, obligor, financial institution or company with whom the Company shall
have dealt at any time or potential dealer, financial partner, company, customer
or obligor of the Company to terminate or modify any written or oral agreement,
arrangement or course of dealing with the Company; 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 Company, its divisions,
subsidiaries, sister organizations, or parent organization, 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 Company, its divisions,
subsidiaries, sister organizations, or parent as an employee, salesman,
consultant or agent of the Company at any time during the one (1) year period
immediately preceding the effective date of Wombolt's termination if the actions
enumerated in clauses (i) and (ii) would negatively affect the Business and/or
operations of the Company, its divisions, subsidiaries, sister organizations, or
parent organization for a period of two (2) years following the effective date
of Wombolt's termination.
(b) The Company shall have the right, but not the obligation,
to require Wombolt, for a six month period of time following the termination of
Wombolt's employment (for whatever reason), anywhere within the United States of
America or in any other location where the activities of Wombolt would, in the
judgment of the Board of Directors of the Company or any successor entity or
parent organization, be competitive with the Business of the Company, its
divisions, subsidiaries, sister organizations, or parent organization, not to
engage in the conduct proscribed by Section 9(a)(1), (2) and (3) by payment to
Wombolt, over the extended covenant
-6-
<PAGE> 7
period, of fifty percent (50%) of the amount paid to Wombolt (as reflected in
the Company's payroll records) by the Company in the full calendar year
immediately preceding Wombolt's termination. Any payments required by this
Section 9(b) shall be paid by check in the same time intervals as the Company
routinely pays its executive employees. Any exercise of the option shall be
irrevocable.
(c) If the employment of Wombolt shall either expire pursuant
to Section 1 hereof, or shall be terminated pursuant to Section 10 of this
Agreement, Wombolt shall not, for a two (2) 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 Company,
its divisions, subsidiaries, sister organizations, or parent organization any
time during the one (1) year period immediately preceding the effective date of
Wombolt'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,
Wombolt 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 Wombolt such that
Wombolt 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"), Wombolt's employment under this
Agreement may be terminated by the Company.
(b) In the event of a termination of Wombolt's employment
pursuant to Section 10.1(a), the Company shall be obligated to pay Wombolt (i)
all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Auto Allowance, and to reimburse Wombolt for all unreimbursed
out-of-pocket business-related expenses and (ii) an amount equal to Wombolt'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 Company shall have no liability or obligation to Wombolt 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 Wombolt is Disabled shall be made by a
licensed physician selected by Wombolt 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 Company (or any successor entity or parent
organization) disagrees with such physician's conclusion, the Board of Directors
may
-7-
<PAGE> 8
require that Wombolt submit to a full physical examination by another licensed
physician selected by Wombolt and approved by the Board of Directors. If the two
opinions shall be inconsistent, a third opinion shall be obtained after full
physical examination by a third licensed physician selected by Wombolt and
approved by the Board of Directors. The majority of the three opinions shall be
conclusive.
10.2 Termination by Death. In the event that Wombolt dies
during the Term, Wombolt's employment shall be terminated thereby and the
Company shall pay to Wombolt'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 Auto Allowance and shall reimburse
Wombolt for all unreimbursed out-of-pocket business-related expenses, all of
which payments shall be paid within thirty (30) days of the date of such death.
Except as specifically set forth in this Section 10.2, the Company shall have no
liability or obligation hereunder to Wombolt's executors, legal representatives,
administrators, heirs or assigns or to any other person claiming under or
through him by reason of Wombolt's death.
10.3 Termination for Cause.
(a) The Company may terminate Wombolt's employment under this
Agreement at any time for "Cause" upon written notice to Wombolt, which
termination shall become effective on the date specified in such notice. For
purposes of this Agreement, "Cause" (as hereinafter defined) shall mean: (i) any
material breach by Wombolt of any of his obligations under Sections 7, 8 or 9 of
this Agreement; (ii) failure or refusal by Wombolt to perform satisfactorily the
duties assigned to him pursuant to this Agreement; (iii) other conduct of
Wombolt involving gross disloyalty or willful misconduct with respect to the
Company, including, without limitation, fraud, embezzlement, theft or proven
dishonesty in the course of his employment, or conviction of a felony; (iv)
Wombolt's willful engagement in conduct materially injurious to the economic
interests or reputation of the Company; or (v) Wombolt's insubordination, acts
of moral turpitude or other gross misconduct.
(b) In the event of a termination of Wombolt's employment
pursuant to Section 10.3(a), the Company shall be obligated to pay to Wombolt
all accrued but unpaid (as of the date of such termination) Base Salary,
Benefits and Auto Allowance, and all Base Salary, Benefits and Auto Allowance
shall then cease at the time of such termination. Except as specifically set
forth in this Section 10.3(b), the Company shall have no liability or obligation
to Wombolt for compensation or benefits hereunder by reason of such termination.
10.4 Termination without Cause.
-8-
<PAGE> 9
(a) The Company may terminate Wombolt's employment under this
Agreement without Cause upon at least sixty (60) days prior written notice
thereof to Wombolt, in which case this Agreement shall terminate on the date
specified in such notice.
(b) In the event of a termination of Wombolt's employment
pursuant to 10.4(a), the Company shall be obligated to pay to Wombolt all
accrued but unpaid (as of the date of such termination) Base Salary, Benefits
and Auto Allowance and to reimburse Wombolt for all unreimbursed out-of-pocket
business-related expenses. Wombolt 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 six (6) month period, such amount to be paid over the
applicable period at times corresponding to the Company'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), the Company shall have no
liability or obligation to Wombolt for compensation or benefits hereunder by
reason of such termination.
10.5 Termination by Wombolt for Good Reason.
(a) Wombolt may terminate his employment under this Agreement
at any time for Good Reason (as hereinafter defined) effective upon the date
designated by Wombolt in his written notice of termination of employment
pursuant to this Section 10.5(a); provided, that the effective date of such
termination shall not be less than thirty (30) days after such notice is given,
unless the Board of Directors of the Company (or any successor entity or parent
organization) declares such effective date to be earlier than that designated by
Wombolt, 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 Company of its obligations under this Agreement,
including, but not limited to, the following: (i) the failure by the Company to
pay Base Salary or any other material form of compensation or material benefit
to be paid or provided to Wombolt hereunder, which failure is not cured by the
Company within ten (10) days after the Company's receipt of written notification
from Wombolt of such failure; and (ii) any material breach, not encompassed
within clause (i) of this Section 10.5(a), of the obligations of the Company
under this Agreement which breach is not cured within thirty (30) days after the
Company's receipt of written notification from Wombolt of such material breach.
(b) In the event of a termination of Wombolt's employment for
Good Reason pursuant to Section 10.5(a), the Company shall be obligated to pay
to Wombolt all accrued but unpaid (as of the date of such termination) Base
Salary, Benefits and Auto Allowance and to reimburse Wombolt for all
unreimbursed out-of-pocket business-related expenses. Wombolt 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 six (6) month period, such amount
to be paid over the
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<PAGE> 10
applicable period at times corresponding to the Company's normal payroll periods
for executive officers as if no such termination had occurred. Except as
specifically set forth in this Section 10.5(b), the Company shall have no
liability or obligation to Wombolt for compensation or benefits hereunder by
reason of such termination.
(c) Wombolt may also terminate his employment under this
Agreement if William G. Magro, the Company's Executive Vice President and Chief
Operating Officer, ceases to be employed by the Company, its divisions,
subsidiaries, sister organizations, or parent organization. In the event of such
a termination, the Company shall be obligated to pay all accrued but unpaid (as
of the date of such termination) Base Salary, Benefits and Auto Allowance and to
reimburse Wombolt for all unreimbursed out-of-pocket business-related expenses.
Except as specifically set forth in this Section 10.4(c), the Company shall have
no liability or obligation to Wombolt for compensation or benefits hereunder by
reason of such termination.
10.6 Successor Party
The Company 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 Company (a "Successor")
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company 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 Wombolt, such failure shall constitute a
material breach of this Agreement. Wombolt agrees that the assumption by any
successor party of the duties and responsibilities of the Company under this
Agreement shall relieve the Company of any and all duties or responsibilities
under this Agreement. Moreover, such a successor party to this Agreement shall
have all rights currently afforded the Company or its Board of Directors under
this Agreement.
11. Survival of Provisions. The rights and obligations of Wombolt
pursuant to Sections 7, 8, 9, 10 and 14 of this Agreement shall survive the
termination of Wombolt's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and Wombolt and their respective successors,
executors, administrators, heirs and/or permitted assigns; provided, however,
that neither Wombolt nor the Company 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 Company may assign this Agreement to any Successor to all or
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<PAGE> 11
substantially all of the Company's assets and Business or the assets and
business of any of the Company's divisions, subsidiaries, sister organizations
or parent organization 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 Company under this Agreement.
13. No Conflicting Agreements. Wombolt represents to the Company that
(i) Wombolt is not currently under contract to provide services to any other
party or entity; (ii) the execution, delivery and performance of this Agreement
by Wombolt will not conflict with any other agreement, except the Original
Agreement, to which Wombolt is bound or to which Wombolt is a party; and (iii)
Wombolt is not currently bound by any form of restrictive covenant which would
restrict or limit the performance of his duties pursuant to this Agreement.
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 Wombolt may be entitled as an employee of the Company under any
retirement, pension, profit-sharing, share incentive, insurance, hospitalization
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 Wombolt:
Brent E. Wombolt
243 Edgewater Branch Drive
Jacksonville, Florida 32259.
If to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
Attention: Joel B. Ronkin
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, offer letters,
agreements, the Original Agreement and
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<PAGE> 12
understandings of every nature between the parties hereto relating to the
employment of Wombolt with the Company. 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 governed, construed and
enforced in accordance with the laws of the State of Florida, without regard to
conflict of law principles.
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. Wombolt acknowledges that the restrictions
contained in Sections 7, 8 and 9 hereof are reasonable and necessary to protect
the legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Wombolt also acknowledges that the nature of both his services to the Company
and the obligations undertaken by Wombolt 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 Company for which monetary damages
would not be adequate remedy. In the event of such breach by Wombolt, the
Company 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
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<PAGE> 13
otherwise available to the Company. 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 Jacksonville, Florida.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to become effective as of the date first above written.
EMPLOYEE:
/s/ BRENT E. WOMBOLT
----------------------------------
Brent E. Wombolt
COMPANY:
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ WILLIAM G. MAGRO
-------------------------------
William G. Magro
Executive Vice President
and Chief Operating Officer
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<PAGE> 1
EXHIBIT 11
NATIONAL AUTO FINANCE COMPANY, INC.
Computation of Earnings per Common Share
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Average number of common shares outstanding ............. 9,031 7,026
Common equivalent shares outstanding:
Stock options (1) ....................................... -- --
------- -------
Total common and common equivalent shares outstanding ... 9,031 7,026
======= =======
Net income (loss) attributed to common shareholders ..... $(4,330) $ 159
======= =======
Loss per common share (basic and diluted) ............... $ (0.48) $ 0.02
======= =======
</TABLE>
- ------------
(1) Stock options are excluded from the computation of diluted loss per common
share as the effect of such options would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,167
<SECURITIES> 0
<RECEIVABLES> 51,427
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,594
<PP&E> 4,388
<DEPRECIATION> (721)
<TOTAL-ASSETS> 74,227
<CURRENT-LIABILITIES> 2,197
<BONDS> 56,234
2,336
0
<COMMON> 90
<OTHER-SE> 13,370
<TOTAL-LIABILITY-AND-EQUITY> 74,227
<SALES> 0
<TOTAL-REVENUES> 3,700
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,112
<INCOME-PRETAX> (4,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,290)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
