<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
/X/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14-a6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
National Auto Finance Company, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined.):
4) Proposed maximum aggregate value of transaction: $
5) Total fee paid: $
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
================================================================================
<PAGE>
PRELIMINARY COPY
NATIONAL AUTO FINANCE COMPANY, INC.
10302 Deerwood Park Boulevard, Suite 100
Jacksonville, Florida 32256
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of National Auto Finance Company,
Inc., a Delaware corporation (the "Company"), will be held at the offices of
Weil, Gotshal & Manges, LLP, 767 Fifth Avenue, New York, New York 10153,
Conference Room 25-K, on Tuesday, September 14, 1999, at 10:00 a.m, Eastern
Daylight Time, for the following purposes:
(1) Election of Directors. To elect two directors in Class II
for terms expiring at the 2001 Annual Meeting of
Stockholders, and two directors in Class III for terms
expiring at the 2002 Annual Meeting of Stockholders.
(2) Amendment to Certificate of Incorporation. To increase the
number of authorized shares of the Company's Common Stock
from twenty million (20,000,000) to forty-four million
(44,000,000).
(3) Amendment to the 1996 Share Incentive Plan. To increase the
number of shares of Common Stock available for the grant of
options, stock appreciation rights, stock awards,
performance awards and stock units (collectively, the
"Benefits") from five hundred thousand (500,000) to four
million (4,000,000) and to increase the maximum number of
shares of Common Stock which may be granted to any
individual participant under the 1996 Share Incentive Plan
(the "1996 Plan") to two million (2,000,000).
(4) Appointment of Independent Auditors. To ratify the selection
of BDO Seidman, LLP as independent auditors to audit the
Company's financial statements for the year ending December
31, 1999.
(5) Other Matters. To transact such other business as may
properly come before the meeting or any adjournment or
adjournments thereof.
Information regarding the matters to be acted upon at the meeting is
contained in the Proxy Statement accompanying this Notice. Only stockholders
of record at the close of business on August 2, 1999 will be entitled to
notice of and to vote at the Annual Meeting.
Please complete, date and sign the enclosed proxy and return it
promptly in the enclosed postage paid envelope. If you are able to attend the
meeting and wish to vote your shares personally, you may do so by revoking the
proxy at any time before it is exercised.
Jacksonville, Florida By Order of the Board of Directors
August 11, 1999 Stephen R. Veth
Vice President, Secretary
and General Counsel
<PAGE>
PRELIMINARY COPY
NATIONAL AUTO FINANCE COMPANY, INC.
10302 Deerwood Park Boulevard, Suite 100
Jacksonville, Florida 32256
(800) 448-1032
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
September 14, 1999
This Proxy Statement is being furnished to holders of common stock, par
value $.01 per share ("Common Stock"), of National Auto Finance Company, Inc.,
a Delaware corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board of Directors")
for use at the Annual Meeting of Stockholders of the Company (the "Annual
Meeting") to be held at the offices of Weil, Gotshal & Manges, LLP, 767 Fifth
Avenue, New York, New York 10153, Conference Room 25-K, on Tuesday, September
14, 1999, beginning at 10:00 a.m., Eastern Daylight Time, and at any
adjournment or adjournments thereof.
This Proxy Statement and the accompanying form of proxy are first being
mailed to stockholders on August 11, 1999.
The Proxy
Keith B. Stein, Chairman of the Board of Directors and Chief Executive
Officer of the Company, and Stephen R. Veth, Vice President, Secretary and
General Counsel of the Company have been selected as proxies by the Board of
Directors with respect to the matters to be voted upon at the Annual Meeting.
All shares of Common Stock that are represented by properly executed
proxies received prior to or at the Annual Meeting, and not revoked prior to
the use of such proxies in accordance with the procedures therefor, will be
voted as specified in the instructions indicated in such proxies. If no
instructions are indicated, such proxies will be voted in accordance with the
recommendations of the Board of Directors contained in this Proxy Statement,
and in the discretion of the persons named in the proxies on such other
matters as may properly come before the Annual Meeting.
A stockholder may revoke his, her or its proxy at any time prior to the
use of such proxy by delivering to the Secretary of the Company a signed
notice of revocation or a later dated and signed proxy, or by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not
in itself constitute the revocation of a proxy.
2
<PAGE>
Record Date: Shares Entitled to Vote
The Board of Directors has fixed the close of business on August 2, 1999
as the date (the "Record Date") for determining those stockholders entitled to
notice of, and to vote at, the Annual Meeting. On the Record Date, there were
17,280,762 shares of Common Stock issued and outstanding, with each share
entitled to one vote on each matter submitted to stockholders for
consideration at the Annual Meeting.
Quorum: Required Vote
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting. With respect to
abstentions and broker non-votes (as described below), the shares covered
thereby are deemed to be present at the Annual Meeting for purposes of
determining a quorum.
The affirmative vote of a plurality of the shares of Common Stock present
in person or by proxy, and entitled to vote on the election of directors is
required to elect those persons nominated for director. Stockholders will
neither be allowed to cumulate their votes, nor may proxies be voted for a
greater number of persons than the number of nominees named in this Proxy
Statement.
The affirmative vote of a majority of the shares of Common Stock present
in person or by proxy, and entitled to vote on the approval of the amendment
to the Company's Certificate of Incorporation to increase the number of
authorized shares of the Company's Common Stock from twenty million
(20,000,000) to forty-four million (44,000,000) is required to so amend the
Certificate of Incorporation.
The affirmative vote of a majority of the shares of Common Stock present
in person or by proxy and entitled to vote on the approval of amendments to
the 1996 Share Incentive Plan (the "1996 Plan") is required to increase the
number of shares of Common Stock available for the grant of options, stock
appreciation rights, stock awards, performance awards and stock units
(collectively, the "Benefits") from five hundred thousand (500,000) to four
million (4,000,000) and to increase the maximum number of shares of Common
Stock which may be granted to any individual participant under the 1996 Plan
to two million (2,000,000).
The affirmative vote of a majority of the shares of Common Stock present
in person or by proxy, and entitled to vote on the ratification of auditors is
required to ratify the appointment of BDO Seidman, LLP as the Company's
independent auditors to audit the Company's financial statements for the year
ending December 31, 1999.
On each matter submitted to stockholders for consideration at the Annual
Meeting, only shares of Common Stock that are voted in favor of such matter
(including proxies for which no direction is provided) will be counted toward
approval of such matter. Abstentions (i.e., shares of Common Stock present at
the Annual Meeting that are not voted on a particular matter) are counted for
purposes of determining the number of shares entitled to vote with respect to
that matter and, therefore, have the same effect as a vote against such
matter.
A broker non-vote occurs when an agent holding shares for a beneficial
owner does not vote on a particular proposal because the agent does not have
discretionary voting power with respect to that proposal and has not received
instructions from the beneficial owner. The Delaware Supreme Court has held
that, while broker non-votes may be counted as present for purposes of
determining the presence or absence of a quorum for the transaction of
business, broker non-votes may not be counted for purposes of determining the
number of shares entitled to vote with respect to a particular matter for
which authorization to vote was withheld. Consequently, broker non-votes have
the practical effect of reducing the number of affirmative votes required to
achieve the requisite vote for such proposal by reducing the total number of
shares of Common Stock from which the requisite vote is calculated.
Accordingly, broker non-votes with respect to a matter will not be considered
shares entitled to vote and, therefore, will not be counted as votes for or
against such matter in determining whether such matter is approved.
Stockholders are not entitled to appraisal rights or similar rights of
dissenters under the Delaware General Corporation Law (the "DGCL") in
connection with any of the matters to be acted upon at the Annual Meeting.
3
<PAGE>
Change of Control
A change of control of the Company occurred on April 7, 1999 as a result
of the Company's comprehensive financial restructuring, including the
resolution of certain issues (the "Restructuring"), of its Senior Subordinated
Notes and Junior Subordinated Notes with its Senior Subordinated Noteholders
and Junior Subordinated Noteholders (each as defined below).
The Progressive Investment Company, Inc. ("Progressive"), PC Investment
Company ("PCI"), an affiliate of Progressive, The 1818 Mezzanine Fund, L.P.
(the "1818 Fund"), The Structured Finance High Yield Fund, LLC ("SFHY"), and
Manufacturers Life Insurance Company (U.S.A.) ("ManuLife") (collectively, the
"Senior Subordinated Noteholders"), acquired control of the Company as a
result of the issuance to them of additional shares of Common Stock in the
Restructuring, as more particularly described below. Following the
Restructuring, the Senior Subordinated Noteholders held of record an aggregate
of 10,174,762 shares of the Company's outstanding Common Stock and
beneficially owned an aggregate of 17,155,689 shares of the Company's Common
Stock, in the respective amounts set forth under "Principal Stockholders"
below, representing approximately 85.7% of the Company's issued and
outstanding Common Stock (assuming the issuance of stock in respect of certain
warrants, options and Convertible Senior Subordinated Promissory Notes, as
defined below, held by such Senior Subordinated Noteholders). National Auto
Finance Company, L.P., a Delaware limited partnership (the "Partnership"), by
and through National Auto Finance Corporation, the general partner of the
Partnership (the "General Partner") and certain of the Partnership's limited
partners, Nova Financial Corporation, Nova Corporation, Stephen L. Gurba,
Edgar A. Otto and Gary L. Shapiro (collectively, the "Partners" or the "Junior
Subordinated Noteholders"), as part of the Restructuring, granted to the Board
designees of the Senior Subordinated Noteholders an irrevocable proxy to vote
the 4,230,000 shares of Common Stock held by the Partnership in all matters as
to which such shares are entitled to vote. Representatives of the Senior
Subordinated Noteholders currently constitute four members of the Company's
seven-member Board of Directors.
The agreements and transactions consummated in the Restructuring with the
Senior Subordinated Noteholders provide for and include, among other things:
(1) the waiver of past defaults and breaches of covenants, representations and
warranties, if any, made in connection with the Senior Subordinated Notes; (2)
the waiver of the existing adjusted interest expense and net worth covenants
until March 31, 2001; (3) the establishment of a new covenant requiring that,
on a quarterly basis, the Company's net return on assets invested in loan
receivables, expressed as a percentage, exceed pre-established quarterly goals
(the first quarterly measurement period for this covenant begins as of the
quarter ending September 30, 1999); (4) the granting to the Company of the
option to pay during the two-year period ending April 7, 2001 fifty percent
(50%) of the interest owed on the Senior Subordinated Notes (and the interest
on such interest) through the issuance of additional Senior Subordinated Notes
that areconvertible into Common Stock at the conversion price of $.75 per
share (the "Convertible Senior Subordinated Promissory Notes"); (5) the
issuance to the Senior Subordinated Noteholders of 7,071,429 shares of Common
Stock as consideration for the waivers and amendments granted to the Company;
(6) the issuance to those Noteholders that also purchased Common Stock of the
Company at the time of their debt investment of 1,178,571 additional shares of
Common Stock in exchange for the execution and delivery of full and complete
releases of any claims arising by virtue of those Noteholders' equity
investment; and (7) the execution and delivery of full and complete releases
by and among the Company, the Noteholders and affiliates of, and other parties
related to, each of such parties. In addition, the Senior Subordinated
Noteholders were granted the right to name three additional persons to the
Board of Directors of the Company, increasing to six seats their total number
of potential Board representatives. SFHY has not, to date, identified its two
representatives to the Board.
The agreements and transactions consummated in the Restructuring with
the Junior Subordinated Noteholders provide for and include, among other
things: (1) the waiver of past defaults and breaches under the Junior
Subordinated Notes; (2) the granting to the Company of the option to pay
during the period ending January 31, 2002 up to one hundred percent (100%) of
the interest owed on the Junior Subordinated Notes (and the interest on such
interest) through the issuance of additional Junior Subordinated Notes that
are convertible into Common Stock at the conversion price of $.75 per share;
(3) the granting to the designees of the Senior Subordinated Noteholders to
the Company's Board of Directors of the irrevocable proxy described above; (4)
the execution and delivery of full and complete releases by and among the
Company, the Senior Subordinated Noteholders, the Junior Subordinated
Noteholders, the Partnership, their respective officers, directors,
affiliates, and other parties related to each of such parties; and (5) the
granting of a covenant not to sue in the future by the Junior Subordinated
4
<PAGE>
Noteholders, the Partnership, and affiliates of, and other parties related to,
each of such parties in favor of the Company, the Senior Subordinated
Noteholders, their respective officers, directors, affiliates, and other
parties related to both such parties.
Principal Stockholders
Except as set forth below, the Company knows of no stockholder who
beneficially owned more than 5% of the Company's outstanding Common Stock on
the Record Date, August 2, 1999.
<TABLE>
<CAPTION>
Number of
Name and Address of Beneficial Owner Shares (1) Percent (1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
National Auto Finance Company, L.P. (2)......................... 4,230,000 24.48%
Via Mizner Financial Plaza, Suite 200
700 South Federal Highway
Boca Raton, Florida 33432
The Progressive Entities(3)..................................... 8,372,235 46.76%
3 Parklands Drive
Darien, Connecticut 06820
The 1818 Mezzanine Fund, L.P. (4)............................... 8,070,172 44.83%
59 Wall Street
New York, New York 10005
The Structured Finance High Yield Fund, LLC (5)................. 7,550,259 41.39%
One Gateway Center
Newark, New Jersey 07102
Manufacturers Life Insurance Company (USA) (6)................. 5,853,023 33.02%
45 Milk Street, Suite 600
Boston, Massachusetts 02109
- -------------------
</TABLE>
(1) Unless otherwise indicated, the named entities either have sole or shared
voting and investment power with respect to the shares shown for them.
Percentage ownership is based on 17,280,762 shares outstanding as of
August 2, 1999, the Record Date for the Annual Meeting. Shares of Common
Stock subject to options granted under the Company's 1996 Plan, warrants
issued to the Senior Subordinated Noteholders and stock issuable upon the
conversion of Convertible Senior Subordinated Promissory Notes, in each
case exercisable within 60 days of the Record Date, are deemed
outstanding for computing the beneficial ownership percentage of the
person, group of persons or entities holding such options, warrants or
Convertible Senior Subordinated Promissory Notes, but are not deemed
outstanding for computing the beneficial ownership percentage of any
other person. Furthermore, such options and warrants are exercisable
within such period only to the extent the company has available for
issuance upon such exercise authorized shares of its Common Stock. See
"Proposal Two" - To Amend the Certificate of Incorporation to Increase
the Number of Authorized Shares of Common Stock," and specifically with
respect to stock options, see "Proposal Three - Approval of Amendments to
the 1996 Share Incentive Plan" below. On August 2, 1999, 2,719,238 shares
of the Company's Common Stock were available for such issuance, and
237,500 of such shares were available for issuance under the 1996 Plan.
With respect to shares of the Company's Common Stock beneficially owned
by all Directors and Executive officers as a group, see the table under
Proposal One - Election of Directors.
(2) The General Partner holds a 1% general partner interest in the
Partnership. The Partners of the Partnership include, among others,
Ironbrand Capital, LLC, a wholly-owned subsidiary of First Union National
Bank (the "First Union Partner"), Keith B. Stein, the Chairman and Chief
Executive Officer of the Company, and William G. Magro, the President and
Chief Operating Officer of the Company. The remaining Partners of the
Partnership hold the balance of the limited partner economic interests,
including certain of the Junior Subordinated Noteholders; one of the
largest such holders is Gary Shapiro, the former Chairman and Chief
Executive Officer of the Company. Except for the First Union Partner,
each Partner of the Partnership has the right to vote on certain matters
specified in the partnership agreement commensurate with each such
Partner's respective economic limited partner interest. In accordance
with the partnership agreement, the consent of the
5
<PAGE>
First Union Partner is generally required before the Partnership may take
certain fundamental actions. Pursuant to the Restructuring, the
Partnership has granted an irrevocable proxy to the Board designees of
the Senior Subordinated Noteholders to vote the 4,230,000 shares of
Common Stock held by the Partnership in all matters as to which such
shares are entitled to vote. Each of Messrs. Stein and Magro disclaims
beneficial ownership of the shares owned by the Partnership.
(3) Includes 3,520,000 shares of the Company's Common Stock over which
Progressive shares voting and dispositive power with the Progressive
Corporation, Progressive Casualty Insurance Company, and PCI, its
affiliates (collectively, the "Progressive Entities"). Also includes
$193,959 principal amount of Convertible Senior Subordinated Promissory
Notes (which are convertible, at the rate of $.75 per share, into 258,612
shares of the Company's Common Stock), and warrants to purchase 363,623
shares of the Company's Common Stock at $0.01 per share. Also includes
4,230,000 shares of Common Stock held by the Partnership over which the
Progressive Entities share voting power with the other Senior
Subordinated Noteholders.
(4) Includes 3,119,047 shares of the Company's Common Stock held by the 1818
Fund. Also includes $221,666 principal amount of Convertible Senior
Subordinated Promissory Notes (which are convertible, at the rate of $.75
per share, into 295,555 shares of the Company's Common Stock), and
warrants to purchase 415,570 shares of the Company's Common Stock at
$0.01 per share. Also includes 4,230,000 shares of Common Stock held by
the Partnership over which the 1818 Fund shares voting power with the
other Senior Subordinated Noteholders. Also includes, in the case of
Joseph Donlan, an affiliate of the 1818 Fund, 10,000 shares of the
Company's Common Stock that he may purchase pursuant to stock options
granted him under the 1996 Plan.
(5) Includes 2,357,143 shares of the Company's Common Stock held by SFHY.
Also includes $277,084 principal amount of Convertible Senior
Subordinated Promissory Notes (which are convertible, at the rate of $.75
per share, into 369,445 shares of the Company's Common Stock), and
warrants to purchase 593,761 shares of the Company's Common Stock at
$0.01 per share. Also includes 4,230,000 shares of the Company's Common
Stock held by the Partnership, over which SFHY shares voting power with
the other Senior Subordinated Noteholders.
(6) Includes 1,178,572 shares over which ManuLife holds voting and
dispositive power. Also includes $138,541 principal amount of Convertible
Senior Subordinated Promissory Notes held by Gerlach & Co., as Nominee
for ManuLife (which are convertible, at the rate of $.75 per share, into
184,721 shares of the Company's Common Stock), and warrants to purchase
259,730 shares of the Company's Common Stock at $0.01 per share. Also
includes 4,230,000 shares of the Company's Common Stock held by the
Partnership over which ManuLife shares voting power with the other Senior
Subordinated Noteholders.
PROPOSAL ONE - ELECTION OF DIRECTORS
Pursuant to the Certificate of Incorporation and By-laws of the Company,
the Board of Directors consists of such number of directors as the Board of
Directors determines from time to time. The number of directors of the Board
of Directors is currently set at not less than four directors. The directors
are divided into three classes. The initial term of office of the Class I
Directors expires at the Annual Meeting of the Company's stockholders in 2000.
The initial term of office of the Class II directors was to expire at the
Annual Meeting of the Company's stockholders in 1998. Roy Tipton, former
President of the Company, and Stephen Gurba, who comprised all the Class II
Directors, both resigned from the Board of Directors during calendar year 1998
and the Company did not have an Annual Meeting in 1998. The Board did not fill
the vacancies created by their resignations until the election by the Board of
David Benson, of Progressive, and Robert Gould, of the 1818 Fund, in
connection with completion of the Restructuring. The initial term of office of
the Class III Directors will expire at the Annual Meeting of the Company's
stockholders scheduled on September 14, 1999.
The number of Class I Directors currently is set at three; the Class I
Directors are Keith Stein, Chairman of the Board of Directors and Chief
Executive Officer of the Company, Peter Offermann, and Evelyn Erb of
Progressive. Ms. Erb was elected by the Board of Directors on May 12, 1999, to
fill the vacancy created by the resignation of Mr. Shapiro as a Class I
Director during the calendar year 1998. The number of Class II Directors
currently is set at three, one seat of which is vacant; the Class II Directors
are David Benson and Robert Gould. The number of
6
<PAGE>
Class III Directors currently is set at three; the Class III Directors are
Joseph Donlan of the 1818 Fund, and David Young. Mr. Donlan and Mr. Young were
named to the Company's Board of Directors in December 1997 in connection with
the completion of the Company's $50,000,000 private placement of Senior
Subordinated Notes and equity in December 1997.
The terms of office of each class of directors are staggered so that the
terms of no more than one class of directors will expire in any one year. At
each annual meeting of stockholders, the directors elected to succeed those
whose terms then expire are elected for a term of office to expire at the
third succeeding annual meeting of stockholders, with each director holding
office until his or her successor is duly elected and qualified, or until his
or her earlier resignation or removal.
The Board of Directors has nominated for election Mr. Gould and Mr.
Benson to serve for two (rather than three) year terms as Class II Directors
until the 2001 Annual Meeting of Stockholders in order to establish a
consistent three year term for each respective class of directors on a
rotating basis at succeeding annual stockholder meetings of the Company in
compliance with the Company's Certificate of Incorporation and By-laws.
Messrs. Young and Donlan have been nominated for election as Class III
Directors until the 2002 Annual Meeting of Stockholders. The other three
directors (Messrs. Stein and Offermann and Ms. Erb) will continue in office as
Class I Directors. With respect to the election of directors, proxies may not
be voted at the Annual Meeting for a greater number of persons than the number
of nominees named in this Proxy Statement.
The following table lists the name, age and positions with the Company of
each of the four nominees and each of the three continuing directors, the
month and year in which each director was first elected as a director of the
Company, the year in which each such person's term of office will expire
(assuming re-election at the Annual Meeting) and the number and percentage of
shares of the Company's Common Stock beneficially held by each of them. Also
listed are the Non-Director Officers of the Company named in the Executive
Compensation Table employed by the Company at August 2, 1999.
<TABLE>
<CAPTION>
Position with Served as Term Total
Name Age the Company Director Since Expires Shares (%) (1)
<S> <C> <C> <C> <C> <C>
Nominees
Class II
Robert R. Gould 40 Director May 1999 2001 8,060,172 (44.80%) (2)
David Benson 41 Director May 1999 2001 8,372,235 (46.76%) (3)
Class III
Joseph P. Donlan 52 Director December 1997 2002 8,070,172 (44.83%) (2)
David W. Young 56 Director December 1997 2002 10,000 (4)
Continuing Directors
Class I
Keith B. Stein 41 Chairman &CEO October 1996 2000 1,029,661 (5.62%) (5)
Evelyn Erb 40 Director May 1999 2000 8,372,235 (46.76%) (3)
Peter Offermann 54 Director October 1996 2000 10,000 (6)
Non-Director Named Officers
William G. Magro 197,143 (7)
Brent E. Wombolt 55,535 (8)
All Directors and Executive Officers
as a group (14 in number) 13,722,390 (68.18%) (9)
- ---------------------------------
</TABLE>
7
<PAGE>
(1) Total Shares are based on the beneficial ownership rules of the
Securities and Exchange Commission as described in footnote 1 under the
caption "Principal Stockholders." Unless otherwise indicated, the named
persons either have sole or shared voting and investment power with
respect to the shares shown for them. Percentage ownership is based on
17,280,762 shares outstanding as of August 2, 1999, the Record Date for
the Annual Meeting. Shares of Common Stock subject to options granted
under the Company's 1996 Plan, warrants issued to the Senior Subordinated
Noteholders and stock issuable upon the conversion of Convertible Senior
Subordinated Promissory Notes, in each case exercisable within 60 days of
the Record Date, are deemed outstanding for computing the beneficial
ownership percentage of the person or group of persons holding such
options, warrants or Convertible Senior Subordinated Promissory Notes,
but are not deemed outstanding for computing the beneficial ownership
percentage of any other person. Unless otherwise indicated, ownership is
less than one percent. Furthermore, such options and warrants are
exercisable within such period only to the extent the Company has
available for issuance upon such exercise authorized shares of its Common
Stock. See "Proposal Two - To Amend the Certificate of Incorporation to
Increase the Number of Authorized Shares of Common Stock," and
specifically with respect to stock options, see "Proposal Three -
Approval of Amendments to the 1996 Share Incentive Plan" below. On August
2, 1999, 2,719,238 shares of the Company's Common Stock were available
for such issuance, and 237,500 of such shares were available for issuance
under the 1996 Plan.
(2) Includes 3,119,047 shares held by the 1818 Fund, as to which Mr. Gould
and Mr. Donlan share voting and investment power in their respective
capacities as a partner and senior executive officer of Brown Brothers
Harriman & Co., which manages and controls the 1818 Fund and as
co-managers of the 1818 Fund. Also includes $221,666 principal amount of
Convertible Senior Subordinated Promissory Notes (which are convertible,
at the rate of $.75 per share, into 295,555 shares of the Company's
Common Stock) and warrants held by the 1818 Fund to purchase 415,570
shares of the Company's Common Stock at $0.01 per share. Also includes
4,230,000 shares of Common Stock held by the Partnership as to which
Messrs. Gould and Donlan have been granted an irrevocable proxy as Board
designees of the 1818 Fund. Also includes, in the case of Mr. Donlan,
10,000 shares that he may purchase pursuant to options granted to him
under the 1996 Plan.
(3) Includes 3,520,000 shares held by the Progressive Entities over which Mr.
Benson and Ms. Erb share voting and investment power in their respective
capacities as Portfolio Managers of Progressive Capital Management Corp.,
an affiliate of the Progressive Entities. Also includes $193,959
principal amount of Convertible Senior Subordinated Promissory Notes
(which are convertible at the rate of $.75 per share, or into 258,612
shares of the Company's Common Stock) and warrants held by PCI to
purchase 363,623 shares of the Company's Common Stock at $.01 per share.
Also includes 4,230,000 shares of Common Stock held by the Partnership as
to which Mr. Benson and Ms. Erb have been granted an irrevocable proxy as
Board designees of the Progressive Entities.
(4) Includes 10,000 shares that Mr. Young may purchase pursuant to options
granted him under the 1996 Plan.
(5) Includes 1,000 shares held directly by Mr. Stein and 1,028,661 shares Mr.
Stein may purchase pursuant to options granted him under the 1996 Plan.
(6) Includes 10,000 shares that Mr. Offermann may purchase pursuant to
options granted him under the 1996 Plan.
(7) Includes 197,143 shares that Mr. Magro may purchase pursuant to options
granted him under the 1996 Plan.
(8) Includes 55,535 shares that Mr. Wombolt may purchase pursuant to options
granted him under the 1996 Plan.
(9) Includes 1,509,983 shares which may be purchased by all executive
officers and directors as a group under options promised pursuant to
employment agreements and granted under the Company's 1996 Plan which are
exercisable currently or within 60 days after the Record Date.
Nominees
Robert R. Gould is a partner of Brown Brothers Harriman & Co.
("BBH&Co."), where he began his career in 1981 as a commercial banker
providing lending and advisory services to small to medium sized companies.
Beginning in 1988, Mr. Gould became engaged exclusively in the firm's
selection and monitoring of equity
8
<PAGE>
investments on behalf of the 1818 Equity Funds and in providing merger and
acquisition advisory services to domestic and foreign companies. In 1996, he
co-founded the 1818 Fund, a $250 million private equity fund. Mr. Gould became
a General Partner of BBH&Co. in 1996. Mr. Gould is a director of Irving
Tanning Company, DB Companies, Inc., Robert F. Driver Company, Flents Products
Company, Inc. and Magnetic Analysis Corporation.
David Benson has served since 1997 as a Portfolio Manager of Progressive
Capital Management Corp., a wholly-owned subsidiary of the Progressive
Corporation. Prior to that time, Mr. Benson served as Managing Director of
Tokai Securities from 1996 to 1997, where he engaged in proprietary trading in
global credit and currency markets. From 1985 to 1996, Mr. Benson served as
Senior Vice President and Head Trader for Aubrey G.
Lanston and Co., primarily dealing in U.S. Treasury Bonds.
Joseph P. Donlan has held a number of positions with BBH&Co. since 1970,
and is currently co-manager of the 1818 Fund, which he co-founded in 1996.
Prior to his current position, Mr. Donlan was the Manager of BBH&Co.'s US
Banking Department, with responsibility for managing five banking groups
engaged in international trade finance, domestic commercial finance, financial
advisory service and private placement activities.
David W. Young was the Chief Investment Officer of The Progressive
Corporation, a $6.5 billion property and casualty company from June 1995 until
January 1999 when he resigned to pursue other interests. Prior to that time,
Mr. Young served as Senior Managing Director of Progressive Partners, an
affiliate of The Progressive Corporation, from July 1988 to June 1995. Prior
to joining Progressive Partners in 1988, Mr. Young was a Vice President with
Salomon Brothers, Inc. from November 1983 to July 1988.
Each of the above-named nominees has consented to being named in this
Proxy Statement and will serve as a director if elected. If at the time of the
Annual Meeting, however, any of the above-named nominees should be unable or
decline to serve, the persons named as proxies will vote for such substitute
nominee or nominees as the Board of Directors recommends, or vote to allow the
vacancy created thereby to remain open until filled by the Board of Directors,
as the Board of Directors recommends.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF ALL OF THE NOMINEES
FOR ELECTION AS DIRECTORS.
Continuing Directors
Keith B. Stein has been the Chairman of the Board of the Company since
June 1999 and the Chief Executive Officer of the Company since May 1998; was
Vice Chairman, Treasurer and a Director of the Company since January 1997; and
held other positions with the Company since 1994. Mr. Stein served from March
1993 to September 1994 as Senior Vice President, Secretary and General Counsel
of WestPoint Stevens Inc., a textile company, after having served the same
company from October 1992 to February 1993 in the capacity of Acting General
Counsel and Secretary. From May 1989 to February 1993, Mr. Stein was
associated with the law firm of Weil, Gotshal & Manges, LLP. Mr. Stein has
served as a director of DVL, Inc., a public company engaged in the real estate
finance and management business, since September 1996. Mr. Stein is a
defendant in litigation related to the Company more particularly described
under the caption "Legal Proceedings."
Peter Offermann has served as Executive Vice President and Chief
Financial Officer of TLC Beatrice International Holdings, Inc., a food
manufacturing and distribution business since January 1995. Since May 1994,
Mr. Offermann has been President of Offermann Financial Inc., a provider of
strategic financial advice. From 1968 to April 1994, Mr. Offermann held a
number of positions with Bankers Trust Company and its affiliates, including
Manager Director of BT Investment Partners, Inc. from October 1992 to May
1994, Managing Director of BT Securities Corporation from October 1991 to
October 1992 and Managing Director of Bankers Trust Company from 1986 to
October 1991. Since April 1996, Mr. Offermann has served as a Director of Jan
Bell Marketing, Inc., a jewelry distribution company. Mr. Offermann is a
defendant in litigation related to the Company more particularly described
under the caption "Legal Proceedings."
Evelyn Erb has served since 1989 as a Portfolio Manager for Progressive
Capital Management Corp., a wholly-owned subsidiary of the Progressive
Insurance Co. Prior to such position, she held various other positions with
Progressive Capital Management Corp. for 10 years, and spent 4 years with
Goldman Sachs.
9
<PAGE>
Committees of the Board of Directors
The Board of Directors currently has an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee").
Audit Committee
The Audit Committee was formed in April 1997 and met two times during the
last fiscal year ("Fiscal 1998"). The members of the Audit Committee are Mr.
Offermann, as Chairman, and Messrs. Donlan, Young and Benson. Messrs.
Offermann and Young are independent non-employee directors.
Among other things, the Audit Committee (i) reviews the internal auditing
program and internal control and accounting procedures of the Company, (ii)
consults with and reviews the reports submitted by the Company's independent
auditors, (iii) reviews, with the Company's management, compliance reporting
and accounting, and (iv) makes such reports and recommendations to the Board
of Directors as it deems appropriate.
Compensation Committee
The Compensation Committee was formed in June 1997 and met one time
during Fiscal 1998. The members of the Compensation Committee are Mr. Young,
as Chairman, Messrs. Donlan and Offermann and Ms. Erb.
The function of the Compensation Committee is to establish salaries,
bonuses and other incentive plans in order to attract persons to serve as, and
to retain, motivate and reward qualified persons serving as directors,
executive officers and key employees of the Company. In addition, the
Compensation Committee is the administrator for the 1996 Plan. See also
"Executive Compensation."
Nominating Committee
The Board of Directors has not formed a Nominating Committee.
Director Attendance
The Board of Directors held eleven (11) meetings during Fiscal 1998. All
directors attended at least 75% of the aggregate of (1) the total number of
meetings of the Board of Directors held during the period for which such
persons served as a director; and (2) the total number of meetings held by all
committees of the Board of Directors on which the directors served in Fiscal
1998.
Director Compensation
Keith B. Stein, the sole director who is also an employee of the Company,
receives no extra compensation or retainer fees for his service as a member of
the Board of Directors or any committee thereof. Independent non-employee
directors of the Company receive an annual retainer of $10,000. In addition,
each independent non-employee director receives $1,000 for each meeting of the
Board of Directors attended in person and $500 for each meeting of the Board
of Directors attended telephonically, plus, in each case, expenses incident to
attendance at such meetings. Stock options exercisable for shares of Common
Stock are granted to independent non-employee directors of the Company
pursuant to the 1996 Plan in order to provide such directors an opportunity to
acquire a proprietary interest in the Company through awards of Common Stock,
and thus to create in such directors an increased interest in and a greater
concern for the welfare of the Company. The purchase price of the Common Stock
covered by such stock options is equal to or greater than the fair market
value of such Common Stock on the date of grant. These stock options are fully
exercisable on the first anniversary of the date of grant.
Compensation Committee Interlocks and Insider Participation
The Board of Directors formed the Compensation Committee in June 1997.
Peter Offermann has served as a member of the Compensation Committee since
June 1997, Mr. Donlan since December 1997, and Ms. Erb since June 1999. Mr.
Young was appointed Chairman in June 1999.
10
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and any persons who own more than ten
percent of the Company's Common Stock to file reports of initial ownership of
the Company's Common Stock and subsequent changes in that ownership with the
Securities and Exchange Commission. Officers, directors and greater than
ten-percent beneficial owners are also required to furnish the Company with
copies of all Section 16(a) forms they file. Based solely upon a review of the
copies of the forms furnished to the Company, or written representations from
certain reporting persons that no Forms 5 were required, the Company believes
that during Fiscal 1998, all Section 16(a) filing requirements were compiled
with.
Limitation of Liability and Indemnification
The Company's Certificate of Incorporation authorizes the Company to
indemnify its officers, directors and other agents, by means of by-laws,
agreements, or otherwise, to the fullest extent permitted under the DGCL. The
Company has entered, or intends to enter into separate indemnification
agreements with certain of its directors and officers, which are, in some
cases, broader than the specific indemnification provisions contained in the
DGCL. The indemnification agreements require the Company, among other things,
to indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature), to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance, if available on reasonable terms.
Legal Proceedings
On October 22, 1998, Pearl Peckerman, I.R.A., on behalf of herself and
all others similarly situated, filed a putative class action complaint in the
United States District Court for the Southern District of Florida against the
Company and certain current and former officers and directors of the Company.
Platintiffs' allegations of liability are based on various theories of
recovery, including alleged violations of Sections 11, 12(2), 15 and 20(a) of
the Securities Act of 1933, as amended, and Section 10(b) and Rule 10b-5 of
the Securities Exchange Act of 1934, as amended. Plaintiffs are seeking
compensatory damages, as the court deems appropriate.
On December 4, 1998, Harvey Rooks, Rachel Rooks and Joyce Bornstein, on
behalf of themselves and all others similarly situated, filed a putative class
action complaint in the United States District Court for the Southern District
of Florida against the Company and certain current and former officers and
directors of the Company. Plaintiffs' allegations of liability are based on
various theories of recovery, including alleged violations of Sections 11,
12(2), 15 and 20(a) of the Securities Act of 1933, as amended, and Section
10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, as amended.
Plaintiffs are seeking compensatory damages, as the court deems appropriate.
Both the Peckerman and Rooks complaints focus on allegations surrounding
the Company's 1997 restated financial statements, the interpretation of FASB
No. 125, and the relationship between the Company and its prior outside
service provider, Omni Financial Services of America, Inc.
On February 5, 1999, the United States District Court for the Southern
District of Florida ordered that these actions be consolidated. It is
anticipated that the plaintiffs will file a consolidated class action
complaint styled "In re National Auto Finance Company, Inc. Securities
Litigation." Since the consolidated class action complaint has not yet been
filed, the Company is presently unable to assess the merits of the claims or
determine whether the Company or plaintiffs will attempt to add additional
parties or claims. Litigation is subject to many uncertainties, and it is
possible that the above action could be decided unfavorably. In addition, the
Company may enter into discussions in an attempt to settle the pending
litigation if it is in the best interests of the Company's stockholders to do
so. Management is unable to make a meaningful estimate of the amount or range
of loss that could result from an unfavorable outcome or settlement of the
pending litigation.
The Company has directors' and officers' liability insurance policies that
apply to this litigation with a liability limit of $5 million, as well as two
excess policies with liability limits of $2 million and $3 million,
respectively.
11
<PAGE>
Each insurer has raised certain coverage defenses or denied coverage. The
Company has engaged in, and will continue to pursue, appropriate strategies to
protect and preserve its claims of full coverage under all such policies
MANAGEMENT
Executive Officers
The following individuals are the executive officers of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Keith B. Stein........................... 41 Chairman of the Board and Chief Executive Officer
William G. Magro......................... 50 President and Chief Operating Officer
Brent E. Wombolt......................... 41 Senior Vice President, Operations and Loan Originations
Thomas Costanza.......................... 33 Vice President and Chief Financial Officer
Stephen R. Veth.......................... 51 Vice President, Secretary and General Counsel
James E. Shuler.......................... 38 Vice President, Sales and Marketing
Joseph P. Glick.......................... 37 Vice President, Collections and Customer Service
Frank A. Florio.......................... 48 Vice President, Information Systems
</TABLE>
For a discussion of the business experience of Mr. Stein see
"Proposal One - Election of Directors."
William G. Magro was promoted to President in May 1999 and has been
the Chief Operating Officer of the Company since January 1998, Executive Vice
President of the Company from October 1994 to May 1999, and was President of
the financial services division of the Company from September 1997 to June
1998. Mr. Magro served from January 1985 to August 1994 as Director of
Collection and Client Services for Omni Financial Services of America
("OFSA"). Mr. Magro served from January 1972 to December 1984 as a Collection
Supervisor and a Dealer Relations Supervisor at General Motors.
Brent E. Wombolt was promoted to Senior Vice President in May 1999
and was a Vice President of the Company from February 1998 to May 1999, and an
Assistant Vice President of the Company from May 1997 to January 1998. Mr.
Wombolt held various positions with First Merchants Acceptance Corporation
from March 1995 through July 1996. Mr.
Wombolt held various positions with OFSA from December 1984 through February
1995.
Thomas Costanza has been the Vice President and Chief Financial
Officer of the Company since August 1998. Mr. Costanza served as Corporate
Controller and acting Chief Financial Officer with Golf Technology Holding
Corporation from October 1996 to July 1998. Mr. Costanza held a management
position with Barnett Bank, Inc.'s corporate audit group from July 1994 to
October 1996.
Stephen R. Veth has been the Vice President, Secretary and General
Counsel for the Company since March 1999. Mr. Veth served as Vice President
and Legal Counsel of First Street Mortgage Corporation from September 1997 to
December 1998. Mr. Veth was General Counsel of EquiCredit Corporation from
July 1990 to August 1997.
James E. Shuler has been Vice President of the Company since February
1998 and from May 1996 to February 1998 held various positions with the
Company. Mr. Shuler was employed by Greentree Financial Corporation, a
consumer finance company, as a Collection Manager from March 1995 to May 1996.
Prior to that time, Mr. Shuler was employed by TransSouth Financial Services,
also a consumer finance company, as a Branch Manager from September 1994 to
March 1995. Mr. Shuler held various positions with OFSA from August 1988 to
September 1994.
Joesph P. Glick has been Vice President of the Company since March
1999, Assistant Vice President from August 1998 to March 1999, and from
January 1997 to August 1998 held various positions with the Company. From
12
<PAGE>
October 1995 to January 1997, Mr. Glick was involved in residential
construction, and held several positions with OFSA from September 1988 to
October 1995.
Frank A. Florio was promoted to Vice President in May 1999, and was
an Assistant Vice President of the Company from February 1999 to May 1999.
Prior to that time, Mr. Florio held the senior-most position in the Company's
information systems department since his employment with the Company in April
1997. Mr. Florio held several positions with Queue Systems from June 1992
through March 1997.
EXECUTIVE COMPENSATION
The following table sets forth information concerning total compensation
earned by or paid to the Company's Chief Executive Officer, the four other
most highly compensated executive officers of the Company employed as of
December 31, 1998, and Messrs. Tipton and Adams, who served as executive
officers during 1998, but were not serving in such capacity as of December 31,
1998 (the "named Executive Officers"), during Fiscal 1998, 1997 and 1996 for
services rendered to the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Securities
Underlying All Other
Name and Principal Position Year(1) Salary Bonus(1) Options/SARs Compensation($)
<S> <C> <C> <C> <C> <C>
Keith B. Stein (2) 1998 $ 257,808 $ 150,000 85,000 --
Chairman & Chief Executive Officer 1997 -- 75,000 37,500 --
1996 -- -- -- --
William G. Magro 1998 173,748 90,000 30,000 121,749 (4)
President & 1997 130,000 55,000 35,000 31,290 (4)
Chief Operating Officer 1996 110,571 40,839 -- 11,129 (4)
Roy E. Tipton 1998 107,660 -- -- 127,596 (5)
Former President 1997 155,000 68,750 65,000 29,350 (6)
1996 130,000 59,131 -- 700 (3)
Joel B. Ronkin (7) 1998 135,683 42,000 10,000 4,507 (3)
Former Vice President, Secretary 1997 53,680 20,000 5,000 --
and General Counsel 1996 -- -- --
Martin E. Mattone (7) 1998 129,472 33,000 15,000 --
Former Vice President 1997 83,740 -- -- 188 (3)
Loan Originations/Asset 1996 -- -- -- --
Remarketing
Kevin G. Adams (8) 1998 110,982 -- -- 34,892 (8)
Former Senior Vice President 1997 115,000 75,000 27,000 3,357 (3)
Finance 1996 105,000 35,630 -- 810 (3)
Brent E. Wombolt (9) 1998 121,288 20,000 7,500 4,186 (3)
Senior Vice President, Operations 1997 78,751 40,000 15,000 481 (3)
and Loan Originations 1996 -- -- -- --
- -----------------
</TABLE>
(1) Bonuses for senior management for services rendered in a given year were
finally determined by the Compensation Committee of the Board pursuant
to guidelines established in such executives' employment agreements.
These bonuses were paid by the end of March of the year following the
year to which such bonuses relate. See "--Employment Agreements."
13
<PAGE>
(2) Mr. Stein was Vice Chairman, Chief Executive Officer, Treasurer and
Director in 1998. No compensation was received directly from the Company
in 1997 and 1996. The Company, however, paid fees and costs to National
Financial Companies, LLC ("NFC"), pursuant to management and service
agreements, for the rendering of various services in support of the
Company's operations. Mr. Stein was formerly a Managing Director of NFC.
(3) Includes contributions made by the Company in accordance with the
Company's 401(k) Plan.
(4) Mr. Magro was Executive Vice President and Chief Operating Officer in
1998. Includes (i) contributions made by the Company in accordance with
the Company's 401(k) Plan of $4,057, $1,213, and $87.50 in 1998, 1997
and 1996 respectively, (ii) forgiveness of indebtedness of $40,854 in
1998, and (iii) $76,838, $30,077 and $11,041 for relocation expenses
paid in 1998, 1997 and 1996, respectively.
(5) Includes contributions made by the Company pursuant to the 401(k) Plan
of $2,596 and payment of $125,000 for the severance by Mr. Tipton of his
employment agreement with the Company. Mr. Tipton resigned his position
with the Company effective June 1998.
(6) Includes contributions made by the Company pursuant to the 401(k) Plan
of $4,350 and a bonus of $25,000 for the execution by Mr. Tipton of an
extension of his employment contract with the Company.
(7) Mr. Ronkin and Mr. Mattone resigned their positions effective March 1999.
(8) Includes contributions made by the Company pursuant to the 401(k) Plan
of $4,829 and a payment to Mr. Adams for severance of his employment
with the Company in the amount of $30,063. Mr. Adams' position with the
Company terminated effective October 1998 in conjunction with the
Company's move from Boca Raton, Florida to Jacksonville, Florida.
(9) Mr. Wombolt was Vice President in 1998.
No stock appreciation rights were awarded to, earned by or paid to the named
Executive Officers during the fiscal year ended December 31, 1998.
Employment Agreements
The Company employs each of Keith B. Stein, Chairman and Chief Executive
Officer, William G. Magro, President and Chief Operating Officer, and Brent E.
Wombolt, Senior Vice President-Operations and Loan Originations (individually
an "Executive" and collectively, the "Executives"), pursuant to employment
agreements effective as of June 1, 1998, June 1, 1998 (as amended and
restated) and August 1, 1998 (as amended and restated), respectively. The term
of Mr. Stein's agreement will end on June 1, 2001, the term of Mr. Magro's
agreement will end on May 31, 2001 and the term of Mr. Wombolt's agreement
will end on February 28, 2001, unless sooner terminated pursuant to the terms
of the respective agreement. The Company formerly employed Roy E. Tipton as
President, Joel B. Ronkin as Vice President, Secretary and General Counsel,
and Martin E. Mattone, as Vice President-Loan Originations/Asset Remarketing.
Messrs. Tipton, Ronkin, and Mattone each resigned from such offices of the
Company in June 1998, March 1999, and March 1999, respectively.
Mr. Stein's annual base salary was $200,000 from January 1, 1998 to June
1, 1998, at which time he entered into an employment agreement with the
Company increasing his base salary to $300,000 effective on June 1, 1998, with
such amount to be reviewed annually by the Compensation Committee. Mr. Stein
was paid an incentive bonus in January 1999 with respect to Fiscal 1998 of
$150,000, pursuant to the terms of his employment agreement. Mr. Stein may
receive from the Company an incentive bonus in each year of his employment
under such agreement, the amount of which is payable on or before March 31 of
the year following the year to which such bonus relates. Pursuant to an
Executive Incentive Bonus Program adopted by the Board of Directors for Fiscal
1999 (the "1999 Bonus Program"), Mr. Stein's incentive bonus for Fiscal 1999
is based upon the Company achieving certain pre-established performance goals,
which if all attained, could result in Mr. Stein receiving a bonus of $225,000
or 75% of his base salary for 1999.
14
<PAGE>
Mr. Magro's annual base salary was $140,000 from January 1, 1998 through
May 31, 1998, and from the effective date of his agreement to May 31, 1999 was
$180,000 and will be (i) no less than $192,600 from June 1, 1999 through May
31, 2000, and (ii) no less than $206,082 from June 1, 2000 through May 31,
2001. Any increase in Mr. Magro's annual base salary in excess of seven
percent (7%) for such periods will be determined by the Compensation
Committee. Mr. Magro was paid in January 1999 an incentive bonus with respect
to Fiscal 1998 of $90,000, equal to 50% of his 1998 annual base salary, and
will receive from the Company an incentive bonus in each year of his
employment agreement of not less than fifty percent (50%) and up to 75% of his
annual base salary. The incentive bonus for Fiscal 1999 is based upon the 1999
Bonus Program and could result in Mr. Magro receiving a bonus of $160,000 or
75% of his base salary in 1999.
Prior to his resignation in June 1998, Mr. Tipton was being paid at an
annual base salary rate of $180,000, commencing on January 1, 1998. Mr. Tipton
did not earn an incentive bonus in 1998 and was paid severance of $125,000
pursuant to his employment agreement with the Company.
Mr. Ronkin's annual base salary was $131,366 from January 1, 1998 through
May 31, 1998, and from the effective date of his agreement through his
resignation in March 1999, Mr. Ronkin was paid at an annual base salary rate
of $140,000 commencing June 1, 1998. Pursuant to his employment agreement, Mr.
Ronkin was paid in January 1999 an incentive bonus with respect to Fiscal 1998
of $42,000.
Mr. Mattone's annual base salary was $90,000 from January 1, 1998 through
July 31, 1998, and from the effective date of his agreement through his
resignation in March 1999, Mr. Mattone was paid at an annual base salary rate
of $110,000. Pursuant to his employment agreement, Mr. Mattone was paid an
incentive bonus in January 1999 with respect to Fiscal 1998 of $33,000.
Pursuant to their employment agreements, each of the Executives may
participate in any stock option and benefit plans adopted by the Company or
its successors more particularly described under the caption, "Proposal
Three-Approval of Amendments to the 1996 Share Incentive Plan." Prior to their
resignations, such participation was also available to Messrs. Tipton, Ronkin,
Mattone and Adams. In addition, each of the Executives and Messrs. Tipton,
Ronkin, Mattone and Adams have agreed to maintain the confidentiality of the
Company's proprietary information and agreed, during the term of each of their
respective agreements, not to compete directly or indirectly with the business
of the Company.
The employment agreement of each of the Executives may be terminated by
the Company due to such Executive's disability or death, and either without
"Cause" or for "Cause" (as defined in the employment agreement). In the event
that an Executive is terminated without "Cause," he will be entitled to
receive all accrued but unpaid base salary, benefits and other compensation
and, under certain circumstances, an additional payment or payments equal to
his base salary for a twelve-month period. Each of the Executives may also
terminate his employment for Good Reason (as defined in the employment
agreements). In such event, the Executive will be entitled to receive all
accrued but unpaid base salary, benefits and other compensation.
In the event Mr. Stein terminates his employment with the Company for
"Good Reason" or is terminated by the Company without "Cause" (as such terms
are defined in his employment agreement), he will be entitled to receive a
severance payment equal to (i) $680,000 plus (ii) his target incentive bonus
for the year of such termination pro-rated for the number of days during such
year in which he was employed up to the date of termination. If Mr. Stein is
terminated for any reason within 120 days following a "Change in Control" (as
such term is defined in his employment agreement), he will be entitled to
receive a severance payment equal to the amount described in clauses (i) and
(ii) above plus $980,000.
Option Grants
The following table sets forth stock options granted in Fiscal 1998 to
each of the Company's Executives named in the Summary Compensation Table who
held office as of December 31, 1998. The Company did not issue any stock
appreciation rights. The table also sets forth the hypothetical gains that
would exist for the options at the end of their ten-year terms for the
Executives named in the Summary Compensation Table at assumed compound rates
of stock appreciation of 5% and 10%. The actual future value of the options
will depend on the market value of the Company's Common Stock.
15
<PAGE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Percent
of Total
Number of Options/
Securities SARs Potential Realizable Value
Underlying Granted to Exercise at Assumed Annual Rates
Options/ Employees or Base of Stock Price Appreciation
SARs in Fiscal Price Expiration For Option Term(a)
Name Granted(#) Year ($/Sh) Date 5% ($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Keith B. Stein 85,000 36% $ 2.25(b) 2009 $ 120,276 $ 304,803
William G. Magro 30,000 12% 2.25 2009 $ 42,450 $ 107,578
Martin Mattone 15,000 6% 2.25(b) 2009 $ 21,225 $ 53,789
Joel Ronkin 10,000 4% 2.25(b) 2009 $ 14,150 $ 35,859
Brent Wombolt 7,500 3% 2.25 2009 $ 10,613 $ 26,894
</TABLE>
(a) These amounts, based on assumed appreciation rates of 5% and 10%, the
rates prescribed by the Securities and Exchange Commission rules, are
not intended to forecast possible future appreciation, if any, of the
Company's stock price.
(b) Mr. Stein's stock options became fully vested in June 1999 pursuant
to applicable provisions of his employment agreement contingent upon
the successful consummation of the Restructuring. Mr. Mattone's and
Mr. Ronkin's stock options expired three months after the date of
their respective resignations as officers of the Company.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
There were no shares acquired on exercise of stock options and no
aggregate gains realized upon exercise in 1998 by the Company's named
executive officers. The following table sets forth the number of shares
covered by exercisable and unexercisable options held by such executives on
December 31, 1998 and the aggregate gains that would have been realized had
these options been exercised on December 31, 1998, even though these stock
options were not exercised on December 31, 1998. The Company did not issue
stock appreciation rights.
<TABLE>
<CAPTION>
FY-End Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options/SARs at FY- Money Options/SAR at Fiscal
End (#) Year End (a) ($)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Keith B. Stein 122,500 -- $ -- $ --
William G. Magro 33,334 31,666 -- --
Brent Wombolt 12,500 10,000 -- --
Joel Ronkin 6,666 8,334 -- --
Martin Mattone 5,000 10,000 -- --
James Shuler 12,500 10,000 -- --
</TABLE>
(a) As of December 31, 1998, the market stock price of the Company's Common
Stock was less than the exercise price of all such options.
16
<PAGE>
Report on Repricing of Stock Options
On December 12, 1997 (the "Repricing Date"), in light of the significant
challenges facing the Company and the need to retain key executives and
directors, and to strengthen the mutuality of interests between such persons
and the Company's stockholders, the Board of Directors approved the
Compensation Committee's repricing of options then outstanding granted to
executive officers and certain directors under the 1996 Plan, to an exercise
price of $2.25 per share, which was the market price on the Repricing Date. In
the Compensation Committee's view, the repricing was in the best interest of
the Company and its stockholders and provided performance and retention
incentives to key executives, whose efforts are essential for the Company's
continual progress to achieve profitability. No other material terms of the
options were revised. Options held by Mr. Offermann and Mr. Schuessler,
non-employee directors, were also repriced in the same manner as the stock
options of the Company's executive officers.
The following table contains information concerning the repricing with
respect to the named executive officers and directors:
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Length Of
Market Exercise Original
Number of Price Of Price At Option Term
Securities Stock At Time Of Remaining At
Underlying Time Of Repricing Date Of
Options/SARs Repricing Or Or New Repricing Or
Repriced Or Amendment Amendment Exercise Amendment
Name Date Amended ($) ($) Price ($) (Years)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Keith Stein December 12, 1997 22,500 $5.25 $8.50 $5.25 9.08
December 12, 1997 15,000 $5.25 $6.63 $5.25 9.75
William Magro December 12, 1997 35,000 $5.25 $8.50 $5.25 9.08
James Shuler December 12, 1997 15,000 $5.25 $7.25 $5.25 9.47
Brent Wombolt December 12, 1997 15,000 $5.25 $7.25 $5.25 9.47
Peter Offermann December 12, 1997 5,000 $5.25 $8.50 $5.25 9.08
December 12, 1997 5,000 $5.25 $6.63 $5.25 9.75
Joel Ronkin(1) December 12, 1997 5,000 $5.25 $6.75 $5.25 9.58
Morgan Schuessler(1) December 12, 1997 5,000 $5.25 $7.25 $5.25 9.47
</TABLE>
(1) Mr. Ronkin resigned from his position with the Company in March 1999. Mr.
Schuessler resigned as a director of the Company in April 1999.
Compensation Committee: Board of Directors:
David W. Young Keith B. Stein David Benson
Peter Offermann Peter Offermann Robert Gould
Joseph Donlan Joseph P. Donlan Evelyn Erb
Evelyn Erb David W. Young
17
<PAGE>
Stock Options Granted in 1999
In conjunction with employment agreements that the Company's executive
officers executed during 1998, the Company agreed to grant such executive
officers as a group an aggregate of 1,812,323 stock options of the Company's
Common Stock, 1,546,366 of which the Company believes qualify as incentive
stock options as defined in Proposal Three of this Proxy Statement. These
grants were contingent upon the completion of the Restructuring, and subject
to ratification by the Company's Board of Directors and stockholder approval
to amend the 1996 Plan to increase the number of authorized shares of stock
reserved for future issuance of such shares, and the filing with the
Securities and Exchange Commission of appropriate amendments to the existing
Registration Statement on Form S-8, or in the alternative adoption of a new
incentive stock option plan and the filing with the Securities and Exchange
Commission of an additional Registration Statement on Form S-8. See "Proposal
Three - Approval of Amendments to the 1996 Share Incentive Plan" below. An
additional 293,169 of incentive stock options were granted to certain
executive officers in 1999 as a result of their employment and/or promotion
and subject to the same conditions as the above described grant of stock
options. Such options are not included in the table above.
Compensation Committee Report on Executive Compensation*
Pursuant to the rules of the Securities and Exchange Commission, set
forth below is the report of the Compensation Committee and the Board of
Directors regarding their compensation policies for the fiscal year ended
December 31, 1998 for the Company's executive officers, including the Chief
Executive Officer.
General Policies.
The goals of the Company's executive compensation program for 1998 were
to attract, retain, motivate and reward qualified persons serving as executive
officers. To achieve the goals of the program, the Company relied primarily on
(1) base salary, (2) annual bonus compensation and (3) long-term incentives in
the form of Benefits granted pursuant to the 1996 Plan. Other elements of
compensation included the Company's 401(k) Plan and medical and life insurance
benefits available to employees generally.
Each element of compensation has a different purpose. Salary and bonus
payments are mainly designed to reward current and past performance. Stock
options are primarily designed to provide incentive for superior long-term
performance and are directly linked to stockholders' interest because the
value of the awards will increase or decrease based upon the future price of
the Common Stock.
The salary levels for existing executive officers depend primarily on
individual levels of responsibility within the Company. The level of salary
for newly hired executive officers, while similarly dependent on individual
levels of responsibility within the Company, also is affected by the market
for executive talent. Additional consideration in setting salary levels is
given to the Company's competitive position in its industry and the need to
establish compensation and terms of employment that will attract and retain
the leadership the Company believes necessary to maintain and improve its
position.
Bonus levels for executive officers and other key employees of the
Company depend upon personal and corporate performance and are designed to
encourage the achievement of certain annual operating performance goals.
Annual bonuses for 1998 for executive officers and certain other key employees
were determined pursuant to the terms of the respective individual's
employment agreement or by the Compensation Committee in those instances where
the executive officer or employee did not have an employment agreement with
the Company, and in both cases were finally approved by the Compensation
Committee and the Board of Directors.
- --------
* The disclosure contained in this section of this Proxy Statement is not
incorporated by reference into any filings by the Company under the Securities
Act, or the Exchange Act that incorporate other filings or portions thereof
(including this Proxy Statement or the "Executive Compensation" section of
this Proxy Statement) without specific reference to the incorporation of this
section of this Proxy Statement.
18
<PAGE>
The Company intends to rely upon the special transition rule contained in
the U.S. Treasury regulations which allows the Company, as a private
corporation that has completed an initial public offering, to deduct all
compensation expenses related to awards or grants made under the 1996 Plan
prior to the approval of the amendment to the 1996 Plan proposed in this Proxy
Statement. Thereafter, the deductibility of compensation expenses related to
awards or grants made under the 1996 Plan which result in total covered
compensation in excess of $1 million for the Chief Executive Officer and
certain other executive officers will depend upon whether the Company and the
1996 Plan comply with the performance-based exception to Section 162(m) of the
Code.
The Compensation Committee reviewed and approved stock option grants made
by the Company in 1997 and 1998 to all executive officers recommended by the
Chief Executive Officer. These stock option grants were based primarily on the
scope of the executive officer's responsibilities at the Company, the cash
compensation that such executive officer had received in his prior employment,
the cash compensation proposed to be paid by the Company and such executive
officer's overall contribution to the Company's success.
In June 1999, the Company reset the exercise price of all director,
officer and employee stock options to $.23 per share. The resetting of the
exercise price of all options issued under the 1996 Plan was designed to
enable the Company to maintain a high level of motivation among the Company's
key executives, and the price was in excess of the Company's then market stock
price.
The Company believes that the executive compensation program has enabled
it to attract, motivate and retain senior management by providing a
competitive total compensation opportunity based upon performance. Base
salaries, combined with annual performance-based bonus awards that reflect the
individual's level of responsibility, performance and contribution to the
Company, are important elements of the Company's cash compensation philosophy.
Together with the Company's executive stock ownership, the Company's total
executive compensation program not only aligns the interest of executive
officers and stockholders, but enables the Company to attract talented senior
management. The Board of Directors believes that this program strikes an
appropriate balance between short and long-term performance objectives.
Compensation of the Chief Executive Officer.
Keith B. Stein, the Chief Executive Officer of the Company, received
compensation from the Company in Fiscal 1998 consisting of a base salary,
incentive bonus, automobile allowance and incentive stock options. Mr. Stein's
compensation, particularly with respect to his incentive bonus and stock
option grants, was specifically predicated upon providing leadership and
direction to maintain the Company as a going concern and managing the Company
through its comprehensive financial restructuring successfully completed in
April 1999. The Company believes that Mr. Stein is committed to optimizing the
overall performance of the Company to the benefit of all stockholders and that
he demonstrated such commitment in Fiscal 1998.
Compensation Committee: Board of Directors:
David W. Young Keith B. Stein
Peter Offermann Peter Offermann
Joseph Donlan Joseph P. Donlan
Evelyn Erb David W. Young
Evelyn Erb
David Benson
Robert Gould
19
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
The Company, from time to time, has entered into transactions with
certain of its principals and stockholders and entities in which they have an
interest. The Company believes that each such transaction has been on terms no
less favorable to the Company than could have been obtained in a transaction
with an independent third party.
First Union
Lending
Securitization Program. The Company currently funds its purchases of
Loans primarily through a two-step asset securitization program consisting of
(i) the securitized warehousing of all of its Loans through daily sales to a
bankruptcy-remote master trust financed by a $85,000,000 revolving credit
facility with First Union, followed by (ii) the transfer of such warehoused
Loans from time to time by the Master Trust to a discrete trust, thereby
creating renewed availability of capital from the Master Trust. First Union is
the sole holder of the Class B Certificates that relate to the Revolving
Securitization and Master Trust.
Placement Agent and Underwriting
First Union Capital Markets Corp. ("FUCMC"), a wholly owned subsidiary of
First Union Corporation, served as placement agent for the Company's Senior
Subordinated Notes. FUCMC has also privately placed and acted as underwriter
for public offerings of asset-backed securities of the Company in connection
with the Company's securitization transactions and may act as placement agent
or underwriter for the Company's future securitization and financing
activities.
Registration Rights
Pursuant to a registration rights agreement with the Company, the First
Union Partner was granted certain rights with respect to the registration
under the Securities Act of Common Stock distributed to it by the Partnership
(no such distribution has been made as of the date of this Proxy Statement).
Under the registration rights agreement, the First Union Partner can, in
certain circumstances, require the Company to effect up to two registrations
of any or all of the First Union Partner's share of Common Stock. The Company
is not required to honor such request to register shares of Common Stock if
the request is made within 90 days of a firm commitment underwritten public
offering or before the expiration of any lock-up period required by the
underwriters in connection therewith.
In addition, if the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company, in
certain circumstances the First Union Partner can exercise piggy-back
registration rights to request participation in the offering. The Company is
not required to honor in full any such request to register shares of Common
Stock if such request would reduce the number or amount of securities to be
issued by the Company in any such offering to an amount which, in the opinion
of the Board of Directors, is below that which is necessary to accomplish the
purposes of such offering and in the best interests of the Company.
Furthermore, if the contemplated offering is to be an underwritten offering
and the underwriter delivers a written opinion that marketing considerations
require a limitation on the number of securities to be sold, then the First
Union Partner's piggy-back registration rights will be reduced pro rata to the
extent necessary to comply with the underwriter's recommendations.
First Union Partner
The First Union Partner is a limited partner of the Partnership (see
footnote (2) to Principal Stockholders).
20
<PAGE>
First Union Strategic Alliance
In March 1999, First Union announced publicly that it was exiting the
indirect auto finance business due to realigned business strategies. As a
result, the Company's referral agreement, which established a Loan origination
alliance with First Union, has been terminated. The Company will, nonetheless,
continue the relationships with auto dealerships established by the alliance.
The Company will not, however, be obligated to pay to First Union referral
fees related to business obtained through those dealers.
Senior Subordinated Notes
General
In December 1997, the Company completed the private placement of $10
million in Common Stock and $40 million principal amount of Senior
Subordinated Notes with detachable warrants (the "December Private
Placement"). The private placement of the $10 million in Common Stock resulted
in the issuance of 761,905 shares of the Company's Common Stock to the 1818
Fund, and 1,142,857 shares of the Company's Common Stock to Progressive. The
Senior Subordinated Notes, which mature in seven years, bear interest at
11.875% per annum for the first three years, and increase to 12.875% in year
four, 13.875% in year five and 14.875% in years six and seven. The Senior
Subordinated Notes and warrants were purchased by the 1818 Fund, Progressive
and ManuLife. In March 1998, the Company completed a private placement (the
"March Private Placement") of $20 million principal amount of Senior
Subordinated Notes to SFHY with detachable warrants under terms similar to
that of the December Private Placement. In connection with the December
Private Placement and the March Private Placement, the Company issued an
aggregate of 1,632,594 detachable warrants with a ten year life, exercisable
into Common Stock of the Company at $0.01 per share. See also the discussion
of the Company's Restructuring as described above under the caption "Change of
Control."
Registration Rights
Pursuant to a registration rights agreement, the Company has granted the
1818 Fund, Progressive, ManuLife, FSA and others certain rights with respect
to the registration under the Securities Act of Common Stock held by each.
Under the registration rights agreement, the other entities can, in certain
circumstances, require the Company to effect up to two registrations of any or
all of the their shares of Common Stock. The Company is not required to honor
such request to register shares of Common Stock if the request is made within
90 days of a firm commitment underwritten public offering or before the
expiration of any lock-up period required by the underwriters in connection
therewith.
In addition, if the Company proposes to file a registration statement
(other than a Registration Statement on Form S-4 or S-8 or any successor forms
to such Forms) under the Securities Act with respect to an offering by the
Company, in certain circumstances such parties, among others, can exercise
incidental registration rights to request participation in the offering. The
Company is not required to honor any such request to register shares of Common
Stock if, in an underwritten offering, the underwriter(s) have advised the
Company in writing that the number of shares requested to be registered
exceeds the number of securities that can be sold in such offering within an
acceptable price range.
Junior Subordinated Notes
During 1994, Gary L. Shapiro, Edgar A. Otto and Stephen L. Gurba loaned
$1,525,000, $3,675,000 and $123,733, respectively, to the Company. During
1995, Messrs. Shapiro and Otto loaned $539,000 and $342,000, respectively, to
the Company. During 1995, Nova Financial Corporation and Nova Corporation,
each of which is a privately-held corporation controlled by Messrs. Shapiro
and Otto, loaned $100,000 and $1,115,000, respectively, to the Company. During
1996, Nova Corporation loaned $700,000 to the Company. All of such loans were
made on a junior subordinated basis and in exchange for the Junior
Subordinated Notes. Each of the Junior Subordinated Notes bears interest at a
rate of 8.0% per annum payable quarterly in arrears and matures on December
20, 2004. During 1996, the Company repaid $511,000 and $461,000 to Messrs.
Shapiro and Otto, respectively. In January 1997, a portion of the Company's
proceeds from its initial public offering were used to repay $2,594,186,
$1,302,131, $1,122,361, $90,018 and $72,754 to Mr. Otto, Nova Corporation, Mr.
Shapiro, Mr. Gurba and Nova
21
<PAGE>
Financial Corporation, respectively. During January and April 1998, the Company
paid the Junior Subordinated Noteholders interest totaling $77,406. No payments
of principal or interest have been paid since that date. As of December 31,
1998, the Company owed approximately $2.1 million (including $117,000 of accrued
and unpaid interest) on the Junior Subordinated Notes. The Company believes that
the terms of each of the Junior Subordinated Notes are as favorable as could
have been obtained from an unaffiliated third party. See also the discussion of
the Company's Restructuring as described above under the caption "Change of
Control."
Management and Service Agreements
The Company was previously party to a management agreement and a service
agreement pursuant to which NFC provided operational, financial, legal,
accounting, management, advisory and other administrative services relating to
the management, business operations, assets and interests of the Company.
These agreements were terminated in June 1998. Amounts paid to NFC pursuant to
such agreements were $289,000, $884,000 and $603,000 in 1998, 1997 and 1996,
respectively. Gary L. Shapiro, the former Chairman and Chief Executive Officer
of the Company is the Chairman and Chief Executive Officer and a principal
owner of NFC. Keith B. Stein, Chairman of the Board and Chief Executive
Officer of the Company, was formerly a managing director of NFC.
The General Partner holds a 1% interest in the Partnership. A majority of
the outstanding capital stock of the General Partner is owned collectively by
Messrs. Shapiro and Otto. The limited partners of the Partnership include, among
others, S Associates, O Associates, the First Union Partner, Keith B. Stein, Roy
E. Tipton, William G. Magro and Kevin G. Adams. Messrs. Stein and Magro hold
minimal minority limited partner interests of the Partnership. Mr. Shapiro, who
was formerly Chairman of the Board and Chief Executive Officer of the Company,
is the trustee of a trust that owns all of the outstanding capital stock of the
general partner of S Associates. Mr. Otto owns all of the outstanding capital
stock of the general partner of O Associates. The remaining limited partners of
the Partnership hold the balance of the limited partner economic interests.
Indebtedness of Management
In 1997, the Company loaned Mr. Magro $100,000, pending the sale of his
home residence in Palm Beach County in connection with his relocation to
Jacksonville to manage the Company's financial services division. As part of
Mr. Magro's agreement to relocate to Jacksonville, the Company agreed to
forgive all or a portion of that loan based on the sale price of Mr. Magro's
residence. Mr. Magro sold his residence in March 1998 and paid the Company
$59,146 towards the principal owed on the $100,000 loan. Accordingly, the
Company forgave $40,854 of the Loan in Fiscal 1998 and reimbursed Mr. Magro
for his personal tax liability associated with the forgiven loan amount in
such year.
22
<PAGE>
COMPARISON OF CUMULATIVE STOCKHOLDER RETURN
The following graph compares the cumulative total stockholder return on
the Company's Common Stock from January 29, 1997, when the Company's Common
Stock began trading on the NASDAQ National Market System, to December 31,
1998, with the cumulative return of the SNL Auto Finance Index and the NASDAQ
Total U.S. Index. The Company's Common Stock was delisted from the NASDAQ
National Market System on March 10, 1999 and is now trading on the OTC
Bulletin Board. The graph assumes a $100 investment at the beginning of the
period and reinvestment of all dividends.
National Auto Finance Company, Inc.
[LINE GRAPH]
<TABLE>
<CAPTION>
Period Ending
------------------------------------------------------------------
Index 1/30/97 6/30/97 12/31/97 6/30/98 12/31/98
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National Auto Finance Company, Inc. 100.00 71.05 31.58 10.53 0.99
NASDAQ - Total US 100.00 105.29 115.29 138.63 162.45
SNL Auto Finance Index 100.00 54.68 39.65 40.42 28.26
</TABLE>
23
<PAGE>
PROPOSAL TWO - TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK
Proposed Amendment
The Company's Certificate of Incorporation currently authorizes the
Company to issue up to 20,000,000 shares of Common Stock and 1,000,000 shares
of preferred stock (the "Preferred Stock"). The Board of Directors proposes
that the stockholders consider and adopt an amendment to the FOURTH section of
the Company's Certificate of Incorporation to increase the authorized number
of shares of Common Stock from 20,000,000 to 44,000,000, thereby increasing
the total authorized number of shares from 21,000,000 to 45,000,000. The
wording of the proposed amendment is included in Annex A.
Reasons for Amendment
Pursuant to the FOURTH section of the Certificate of Incorporation, the
Board of Directors is authorized to issue Common Stock and Preferred Stock
from time to time. As of August 2, 1999, approximately 17,280,762 shares of
Common Stock were issued and outstanding. This leaves approximately 2,719,238
shares of Common Stock available for future issuance. Approval of the proposed
increase would give the Company 26,719,238 shares of Common Stock available
for future issuance.
Currently 2,295 shares of Preferred Stock are outstanding. No increase in
the authorized number of shares of Preferred Stock is requested.
The proposed additional shares of Common Stock could be issued for any
proper corporate purpose, including stock splits, the payment of stock
dividends or other distributions in shares of stock, the acquisition of other
businesses, the raising of additional capital for use in the Company's
business, or in connection with director and employee stock incentive and
compensation programs. Furthermore, as an integral part of the Company's
Restructuring, as described above under the caption "Change of Control," the
Company was granted the option by the Senior Subordinated Noteholders to pay
on a quarterly basis, during the two-year period ending March 31, 2001, fifty
percent (50%) of the interest owed on such Notes (and the interest on such
interest) through the issuance of Convertible Senior Subordinated Promissory
Notes that are convertible into the Company's Common Stock at a conversion
price of $.75 per share. The Company was granted a similar option by the
Junior Subordinated Noteholders. In order to avail itself of such option, the
Company is required, under the terms of the Restructuring, to use its best
efforts to increase the authorized number of shares. On August 2, 1999,
2,719,238 shares of the Company's authorized but unissued Common Stock were
available for the Company to take advantage of such option, which has the
result of increasing cash availability for other corporate opportunities
rather than directed toward paying interest on such Notes. In addition, such
additional shares are necessary to satisfy the Board's June 1999 grant of
2,105,492 stock options to certain executive officers, non-excecutive officers
and other management employees of the Company, and to provide continued
availability of shares for which awards under the 1996 Plan may be granted to
all eligible current and future officers, directors and employees. (See
Proposal Three-Approval of Amendments to the 1996 Share Incentive Plan below).
The authorization of additional shares of Common Stock will not, by
itself, have any effect on the rights of holders of existing Common Stock.
Depending on the circumstances, any issuance of additional shares of Common
Stock may dilute the present equity ownership of current stockholders.
Stockholders of the Company have no preemptive rights to participate in any
future issuance of shares.
If the proposed amendment to the Certificate is approved, the Board of
Directors will have the authority to issue the additional authorized shares or
any part thereof to such persons and for such consideration as it may
determine without further action by the stockholders except as required by
law, the Certificate of Incorporation or the rules of any stock exchange on
which the Company's securities may then be listed.
Required Vote
The proposed amendment will be approved if the number of votes cast for
the amendment exceeds the number of votes cast against the amendment at the
Annual Meeting. Abstentions and broker non-votes will not be counted
24
<PAGE>
as votes either for or against the amendment, and therefore will not have an
effect on the outcome of the vote on this proposal.
Recommendation of the Board
The Board of Directors believes that adoption of the proposed amendment
is in the best interests of the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT.
PROPOSAL THREE - APPROVAL OF AMENDMENTS TO THE 1996 SHARE INCENTIVE PLAN
The Board of Directors has approved, and is submitting to the stockholders
for approval, the following amendments to the Company's 1996 Share Incentive
Plan (the "1996 Plan"):
1. Increase the number of shares of Common Stock available for the grant
of options, stock appreciation rights, stock awards, performance awards
and stock unit (collectively, the "Benefits") from 500,000 to
4,000,000.
2. Increase the maximum number of shares of Common Stock which may be
granted to any individual participant under the 1996 Plan to 2,000,000.
Pursuant to the amendment, the Plan shall be amended by changing: (1) the
number 500,000 in the first sentence of Section 5 of the Plan to 4,000,000;
and (2) the second sentence of Section 5 to read: "The maximum number of
shares of Common Stock with respect to which Benefits may be granted to any
individual participant under the Plan shall be 2,000,000."
As of December 31, 1998, the Company had granted stock options in respect
of an aggregate of 302,500 shares of Common Stock under the 1996 Plan to
certain key officers, directors and employees of the Company all of which are
intended to qualify as "incentive stock options" ("ISO's") as defined below.
The stock options granted to officers and employees of the Company vest in
equal annual one-third installments commencing on the date of grant, except
the 122,500 options included in such number granted to Mr. Stein, which have
been fully vested. The options granted to directors vest in full on the first
anniversary of the date of grant. The exercise price of all such options
equaled, or exceeded the fair market value of the Common Stock on the date of
grant.
The 1996 Plan is intended to provide incentives that will attract, retain
and motivate highly competent persons, each of whom will contribute to the
success and future growth and profitability of the Company, as executive
management, employees and directors of the Company and of any parent or
subsidiary of the Company, by providing them the opportunity to acquire shares
of Common Stock, or to receive monetary payments based on the value of such
shares pursuant to certain benefits contemplated by the 1996 Plan.
Furthermore, the 1996 Plan is intended to assist in aligning the interests of
the Company's executive management, employees and directors with those of its
stockholders. On August 2, 1999, the latest practicable date, the Company
employed 8 executive officers, 1 non-executive officer, 146 Employees, and 6
non-employee directors who may participate under the 1996 Plan. A substantial
portion of the shares currently available for granting of Benefits under the
1996 Plan was used during Fiscal 1997 and 1998. Furthermore, on June 3, 1999
(the "Grant Date'), the Board approved the grant of an aggregate of 2,105,492
stock options with an exercise price of $0.23 per share, to the Executive
Officers, a non-executive officer, and other management employees of the
Company in certain cases pursuant to commitments under employment agreements,
contingent upon the availability of shares of Common Stock under the 1996
Plan. As set forth below under the caption "New Plan Benefits" all stock
options granted to Mr. Stein are fully vested and exercisable. With respect to
all other executive and management employees' stock options, one-third of such
stock options became vested and exercisable on the Grant Date, with an
additional one-third to vest and become exercisable on each succeeding
anniversary of the Grant Date.
As a consequence, the Board determined that, unless the proposed
amendment is adopted, the number of shares of Common Stock remaining under the
1996 Plan will be insufficient to meet the Company's previously committed
compensation requirements, as well as anticipated compensation requirements,
in Fiscal 1999 and
25
<PAGE>
beyond. Accordingly, the Board of Directors wishes to ensure the continued
availability of shares for which Benefits may be granted to all eligible current
and future officers, directors and employees.
Description of the 1996 Plan
The following is a brief description of the material features of the 1996
Plan, as amended by Proposal Three. Such description is qualified in its
entirety by reference to the full text of the 1996 Plan.
Administration
The 1996 Plan is administered by the Compensation Committee (herein
referred to as the "Plan Administrator"), all of whose members are (i)
"non-employee directors" within the meaning of Rule 16b-3(b)(3) (or any
successor rule) promulgated under the Exchange Act and (ii) "outside
directors" within the meaning of Section 162(m) of the Code. The Plan
Administrator is authorized, subject to the provisions of the 1996 Plan, to
establish such rules and regulations as it deems necessary for the proper
administration of the 1996 Plan. The Plan Administrator is authorized to
delegate such administrative duties as it deems advisable.
The 1996 Plan provides for the granting of certain Benefits in any one or
a combination of (i) stock options, (ii) stock appreciation rights, (iii)
stock awards, (iv) performance awards and (v) stock units (each as more
particularly described below). The aggregate number of shares of Common Stock
that may be currently subject to such benefits, including stock options, is
500,000 shares of Common Stock (subject to adjustment in the event of a
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, reverse stock split, split up, spin-off, combination of shares,
exchange of shares, dividend in-kind or other like change in capital structure
or distribution). Additionally, if there is a "Change in Control" (as such
term is defined in the 1996 Plan) of the Company, all then outstanding stock
options and stock appreciation rights become immediately exercisable.
The Board of Directors may amend the 1996 Plan from time to time or may
suspend, or terminate the 1996 Plan at any time, except that unless approved
by the stockholders of the Company, no such amendment may (i) increase the
total number of shares which may be issued under the 1996 Plan or the maximum
number of shares with respect to stock options, stock appreciation rights and
other Benefits that may be granted to any individual under the 1996 Plan or
(ii) modify the requirements as to eligibility for Benefits under the 1996
Plan. In addition, no amendment may be made without approval of the
stockholders of the Company if the amendment will disqualify any incentive
stock options granted under the 1996 Plan. By mutual agreement between the
Company and a participant under the 1996 Plan, Benefits may be granted to such
participant in substitution and exchange for, and in cancellation of, any
Benefits previously granted under the 1996 Plan. No Benefit may be granted
more than ten years after the effective date of the 1996 Plan. The terms
applicable to any Benefit granted prior to such effective date may thereafter
be amended by mutual agreement between the Company and the participant or such
other persons who then have an interest in such Benefit.
Eligibility
Executive management, employees and directors of the Company and of any
parent or subsidiary of the Company, who are responsible for or contribute to
the management, growth and/or profitability of the business of the Company are
eligible to be granted Benefits under the 1996 Plan.
Transferability
Benefits may be transferred by a participant only by will or the laws of
descent and distribution, and may be exercisable, during the participant's
lifetime, only by the participant. If a participant dies, each stock option or
stock appreciation right previously granted to him or her becomes exercisable
during such period after such participant's death as the Plan Administrator,
in its discretion, sets forth in the applicable option or right agreement.
Stock Options
Stock options granted under the 1996 Plan consist of awards from the
Company that enable the holder to purchase a specific number of shares of
Common Stock at set terms and at a fixed purchase price. Determinations with
respect to the exercise price, exercise period and method of payment of the
stock options are made in the
26
<PAGE>
discretion of the Plan Administrator. Stock options may be "incentive stock
options" ("Incentive Stock Options") within the meaning of Section 422 of the
Code, or stock options which do not constitute Incentive Stock Options
("Nonqualified Stock Options"). The Plan Administrator has the authority to
grant to any participant one or more Incentive Stock Options, Nonqualified Stock
Options, or both types of stock options (in each case with or without stock
appreciation rights).
Certain limitations apply with respect to Incentive Stock Options:
Incentive Stock Options may be granted only to participants who are employees
of the Company or a parent or subsidiary of the Company at the date of grant.
Furthermore, the aggregate market value (determined as of the time the option
is granted) of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by a participant during any calendar year
(under all option plans of the Company) may not exceed $100,000. Except under
limited circumstances, Incentive Stock Options may not be granted to any
participant who, at the time of grant, owns stock possessing more than 10% of
the total combined voting power of all outstanding classes of stock of the
Company or any subsidiary corporation of the Company.
Stock Appreciation Rights
Stock appreciation rights may be granted, in the discretion of the Plan
Administrator, to holders of stock options granted under the 1996 Plan.
Holders of such stock appreciation rights are entitled to receive a payment in
cash, Common Stock or a combination thereof, in an amount equal to the excess
of the fair market value of a specified number of shares of Common Stock on
the date the right is exercised over the fair market value of such shares of
Common Stock on the date the right was first granted.
Stock Awards
Stock awards consisting of Common Stock issued or transferred to
participants with or without other payments therefor as additional
compensation for services rendered to the Company may be granted in the
discretion of the Plan Administrator. Stock awards (which may constitute
performance-based awards, as described in the immediately succeeding
paragraph) may be subject to such terms and conditions as the Plan
Administrator determines appropriate, including, without limitation,
restrictions as to the sale or other disposition of such shares and the right
of the Company to reacquire such shares for no consideration upon termination
of the participant's employment within specific periods.
Performance Awards
Performance awards may be granted to participants in the discretion of
the Plan Administrator and may, as determined by the Plan Administrator,
constitute performance-based awards, which, as more particularly described
below, consist of Benefits granted under the 1996 Plan in such a manner that
they qualify for the performance based compensation exemption of Section
162(m) of the Code ("Performance-Based Awards"). The number, amount and timing
of Performance Awards granted to each participant are determined in the sole
discretion of the Plan Administrator. Payment of earned Performance-Based
Awards are made in accordance with terms and conditions prescribed or
authorized by the Plan Administrator. Participants may elect to defer, or the
Plan Administrator may require the deferral of, the receipt of Performance
Awards upon such terms as the Plan Administrator deems appropriate.
Performance Awards may be in the form of shares of Common Stock or stock units
and may be awarded as short-term or long-term incentives.
With respect to those Performance Awards that constitute
Performance-Based Awards, the Plan Administrator may set performance targets
which serve to determine the number and/or value of Performance Awards paid
out to the participants, and may attach to such Performance Awards one or more
restrictions. Performance targets may be based upon, without limitation,
Company-wide, divisional and/or individual performance. With respect to those
Performance Awards that are not intended to constitute Performance-Based
Awards, the Plan Administrator has the authority at any time to make
adjustments to performance targets for any outstanding performance awards
which the Plan Administrator deems necessary or desirable, unless at the time
of establishment of goals, the Plan Administrator has precluded its authority
to make such adjustments.
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Stock Units
Stock units, accounts representing one share of Common Stock ("Stock
Units"), may be granted to participants under the 1996 Plan in the sole
discretion of the Plan Administrator. Stock Units may, as determined by the Plan
Administrator in its sole discretion, constitute performance-based awards. The
Plan Administrator is authorized to determine the criteria for the vesting of
Stock Units. A Stock Unit granted by the Plan Administrator provides payment in
shares of Common Stock at such time as the award agreement specifies. Shares of
Common Stock issued in connection with the granting of Stock Units may be issued
with or without other payments therefor, as may be required by applicable law or
such other consideration as may be determined by the Plan Administrator. The
Plan Administrator is authorized to determine whether a participant granted a
Stock Unit may be entitled to a right to receive the amount of any dividend paid
on the share of Common Stock underlying a Stock unit, which is payable in cash
or in the form of additional Stock Units.
Upon vesting of a Stock Unit, unless the Plan Administrator has determined
to defer payment with respect to such unit or a participant has elected to defer
payment, shares of Common Stock representing the Stock Units may be distributed
to the participant unless the Plan Administrator, with the consent of the
participant, provides for the payment of the Stock Units in cash or partly in
cash and partly in shares of Common Stock equal to the value of the shares of
Common Stock which would otherwise be distributed to the participant. Prior to
the year with respect to which a Stock Unit may vest, the participant may elect
not to receive Common Stock upon the vesting of such Stock Unit and for the
Company to continue to maintain the Stock Unit on its books of account, in which
event, the value of a Stock Unit becomes payable in shares of Common Stock
pursuant to the agreement of deferral.
Performance-Based Awards
As determined by the Plan Administrator in its sole discretion, the
granting or vesting of "performance-based awards" ("Performance-Based Awards")
will be based upon one or more factors including, but not limited to, net sales,
pretax income before allocation of corporate overhead and bonus, budget and
earnings per share, net income, division, group or corporate financial goals,
return on stockholders' equity, return on assets, attainment of strategic and
operational initiatives, appreciation in and/or maintenance of the price of the
Common Stock or an other publicly-traded securities of the Company, market
share, gross profits, earnings before interest and taxes, earnings before
interest, taxes, dividends and amortization, economic value-added models and
comparisons with various stock market indices, reductions in costs or any
combination of the foregoing. The Plan Administrator is authorized to establish
(i) the objective performance-based goals applicable to a given period and (ii)
the individual employees or class of employees to which such performance-based
goals apply. No Performance-Based Awards are payable to or may vest with respect
to any participant for a given fiscal period until the Plan Administrator
certifies that the objective performance goals have been satisfied.
The 1996 Plan is intended to be qualified under Rule 16b-3 promulgated
under the Exchange Act.
Certain Federal Income Tax Consequences
The statements in the following paragraphs of the principal U. S.
federal income tax consequences of Benefits under the 1996 Plan are based on
statutory authority and judicial and administrative interpretations, as of the
date of this Proxy Statement, which are subject to change at any time (possibly
with retroactive effect). The law is technical and complex, and the discussion
below represents only a general summary.
Incentive Stock Options.
Incentive Stock Options ("ISOs") granted under the 1996 Plan are
intended to meet the definitional requirements of Section 422(b) of the Code for
"incentive stock options. " An employee who receives an ISO does not recognize
any taxable income upon the grant of such ISO. Similarly, the exercise of an ISO
generally does not give rise to federal income tax to the employee, provided
that (i) the federal "alternative minimum tax," which depends on the employee's
particular tax situation, does not apply and (ii) the employee is employed by
the Company from the date of grant of the option until three months prior to the
exercise thereof, except where such employment terminates by reason of
disability (where the three month period is extended to one year) or death
(where this requirement does not apply). If an employee exercises an ISO after
the requisite periods referred to in clause (ii) above, the ISO will be treated
as an NSO (as defined below) and will be subject to the rules set forth
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<PAGE>
below under the caption "Non-Qualified Stock Options and Stock Appreciation
Rights." Further, if after exercising an ISO, an employee disposes of Common
Stock so acquired more than two years from the date of grant and more than one
year from the date of transfer of Common Stock pursuant to the exercise of such
ISO (the "applicable holding period"), the employee will generally recognize
capital gain or loss equal to the difference, if any, between the amount
received for the shares and the exercise price. If, however, an employee does
not hold the shares so acquired for the applicable holding period ? thereby
making a "disqualifying disposition" ? the employee would recognize ordinary
income equal to the excess of the fair market value of the shares at the time
the ISO was exercised over the exercise price and the balance, if any, would
generally be treated as capital gain. If the disqualifying disposition is a sale
or exchange that would permit a loss to be recognized under the Code (were a
loss in fact to be realized), and the sales proceeds are less than the fair
market value of the shares on the date of exercise, the employee's ordinary
income therefrom would be limited to the gain (if any) realized on the sale. An
employee who exercises an ISO by delivering Common Stock previously acquired
pursuant to the exercise of another ISO is treated as making a "disqualifying
disposition" of such Common Stock if such shares are delivered before the
expiration of their applicable holding period. Upon the exercise of an ISO with
previously acquired shares as to which no disqualifying disposition occurs,
despite some uncertainty, it appears that the employee would not recognize gain
or loss with respect to such previously acquired shares. The Company will not be
allowed a federal income tax deduction upon the grant or exercise of an ISO or
the disposition, after the applicable holding period, of the Common Stock
acquired upon exercise of an ISO. In the event of a disqualifying disposition,
the Company generally will be entitled to a deduction in an amount equal to the
ordinary income included by the employee, provided that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable and
the limitations of Sections 280G and 162(m) of the Code (discussed below) do not
apply.
Non-Qualified Stock Options and Stock Appreciation Rights.
"Non-qualified stock options" ("NSOs") granted under the 1996 Plan are
options that do not qualify as ISOs. An employee who receives an NSO or a "stock
appreciation right" ("SAR') will not recognize any taxable income upon the grant
of such NSO or a SAR. However, the employee generally will recognize ordinary
income upon exercise of an NSO in an amount equal to the excess of the fair
market value of the shares of Common Stock at the time of exercise over the
exercise price. Similarly, upon the receipt of cash or shares pursuant to the
exercise of a SAR, the individual generally will recognize ordinary income in an
amount equal to the sum of the cash and the fair market value of the shares
received. As a result of Section 16(b) of the Exchange Act, under certain
circumstances, the timing of income recognition may be deferred (generally for
up to six months following the exercise of an NSO or SAR (the "Deferral
Period")) for any individual who is an executive officer or director of the
Company or a beneficial owner of more than ten percent (10%) of any class of
equity securities of the Company. Absent a Section 83(b) election (as described
below under "Other Awards"), recognition of income by the individual will be
deferred until the expiration of the Deferral Period, if any. The ordinary
income recognized with respect to the receipt of shares or cash upon exercise of
an NSO or a SAR will be subject to both wage withholding and other employment
taxes. In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of a SAR for shares or upon the
exercise of an NSO, the Company may satisfy the liability in whole or in part by
withholding shares of Common Stock from those that otherwise would be issuable
to the individual or by the employee tendering other shares owned by him or her,
valued at their fair market value as of the date that the tax withholding
obligation arises. A federal income tax deduction generally will be allowed to
the Company in an amount equal to the ordinary income included by the individual
with respect to his or her NSO or SAR, provided that such amount constitutes an
ordinary and necessary business expense to the Company and is reasonable and the
limitations of Sections 280G and 162(m) of the Code do not apply. If an
individual exercises an NSO by delivering shares of Common Stock, other than
shares previously acquired pursuant to the exercise of an ISO which is treated
as a "disqualifying disposition" as described above, the individual will not
recognize gain or loss with respect to the exchange of such shares, even if
their then fair market value is different from the individual's tax basis. The
individual, however, will be taxed as described above with respect to the
exercise of the NSO as if he or she had paid the exercise price in cash, and the
Company likewise generally will be entitled to an equivalent tax deduction.
Other Awards.
With respect to other Benefits under the 1996 Plan that are settled
either in cash or in shares of Common Stock that are either transferable or not
subject to a substantial risk of forfeiture (as defined in the Code and the
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<PAGE>
regulations thereunder), employees generally will recognize ordinary income
equal to the amount of cash or the fair market value of the Common Stock
received. With respect to Benefits under the 1996 Plan that are settled in
shares of Common Stock that are restricted as to transferability or subject to a
substantial risk of forfeiture ? absent a written election pursuant to Section
83(b) of the Code filed with the Internal Revenue Service within 30 days after
the date of transfer of such shares pursuant to the award (a "Section 83(b)
election") ? an individual will recognize ordinary income at the earlier of the
time at which (i) the shares become transferable or (ii) the restrictions that
impose a substantial risk of forfeiture of such shares lapse, in an amount equal
to the excess of the fair market value (on such date) of such shares over the
price paid for the award, if any. If a Section 83(b) election is made, the
individual will recognize ordinary income, as of the transfer date, in an amount
equal to the excess of the fair market value of the Common Stock as of that date
over the price paid for such award, if any. The ordinary income recognized with
respect to the receipt of cash, shares of Common Stock or other property under
the 1996 Plan will be subject to both wage withholding and other employment
taxes. The Company generally will be allowed a deduction for federal income tax
purposes in an amount equal to the ordinary income recognized by the employee,
provided that such amount constitutes an ordinary and necessary business expense
and is reasonable and the limitations of Sections 280G and 162(m) of the Code do
not apply.
Dividends and Dividend Equivalents.
To the extent Benefits under the 1996 Plan earn dividends or dividend
equivalents, whether paid currently or credited to an account established under
the 1996 Plan, an individual generally will recognize ordinary income with
respect to such dividends or dividend equivalents.
Change in Control.
In general, if the total amount of payments to an individual that are
contingent upon a "Change of Control" of the Company (as defined in Section 280G
of the Code), including payments under the 1996 Plan that vest upon a "Change in
Control," equals or exceeds three times the individual's "base amount"
(generally, such individual's average annual compensation for the five calendar
years preceding the change in control), then, subject to certain exceptions, the
payments may be treated as "parachute payments" under the Code, in which case a
portion of such payments would be non-deductible to the Company and the
individual would be subject to a 20% excise tax on such portion of the payments.
Certain Limitations on Deductibility of Executive Compensation.
With certain exceptions, Section 162(m) of the Code denies a deduction
to publicly held corporations for compensation paid to certain executive
officers in excess of $1 million per executive per taxable year (including any
deduction with respect to the exercise of an NSO or SAR or the disqualifying
disposition of stock purchased pursuant to an ISO). One such exception applies
to certain performance-based compensation provided that such compensation has
been approved by stockholders in a separate vote and certain other requirements
are met. If approved by its stockholders, the Company believes that Stock
Options, SARs and Performance-Based Awards granted under the 1996 Plan, at the
time when the Plan Administrator consists solely of not less than two "Outside
Directors" within the meaning of Section 162(m) of the Code, should qualify for
the performance-based compensation exception to Section 162(m) of the Code.
30
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NEW PLAN BENEFITS
Plan Name: The 1996 Share Incentive Plan
Name & Position Number of Units (stock options)(1)
Keith B. Stein 906,161
Chairman and Chief
Executive Officer
William G. Magro 426,429
President and Chief
Operating Officer
Brent E. Wombolt 106,607
Senior Vice President
Operations and Servicing
Thomas Costanza 106,607
Vice President and
Chief Financial Officer
Stephen R. Veth 106,607
Vice President, Secretary
and General Counsel
Executive Group 1,972,232
(8 in number)
Non-Executive Director _________
Group (6 in number)
Non-Executive Officer 133,260
Employee Group
(144 in number)
- -----------------------------------
1 The exercise price for all such stock options is $0.23 per share. The
expiration date for all such stock options pursuant to applicable provisions of
the 1996 Plan is June 3, 2009.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT TO THE 1996
SHARE INCENTIVE PLAN.
PROPOSAL FOUR - APPOINTMENT OF AUDITORS
On May 18, 1998, the Company dismissed KPMG Peat Marwick, LLP ("KPMG") as
the Company's auditor of its financial statements. On that same day, the Company
announced that it was in the process of retaining BDO Seidman, LLP ("BDO") to
audit the Company's financial statements in fiscal 1998, which engagement was
subsequently consummated and BDO audited the Company's financial statements for
the year ended December 31, 1998. KPMG's opinion with respect to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 was qualified by
raising substantial doubt as to the Company's ability to continue as a going
concern. The decision to dismiss KPMG as the Company's auditor was recommended
and approved by the Audit Committee of the Board of Directors.
In connection with KPMG's review of the Company's financial statements for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, and
KPMG's audit of the Company's financial statements for the year ended December
31, 1997, certain disagreements arose between KPMG and the Company regarding:
(1) the
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periodic determination of the carrying value of the Company's retained
securitization assets, and more particularly, the assumptions and methodologies
to be employed, pursuant to Statement of Financial Accounting Standards No. 125
("SFAS No. 125"), in the computer model used to determine such carrying values,
including the determination of which components of the retained securitization
assets to be discounted to net present value and the rate at which such
components should be discounted, and the projected loan loss rate and related
collateral recovery rate to be utilized in such valuation model; and (2) the
accounting treatment of deferred income taxes recorded in connection with the
reorganization of the Company from a partnership to a corporation in connection
with the Company's initial public offering. With respect to the issues relating
to the periodic determination of the carrying value of the Company's retained
securitization assets, the Audit Committee and the Board of Directors discussed
such issues with KPMG. The Audit Committee and the Board of Directors did not
discuss the deferred income tax issue with KPMG, which was discussed between
KPMG and Company management.
While KPMG never expressed an unwillingness to be associated with any of
the financial statements prepared by management and filed with the Securities
and Exchange Commission, KPMG did indicate that it was unwilling to be
associated with the Company's initial earnings release for the quarter ended
September 30, 1997. As a result, the Company, in consultation with KPMG, revised
its earnings release for the quarter ended September 30, 1997.
The Company authorized KPMG to fully and completely respond to BDO
regarding its inquiries, if any, concerning the subject matter of each of the
disagreements previously described. Each of those disagreements was resolved by
the Company acceding to the position of KPMG prior to the filing of the
Company's quarterly reports on Form 10-Q and its Annual Report on Form 10-K for
fiscal 1997.
Representatives of BDO will be present at the Annual Meeting, will be given
an opportunity to make a statement if they desire to do so, and will be expected
to be available to respond to appropriate questions.
Based upon the recommendation of the Audit Committee, and subject to
ratification by the stockholders, the Board of Directors has appointed BDO as
auditors for the Company for the fiscal year ending December 31, 1999.
The Board of Directors recommends a vote in favor of such ratification.
2000 PROPOSALS OF STOCKHOLDERS
The Company intends to hold the 2000 Annual Meeting of Stockholders in the
spring of 2000. Any stockholder of the Company wishing to include proposals in
the proxy materials for such meeting must meet the requirements of the rules of
the Securities and Exchange Commission relating to proposals of security
holders. Such proposals must be received by the Secretary of the Company in
writing at the principal executive offices of the Company on or prior to April
12, 2000.
In addition to Commission requirements, for proposals to be properly
brought before an annual meeting by a stockholder, such stockholder much give
timely notice of the proposals in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to,
or mailed and received at, the principal executive offices of the Corporation
not less than sixty days nor more than ninety days prior to the date of the
annual meeting; provided, however, that in the event that less than seventy
days' notice or prior public disclosure of the date of the annual meeting is
given or made to stockholders, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection
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with the proposal of such business by such stockholder and any material interest
of such stockholder in such business and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting.
OTHER BUSINESS
The Board of Directors is not aware of any matters that may be presented at
the Annual Meeting other than those described in the Company's Notice of Annual
Meeting of Stockholders enclosed herewith. If, however, any other matters do
properly come before the Annual Meeting, or any adjournment or adjournments
thereof, it is intended that the person named as proxies will vote, pursuant to
their discretionary authority, according to their best judgment and in the
interest of the Company.
ADDITIONAL INFORMATION
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the accompanying materials will be paid by the Company. In
addition to solicitation by mail, directors, officers and regular employees of
the Company may solicit proxies by telephone, telegram or by personal
interviews. Such persons will receive no additional compensation for such
services. The Company will reimburse brokers and certain other persons for their
costs and expenses in forwarding proxy materials to the beneficial owners of
Common Stock held of record by such persons.
A copy of the Company's Annual Report on Form 10-K for Fiscal 1998 is being
mailed to the stockholders simultaneously with this Proxy Statement. The
financial statements, financial information and certain other information
appearing in such Annual Report are incorporated by reference herein.
By Order of the Board of Directors,
Stephen R. Veth
Vice President, Secretary and
General Counsel
Jacksonville, Florida
August 11, 1999
33
<PAGE>
ANNEX A
Text of Proposed Amendment to the Certificate of Incorporation
National Auto Finance Company, Inc.
The Fourth section, Subsection (A) of National Auto Finance Company, Inc.'s
Certificate of Incorporation is amended to read as follows:
FOURTH: (A) The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 45,000,000 shares ("Capital
Stock"), consisting of 44,000,000 shares of common stock, par value $0.01 per
share ("Common Stock"), and 1,000,000 shares of preferred stock, par value $0.01
per share ("Preferred Stock").
34
<PAGE>
PRELIMINARY COPY
NATIONAL AUTO FINANCE COMPANY, INC.
Proxy Solicited on Behalf of the Board of Directors
for the Annual Meeting of Shareholders to be Held
September 14, 1999
The undersigned, having received the Annual Report on Form 10-K and the
accompanying Notice of Annual Meeting of Shareholders and Proxy Statement dated
August ___, 1999, hereby appoints Keith B. Stein and Stephen R. Veth and each of
them, proxies, with full power of substitution, and hereby authorizes them to
represent and vote the shares of National Auto Finance Company, Inc. Common
Stock (the "Company"), which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Shareholders of the Company to be
held on Tuesday, September 14, 1999, at 10:00 a.m., Eastern Daylight Time, and
any adjournment thereof, and especially to vote as set forth below.
THE BOARD OF DIRECTORS RECOMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
Please mark [ X ]
your vote as
indicated in
this example.
FOR WITHHOLD
all nominees listed AUTHORITY
below (except as marked to vote for all
to the contrary below) nominees listed below
1. ELECTION OF DIRECTORS [ ] [ ]
Class II Class III
-------- ---------
Nominees: Robert R. Gould Joseph P. Donlan
David Benson David W. Young
(Instruction: To withhold authority to vote for any nominee, strike a line
through that nominee's name in the list above.)
2. Amendment of the Company's FOR AGAINST ABSTAIN
Certification of Incorporation [ ] [ ] [ ]
to increase the Company's
authorized shares of Common
Stock to 44,000,000 shares
<PAGE>
3. Amendments to the Company's FOR AGAINST ABSTAIN
1996 Share Incentive Plan, including [ ] [ ] [ ]
an increase the number of shares
of Common Stock issuable
thereunder to 4,000,000 shares.
4. Ratification of the appointment of FOR AGAINST ABSTAIN
BDO Seidman as the independent [ ] [ ] [ ]
accountants of the corporation.
The undersigned hereby revokes any other proxy to vote at such Annual Meeting,
and hereby ratifies and confirms all that said attorneys and proxies, and each
of them, may lawfully do by virtue hereof. With respect to matters not known at
the time of the solicitations hereof, said proxies are authorized to vote in
accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR, IF NO
CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS,
FOR THE ADOPTION OF PROPOSALS 2, 3 AND 4, AND AS SAID PROXIES SHALL DEEM
ADVISABLE ON SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING. EACH MATTER
ABOVE WAS PROPOSED BY THE BOARD OF DIRECTORS.
Please mark, sign, date and return the Proxy Card promptly using the enclosed
envelope.
Signature(s)
Date:_____________________, 1999
The signature(s) hereon should correspond exactly with the name(s) of the
Shareholder(s) appearing on the Stock Certificate. If stock is jointly held, all
joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please sign the full corporate name, and give title of signing officer.
