<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1996
Registration No. 333-15787
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
NAL FINANCIAL GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6141 23-2455294
-------- ---- ----------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, FL 33309
------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office
and principal place of business)
Mr. Robert R. Bartolini
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, FL 33309
(954) 938-8200
-------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with a copy to:
Stephen M. Cohen, Esquire Peter H. Darrow, Esquire
Buchanan Ingersoll Professional Corporation Cleary, Gottlieb, Steen & Hamilton
Two Logan Square, 12th Floor One Liberty Plaza
18th & Arch Streets New York, NY 10006
Philadelphia, PA 19103 (212) 225-2000
(215) 665-3800
--------------------
Approximate date of proposed sale to the public: As soon as practicable
following the date on which this Registration Statement becomes effective.
--------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement in the same offering: [ ] ____________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]____________________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Title of Amount Proposed Proposed
Shares to be to be Maximum Offering Maximum Aggregate Amount of
Registered Registered Price Per Share(2) Offering Price Registration Fee(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.15 per share 2,875,000(1) $9.75 $28,031,250 $8,494.32
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 375,000 shares to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee.
(3) Previously paid.
<PAGE>
SUBJECT TO COMPLETION -- DATED DECEMBER 23, 1996
PROSPECTUS
- --------------------------------------------------------------------------------
2,500,000 Shares
NAL FINANCIAL GROUP INC.
Common Stock
- --------------------------------------------------------------------------------
All 2,500,000 shares of common stock, $.15 par value per share (the 'Common
Stock') offered hereby (the 'Offering') are being sold by NAL Financial Group
Inc. (the 'Company').
The Company's Common Stock is included in The Nasdaq Stock Market's National
Market (the 'Nasdaq National Market') under the symbol 'NALF.' On December 20,
1996, the last reported sales price for the Common Stock on the Nasdaq National
Market was $9.75 per share. See 'Price Range of Common Stock.'
SEE 'RISK FACTORS' ON PAGES 8 TO 15 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.... $ $ $
Total (3).... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 375,000 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be $ ,
the total Underwriting Discounts and Commissions will be $ and the total
Proceeds to Company will be $ . See 'Underwriting.'
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares to the Underwriters is expected to be made at the office of
Prudential Securities Incorporated, One New York Plaza, New York, New York on or
about December , 1996.
PRUDENTIAL SECURITIES INCORPORATED
PIPER JAFFRAY INC.
SANDS BROTHERS & CO., LTD.
December , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE
BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
[MAP of Headquarters and States of Operation]
States of Operation
Currently Currently Licensed
State Operating but not Operating
-------------- --------- -----------------
Arizona X
California X
Colorado X
Connecticut X
Delaware X
Florida X
Georgia X
Illinois X
Indiana X
Kansas X
Kentucky X
Louisiana X
Maryland X
Michigan X
Mississippi X
Missouri X
Nevada X
New Hampshire X
New Jersey X
New Mexico X
New York X
North Carolina X
Ohio X
Oklahoma X
Oregon X
Pennsylvania X
Rhode Island X
South Carolina X
Tennessee X
Texas X
Vermont X
Utah X
Virginia X
Washington X
West Virginia X
As of December 20, 1996
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND
SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE
IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
------------------------
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act') and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the 'Commission'). Copies of these reports may be inspected
and copied at the Public Reference Facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048, and at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained upon written
request addressed to the Commission's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, including the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes that the Underwriters' over-allotment option will not be
exercised. Investors should carefully consider the information set forth under
the caption 'Risk Factors.' Unless the context otherwise requires, the 'Company'
or 'NAL' refers to NAL Financial Group Inc. and its wholly-owned subsidiaries.
THE COMPANY
NAL is a specialized automobile finance company engaged in the purchase and
servicing of loan and lease contracts (the 'Contracts') originated by franchised
and select independent dealers ('Dealers') in connection with sales or leases of
used and new automobiles to consumers with non-prime credit. Consumers with
non-prime credit are perceived to be relatively high credit risks due to various
factors, including the manner in which they have handled previous credit, the
absence or limited extent of their prior credit history and their limited
financial resources. The Company purchases Contracts relating principally to the
'C' credit segment of the automobile finance market. In addition to purchasing
Contracts directly from Dealers, the Company has established diverse programs
that enable it to increase the volume of Contracts purchased from a variety of
Dealers with whom the Company does not maintain a direct relationship. As of
September 30, 1996, the Company serviced 1,594 Dealers in 23 states and more
than 90% of all Contracts acquired by the Company during the nine months ended
September 30, 1996 were originated by franchised Dealers. The Company generated
net income of approximately $394,000 and $2.8 million in 1994 and 1995,
respectively. For the nine months ended September 30, 1995 and September 30,
1996, the Company generated net income of approximately $1.1 million and $6.1
million, respectively.
The Company has experienced significant growth in its portfolio of
purchased and serviced Contracts since June 1994, when the acquisition of
Contracts became the principal focus of its business. Total Contracts purchased,
which includes both loan contracts ('Loan Contracts') and lease contracts
('Lease Contracts'), increased from approximately $28.1 million through December
31, 1994 and $165.7 million through December 31, 1995, to approximately $205.8
million through September 30, 1996. As a result, the Company's servicing
portfolio increased from approximately $44.4 million at December 31, 1994 and
$153.8 million at December 31, 1995, to approximately $283.9 million at
September 30, 1996. The Company's overall growth during this period was
attributable to an increase in its Dealer relationships from 196 Dealers at
December 31, 1994 to 1,594 Dealers at September 30, 1996, and an expansion of
the sources and amounts of financing available to purchase Contracts. Loan
Contracts purchased during the nine months ended September 30, 1996 had an
average principal balance of $12,300, a weighted average annual percentage rate
('APR') of 19.48%, a weighted average purchase discount of 5.73% and a weighted
average initial contract term of 54.7 months. Lease Contracts purchased during
the nine months ended September 30, 1996 had an average principal balance of
$15,800, a weighted average yield of 18.10%,which is based on the residual value
assigned by the Company at the inception of the Lease Contract, and a weighted
average initial contract term of 45.4 months.
The Company has historically funded the purchase of its Contracts with
borrowings from banks and other lenders. Currently, the Company's primary
financing sources include a $100 million warehouse facility, $45 million of
revolving credit facilities, including a $25 million facility with General
Electric Capital Corporation ('GECC') and a specialized borrowing facility.
Beginning in December 1995, the Company began securitizing the majority of its
portfolio of Loan Contracts to increase the Company's liquidity, provide for the
redeployment of capital, reduce risks associated with interest rate fluctuations
and provide the Company with access to a cost-effective, diversified source of
financing. During the last four fiscal quarters, the Company completed
securitization transactions aggregating approximately $200 million. During this
period, gains on sale from the securitization transactions have constituted the
principal source of the Company's revenues. The Company plans to
3
<PAGE>
continue to employ its securitization program as an integral component of its
funding strategy and anticipates that it will generally complete securitization
transactions on a quarterly basis. The Company also generates revenues from
interest income and fees earned on Contracts held in portfolio, as well as
servicing fees from Loan Contracts sold in securitization transactions. In
addition, the Company receives revenues from the sale of insurance and related
products through its insurance subsidiary, NAL Insurance Services, Inc. ('NIS').
The Company purchases Contracts directly from Dealers through its Dealer
Program and through select third party entities that participate in the
Company's Captive Program, Affinity Program, Correspondent Program, Recourse
Program and Wholesale Program (collectively, the 'Origination Programs').
Participants in these Origination Programs offer Contracts to the Company under
a variety of arrangements and allow the Company to increase its access to
Dealers. The Company's main sources of Contracts are its Dealer Program and its
Captive Program. The Captive Program includes the Company's arrangements with
Special Finance, Inc. ('SFI'), which recently became a wholly-owned subsidiary
of the Company. Under its Affinity Program, the Company has an agreement with
General Electric Capital Auto Lease, Inc. ('GECAL') to purchase non-prime Lease
Contracts through GECAL's network of Dealers in the Southeast region of the
United States. As of September 30, 1996, the Company's servicing portfolio
consisted of Contracts purchased through its Dealer Program (32%), Captive
Program (46%), Affinity Program (5%), Correspondent Program (2%), Recourse
Program (9%) and Wholesale Program (6%). Each of these programs, other than the
Recourse Program, is designed to purchase Contracts relating primarily to the
'C' credit segment of the market. The Recourse Program is designed to purchase
Contracts relating to the 'D' credit segment.
The Company's principal objectives are to sustain controlled growth of its
business and to maximize its profit potential. To achieve these objectives, the
Company is currently implementing the following strategies:
Expanding and Strengthening Relationships with Origination Sources.
The Company plans to achieve a greater volume of business by expanding its
origination sources in existing markets, by entering into new geographic
markets and by strengthening its current relationships. The Company
develops strong relationships with its Dealers and other origination
sources by providing a high level of service specifically tailored to meet
their needs. The Company typically responds to credit applications on the
date received and in most cases within two to four hours, and generally
pays for Contracts purchased within twenty-four hours of receipt of a
complete funding package. In addition, the Company provides training to
Dealer personnel on the use of the Company's credit underwriting
guidelines.
Providing Diverse Products and Services to Dealers. In addition to
providing prompt, flexible service and a reliable source of financing, the
Company increases its volume of business from Dealers by offering a
'one-stop shop' service. This service includes purchasing both Loan and
Lease Contracts on used and new automobiles, addressing a broad range of
credit profiles and offering insurance and related products.
Employing Detailed Underwriting Guidelines. In order to evaluate and
measure effectively the risks associated with lending to non-prime
consumers, the Company's underwriting guidelines and approval procedures
focus on balancing the creditworthiness of the borrower with the adequacy
of the vehicle as collateral. The guidelines provide a high degree of
credit and pricing specificity to Dealers, which enable them to improve
service to their customers by increasing the efficiency of the credit
application and funding process.
Maintaining Effective Collection and Asset Disposition Systems. The
Company employs efficient and aggressive collection policies and
procedures. The Company contacts a borrower typically within 24 hours of a
payment delinquency and manages accounts based on geographic regions. The
Company also uses its subsidiary, Performance Cars of South Florida, Inc.
('PCSF'), with a J.D. Byrider car dealership franchise ('JDBR Franchise')
to maximize recovery on some of its repossessed and off-lease vehicles. As
geographic expansion requires, the
4
<PAGE>
Company intends to establish full service regional centers, which will
include servicing and collection operations.
Diversifying its Financing Sources. The Company plans to continue to
expand and diversify its financing sources. The Company intends to continue
to sell Loan Contracts through securitization transactions on a quarterly
basis. Securitization enables the Company to increase its liquidity,
redeploy capital, mitigate interest rate risk and reduce credit risk.
Continuing the Growth of Related Businesses. The Company's related
businesses, through NIS and PCSF, complement the purchasing and servicing
of Loan and Lease Contracts and enhance the Company's profitability. The
Company intends to continue to offer insurance and related products to
Dealers, which provide an additional source of revenue to the Company. As
the volume of Contracts purchased increases, the Company plans to open
additional PCSF sites with JDBR Franchises to maximize recovery from
remarketing activities.
Recruiting and Retaining Experienced Management. Members of the
Company's management team have an average of over 20 years of experience in
automobile finance, consumer finance or banking. Management believes that
hiring experienced management personnel is critical to the formulation and
implementation of its strategies and the maintenance of its growth and
profitability. The Company intends to continue to provide incentive
compensation arrangements, including stock option plans, to attract and
retain members of the management team.
According to CNW Marketing/Research, an independent automobile finance
market research firm, the automobile finance industry (which includes new and
used vehicle lending and leasing) is the second largest consumer finance
industry in the United States with over $410 billion in loan and lease
originations in 1995. Management believes that captive finance companies, such
as General Motors Acceptance Corporation, Ford Motor Credit Company and Chrysler
Credit Corporation, financed between 25% and 30% of automobile purchases and
leases nationwide in 1995, while the balance was provided by banks, credit
unions and independent finance companies. The industry is generally segmented
according to the type of car sold (new or used) and the credit characteristics
of the borrower (prime or non-prime). Management believes that the non-prime
segment of the automobile finance market is in the range of $80 billion to $100
billion in annual loan and lease originations.
The Company was founded in February 1991 as a specialized consumer finance
company. It became publicly held by virtue of a merger (the 'Merger') with a
previously inactive public company on November 30, 1994. Until June 1994, the
Company's principal activities involved the bulk purchase and servicing of
seasoned and non-performing portfolios of consumer and mortgage loan and
automobile loan and lease receivables. The principal focus of the Company's
business since June 1994 has shifted to the purchase and servicing of automobile
Loan and Lease Contracts.
The Company's principal executive office is located at 500 Cypress Creek
Road West, Suite 590, Fort Lauderdale, Florida 33309. Its telephone number is
(954) 938-8200.
RECENT DEVELOPMENTS
On December 18, 1996, the Company completed the sale of approximately $88
million of Loan Contracts in a privately-placed securitization transaction, the
terms of which are similar to the Company's four prior securitization
transactions. The securities issued in the securitization transaction were rated
'A' and 'BBB' by Duff & Phelps Credit Rating Co. and Fitch Investors Service,
L.P. and carry a weighted average coupon rate of 7.03%.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby............ 2,500,000 shares
Common Stock to be Outstanding after the
Offering(1)(2)................................. 9,847,367 shares
Use of Proceeds................................ The proceeds will be used to
support growth and for
general corporate purposes,
including working capital,
future acquisitions, the
repayment of certain advances
totaling $2,413,869 to the
Company's Chief Executive
Officer and the repayment of
short-term indebtedness of
$2,000,000. Pending such use,
the net proceeds will be used
to repay indebtedness under
the Company's warehouse and
other credit facilities. See
'Use of Proceeds.'
Nasdaq National Market Symbol.................. NALF
</TABLE>
- ------------------
(1) As of December 20, 1996.
(2) Excludes the potential conversion of $25.0 million principal amount of
outstanding debentures and the exercise of 2,913,625 outstanding related
warrants. Assuming the conversion of $25.0 million of outstanding debentures
into 2,537,830 shares of Common Stock (principal and interest) and the
issuance of 2,913,625 shares upon the exercise of outstanding warrants, the
Company would have 15,298,822 shares of Common Stock outstanding after the
Offering. Of the 5,451,455 shares of Common Stock issuable upon the
conversion of outstanding debentures and the exercise of outstanding related
warrants, substantially all of such shares are subject to the terms of a
lock-up agreement for a period of 180 days after the date of this
Prospectus. In addition, assuming the conversion of such debentures and the
exercise of such warrants, the Company would be released from its obligation
to repay approximately $28.4 million of principal and interest, and the
Company would secure additional working capital of approximately $33.0
million. See 'Risk Factors' and 'Description of Securities.'
Certain debentures and warrants are subject to price protection adjustment
features. Based upon the price at which the shares are being issued in
this Offering, the number of shares issuable upon conversion of such
debentures would likely be subject to material increase and the proceeds
to the Company upon exercise of such warrants would likely decrease. See
'Description of Securities -- Price Protection.'
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The financial data set forth below should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere herein. In the opinion of management, the interim
financial information for the nine-month periods ended September 30, 1996 and
1995 includes all of the adjustments necessary to fairly present the results of
such interim periods and all such adjustments which are of a normal recurring
nature. The interim financial information includes the accounts of the Company
and its wholly-owned subsidiaries and should be read in conjunction with the
audited financial statements, and the footnotes thereto, for the year ended
December 31, 1995. Certain 1995 and 1994 amounts have been reclassified to
conform with the current year presentation. Operating results for the nine-month
period ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
<TABLE>
<CAPTION>
FOR THE NINE FOR THE
MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- ---------------------
1996 1995 1995 1994
-------- -------- -------- -------
(DOLLARS IN THOUSANDS EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income............................... $ 8,936 $ 6,363 $ 8,319 $ 3,430
Gain on sale of Contracts......................... 13,427 128 4,600 2,292
Servicing fees and other income................... 4,670 1,241 2,651 454
-------- -------- -------- -------
Total revenue..................................... 27,033 7,732 15,570 6,176
Provision for credit losses....................... (2,801) (1,412) (2,762) (573)
Operating expenses................................ (13,844) (4,514) (7,805) (4,946)
Non-cash charge for escrow shares................. (301) (80) (280) --
-------- -------- -------- -------
Income before taxes............................... 10,087 1,726 4,723 657
Provision for income taxes........................ (3,945) (656) (1,926) (263)
-------- -------- -------- -------
Net income........................................ $ 6,142 $ 1,070 $ 2,797 $ 394
-------- -------- -------- -------
-------- -------- -------- -------
Primary EPS....................................... $ .81 $ .18 $ .45 $ .08
Fully diluted EPS................................. $ .75 $ .18 $ .45 $ .07
PRO FORMA EPS:(1)
Net income........................................ $ $
Primary EPS....................................... $ $
Fully diluted EPS................................. $ $
OPERATING DATA:
Loan Contracts purchased during the period........ $191,718 $ 92,368 $145,657 $23,382
Average Loan Contract purchased during the
period(2)....................................... $ 12.3 $ 11.8 $ 12.0 $ 9.1
Weighted average Loan Contract APR................ 19.48% 19.94% 19.72% 20.98%
Weighted average Loan Contract term (months)...... 54.7 50.7 48.73 43.75
Lease Contracts purchased during the period....... $ 14,071 $ 16,059 $ 20,048 $ 4,683
Average Lease Contract purchased during the period $ 15.9 $ 16.8 $ 17.7 $ 17.6
Weighted average Lease Contract yield............. 18.10% 17.74% 16.93% 16.95%
Weighted average Lease Contract term (months)..... 45.4 43.7 42.5 45.5
Principal balance of Contracts securitized during
the period...................................... $160,302 -- $ 40,136 --
Number of states served (at end of period)........ 23 4 8 1
Number of Dealers (at end of period)(3)........... 1,594 787 909 196
Operating expenses as a percentage of average
servicing portfolio during the period(4)........ 8.59% 7.76% 8.41% 14.39%
SELECTED PORTFOLIO DATA:
Servicing portfolio (at end of period)............ $283,887 $111,888 $153,764 $44,415
Delinquencies as a percentage of the servicing
portfolio (at end of period)(5)................. 11.69% 9.39% 13.97% 8.61%
Net charge-offs as a percentage of the average
servicing portfolio during the period(4)(5)..... 6.46% .79% 3.15% 0%
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents......................... $ 4,572 $ 1,336 $ 1,953 $ 1,726
Contracts receivable, net(6)...................... 87,739 99,278 101,214 29,984
Excess servicing receivable....................... 22,898 -- 4,999 --
Total assets...................................... 144,833 112,206 122,035 34,518
Debt(7)........................................... 96,716 86,977 91,794 22,502
Total liabilities................................. 107,575 91,177 98,175 23,663
Stockholders' equity.............................. 37,258 21,029 23,860 10,855
</TABLE>
- ------------------
(1) Pro forma net income and pro forma primary and fully diluted earnings per
share as adjusted to give effect to the sale by the Company of 2,500,000
shares of the Common Stock offered hereby based on a public offering price
of $ per share, after deducting the underwriting discounts and
commissions and estimated offering expenses, and the application of the net
proceeds therefrom to the repayment of a portion of the Company's debt as if
such transaction had been consummated at the beginning of the periods
presented.
(2) Excludes Recourse Program Loans.
(3) Includes Dealers with whom SFI has relationships.
(4) The percentages for the nine months ended September 30, 1996 and 1995 have
been annualized.
(5) Excludes non-automobile bulk purchase contracts. Delinquency information
reflects Contract delinquency greater than 30 days.
(6) Net of reserve available for credit losses.
(7) Amounts include discount arising from the issuance of common stock purchase
warrants.
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock involves a high degree of risk.
Prospective investors should carefully consider the following risk factors in
addition to the other information set forth in this Prospectus in connection
with the investment in the shares of Common Stock.
When used in this Prospectus, the words 'may,' 'will,' 'expect,'
'anticipate,' 'continue,' 'estimate,' 'project,' 'intend' and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions and financial
trends that may affect the Company's future plans of operations, business
strategy, operating results and financial position. Prospective investors are
cautioned that any forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties and that actual results
may differ materially from those included within the forward-looking statements
as a result of various factors. Such factors are described under the headings
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' 'The Company' and in the risk factors set forth below.
DEPENDENCE UPON ADEQUATE SOURCES OF FINANCING. The Company is dependent
upon its warehouse facility, revolving credit facilities and other financing
arrangements to finance the purchase of its automobile Loan and Lease Contracts.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations.' Accordingly, the Company's ability to maintain and expand its
portfolio of Loan and Lease Contracts, while dependent upon a number of factors,
relies predominantly upon the availability of adequate financing at rates and
upon terms acceptable to the Company. The Company also relies on the proceeds
from its securitization transactions to pay down its warehouse facility, thereby
permitting the purchase of additional Loan Contracts.
The Company employs its securitization program as an integral component of
its funding strategy. During the period from December 1995 through September
1996, the Company completed the sale of approximately $200 million of Loan
Contracts in four privately-placed securitization transactions. The Company has
historically applied the net proceeds from securitization transactions to repay
indebtedness under its warehouse facility, thereby increasing the amounts
available under such facility to fund future purchases of Loan Contracts. Any
failure by the Company to effect additional securitizations of Loan Contracts on
terms acceptable to the Company would restrict the Company's financing
capabilities, could require the Company to curtail the purchase of Loan
Contracts and could have a material adverse effect on the Company. Furthermore,
the timing of any securitization transaction is affected by a number of factors
beyond the Company's control, including, among others, conditions in the
asset-backed securities markets, interest rates and approvals from third
parties. Although the Company expects to complete future securitization
transactions on a quarterly basis, some or all of these factors may cause delays
in closing a securitization or may prevent such transactions entirely. Gains
from the sale of Loan Contracts in securitization transactions constituted a
significant portion of the net earnings of the Company during the nine months
ended September 30, 1996 and are likely to continue to represent a significant
portion of the Company's net earnings. If the Company were unable to securitize
Loan Contracts in a financial reporting period, the Company would incur a
significant decline in total revenues and net earnings for such period. In
addition, in order for the Company to continue to fund the purchase of Contracts
in accordance with its growth strategy, the Company will require financing in
excess of that provided by its cash flow from operations, the net proceeds from
the Offering and its credit facilities (or any successor facilities). No
assurance can be given that additional financing sources, including
securitization transactions, will be available on terms acceptable to the
Company.
The Company currently finances its Lease Contracts principally through its
agreements with GECC. There can be no assurances that such financing would be
available from another source upon similar terms and conditions. The inability
of the Company to arrange new credit facilities or to extend its existing credit
facilities would have a material adverse effect upon the Company's ability to
purchase Lease Contracts.
8
<PAGE>
The Company remains in compliance with the terms of its existing credit
facilities and other financing agreements. A default under any of these
agreements in the future could have a material adverse effect on the Company's
financial condition. The Company's ability to keep these financing sources in
place depends on its continued compliance with the terms thereof. There can be
no assurance that the Company's sources of financing will continue to remain
available on terms acceptable to the Company, or that the Company will be able
to secure increased sources of financing. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
SUSPENSION OR LOSS OF EXCESS SERVICING CASH FLOWS AND SERVICING FEE. The
gain on sale of Contracts and the amount of the excess servicing receivable
recognized by the Company in each securitization reflects management's estimate
of future credit losses and prepayments for the Contracts included in that
securitization. If the actual rates of credit losses, prepayments, or both, on
such Contracts exceeded those estimated by management, the timing and the amount
of the excess servicing cash flows could be adversely affected and the value of
the excess servicing receivable impaired. On a quarterly basis, the Company
updates its credit loss and prepayment assumptions for the remaining life of
each securitization based on the past performance of the Loan Contracts within
the securitization and market conditions. If the Company concludes that its
ability to realize the excess servicing receivable has been impaired, the
Company reduces the amount of the excess servicing receivable by recording a
charge to earnings. To date, no such adjustment has been made. However, the
Company's results of operations and liquidity could be adversely affected if
credit losses or prepayment levels, or both, on Contracts substantially exceed
anticipated levels. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
Under the terms of each securitization, the Company is required to maintain
a reserve account at specific levels during the life of the securitization. Upon
the occurrence of certain trigger events, which relate to delinquency,
repossession or credit loss rates exceeding certain levels, the terms of the
securitization transactions require the Company to maintain the reserve account
at higher levels by restricting the distribution of both contractual servicing
cash flows and excess servicing cash flows to the Company. Once the reserve
account is maintained at the higher level and the trigger events cease to occur
for a specified period, the Company would continue to receive its contractual
servicing fees and excess servicing cash flows. The occurrence of trigger events
could materially adversely affect the Company's liquidity and results of
operations. Two of the Company's securitization transactions have recently
experienced trigger events. As a result, the Company's rights to receive
contractual servicing fees and excess servicing cash flows have been suspended
from these two securitization transactions. Continued occurrence of the trigger
events could delay cash flows to the Company which may have a material adverse
impact. Although,based upon management's analysis, there has been no impairment
of the excess servicing receivable to date, there can be no assurance that the
excess servicing receivable will not be impaired in the future.
NEGATIVE OPERATING CASH FLOWS. The Company's business requires substantial
cash to support the funding of reserve accounts in connection with
securitizations, the purchase of Contracts and other cash requirements, in
addition to debt service. These cash requirements increase as the volume of
Contracts purchased increases. The Company has operated historically on a
negative operating cash flow basis and expects to continue to do so for so long
as the Company's volume of Contracts purchased continues to grow at a
significant rate. As a result of the Company's historical growth rate, the
Company has used increasingly larger amounts of cash than it has generated from
its operating activities. The Company has funded these negative operating cash
flows principally through borrowings from financial institutions and private
placements of debt and equity securities. The Company's ability to execute its
growth strategy depends upon its continued ability to obtain substantial
additional long-term debt and equity capital through access to the capital
markets or otherwise. There can be no assurance that the Company will have
access to the capital markets when needed or will be able to obtain financing
upon terms reasonably satisfactory to the Company. Factors that could affect the
Company's access to the capital markets, or the costs of such capital, include
changes in interest rates, general economic conditions, the perception in the
capital markets of the Company's business, results of operations, leverage,
financial condition and business prospects, and
9
<PAGE>
the performance of the Company's securitization trusts. In addition, covenants
with respect to the Company's credit facilities may restrict the Company's
ability to incur additional indebtedness.
DEFAULT AND PREPAYMENT RISK. The Company's results of operations,
financial condition and liquidity depend, to a material extent, on the
performance of the Contracts. The performance of Contracts depends upon such
factors as the underwriting criteria, the collection efforts employed to prevent
defaults, and the proceeds from the sale of repossessed vehicles. The Company
bears the risk of losses resulting from defaults on Contracts. In the event of a
default, the liquidation proceeds from repossessed vehicles may not be
sufficient to cover the outstanding Contract balance and costs of recovery. The
Company, therefore, maintains a reserve for credit losses on its Contracts. The
reserve reflects management's estimate of anticipated credit losses based upon
expectations and historical performance of Contracts.
Based on static pool analyses of the performance of Contracts, management
has, from time to time, modified its credit underwriting criteria. In view of
the performance of Contracts purchased during the six months ended December 31,
1995, the Company modified its underwriting criteria during the fourth quarter
of 1995. Notwithstanding management's approach for establishing a reserve for
credit losses, its estimates for anticipated credit losses may not be adequate
because the Company has a limited operating history and its Contract portfolio
is unseasoned. If the reserve is inadequate, the Company would recognize as an
expense the losses in excess of such reserve and results of operations would be
adversely affected. Additionally, such losses may impair the Company's ability
to secure credit facilities and/or securitize its Contracts. While the Company
believes that it maintains a reserve adequate to cover potential credit losses,
there can be no assurance to that effect.
The Company's servicing income can be adversely affected by defaults and
prepayments on Contracts. The Company's servicing income is based on the
outstanding balance of Contracts. If Contracts are prepaid or charged-off, the
Company's servicing income will decline to the extent of such prepaid and
charged-off Contracts. There can be no assurance as to what level of prepayment,
if any, will occur on the Contracts. Prepayments may be influenced by a variety
of economic, geographic, social and other factors, including borrowers' job
transfers, casualty, trade-ins and declines in interest rates.
IMPLEMENTATION OF BUSINESS STRATEGIES. The Company's ability to sustain
the growth of its business and maximize its profit potential is dependent upon
the implementation of its business strategies. The Company's strategies include:
(i) expanding and strengthening relationships with its origination sources in
order to increase the volume of Contracts purchased; (ii) providing diverse
products and services to Dealers; (iii) employing detailed underwriting
guidelines to ensure that the Company purchases and services Contracts within
acceptable levels of credit risk and loss; (iv) maintaining effective
collections and asset disposition systems; (v) diversifying financing sources;
(vi) continuing the growth of related businesses; and (vii) recruiting and
retaining experienced management. The Company's failure with respect to any or
all of these strategies could impair its ability to increase the volume of
Contracts purchased, which could have a material adverse effect on the Company's
results of operations and financial condition. See 'The Company -- Business
Strategy.'
RELATIONSHIPS WITH DEALERS AND OTHER ORIGINATION SOURCES. The Company's
business depends in large part upon its ability to establish and maintain
relationships with Dealers and other origination sources. While the Company
believes that it has been successful in developing and maintaining relationships
with Dealers and other origination sources, these relationships are not long-
standing, and there can be no assurance that the Company will be successful in
maintaining such relationships or increasing the number of Dealers and other
origination sources with which it does business, or that its existing Dealer
base, and other origination sources, will continue to generate a volume of
Contracts comparable to the volume of such Contracts historically generated by
such Dealers and other origination sources. See 'The Company -- Business
Strategy.'
RISKS ASSOCIATED WITH THE NON-PRIME MARKET. The principal focus of the
Company's business is the purchase of Contracts involving consumers with
non-prime credit. The non-prime market is
10
<PAGE>
comprised of consumers who are perceived to be relatively high credit risks.
Consequently, the Contracts acquired by the Company typically bear a higher rate
of interest than contracts made to consumers with prime credit and are purchased
at a discount. However, these Contracts involve a higher probability of default,
higher delinquency rates and greater servicing costs than contracts made to
consumers with prime credit. The Company's profitability depends on its ability
to evaluate properly the credit risks, to price its Contracts accordingly and to
service efficiently its Contracts. However, there can be no assurance that the
rates of future defaults and losses will be consistent with prior experience or
at levels that will maintain the Company's profitability, that the credit
performance of its customers will be maintained, that the Company's credit
analysis, servicing and collection systems and controls will continue to be
adequate, or that the current interest rates and discount levels can be
maintained in the face of competitive pressures.
SENSITIVITY TO INCREASES IN INTEREST RATES. The Company's profitability is
determined largely by the difference, or 'spread,' between the rate of interest
collected from customers on their Contracts and the rate of interest on the
funds obtained by the Company under its existing credit facilities and through
securitization transactions to finance its Contracts. Generally, interest rates
received by the Company on the Contracts it purchases are determined by many
factors beyond the Company's control, including competition, state usury
statutes and other consumer laws prohibiting or limiting the Company's ability
to impose various charges on its borrowers. Significant increases in the
interest rates at which the Company borrows under its revolving credit
facilities could reduce the Company's spread and thereby adversely affect the
Company's profitability with respect to the Contracts it purchases. In the case
of securitization transactions, the interest rate demanded by investors is a
function of prevailing market rates for comparable transactions and the general
interest rate environment. Because the Contracts purchased by the Company have
fixed interest rates, the Company bears the risk of interest rate increases
during the period from the date the Contracts are purchased until the closing of
its securitization for Contracts that are sold and for the entire term for
Contracts that are held by the Company and are not match-funded. Moreover, the
Company's warehouse facility gives the lender the right to make margin calls in
the event of a specified decrease in the market value in the Contracts held for
repurchase. The Company does not presently employ a hedging strategy. There can
be no assurances that the Company will not sustain losses as a result of its
policy relative to hedging. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
RECOVERY OF RESIDUAL VALUE. As of September 30, 1996, Lease Contracts
represented approximately 10% of the Company's servicing portfolio. In
connection with these Lease Contracts, the Company faces risks arising from its
estimate at lease inception of the projected value of the vehicle at the end of
the scheduled lease term (the 'Residual Value'). Although the Company uses
industry guidelines to estimate the Residual Value and periodically reviews and
updates the Residual Values as considered necessary throughout the lease term,
there can be no assurance that the Residual Value will approximate the ultimate
proceeds received on the disposition of the vehicle. At the end of the scheduled
lease term, if the lessee does not purchase the vehicle, the Company generally
sells the vehicle through wholesale auctions or through the Company's
subsidiary, PCSF. To the extent that the Company realizes proceeds from such
disposition in an amount less than the Residual Value, whether due to changes in
the market for that vehicle, the used automobile market in general or otherwise,
the Company will realize a loss on the disposition of the vehicle. Significant
aggregate losses on the disposition of off-lease vehicles would have a material
adverse effect on the Company's financial condition and results of operations.
The Company's ability to realize a gain on the disposition of a vehicle will be
substantially determined by the accuracy of the Residual Value previously
estimated and by the Company's ability to remarket its off-lease vehicles in a
cost-efficient manner. Due to the continued growth in the volume of Lease
Contracts purchased and the trend towards shorter lease terms, the Company will
likely be required to remarket increasing numbers of vehicles in the future.
There can be no assurance that such increased remarketing volume will not have a
material adverse effect on the Company's financial condition and results of
operations. See 'The Company -- Lease Contracts.'
11
<PAGE>
COMPETITION. The Company is subject to a high level of competition in the
retail automobile finance industry. The market is highly fragmented and
historically has been serviced by a variety of financial entities, including the
captive finance affiliates of major automobile manufacturers, banks, savings
associations, independent finance companies, credit unions and leasing
companies. Many of these competitors have greater financial resources than the
Company and have significantly lower cost of funds. Many of these competitors
may also have long-standing relationships with automobile dealerships and may
offer dealerships or their customers other forms of financing or services not
provided by the Company. Furthermore, during the past two years, a number of
automobile finance companies have completed public offerings of securities, the
proceeds from which are to be used, at least in part, to fund expansion and
finance increased purchases of contracts. There can be no assurance that the
Company will be able to compete successfully with such competitors in the
future.
GEOGRAPHIC AND CONTRACT PURCHASE CONCENTRATIONS. As of September 30, 1996,
the Company purchased 54.0% of its outstanding Contracts from Florida, 14.4%
from Georgia, 7.2% from Louisiana and 6.8% from North Carolina. As a result, the
Company's profitability may be influenced by the general economic conditions
prevailing in any of these states, particularly Florida.
As of September 30, 1996, 9.0% of the Company's portfolio were Loan
Contracts purchased through its Recourse Program, which consists of Loans to
consumers with 'D' credit. While Loans to 'D' credit consumers involve higher
credit risks than those to 'C' credit consumers, management believes that it
mitigates the credit risk through large discounts on the purchase of such Loan
Contracts and full recourse to the originating entity to repurchase certain
delinquent accounts. To date, the Company has not experienced any losses arising
out of the failure of the originating entities to repurchase any such delinquent
Loan Contracts. There can be no assurances, however, that the originating
entities will continue to have sufficient resources to cover recourse
obligations under this program; nor can there be any assurances that the level
of discounts associated with Loan Contracts originated under this program would
be sufficient to cover potential losses should the originating entity be unable
to satisfy its recourse obligations thereunder. See 'The Company -- Recourse
Program.'
Prior to the acquisition by the Company of the business of SFI, it
historically represented a significant source of Contracts for the Company. As
of September 30, 1996, Loan Contracts purchased through SFI represented
approximately 45% of the Company's outstanding Contracts purchased. Since the
acquisition, SFI has continued to generate Loan Contract volume comparable to
historic levels. As a result of a management contract with the former principals
of SFI, and the retention by SFI of substantially all of the personnel necessary
to the operation of the business, management believes that SFI will continue to
generate Loan Contracts at a comparable volume to historic levels. However,
there can be no assurance to that effect. In light of the volume of Loan
Contracts purchased through SFI prior to the acquisition, a significant decline
in the volume of Loan Contracts purchased through SFI could have a material
adverse effect on the Company.
MANAGEMENT OF RAPID GROWTH. The Company has experienced rapid growth and
expansion of its business. The Company's ability to support, manage and control
continued growth is dependent upon, among other things, its ability to train,
supervise and manage increased personnel. The success of the Company's growth
strategy is also dependent upon the Company's ability to maintain credit quality
as its Contract portfolio grows, which requires, among other things, the
maintenance of efficient collection procedures and adequate collection staffing,
internal controls and automated systems. There can be no assurance that the
Company will be successful in maintaining credit quality as its Contract
portfolio grows or that the Company's personnel, procedures, staff, internal
controls or systems will be adequate to support such growth.
RELIANCE ON KEY PERSONNEL. The Company's future operating results depend
in significant part upon the continued service of its executive officers. Should
one or more of these individuals cease to be affiliated with the Company before
acceptable replacements are found, there could be a material adverse effect on
the Company's business and prospects. Mr. Robert R. Bartolini, the Company's
Chairman and Chief Executive Officer, is the only executive officer with whom
the Company has an employment agreement. Should any of the Company's executive
officers elect to terminate their
12
<PAGE>
employment, there can be no assurance that suitable replacements could be hired
without substantial additional costs. The Company does not presently maintain
key-man insurance on any of its executives. The Company's continued success also
depends on its ability to attract and retain a sufficient number of qualified
employees to support its growth strategy. There can be no assurance that the
Company will be able to recruit and retain such personnel. See 'Management.'
CONTROL BY DIRECTORS AND OFFICERS. After the Offering, the Company's
officers and directors will own approximately 26.27% of the Common Stock of the
Company. See 'Principal Stockholders.' By virtue of the concentration of a
substantial block of shares with the Company's directors and officers, these
stockholders are in a position to elect all of the Company's directors and
control the outcome of other corporate matters without the approval of the
Company's other stockholders. In addition, applicable statutory provisions and
the ability of the Board of Directors to issue one or more series of Preferred
Stock without stockholder approval could deter or delay unsolicited changes in
control of the Company by discouraging open market purchases of the Company's
stock or a non-negotiated tender or exchange offer for such stock, which may be
disadvantageous to a majority of the Company's stockholders who may otherwise
desire to participate in such a transaction and receive a premium for their
shares. See 'Description of Securities.'
REGULATION. The Company's business is subject to numerous federal and
state consumer protection laws and regulations, which, among other things,
require the Company to obtain and maintain certain licenses and qualifications,
to limit the interest rates, charges and other fees the Company is allowed to
charge, to provide specified disclosures, and to define the Company's rights to
repossess and sell collateral. A change in existing laws or regulations, or in
the interpretation thereof, or the promulgation of any additional laws or
regulations could have an adverse effect on the Company's business. See 'The
Company -- Government Regulation.'
Due to the consumer-oriented nature of the industry in which the Company
operates, industry participants frequently are named as defendants in litigation
involving alleged violations of federal and state consumer lending or other
similar laws and regulations. A significant judgment against the Company or
another industry participant in connection with any litigation could have a
material adverse effect on the Company's financial condition and results of
operations. See 'The Company -- Government Regulation.'
SUBSTANTIAL DILUTION FROM CONVERTIBLE SECURITIES. The Company is presently
authorized to issue 50,000,000 shares of Common Stock, of which 7,347,367 shares
are outstanding as of the date of this Prospectus. During the period from April
1995 through September 1996, the Company sold in the aggregate $38.8 million
principal amount of convertible debentures ('Debentures') in private placement
transactions. Primarily in connection with the sale of such Debentures, the
Company issued 2,873,625 common stock purchase warrants (the 'Warrants'). The
Company has granted 40,000 Warrants in connection with directors joining the
Board of Directors. The Company may be caused to issue 2,537,830 additional
shares upon the conversion of the principal and interest due under the
outstanding Debentures and 2,913,625 shares upon the exercise of the Warrants,
thus increasing the number of shares outstanding from 7,347,367 to 12,798,822.
This number may be subject to material increase by virtue of certain price
protection and adjustment features contained in certain Debentures and Warrants.
See 'Description of Securities -- Price Protection.'
The holders of the Debentures may exercise their rights of conversion, and
the holders of the Warrants may choose to exercise the Warrants, at prices below
the trading price of the Company's Common Stock at the time of conversion or
exercise and at a time when the Company might be able to obtain additional
capital through a new offering of securities at prevailing market prices. The
terms on which the Company may obtain additional financing during this period
may be adversely affected by the existence of such below market conversion and
exercise prices.
Conversion of all of the outstanding Debentures would, however, have the
effect of releasing the Company from its obligation to repay approximately $28.4
million of principal and interest on the Debentures. In addition, the exercise
of all of the Warrants would have the effect of securing for the Company
additional working capital of up to approximately $33.0 million. The proceeds to
the
13
<PAGE>
Company of the Warrants may decrease materially by virtue of price protection
and adjustment features contained in certain Warrants. See 'Description of
Securities -- Price Protection.'
As its rate of growth continues, the Company must secure increasing amounts
of financing to fund the acquisition of additional Contracts. This may entail
the sale of additional shares of Common Stock or Common Stock equivalents, which
would have the effect of further increasing the number of shares outstanding.
In connection with other business matters deemed appropriate by the
Company's management, there can be no assurance that the Company will not
undertake the issuance of more shares of Common Stock without notice to
stockholders. This may be done in order to facilitate a business combination,
acquire assets or stock of another business, compensate employees or consultants
or for other valid business reasons in the discretion of the Company's Board of
Directors. The Company has two stock option plans, which are presently
authorized to grant options for the issuance in the aggregate of up to 1,250,000
shares of Common Stock. As of December 20, 1996, the Company had 564,166 options
outstanding under such plans. See 'Management -- Executive Compensation.'
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have a total of 9,847,367 shares of Common Stock outstanding
(10,222,367 shares if the Underwriters' over- allotment option is exercised in
full). Of these shares, a total of approximately 6,111,825 shares (6,486,825
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act of 1933 (the 'Securities Act'). The remaining 3,735,542 shares of
Common Stock outstanding are 'Restricted Securities' as that term is defined in
Rule 144 under the Securities Act, of which approximately 2,596,752 are held by
'affiliates' (as defined in the Securities Act) of the Company.
The Restricted Securities are subject to all of the limitations on resale
imposed by Rule 144. In general, under Rule 144 as currently in effect, any
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with the Rule) who has beneficially owned Restricted Securities
for at least two years would be entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of 1.0% of the outstanding
shares of Common Stock (approximately 98,474 shares based upon the number of
shares outstanding after the Offering) and the reported average weekly trading
volume in the over-the-counter market for the four weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale restrictions and
notice requirements and to the availability of current public information
concerning the Company. Persons who have not been affiliates of the Company for
at least three months and who have held their shares for more than three years
are entitled to sell Restricted Securities without regard to the volume, manner
of sale, notice and public information requirements of Rule 144. Substantially
all of the Restricted Securities were issued in November 1994. Accordingly,
under Rule 144 (and subject to the conditions thereof), the Restricted
Securities are eligible for public resale. However, a majority of such shares
are held by executive officers and directors of the Company who have agreed to
certain restrictions upon the resale of such shares.
A substantial influx of shares into the market may have a significant
depressive effect upon the trading price of the Company's Common Stock. This may
occur upon the public resale of up to 2,537,830 shares issuable upon the
conversion of outstanding Debentures or 2,913,625 shares issuable upon the
exercise of outstanding Warrants. See 'Description of Securities.'
As a result of certain registration rights granted by the Company in
connection with the shares issuable upon the conversion of outstanding
Debentures or upon the exercise of outstanding Warrants, the Company may have an
obligation to register for public resale up to 4,985,065 shares of Common Stock.
The holders of substantially all of such shares have agreed to defer their
registration rights for a period of 120 or 180 days after the date of this
Prospectus. See 'Description of Securities -- Registration Rights.'
The Company, its executive officers and directors, certain debenture
holders and certain warrant holders have each agreed that they will not,
directly or indirectly, offer, sell, offer to sell, contract to
14
<PAGE>
sell, pledge, grant any option to purchase or otherwise sell or dispose of (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) any shares of Common Stock or
other capital stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company, for a period of 180 days after the date of this Prospectus, without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, except for bona fide gifts or private transfers effected by such
stockholders other than on any securities exchange or in the over-the-counter
market to donees or transferees that agree to be bound by similar agreements.
See 'The Company -- Underwriting.'
The Company is unable to predict the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price for the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such influx of shares into the
market could occur, could adversely affect the market price for the Common Stock
and could impair the Company's future ability to obtain capital through
offerings of equity securities.
VOLATILITY OF STOCK PRICE. The market price of the Common Stock could be
subject to significant fluctuations in response to influxes of shares into the
market upon the conversion or exercise of outstanding convertible securities,
variations in financial results or announcements of material events by the
Company or its competitors. Developments in the automobile finance industry or
changes in general conditions in the economy or the financial markets could also
adversely affect the market price of the Common Stock.
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS. Certain provisions of the
Company's Certificate of Incorporation, Bylaws and Delaware law may delay, defer
or prevent a change in control of the Company and may adversely affect the
voting and other rights of the holders of Common Stock. In particular, the
existence of the Company's classified Board of Directors, the ability of the
Board of Directors to issue 'blank check' preferred stock without further
stockholder approval and the inability of stockholders to take action by written
consent may have the effect of delaying, deferring or preventing a change in
control of the Company. See 'Management -- Directors and Executive Officers' and
'Description of Securities.'
DIVIDENDS. No dividends have been declared or paid by NAL since the
Merger. The declaration or payment of dividends is not contemplated in the
foreseeable future. Earnings are expected to be retained to finance the
development of the Company's business. The declaration or payment of future
dividends will be directly dependent upon the earnings of the Company, its
financial needs and other similarly unpredictable factors.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered hereby, based on an offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, are estimated to be approximately $ (approximately $ if the
Underwriters over-allotment option is exercised in full). The net proceeds will
be used to support the growth of the Company's operations and for general
corporate purposes, including working capital, future acquisitions, the
repayment of advances totaling $2,413,869 to the Company's Chief Executive
Officer and the repayment of short-term indebtedness of $2,000,000. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and 'Certain Transactions --
Loans to the Company.' Pending such use, the net proceeds to the Company from
the Offering will be used to repay indebtedness under the Company's warehouse
and other credit facilities.
15
<PAGE>
PRICE RANGE OF COMMON STOCK
Commencing December 1994, the Company's Common Stock was quoted on the
Over-the-Counter Bulletin Board under the symbol 'NALF.' In May 1995, the
Company's Common Stock was included in the Nasdaq National Market under the same
symbol.
The following table sets forth the high and low market prices of the Common
Stock for the period from January 1995 through December 20, 1996.
<TABLE>
<CAPTION>
1995 HIGH LOW
- -------------------------------------------------- ------ ------
<S> <C> <C>
First Quarter..................................... $12.00 $ 9.50
Second Quarter.................................... $13.38 $10.25
Third Quarter..................................... $18.38 $11.25
Fourth Quarter.................................... $17.38 $ 9.75
<CAPTION>
1996
- --------------------------------------------------
<S> <C> <C>
First Quarter..................................... $14.75 $10.63
Second Quarter.................................... $16.13 $12.38
Third Quarter..................................... $14.88 $11.75
Fourth Quarter (through December 20, 1996)........ $14.50 $ 8.63
</TABLE>
On December 20, 1996, the last reported sales price of the Common Stock on
the Nasdaq National Market was $9.75 per share.
As of December 20, 1996, the Company had approximately 144 holders of
record of its Common Stock. Since a number of the shares of the Company are held
by financial institutions in 'street name,' it is likely that the Company has
more stockholders than indicated above.
DIVIDEND POLICY
No dividends have been declared or paid by NAL since the Merger. The
declaration or payment of dividends is not contemplated in the foreseeable
future. Earnings are expected to be retained to finance and develop the
Company's business. The declaration or payment of future dividends will be
directly dependent upon the earnings of the Company, its financial needs and
other similarly unpredictable factors.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the issuance and sale of 2,500,000 shares of Common Stock by
the Company in the Offering and the application of the estimated net proceeds
therefrom as described in 'Use of Proceeds.'
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
ACTUAL AS ADJUSTED (1)
-------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Warehouse and other credit facilities........... $ 49,191 $
Specialized borrowing facility.................. 21,682
Convertible subordinated debentures............. 25,843
-------- ---------------
Total debt................................... 96,716
-------- ---------------
Stockholders' Equity:.............................
Preferred Stock, $1,000 par value, 10,000,000
shares authorized;
none issued and outstanding.................. -- --
Common Stock, $0.15 par value, 50,000,000 shares
authorized;
7,252,935 issued and outstanding;
9,752,935 shares issued and outstanding as
adjusted..................................... 1,088
Paid in capital................................... 25,698
Retained earnings................................. 10,472
-------- ---------------
Total stockholders' equity........................ 37,258
Total capitalization.............................. $133,974 $
-------- ---------------
-------- ---------------
</TABLE>
- ------------------
(1) Reflects the capitalization of the Company on a pro forma basis as adjusted
to give effect to the partial repayment of the Company's warehouse and other
credit facilities and the sale of 2,500,000 shares of Common Stock offered
by the Company hereby, (based upon a public offering price of $ per
share, after deducting the underwriting discounts and commissions and
estimated offering expenses, and the receipt of the estimated
net proceeds therefrom.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements (including the notes thereto) and other
financial data included elsewhere in this Prospectus.
The Company is a specialized automobile finance company engaged in the
purchase and servicing of Contracts originated by franchised and select
independent Dealers in connection with sales or leases of used and new
automobiles to consumers with non-prime credit. Consumers with non-prime credit
are perceived to be relatively high credit risks due to various factors,
including the manner in which they have handled previous credit, the absence or
limited extent of their prior credit history and their limited financial
resources. The Company purchases Contracts relating principally to the 'C'
credit segment of the automobile finance market. More than 90% of all Contracts
acquired by the Company during the nine months ended September 30, 1996 were
originated by franchised Dealers. The Company is also engaged in offering
insurance and related products to its Dealers and customers through its
insurance subsidiary, NIS. The Company has a remarketing subsidiary, PCSF with a
JDBR Franchise, which provides a cost-effective means of disposing of some of
the Company's repossessed and off-lease vehicles.
Contract Acquisition
The Company acquires Contracts from diverse sources through its Origination
Programs. In order to adjust for credit risk and achieve an acceptable rate of
return, the Company typically purchases Loan Contracts from Dealers at a
discount from the principal amounts of such Contracts. This discount is
non-refundable to the Dealer. Currently, the discount is being allocated to the
reserve for credit losses. See 'Acquisition Discounts.' During the period from
July 1, 1994 through September 30, 1996, the Company purchased $360.8 million in
Loan Contracts and $38.8 million in Lease Contracts through its Origination
Programs. The following table provides certain material information relative to
the Contracts acquired by the Company and its servicing portfolio during each of
the last nine quarters.
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------------------------------------------------------------------------
SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30,
OPERATING DATA: 1996 1996 1996 1995 1995 1995 1995 1994 1994
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contracts purchased during the
period:
Loan Contracts:
Dealer Program.............. $ 23,001 $ 15,019 $ 12,143 $ 26,522 $ 16,540 $ 5,267 $ 4,805 $ 1,809 $ 395
Other Origination
Programs(1)(2)............ 46,555 35,952 36,183 20,071 15,084 16,097 13,980 10,279 --
Recourse Program............ 7,091 10,568 5,206 6,696 8,203 6,554 5,838 5,415 5,484
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Loan Contracts...... 76,647 61,539 53,532 53,289 39,827 27,918 24,623 17,503 5,879
Lease Contracts............... 6,776 3,609 3,686 3,989 4,085 5,241 6,733 3,446 1,237
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Contracts........... $ 83,423 $ 65,148 $ 57,218 $ 57,278 $ 43,912 $33,159 $31,356 $20,949 $ 7,116
Number of Dealers (at end of
period)(3).................. 1,594 1,381 1,271 909 787 406 296 196 83
Servicing portfolio (at end of
period):
Owned....................... $108,208 $111,928 $117,210 $113,830 $111,888 $87,938 $65,824 $44,415 $33,028
Serviced for securitization
trusts.................... 175,679 118,818 73,741 39,934 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total servicing
portfolio............... $283,887 $230,746 $190,951 $153,764 $111,888 $87,938 $65,824 $44,415 $33,028
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
- ------------------
(1) Includes Contracts purchased during the period through the Company's
Captive, Affinity, Correspondent and Wholesale Programs.
(2) Includes Contracts purchased through the Company's Captive Program with SFI.
(3) Includes Dealers for the Company's Captive Program with SFI.
The Company has experienced significant growth in the volume of Contracts
purchased. Contract volume has increased to $83.4 million for the quarter ended
September 30, 1996 from $7.1 million for the quarter ended September 30, 1994,
representing an average quarterly growth rate of 36%. The growth in Contract
volume is attributable primarily to the increase in the number of Dealers
participating in the Company's Dealer and Captive Programs, as well as an
expansion of the sources and amounts of financing available to purchase
Contracts. The Dealers participating in these two
18
<PAGE>
programs increased to 1,594 Dealers at September 30, 1996 from 83 Dealers at
September 30, 1994, representing an average quarterly growth rate of 45%. The
growth in Contract volume has resulted in an increase in the Company's servicing
portfolio, which at September 30, 1996 was $283.9 million compared to $33.0
million at September 30, 1994, representing an average quarterly growth rate of
31%.
The Company experienced a significant increase in the volume of Loan
Contracts purchased under its Dealer Program during the six months ended
December 31, 1995, partly as a result of the relaxation of certain underwriting
criteria. As a result of its analysis of the performance of the Loan Contracts
originated under the Dealer Program during this period, the Company decided to
strengthen its underwriting criteria during the fourth quarter of 1995 and, upon
phasing-in these standards, the Company experienced a significant decline in the
volume of Loan Contracts purchased under its Dealer Program during the first
quarter of 1996. The volume of Loan Contracts purchased through its Dealer
Program increased during the second and third quarters of 1996, however, not to
the level achieved during the fourth quarter of 1995. Management expects that
the volume of Loan Contracts in this program will continue to increase and may
achieve, during the fourth quarter of 1996, the levels realized during the
fourth quarter of 1995. The Company experienced an increase in the volume of
Loan Contracts purchased through its Recourse Program for the quarters ended
June 30 and September 30, 1996, when compared to the quarter ended March 31,
1996, due primarily to the addition of a participant to the program during this
period.
Revenues
The increase in Contract volume and the servicing portfolio has led to an
increase in revenues as demonstrated in the following table:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
--------------------------------------------------------------------------------------------------------
SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30,
REVENUE DATA: 1996 1996 1996 1995 1995 1995 1995 1994 1994
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loan Contracts......... $ 4,072 $ 4,054 $3,326 $ 3,573 $2,978 $1,847 $ 978 $ 192 $ 5
Lease Contracts........ 1,284 1,206 1,101 1,020 919 796 587 335 118
Recourse Programs...... 763 650 644 662 660 603 492 482 277
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest
income............. 6,119 5,910 5,071 5,255 4,557 3,246 2,057 1,009 400
Non-automobile interest
income................. 92 133 114 222 319 346 476 541 831
Gain on sale of Loan
Contracts.............. 7,147 3,283 2,997 4,123 478 -- -- 155 697
Servicing fees, net...... -- 302 557 104 -- -- -- -- --
Insurance fees........... 460 407 236 280 155 43 102 17 7
Other fees............... 760 1,225 722 580 372 167 53 214 94
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues....... $14,578 $11,260 $9,697 $10,564 $5,881 $3,802 $2,688 $1,936 $2,029
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
The Company generates revenues primarily through the purchase, sale and
ongoing servicing of Contracts. The Company earns interest income and fees on
Contracts purchased and held in portfolio, including those awaiting
securitization. Upon the sale of Loan Contracts through the Company's
securitization program, the Company recognizes a gain on sale on the Loan
Contracts. The Company continues to service these Loan Contracts and earns a
servicing fee currently equal to three percent per year of the outstanding
principal balance of the Loan Contracts sold. The Company also receives revenues
from the sale of insurance and related products, and other miscellaneous fees.
During the quarter ended March 31, 1996, interest income declined slightly
from that reported during the quarter ended December 31, 1995, due primarily to
a decrease in the average balance of the Contracts held in the portfolio. This
decrease was associated with the Company's first sale of Loan Contracts under a
securitization transaction in December 1995.
19
<PAGE>
Interest income on the non-automobile portfolio consists of interest earned
on mortgage loans, marine loans and other consumer loans acquired by the Company
through bulk purchases prior to June 30, 1994. The decline in interest income is
due to the run-off of this portfolio.
Gain on sale of Loan Contracts decreased during the quarters ended March
31, and June 30, 1996 when compared to that for the quarter ended December 31,
1995. The decrease was due primarily to a decline in the net spread on the March
and June 1996 securitization transactions when compared to that for the December
1995 securitization transaction. See 'Gain on Sale of Loans.' The decline is
also attributable to an increase in the required level of reserve account
necessary to credit enhance the March and June 1996 securitization transactions
when compared to the reserve account for the December 1995 transaction. The
reserve account is funded upon the closing of a securitization transaction,
whereby a portion of the proceeds from the sale is set aside in the reserve
account to protect the purchasers of the asset-backed securities from potential
losses. Gain on sale subsequently increased during the quarter ended September
30, 1996, reflecting a larger securitization with a higher net spread than the
previous two securitizations. See 'Liquidity and Capital Resources --
Securitization.'
The Company experienced a decline in servicing fee income since the quarter
ended March 31, 1996 despite the completion of two additional securitization
transactions. During the quarters ended June 30 and September 30, 1996, the
Company did not receive its distribution of servicing cash flows associated with
two of its securitization trusts due to an increase in the rates of delinquency,
repossession and losses beyond those allowable by the structure of the
securitization transaction. Consequently, the reduced level of servicing fee
income was entirely offset by amortization of the Excess Servicing Receivable.
The Company will receive these servicing cash flows, which are currently
accumulating in the relevant reserve accounts, if the delinquency, repossession
and loss rates fall below the allowable levels for a specified period.
Management believes that these factors do not currently result in an impairment
to the Excess Servicing Receivable relating to these securitization
transactions. See 'Risk Factors.'
Net Interest Income
Net interest income ('Net Interest Income') is the difference between the
interest earned on Contracts held in portfolio, including those awaiting
securitization and the interest costs associated with the Company's borrowings
to finance such Contracts. Net Interest Income will fluctuate and be impacted by
the spread between the portfolio yield and the cost of the Company's borrowings,
changes in overall Contract acquisition volume and the timing of securitization
transactions. The following table illustrates the weighted average net interest
rate spread (expressed as a percentage) earned on Contracts acquired:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
--------------------------------------------------------------------------------------------------------
SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30,
NET INTEREST SPREAD: 1996 1996 1996 1995 1995 1995 1995 1994 1994
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:(1)
Loan Contracts......... 20.65% 20.09% 18.71% 21.76% 22.01% 23.02% 26.62% 21.63% 21.48%
Lease Contracts........ 18.02 18.85 18.22 18.78 19.89 20.58 19.13 21.07 19.64
Recourse Program....... 18.75 17.31 18.60 19.96 20.43 20.11 19.69 22.93 17.83
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total automobile
Contracts.......... 19.80 19.48 18.58 20.88 21.31 21.80 22.26 21.22 17.98
Non-automobile
Contracts.............. 13.27 17.41 13.18 22.21 29.22 27.51 27.10 23.93 35.36
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total.................. 19.65 19.43 18.42 20.93 21.70 22.24 23.03 22.64 26.90
Interest expense(2)...... 10.32 10.80 10.12 11.07 10.93 11.04 11.54 10.50 13.59
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net interest spread...... 9.33% 8.63% 8.30% 9.86% 10.77% 11.20% 11.49% 12.14% 13.31%
-------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
- ------------------
(1) Represents interest income plus discount accretion (if any) and fees less
amortization of capitalized costs, expressed as a percentage of average
receivables outstanding.
(2) Represents interest expense as a percentage of average total debt
outstanding.
During the period from September 30, 1994 to March 31, 1996, the Company
has generally experienced a decline in the net interest spread. This reflected
the shift in the composition of the Company's portfolio from bulk purchase
non-automobile contracts purchased prior to 1995 at large
20
<PAGE>
discounts, which yielded higher rates, to a gradually greater concentration in
automobile Contracts, which yielded lower rates. The net interest spread
subsequently increased during the quarter ended June 30, 1996 as the Company
began to benefit from the expansion into additional states with higher allowable
rates of interest when compared to the allowable rate of interest in Florida,
where the Company has a large concentration. See 'The Company -- Origination
Sources.' This increase was partially offset by an increase in the cost incurred
on borrowings in connection with the additional placement of convertible
subordinated debentures during the quarter ended June 30, 1996.
Gain on Sale of Loans
The Company has sold Loan Contracts through its securitization program in
each of the last four quarters. The Company recognizes a gain on sale of Loan
Contracts in an amount equal to: (i) the excess servicing receivable ('Excess
Servicing Receivable') from the trust during the life of the securitization,
plus (ii) the net proceeds received from the securitization less the aggregate
book value of the Loan Contracts transferred to the trust. The Excess Servicing
Receivable represents the estimated present value of excess servicing cash flows
('Excess Servicing Cash Flows') based on the Company's estimates for loss and
prepayments during the life of the securitization transaction. Quarterly, the
Company reviews the assumptions made in determining the Excess Servicing
Receivable. If the present value of future aggregate Excess Servicing Cash Flows
is less than the aggregate capitalized amount, a valuation adjustment would be
recorded. Excess Servicing Cash Flows represent the difference between the cash
flows on Loan Contracts in a securitization trust and the sum of (i) payments of
principal and interest required to be made to investors in the securitized pool,
(ii) the contractual servicing fee, currently at the rate of three percent per
year, and (iii) other on-going expenses of such trust. See 'Liquidity and
Capital Resources -- Securitization.'
The gain on sale of Loan Contracts is affected by, among other things, the
amount of Loan Contracts sold in the securitization transaction, the net spread
on the transaction, the up-front costs of the transaction and estimated losses
and prepayments on the Loan Contracts. Net spread is the major component of the
total gain on sale. The following table illustrates the net spread for each of
the Company's securitization transactions:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE INTEREST RATE
ORIGINAL CONTRACT PAID TO GROSS NET
SECURITIZATION: BALANCE RATE INVESTORS(1) SPREAD(2) SPREAD(3)
-------- -------- ------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996-3 Securitization Trust... $ 70,052 19.37% 7.42% 11.95% 8.95%
1996-2 Securitization Trust... 49,500 19.20% 7.58% 11.62% 8.62%
1996-1 Securitization Trust... 40,750 19.26% 7.47% 11.79% 8.79%
1995-1 Securitization Trust... 40,136 19.58% 7.10% 12.48% 9.48%
--------
Total....................... $200,438
--------
--------
</TABLE>
- ------------------
(1) Weighted average interest rate paid to investors in the securitization
transaction.
(2) Difference between weighted average Contract rate and weighted average
interest rate paid to investors.
(3) Difference between gross spread less contractual servicing fees.
The increase in the net spread for the 1996-3 Securitization Trust,
compared to the prior two securitization transactions, was attributable to a
higher weighted average coupon rate due primarily to the Company's expansion
outside the State of Florida. A corresponding decrease in the interest rate paid
to investors, due primarily to a decrease in market rates, also contributed to a
higher net spread.
The decrease in the net spread from the 1995-1 Securitization Trust to the
1996-1 Securitization Trust, and the further decline in the net spread on the
1996-2 Securitization Trust, was primarily due to an increase in the interest
rate paid to investors, due primarily to an increase in market interest rates.
Servicing Fee Income
Throughout the life of the Loan Contract, the Company earns a contractual
servicing fee from the securitization trust, currently equal to three percent
per year of the principal balance outstanding of the Loan Contracts sold to the
trust. Servicing fee income increased from $104,000 for the quarter ended
December 31, 1995, representing one month's servicing income from the December
securitization transaction, to $557,000 for the quarter ended March 31, 1996,
and then decreased to $302,000 for the
21
<PAGE>
quarter ended June 30, 1996. During the quarters ended June 30 and September 30,
1996, the Company did not receive its distribution of servicing cash flows
associated with two of its securitization trusts due to an increase in the rates
of delinquency, repossession and losses beyond those allowable by the structure
of the securitization transaction. Consequently, the reduced level of servicing
fee income was entirely offset by amortization of the Excess Servicing
Receivable. The Company will receive these servicing cash flows, which are
currently accumulating in the relevant reserve accounts, if the delinquency,
repossession and loss rates fall below the allowable levels for a specified
period. Management believes that these factors do not currently result in an
impairment to the Excess Servicing Receivable relating to these securitization
transactions. See 'Risk Factors.'
Servicing fee income and the Excess Servicing Receivable may be impacted by
changes in the amount of losses and levels of prepayments from those assumed by
the Company at the time of the securitization. To the extent the assumptions
used are materially different from actual results, the amount of Excess
Servicing Cash Flows received by the Company over the remaining life of the
securitization could be significantly affected. See 'Risk Factors.'
Other Income
The Company generates revenues from the sale of a variety of insurance and
related products to Dealers and its customers, acting as agent for third party
insurance companies. The Company recognizes as revenue the commissions or fees
received upon the sale of these products to customers. Other fees consist
primarily of late fees earned on the Company's servicing portfolio. Insurance
and other fees have continued to increase due primarily to the increase in the
volume of Contracts purchased and the growth in the servicing portfolio.
RESULTS OF OPERATIONS
The following table provides the principal components of the Company's net
income for the periods presented:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ ----------------------------
SEP. 30, SEP. 30, DEC. 31, DEC. 31,
RESULTS OF OPERATIONS: 1996 1995 1995 1994
------------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income.......................... $ 8,936 $ 6,363 $ 8,319 $3,430
Gain on sale of Loan Contracts............... 13,427 128 4,600 2,292
Servicing fees and other income.............. 4,670 1,241 2,651 454
------------- ------ ------------ ------
Total revenue.............................. 27,033 7,732 15,570 6,176
Provision for credit losses.................. (2,801) (1,412) (2,762) (573)
Operating expenses........................... (13,844) (4,514) (7,805) (4,946)
Non-cash charge for escrow shares............ (301) (80) (280) --
------------- ------ ------------ ------
Income before taxes.......................... 10,087 1,726 4,723 657
Provision for income taxes................... (3,945) (656) (1,926) (263)
------------- ------ ------------ ------
Net income................................. $ 6,142 $ 1,070 $ 2,797 $ 394
------------- ------ ------------ ------
------------- ------ ------------ ------
</TABLE>
Nine Months Ended September 30, 1996 and 1995.
Net Interest Income. Net Interest Income for the nine months ended
September 30, 1996 was $8.9 million compared to $6.4 million for the nine months
ended September 30, 1995, representing a 40% increase. This increase was
primarily a result of the growth in average Contracts held in portfolio and
those awaiting securitization from $77.5 million for the nine months ended
September 30, 1995 to $112.8 million for the nine months ended September 30,
1996.
Gain on Sale of Loans. Gain on Sale of Loans for the nine months ended
September 30, 1996 was $13.4 million compared to $128,000 for the nine months
ended September 30, 1995 because no securitization transactions were completed
during the nine months ended September 30, 1995.
Servicing Fees and Other Income. During the period from December 1995
through September 1996, the Company completed four securitization transactions
aggregating approximately $200.4 million. As a result, the Company received
servicing fee income of $859,000 for the nine months ended September 30, 1996.
Prior to this period, the Company did not complete a securitization transaction.
Other income, consisting primarily of insurance and other fees, increased from
$892,000 to
22
<PAGE>
$3.8 million for the nine months ended September 30, 1995 and 1996,
respectively. These increases were primarily due to an increase in the volume of
Contracts purchased and the growth in the servicing portfolio to $283.9 million
at September 30, 1996 from $111.9 million at September 30, 1995. In addition,
the Company recorded approximately $517,000 to other income relating to the
settlement of outstanding litigation during June 1996.
Provision for Credit Losses. The Company's provision for credit losses for
the nine months ended September 30, 1996 was $2.8 million compared to $1.4
million for the nine months ended September 30, 1995. This increase related
primarily to provisions recorded for an estimate of possible losses that may be
incurred in connection with the acquisition of new Contracts during 1996 and the
performance of previously purchased Contracts.
Operating Expenses. Operating expenses increased to $13.8 million for the
nine months ended September 30, 1996 compared to $4.5 million for the nine
months ended September 30, 1995. This increase was attributable to the hiring of
additional personnel in almost all areas of the Company's operations to support
its growth. The increase is also due to the absorption of the operating expenses
of SFI, which was acquired in June 1996. As a percentage of average total
servicing portfolio, operating expenses were approximately 9% and 8% for the
nine months ended September 30, 1996 and 1995, respectively, on an annualized
basis.
Non-Cash Charge For Escrow Shares. The Company recorded a non-cash charge
to earnings of $301,000 for the nine months ended September 30, 1996 compared to
$80,000 for the nine months ended September 30, 1995 for shares released from
the escrow arrangement that was established in connection with the Merger. See
'Principal Stockholders.'
Net Income. The Company reported net income of $6.1 million or $0.75 per
fully diluted share for the nine months ended September 30, 1996 compared to net
income of $1.1 million or $0.18 per fully diluted share for the nine months
ended September 30, 1995. Net income, excluding the non-cash charge for
releasing escrow shares, was $6.4 million or $.78 per share for the nine months
ended September 30, 1996, in comparison to $1.2 million or $0.19 per fully
diluted share for the nine months ended September 30, 1995.
Years Ended December 31, 1995 and 1994.
Net Interest Income. Net interest income for the year ended December 31,
1995 was $8.3 million compared to $3.4 million for the year ended December 31,
1994, representing a 143% increase. This increase was primarily a result of the
growth in average Contracts held in portfolio and those awaiting securitization
from $15.5 million for the year ended December 31, 1994 to $84.8 million for the
year ended December 31, 1995.
Gain on Sale of Loans. The Company completed a $40 million securitization
during the fourth quarter of 1995 resulting in a $4.0 million gain. Total gain
on sale for the year ended December 31, 1995 was $4.6 million compared to $2.3
million for the year ended December 31, 1994. Although no securitization
transactions were completed during 1994, the Company recognized gains from
selling loan portfolios through bulk sale arrangements.
Servicing Fees and Other Income. During the period from December 31, 1994
to December 31, 1995, the Company completed a securitization transaction
aggregating $40 million. As a result, servicing fee income was $104,000 for the
year ended December 31, 1995 compared to $0 for the preceding year. Other
income, consisting of insurance and other fees, increased from $332,000 for the
year ended December 31, 1994 to $1.7 million for the year ended December 31,
1995. These increases were primarily due to an increase in the volume of
Contracts purchased and the growth in the servicing portfolio to $153.8 million
for the year ended December 31, 1995 from $44.4 million for the year ended
December 31, 1994.
Provision for Credit Losses. The Company's provision for credit losses for
the year ended December 31, 1995 was $2.8 million compared to $573,000 for the
year ended December 31, 1994. This increase related primarily to provisions
recorded for an estimate of possible losses that may be incurred in connection
with the acquisition of new Contracts during 1995 and the performance of
previously purchased Contracts.
23
<PAGE>
Operating Expenses. Operating expenses increased to $7.8 million for the
year ended December 31, 1995 compared to $4.9 million for the year ended
December 31, 1994, a 59% increase. This increase was attributable to the hiring
of additional personnel in almost every area of the Company's operations to
support its growth. As a percentage of average total servicing portfolio,
operating expenses decreased to 8.41% in 1995 from 14.39% in 1994.
Non-Cash Charge For Escrow Shares. The Company recorded a charge to
earnings of $280,000 for the year ended December 31, 1995 for shares released
from the escrow arrangement that was established in connection with the Merger.
Net Income. The Company reported net income of $2.8 million or $0.45 per
fully diluted share for the year ended December 31, 1995 compared to net income
of $394,000 or $0.07 per fully diluted share for the year ended December 31,
1994. Net income, excluding the non-cash charge for releasing escrow shares, was
$3.0 million, or $0.50 per share for the year ended December 31, 1995.
DELINQUENCY AND CREDIT LOSS EXPERIENCE
The Company's profitability depends largely upon its ability to effectively
manage delinquency and credit losses. The Company maintains a reserve available
to absorb future credit losses on Contracts that are held in portfolio and on
Loan Contracts while they are awaiting securitization. The Company evaluates
historical charge-off experience against the reserve and performs analyses of
portfolio performance and delinquency trends to determine if the reserve is
adequate to absorb estimated future losses.
Collection and Charge-off Procedures. Typically within 24 hours of an
account becoming delinquent, a collector establishes contact with the customer.
If the delinquency is not promptly resolved, the collector pursues a resolution
through additional telephone contacts with the customer followed by demand
letters as appropriate. In the event that a delinquency cannot be resolved, the
account is turned over for repossession of the vehicle by an outside agency,
typically within 45 days. When a vehicle is repossessed and not redeemed by the
customer within a period prescribed by statute, the vehicle is assigned for
disposal. At the time of repossession, the vehicle is reviewed by management and
its carrying value is written down, if necessary, to its net realizable value.
Write-downs of carrying value, which include costs of disposition, are charged
against the Company's reserve available for credit losses. Vehicles typically
are disposed of at wholesale auctions, or remarketed through PCSF or through the
JDBR Franchise. The Company may establish a dialogue with a delinquent borrower
and formulate a short-term payment arrangement that would allow the borrower to
retain the automobile beyond a delinquency of 45 days. Accounts that reach 90
days of delinquency are placed on non-accrual status and any previously accrued
interest income is reversed. In the event that the Company is unable to locate
the customer or the vehicle by the time an account reaches 150 days of
delinquent status, the account is fully charged off against reserves available
for credit losses. If the customer declares bankruptcy, the account is charged
off to the lesser of any court-ordered settlement or the wholesale value of the
vehicle. The Company's collection staff continues to pursue customers, to locate
and repossess vehicles and to collect losses incurred. Any amount received after
a Contract has been charged-off is recorded as a recovery and an increase in the
reserves available for credit losses.
Acquisition Discounts. The Company purchases Contracts from Dealers at
discounts from their stated principal amount to provide for credit risk. The
discounts typically range from 3% to 10%. The amount of the discount varies
primarily based on the credit risk and the terms of the Contract and the quality
of the collateral. See 'The Company -- Underwriting.' Any discount that
management considers necessary to absorb future credit losses is allocated to
the reserves available for credit losses. The remaining portion of the discount,
if any, is recognized as income using the level-yield method of accretion.
Currently, the Company allocates the entire discount to the reserve available
for credit losses and expects to do so for the foreseeable future. However, the
Company will continue to evaluate the ability to collect on its Contracts in
conjunction with the allocation of discounts.
Reserve Available for Credit Losses. In the event of a payment default,
proceeds from the liquidation of the vehicle may not cover the outstanding
Contract balance and costs of recovery. The Company maintains a reserve
available for credit losses in an amount that management believes is
24
<PAGE>
adequate to absorb future credit losses on Contracts. The reserve available for
credit losses is comprised of the acquisition discounts, an allowance for credit
losses and, in limited cases, dealer reserves. On a monthly basis, the Company
evaluates the adequacy of the reserve available for credit losses by analyzing
the Contract portfolios in their entirety using a 'static pool analysis' method
in which the historical charge-offs are stratified according to the Contract
origination date. These Contracts are grouped together by calendar month of
origination, and the related historical charge-off experience on such Contracts
is analyzed to evaluate the reasonableness and adequacy of the reserve available
for credit losses. This analysis takes into consideration historical loss
experience, current economic conditions, levels of repossessed assets,
delinquency experience, seasoning of Contracts, and other relevant factors.
Should management deem the level of acquisition discounts and dealer reserves,
in limited cases, to be inadequate, an additional provision for credit losses
will be recorded to increase the allowance for credit losses and, therefore,
increase the overall level of the reserve available for credit losses.
The Company has prepared analyses of its Contracts, based on its credit
experience and available industry data, to identify the delinquency and default
rates at the various stages of a Contract's repayment term. The results of the
analyses suggest that the probability of a Contract becoming delinquent or going
into default is highest during the 'seasoning period,' which begins 3 to 4
months, and ends 12 to 14 months, after the origination date. If the volume of
Contracts purchased by the Company continues to grow, an increasingly greater
portion of the Company's portfolio is expected to fall into the 'seasoning
period' described above, causing a rise in the overall portfolio delinquency and
default rates. Assuming no changes in any other factors that may affect
delinquency and default rates, the Company's management believes that this trend
should stabilize or reverse when the volume of mature Contracts (with lower
delinquency and default rates) is sufficient to offset the delinquency and
default rates on newer Contracts.
The following table sets forth information regarding credit loss experience
of the total servicing portfolio for the periods presented:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
-------------------------------- ------------------
SEP. 30, SEP. 30, DEC. 31,
CREDIT LOSSES:(1)(4) 1996 1995 1995
------------- ------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loan Contracts serviced:.......................... $ 220,108 $ 68,543 $107,926
Gross charge-off percentage(2).................. 10.65% 1.07% 3.68%
Net charge-off percentage(3).................... 7.69% 1.07% 3.68%
Lease Contracts serviced:......................... $ 29,893 $ 19,699 $ 22,518
Gross charge-off percentage(2).................. 6.09% 0.91% 4.19%
Net charge-off percentage(3).................... 4.09% 0.91% 4.19%
Total Loan and Lease Contracts serviced:.......... $ 250,001 $ 88,242 $130,444
Gross charge-off percentage(2).................. 10.02% 1.02% 3.78%
Net charge-off percentage(3).................... 7.20% 1.02% 3.78%
Recourse Contracts serviced:...................... $ 24,412 $ 16,322 $ 18,129
Gross charge-off percentage(2).................. -- -- --
Net charge-off percentage(3).................... -- -- --
Total servicing portfolio:........................ $ 274,413 $ 104,564 $148,573
Gross charge-off percentage(2).................. 9.00% 0.79% 3.15%
Net charge-off percentage(3).................... 6.46% 0.79% 3.15%
</TABLE>
- ------------------
(1) This table excludes non-automobile bulk purchase contracts.
(2) Gross charge-offs are computed as principal balance less liquidation
proceeds received expressed as a percentage of average balance outstanding
during the period.
(3) Net charge-offs are computed as gross charge-offs less any recoveries
expressed as a percentage of average balance outstanding during the period.
(4) Percentages for the nine months ended September 30, 1996 and 1995 have been
annualized.
The increase in the level of credit losses is due primarily to the
seasoning of the Company's servicing portfolio when comparing the net charge-off
percentage for the nine months ended
25
<PAGE>
September 30, 1996 to that for the nine months ended September 30, 1995 and the
year ended December 31, 1995.
Delinquency Experience. The following table reflects the Company's
delinquency experience for the periods presented:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
-------------------- --------------------
DELINQUENCY:(1) 1996 1995 1995 1994
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan Contracts serviced...................... $219,787 $ 67,484 $107,191 $ 8,175
Delinquencies:
31-60 days................................. 7.36% 6.42% 8.83% 2.17%
61-90 days................................. 2.62% 2.24% 2.99% 0.18%
Greater than 90 days....................... 2.14% 1.53% 2.18% 0.13%
-------- -------- -------- --------
Total.................................... 12.12% 10.19% 14.00% 2.48%
Lease Contracts serviced..................... $ 29,098 $ 18,324 $ 21,361 $ 5,918
Delinquencies:
31-60 days................................. 4.69% 5.12% 7.51% 6.88%
61-90 days................................. 1.39% 1.19% 1.90% 1.21%
Greater than 90 days....................... 2.65% 1.46% 1.83% 1.28%
-------- -------- -------- --------
Total.................................... 8.73% 7.77% 11.24% 9.37%
Total Loan and Lease Contracts serviced...... $248,885 $ 85,808 $128,552 $ 14,093
Delinquencies:
31-60 days................................. 7.04% 6.14% 8.61% 4.15%
61-90 days................................. 2.47% 2.01% 2.81% 0.61%
Greater than 90 days....................... 2.20% 1.52% 2.12% 0.61%
-------- -------- -------- --------
Total.................................... 11.71% 9.67% 13.54% 5.37%
Recourse Contracts serviced.................. $ 24,412 $ 16,322 $ 18,129 $ 14,521
Delinquencies:
31-60 days................................. 11.52% 7.89% 16.99% 11.75%
61-90 days(2).............................. N/A N/A N/A N/A
Greater than 90 days(2).................... N/A N/A N/A N/A
-------- -------- -------- --------
Total.................................... 11.52% 7.89% 16.99% 11.75%
Total Contracts serviced..................... $273,297 $102,130 $146,681 $ 28,614
Delinquencies:
31-60 days................................. 7.44% 6.42% 9.65% 8.01%
61-90 days................................. 2.25% 1.69% 2.46% 0.30%
Greater than 90 days....................... 2.00% 1.28% 1.86% 0.30%
-------- -------- -------- --------
Total.................................... 11.69% 9.39% 13.97% 8.61%
-------- -------- -------- --------
</TABLE>
- ------------------
(1) This table excludes non-automobile bulk purchase contracts. In addition,
this table excludes two automobile bulk purchase portfolios which were
non-performing at the time of purchase in 1994 and are accounted for on a
cost recovery basis, whereby income is recognized only to the extent that
the Company's investment in these portfolios has been fully recouped. As of
September 30, 1996, the combined investment in these portfolios totaled
$1,115,000.
(2) Contracts delinquent 61 days or more are repurchased by the originator of
the Contracts under the Recourse Program.
Management believes that the increase in the overall delinquency from
December 31, 1994 to December 31, 1995 is primarily the result of an increase in
the percentage of Contracts falling in the 'seasoning period.'
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires substantial cash to support the growth in
Contracts purchased. In general, the Company finances the purchase of Contracts
through various credit facilities. The Company funds through these facilities
between 80% and 90% of the principal balance of the Contracts. The Company funds
the remainder of the purchase price through its capital. As the Company
continues to increase the volume of Contracts purchased, it must secure
additional capital to support its growth. The Company's growth has been
facilitated by its ability to complete private placements of debt and equity
securities and through securitization transactions.
Through September 30, 1996, the Company had secured its principal sources
of financing through senior indebtedness comprised of its warehouse facility,
revolving credit facilities and its specialized
26
<PAGE>
borrowing facility, as well as subordinated indebtedness consisting of unsecured
subordinated debentures. In addition, the Company secures liquidity through the
securitization of its Loan Contracts. During the last four quarters, the Company
has completed an aggregate of approximately $200 million of securitization
transactions.
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
------------------ ------------------
SOURCES OF FINANCING: 1996 1995 1995 1994
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Warehouse Facility:
Available line............................. $50,000 $50,000 $50,000 $ --
Outstanding balance........................ 21,457 10,000 11,585 --
Revolving Credit Facilities:
Available line............................. 45,000 45,000 45,000 30,000
Outstanding balance........................ 27,231 21,733 21,844 11,998
Revolving Line of Credit Facility:
Available line............................. 3,500 -- -- --
Outstanding balance........................ 503 -- -- --
Specialized Borrowing Facility:
Outstanding balance........................ 21,682 47,144 42,381 10,212
Subordinated Debentures:
Issued -- cumulative....................... 38,825 15,400 21,325 --
Converted to Common Stock -- cumulative.... (12,825) (7,200) (8,260) --
------- ------- ------- -------
Outstanding balance........................ 26,000 8,200 13,065 --
Unsecured notes.............................. -- 35 -- 230
Note due to stockholder...................... -- 854 2,919 62
------- ------- ------- -------
Total outstanding borrowings................. $96,873 $87,966 $91,794 $22,502
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Warehouse Facility. During September 1995, the Company entered into a $50
million warehouse facility (the 'Warehouse Facility') with Greenwich Capital
Financial Products, Inc. ('Greenwich'). In November 1996, the Warehouse Facility
was increased to $100 million. This facility is structured as a reverse
repurchase agreement, which is characterized as a borrowing for financial
reporting purposes. Under the terms of this facility, the Company receives an
advance of approximately 90% of the outstanding principal balance of the Loan
Contract at an interest rate of 2.25% over 30-day LIBOR. If, at any time during
the financing period, 90% of the market value of the Contract is less than the
amount advanced, Greenwich may require the Company to transfer funds or
additional Contracts to Greenwich until the deficiency ('margin') amount is
satisfied. Market value of Loan Contracts may be affected by such factors as
changes in interest rates, delinquency rates and credit losses. Although
management believes that this is unlikely to occur to any significant degree, a
margin call could require an allocation of certain of the Company's liquidity
and capital resources. The Warehouse Facility expires in September 1997 and is
renewable for an additional year subject to certain conditions. At September 30,
1996, the Company had $21.5 million outstanding under this facility.
The Warehouse Facility includes certain financial and operational
covenants, including the maintenance of a minimum net worth of $30 million, the
prohibition of a debt to equity ratio in excess of 8 to 1, and maintenance of
certain loan portfolio performance criteria. For the purpose of the Warehouse
Facility, net worth has been defined as total stockholders' equity plus
subordinated indebtedness not due within 90 days. At September 30, 1996, the
Company was in compliance with all relevant financial and operational covenants.
Management continues to monitor closely the performance of its Loan portfolios
in order to ensure compliance with all financial and operational covenants.
An event of default is also deemed to occur under the Warehouse Facility in
the event of the death of two of the Company's executive officers (or if both of
these individuals cease serving as officers) or if the Company is unable to
securitize at least $250 million of loans over a two-year period, with at least
$100 million securitized in any 365-day period.
27
<PAGE>
The Company uses the Warehouse Facility to purchase Loan Contracts with the
objective of selling such Contracts through securitization transactions. Since
the fourth quarter of 1995, the Company has completed in the aggregate the sale
of approximately $200 million of Loan Contracts through privately-placed
securitization transactions. The proceeds from the securitization transactions
have been used to pay down the Warehouse Facility, thereby making the Warehouse
Facility available to fund purchases of additional Contracts.
Revolving Credit Facilities. In March 1993, the Company entered into a $20
million three-year revolving credit facility (the 'Congress Facility') with
Congress Financial Corporation ('Congress'), which has been extended until March
1997. The Congress Facility bears interest at a floating rate of 2% over the
prime rate of CoreStates Bank, N.A., with interest payable monthly, and the
facility is secured by Loan and Lease Contracts. The facility can be utilized
for the financing of additional Contract purchases that meet certain credit
guidelines established by Congress, in its sole discretion. As of September 30,
1996, the Company had $3.5 million outstanding under this facility.
During February 1994, the Company entered into a $5 million one-year
revolving credit facility with GECC (the 'GECC Facility'). In September 1994 and
March 1995, the GECC Facility was increased to $10 million and $25 million,
respectively. The GECC Facility bears interest payable monthly at rates fixed at
the time of financing and is secured by certain Lease Contracts. Principal is
repaid monthly according to an agreed-upon schedule. At September 30, 1996, the
Company had drawn down approximately $23.7 million under the facility. The GECC
Facility is automatically renewed annually unless GECC provides the Company with
notice of termination 90 days prior to such renewal date.
The Congress Facility and the GECC Facility (collectively, the 'Revolving
Credit Facilities') are also subject to certain financial and operational
covenants that are similar to those imposed under the Warehouse Facility.
Revolving Line of Credit Facility. During September 1996, the Company
entered into a one-year $3.5 million revolving line of credit (the 'LOC
Facility') with a private third party. The LOC Facility bears interest at a
fixed rate of 13% with interest payable monthly. The LOC Facility is secured by
certain Loan Contracts. As of September 30, 1996, the Company had drawn down
approximately $503,000 under this facility. The LOC Facility is renewable at the
lender's discretion for an additional one-year period, provided that the Company
meets certain conditions.
Specialized Borrowing Facility. The Company historically has secured a
significant amount of its financing through borrowings classified as debt
participation agreements, in which the Company has sold an undivided interest,
typically 80% to 90%, in portfolios of receivables to financial institutions and
individual lenders on a full recourse basis. As of September 30, 1996, the
Company had an existing series of borrowings under a specialized borrowing
facility (the 'Specialized Borrowing Facility') with Fairfax Savings, a Federal
Savings Bank ('Fairfax') in the approximate amount of $21.7 million.
Approximately $21 million of the Fairfax financing has been used to acquire
Contracts. Borrowings under this facility are subject to interest at prime plus
2.5% fixed at the time of financing. Approximately $700,000 of the remaining
advances under the Specialized Borrowing Facility were used to acquire bulk
purchase portfolios prior to 1995. These amounts are subject to interest at
fixed rates from 10% to 13.5%, respectively.
In general, under the terms of the participation agreements, the lender's
principal advance is repaid in proportion to the principal received from the
underlying collateral. Interest on the outstanding principal balance of the
advance is due monthly. Collections received in excess of the principal and
interest due Fairfax are allocated to a restricted cash reserve account on
deposit with Fairfax until certain specified balances are maintained, generally
calculated as a percentage of the outstanding balance of the advance. Any
remaining collections are paid to the Company.
Short-term Financing. During the fourth quarter of 1996, Mr. Robert R.
Bartolini, Chairman and Chief Executive Officer, made advances to the Company in
an aggregate amount of $2,413,869, repayable on the earlier of February 18, 1997
and the completion of the Offering. These advances bear interest at a fixed rate
of 11%. During December 1996, the Company entered into a $2.0 million secured
short-term note with a private third party, repayable on the earlier of December
31, 1996 and
28
<PAGE>
the completion of the Offering. This note bears interest at a fixed rate of 10%
and is secured by certain Loan Contracts. See 'Use of Proceeds.'
Private Placement of Convertible Subordinated Debentures, Warrants and
Common Stock. The Company has secured a significant component of its capital
through the private placement of equity and debt securities. During the period
from April 1995 through September 1996, the Company issued: (i) 176,500 shares
of its Common Stock, which yielded net proceeds of approximately $2.1 million;
(ii) $38.8 million principal amount of convertible subordinated debentures (the
'Debentures'); and (iii) 2,913,625 common stock purchase warrants (the
'Warrants'). The Warrants were issued to Debenture holders in connection with
the sale of the Debentures, to certain consultants and advisors in consideration
for financial advisory services and to certain members of the Board of Directors
in connection with joining the Board.
In April and September 1996, the Company concluded institutional placements
of $10 million principal amount of 9% Debentures with 675,000 Warrants, and $5
million principal amount of 10% Debentures with 62,500 Warrants, respectively.
Through December 20, 1996, an aggregate of approximately $13.8 million
principal amount of the Debentures was converted into 1,452,849 shares of Common
Stock. The principal amount and accrued interest due under the remainder of the
Debentures is convertible into shares of Common Stock (at the option of the
holders thereof) at conversion prices ranging from $9 to $12. The conversion
price of certain Debentures is subject to decrease by virtue of price protection
and adjustment features contained in such Debentures. See 'Description of
Securities -- Price Protection.'
The following table provides a summary of the Company's outstanding
Debentures.(1)
<TABLE>
<CAPTION>
PRINCIPAL MATURITY INTEREST CONVERSION SHARES
AMOUNT ISSUE DATE DATE RATE PRICE(2) ISSUABLE(3)
- ----------- ---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 200,000 Dec. 1995 Dec. 1996 9% 11.00 19,814
2,000,000 Dec. 1995 May 1997 9% 11.00 206,364
2,300,000 Dec. 1995 Jun. 1997 9% 11.00 237,266
10,000,000 Apr. 1996 Oct. 1997 9% 12.00 945,833
2,000,000 Jul. 1995 Jul. 1998 9% 9.00 282,167
1,000,000 Aug. 1995 Aug. 1998 9% 9.00 141,083
5,000,000 Sep. 1996 Sep. 1998 (4) 10%(4) 12.00 416,667
2,500,000 Jan. 1996 Jan. 1999 9% 11.00 288,636
- ----------- -----------
$25,000,000 2,537,830
- ----------- -----------
- ----------- -----------
</TABLE>
- ------------------
(1) Reflects information as of December 20, 1996.
(2) These Debentures are convertible into shares of the Company's Common Stock
at the lesser of the amount indicated and a discount to the market price of
the Company's Common Stock, which ranges from 75% to 85% pursuant to the
terms of the Debentures.
(3) Represents shares of Common Stock issuable upon conversion of the Debentures
(principal and interest at maturity).
(4) These Debentures bear interest at a rate of 10% for 2 years and at a rate of
9% thereafter. Maturity is subject to extension by the holder.
As of December 20, 1996 the Company had $25.0 million principal amount of
Debentures outstanding with maturity dates as follows: (i) $0.20 million in
December 1996; (ii) $2.0 million in May 1997; (iii) $2.3 million in June 1997;
(iv) $10.0 million in October 1997; (v) $3.0 million in July/August 1998; (vi)
$5.0 million in September 1998 (subject to extension by holder) and (vii) $2.5
million in January 1999. See 'Description of Securities -- Debentures.'
If the Company's Common Stock achieves certain trading prices ranging from
$18 to $25, the Company has the right to serve notice of redemption on the
holders of approximately $15 million of the Debentures for the principal amount
thereof (together with accrued interest). A notice to redeem would likely yield
conversion of the Debentures (since the average trading price of the stock
necessary to redeem would yield a greater profit to the Debenture holders upon
conversion rather than redemption). Notwithstanding rights of redemption,
management believes that a substantial number of the remaining Debentures will
be subject to conversion prior to their maturity, however, a possibility exists
that the Company could be required to allocate liquidity and capital resources
to the retirement of these Debentures.
29
<PAGE>
The Company may also secure certain amounts of capital in the future from
the exercise of existing Warrants. The Company has issued 2,913,625 Warrants at
exercise prices between $9 and $15. To date, none of the Warrants have been
exercised. If exercised, the Company would receive aggregate gross proceeds of
approximately $33.0 million. The exercise price of certain Warrants and the
proceeds thereof are subject to decrease by virtue of price protection and
adjustment features contained in such Warrants. See 'Description of Securities
- -- Price Protection.'
The following table provides a summary of outstanding Warrants.(1)
<TABLE>
<CAPTION>
SHARES PROCEEDS TO
ISSUE DATE EXPIRATION DATE EXERCISE PRICE ISSUABLE(2) THE COMPANY(3)
- ------------------- ------------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Apr.-Aug. 1995 Apr.-Aug. 1998 $ 9.00 1,360,000 $ 12,240,000
Nov. 1995-Dec. 1995 Nov. 1998-Dec. 1998 13.50 175,000 2,362,500
Dec. 1995-Feb. 1996 Dec. 1998-Feb. 1999 14.00 to 14.38 195,000 2,737,500
Jul.-Aug. 1995 Jul.-Aug. 1998 12.00 to 12.30 62,500 765,000
Jul.-Dec. 1995 Jul.-Dec. 1998 15.00 363,625 5,454,375
Mar. 1996 Mar. 1999 11.50 20,000 230,000
Apr. 1996 Apr. 1999 12.00 to 12.63 615,000 7,442,500
Apr. 1996 Apr. 2001 14.52 60,000 871,200
Sep. 1996 Sep. 2001 13.92 62,500 870,000
----------- --------------
2,913,625(4) $ 32,973,075(5)
----------- --------------
----------- --------------
</TABLE>
- ------------------
(1) Reflects information as of December 20, 1996.
(2) Represents shares of Common Stock issuable upon exercise of the Warrants.
(3) Represents proceeds to the Company upon the exercise of the Warrants.
(4) Includes 40,000 Warrants in the aggregate issued to Mr. DeVoe and Mr. Jones
in connection with joining the Board of Directors.
(5) Includes proceeds of $517,500 from Warrants issued to Mr. DeVoe and Mr.
Jones. See Footnote 4.
Exercise of the Warrants is largely a function of the spread between the
trading price of the Company's Common Stock and the exercise price of the
Warrants. Thus, there can be no assurances that the future trading prices of the
Company's Common Stock will be sufficient to encourage the exercise of a
material number of the Warrants in the near term, if at all.
Exercise of the Warrants is also a function of other factors such as the
term of the Warrant and any associated rights of redemption. Substantially all
of the outstanding Warrants remain outstanding until 1998 and 1999, and some
remain outstanding until 2001. In addition, certain of the Warrants contain
features that permit redemption (at $.001 per Warrant) based upon average
trading prices of the Company's Common Stock between $15 and $25. Any call for
redemption will have the likely effect of causing the exercise of these
Warrants.
The Company's liquidity and capital resources may continue to be affected
by the trading price of the Company's Common Stock. Trading prices at levels
consistently higher than the conversion prices of the Debentures will likely
facilitate conversion of the Debentures in the near term. A conversion of the
Debentures would positively affect the Company's liquidity by eliminating the
need to repay the principal amount (and in certain instances, interest) due
thereunder. Trading prices at levels consistently lower than the conversion
prices of the Debentures, however, will make conversion of the Debentures less
likely, thus requiring the Company to allocate certain of its capital resources
towards the retirement of the Debentures at maturity. If all of such Debentures
were converted, the Company would not be required to repay approximately $28.4
million of principal and interest as of December 20, 1996. In addition, an
exercise of all of the Warrants would have the effect of securing approximately
$33.0 million of additional working capital. However, there can be no assurances
that the issuance of such shares would not have a depressive effect upon the
market for the Company's Common Stock. See 'Risk Factors.'
Securitization. Securitization of Loan Contracts is an integral part of
the Company's continuing financing strategy. Securitization: (i) provides a
lower cost of financing; (ii) allows the Company to increase its liquidity;
(iii) provides for redeployment of capital; (iv) reduces risks associated with
interest rate fluctuations; (v) reduces credit risk; and (vi) properly matches
the duration of the financing to the assets financed. The Company uses the net
proceeds from a securitization to repay the advances
30
<PAGE>
outstanding under its Warehouse Facility, thereby creating availability to
purchase additional Loan Contracts. Through September 30, 1996, the Company
completed four securitization transactions totaling approximately $200 million.
See 'Recent Developments.' The following is a summary of the basic structure of
the Company's securitization transactions through September 30, 1996. There can
be no assurances, however, that the Company will continue to use this structure
for future securitization transactions.
The Company transfers a pool of Loan Contracts to a trust (the 'Trust'),
which simultaneously issues one or more classes of securities (the 'Securities')
backed by the assets of the Trust. The assets of the Trust include the Loan
Contracts and a reserve account. Initially, the Company makes a deposit into the
reserve account; and thereafter, it maintains the reserve account at certain
levels (the 'Maintenance Level') during the life of the securitization by
depositing certain cash flows from the Trust that the Company would otherwise
have received. The Company continues to service the Loan Contracts and earns a
contractual servicing fee, currently equal to 3.0% per year (the 'Contractual
Servicing Fee').
The Securities were rated 'A', 'BBB' and 'BB' in the first three
securitization transactions and 'A' and 'BBB' in the last securitization by Duff
& Phelps Credit Rating Co. and Fitch Investors Service, L.P., and are sold to
investors in a private offering. These Securities carry fixed interest rate
coupons, payable quarterly. Generally, all collections of interest and principal
from Loan Contracts are used to pay interest due on the Securities and to reduce
the principal balance of the Securities. Collections of interest in excess of
that required to pay for (i) the interest due on the Securities, (ii) ongoing
fees and expenses of the Trust, and (iii) the Contractual Servicing Fees (the
'Excess Servicing Cash Flows') are deposited into the reserve account only to
the extent necessary to maintain it at the required Maintenance Level. The
remaining Excess Servicing Cash Flows, if any, are paid to the Company. In the
event that the collections of interest and principal from the Loan Contracts are
not sufficient to cover the required distributions of interest and principal on
the Securities, the trustee may withdraw funds from the reserve account to make
up for the shortfall.
The Company recognizes a gain on sale of the Loan Contracts from the
securitization in an amount equal to (i) the Excess Servicing Receivable from
the Trust during the life of the securitization, plus (ii) the net proceeds
received from the securitization less the aggregate book value of the Loan
Contracts transferred to the Trust. The Excess Servicing Receivable represents
the present value of the Excess Servicing Cash Flows after taking into account
the Company's estimates for the net credit loss and prepayment on the Loan
Contracts in the Trust.
The gain on sale through securitization has been a significant component of
the Company's revenues in each of the quarters in which the securitization
transactions have been completed. Management believes that such gain on sale
will continue to represent a significant source of the Company's revenues in all
financial reporting periods in which the Company completes a securitization. If,
for any reason whatsoever, the Company is unable to complete a securitization
during a quarter, the Company's revenues for such period would decline. Also,
failure to complete a securitization of the Loan Contracts or delays in
completing such securitization could further subject the Company to interest
rate risk since the Company finances the Loan Contracts through a floating
interest rate Warehouse Facility.
The Company continues to explore alternative structures for the
securitization of its Loan Contracts in order to achieve a lower cost of
financing and to maximize the net proceeds from the securitization. Management
believes that it would lower the cost of financing by structuring the
securitization in a manner that results in the issuance of triple-A rated
Securities backed by the assets of the Trust, and then by selling such
Securities in a public offering. However, there can be no assurance that the
Company will be able to achieve this in the near future.
OTHER USES OF CAPITAL
In June 1996, the Company purchased certain assets constituting the
business of SFI pursuant to the exercise of an option agreement entered into on
August 1, 1995 for the purchase price of $1,000,000, plus 125,000 shares of the
Company's Common Stock and options to purchase 65,000 shares of Common Stock at
$6.00 per share. The option price of $250,000 paid on August 1, 1995 was
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<PAGE>
credited against the purchase price. This acquisition was recorded utilizing the
purchase method of accounting and the Company recognized goodwill in the amount
of $3.8 million. In conjunction with the acquisition, the Company entered into a
management agreement with the former principals of SFI and retained
substantially all of its operating personnel. Since the acquisition, SFI has
continued to generate Loan Contract volume comparable to historic levels. While
management believes that such levels of Contract volume will continue, there can
be no assurances to that effect. See 'Risk Factors.'
During June 1996, the Company repaid an outstanding stockholder loan in the
amount of approximately $3.0 million. See 'Certain Transactions -- Loan to the
Company.'
EFFECTS OF INFLATION
Inflationary pressures may have an effect on the Company's internal
operations and on its overall business. The Company's operating costs are
subject to general economic and inflationary pressures. Operating costs have
increased during the past years due primarily to the expansion of the Company's
operations. The Company's business is subject to risk of inflation. Significant
increases in interest rates that are normally associated with strong periods of
inflation may have an impact upon the number of individuals that are likely or
able to finance the purchase or lease of an automobile.
RECENT DEVELOPMENTS
On December 18, 1996, the Company completed the sale of approximately $88
million of Loan Contracts in a privately-placed securitization transaction, the
terms of which are similar to the Company's four prior securitization
transactions. The Securities issued in the securitization transaction were rated
'A' and 'BBB' by Duff & Phelps Credit Rating Co. and Fitch Investors Service,
L.P. and carry a weighted average coupon rate of 7.03%.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 123 ('SFAS No. 123'),
'Accounting for Stock-Based Compensation.' SFAS No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation plans.
The statement defines a 'fair value based method' of accounting for employee
stock options or similar equity instruments and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, SFAS No. 123 also allows an entity to continue to measure compensation
costs for those plans using the 'intrinsic value based method' of accounting,
which the Company currently uses. The accounting requirements of SFAS No. 123
are effective for transactions entered into during fiscal years beginning after
December 15, 1995. The disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995, or for an earlier
fiscal year for which SFAS No. 123 is initially adopted for recognizing
compensation cost. Management has determined that the Company will continue to
measure compensation costs using the 'intrinsic value based method' and will
disclose the effect on net income and earnings per share using the 'fair value
based method' in the footnotes to the Company's financial statements upon the
adoption of SFAS No. 123.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 ('SFAS No. 125'), 'Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities.' SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on a financial-components approach that
focuses on control. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be prospectively applied. However, a proposal has recently been
developed to defer, for one year, certain provisions of SFAS No. 125. Management
is currently assessing the impact of the adoption of SFAS No. 125 on the
Company's financial position and results of operations.
32
<PAGE>
THE COMPANY
GENERAL
NAL is a specialized automobile finance company engaged in the purchase and
servicing of Contracts originated by franchised and select independent Dealers
in connection with sales or leases of used and new automobiles to consumers with
non-prime credit. Consumers with non-prime credit are perceived to be relatively
high credit risks due to various factors, including the manner in which they
have handled previous credit, the absence or limited extent of their prior
credit history and their limited financial resources. The Company purchases
Contracts relating principally to the 'C' credit segment of the automobile
finance market. The Company is also engaged in providing insurance and related
products to its Dealers and customers through its insurance subsidiary, NIS. The
Company has a remarketing subsidiary, PCSF, with a JDBR Franchise, which
provides a cost-effective means of disposing of some of the Company's
repossessed and off-lease vehicles.
The Company purchases Contracts directly from Dealers through its Dealer
Program and through select third party entities that participate in the
Company's Captive Program, Affinity Program, Correspondent Program, Recourse
Program and Wholesale Program. Participants in these Origination Programs offer
Contracts to the Company under a variety of arrangements and allow it to
increase the volume of Contracts purchased from Dealers with whom the Company
does not maintain a direct relationship. The Company's main sources of Contracts
are its Dealer Program and its Captive Program. The Captive Program includes the
Company's arrangements with SFI, which recently became a wholly-owned subsidiary
of the Company. Under its Affinity Program, the Company has an agreement with
GECAL to purchase non-prime Lease Contracts through GECAL's network of Dealers
in the Southeast region of the United States. As of September 30, 1996, the
Company's servicing portfolio consisted of Contracts purchased through its
Dealer Program (32%), Captive Program (46%), Affinity Program (5%),
Correspondent Program (2%), Recourse Program (9%) and Wholesale Program (6%).
Each of these programs, other than the Recourse Program, is designed to purchase
Contracts relating primarily to the 'C' credit segment of the market. The
Recourse Program is designed to purchase Contracts relating to the 'D' credit
segment.
The Company has experienced significant growth in its portfolio of
purchased and serviced Contracts since June 1994, when the acquisition of
Contracts became the principal focus of its business. Total Contracts purchased,
which includes both Loan Contracts and Lease Contracts, increased from
approximately $28.1 million through December 31, 1994 and $165.7 million through
December 31, 1995, to approximately $205.8 million through September 30, 1996.
As a result, the Company's servicing portfolio increased from approximately
$44.4 million at December 31, 1994 and $153.8 million at December 31, 1995, to
approximately $283.9 million at September 30, 1996. The Company's overall growth
during this period was attributable to an increase in the Company's Dealer
relationships from 196 Dealers at December 31, 1994 to 1,594 Dealers at
September 30, 1996, and an expansion of the sources and amounts of financing
available to purchase Contracts. The Company currently purchases Contracts from
Dealers in 23 states, with a major concentration in Florida. More than 90% of
all Contracts acquired by the Company during the nine months ended September 30,
1996 were originated by franchised Dealers.
The Company has historically funded the purchase of its Contracts with
borrowings from banks and other lenders. Currently, the Company's primary
financing sources include a $100 million Warehouse Facility, $45 million of
Revolving Credit Facilities, including the $25 million GECC Facility, and a
Specialized Borrowing Facility. Beginning in December 1995, the Company began
securitizing the majority of its portfolio of Loan Contracts to increase the
Company's liquidity, provide for the redeployment of capital, reduce risks
associated with interest rate fluctuations and provide the Company with access
to a cost-effective, diversified source of financing. During the last four
fiscal quarters, the Company completed securitization transactions aggregating
approximately $200 million. During this period, gains on sale from the
securitization transactions have constituted the principal source of the
Company's revenues. The Company plans to continue to employ its securitization
program as an integral component of its funding strategy and anticipates that it
will generally complete
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<PAGE>
securitization transactions on a quarterly basis. The Company also generates
revenues from interest income and fees earned on Contracts held in portfolio, as
well as servicing fees from Loan Contracts sold in securitization transactions.
In addition, the Company receives revenues from the sale of insurance and
related products through its insurance subsidiary, NIS.
BACKGROUND
NAL was founded in February 1991 as a specialized consumer finance company.
It became publicly held by virtue of the Merger on November 30, 1994 with a
previously inactive public company, which was incorporated in Delaware on
November 14, 1986. Effective upon completion of the Merger, the Company assumed
the historic operations of NAL and changed its name to 'NAL Financial Group
Inc.'
Because of the opportunities presented by the insolvency and reorganization
of many financial institutions at the time, the Company's principal activities
until the second quarter of 1994 involved the bulk purchase and servicing of
seasoned and non-performing portfolios of consumer and mortgage loans and
automobile lease receivables that had been administered by the Resolution Trust
Corporation or the Federal Deposit Insurance Corporation. The principal focus of
the Company's business since June 1994 has shifted to the purchase and servicing
of automobile Loan and Lease Contracts originated by Dealers in connection with
the sale or lease of automobiles to consumers with non-prime credit.
INDUSTRY AND COMPETITION
According to CNW Marketing/Research, an independent automobile finance
market research firm, the automobile finance industry is the second largest
consumer finance industry in the United States with over $410 billion in loan
and lease originations in 1995. Management believes that captive finance
companies, such as General Motors Acceptance Corporation, Ford Motor Credit
Company and Chrysler Credit Corp., financed between 25% and 30% of automobile
purchases and leases nationwide in 1995, while the balance of automobile
financing was provided by banks, credit unions and other independent finance
companies. The industry is generally segmented according to the type of car sold
(new or used) and the credit characteristics of the borrower (prime or
non-prime).
Sales information for new and used vehicles indicates that the market for
used cars increased at approximately three times the rate for new cars for the
period from 1990 to 1995. According to industry analysts, sales of used
automobiles, excluding private sales, increased from 24.9 million vehicles in
1990 to 29.8 million vehicles in 1995, an increase of 19.7%. In contrast, sales
of new automobiles, excluding private sales, increased from 13.9 million
vehicles in 1990 to 14.8 million vehicles in 1995, an increase of 6.5%. Industry
analysts have concluded that the market for retail sales of used automobiles
will expand further due to a combination of increases in the average useful life
of automobiles, the number of late-model used automobiles in service and the
number of late-model used automobiles available for sale (including off-lease
and former rental cars).
In the leasing market, according to CNW Marketing/Research, used-car
leasing has followed the lead of new-car leasing and shown growth. According to
their findings, this growth is likely to amount to more than one million used
vehicles being leased by the year 2000. The reason for this growth is the same
as for the growth in new car leasing, which is that customers can receive a
higher quality vehicle for their budgeted amount, lower monthly payments and the
ability to have a better secondary vehicle in the household. The vast majority
of used cars being leased prior to 1994 were luxury models. However, there has
recently been a growing number of non-luxury automobiles being leased.
The Company primarily focuses on the 'C' credit segment of the automobile
finance market and to a limited extent, on the 'D' credit segment through its
Recourse Program. Management believes that the non-prime segment of the
automobile finance market is in the range of $80 billion to $100 billion in
annual loan and lease originations.
Competition in the field of retail automobile finance is intense. The
market is highly fragmented and historically has been serviced by a variety of
financial entities, including the captive finance
34
<PAGE>
affiliates of major automobile manufacturers, banks, savings associations,
independent finance companies, credit unions and leasing companies. Many of
these competitors have greater financial resources than the Company and may have
significantly lower cost of funds. Many of these competitors also have
long-standing relationships with automobile dealerships and may offer
dealerships or their customers other forms of financing or services not provided
by the Company. Furthermore, during the past two years, a number of automobile
finance companies have completed public offerings of common stock, the proceeds
from which are to be used, at least in part, to fund expansion.
The Company's ability to compete successfully depends largely upon its
relationships with its origination sources, particularly Dealers, and the
ability and willingness of such origination sources to offer Contracts that meet
the Company's underwriting criteria for purchase. Management believes that by
diversifying its origination sources through its Affinity Program, Correspondent
Program, Recourse Program and Wholesale Program, the Company increases the
number of Contracts purchased without significantly increasing its marketing
costs. Management believes that its multi-tier underwriting quidelines which
balances the creditworthiness of the borrower with the value of the collateral,
enables it to evaluate effectively and measure the risks associated with lending
to consumers with non-prime credit. The Company also believes that its servicing
and collection procedures, specialized servicing functions and asset disposition
enable it to manage its portfolio of Contracts profitably and in a cost-
effective manner. However, there can be no assurance that the Company will be
able to continue to compete successfully in the markets that it serves.
BUSINESS STRATEGY
The Company's business is to purchase and service non-prime Loan and Lease
Contracts through its Origination Programs. The Company's principal objectives
are to sustain controlled growth of its business and to maximize its profit
potential. To achieve these objectives, the Company is currently employing the
following key strategies:
Expanding and Strengthening Relationships with Origination
Sources. The Company plans to achieve a greater volume of business by
expanding its origination sources in existing markets, entering into new
geographic markets and strengthening current relationships. The Company
plans to expand its origination sources through strategic arrangements with
independent entities and relationships with individual Dealers and networks
of Dealers. The Company develops strong relationships with its Dealers and
other origination sources by providing a high level of service specifically
tailored to meet their needs. The Company typically responds to credit
applications on the date received, and in most cases, within two to four
hours, and generally pays the Dealer for Contracts purchased within
twenty-four hours of receipt of a complete funding package. In addition,
the Company provides training to Dealer personnel to effectively utilize
the Company's credit underwriting and pricing guidelines.
Among its origination sources, Dealers, including those with whom SFI
has relationships, represent a principal source of business for the
Company. To service the Dealers, the Company employs a value-added
approach. Specifically, the Company's local representatives provide
training on the Company's products and services to their respective
Dealers. The Company's offices are open six days a week, and sales and
marketing personnel attend Dealer-sponsored promotional sales events to
provide 'on-site' financing approval. The Company's regional sales
representatives and senior management maintain an ongoing dialogue with
Dealers to enhance such relationships. In addition, the Company has sales
and marketing resources dedicated to expanding its origination sources.
Providing Diverse Products and Services to Dealers. In addition to
providing prompt, flexible service and a reliable source of financing, the
Company increases its volume of business from Dealers by offering a
'one-stop shop' service. This service includes purchasing both Loan and
Lease Contracts on used and new automobiles from a broad range of credit
profiles and offering insurance and related products.
35
<PAGE>
Employing Detailed Underwriting Guidelines. In order to evaluate and
measure the risks associated with lending to consumers with non-prime
credit, the Company uses multi-tiered credit underwriting and pricing
guidelines for purchasing both Loan and Lease Contracts. These guidelines
balance, among other factors, the creditworthiness of the borrower with the
adequacy of the vehicle as collateral. These guidelines are designed to
enable Dealers to: (i) assess a borrower's credit risk category; (ii)
determine the maximum term of the loan or lease for used and new
automobiles; (iii) calculate the maximum payment affordable by the
borrower; and (iv) estimate their profit from selling the Contracts to the
Company.
By providing a high degree of credit and pricing specificity to the
Dealer, the Company's underwriting guidelines aid in the assessment of
credit risk and the development of financing terms for a borrower. These
guidelines not only enhance the rapid execution of the transaction for the
Dealer, but enable the Dealer to provide improved service to its customers.
Maintaining Effective Collection and Asset Disposition Systems. To
minimize delinquencies and losses, the Company employs aggressive
collection policies and procedures, which typically include contacting a
borrower within 24 hours of a payment delinquency and managing accounts
based on geographic regions. The Company also uses collection specialists
to address certain servicing functions, such as insurance claims,
deficiency collection, bankruptcy, skip tracing and asset management. In
addition, the Company uses its subsidiary, PCSF and its JDBR Franchise, to
maximize its recovery on some of its repossessed and off-lease vehicles by
providing an alternate means of disposition.
The Company currently has a servicing operation that utilizes both
local area and wide area network systems for servicing its portfolio. In
order to accommodate future growth, the Company plans to enhance its
current systems, which will facilitate the decentralization of collection
activities to regions based upon the concentration of business in those
areas. As geographic expansion requires, the Company intends to establish
full service regional centers. The Company expects to open regional centers
in Orlando, Florida and Atlanta, Georgia.
Diversifying its Financing Sources. The Company plans to continue to
expand and diversify its financing sources, and to increase the amount of
financing available. The Company intends to continue to securitize its Loan
Contracts on a quarterly basis. Current financing sources include a $100
million Warehouse Facility, $45 million of Revolving Credit Facilities,
including the $25 million GECC Facility, a securitization program and a
Specialized Borrowing Facility.
During each of the last four quarters, the Company has sold a
significant portion of its Loan Contracts in securitization transactions to
increase the Company's liquidity, to provide for redeployment of capital
and to mitigate interest-rate risk. The Company has completed four private
placement securitization transactions totaling approximately $200 million.
When the quarterly volume of Loan Contracts reaches over $100 million, the
Company intends to complete securitization transactions through the public
market, which management believes will reduce its financing cost. The
Company plans to complete securitization transactions of its Lease
Contracts when the volume of Lease Contracts reaches a level that is
cost-effective for securitization.
Continuing the Growth of Related Businesses. The Company's related
businesses complement the purchasing and servicing of Loan and Lease
Contracts and enhance the Company's profitability. The Company's insurance
subsidiary, NIS, offers insurance and related products. In 1995, NIS
generated revenues of $548,000. For the nine months ended September 30,
1996, NIS generated revenues of $1.1 million. The Company plans to continue
to market its insurance and related products to its Dealers and customers.
The Company uses its subsidiary, PCSF (including its JDBR Franchise),
as an efficient means of disposing of some of its repossessed and off-lease
vehicles. For the nine months ended September 30, 1996, PCSF generated
revenues of $971,000. As the volume of Contracts purchased increases, the
Company plans to open additional PCSF sites with JDBR Franchises in
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<PAGE>
Florida and other markets. Currently, the Company expects to open a PCSF
site with a JDBR Franchise in Orlando, Florida.
Recruiting and Retaining Experienced Management. Members of the
Company's management team have an average of over 20 years of experience in
automobile finance, consumer finance or banking. Management believes that
hiring experienced management personnel is critical to the formulation and
implementation of its strategies, and the maintenance of its growth and
profitability. The Company intends to continue to provide incentive
compensation arrangements, including stock option plans, to retain members
of the management team.
BUSINESS
The Company's lines of business include the purchase and servicing of Loan
and Lease Contracts on used and new automobiles relating to consumers with
non-prime credit from Dealers and other origination sources, and the sale of
insurance and related products to its customers directly and through Dealers.
Loan Contracts
The following table provides certain material information relative to the
Loan Contracts acquired by the Company during each of the last nine quarters.
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------------------------------------------------------
SEP. JUN. MAR. DEC. SEP. JUN. MAR. DEC. SEP.
30, 30, 31, 31, 30, 30, 31, 31, 30,
LOANS:(1) 1996 1996 1996 1995 1995 1995 1995 1994 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contracts purchased...... $69,556 $50,971 $48,326 $46,593 $31,624 $21,364 $18,785 $12,088 $ 395
Weighted average
Contract amount........ $ 12.3 $ 12.3 $ 12.1 $ 12.5 $ 12.0 $ 11.2 $ 12.2 $ 10.5 $ 7.3
Weighted average initial
term (months).......... 54.4 53.6 56.1 53.0 51.1 48.0 42.8 43.0 44.5
Weighted average
APR.................... 19.50% 19.33% 19.60% 19.35% 19.90% 20.56% 19.05% 20.73% 28.51%
Weighted average
discount............... 8.24% 4.21% 4.73% 5.53% 5.93% 5.26% 4.82% 2.04% 4.30%
Percentage of
Contracts secured
by new vehicles........ 19.61% 29.72% 38.39% 34.62% 31.05% 21.30% 18.43% 8.17% 7.46%
Percentage of
Contracts secured
by used vehicles....... 80.39% 70.28% 61.61% 65.38% 68.95% 78.70% 81.57% 91.83% 92.6%
</TABLE>
- ------------------
(1) Excludes Loan Contracts purchased under the Company's Recourse Program.
The Company purchases Loan Contracts, which are secured by used and new
automobiles, from diverse sources through its Origination Programs. Loan
Contracts relate to borrowers which, according to the Company's underwriting
guidelines, fall within the 'C' credit segment of the automobile finance market,
except in the case of its Recourse Program, which is designed for 'D' credit
borrowers. Contracts generally have terms of 36 to 60 months and carry interest
rates ranging from 16% to 30% per year. A majority of the loans are based on the
Rule of 78's method; however, a small portion are simple interest loans and
actuarial loans.
The Company purchases Loan Contracts at discounts to the face amount of the
Loans. The discounts are nonrefundable and vary depending upon the credit
category of the borrower, as determined by the Company's underwriting
guidelines, and any special arrangements between the Company and the origination
source. In addition to the discount, the Company generally charges an
administration fee. The purchase price of the Loan Contracts is, therefore,
reduced from its face amount by both the discount and the administration fee.
The purchase price of the Loan Contracts
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<PAGE>
generally ranges from 110% to 120% of the collateral value of the underlying
vehicle, except in the case of the Recourse Program where it ranges from 60% to
75% of the principal amount of the Loan Contract, which approximates the value
of the vehicle.
The Company purchases Loan Contracts in 23 states with a concentration in
Florida (50.0% of the Company's Loan portfolio as of September 30, 1996). The
average size of the Loan Contract acquired for the nine months ended September
30, 1996 was $12,300. The Company finances Loan Contracts on both a floating and
fixed rate basis through its credit facilities. The Company has sold, for the
last four quarters, a substantial majority of its Loan Contracts through
securitization transactions and services all Loan Contracts including those sold
through securitization transactions.
In the event of a default by a borrower, the Company repossesses the
vehicle and remarkets the vehicle through one of the following four channels:
(i) wholesale auctions; (ii) on a wholesale basis through the Company's
subsidiary, PCSF; (iii) on a retail basis through the Company's subsidiary,
PCSF; or (iv) on a retail basis through the JDBR Franchise, depending on, among
other factors, the age and condition of the vehicle. To the extent that the net
proceeds from remarketing a vehicle exceed the Company's book value of the Loan
Contract, the Company recognizes a gain, and to the extent such net proceeds are
less, the Company recognizes a loss. As a result, employing an efficient
remarketing channel for repossessed vehicles is an important aspect of the
Company's operations.
Lease Contracts
The following table provides certain material information relative to the
Lease Contracts acquired by the Company during each of the last nine quarters.
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------------------------------------------------
SEP. JUN. MAR. DEC. SEP. JUN. MAR. DEC. SEP.
30, 30, 31, 31, 30, 30, 31, 31, 30,
LEASES: 1996 1996 1996 1995 1995 1995 1995 1994 1994
------- ------ ------- ------ ------ ------ ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contracts purchased...... $6,776 $3,609 $3,686 $3,989 $4,085 $5,241 $6,733 $3,446 $1,237
Weighted average
Contract amount........ $ 15.9 $15.9 $ 15.8 $16.8 $16.5 $17.2 $ 20.2 $17.9 $16.9
Weighted average initial
term (months).......... 45.8 44.9 45.3 43.1 45.2 42.8 39.0 45.4 45.7
Weighted average yield... 17.93 % 18.03 % 18.36 % 17.5 % 18.09 % 17.62 % 14.49 % 16.82 % 15.87 %
Percentage of
Contracts secured
by new vehicles........ 40.47 % 43.61 % 41.63 % 54.43 % 64.92 % 67.11 % 64.67 % 64.58 % 76.71 %
Percentage of
Contracts secured
by used vehicles....... 59.53 % 56.39 % 58.37 % 45.57 % 35.08 % 32.89 % 35.33 % 35.42 % 23.29 %
</TABLE>
The Company purchases substantially all of its Lease Contracts from its
Dealer Program and Affinity Program. Generally, Lease Contracts involve
customers with better credit than customers relating to Loan Contracts. Lease
Contracts relate to many makes and models of both used and new vehicles. As of
September 30, 1996, the Company's lease portfolio consisted of 55.5% new
automobiles and 44.5% used automobiles. The Leases are closed-end leases and
generally have terms of 24, 36 and 48 months, with 48 months as the most common
term. A vast majority of the Lease Contracts are amortized according to the Rule
of 78's method. The Lease Contracts also require that the lessee pay all fees
and expenses relating to the use and maintenance of the vehicle.
The Company purchases Lease Contracts from its origination sources at the
implied principal amount of the Lease less an administration fee. The
administration fee is nonrefundable and varies depending upon the credit
category of the borrower, as determined by the Company's underwriting
guidelines, and any special arrangements between the Company and the origination
source. The purchase price of the Lease Contract ranges from 110% to 120% of the
collateral value of the underlying vehicle.
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<PAGE>
The Company purchases Lease Contracts in 23 states with a concentration in
Florida (78.3% of the Company's Lease portfolio as of September 30, 1996). The
average size of Lease Contracts is $18,000 for new automobiles and $15,100 for
used automobiles. The Company uses its GECC Facility to finance all of its Lease
Contracts. Under this facility, GECC provides fixed-rate financing for the full
term of the Lease Contract and generally advances 100% of the Company's
investment in the Lease Contract. The Company currently holds all Lease
Contracts on its books and services them for their full term.
The Company purchases both direct finance leases and operating leases, with
the vast majority of the Lease Contracts being direct finance leases. Generally,
Lease Contracts having a term in excess of 48 months are classified as direct
finance leases, and Lease Contracts having a term of less than 48 months are
classified as operating leases. The Company's sources of revenues from Lease
Contracts include: (i) an administration fee; (ii) interest income in the case
of direct finance leases and rental revenue in the case of operating leases; and
(iii) proceeds from the sale of the vehicle in excess of the Residual Value at
the end of the lease term.
In establishing the amount of the lease payments, the Company makes an
estimate of the Residual Value of the vehicle at the end of the lease term. The
Company's ability to realize proceeds approximating the Residual Value will be
substantially determined by the accuracy of the Residual Value previously
estimated and the Company's ability to effectively remarket its off-lease
vehicles. The Company uses Automobile Leasing Guide guidelines in estimating the
Residual Value, which are based on, among other things, the lease term, the
vehicle's make and model, the vehicle's remarketing and mechanical history, new
automobile price increases for the model and how the vehicle is equipped.
Furthermore, the Company periodically reviews and updates the Residual Values as
necessary throughout the lease term.
The Company remarkets the vehicle at the end of the lease term by
attempting to sell the vehicle to the lessee. In the event that the lessee does
not purchase the vehicle, the Company remarkets the vehicle through the same
channels it uses for the disposition of its repossessed vehicles under its loan
program, which include wholesale auctions and the Company's subsidiary PCSF and
its JDBR Franchise. To the extent the proceeds from remarketing a vehicle exceed
the Residual Value of the vehicle, the Company recognizes a gain, and to the
extent such proceeds are less than the Residual Value, the Company recognizes a
loss. As a result, the estimation of the Residual Value at lease inception is an
important aspect of the Company's operations. As of September 30, 1996, the
Company had a Residual Value exposure of approximately $16.8 million,
representing an average of 34% of the original aggregate gross Lease Contracts
receivable. Management believes that it adequately reserves against exposure to
risks associated with realizing the underlying Residual Value. See 'Risk
Factors.'
In the event of an early termination of the Lease or default by the lessee,
the lessee is generally obligated to pay the remaining payments due under the
Lease, plus the Residual Value, less any unearned lease income calculated using
the Rule of 78's method, and less the proceeds received from the disposition of
the vehicle.
Sales and Marketing
The Company focuses its sales and marketing efforts on developing strong
relationships with Dealers and expanding and diversifying its other origination
sources. Since Dealers represent the Company's primary source of Contracts
through the Company's Dealer Program and through SFI, the Company's sales and
marketing team focuses on increasing the number of Contracts purchased from
existing Dealers and developing relationships with new Dealers. Management
believes that it increases its Contract volume from Dealers by providing both
Loan and Lease financing alternatives and insurance and related products. The
Company develops strong relationships with its Dealers by providing a high level
of service specifically tailored to meet their needs. The Company offers its
Dealers fast turnaround of Contract approval and funding, consistent and
detailed credit underwriting and pricing guidelines and feedback on the
performance of their portfolios. The Company's offices are open six days a week
and sales and marketing personnel attend Dealer-sponsored promotional sales
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events to provide 'on-site' financing approval. In an effort to attract
additional non-prime borrowers, the Company provides advertising subsidies to
key Dealers. The Company's regional sales representatives and senior management
maintain an ongoing dialogue with Dealers to enhance relationships. With respect
to its other origination sources, the Company's special program manager, who has
30 years of experience in the automobile finance industry, focuses his sales and
marketing efforts on developing and expanding the Captive Program, Affinity
Program, Correspondent Program, Recourse Program and Wholesale Program.
The Company solicits business from Dealers through its sales and marketing
team, which principally consists of regional managers, area sales managers and
dealer service representatives. As of September 30, 1996, the sales and
marketing team had 70 members. Each regional sales manager manages approximately
6 area sales managers. The regional sales managers, in conjunction with area
sales managers, are responsible for maintaining and expanding existing Dealer
relationships and developing new Dealer relationships, including educating
Dealer personnel in the area of non-prime automobile finance.
The area sales managers are each assigned to a territory of approximately
75 to 100 franchised new car Dealers. The area sales managers are responsible
for making initial contact with Dealers in their territory with the goal of
establishing a minimum origination volume of 45 Contracts per month from a group
of 5 to 8 Dealers. Once this volume goal is achieved, the primary responsibility
for maintaining day-to-day contact with the newly-established Dealer group
shifts from the area sales manager to a dealer service representative who is
responsible for visiting the Dealers, coordinating the submission of the funding
packages and assisting the Dealers in Contract closing. The sales and marketing
team receives a daily list indicating the credit application approvals for the
prior day designated by the submitting Dealer. In order to increase the
likelihood that an approved application results in a completed Contract, a
member of the team responsible for servicing the submitting Dealer visits that
Dealer to request submission of the Contract to the Company and to assist in
Contract closing.
Members of the Company's sales and marketing staff are trained by the
Company's training manager, who is also responsible for training the finance
personnel of Dealers. The training manager periodically conducts formal two-day
training sessions for Dealer personnel focusing on the Company's underwriting
policies, procedures and documentation.
The sales and marketing team of the Company's wholly-owned subsidiary, SFI,
operates substantially as described above. As of September 30, 1996, the sales
and marketing staff of SFI consisted of 61 persons, including regional managers,
area sales managers and dealer service representatives. The sales and marketing
team of SFI coordinates with the Dealer Program its activities in maintaining
and expanding its network of Dealers in existing and new markets in order to
maximize Dealer relationships and the volume of Contracts generated.
Origination Sources
The Company purchases Contracts directly from Dealers through its Dealer
Program and through select third party entities that participate in its other
Origination Programs. Although the Dealer Program and the Captive Program are
the primary sources of Contracts, the other programs offer the Company the
opportunity to purchase Contracts with a minimal increase in sales and marketing
costs. Generally, under each program, the entity from which the Company
purchases Contracts makes certain representations and warranties to the Company
with respect to the Contracts purchased. Under the terms of the agreement
between the Company and a Dealer in the Dealer Program, the Dealer agrees to
repurchase any Contracts from the Company if certain conditions are not met.
Under this program, the Dealer also indemnifies the Company for certain breaches
of the dealer agreement.
Dealer Program. In its Dealer Program, the Company enters into a
non-exclusive agreement with a Dealer, under which the Company purchases Loan
and Lease Contracts originated by the Dealer in accordance with the Company's
underwriting guidelines and procedures. Under this program, a Dealer submits
loan and lease applications that it believes would satisfy the Company's
underwriting
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guidelines. The Company applies its underwriting guidelines and procedures to
determine whether to approve or decline the application. If the Company approves
the application, it will seek to purchase the Contract. The Company's sales and
marketing team establishes and maintains direct relationships with Dealers, and
when necessary, a member of the team works with the Dealer throughout every
stage of the application approval and the Contract purchase process.
As of September 30, 1996, the Company purchased Contracts through its
Dealer Program in 23 states with concentrations in Florida (54.0%), Georgia
(14.4%), Louisiana (7.2%) and North Carolina (6.8%). For the nine-month period
ended September 30, 1996, the Dealer Program generated a volume of 7,564
Contracts, which represented 29.5% of the Contracts purchased during the period.
Captive Program. In its Captive Program, the Company enters into an
exclusive agreement with an entity (the 'Captive') whereby the Captive
originates, through its Dealer relationships, Loan and Lease Contracts in
accordance with the Company's underwriting guidelines; and the Company has the
right of first refusal to purchase such Contracts. Under this program, the
Captive submits the Contracts and the Company verifies that each Contract meets
its underwriting guidelines prior to the purchase of such Contracts.
The Company currently has two Captive relationships, one with SFI and the
other with First Financial Acceptance, Inc. ('FFA'), a company which originates
Contracts exclusively from a network of Dealers who have ownership interests in
FFA.
SFI, a Florida-based finance business founded in 1987, is engaged in
originating and selling non-prime automobile Loan Contracts. From September 1994
to August 1995, the Company purchased Loan Contracts originated by SFI with an
aggregate volume of $41.7 million. In August 1995, the Company entered into an
exclusive agreement with SFI under its Captive Program whereby SFI originated,
through its Dealer relationships, Loan Contracts in accordance with the
Company's underwriting guidelines and the Company had the right of first refusal
to purchase such Contracts.
In June 1996, the Company acquired the business of SFI by exercising its
purchase option. SFI became a wholly-owned subsidiary of the Company without any
material change in the operations of SFI. The Company entered into a management
agreement with the former principals of SFI and retained substantially all of
the operating personnel of SFI. SFI has continued its operations consistent with
historic practice and the Company has continued to account for the origination
of Loan Contracts by SFI as part of the Captive Program. SFI has continued to
maintain its relationships with Dealers in coordination with the Company's own
Dealer relationships.
SFI has originated under the Captive Program increasing volume of Loan
Contracts. During the period from October 1, 1994 to September 30, 1996, the
Company purchased an aggregate volume of $165.9 million of Loan Contracts
through SFI, representing approximately 47.0% of the total volume of Loan
Contracts purchased by the Company during this period through all of its
Origination Programs. For the nine-month period ended September 30, 1996, the
Company's Captive Program generated a volume of 11,160 Contracts, which
represents 45.1% of the Contracts purchased during the period.
Affinity Program. In its Affinity Program, the Company enters into an
agreement with an independent entity (the 'Affinity'), which typically lends to
consumers with 'A' and 'B' credit. Under this program, the Affinity originates,
through its Dealer relationships, Loan and Lease Contracts that do not meet its
own underwriting guidelines but may satisfy the Company's underwriting
guidelines. The Company has the right of first refusal to purchase such
Contracts. The Affinity submits such Loan and Lease applications and the Company
applies its underwriting guidelines and procedures to determine whether to
approve or decline the application. Upon approval, the Company purchases the
Contract. The purpose of this program is primarily to develop strategic
relationships with third party financing sources that do not otherwise finance
consumers with non-prime credit.
The Company currently has three Affinity relationships. One of the
relationships is with GECAL, an affiliate of GECC. In July 1995, the Company
entered into a two-year agreement, automatically renewable for successive
one-year periods thereafter, under which the Company is given the
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opportunity to evaluate all applications that do not meet GECAL's underwriting
criteria. The Company, utilizing its underwriting guidelines, then approves or
declines the submissions. While not an exclusive arrangement, management
believes that the Company continues to be the only non-prime company operating
this program with GECAL in the Southeast. The program currently includes all of
GECAL's dealers in Florida and the Company is in the process of initiating the
program in North Carolina, South Carolina and Tennessee, with the long-term plan
of establishing the program in the entire Southeast region during fiscal 1997.
The Company anticipates that the relationship with GECAL will give it access to
GECAL's network of 1,500 dealerships in 11 Southeastern states with minimal
increases in sales and marketing costs.
For the nine-month period ended September 30, 1996, theAffinity Program
generated a volume of 903 Contracts, which represented 3.5% of the Contracts
purchased during the period.
Correspondent Program. In its Correspondent Program, the Company enters
into an agreement with an independent entity (the 'Correspondent') whereby the
Correspondent originates, through its Dealer relationships, Loan Contracts that
the Correspondent believes would satisfy the Company's underwriting guidelines;
but the Company does not have the right of first refusal to purchase such
Contracts. Under this program, the Correspondent submits loan and lease
applications which it believes would satisfy the Company's underwriting
guidelines. The Company applies its underwriting guidelines and procedures to
determine whether to approve or decline the application. Upon approval, the
Company purchases the Contract.
The Company currently has four Correspondent relationships. During the
nine-month period ended September 30, 1996, the Correspondent Program generated
a volume of 564 Contracts, which represented 2.2% of the Contracts purchased
during the period.
Recourse Program. In its Recourse Program, the Company enters into an
arrangement with an independent entity (the 'Originating Entity') that
originates, through its Dealer relationships, Loan Contracts that meet
pre-established credit criteria; and the Company purchases such Contracts with
full recourse to the Originating Entity. The Company accounts for the
arrangement as a financing to the Originating Entity. Under this program, the
Originating Entity submits the Contracts and the Company verifies that each
Contract meets the pre-established credit criteria prior to the purchase of such
Contract. The Company purchases the Contracts typically at 60% to 70% of the
principal amount of the Contracts. The pre-established credit criteria generally
relate to 'D' credit borrowers.
The Company currently has two Recourse relationships, which include a
finance company and a large used-car dealer. Management believes that the
Recourse Program offers the Company the opportunity to purchase Contracts
outside its 'C' credit target market and, at the same time, to mitigate the
credit risk through a large discount and full recourse. The advance rate is
determined based upon, among other factors, the credit of the Originating Entity
and the value of the underlying collateral. For the nine-month period ended
September 30, 1996, the Recourse Program generated a volume of 3,928 Contracts,
which represented 15.2% of the Contracts purchased during the period.
Wholesale Program. The Company engages in opportunistic purchases of
portfolios of Loan Contracts that meet the Company's underwriting guidelines and
Contract documentation requirements. The Company purchases such portfolios at a
discount and subject to verification that: (i) a sample of the Contracts,
typically 10% to 15% of the portfolio, complies with the Company's underwriting
guidelines; and (ii) each Loan Contract in the portfolio satisfies the
documentation requirements of the Company.
For the nine-month period ended September 30, 1996, the Company purchased
one $15 million portfolio of Contracts as part of its Wholesale Program.
Underwriting
The Company evaluates and purchases Loan and Lease Contracts in accordance
with its underwriting guidelines and procedures. The underwriting guidelines
focus on balancing the credit risk of the borrower or lessee with the adequacy
of the vehicle as collateral, as well as the purchase price of
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the Contract on a case by case basis. The underwriting procedure focuses upon
ensuring the compliance of the Contract with the underwriting guidelines, the
completeness of the documentation required for the Contract and the timely
response of the Company's decision to the entity submitting the Contract (the
'Originator').
Underwriting Guidelines. The Company's basic criteria for assessing credit
risk takes into account principally the following factors: (i) Stability: the
applicant's history with regard to his or her residency, occupation and
employment; (ii) Credit History: the applicant's history with regard to timely
payments on his or her past and present obligations, defaults, bankruptcies and
repossessions; (iii) Affordability: a monthly debt service-to-gross income ratio
test not to exceed 50%, and monthly payment not to exceed 20% of the monthly
gross income; (iv) Risk Exposure: the ratio of the principal amount of the
Contract net of the purchase discount and the administration fee to the market
value of the vehicle; and (v) Downpayment: the downpayment on the vehicle, which
is generally a minimum of 10% of the vehicle's sale price. The Company's
underwriting guidelines also incorporate certain criteria for the vehicle
underlying the Loan or Lease Contract, the maximum term of the Loan or Lease
Contract and the level of discount and administration fee required for the
purchase of such Contract.
Management believes that gradations exist with respect to the credit
profiles of non-prime consumers in the automobile finance market according to
the above generalized factors. The Company's underwriting guidelines provide for
four tiers of credit profiles: Tier I, Tier II, Tier III and Tier IV (the
'Multi-tier Underwriting Guidelines'). Management believes that its Tier I and
Tier II credits correspond to the 'B' credit segment and Tier III and Tier IV
correspond to the 'C' credit segment of the automobile finance market. Consumers
who do not meet the profile of a Tier IV credit are classified by the Company as
consumers with 'D' credit. While such gradations are by nature inexact, the
Company primarily focuses on the 'C' credit segment of the automobile finance
market. Furthermore, the Company believes that its Multi-tier Underwriting
Guidelines provide a greater degree of specificity to the Originator than its
competition in assessing the credit risk of, and developing the financing terms
for, the applicant, enhancing the rapid execution of the transaction for the
Originator and enabling the Originator to provide improved service to its
customers.
As of September 30, 1996, the Company's servicing portfolio of Loan
Contracts (excluding the Recourse Program) consisted of approximately 2% Tier I
and Tier II combined, 18% Tier III and 80% Tier IV, and Lease Contracts
consisted of approximately 6% Tier I and Tier II combined, 48% Tier III and 46%
Tier IV.
Underwriting Procedure. The Company has an underwriting department with an
underwriting staff, which is organized into teams based upon geographic regions.
Each team consists of a processor, credit analyst, funder and senior funder.
Management believes that this regional team approach promotes efficient
communication and expedites the underwriting process, giving the Company a
competitive edge while maintaining consistent underwriting performance. As
geographic expansion requires, the Company intends to establish full service
regional centers, which will include an underwriting department. The
underwriting procedure consists of three steps: Step I -- Application
Processing, Step II -- Credit Review and Step III -- Contract Funding, as
described below.
STEP I -- Application Processing: Upon receipt of an application from an
Originator, the processor enters the information into the Company's computer
system, which automatically provides for the tracking and processing of the
application. The application sets forth, among other things, the applicant's
income, liabilities, credit and employment history, proposed downpayment and a
description of the vehicle. Simultaneously with the processing of the
application, the processor obtains credit reports from Equifax and TRW through
its computer system, and immediately proceeds to: (i) verify the employment of
the applicant and his or her spouse/co-signer, if applicable, with their
respective employers; (ii) verify credit references, if applicable; (iii) verify
current residence and duration of current and past residence; (iv) verify and
evaluate the value of the vehicle as collateral through the use of the 'Black
Book' or NADA Book, as appropriate; and (v) review a budget screen automatically
produced by the computer system, which estimates funds the applicant will have
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available for paying his or her monthly payment. Once this process is completed,
the application is passed on-line to the team's credit analyst.
STEP II -- Credit Review: The credit analyst reviews the application and
evaluates the applicant's credit risk with respect to the Company's Multi-tier
Underwriting Guidelines. Regardless of the decision on the application, the
credit analyst will promptly respond to the Originator, typically within two to
four hours of receipt of the application, indicating that the application is
approved with or without stipulations, or declined. If the application is
declined, the credit analyst will give a detailed explanation as to what
circumstances dictated the rejection of the application and what, if any,
changes could be made in order to make a subsequent application more likely to
be approved. Typical items that the Company might require to be amended include
proving additional income, requiring a co-applicant, amending the length of the
proposed term, requiring additional downpayment, substantiating credit
information and requiring proof of the resolution of certain credit deficiencies
as noted on the customer's credit history. Approximately 44% of applications are
approved or conditionally approved, of which approximately 25% are ultimately
funded. Management believes that this direct contact between the credit analyst
and the Originator and the development of a relationship over time results in a
better understanding by the Originator of the underwriting guidelines and leads
to more accurate pre-screening by the Originator of applicants and higher
approval rates of Contracts.
STEP III -- Contract Funding: If the credit analyst approves the
application, the Originator provides a funding package to the Company, which
includes legal documentation and the credit information. Upon receipt by the
Company, the funding package is referred to the team's funder. At that time, all
information concerning the funding package, including both legal documentation
and credit are reverified by the funder. Any deficiencies are noted and the
Originator is advised. The funder works directly with the Originator to complete
the funding package. While the funding package is being processed, the team's
interviewer conducts a customer telephone interview with the applicant to verify
the information provided in the application and the funding package. The
telephone interview with the applicant typically concentrates on verifying the
downpayment, the monthly payment amount, the payment due date, the Dealer
add-ons, and the make, model and mileage of the vehicle. If there are any
discrepancies, the file is referred back to the credit analyst who then contacts
the Originator and/or the applicant to see if the discrepancy is capable of
being resolved. If the problem is not capable of being resolved, the application
is terminated.
Prior to final approval for funding the Contract, the computer system
automatically verifies the Contract information, such as the APR, verifies the
proceeds to be distributed to the Originator and alerts the funder to any
discrepancies between the calculations automatically performed by the computer
system and the information included in the funding package. Prior to issuance of
a check to the Originator, the team's senior funder reviews the entire funding
package including any discrepancies between the computer analysis and the
funding package, verifies the completeness of the legal and credit
documentation, confirms that the applicant has adequate insurance as verified by
NIS (see 'NAL Insurance Services, Inc.') and that the telephone interview was
successfully completed. After approval by the senior funder, the Contract is
referred to the accounting department and the funds are delivered to the
Originator by check or wire transfer. The Company typically funds within 24
hours of receipt of a properly completed funding package.
Underwriting for Origination Programs. The Company applies the Mutli-tier
Underwriting Guidelines to each of the Origination Programs, except in the case
of the Recourse Program. The underwriting and pricing guidelines for the
Recourse Program are pre-agreed upon between the Originator of the Contracts
under this program and the Company. The terms of the Contract are based upon,
among other factors, the credit history of the borrower or lessee and the value
of the underlying collateral. The Company also applies its underwriting
procedure to each of the Origination Programs as appropriate, except in the case
of the Wholesale Program. The underwriting procedure for the Wholesale Program
involves evaluating the overall quality of the portfolio for compliance with the
Company's underwriting guidelines based upon a sample review of generally 10% to
15% of the Contracts in the portfolio prior to purchase. In addition, the
Company conducts a documentation
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review of each Contract in the portfolio for accuracy and completeness prior to
purchasing the portfolio.
SFI, a Captive Program participant, applies the Company's underwriting
guidelines and procedures from application to the preparation of the funding
package through its independent staff of 22 processors, credit analysts, funders
and senior funders. Prior to purchase, the Company verifies that the Contract
meets its underwriting guidelines and conducts the customer telephone interview.
Quality Control
The Company's quality control group conducts a post-funding credit review
of its Contracts on a monthly basis. The staff reviews all of the Contract files
for completeness of documentation. The staff also conducts a credit review of
approximately 15% to 20% of the Contracts purchased each month to determine
whether the Contracts comply with the Company's underwriting guidelines and
procedures and records the nature and frequency of all exceptions that were
approved. In the event that a Contract contains unapproved exceptions to the
Company's underwriting guidelines, it is referred to management for resolution.
The quality control group also performs a monthly trend analysis to determine
whether any adjustments should be made to the Company's underwriting guidelines
based upon recurring approved exceptions and the performance of Contracts with
these exceptions.
Asset Servicing and Collections
The Company has a servicing and collections operation that utilizes
experienced staff and computer technology and software tailored to the Company's
specific needs. Servicing and collections functions are organized into
departments, which consist principally of Customer Service, Collections,
Repossession, Asset Management and Disposition, and Asset Recovery. To minimize
losses and delinquencies, the Company: (i) employs pro-active collection
policies and procedures based upon each collector managing the contract from
origination to settlement; (ii) manages the accounts based upon geographic
regions; (iii) employs experienced personnel with proven expertise whose
performance is continuously evaluated and rewarded based upon performance of the
Contracts serviced; and (iv) utilizes servicing and collection specialists to
provide technical expertise as required to address specific circumstances.
Customer Service. The Company's customer service department is responsible
for resolving customer problems, quoting customer pay-off amounts, arranging
substitutions of collateral, re-leasing vehicles at lease-end and processing
customer payments.
The Company also uses its customer service department to enhance the
efficiency of its account management by routing all incoming calls through the
collection department. Management believes that this procedure promotes
efficient account management through continuous updating of information prior to
the provision of other services to the customer. The Company facilitates
collections from customers by using Western Union 'Quick Collect,' which allows
a customer to make payments at numerous locations. The Company also accepts
walk-in payments. However, any delinquent customer making a walk-in payment must
be interviewed by a collector.
Collections. The collectors are organized into five regions consisting of
South Florida, North Florida, East Coast states, Central states and West Coast
states. Within each region, the collectors are organized into teams of four,
which include three collectors and a team leader. Management believes that this
regional team approach enables the Company to identify and efficiently tailor
its servicing and collection activities to each region, and permits accounts to
be monitored more closely by management, thereby enhancing collector performance
and minimizing delinquencies and losses. The collections staff has 54 persons,
including collectors and collection specialists, and management. As the volume
of Contracts increases, the Company continues to expand to maintain its
collection and servicing staff at a level that provides for approximately one
collector for every 500 Contracts serviced. As geographic expansion requires,
the Company intends to establish full service regional centers, which will
include asset servicing and collections departments. The Company is in the
process of opening regional centers in Orlando, Florida and Atlanta, Georgia.
See 'Facilities.'
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Collection Procedures. The collections staff uses its management
information systems to process and track the accounts in order to ensure that
data is immediately available for continuous evaluation and collection of
accounts. See 'Management Information Systems.' Within 24 hours of a
delinquency, a collector will telephone the customer to resolve the delinquency.
If the collector fails to reach the customer, the collector attempts to contact
the customer by calling the customer's employers and credit references. If the
delinquency is not resolved, the collector will send demand letters as
appropriate. The Company's policy permits Contracts to be extended or revised
payment schedules to be made no more than once a year on a case-by-case basis,
as determined by its collection supervisors. In the event that the delinquency
cannot be resolved, the collector typically recommends repossession within 45
days. Authorization for repossession typically requires the approval of the
collector, the team leader and the team supervisor. Management believes that
this team approach prevents premature repossession and prevents the collector
from improving the delinquency experience of his or her accounts through
repossession by terminating his or her responsibility for the account. Accounts
that are approved for repossession are turned over to outside agencies for
repossession. Repossession is typically accomplished within 72 hours of
repossession approval and the vehicle is assigned to the Company's asset
management staff. See 'Asset Management and Disposition.'
Collector Training and Incentives. The Company's servicing and collection
program emphasizes continuous evaluation and training of its collection staff;
and a compensation system for collectors, supervisors and managers that rewards
efficient management of the accounts through salary and bonuses. Management
believes that this incentive compensation system motivates employees to
effectively manage accounts by increasing collections and minimizing
delinquencies and losses.
Collectors, supervisors and collection managers are continuously trained
and evaluated. Team leaders audit approximately 15 to 20 accounts of each
collector on his or her team per month. Supervisors are required to review an
additional 20 accounts of each collector resulting in each collector having
approximately 40 accounts per month audited by management. Each account is
audited for compliance with the Company's servicing and collection policies and
performance in order to ensure that the accounts are in compliance with the
Company's goals and objectives relating to delinquencies, repossessions and
losses. All team members are required to attend classes held at the Company and
outside seminars provided by credit bureaus and collection agencies. Each
collector also participates in the Company's cross-training program which
requires rotating through the Company's other departments to continually educate
the collector on the Company's operations. In addition, the Company utilizes the
experience of its collectors through a policy of promoting from within the
Company whereby collectors have the opportunity to be promoted from the
Collections Department to other areas of the Company's operations.
The performance of each collector's accounts is available on a daily basis.
The performance and compensation of the collector is evaluated on a monthly
basis. The evaluations and the bonus program are based upon a rating system that
encompasses individual delinquency rates, team delinquency rates, the
delinquency mix, the repossession rate and the volume of calls handled.
Management believes that the bonus program provides the collector with an
incentive to manage his or her accounts more efficiently.
Collection Specialists. The Company supports its collection teams by
providing collection specialists in the areas of bankruptcy, insurance claims,
skip-tracing and repossession. In the event that an account involves bankruptcy
issues, insurance issues, skip-tracing or repossession, the account remains the
responsibility of the collector, and a collection specialist in the relevant
area works with the collector providing technical expertise in order to use
efficiently the collectors' time, maximize collections and minimize delinquency
and loss. The collector does not relinquish care, control or custody of the
account until the account is terminated by payment in full, repossession or is
charged-off and assigned to the asset recovery department. Management believes
that the origination to settlement servicing approach provides continuity and
enhances accountability of the collector for the performance of the accounts
serviced, rather than a 'roll-up' approach that routes the account to different
collectors as the account ages.
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Repossession. The Company's repossession department is responsible for
making a final attempt to collect the delinquent account, skip tracing and
assigning the account to an approved repossession agent. The department is also
responsible for following up on delivery of the repossessed vehicle,
coordinating all customer redemptions of repossessed vehicles and maintaining
files on repossession agents, including proof of licenses, bonding and
insurance.
Asset Management and Disposition. When a vehicle is repossessed and not
redeemed by the customer in the prescribed time, or the vehicle is returned at
the end of a lease, the vehicle is assigned to the asset management department
for disposal. The vehicles are reviewed by management at the time of
repossession or return and at that time written down to their net realizable
value and a determination is made of the appropriate disposition channel. The
vehicle is typically: (i) disposed of at wholesale auctions; (ii) remarketed on
a wholesale basis through PCSF; (iii) remarketed on a retail basis through PCSF;
or (iv) remarketed on a retail basis through the JDBR Franchise. See 'Related
Businesses.' During 1996, the Company hired a staff of auction representatives
to monitor the disposal of vehicles at the used car auctions. These
representatives seek to maximize the amount realized on the vehicles through:
(i) inspecting the vehicles for reimbursable insurance damage; (ii) setting
auction price floors; and (iii) enforcing proper auction procedures. The
Company's auction representatives have significantly improved sales prices on
its vehicles.
Asset Recovery. The asset recovery department uses collection specialists
to collect on any loss the Company may incur on an account. Losses may occur in
several ways, including: (i) proceeds received upon liquidation of the asset are
less than the customer's balance on the account and liquidation costs; (ii) the
amount of insurance pay-off or settlement is less than the customer's balance on
the account, and (iii) delinquent accounts are charged-off upon 150-days
delinquency. These balances are collected by various means, including: (i)
lump-sum settlement with the customer; (ii) reduced payment plans; or (iii)
referral to a collection agency or an attorney for action, including wage
garnishment, judgment and asset searches. Any amount received after a contract
has been charged off is recorded as a recovery. For the nine months ended
September 30, 1996, the Company's recoveries resulted in an annualized net
charge-off percentage of 6.46% in comparison to an annualized gross charge-off
percentage of 9.00%.
Management Information Systems
The Company employs information systems, including computer software
programs and a Voice Information Management System, which enable it to manage
more effectively its business activities. The Company's software programs, which
have been specifically modified for the Company, operate on a local area and
wide area network. The Company's COIN system expedites elements of the contract
purchase process, including entry and verification of credit application data,
credit analysis, communication to Dealers of credit decisions, contract
purchases, and contract-related cash disbursements. The Company's LeaseTek
system facilitates elements of asset servicing and management, including
monitoring account activities and maintaining customer contact, expediting
collection and referring delinquent accounts for repossession. The Company's
Voice Information Management System, through continuous routing of incoming
calls, maximizes the efficiency of the Company's asset servicing and collections
department.
These systems also provide functions that increase productivity, such as
computer faxing of credit decisions, automatic credit bureau retrieval,
automatic retrieval of NADA and 'Black Book' values for financed vehicles,
on-line inquiry for all Contract information to aid in collections,
verification, processing, tracking and solicitation, as applicable, of insurance
and related products. These systems provide for the prompt collection and
retrieval of data concerning the composition of the receivables portfolio, the
characteristics and performance status of the underlying receivables and other
information necessary for management to increase Contract volume, maximize
Contract performance, evaluate and manage personnel and minimize delinquency and
losses.
Management believes that it has adequate information systems in place to
permit significant growth in the volume of Contracts processed without any
near-term material additional investments.
47
<PAGE>
To increase productivity through automation, the Company is currently evaluating
enhancements to its systems.
RELATED BUSINESSES
The Company continues to develop its related businesses consisting of NIS,
which offers insurance services and products, and PCSF, which principally
remarkets repossessed and off-lease vehicles. Management believes that these
businesses increase the efficiency of purchasing Loan and Lease Contracts and
provide independent sources of revenue to the Company.
NAL Insurance Services, Inc.
The Company's wholly-owned subsidiary, NIS, is a full service insurance
agency selling a variety of insurance and related products to the Dealers as
well as to the Company's customers. The staff of NIS consists of 10 persons. The
staff uses specialized computer software to verify insurance in connection with
the Company's underwriting of Contracts, to track cancellation of existing
insurance policies and to solicit insurance and related products. See
'Management Information Systems.' Management believes that these insurance and
related products complement its core business, and enhance the Company's
relationship with its Dealers by enabling the Dealers to better service their
customers.
Management believes that these products, which are as described below,
enhance its ability to provide a 'one-stop shop' service to the Dealer and
thereby increase the efficiency of the Company's purchase of Loan and Lease
Contracts while establishing an additional revenue source. In 1995, NIS
generated revenues of $548,000 and for the nine-month period ended September 30,
1996, NIS generated revenues of $1.1 million.
GAP Plan. The Company offers its customers an opportunity to participate
in the Company's guaranteed auto protection ('GAP') plan, a non-insurance
product. In the event of an insurance loss, the GAP plan pays the Company the
difference between the actual cash value protection afforded by the insurer and
the customer balance due the Company. The Company's risk in these transactions
is eliminated through reinsurance. The Company pays a flat premium per contract
to unaffiliated major insurers to reinsure this risk. The Company also pays the
Dealer a commission for each plan sold.
Primary Auto Insurance. As part of the Company's underwriting procedures,
NIS verifies the existence of insurance prior to funding of the Contracts and
also assures that the customer maintains adequate primary auto insurance during
the term of the Contract. The Company solicits sales of primary auto insurance
policies through brochures distributed to Dealers, on-site training for Dealers
and through Dealer personnel. However, the majority of the Company's sales of
primary auto insurance policies result from the cancellation of a customer's
existing insurance policy, which the Company tracks through its computer system.
Collateral Protection Insurance. If a customer does not continue to carry
primary auto insurance, the Company is authorized under the Loan or Lease
Contract to provide Collateral Protection Insurance ('CPI') upon notice of
cancellation of the existing insurance of the customer. CPI provides coverage
for the actual cash value of the vehicle in the event of physical damages to the
vehicle up to a total loss, which typically averages 84% of the loan balance.
Payments are automatically included in the monthly car payment on the customer's
contract for which the Company receives a 15% commission on each policy.
Extended Warranty. NIS also offers an extended warranty policy to its
customers directly or through Dealers. The extended warranty covers the customer
for repairs on their used vehicle where the manufacturer's warranty has expired.
Typically, an extended warranty covers the vehicle for an additional 12 months
or 12,000 miles, or for 24 months or 24,000 miles. NIS receives a commission on
all extended warranty policies sold.
Company Insurance Services. NIS provides the Company with internal
insurance services, such as workers compensation, employee dental and health
insurance, contingent and excess liability
48
<PAGE>
insurance coverage required in connection with the Company's leasing operation,
key employee life insurance, and liability and casualty insurance. Management
believes that by purchasing these insurance products through NIS, the Company
meets its insurance needs and recoups commissions that would otherwise be paid
in connection with such products.
Performance Cars of South Florida, Inc.
The Company conducts a vehicle remarketing operation through PCSF, a
wholly-owned subsidiary, and its JDBR Franchise at a retail sales facility
located in Palm Beach County, Florida. The staff of PCSF and the JDBR Franchise
consists of 22 persons, including senior management with an average of over 40
years of experience in the retail automobile business. The Company commenced
this remarketing operation principally as a means of providing a more
cost-effective method of remarketing some of the Company's repossessed and
off-lease vehicles. PCSF operates the JDBR Franchise, pursuant to which the
Company licenses the J.D. Byrider name, trademarks and business system. This
franchise provides national brand name recognition, national advertising,
comprehensive operative systems, ongoing franchise support, as well as employee
and management training in the JDBR system.
Sales at the facility are conducted through either the JDBR Franchise or
directly through PCSF based upon the model, condition, age and mileage of the
vehicle. Some of the vehicles sold by the JDBR Franchise are financed through
its affiliate, Car Now Acceptance Corporation. Typically, less than 10% of the
vehicles sold by PCSF, independent of the JDBR Franchise, are financed through
the Company. Management believes that remarketing vehicles through PCSF offers
several advantages over wholesale auctions (which historically has been the
Company's principal method of disposing of vehicles), including the following:
(i) the vehicles receive an extended period of resale exposure, as the
remarketing operation is open 7 days a week, as opposed to the limited period
(typically 4 days) available at auctions; (ii) the vehicles are available for
visible inspections for staff assessment rather than condition reports available
from auctions; (iii) the vehicles may be resold at retail or wholesale instead
of at wholesale through auctions; (iv) the staff has an opportunity to perform
appearance and mechanical repairs at reduced prices; and (v) auction fees of
approximately $300 per vehicle are not incurred. Management believes that PCSF
provides a cost-effective alternative to wholesale disposition of vehicles at
auction. The Company currently disposes of an average of 32% of its repossessed
and off-lease vehicles through PCSF, including the JDBR Franchise. In addition
to increasing the efficiency of the Company's Asset Management and Disposition
Department, PCSF, and in particular the JDBR Franchise, has been an additional
source of revenue to the Company. For the period commencing January 1996 and
ending September 30, 1996, PCSF generated revenues of $971,000.
As the Company's Contract volume increases, it plans to open additional
PCSF sites with JDBR Franchises based on any resulting geographic concentration.
Currently, the Company's management anticipates opening a PCSF site with a JDBR
Franchise in Orlando, Florida. However, there can be no assurances to that
effect. Management believes that the used car market is an expanding market and
offers the Company an opportunity to further the growth of its JDBR Franchise,
increase the recovery on its vehicles and obtain additional sources of revenue
for the Company.
GOVERNMENT REGULATION
The Company and the origination sources are subject to regulation and
licensing under various federal, state and local statutes, regulations and
ordinances. Most states in which the Company operates: (i) require the Company
and/or the origination sources to obtain and maintain certain licenses and
qualifications; (ii) limit the interest rate and other charges that may be
imposed by, or prescribe certain other terms of, the Contracts that the Company
purchases; (iii) regulate the sale and type of insurance products offered by the
Company and the insurers for which it acts as agent; (iv) require the Company
and/or the origination sources to provide specified disclosures; and (v) define
the Company's rights to repossess and sell collateral. The Company's agreement
with its origination sources provides that the origination source must indemnify
the Company with respect to any loss or expense the
49
<PAGE>
Company incurs as a result of violations by the origination source of any
federal, state or local consumer credit and insurance laws, regulations or
ordinances.
The Company is subject to numerous federal laws, including the Truth in
Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act
and the rules and regulations promulgated thereunder, and certain rules of the
Federal Trade Commission. These laws require the Company to provide certain
disclosures to applicants, prohibit misleading advertising and protect against
discriminatory financing or unfair credit practices. The Truth in Lending Act
and Regulation Z promulgated thereunder require disclosure of, among other
things, the terms of repayment, the final maturity, the amount financed, the
total finance charge and the annual percentage rate charged on each retail
installment contract. The Equal Credit Opportunity Act prohibits creditors from
discriminating against loan applicants (including retail installment contract
obligors) on the basis of race, color, sex, age or marital status. Under the
Equal Credit Opportunity Act, creditors are required to make certain disclosures
regarding consumer rights and advise consumers whose credit applications are not
approved of the reasons for the rejection. The Fair Credit Reporting Act
requires the Company to provide certain information to consumers whose credit
applications are not approved on the basis of a report obtained from a consumer
reporting agency. The rules of the Federal Trade Commission limit the types of
property a creditor may accept as collateral to secure a consumer loan and its
holder-in-due-course rules provide for the preservation of the consumer's claims
and defenses when a consumer obligation is assigned to a subject holder. With
respect to used vehicles specifically, the Federal Trade Commission's Rule on
Sale of Used Vehicles requires that all sellers of used vehicles prepare,
complete and display a Buyer's Guide that explains any applicable warranty
coverage for such vehicles. The Credit Practices Rule of the Federal Trade
Commission imposes additional restrictions on loan provisions and credit
practices.
Certain of the states in which the Company operates prohibit Dealers from
charging a finance charge in excess of statutory maximum rates. Finance charges
include interest and any cash sale differential. The Company's agreements and
other communications with Dealers stress the importance of the Dealers'
compliance with all applicable laws and specifically prohibit the Dealer from
agreeing to a cash sale differential. The Company's contractual agreements with
Dealers obligate Dealers to comply with all applicable laws, and provide that
each Dealer must indemnify the Company for any violation of law relating to a
contract originated by the Dealer. Every borrower (as part of the standard
financing documentation) currently is required to sign a written acknowledgment
that (a) the borrower is aware, and approves, of the Dealer's intended sale of
the contract at a discount to the Company, and (b) the borrower was not quoted a
lower price for a cash purchase. Further, it is the Company's policy to
terminate its relationship with any Dealer where the Company becomes aware of
such incidents perpetrated either with the knowledge or tacit assent of the
Dealer, or by more than one salesperson at a particular Dealer. Dealers are
advised of this policy during the initial contacts with the Company's
representatives before the first contract is purchased. As of September 30,
1996, no Dealer has been so terminated. To the knowledge of the Company, no
action has been brought or is currently threatened or contemplated alleging that
Dealers regularly charge cash sale differentials. Nevertheless, if it were
determined that a material number of the Contracts involved violations of
applicable lending laws by the Dealers, the Company's financial position could
be materially adversely affected and a widespread pattern of violation by
Dealers could have a material adverse effect on the Company's future prospects.
In the event of default by a borrower on a contract, the Company is
entitled to exercise the remedies of a secured party under the Uniform
Commercial Code ('UCC'). The UCC remedies of a secured party include the right
to repossession by self-help means, unless such means would constitute a breach
of peace. Unless the borrower voluntarily surrenders a vehicle, self-help
repossession by an independent repossession specialist engaged by the Company is
usually employed by the Company when a borrower defaults. None of the states in
which the Company presently does business has any law that would require the
Company, in the absence of a probable breach of peace, to obtain a court order
before it attempts to repossess a vehicle.
In most jurisdictions, the UCC and other state laws require the secured
party to provide the obligor with reasonable notice of the date, time and place
of any public sale or the date after which any
50
<PAGE>
private sale of collateral may be held. Unless the obligor waives his rights
after default, the obligor has the right to redeem the collateral prior to
actual sale by paying the secured party the unpaid installments (less any
required discount for prepayment) of the receivable plus reasonable expenses for
repossessing, holding, and preparing the collateral for disposition and
arranging for its sale, plus in some jurisdictions, reasonable attorney's fees,
or in some states, by payment of delinquent installments. Repossessed vehicles
are generally resold by the Company through wholesale auctions or remarketed
through PCSF or its JDBR Franchise.
Management believes that it is in compliance with all applicable laws and
regulations. The Company maintains an internal compliance staff to review and
inform management of changes in applicable law and to act as liaison between the
Company and the various attorneys it has retained in each of the states in which
it conducts business.
EMPLOYEES
The Company employs personnel experienced in all areas of loan origination,
documentation, collection, administration and securitization. As of September
30, 1996, the Company had 445 full-time employees.
FACILITIES
The Company's executive offices and operations occupy approximately 37,183
square feet of leased office space in The Uptown Office Park at 500 Cypress
Creek Road West, Suite 590, Fort Lauderdale, Florida, for which the Company pays
an aggregate of $72,200 of base rent and common area maintenance per month
pursuant to four leases, with annual increases of approximately 5%. The leases
expire in 2002.
The Company's lease agreements offer rights of first refusal on available
space adjacent to the original offices, which the Company has used to
accommodate the staff required for continued growth. There can be no assurance
that any additional space will be available on terms favorable to the Company.
Management believes that the Company's facilities are appropriate for its needs.
The Company leases approximately 8,825 square feet of office space in
Orlando, Florida, which the Company intends to use as a regional office. The
Company pays $5,661 per month pursuant to a fifteen-year lease that expires in
October 2011.
The Company leases approximately 800 square feet of office space in
Atlanta, Georgia, which the Company intends to use as a temporary regional
office. The Company pays $4,779 per month for a six-month lease that expires in
February 1997.
The Company through PCSF leases a used car lot in Palm Beach County,
Florida at a base rent of $11,600 per month. The lease expires on December 31,
2000. See 'Related Businesses -- Performance Cars of South Florida, Inc.'
LEGAL PROCEEDINGS
The Company is currently not a party to any material litigation, although
it is involved from time to time in routine litigation incident to its business.
51
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The present members of the Board of Directors and executive officers, their
respective ages and positions with the Company are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
Robert R. Bartolini...... 52 Chairman of the Board, President and Chief
Executive Officer of NAL; Chairman and Chief
Executive Officer of NAC
John T. Schaeffer........ 50 Director and Executive Vice President of NAL;
Director, President and Chief Operating Officer
of NAC
Robert J. Carlson........ 41 Vice President and Principal Accounting Officer
of NAL and NAC
Dennis R. LaVigne........ 52 Vice President and Treasurer of NAL and NAC
Ngaire E. Cuneo(1)(2).... 45 Director
James F. DeVoe(1)(2)..... 52 Director
David R. Jones(1)(2)..... 47 Director
</TABLE>
- ------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
The Company's Certificate of Incorporation provides for the division of the
Board of Directors into three classes, with each class to be as nearly equal in
number of directors as possible. At each annual meeting of the stockholders, the
successors to the class of directors whose term expires at the time are elected
to hold office for a term of three years, and until their respective successors
are elected and qualified, so that the term of one class of directors expires at
each such annual meeting. The terms of office expire as follows: Ms. Cuneo and
Mr. DeVoe, 1997; Mr. Jones and Mr. Schaeffer, 1998; and Mr. Bartolini, 1999. See
'Description Of Securities -- Certain Provisions of the Company's Certificate of
Incorporation and Bylaws.'
Officers are elected by, and serve at the discretion of, the Board of
Directors. There are no family relationships among the directors or executive
officers. In August 1995, the Company established an Audit Committee, and in May
1996, the Company established a Compensation Committee.
The following is a summary of the business experience of the Company's
directors and executive officers during the past five years and their
directorships, if any, with companies with a class of securities registered with
the Securities and Exchange Commission:
Robert R. Bartolini. Mr. Bartolini has been Chairman and Chief Executive
Officer of the Company since its inception in 1991 and became President in
conjunction with the Merger in November 1994. Prior to founding NAL Financial
Group Inc., he was President and Chief Operating Officer of Financial Federal
Savings & Loan Association ('FinFed' -- Miami, Florida), a $1.8 billion mutual
savings and loan. From 1984 to 1987, Mr. Bartolini was Executive Vice President
at CenTrust Savings Bank, an $11 billion institution based in Miami, Florida,
with 60 branches. Prior to 1984, Mr. Bartolini was with First Pennsylvania Bank,
NA (assets of $6 billion; 75 branches), where he served as Senior Vice
President. Mr. Bartolini serves as a member of the Board of Directors of J.D.
Byrider Systems, Inc., from which the Company operates the JDBR Franchise.
John T. Schaeffer. Mr. Schaeffer has been President and Chief Operating
Officer of NAC since its inception. He became a director of the Company in
conjunction with the Merger and became Executive Vice President in May 1996.
Prior to joining the Company, Mr. Schaeffer was President and
52
<PAGE>
Chief Operating Officer of FinancialFed Services, Inc., the automobile lease
origination and servicing unit of FinFed. From 1986 through 1989, Mr. Schaeffer
was Executive Vice President and Chief Operating Officer of CenTrust Leasing
Corporation, the leasing unit of CenTrust Savings Bank, where he was responsible
for the overall activities of the leasing subsidiary. Prior to 1986, he was with
First Pennsylvania Bank, N.A., where he served as Vice President for 16 years.
Robert J. Carlson. Mr. Carlson has been Vice President and Principal
Accounting Officer of the Company since April 1992. Prior to joining the Company
in 1992, Mr. Carlson served 4 years as Senior Vice President -- Controller of
FinFed. Prior to 1992, he served as Senior Vice President and Chief Financial
Officer of Miami Savings Bank, a $175 million asset savings institution in
Miami, Florida. Mr. Carlson also served 3 years at CenTrust as Vice President --
Accounting Operations and Reporting, and 6 years as an auditor at Deloitte
Haskins & Sells (now Deloitte & Touche LLP). He is a certified public accountant
and holds a Bachelor of Science Degree in business administration from the
University of Florida.
Dennis R. LaVigne. Mr. LaVigne has been Vice President and Treasurer of
the Company since August 1995. Mr. LaVigne has substantial experience in the
automobile finance industry, having served as Senior Vice-President of Union
Acceptance Corporation (an automobile finance company) from December 1993 to
September 1994; an independent consultant to the industry from October 1994 to
August 1995; and having previously served as Senior Vice President Asset/
Liability Manager of Union Federal Savings Bank of Indianapolis from 1989 to
December 1993. Prior to joining Union Federal, Mr. LaVigne held positions with
Columbia Savings, a federal savings and loan association, from 1981 to 1989,
including Senior Vice President, Chief Investment Officer, Treasurer and Asset/
Liability Committee Chairman. Mr. LaVigne holds a Ph.D. in economics from the
University of Illinois.
Ngaire E. Cuneo. Ms. Cuneo has been a director of the Company since April
1996. She has been Executive Vice President, Corporate Development of Conseco,
Inc., a financial services holding company, since 1992. From 1986 to 1992, Ms.
Cuneo was Senior Vice President and Corporate Officer of General Electric
Capital Corporation. Ms. Cuneo is also a director of Conseco, Inc., Bankers Life
Holding Corporation, American Life Holdings, Inc., American Life Holding Company
and Duke Realty Investments, Inc. See 'Material Stockholder Arrangements.'
James F. DeVoe. Mr. DeVoe has been a director of the Company since March
1996. He is the founder, Chief Executive Officer and Chairman of the Board of
Directors of J.D. Byrider Systems, Inc. ('J.D. Byrider'), a used
vehicle-operation franchisor since 1989 with 86 franchised and 4 company-owned
locations in 28 states. The Company operates the JDBR Franchise as a franchisee
of J.D. Byrider. Mr. DeVoe has been President and Chairman of the Board of DeVoe
Chevrolet Cadillac, Inc., an automobile dealership, since 1975. Mr. DeVoe holds
a Bachelor of Science Degree and a Masters Degree in business from Indiana
University.
David R. Jones. Mr. Jones has been a director of the Company since
February 1996. He has been President and Chief Executive Officer of DR Jones
Financial, Inc., a privately-held consulting firm since its formation in
September 1995. Prior to forming DR Jones Financial, Inc., Mr. Jones was Senior
Vice President -- Asset Backed Finance of Greenwich Capital Markets, Inc. from
1989 to 1995. Mr. Jones served as a Managing Director of The First Boston
Corporation, an investment banking firm, from 1982 to 1989 and as Manager --
Product Development of General Electric Credit Corp., an asset-based lender and
financial services company, from 1981 to 1982. Mr. Jones is a graduate of
Harvard College and has a Masters Degree in business administration from The
Amos Tuck School of Business Administration.
DIRECTORS' FEES
The employee-directors of the Company receive no fees or other compensation
in connection with their services as directors. Mr. Jones and Mr. DeVoe were
each granted Warrants to purchase 20,000 shares of the Company's Common Stock in
connection with joining the Board of Directors. See
53
<PAGE>
'Stock Option Plans.' The non-employee directors each receive $1,000 for each
meeting of the Board and any committee meeting attended in person and $500 for
each meeting attended telephonically.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS
(1) ---------------- PAYOUTS
---------------------- SECURITIES ------------
SALARY BONUS UNDERLYING ALL OTHER
NAME AND POSITION YEAR ($) ($) OPTIONS/SARS (#) COMPENSATION
- ----------------- ---- -------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Robert R. Bartolini 1995 $300,000 $ 0 50,000(4) $ 30,900(6)
Chairman of the Board, President and 1994 $281,916 $ 298,985 75,000(2) $ 30,900(6)
Chief Executive Officer of NAL; 1993 $250,000 $1,248,100 0 $ 30,900(6)
Chairman and Chief Executive Officer
of NAC
John T. Schaeffer 1995 $160,000 $ 0 25,000(4) $ 10,300(6)
Director and Executive Vice President 1994 $160,000 $ 0 40,000(3) $ 10,300(6)
of NAL; President and Chief Operating 1993 $160,000 $ 161,302 0 $ 10,300(6)
Officer of NAC
Robert J. Carlson 1995 $ 80,000 $ 0 15,000(4) $ 0
Vice President and Principal 1994 $ 74,231 $ 86,015 15,000(3) $ 0
Accounting Officer of NAL and NAC 1993 $ 72,500 $ 18,124 0 $ 0
Dennis R. LaVigne 1995 $ 48,461 $ 0 25,000(5) $ 0
Vice President and Treasurer of NAL
and NAC
</TABLE>
- ------------------
(1) Based upon the fiscal years ended December 31, 1995, 1994, and 1993.
(2) Represents stock options granted as of December 15, 1994 pursuant to the
Company's Amended and Restated 1994 Stock Option Plan (the '1994 Plan'), of
which 66,666 options vest pro-rata over four years commencing January 1,
1996 and 8,334 options vest pro-rata over three years commencing January 1,
1996.
(3) Represents stock options granted as of December 15, 1994 pursuant to the
1994 Plan, which vest pro-rata over three years commencing January 1, 1996.
(4) Represents stock options granted as of December 6, 1995 pursuant to the 1994
Plan, which vest pro-rata over three years commencing January 1, 1997.
(5) Represents stock options granted as of December 6, 1995 pursuant to the 1994
Plan, which vest on December 6, 1998.
(6) Represents insurance premiums on whole life insurance policies paid by the
Registrant for the benefit of the named executive officer.
54
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(1) ($/SHARE) DATE
- ---- ------------ --------------- ---------- -----------------
<S> <C> <C> <C> <C>
Robert R. Bartolini 50,000(2)(6) 15.22% $16.50(7) Dec. 6, 2005
Chairman of the Board, President and
Chief Executive Officer of NAL;
Chairman and Chief Executive Officer
of NAC
John T. Schaeffer 25,000(3)(6) 7.61% $15.00(7) Dec. 6, 2005
Director and Executive Vice President
of NAL; President and Chief Operating
Officer of NAC
Robert J. Carlson 15,000(4)(6) 4.57% $15.00(7) Dec. 6, 2005
Vice President and Principal
Accounting Officer of NAL and NAC
Dennis R. LaVigne 25,000(5)(6) 7.61% $13.25(7) Dec. 6, 2005
Vice President and Treasurer of NAL
and NAC
</TABLE>
- ------------------
(1) Based upon the grant during the year ended December 31, 1995 of options to
purchase an aggregate of 328,500 shares of Common Stock pursuant to the 1994
Plan.
(2) Represents non-qualified stock options granted as of December 6, 1995
pursuant to the 1994 Plan, which vest and become exercisable pro-rata over
three years commencing January 1, 1997 and are subject, with respect to each
one-third installment, to meeting a performance goal based on the Company's
earnings.
(3) Represents 9,332 incentive stock options and 15,668 non-qualified stock
options granted as of December 6, 1995 pursuant to the 1994 Plan, which vest
and become exercisable pro-rata over three years commencing January 1, 1997
and are subject, with respect to each one-third installment, to meeting a
performance goal based on the Company's earnings.
(4) Represents 14,332 incentive stock options and 668 non-qualified stock
options granted as of December 6, 1995 pursuant to the 1994 Plan, which vest
and become exercisable pro-rata over three years commencing January 1, 1997
and are subject, with respect to each one-third installment, to meeting a
performance goal based on the Company's earnings.
(5) Represents 7,547 incentive stock options and 17,453 non-qualified stock
options granted as of December 6, 1995 pursuant to the 1994 Plan, which vest
and become exercisable on December 6, 1998.
(6) Each stock option includes tandem stock appreciation rights, which entitle
the holder of the option to receive upon exercise shares of the Company's
Common Stock with a fair market value on the date of exercise equal to the
excess of the fair market value of the shares issuable upon exercise of the
option as of the date of exercise over the exercise price. Exercise of a
stock appreciation right results in the cancellation of the related option
with respect to the same number of shares, and exercise of an option results
in the cancellation of the related stock appreciation right with respect to
the same number of shares.
(7) The closing price of the Company's Common Stock as of December 6, 1995 was
$13.25 per share as reported on the Nasdaq National Market.
55
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE IF UNEXERCISED IN-THE-MONEY
ON VALUE OPTIONS/SARS AT FY-END (#) OPTIONS/SARS AT FY-END ($)
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE (1) EXERCISABLE/UNEXERCISABLE (1)
- ---- ------------ -------- ------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Robert R. Bartolini -0- -0- 19,445(E)/105,555(U) $138,365(E)/$393,885(U)
Chairman of the Board, President
and Chief Executive Officer of
NAL; Chairman and Chief Executive
Officer of NAC
John T. Schaeffer -0- -0- 13,333(E)/51,667(U) $101,731(E)/$203,469(U)
Director and Executive Vice
President of NAL; President and
Chief Operating Officer of NAC
Robert J. Carlson -0- -0- 5,000(E)/25,000(U) $38,150(E)/$76,300(U)
Vice President and Principal
Accounting Officer of NAL and NAC
Dennis R. LaVigne -0- -0- 0(E)/25,000(U) $0(E)/$9,500(U)
Vice President and Treasurer of
NAL and NAC
</TABLE>
- ------------------
(1) Based upon the closing price of the Company's Common Stock ($13.63 per
share) as of December 29, 1995 on the Nasdaq National Market.
EMPLOYMENT ARRANGEMENTS
Effective November 30, 1994, the Company entered into an employment
agreement with Mr. Robert R. Bartolini. Such agreement, as subsequently amended,
provides for a base salary of $300,000 per year together with discretionary
bonuses, if any, to be declared by the Board of Directors. The agreement also
provides for certain benefits, including vacation, life and disability
insurance, use of an automobile and certain related expenses, certain other
expenses and stock option plan participation, as well as a confidentiality
agreement and a two-year noncompetition agreement in favor of the Company. This
agreement provides for an initial term of 3 years and is annually renewable for
successive three-year periods unless either Mr. Bartolini or the Company
provides at least 60 days' notice of an intent not to renew. The agreement
provides that the Company may terminate Mr. Bartolini's employment at any time
with or without cause and that Mr. Bartolini may terminate the agreement upon
written notice on the earlier of one year from the date of such notice or 90
days after his replacement is hired by the Company. If Mr. Bartolini's
employment were to be terminated by the Company without cause, he generally
would receive his base salary and benefits for the remainder of the term of the
agreement. If he were to be terminated because substantially all of the assets
of the Company are sold or a controlling interest in the Company is sold, Mr.
Bartolini would receive an additional payment of 299% of his base salary unless
the agreement is assumed by the buyer or Mr. Bartolini is offered substantially
identical duties and compensation with the buyer for at least the remaining term
of the agreement. Mr. Bartolini may not cause the agreement to terminate prior
to three years from the date of the agreement.
56
<PAGE>
STOCK OPTION PLANS
The Company's Amended and Restated 1994 Stock Option Plan (the '1994 Plan')
covers 1,000,000 shares of the Company's Common Stock. Under its terms,
officers, directors, key employees and consultants of the Company are eligible
to receive incentive stock options within the meaning of Section 422 of the
Internal Revenue Code, as well as non-qualified stock options and stock
appreciation rights ('SARs'). The 1994 Plan is administered by the Board of
Directors or a committee consisting of no less than three members designated by
the Board of Directors. Incentive stock options granted under the 1994 Plan are
exercisable for a period of up to 10 years from the date of grant and at an
exercise price that is not less than the fair market value of the Common Stock
on the date of the grant, except that the term of an incentive stock option
granted under the 1994 Plan to a stockholder owning more than 10% of the
outstanding Common Stock may not exceed five years and the exercise price of an
incentive stock option granted to such stockholder may not be less than 110% of
the fair market value of the Common Stock on the date of the grant.
Non-qualified stock options may be granted on terms determined by the Board of
Directors or a committee designated by the Board of Directors. SARs, which give
the holder the privilege of surrendering such rights for the appreciation in the
Company's Common Stock between the time of grant and the surrender, may be
granted on any terms determined by the Board of Directors or committee
designated by the Board of Directors.
Incentive stock options granted under the 1994 Plan are non-transferable,
except upon death, by will or by operation of the laws of descent and
distribution, and may be exercised during the employee's lifetime only by the
optionee. There is no limit on the number of shares with respect to which
options may be granted under the 1994 Plan to any participating employee.
However, under the terms of the 1994 Plan, the aggregate fair market value
(determined as of the date of grant) of the shares of Common Stock with respect
to which incentive stock options are exercisable for the first time by an
employee during any calendar year (under all such plans of the Company and any
parent and subsidiary corporation of the Company) may not exceed $100,000.
Options granted under the 1994 Plan may be exercised within 12 months after
the date of an optionee's termination of employment by reason of his death or
disability, or within three months after the date of termination by reason of
retirement or voluntary termination approved by the Board of Directors, but only
to the extent the option was otherwise exercisable at the date of termination.
The 1994 Plan provides that, in general, the Board of Directors or the
Administrative Committee of the 1994 Plan, shall, consistent with the Plan,
determine the terms and conditions, including vesting provisions, of any option
granted under the 1994 Plan, and may accelerate the exercisability of any
option.
The 1994 Plan will expire on November 1, 2004, unless terminated earlier by
the Board of Directors. The 1994 Plan may be amended by the Board of Directors
without stockholder approval, except that, in general, no amendment that
increases the maximum aggregate number of shares that may be issued under the
1994 Plan, decreases the minimum exercise price of options provided under the
Plan, or changes the class of employees who are eligible to participate in the
1994 Plan, shall be made without the approval of a majority of the stockholders
of the Company.
As of December 20, 1996, the Company had granted 579,500 options under the
1994 Plan, of which 524,166 options are outstanding. The outstanding options
include 245,000 options granted to executive officers. See 'Options/SAR Grants
in Last Fiscal Year Table'. The outstanding options do not include 65,000
options granted by the Company in connection with the exercise of the SFI
purchase option. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
The Company's Directors' 1996 Stock Option Plan (the 'Directors' Plan')
covers 250,000 shares of the Company's Common Stock and provides for the grant
of non-qualified stock options and related SARs to the Company's non-employee
directors. The Directors' Plan is administered by the Board of Directors or a
committee appointed by the Board of Directors consisting of at least three of
its members.
57
<PAGE>
Options are granted at the discretion of and on such terms and conditions
as are determined by the Board of Directors at the time the option is granted.
Options granted under the Directors' Plan are exercisable at such prices, times
and in such amounts as the Board of Directors will determine but, in no case
will the exercise price be less than the fair market value of a share of Common
Stock on the date of grant. The Board of Directors may accelerate the date or
dates on which some or all of the options outstanding under the Directors' Plan
may be exercised.
Options granted under the Directors' Plan are non-transferable except upon
death, by will, or by operation of the laws of descent and distribution, and may
be exercised during the optionee's lifetime only by the optionee, or in the case
of the legal incapacity of the optionee, the optionee's legal representative.
In the event a person ceases to be a director of the Company by reason
other than death, incapacity or for cause, options granted under the Directors'
Plan are exercisable only if and to the extent that they were exercisable on the
date of such termination, only within the 30-day period following such
termination and, in no event, after the expiration of the exercise period of the
particular option. If a director is terminated for cause, as determined by the
Board of Directors in its sole discretion, options granted under the Directors'
Plan shall be forfeited. Upon the death or legal incapacity of a director,
options previously granted under the Directors' Plan and exercisable on the date
of death or incapacity, as applicable, may be exercised within twelve months
after the date of death or in capacity, as applicable.
The Directors' Plan was approved by the Board of Directors of the Company
on November 20, 1996 and expires on November 20, 2006. The Directors' Plan may
be altered, suspended or terminated by the Board of Directors at any time,
provided that no change which would have a material adverse effect upon any
option previously granted will be made unless the consent of the optionee is
obtained. As of December 20, 1996, the Company had granted 20,000 options to
each of Messrs. DeVoe and Jones under the Directors' Plan.
58
<PAGE>
CERTAIN TRANSACTIONS
LOANS TO THE COMPANY
Mr. Robert R. Bartolini, Chairman and Chief Executive Officer of the
Company, has on occasion provided advances at market interest rates to the
Company.
In order to provide it with additional working capital, Mr. Bartolini
advanced approximately $1.0 million to the Company on June 30, 1995 and later
increased this amount to approximately $2.9 million during December 1995. The
advance was repaid in full as of June 30, 1996. During November 1996, Mr.
Bartolini provided advances totaling $2,413,869 to the Company, repayable on the
earlier of February 18, 1997 and the completion of the Offering. These advances
bear interest at a fixed rate of 11%. See 'Use of Proceeds.'
SALE OF PORTFOLIO TO EXECUTIVE OFFICER
As of November 30, 1994, the Company sold a portfolio of 14 unsecured
installment loans with a total principal balance of $1,055,000 to Mr. Bartolini,
Chairman and Chief Executive Officer of the Company, in consideration for
$590,965. This portfolio was part of a larger portfolio purchased by the Company
in March 1994 from the Federal Deposit Insurance Corporation at a purchase price
equal to 22.5% of principal balance. The purchase price paid by Mr. Bartolini
was equal to 56% of principal balance which, in management's opinion, was the
approximate fair market value of the loans determined from a review of the
expected collectability of the loans. This price, which reduced a previously
established liability owed by the Company to Mr. Bartolini for bonuses and
dividends, was considered by the Company to be equal to the fair market value
and was based on the estimated cash flows anticipated for the portfolio. The
method used for estimating the cash flows was the same used by the Company in
evaluating the fair value of all of its portfolio acquisitions.
TRANSACTION WITH AFFILIATE OF FORMER DIRECTOR
Mr. Andrew Panzo was a member of the Company's Board of Directors from
August 1995 until his resignation in March 1996. Following the Merger, American
Maple Leaf Financial Corporation ('AMLF'), an affiliate of Mr. Panzo, rendered
certain investment banking advisory services to the Company for which AMLF
received 33,000 common stock purchase warrants. The Warrants permit the purchase
of additional shares at an exercise price of $9.00 per share through the later
of May 1996 or the registration of the underlying shares of Common Stock.
During April 1995, AMLF purchased $1,200,000 principal amount of 9%
Convertible Subordinated Debenture Units for an aggregate purchase price of
$1,200,000. $810,000 principal amount of these Debenture Units, as well as the
accrued interest due thereon, was converted into 95,692 shares of the Company's
Common Stock during January 1996. The remaining principal amount of these
Debenture Units ($390,000) was converted in April 1996.
SALE OF BOAT TO EXECUTIVE OFFICER
In October 1994, the Company sold a repossessed boat to Mr. John T.
Schaeffer, a director of NAL and President and Chief Operating Officer of NAC,
in consideration for a note in the amount of $89,000, which bore interest at 10%
per annum for a period of one year, and the offset by the Company of $21,000
payable to Mr. Schaeffer. The note was repaid prior to June 30, 1995. In
management's opinion, the sale was at the approximate fair market value of the
boat.
TRANSACTIONS WITH FORMER PRINCIPAL STOCKHOLDER
In 1991, the Company entered into an agreement with FTM Holdings, Inc.
('FTM'), a former principal stockholder, to provide the Company with consulting
and other business-related services. Under the agreement, the Company agreed to
pay FTM $50,000 per month through March 1995. The payments for consulting
services continued through May 1994, whereupon the Company made a lump
59
<PAGE>
sum settlement with FTM through a final payment of $475,000 under the agreement.
This amount reflects a $75,000 discount from the cumulative payments required
under the agreement. Including the lump sum settlement, payments of $675,000
were made to FTM in 1994. Payments of $600,000 were made to FTM in 1993.
During 1994, the Company paid FTM $428,000 as a commission on the sale of
certain loan portfolios.
The Company previously subleased a portion of the space occupied by its
headquarters at 500 Cypress Creek Road West, Fort Lauderdale, Florida from FTM.
However, in January 1995, the Company entered into a lease directly with the
landlord for such space. Thereafter, the Company entered into a sublease
agreement with FTM, under which FTM subleased from the Company certain space
that it previously leased directly from the landlord. The sub-lease was
terminated on October 31, 1996.
PURCHASE OF SHARES OF COMMON STOCK
In October 1993, Mr. Bartolini, Chairman and Chief Executive Officer of the
Company, purchased 2,143 shares of the Company's Common Stock, representing all
outstanding shares not previously owned by Mr. Bartolini or Mr. Schaeffer. Such
purchase resulted in Mr. Bartolini owning 95% of the Company's Common Stock as
of such date. Mr. Bartolini financed the entire purchase price of such shares
through a loan from the Company, represented by a note in the amount of
$2,034,638, which bore interest at 5% per annum and was reflected as a 'Note
Receivable from a Stockholder' and as a reduction of Stockholders' equity on the
Company's consolidated balance sheet as of December 31, 1993. In June 1994, the
Company redeemed the 2,143 shares from Mr. Bartolini in consideration for
canceling the note.
GRANT OF OPTIONS AND WARRANTS
In December 1994 and December 1995, the Company granted certain options to
purchase shares of the Company's Common Stock to executive officers under the
Company's 1994 Plan. See 'Summary Compensation Table.' In conjunction with the
appointment of Mr. Jones to the Board of Directors on February 5, 1996, the
Company granted to him 20,000 Common Stock purchase warrants with an exercise
price of $14.38 per share. In conjunction with the appointment of Mr. DeVoe to
the Board of Directors on March 11, 1996, the Company granted to him 20,000
Common Stock purchase warrants with an exercise price of $11.50 per share. The
options held by Messrs. DeVoe and Jones are covered by the Directors' Plan.
RELATIONSHIP WITH J.D. BYRIDER SYSTEMS, INC.
Mr. Bartolini, Chairman and Chief Executive Officer of the Company, serves
as a member of the Board of Directors of J.D. Byrider, from which the Company
operates the JDBR Franchise. Mr. James F. DeVoe, a director of the Company, is
the Chairman and Chief Executive Officer of J.D. Byrider.
TRAVEL SERVICES
IYS Travel, Inc. ('IYS'), a travel agency of which the spouse of Mr. Robert
Bartolini is a principal stockholder, provides business and personal travel
services to the Company and its employees at prevailing market prices. IYS
receives customary industry commissions from airlines, hotels, and cruise
agencies for services provided. During the years ended December 31, 1995 and
1994 and the nine months ended September 30, 1996, the Company paid IYS
approximately $105,000, $84,000 and $133,000, respectively, for airline tickets
booked by IYS for travel by the Company's employees at the prevailing prices
charged by the airlines.
During 1994, the Company advanced to IYS approximately $66,000 for payroll,
which IYS subsequently repaid.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
December 20, 1996 and as adjusted to reflect the sale of the 2,500,000 shares of
Common Stock being offered hereby by: (i) each person (or group of affiliated
persons) who is known by the Company to own beneficially 5% or more of any class
of the Company's Common Stock; (ii) each of the Company's directors; (iii) the
Company's Chief Executive Officer and each of the named executive officers; and
(iv) the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARE BENEFICIALLY SHARE BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
---------------------- ----------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Robert R. Bartolini 2,228,643(2) 30.25% 2,228,643 22.59%
500 Cypress Creek Road West, Suite 590
Fort Lauderdale, FL 33309
John T. Schaeffer 302,913(3) 4.12% 302,913 3.07%
500 Cypress Creek Road West, Suite 590
Fort Lauderdale, FL 33309
Robert J. Carlson 65,196(4) * 65,196 *
500 Cypress Creek Road West, Suite 590
Fort Lauderdale, FL 33309
Dennis R. LaVigne --(5) * --(5) *
500 Cypress Creek Road West, Suite 590
Fort Lauderdale, FL 33309
Ngaire E. Cuneo --(6) * --(6) *
745 Fifth Avenue, Suite 2700
New York, NY 10151
James F. DeVoe --(7) * --(7) *
5780 West 71st Street
Indianapolis, IN 46278
David R. Jones --(8) * --(8) *
2 Ocean Avenue
Scituate, MA 02066-1624
Conseco, Inc.(9)(13) 1,460,936 16.59% 1,460,936 12.92%
11815 N. Pennsylvania Street
P. O. Box 1911
Carmel, IN 46032
Florence Karp(10) 1,440,303(11) 16.39% 1,440,303 12.76%
3418 Sansom Street
Philadelphia, PA 19104
Merrill Lynch Asset Management(13) 479,167(12) 6.12% 479,167 4.64%
800 Scudders Mill Road
Plainsboro, NJ 08536
All Directors and Officers
as a group (7 persons) 2,596,752 35.16% 2,596,752 26.27%
</TABLE>
- ------------------
* Represents less than 1%
(1) Except as otherwise indicated, includes total number of shares outstanding
and the number of shares that each person has the right to acquire within
60 days through the exercise of options, warrants or debentures, pursuant
to Item 403 of Regulation S-B and Rule 13d-3(d)(1), promulgated under the
Exchange Act. Percentage of ownership is based on 7,347,367 shares of
61
<PAGE>
Common Stock outstanding prior to the Offering and 9,847,367 shares of
Common Stock outstanding after the Offering.
(2) Includes 1,640,000 shares held by Robert R. Bartolini and Marcia G.
Bartolini, Co-Trustees of the Robert R. Bartolini Revocable Trust dated
July 27, 1992, 210,000 shares of which are subject to options granted by
Mr. Bartolini during May 1995. Also includes 305,176 shares presently held
by English, McCaughan & O'Bryan, P.A. pursuant to the terms of the Voting
Trust Agreement. See 'Material Voting Arrangements.' Includes 264,022
shares held by Marcia G. Bartolini and Robert R. Bartolini, Co-Trustees of
the Marcia G. Bartolini Revocable Trust dated July 27, 1992. Does not
include 50,000 shares owned beneficially by Edward M. Bartolini, the adult
brother of Robert R. Bartolini. Also does not include 264,022 shares held
by George Schnabel, Trustee of the Robert R. Bartolini and Marcia G.
Bartolini Irrevocable Trust dated July 27, 1992. Includes vested Incentive
Stock Options to purchase 19,445 shares of Common Stock granted December
1994. Does not include Incentive Stock Options to purchase 105,555 shares
of Common Stock granted December 1994 and December 1995, which have not
vested. See 'Summary Compensation Table.'
(3) Includes 34,628 shares held by English McCaughan & O'Bryan, P.A. for the
benefit of Mr. Schaeffer pursuant to the terms of the Voting Trust
Agreement. See 'Material Voting Arrangements.' Includes 13,333 vested
Incentive Stock Options granted to Mr. Schaeffer in December 1994. Does not
include 51,667 vested Incentive Stock Options granted to Mr. Schaeffer in
December 1994 and December 1995, which remain subject to vesting. Includes
4,952 shares held by Mr. Schaeffer's spouse. See 'Summary Compensation
Table.'
(4) Includes 60,196 shares held by English, McCaughan & O'Bryan, P.A. for the
benefit of Mr. Carlson pursuant to the terms of the Voting Trust Agreement.
See 'Material Voting Arrangements.' Includes 5,000 vested Incentive Stock
Options granted to Mr. Carlson in December 1994. Does not include 25,000
Incentive Stock Options granted to Mr. Carlson in December 1994 and
December 1995, which remain subject to vesting. See 'Summary Compensation
Table.'
(5) Does not include 25,000 Incentive Stock Options granted to Mr. LaVigne in
December 1995, which remain subject to vesting. See 'Summary Compensation
Table.'
(6) Ms. Cuneo joined the Board of Directors effective April 23, 1996 in
conjunction with the sale by the Company of certain Debentures. See
'Material Stockholder Arrangements.'
(7) Does not include Warrants to purchase 20,000 shares of Common Stock at an
exercise price of $11.50 per share granted to Mr. DeVoe in connection with
his appointment as a director on March 11, 1996, which have not vested.
(8) Does not include Warrants to purchase 20,000 shares of Common Stock at an
exercise price of $14.38 per share granted to Mr. Jones in connection with
his appointment as a director on February 5, 1996, which have not vested.
(9) Represents 515,000 shares issuable upon the exercise of Warrants held by
Conseco, Inc. Also includes 472,968 shares of Common Stock (416,667 shares
representing principal and 56,301 shares representing interest at maturity)
issuable upon conversion, if at all, of $5 million principal amount of
Debentures held by Great American Reserve Insurance Company ('GARCO') and
472,968 shares of Common Stock (416,667 shares representing principal and
56,301 shares representing interest at maturity) issuable upon the
conversion, if at all, of $5 million principal amount of Debentures held by
Beneficial Standard Life Insurance Company ('BSLIC'). GARCO and BSLIC are
wholly-owned subsidiaries of Conseco, Inc. (the 'Conseco Subsidiaries').
This table has been prepared assuming a fixed $12.00 conversion price for
the Debentures. Additional shares may be issued to the holder upon
conversion based on a conversion price equal to the lesser of: (i) $12.00
per share; and (ii) 80% of the closing bid price of the Company's Common
Stock on the date of conversion.
(10) As custodian for Ms. Karp's minor grandchildren.
(11) Includes 103,333 shares of Common Stock. Also includes 625,000 shares of
Common Stock issuable upon the exercise, if at all, of Warrants. Includes
711,970 shares of Common Stock (560,606 shares representing principal and
151,364 shares representing interest at maturity)
62
<PAGE>
issuable upon the conversion, if at all, of $5.5 million principal amount
of Debentures. This table has been prepared assuming a fixed $9.00
conversion price for $3.0 million principal amount of the Debentures.
Additional shares may be issued to the holder upon conversion based on a
conversion price equal to the lesser of: (i) $9.00 per share; and (ii) 75%
of the closing bid price of the Company's Common Stock on the date of
conversion.
(12) Represents 229,167 shares of Common Stock issuable upon conversion, if at
all, of $2.75 million principal amount of Debentures and 34,375 shares of
Common Stock issuable upon the exercise of Warrants held by Convertible
Holdings, Inc. Also represents 187,500 shares of Common Stock issuable upon
conversion, if at all, of $2.25 million principal amount of Debentures and
28,125 shares of Common Stock issuable upon the exercise of Warrants held
by Merrill Lynch World Income Fund, Inc. Convertible Holdings, Inc. is
advised by Merrill Lynch Asset Management, an investment adviser registered
under the Investment Advisers Act of 1940 ('MLAM'). Merrill Lynch World
Income Fund, Inc. is advised by Fund Asset Management, Inc., an investment
adviser registered under the Investment Advisers Act of 1940 ('FAM'). FAM
and MLAM are affiliates and both disclaim beneficial ownership of the
Common Stock referred herein. This table has been prepared assuming a fixed
$12.00 conversion price for the Debentures. Additional shares may be issued
to the holder upon conversion based on a conversion price equal to the
lesser of: (i) $12.00 per share; and (ii) 80% of the closing bid price of
the Company's Common Stock on the date of conversion.
(13) In connection with the issuance of these Debentures and Warrants, the
Company granted price protection to the holder(s) such that in the event
the Company issues securities during the term of the Debentures and
Warrants at an issuance price of less than $12.00 per share (the 'Issuance
Price'), the conversion price of such Debentures and the exercise price of
such Warrants would be reduced to the Issuance Price. This provision may
result in the issuance of a material number of additional shares of Common
Stock upon the conversion of the Debentures and a material decrease in the
proceeds to the Company upon the exercise of the Warrants. See 'Description
of Securities -- Price Protection.'
MATERIAL VOTING ARRANGEMENTS
Concurrent with the completion of the Merger in November 30, 1994, Messrs.
Bartolini, Schaeffer and Carlson entered into a Voting Trust Agreement (the
'Voting Trust Agreement') pursuant to which 400,000 shares were placed in a
voting trust. The Voting Trust Agreement provides that, on any matter requiring
stockholder vote, the trustee will vote such shares in the same percentage as
the other then issued and outstanding shares of Common Stock are voted. Such
shares may be released from the Voting Trust Agreement pursuant to an earn-out
formula under which for the years 1995, 1996 and 1997, 10,000 trust shares will
be released for each $150,000 of cumulative net income after taxes of the
Company up to $3,000,000 and 5,000 shares will be released for each $150,000 of
cumulative net income after taxes in excess of $3,000,000, less the number of
trust shares previously transferred to the stockholders under this formula. The
trust shares will be released pro rata in accordance with the number of trust
shares beneficially owned by each stockholder. As of September 30, 1996, all of
the shares had been earned. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.' If the shares are not released
pursuant to the earn-out formula within three years, such shares will be
canceled. The trustee under the Voting Trust Agreement is English, McCaughan &
O'Bryan, P.A., counsel to the Company.
MATERIAL STOCKHOLDER ARRANGEMENTS
In connection with the purchase of $10 million principal amount of
Debentures in April 1996, the Conseco Subsidiaries are entitled to designate a
nominee to the Company's Board of Directors and the Audit Committee of the Board
of Directors pursuant to the terms of the agreements governing such Debentures.
Ms. Ngaire E. Cuneo, an executive officer and director of Conseco and the
Conseco Subsidiaries, is the designated nominee. Pursuant to these arrangements,
Messrs. Bartolini and Schaeffer entered into a Stockholders' Agreement as of
April 23, 1996 with the Company, pursuant to which they agreed to certain
limitations upon the resale of their shares of Common Stock until October 1997.
63
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, $.15
par value per share, of which 7,347,367 are outstanding as of the date of this
Prospectus.
Holders of Common Stock have equal rights to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefor.
Holders of Common Stock have one vote for each share held of record and do not
have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of the Company to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
Common Stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
Within the limits and restrictions provided in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of preferred stock (the
'Preferred Stock'), in one or more series, and to fix, as to any such series,
the dividend rate, redemption prices, preferences on liquidation or dissolution,
sinking fund terms, conversion rights, voting rights, and any other preference
or special rights and qualifications. There are presently no shares of Preferred
Stock outstanding.
Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of the
Company more difficult or time consuming. For example, shares of Preferred Stock
could be issued with certain rights that might have the effect of diluting the
percentage of Common Stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that the
Board of Directors determines is not in the best interest of the Company and its
stockholders. This provision may be viewed as having possible anti-takeover
effects. A takeover transaction frequently affords stockholders the opportunity
to sell their shares at a premium over current market prices. The Board of
Directors has not authorized the issuance of any series of Preferred Stock.
64
<PAGE>
CONVERTIBLE SECURITIES
Debentures
The following table provides a summary of the Company's outstanding
Debentures.(1)
<TABLE>
<CAPTION>
PRINCIPAL MATURITY INTEREST CONVERSION SHARES
AMOUNT ISSUE DATE DATE RATE PRICE(2) ISSUABLE(3)
- ----------- ---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 200,000 Dec. 1995 Dec. 1996 9% 11.00 19,814
2,000,000 Dec. 1995 May 1997 9% 11.00 206,364
2,300,000 Dec. 1995 Jun. 1997 9% 11.00 237,266
10,000,000 Apr. 1996 Oct. 1997 9% 12.00 945,833
2,000,000 Jul. 1995 Jul. 1998 9% 9.00 282,167
1,000,000 Aug. 1995 Aug. 1998 9% 9.00 141,083
5,000,000 Sep. 1996 Sep. 1998 (4) 10%(4) 12.00 416,667
2,500,000 Jan. 1996 Jan. 1999 9% 11.00 288,636
- ----------- ---------
$25,000,000 2,537,830
- ----------- ---------
- ----------- ---------
</TABLE>
- ------------------
(1) Reflects information as of December 20, 1996.
(2) These Debentures are convertible into shares of the Company's Common Stock
at the lesser of the amount indicated and a discount to the market price of
the Company's Common Stock, which ranges from 75% to 85% pursuant to the
terms of the Debentures.
(3) Represents shares of Common Stock issuable upon conversion of the Debentures
(principal and interest at maturity).
(4) These Debentures bear interest at a rate of 10% for 2 years and at a rate of
9% thereafter. Maturity is subject to extension by the holder.
The Company has issued and sold in private placement transactions to
accredited and institutional investors, an aggregate of $38,825,000 principal
amount of convertible subordinated debentures (the 'Debentures'). Interest is
payable monthly on $5.0 million principal amount, quarterly on $17.0 million
principal amount and semi-annually on $3.0 million principal amount of
Debentures. With the exception of the holder of $5.0 million principal amount of
Debentures which require monthly interest payments, all of the holders of the
outstanding Debentures have elected to accrue such interest payments. In
conjunction with the sale of the Debentures, the Company issued Warrants to
purchase 2,873,625 shares of the Company's Common Stock. The terms of the
Debentures and the Warrants are described below and in the table above.
The indebtedness evidenced by the Debentures is subordinated to the prior
payment when due of the principal and interest on senior indebtedness of the
Company. Therefore, upon any distribution of its assets in a liquidation or
dissolution of the Company, or in bankruptcy, reorganization, insolvency,
receivership or similar proceedings relating to the Company, the holders of the
Debentures will not be entitled to receive payment until the holders of the
Company's senior indebtedness are paid in full. Furthermore, upon the occurrence
of any event of default with respect to any senior indebtedness of the Company,
no payments may be made to the holders of the Debentures until the Company has
cured such event of default.
As of December 20, 1996, Debentures with principal balances in the
aggregate of $13,825,000 had been converted into 1,452,849 shares of the
Company's Common Stock with $25.0 million principal amount of Debentures
remaining outstanding.
Conversion Feature. At the option of the holders, the principal and
accrued interest due under the Debentures is convertible into shares of Common
Stock. Prior to such conversion, the holders thereof are not entitled to voting
rights or other rights provided by law to stockholders.
Of the outstanding Debentures: (i) $3.0 million principal amount are
convertible into shares of the Company's Common Stock at a conversion price
equal to the lesser of 75% of the average closing bid price of the Company's
Common Stock as reported by the Nasdaq National Market for the 10 consecutive
trading days immediately preceding the date of conversion; and $9.00 per share;
(ii) $5.0 million are convertible into shares of Common Stock at a conversion
price equal to the lesser of 85% of the average closing bid price of the
Company's Common Stock as reported by the Nasdaq National
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<PAGE>
Market for the 10 consecutive trading days immediately preceding the date of
conversion and $11.00 per share; (iii) $2.0 million are convertible into shares
of Common Stock at a conversion price equal to the lesser of 80% of the average
closing bid price of the Company's Common Stock as reported by the Nasdaq
National Market for the 10 consecutive trading days immediately preceding the
date of conversion and $11.00; and (iv) $15.0 million are convertible into
shares of Common Stock at a conversion price equal to the lesser of 80% of the
closing bid price on the conversion date as reported by the Nasdaq National
Market and $12.00 per share.
Redemption Feature. Certain Debentures are subject to redemption by the
Company at the principal amount thereof, together with any accrued interest, on
30 days written notice upon the following conditions: (i) a registration
statement covering the resale of the shares issuable upon conversion of the
Debentures is effective as of that date; and (ii) the average of the closing bid
prices of the Company's Common Stock as reported by the Nasdaq National Market
exceeds a designated redemption price (the 'Debenture Redemption Price') for 10
consecutive trading days ending within 15 days of the notice of redemption.
Of the redeemable outstanding Debentures: (i) $3.0 million principal amount
bear a Debenture Redemption Price of $15.00, (ii) $2.5 million principal amount
bear a Debenture Redemption Price of $18.00 and (iii) $9.5 million principal
amount bear a Debenture Redemption Price of $25.00. Of the Debentures subject to
redemption, $3.0 million principal amount of the Debentures provide the holder
with the option to elect not to have the Debentures subject to redemption,
however, from the point of such election and thereafter, the Debentures become
non-interest bearing. $5.0 million principal amount of Debentures are redeemable
after two years and bear a Debenture Redemption Price of $25.00, provided that
the trading price of the Company's Common Stock as reported by the Nasdaq
National Market equals or exceeds $25.00 per share for 60 consecutive trading
days prior to redemption. Of the outstanding Debentures, $10.0 million principal
amount are not redeemable by the Company.
Warrants
The following table provides a summary of the Company's outstanding
Warrants.(1)
<TABLE>
<CAPTION>
SHARES PROCEEDS TO
ISSUE DATE EXPIRATION DATE EXERCISE PRICE ISSUABLE(2) THE COMPANY(3)
- ------------------- ------------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Apr.-Aug. 1995 Apr.-Aug. 1998 $ 9.00 1,360,000 $ 12,240,000
Nov. 1995-Dec. 1995 Nov. 1998-Dec. 1998 13.50 175,000 2,362,500
Dec. 1995-Feb. 1996 Dec.1998-Feb. 1999 14.00 to 14.38 195,000 2,737,500
Jul.-Aug. 1995 Jul.-Aug. 1998 12.00 to 12.30 62,500 765,000
Jul.-Dec. 1995 Jul.-Dec. 1998 15.00 363,625 5,454,375
Mar. 1996 Mar. 1999 11.50 20,000 230,000
Apr. 1996 Apr. 1999 12.00 to 12.63 615,000 7,442,500
Apr. 1996 Apr. 2001 14.52 60,000 871,200
Sep. 1996 Sep. 2001 13.92 62,500 870,000
--------- -------------
2,913,625(4) $ 32,973,075(5)
--------- -------------
--------- -------------
</TABLE>
- ------------------
(1) Reflects information as of December 20, 1996.
(2) Represents shares of Common Stock issuable upon exercise of the Warrants.
(3) Represents proceeds to the Company upon the exercise of the Warrants.
(4) Includes 40,000 Warrants in the aggregate issued to Mr. DeVoe and Mr. Jones
in connection with joining the Board of Directors.
(5) Includes proceeds of $517,500 from Warrants issued to Mr. DeVoe and Mr.
Jones. See Footnote 4.
The Company has issued 2,913,625 common stock purchase warrants (the
'Warrants'). Of the Warrants issued: (i) 2,873,625 of the Warrants were granted
in connection with the sale of the Debentures, including 190,000 Warrants issued
to certain consultants and advisers in consideration for financial advisory
services and 160,000 Warrants issued as commission, and (ii) 40,000 Warrants
were
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<PAGE>
issued by the Company to Board members in connection with joining the Board of
Directors. See 'Certain Transactions.' To date, none of the Warrants have been
exercised.
Exercise. Of the outstanding Warrants, 737,500 of the Warrants permit the
holder to purchase a share of the Company's Common Stock at a designated
exercise price for a period of 5 years from the date of grant, while the
remaining Warrants have a term of 3 years from the date of grant. Prior to
exercise, holders of the Warrants are not entitled to voting rights or other
rights provided by law to stockholders of the Company. A complete exercise of
the Warrants, if at all, would yield to the Company proceeds of $32,973,075.
There can be no assurances that all or a substantial percentage of the Warrants
will be exercised.
Redemption. Of the outstanding Warrants issued, 1,547,000 of the Warrants
are subject to redemption by the Company commencing with the date of issuance
and 489,125 are subject to redemption by the Company commencing two (2) years
from the date of issuance, all at a price of $.001 per Warrant on 30-days
written notice upon the following conditions: (i) a registration statement
covering the resale of the shares issuable upon exercise of the Warrants is
effective as of that date; and (ii) the average of the closing bid prices of the
Company's Common Stock as reported by the Nasdaq National Market exceeds a
designated price (the 'Warrant Redemption Price') for 10 consecutive trading
days ending within 15 days of the notice of redemption. Of the outstanding
Warrants, 877,500 Warrants are not subject to redemption.
The present trading price of the Company's Common Stock (see 'Price Range
For Common Stock') would not be sufficient to effectuate a redemption of any of
the Warrants. There can be no assurances that the trading price of the Company's
Common Stock will attain a level sufficiently high to effectuate a redemption.
There also can be no assurances that even with a sufficiently high trading price
the Company will elect to cause a redemption of the Warrants. Any call for
redemption would have the likely effect of causing the exercise of these
Warrants.
PRICE PROTECTION
The Company has granted price protection and adjustment features to the
holders of certain Debentures and Warrants pursuant to which the Company has
agreed that in the event that the Company issues securities at an Issuance Price
of less than $12.00 per share, the conversion price of such Debentures and the
exercise price of such Warrants would be reduced to the Issuance Price. See
'Principal Stockholders -- Footnote 13 to the Principal Stockholders' Table.'
Assuming a public offering price of $8.00 per share, after the Offering the
Company would be required to issue up to an additional 681,250 shares of Common
Stock upon the conversion of such Debentures as a result of such price
protection features. In addition, a reduction of the exercise price of certain
Warrants to $8.00 per share would result in a reduction in the proceeds to the
Company of $3,284,200 upon the exercise of 737,500 Warrants.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the holders of the
Debentures and the Warrants pursuant to which the Company has agreed to register
for resale the shares of Common Stock issued or issuable upon the conversion of
the Debentures and the exercise of the Warrants.
The Company has granted registration rights in connection with the resale
of up to 2,884,962 shares issuable or issued upon conversion of certain
Debentures (principal and interest) and upon exercise of certain Warrants.
Pursuant to such rights, the Company has agreed to use its best efforts to file
with the Commission a registration statement covering the resale of such shares
upon the earlier of January 31, 1997 and 120 days from completion of this
Offering. The holders of such Warrants have also agreed not to effect the public
sale of shares issuable or issued upon exercise of the Warrants for a period of
90 days from the effective date of a registration statement covering such
shares. Substantially all of the holders of these Debentures and Warrants have
agreed to defer their registration rights for a period of 120 days after the
date of this Prospectus.
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<PAGE>
The Company has also granted certain demand and piggyback registration
rights commencing January 1, 1997 in connection with the resale of up to
1,620,936 shares issuable upon conversion of certain Debentures (principal and
interest) and upon the exercise of certain Warrants issued during April 1996. In
the event that such shares are not otherwise included within a registration
statement, the Company has agreed to use its best efforts to file with the
Commission a registration statement(s) covering the resale of: (i) 1,460,936 of
such shares upon the request of the holder(s) of such securities commencing at
any time after October 23, 1997; and (ii) 160,000 of such shares upon request of
the holder(s) of such securities commencing at any time after December 23, 1997.
Substantially all of the holders of these Debentures and Warrants have agreed to
defer their registration rights for a period of 180 days after the date of this
Prospectus.
The Company has also granted mandatory registration rights in connection
with the resale of up to 479,167 shares issuable upon conversion of certain
Debentures and upon the exercise of certain Warrants issued during September
1996. The Company has agreed to use its best efforts to file with the Commission
a registration statement(s) covering such shares upon the earlier of: (i) 120
days after completion of this Offering; (ii) March 31, 1997; and (iii) the date
upon which certain other institutional holders exercise their registration
rights. Substantially all of the holders of these Debentures and Warrants have
agreed to defer their registration rights for a period of 180 days after the
date of this Prospectus.
RESERVATION OF SHARES
The Company has reserved a sufficient number of shares of Common Stock for
issuance upon conversion of the Debentures and exercise of the Warrants. Such
shares when issued will be fully paid and nonassessable.
TRANSFER AGENT
The transfer agent for the Company's securities is StockTrans, Inc., 7 East
Lancaster Avenue, Ardmore, Pennsylvania 19003, (610) 649-7300.
DELAWARE ANTI-TAKEOVER LAW
The Company will be governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware (the 'GCL'), an anti-takeover
law. In general, the law prohibits a public Delaware corporation from engaging
in a 'business combination' with an 'interested stockholder' for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. 'Business combination' includes mergers, asset sales and
other transactions resulting in a financial benefit to the stockholder. An
'interested stockholder' is a person who, together with its affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
The provisions regarding certain business combinations under the GCL could
have the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management. A takeover transaction frequently
affords stockholders the opportunity to sell their shares at a premium over
current market prices.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
General
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may make more difficult the acquisition of control of the Company by a tender
offer, open market purchases not approved by the Company's Board of Directors, a
proxy contest or otherwise. The provisions are designed to reduce the
vulnerability of the Company to an unsolicited proposal for a takeover that does
not contemplate the acquisition of all outstanding shares of the Company or
which is otherwise unfair to stockholders of the Company.
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<PAGE>
Set forth below is a description of such provisions of the Company's
Certificate of Incorporation and Bylaws. Such description is intended as a
summary only and is qualified in its entirety by reference to the Company's
Certificate of Incorporation and Bylaws.
Election of Directors; Amendment to Certificate of Incorporation
The Company's Certificate of Incorporation provides that the Board of
Directors is divided into three classes. One class of directors is elected at
each annual meeting of stockholders for three-year terms. In addition, the
Bylaws require advance notice to the Board of Directors of stockholder proposals
or stockholder nominees for director to be considered at the next annual meeting
of stockholders.
The Bylaws provide that the number of directors shall be fixed by majority
approval of the Board of Directors or by a vote of a majority of the
stockholders of the Company. Currently, the number of directors is set at five.
In addition, the Bylaws provide that such provision establishing the number of
directors may only be amended by majority approval of the Board of Directors or
by a vote of a majority of the stockholders of the Company.
The Certificate of Incorporation also provides that a director can only be
removed during his or her term for cause and upon the vote of two-thirds of the
stockholders, and that amendments to the Certificate of Incorporation require
the vote of two-thirds of the stockholders unless approved by 80% of the Board
of Directors.
Special Stockholder Meetings
The Bylaws provide that special meetings of the stockholders, for any
purpose or purposes, unless required by law, shall be called by the Chairman and
Chief Executive Officer or President pursuant to a request in writing of the
Chairman and Chief Executive Officer or the President, or a majority of the
entire Board of Directors. A special meeting may not be held absent such a
written request. The request shall state the purpose or purposes of the proposed
meeting. The Bylaws also provide that stockholders may not take action by
written consent. Such limitation on the right of stockholders to call a special
meeting and to take action by written consent could make it more difficult for
stockholders to initiate or to take action that is opposed by the Board of
Directors.
Preferred Stock
The Certificate of Incorporation authorizes the Company's Board of
Directors to establish series of Preferred Stock and to determine, with respect
to any series of Preferred Stock, the rights, preferences, privileges and
restrictions thereof. Management believes that the Preferred Stock will provide
the Company with increased flexibility in structuring possible future financings
and acquisitions, and in meeting other corporate needs that might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of Preferred Stock without the expense and delay of a special
stockholders' meeting. The authorized shares of Preferred Stock, as well as
shares of the Company's Common Stock, will be available for issuance without
further action by stockholders, unless such action is required by applicable law
or the rules of any stock exchange on which the Company's securities may be
listed. The Company's Board of Directors could issue Preferred Stock having
terms that could discourage an acquisition attempt or other transaction that
some, or a majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of such stock.
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 9,847,367 shares of
Common Stock outstanding (10,222,367 shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, approximately 6,111,825 shares
(6,486,825 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act. The remaining 3,735,542 shares of Common Stock outstanding
are 'Restricted Securities' as that term is defined in Rule 144 under the
Securities Act, of which approximately 2,596,752 are held by 'affiliates' (as
defined in the Securities Act) of the Company.
The Restricted Securities are subject to all of the limitations on resale
imposed by Rule 144. In general, under Rule 144 as currently in effect, any
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with the Rule) who has beneficially owned Restricted Securities
for at least two years would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1.0% of the outstanding
shares of Common Stock (approximately 98,474 shares based upon the number of
shares outstanding after the Offering) and the reported average weekly trading
volume in the over-the-counter market for the four weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale restrictions and
notice requirements and to the availability of current public information
concerning the Company. Persons who have not been affiliates of the Company for
at least three months and who have held their shares for more than three years
are entitled to sell Restricted Securities without regard to the volume, manner
of sale, notice and public information requirements of Rule 144. Substantially
all of the Restricted Securities were issued in November 1994. Accordingly,
under Rule 144 (and subject to the conditions thereof), the Restricted
Securities are eligible for public resale. However, a majority of such shares
are held by executive officers and directors of the Company who have agreed to
certain restrictions upon the resale of such shares.
The Company, its executive officers and directors, certain debenture
holders and certain warrant holders have each agreed that they will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose of (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or sale or disposition) any shares of Common Stock or other capital
stock or any securities convertible into, or exercisable or exchangeable for,
any shares of Common Stock or other capital stock of the Company, for a period
of 180 days after the date of this Prospectus, without the prior written consent
of Prudential Securities Incorporated, on behalf of the Underwriters, except for
bona fide gifts or private transfers effected by such stockholders other than on
any securities exchange or in the over-the-counter market to donees or
transferees that agree to be bound by similar agreements. See 'The Company --
Underwriting.'
The Company currently has outstanding $25.0 million principal amount of
Debentures and 2,913,625 Warrants, which upon conversion or exercise as
applicable, the Company may be caused to issue up to 5,451,455 shares of Common
Stock, thus increasing the number of shares outstanding from 7,347,367 to
12,798,822. See 'Debentures' and 'Warrants.' Pursuant to certain registration
rights granted by the Company in connection with the shares issuable upon the
conversion of outstanding Debentures or upon exercise of such Warrants, the
Company may have an obligation to register for resale up to 4,985,065 shares of
such Common Stock. Substantially all of the holders of such shares have agreed
to defer their registration rights for a period of 120 or 180 days after the
date of this Prospectus. See 'Description of Securities -- Registration Rights.'
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UNDERWRITING
The Underwriters named below (the 'Underwriters'), for whom Prudential
Securities Incorporated, Piper Jaffray Inc. and Sands Brothers & Co., Ltd. are
acting as representatives (the 'Representatives'), have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock set forth below
opposite their respective names:
NUMBER
UNDERWRITER OF SHARES
-------------------------------------- -----------
Prudential Securities Incorporated ....
Piper Jaffray Inc. ....................
Sands Brothers & Co., Ltd .............
Total............................. 2,500,000
-----------
-----------
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
that they propose to offer the Common Stock initially at the public offering
price set forth on the cover page of this Prospectus; that the Underwriters may
allow to selected dealers a concession of $ per share; and that such
dealers may reallow a concession of $ per share to certain other
dealers. After the public offering, the offering price and the concession may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 375,000 additional shares of
Common Stock at the public offering price, less underwriting discounts and
commissions, as set forth on the cover page of this Prospectus. The Underwriters
may exercise such option solely for the purpose of covering over-allotments
incurred in the sale of the shares of Common Stock offered hereby. To the extent
such option to purchase is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth opposite each Underwriter's name
in the preceding table bears to .
Pursuant to an investment banking agreement entered into between the
Company and Sands Brothers & Co., Ltd. dated January 29, 1996, and as
subsequently amended on April 24, 1996 and November 15, 1996, the Company has
agreed to pay a facilitation fee ('Facilitation Fee') to Sands Brothers & Co.,
Ltd. in the amount of $300,000, less any underwriting fees and commissions,
limited to $150,000, derived from their participation as an underwriter in this
Offering. The Facilitation Fee is underwriting compensation in connection with
this Offering. In connection with the private placement of $10,000,000 principal
amount of Debentures by the Company in April 1996, Sands Brothers & Co., Ltd.
received 160,000 Warrants, which the National Association of Securities Dealers,
Inc. has deemed to be underwriting compensation in connection with the Offering.
The Company, its executive officers and directors, certain debenture
holders and certain warrant holders have each agreed that they will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose of (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) any shares of Common Stock or other
capital stock or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock or other capital stock of the Company, for a
period of 180 days after the date of this Prospectus, without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters,
except for bona fide gifts or private transfers effected by such stockholders
other than on any securities exchange or in the over-the-counter market to
donees or transferees that agree to be bound by similar agreements.
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The Company has agreed to indemnify the several Underwriters or contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.
In connection with this Offering, certain Underwriters and
selling group members (if any) or their respective affiliates who are
qualified market makers on the Nasdaq National Market may engage in
passive market making transactions in the Common Stock on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act
during the two business day period before the commencement of offers of
sales of the Common Stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as such.
In general, a passive market maker must display its bid at a price not
in excess of the highest independent bid for such security; if all
independent bids are lowered below the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Buchanan Ingersoll Professional Corporation, Two Logan Square,
12th Floor, 18th & Arch Streets, Philadelphia, Pennsylvania 19103. Certain legal
matters in connection with this Offering will be passed upon for the
Underwriters by Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York,
New York 10006.
STATEMENT OF INDEMNIFICATION
The Company has adopted the provisions of Section 102(b)(7) of the GCL,
which eliminate or limit the personal liability of a director to the Company or
its stockholders for monetary damages for breach of fiduciary duty under certain
circumstances. Furthermore, under Section 145 of the GCL, the Company may
indemnify each of its directors and officers against his expenses (including
reasonable costs, disbursements and counsel fees) in connection with any
proceeding involving such person by reason of his having been an officer or
director to the extent he acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interest of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The determination of whether indemnification
is proper under the circumstances, unless made by a court, shall be determined
by the Board of Directors.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issuer.
EXPERTS
The financial statements as of December 31, 1995 and for each of the two
years in the period ended December 31, 1995 included in this Prospectus have
been so included in reliance on the report of Price Waterhouse LLP, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2, including amendments thereto, with respect to the Common Stock being
registered hereby. This Prospectus does not contain all of the information
contained in such Registration Statement and the exhibits and schedules filed
therewith, as permitted by the Rules and Regulations of the Commission. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge, and copies of all or any part thereof may be obtained
from the Commission's principal office in Washington, D.C. at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and at
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained upon written request addressed
to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web
site at http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission, including the Company. For further information with respect to the
Company, the Common Stock being registered hereby and the contents of any
contract or document referred to herein, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<S> <C>
Report of Independent Certified Public Accountants................ F-2
Consolidated Balance Sheet as of December 31, 1995................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995 and 1994...................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1995 and 1994.......................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994...................................... F-6
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995 and 1994...................................... F-7
Consolidated Balance Sheets as of September 30, 1996 (Unaudited)
and
December 31, 1995............................................... F-22
Consolidated Statements of Operations (Unaudited) for the Nine
Months Ended September 30, 1996 and 1995........................ F-23
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1996 and 1995........................ F-24
Notes to Consolidated Financial Statements (Unaudited) for the
Nine Month Period Ended September 30, 1996...................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of NAL Financial Group Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
NAL Financial Group Inc. and its subsidiaries at December 31, 1995, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
February 27, 1996, except as to Note 19,
which is as of March 22, 1996
F-2
<PAGE>
NAL FINANCIAL GROUP INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995
------------
<S> <C>
ASSETS
Finance receivables
Automobile finance contracts, net...................... $ 99,790,636
Consumer finance contracts, net........................ 2,289,503
Mortgage finance contracts, net........................ 1,805,068
Less: reserves available for credit losses............. (2,671,001)
------------
Finance receivables, net............................... 101,214,206
------------
Cash........................................................ 920,981
Restricted cash............................................. 1,031,734
Accrued interest receivable................................. 1,459,600
Investment in operating lease contracts, net................ 4,054,613
Automobile inventory........................................ 1,886,451
Property and equipment, net................................. 1,802,889
Excess servicing receivable................................. 4,999,165
Other assets................................................ 4,665,287
------------
TOTAL ASSETS........................................... $122,034,926
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt participation interests........................... $42,380,522
Credit and warehouse facilities........................ 33,428,946
Convertible subordinated debt, net..................... 12,924,379
Stockholder loans...................................... 2,919,000
Drafts payable......................................... 2,593,098
Deferred taxes......................................... 1,603,587
Accounts payable and accrued expenses.................. 1,046,884
Other liabilities...................................... 1,278,594
------------
TOTAL LIABILITIES...................................... 98,175,010
------------
Commitments and contingencies (Notes 8 and 17).............. --
------------
STOCKHOLDERS' EQUITY
Preferred stock -- $1,000 par value:
10,000,000 shares authorized, no shares issued......... --
Common stock -- $.15 par value:
50,000,000 shares authorized 6,699,987 shares issued
and outstanding...................................... 1,004,998
Paid in capital............................................. 18,524,706
Retained earnings........................................... 4,330,212
------------
TOTAL STOCKHOLDERS' EQUITY............................. 23,859,916
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $122,034,926
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NAL FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
INTEREST INCOME
Finance charges and purchase discount
accretion................................. $15,680,198 $5,387,291
Interest expense............................. (7,361,527) (1,957,420)
----------- ----------
Net interest income before provision for
credit losses.......................... 8,318,671 3,429,871
Provision for credit losses.................. (2,762,273) (572,636)
----------- ----------
Net interest income after provision for
credit losses.......................... 5,556,398 2,857,235
----------- ----------
OTHER INCOME
Gain on sale of contracts.................... 4,600,721 2,292,249
Fees and other............................... 2,651,497 453,660
----------- ----------
Total other income........................ 7,252,218 2,745,909
----------- ----------
OPERATING AND OTHER EXPENSES
Salaries and employee benefits.................. 2,551,486 2,337,557
Depreciation and amortization................... 1,298,866 320,294
Occupancy expense............................... 448,625 200,377
Professional and consulting services............ 723,620 902,720
Other operating expense......................... 2,782,634 1,184,530
Non cash charge for the release of escrow
shares....................................... 280,000 --
----------- ----------
Total other expenses......................... 8,085,231 4,945,478
----------- ----------
Income before income taxes........................ 4,723,385 657,666
Provision for income taxes........................ 1,926,321 263,343
----------- ----------
NET INCOME........................................ $ 2,797,064 $ 394,323
----------- ----------
Primary net income per common and common
equivalent share................................ $ 0.45 $ 0.08
----------- ----------
Fully diluted net income per common and common
equivalent share................................ $ 0.45 $ 0.07
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NAL FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
PREFERRED STOCK LESS:
---------------- COMMON STOCK ----------- TOTAL
PAR ----------------------- PAID IN NOTE RETAINED STOCKHOLDERS'
SHARES VALUE SHARES PAR VALUE CAPITAL RECEIVABLE EARNINGS EQUITY
------ ------ --------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1993.......... -- $ -- 4,286 $ 4,286 $ 3,195,325 $(2,034,638) $ 2,643,110 $ 3,808,083
Dividends........... -- -- -- -- -- -- (1,069,460) (1,069,460)
Redemption of
stock............. -- -- (2,143) (2,143) (1,597,670) 2,034,638 (434,825) --
Redemption of
predecessor stock
in connection with
the merger........ -- -- (2,143) (2,143) (1,597,655) -- -- (1,599,798)
Issuance of stock to
predecessor
stockholders in
connection with
the merger........ -- -- 3,160,000 474,000 1,125,798 -- -- 1,599,798
Issuance of stock to
stockholders of
merged entity..... -- -- 2,432,968 364,945 7,357,916 -- -- 7,722,861
Net income.......... -- -- -- -- -- -- 394,323 394,323
------ ------ --------- ---------- ----------- ----------- ----------- -------------
Balance, December
31, 1994.......... -- -- 5,592,968 838,945 8,483,714 -- 1,533,148 10,855,807
Issuance of stock... -- -- 176,500 26,475 2,074,475 -- -- 2,100,950
Issuance of
warrants.......... -- -- -- -- 397,167 -- -- 397,167
Conversion of
subordinated
debt.............. -- -- 930,519 139,578 7,289,350 -- -- 7,428,928
Release of escrow
shares............ -- -- -- -- 280,000 -- -- 280,000
Net income.......... -- -- -- -- -- -- 2,797,064 2,797,064
------ ------ --------- ---------- ----------- ----------- ----------- -------------
Balance, December
31, 1995.......... -- $ -- 6,699,987 $1,004,998 $18,524,706 $ -- $ 4,330,212 $23,859,916
------ ------ --------- ---------- ----------- ----------- ----------- -------------
------ ------ --------- ---------- ----------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NAL FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 2,797,064 $ 394,323
Adjustments to reconcile net income to net
cash used in operations......................
Accretion of discount....................... (654,124) (2,064,714)
Provision for loan losses................... 2,762,273 572,636
Depreciation and amortization............... 1,445,149 320,294
Gain on sale of loan pools.................. (4,600,721) (2,292,249)
Non-cash charge - voting trust.............. 280,000 --
Changes in assets and liabilities
Increase in excess servicing receivable..... (4,999,165) --
Decrease in restricted cash................. 29,307 921,492
Increase in other assets.................... (3,514,607) (75,428)
Decease in due from affiliates.............. -- 43,667
Increase in accrued interest receivable..... (1,291,908) --
Increase in drafts payable.................. 2,593,098 --
Increase in accounts payable and accrued
expenses................................... 825,631 --
Increase in other liabilities............... 627,505 190,030
Increase (decrease) in accrued income
taxes...................................... 1,493,127 (33,590)
------------ -----------
Net cash used in operating activities......... (2,207,371) (2,023,539)
------------ -----------
Cash flows from investing activities:
Purchase of SFI option...................... (250,000) --
Proceeds from sale of loan pools............ 12,514,061 14,614,031
Purchase of operating lease vehicles........ (3,400,690) (1,283,300)
Payments received on automobile finance
contracts.................................. 22,042,555 7,417,861
Purchase of automobile finance contracts.... (154,866,844) (22,681,679)
Payments received on consumer finance
contracts.................................. 1,996,335 8,421,534
Purchase of consumer finance contracts...... (1,050,549) (14,795,381)
Payments received on mortgage finance
contracts.................................. 2,587,063 5,083,106
Purchase of mortgage finance contracts...... -- (221,713)
Proceeds from sale of automobile
inventory.................................. 8,845,103 --
Purchase of property and equipment.......... (1,535,671) (253,004)
------------ -----------
Net cash used by investing activities......... (113,118,637) (3,698,545)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock...... 2,100,950 7,722,861
Proceeds from securitization of loan
contracts.................................. 37,511,237 --
Proceeds from issuance of subordinate
debentures................................. 21,338,728 --
Proceeds from participations and credit
facilities................................. 135,178,400 33,911,781
Repayments of participations and credit
facilities................................. (81,870,973) (34,249,908)
Payment of debt issue costs................. (1,532,707) (24,352)
Note payable from stockholder............... 2,856,506 --
Dividends paid.............................. -- (1,069,459)
------------ -----------
Net cash provided by financing activities....... 115,582,141 6,290,923
------------ -----------
Net increase in cash............................ 256,133 568,839
Cash, beginning of year......................... 664,848 96,009
------------ -----------
Cash, end of year............................... $ 920,981 $ 664,848
------------ -----------
------------ -----------
Supplemental disclosures of cash flow information
Cash paid during the year for interest............ $ 6,443,859 $ 1,859,353
------------ -----------
------------ -----------
Cash paid during the year for taxes............... $ 491,558 $ 320,501
------------ -----------
------------ -----------
Supplemental schedule of non-cash investing and
financing activities
Conversion of subordinated debt................... $ 8,260,000 $ --
------------ -----------
------------ -----------
Net transfers to automobile inventory............. $ 11,742,181 $ --
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS:
NAL Financial Group Inc. (the 'Company') commenced operations in June 1991
as a specialized finance company for the purpose of engaging in consumer finance
transactions involving the origination, purchase, remarketing and servicing of
consumer loan and lease receivables. Since June 1994, the Company's principal
business has been the acquisition and servicing of automobile finance contracts
originated by dealers ('Dealers') in connection with sales ('Loan Contracts') or
leases ('Lease Contracts') to individuals with sub-prime credit with the intent
to pool and sell these contracts (the 'Contracts') through the Company's
securitization programs.
The Company completed its initial securitization during December 1995. In a
securitization, the Company creates securities backed by Loan Contracts and
sells these securities in privately placed transactions. Purchasers of the
securities receive a pass-through rate of interest set at the time of sale and
the Company receives a base servicing fee for its servicing efforts. In
addition, the Company is entitled to certain excess servicing fees which
represent collections on the Loan Contracts in excess of those required to pay
investor principal and interest and the base servicing fee.
On November 30, 1994, the Company merged with Corporate Financial Ventures,
Inc. ('CFVI'), a public company (the 'Merger'). Under the terms of the Merger,
the Company's stockholders received 3,160,000 shares of CFVI in exchange for all
outstanding shares of stock of the Company. Stockholders of the Company received
approximately 56% of the outstanding common stock of CFVI. Additionally, the
Company raised net proceeds of approximately $7,700,000 in a private placement
of 1,549,667 shares of its common stock in connection with the Merger. The
Merger has been accounted for as a reverse acquisition by the Company. Upon
completion of the Merger, CFVI assumed the historic operations of the Company
and changed its name to NAL Financial Group Inc. As the Merger is not considered
a business combination as defined in Accounting Principles Board Opinion No. 16,
'Business Combinations', pro forma information is not presented. The operations
of CFVI prior to the Merger were not significant.
The Company operates its business through six wholly-owned subsidiaries.
The principal operations of the Company are conducted through NAL Acceptance
Corporation ('NAC'). NAL Insurance Services, Inc. provides automobile and other
forms of insurance services. NAL Mortgage Corporation presently is inactive.
Performance Cars of South Florida, Inc. was incorporated in January 1995 to
conduct the Company's used vehicle operations. Autorics, Inc. and Autorics II,
Inc. were established during 1995 for the limited purpose of purchasing and the
re-selling of the Company's Loan Contracts through the Company's securitization
programs.
NOTE 2 -- ACCOUNTING POLICIES:
A summary of the significant accounting policies followed in the
preparation of the accompanying financial statements is presented below:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated.
Revenue Recognition
Interest income consists of both contractual interest and purchase discount
accretion and is recognized over the contractual term of the Contracts using the
interest method.
Purchase discount represents the differential, if any, between the amount
financed on a Loan Contract and the price paid by the Company to acquire the
Loan Contract, net of any acquisition costs. Any discount on Loan Contracts
which management considers necessary to absorb future credit losses is allocated
to the reserves available for credit losses. The remaining portion of the
discount, if any, is recognized as interest income as described above.
F-7
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 2 -- ACCOUNTING POLICIES: -- (CONTINUED)
Revenue from operating Lease Contracts is recognized as rental revenue on a
straight-line basis over the lease term.
Accrual of interest income ceases the sooner of when a Contract becomes
delinquent by 90 days or the underlying collateral is repossessed. At December
31, 1995 and 1994, the Company had approximately $2,800,000 and $236,000,
respectively, in non-accrual Contracts. Had these Contracts been on full
accrual, $236,000 and $26,000 would have been recognized to earnings for the
years ended December 31, 1995 and 1994, respectively.
Late charges and other miscellaneous fees are credited to income as earned.
Fees from the resale of guaranteed asset protection ('GAP') insurance policies
are non-rebatable and recognized as earnings in the current period.
Reserves Available for Credit Losses
The Company purchases Loan Contracts from Dealers at discounts pursuant to
a financing program that bases the level of discount on, among other things, the
credit risk of the borrower. As discussed above, the portion of the discount on
Loan Contracts required to absorb future credit losses, based on management's
assessment, is allocated to the reserves available for credit losses.
As part of the Company's financing program with Dealers, agreements are
entered into whereby holdbacks are established to protect the Company from
potential losses. Pursuant to the agreements, when the Company acquires Loan
Contracts, it withholds a portion of the proceeds from the Dealers to absorb
credit losses. Holdback amounts are refunded to the Dealers if the Loan Contract
performs throughout its term.
In cases where the purchase discount and/or dealer holdbacks are not
adequate to cover potential losses, the Company establishes an allowance for
losses by charging a provision against earnings.
The combined allowance, discount and dealer holdbacks available for credit
losses are maintained at an amount considered by management to be adequate to
absorb potential credit losses based upon an evaluation of known and inherent
risks in the portfolios. Management's periodic evaluation is based upon an
analysis of the portfolios, historical loss experience, current economic
conditions, collateral value and other relevant factors. Future adjustments to
the reserve may be necessary if economic conditions differ substantially from
the assumptions used in making the evaluation.
The Company charges off delinquent automobile and consumer accounts no
later than 150 days of delinquency. Recovery of charged off balances begin with
the Company's collection specialists. If results are not obtained within a
reasonable time frame, the account is either turned over to a collection agency
or an attorney for action, including wage garnishment, judgment and asset
search.
Restricted Cash
Restricted cash represents deposit accounts established pursuant to
servicing agreements between the Company and various participants which
represents collections from customers. The collection accounts are settled
monthly by the Company with the participants.
Net Investment in Operating Lease Contracts
Operating Lease Contracts to third parties are originated by Dealers and
acquired by the Company, which assumes ownership of the vehicle. Vehicles held
under operating lease agreements are recorded at cost and depreciated on a
straight-line basis over the lease term to the estimated residual value.
F-8
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 2 -- ACCOUNTING POLICIES: -- (CONTINUED)
Automobile Inventory
Vehicles acquired through repossession or termination of a Lease or Loan
Contract are valued at the lower of the unpaid principal balance or market
value at the date of repossession.
Debt Issue Costs
Debt issue costs are capitalized and amortized to operations on a
straight-line basis over the life of the related debt, which currently
approximates one to three years.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.
Excess Servicing Receivable
Excess servicing receivable results from the sale of Loan Contracts on
which the Company retains servicing rights and a portion of the excess cash
flows. Excess servicing receivable is determined by computing the difference
between the weighted average yield of the Loan Contracts sold and the yield to
the purchaser, adjusted for the normal servicing fee based on the agreements
between the Company and the purchaser. The resulting differential is recorded as
a gain in the year of the sale equal to the present value of the estimated cash
flows, net of any portion of the excess that may be due to the purchaser and
adjusted for anticipated prepayments, repossessions, liquidations and other
losses. The excess servicing cash flows over the estimated remaining life of the
Loan Contracts have been calculated using estimates for prepayments, losses
(charge-offs) and weighted average discount rates, which the Company expects
market participants would use for similar instruments.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return.
The Company utilizes an asset and liability approach to account for income
taxes on a current and deferred basis using current income tax rates. Deferred
income tax assets are recognized for temporary differences that will result in
deductible amounts in future years. Deferred income tax liabilities are
recognized for temporary differences that will result in taxable amounts in
future years.
Concentration of Credit Risk
The Company considers its primary market area for automobile financing
activities to be the Southeast United States. The properties collateralizing the
other loan receivable portfolios are located primarily throughout the eastern
United States, Texas and California. Although the Company has a diversified loan
portfolio, a substantial portion of its debtors' abilities to honor their
obligations to the Company is dependant upon the economic stability of these
areas.
Interest Rate Risk
Contract acquisitions are funded primarily through participations, credit
and warehouse facilities. The participations and credit facilities bear interest
at fixed rates tied to the prime rate and the durations are determined by the
durations of the related Contracts since the proceeds of the obligor payments
are applied to the repayment of the participations. The warehouse facility bears
interest at a variable rate tied to LIBOR and the duration is determined by the
timing of the Company's securitization transactions. Contract acquisitions
financed by this facility are warehoused pending securitization. Upon completion
of a securitization, any remaining amounts due associated with the Loan
Contracts securitized are repaid along with unpaid interest.
F-9
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 2 -- ACCOUNTING POLICIES: -- (CONTINUED)
Earnings Per Share
Earnings per common share are computed based on the weighted average number
of common and common equivalent shares outstanding during the period. The
weighted average number of shares of common and common equivalent shares
outstanding used to compute primary and fully diluted earnings per share was
6,200,362 for the year ended December 31, 1995, and 5,192,968 and 5,592,968,
respectively, for the year ended December 31, 1994.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
that are particularly susceptible to significant change in the near term are the
adequacy of reserves available for credit losses, the present value of the
estimated future cash flows utilized to calculate excess servicing receivable,
the realization of estimated residual values on direct finance Lease Contracts
and the realization of automobile inventory.
Reclassification
Certain 1994 amounts have been reclassified to conform with current year
presentation.
NOTE 3 -- AUTOMOBILE FINANCE CONTRACTS:
Automobile finance contracts at December 31, 1995 consist of the following:
Contracts held in portfolio:
<TABLE>
<S> <C>
Direct finance Lease Contracts
payments.............................. $16,361,733
Estimated residual values............... 9,170,719
-----------
Total direct finance Lease
Contracts.......................... 25,532,452
Less: Unearned interest............... (7,069,448)
-----------
Total direct finance Lease Contracts,
net................................ 18,463,004
-----------
Loan Contracts.......................... 17,080,482
Loan Contracts with recourse............ 29,226,018
-----------
Total Loan Contracts.................. 46,306,500
-----------
Total Contracts held in portfolio....... 64,769,504
Less: Unearned fees................... (123,322)
-----------
Total Contracts held in portfolio,
net................................... 64,646,182
Contracts held for sale................. 21,685,000
Advances to Dealers..................... 13,459,454
-----------
Total automobile finance contracts,
net................................... $99,790,636
-----------
-----------
</TABLE>
The Company has entered into arrangements with certain of its Dealers and
other origination sources by which the Company may require the reimbursement for
credit losses sustained on Contracts purchased from these sources.
The Company services Loan Contracts of approximately $48 million for
others.
Contracts are collateralized primarily by the related automobiles and the
related security deposits on Lease Contracts. These Contracts are pledged as
security under various debt agreements.
F-10
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 3 -- AUTOMOBILE FINANCE CONTRACTS: -- (CONTINUED)
Contracts held in portfolio are stated at cost as the Company has the
ability and presently intends to hold the portfolio to maturity. Contracts held
for sale are Loan Contracts pending securitization and are stated at the lower
of cost or estimated fair value on an aggregate basis.
Advances to Dealers represent amounts funded by the Company to automobile
dealerships which are collateralized by Loan and Lease Contracts of the Dealers,
totalling approximately $18,106,000 at December 31, 1995. The Company services
Contracts amounting to $7,783,000 for two of the dealerships. These advances
bear interest at fixed rates, or at variable rates subject to certain minimum
percentages. The duration of these advances is determined by the duration of the
related collateralized Loan and Lease Contracts.
At December 31, 1995, contractual maturities of Contracts are as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 THEREAFTER TOTAL
----------- ----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Direct finance Lease
Contracts............. $ 2,292,832 $ 7,172,485 $ 8,426,841 $ 6,305,136 $1,329,848 $ 5,310 $25,532,452
Loan Contracts.......... 10,207,017 11,795,493 12,254,748 8,805,294 3,185,518 58,430 46,306,500
Advances to Dealers..... 4,867,676 3,446,671 3,423,349 1,428,079 286,612 7,067 13,459,454
----------- ----------- ----------- ----------- ---------- ---------- -----------
$17,367,525 $22,414,649 $24,104,938 $16,538,509 $4,801,978 $ 70,807 $85,298,406
----------- ----------- ----------- ----------- ---------- ---------- -----------
----------- ----------- ----------- ----------- ---------- ---------- -----------
</TABLE>
It is the Company's experience that generally a portion of the portfolios
are repaid before the contractual maturity dates. Accordingly, the above
tabulation is not to be regarded as a forecast of the timing of future cash
collections. Additionally, this tabulation assumes liquidation of the residual
values upon expiration of the Lease Contracts.
NOTE 4 -- CONSUMER FINANCE CONTRACTS:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Mobile homes...................................... $ 221,434
Equipment leases (net of unearned interest of
$285,730)....................................... 853,637
Other............................................. 1,407,601
------------
Total........................................... 2,482,672
Less: Purchase discount........................... (193,169)
------------
Consumer loans receivable, net.................... $ 2,289,503
------------
------------
</TABLE>
Included in the total above are fully matured loans totaling $270,491 that
were purchased by the Company at a substantial discount and are considered
non-performing at December 31, 1995. The Company has a net investment of
approximately $77,322 in these loans at December 31, 1995.
At December 31, 1995, contractual maturities of consumer finance contracts
were:
<TABLE>
<S> <C>
Fully matured...... $ 270,491
1996............. 711,666
1997............. 474,683
1998............. 396,539
1999............. 255,868
2000............. 101,976
Thereafter....... 271,449
----------
$2,482,672
----------
----------
</TABLE>
F-11
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 4 -- CONSUMER FINANCE CONTRACTS: -- (CONTINUED)
It is the Company's experience that a portion of the portfolio is repaid
before the contractual maturity date. Accordingly, the above tabulation is not
to be regarded as a forecast of the timing of future cash collections.
NOTE 5 -- MORTGAGE FINANCE CONTRACTS:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Residential mortgages................... $2,064,043
Less: Purchase discount................. (258,975)
----------
Mortgage finance contracts, net......... $1,805,068
----------
----------
</TABLE>
Included in the total above are fully matured loans totaling $351,221 that
were purchased by the Company at a substantial discount and are considered
non-performing at December 31, 1995. The Company has a net investment of $92,246
in these loans at December 31, 1995.
At December 31, 1995, contractual maturities of mortgage finance contracts
were:
<TABLE>
<S> <C>
Fully matured...... $ 351,221
1996............. 441,815
1997............. 270,965
1998............. 190,060
1999............. 74,722
2000............. 131,197
Thereafter....... 604,063
----------
$2,064,043
----------
----------
</TABLE>
It is the Company's experience that generally a portion of the portfolio is
repaid before the contractual maturity dates. Accordingly, the above tabulation
is not to be regarded as a forecast of the timing of future cash collections.
These loans are pledged as security for the participations.
F-12
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 6 -- RESERVES AVAILABLE FOR CREDIT LOSSES:
Changes in reserves available for credit losses for the years ended
December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995
---------------------------------------------------- 1994
NON- REFUNDABLE ----------
ALLOWANCE REFUNDABLE DEALER ALLOWANCE
FOR LOSSES DISCOUNT RESERVES TOTAL FOR LOSSES
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period...................... $ 305,000 $ -- $ -- $ 305,000 $ 277,316
Additions:
Provision charged to
income................... 2,762,273 -- -- 2,762,273 572,636
Other additions............. -- 4,159,048 817,122 4,976,170 --
Reductions:
Charge-offs, net of
recoveries............... (2,414,275) (584,767) (162,864) (3,161,906) (544,952)
Release of reserves upon
securitization of Loan
Contracts................ -- (2,061,280) (127,000) (2,188,280) --
Refund of dealer reserve.... -- -- (22,256) (22,256) --
---------- ---------- ---------- ---------- ----------
Balance at end of period...... $ 652,998 $1,513,001 $ 505,002 $2,671,001 $ 305,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The Company allocated approximately $4.2 million to the reserves available
for credit losses during 1995, which represents management's estimate of the
purchase discount on Loan Contracts necessary to absorb future credit losses.
Management periodically reviews the adequacy of the reserves available for
credit losses and considers whether the level of reserve is sufficient to cover
any losses of the carrying value based on the collateral pledged for the
Contracts, an analysis of the equity invested in the collateral by the
borrowers, delinquency data and historical loss experience, and any recourse
arrangements the Company has with Dealers or other sellers of Contracts.
NOTE 7 -- NET INVESTMENT IN OPERATING LEASE CONTRACTS:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
Vehicles held under operating Lease
Contracts, at cost......................... $4,449,451
Less: Accumulated depreciation............... (394,838)
----------
$4,054,613
----------
----------
</TABLE>
At December 31, 1995, future minimum rental revenue on operating Lease
Contracts are as follows:
<TABLE>
<S> <C>
1996.... $1,078,762
1997.... 937,021
1998.... 430,164
1999.... 24,876
----------
$2,470,823
----------
----------
</TABLE>
F-13
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 8 -- PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1995 consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C> <C>
Furniture, fixtures, and office
equipment............................. $2,158,928 5-7 years
Less: Accumulated depreciation.......... (356,039)
----------
$1,802,889
----------
----------
</TABLE>
The Company leases office space under agreements which expire December 31,
2002.
The future minimum non-cancelable lease payments are as follows:
<TABLE>
<S> <C>
1996......... $ 598,872
1997......... 617,570
1998......... 644,583
1999......... 672,408
2000......... 701,095
Thereafter... 1,019,322
----------
$4,253,850
----------
----------
</TABLE>
NOTE 9 -- EXCESS SERVICING RECEIVABLE:
The Company's excess servicing receivable at December 31, 1995 consists of
the following:
<TABLE>
<S> <C>
Servicing cash flows on Loan Contracts sold, net
of estimated prepayments........................ $9,607,000
Less:
Discount to present value.................... (834,000)
Reserve for loan losses...................... (1,705,000)
Deferred servicing income.................... (2,069,000)
----------
Excess servicing receivable....................... $4,999,000
----------
----------
</TABLE>
NOTE 10 -- DEBT PARTICIPATION INTERESTS:
Debt participation interests at December 31, 1995 consists of the
following:
<TABLE>
<S> <C>
Participation with Fairfax Savings, a Federal Savings Bank
('Fairfax'), interest at fixed rates ranging from 10% to 13.5%;
principal and interest due monthly, secured by undivided
interest in automobile finance contracts, consumer finance
contracts, and mortgage finance contracts...................... $41,845,372
Participations with investors, secured by undivided interest in
automobile finance contracts, consumer finance contracts and
mortgage finance contracts; interest at a fixed rate of 18%.... 470,432
Participations with a stockholder, secured by undivided interest
in certain automobile finance contracts and mortgage finance
contracts; interest at fixed rates of 11.5%-18%................ 64,718
-----------
$42,380,522
-----------
-----------
</TABLE>
F-14
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 10 -- DEBT PARTICIPATION INTERESTS: -- (CONTINUED)
In general, under the terms of the participation agreements, principal
payments on the agreements are tied to the payments received from the Contracts
which secure the borrowings. Interest is due monthly. Proceeds received from
contracts financed by Fairfax are first paid to Fairfax to the extent of any
unpaid principal and interest due on participations. Thereafter, proceeds are
allocated to a reserve account until certain balances are achieved and the
remainder is paid to the Company.
Under the Company's participation agreements, collections received from
Contracts securing the participations are deposited into restricted, trust bank
accounts pending distributions to participation holders. Distributions generally
are disbursed to participants once each month for the previous month's
collections.
The Company services the Loan and Lease Contracts collateralizing the
participation arrangements, including payment collection and posting, contact
with customers, and repossession and disposal of collateral on defaulted
Contracts.
Scheduled maturities of debt participation interests at December 31, 1995
are as follows:
<TABLE>
<S> <C>
1996......... $11,971,194
1997......... 10,532,585
1998......... 10,832,758
1999......... 6,699,261
2000......... 2,127,517
Thereafter... 217,207
-----------
$42,380,522
-----------
-----------
</TABLE>
NOTE 11 -- CREDIT AND WAREHOUSE FACILITIES:
Credit and warehouse facilities at December 31, 1995 consists of the
following:
<TABLE>
<S> <C>
Note payable under a $25 million automobile loan and lease
financing facility, interest due monthly at 5.5% over LIBOR
established and fixed at time of funding (weighted average rate
of 9.3% at December 31, 1995) with General Electric Capital
Corporation, secured by certain automobile finance contracts... $21,844,149
Note payable under a $50 million repurchase financing facility
with Greenwich Capital secured by automobile finance contracts.
Interest due monthly at 2.25% over LIBOR (weighted average rate
of 8.1% at December 31, 1995).................................. 11,584,797
Note payable under a $20 million restricted financing facility
with Congress Financial Corporation, interest due monthly at 2%
over prime rate (10.75% at December 31, 1995), secured by
automobile finance contracts, consumer finance contracts, and
mortgage finance contracts..................................... --
-----------
$33,428,946
-----------
-----------
</TABLE>
The repurchase facility is used to warehouse Loan Contracts pending
securitization. Under the terms of the repurchase facility, the Company
has agreed to engage the lender as investment underwriter on these
securitization transactions until such time that the Company has securitized a
cumulative $250 million in Loan Contracts.
F-15
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 11 -- CREDIT AND WAREHOUSE FACILITIES: -- (CONTINUED)
Scheduled maturities of credit and warehouse facilities at December 31,
1995 are as follows:
<TABLE>
<S> <C>
Upon securitization.... $11,584,797
1996................... 5,071,529
1997................... 5,459,096
1998................... 6,081,862
1999................... 4,441,201
2000................... 765,133
Thereafter............. 25,328
-----------
$33,428,946
-----------
-----------
</TABLE>
Since the repayment of the above debt is directly related to the timing of
the future cash collections of the related Contracts, the above schedule of
maturities may not be representative of the actual repayments. The above
schedule of maturities excludes the balances held in the reserve accounts.
Scheduled maturities under the repurchase financing facility are structured
to coincide with the securitization of the underlying Loan Contracts
collateralizing the facility.
The Company must maintain certain net worth and liquidity ratios based on
covenants within its debt agreements.
NOTE 12 -- CONVERTIBLE SUBORDINATED DEBT:
Convertible subordinated debt at December 31, 1995 consists of the
following:
<TABLE>
<S> <C>
Principal outstanding....................................... $13,065,000
Value assigned to warrants on outstanding debt.............. (140,621)
-----------
Convertible subordinated debt, net.......................... $12,924,379
-----------
-----------
</TABLE>
During 1995, the Company completed the offering and sale in private
placement transactions of 9% Convertible Subordinated Debt (the 'Debentures')
along with detachable common stock purchase warrants. The principal amount and
accrued interest due under the Debentures is convertible into shares of common
stock at the option of the holders at conversion prices ranging from $9.00 to
$12.50. In addition, the Company may redeem the debt together with accrued
interest, at redemption prices ranges from $15 to $25, provided that the stock
price of the Company's common stock trades at the redemption price for twenty
consecutive trading days. Through December 31, 1995, an aggregate of $8,260,000
of Debentures was converted into 930,519 shares of common stock.
Scheduled maturities of convertible subordinated debt at December 31, 1995
are as follows:
<TABLE>
<S> <C>
1996.... $10,065,000
1997.... --
1998.... 3,000,000
-----------
$13,065,000
-----------
-----------
</TABLE>
NOTE 13 -- STOCKHOLDERS' EQUITY:
In October 1993, the president and chief executive officer of the Company,
who is also a stockholder, purchased all outstanding shares not previously owned
by him to give him 95% ownership in the Company. The president of NAC owned the
remaining 5%. In connection with this transaction,
F-16
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 13 -- STOCKHOLDERS' EQUITY: -- (CONTINUED)
the stockholder executed a note in favor of the Company; the note bore interest
at 5% and was due September 30, 1995. In June 1994, the Company redeemed 2,143
shares of its common stock from this stockholder by cancelling the note.
Merger
In accordance with the terms of the Merger, of the 3,160,000 shares of
common stock issued to the Company's stockholders, 400,000 shares issued to
certain directors and officers were placed in a Voting Trust under the terms of
a Voting Trust Agreement. The Voting Trust provides that, on any matter
requiring stockholder vote, the trustee will vote the shares in the same
percentage as the other then issued and outstanding shares of common stock are
voted. Such shares may be released from the Voting Trust pursuant to the
following formula. Based upon the Company's audited financial statements for the
years ending December 31, 1995, 1996, and 1997, 10,000 shares will be released
for each $150,000 of cumulative net income after taxes the Company earns up to
$3,000,000, and 5,000 shares will be released for each $150,000 of cumulative
net income after taxes in excess of $3,000,000, less the number of shares
previously released under this formula. Any shares not released within three
years will be cancelled. Originally, the Company intended to account for the
release of all shares held in the Voting Trust as compensation expense. In 1995,
the Company reassessed the accounting for shares after further consideration of
the relevant facts and circumstances and has determined that the release of
340,000 of the 400,000 shares placed into the Voting Trust will be considered
additional consideration of the Merger and not result in compensation expense.
The remaining 60,000 shares will still be considered compensatory in nature
resulting in a charge to earnings for the fair market value at the date of
release. As of December 31, 1995, 200,000 of the 400,000 shares have been earned
and are eligible for release of which $280,000 has been reflected as a non-cash
charge to operations for the portion of the 60,000 shares eligible for release.
Concurrent with the completion of the Merger, certain stockholders entered
into a Shareholders' Agreement whereby the stockholders agreed, among other
provisions, for the election of eight directors, two of which will be
independent directors. The Shareholders' Agreement also provides certain
limitations on transactions involving the stockholders' shares.
Stock Option Plan
The Company has adopted a 1994 stock option plan (the '1994 Plan') which
covers 600,000 shares of the Company's common stock. Under the terms of the 1994
Plan, officers, directors, key employees and consultants of the Company are
eligible to receive incentive as well as non-qualified stock options and stock
appreciation rights. Incentive stock options granted under the 1994 Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Company's common stock
on the date of the grant. For any stockholder owning more than 10% of the
outstanding common stock, incentive stock options are exercisable for a period
of up to five years from the date of grant at an exercise price which is not
less than 110% of the fair market value of the Company's common stock on the
date of the grant. Non-qualified stock options and stock appreciation rights
('SARs') may be granted on terms determined by the Company's Board of Directors.
SARs give the holder the privilege of surrendering such rights for the
appreciation in the Company's common stock between the time of grant and
surrender.
F-17
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 13 -- STOCKHOLDERS' EQUITY: -- (CONTINUED)
The following table presents activity for the 1994 Plan for the years ended
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
NUMBE OF
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options Outstanding, December 31, 1993... -- --
Options granted.......................... 215,000 $6.00 -- $ 6.60
Options exercised........................ -- --
Options cancelled........................ -- --
---------
Options Outstanding, December 31, 1994... 215,000 $6.00 -- $ 6.60
Options granted.......................... 328,500 $13.25 -- $16.50
Options exercised........................ -- --
Options cancelled........................ -- --
---------
Options Outstanding, December 31, 1995... 543,500 $6.00 -- $16.50
---------
---------
</TABLE>
Aggregate proceeds from the exercise of all options outstanding approximate
$6 million at December 31, 1995. No options were exercisable at December 31,
1995.
Purchase Option
During August 1995, the Company acquired an option to purchase (the
'Purchase Option') the assets of Special Finance, Inc. ('SFI'). SFI is a Florida
based auto finance broker that at December 31, 1995 provided approximately 35%
of the Company's acquired Loan Contracts. The Purchase Option expires August 1,
2000 and gives the Company the right to purchase the business of SFI for the
purchase price of $1,000,000, plus 125,000 shares of the Company's Common Stock
and options to purchase 65,000 shares of Common Stock at $6.00 per share. A
Purchase Option price of $250,000 paid to SFI on August 1, 1995 is to be
credited against the purchase price.
In the event the Company decides to exercise the Purchase Option, the
Company has agreed to register the shares of Common Stock to be distributed in
the transaction, and pending such registration, the Company has agreed to lend
up to $900,000 to the sole stockholder of SFI at then prevailing market rates of
interest, with such loan being secured by a security interest in up to 120,000
shares until such time as the shares are registered.
Management is currently evaluating the economic benefits of exercising the
Purchase Option and to date, has made no determination on the likelihood of
whether or when such a purchase may occur, if at all. In the interim, the
Purchase Option provides the Company with a right of first refusal to purchase
all of the Loan Contracts acquired or originated by SFI.
Stock Purchase Warrants
The Company has issued detachable stock purchase warrants (the 'warrants')
in connection with the private placement of convertible subordinated debt. At
December 31, 1995, the Company had 1,961,125 in warrants outstanding at exercise
prices ranging from $9 to $15. The warrants contain features that permit
redemption at $.001 per warrant based on the average trading prices of the
Company's common stock.
F-18
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 14 -- INCOME TAXES:
The components of the provision for income taxes for the years ended
December 31, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Current tax expense:
Federal.......................... $ 360,243 $231,591
State............................ 72,951 43,981
---------- --------
433,194 275,572
---------- --------
Deferred tax expense (benefit):
Federal.......................... 1,349,092 (10,390)
State............................ 144,035 (1,839)
---------- --------
1,493,127 (12,229)
---------- --------
Total provision for income taxes... $1,926,321 $263,343
---------- --------
---------- --------
</TABLE>
The income tax provision differs from the amount determined by multiplying
pre-tax income by the statutory federal income tax rate. The reconciliation
between the expected tax provision and the actual tax provision for the years
ended December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Income taxes at statutory rate..... $1,653,185 $223,606
State taxes........................ 141,721 27,814
Other.............................. 131,415 11,923
---------- --------
Provision for income taxes......... $1,926,321 $263,343
---------- --------
---------- --------
</TABLE>
The net deferred income tax liability as of December 31, 1995 is comprised
of the following temporary differences:
<TABLE>
<S> <C>
Deductible Temporary Differences
Depreciation................................. $ 5,850,659
Bad debt reserves............................ 362,441
Other........................................ --
-----------
Deferred income tax asset.................... 6,213,100
-----------
Taxable Temporary Differences
Direct financing Lease Contracts............. (6,685,591)
Book over tax gain on sale of contracts...... (1,131,096)
Capitalized loan costs....................... --
-----------
Deferred income tax liability................ (7,816,687)
-----------
Net deferred income tax liability............ $(1,603,587)
-----------
-----------
</TABLE>
NOTE 15 -- RELATED PARTY TRANSACTIONS:
In October 1994, the Company sold a repossessed boat to an officer of the
Company in consideration for a note in the amount of $89,000 and the offset by
the Company of $21,000 payable to the officer. The note bore interest at an
annual rate of 10% and was repaid in 1995.
On November 30, 1994, the Company sold a portfolio of 14 loans with a total
principal balance of $1.1 million to the president and chief executive officer
of the Company for a price of $591,000. These loans were included in a portfolio
purchased during 1994 at a significant discount. The portion of the
F-19
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 15 -- RELATED PARTY TRANSACTIONS: -- (CONTINUED)
purchase price allocated to the loans sold approximated the sales price to the
officer; therefore, no gain or loss was recognized on the sale. The Company sold
these loans at a purchase price based on the estimated discounted cash flows
anticipated on the specific loans purchased. This is the same method the Company
uses to value its bulk portfolio acquisitions. The sales price of the loans
reduced a previously established liability owed by the Company to the officer
for bonuses and dividends. The Company continues to service the loans for the
officer.
An affiliate provided executive and financial services to the Company
during 1994. The Company reimbursed the affiliate $675,000 for these services
under a consulting agreement. The consulting agreement includes providing advice
on the purchase and sale of consumer loan and lease portfolios and financing
arrangements. Under the terms of the agreement, the Company pays the affiliate a
fee of $50,000 per month through March 1995. During 1994, the Company prepaid
the remaining amounts due under the contract at a $75,000 discount.
Upon completion of the Merger, the Company entered into an employment
agreement (the 'Agreement') with the president and chief executive officer of
the Company. The Agreement provides for a base salary of $275,000 per year plus
discretionary bonuses, as approved by the Board of Directors, in addition to
certain benefits. The Agreement is renewable annually for successive three year
periods; however, the president may terminate the Agreement upon written notice
the earlier of one year from the date of such notice or 90 days after his
replacement has been hired by the Company. The president may not terminate the
Agreement prior to three years from the date of the Agreement. During 1995, the
Board of Directors approved an increase in base salary to $300,000 per year.
At December 31, 1995, the Company had a stockholder loan payable in the
amount of $2,919,000, interest at 9%, which is due on March 31, 1996. However,
this loan may be extended at the discretion of the chief executive officer for
30 day periods.
NOTE 16 -- EMPLOYEE BENEFITS:
The Company sponsors a 401(k) savings plan covering most employees.
Contributions made by the Company to the 401(k) plan are based on a specified
percentage of employee contributions. Total Company contributions were $48,355
and $22,787 for the years ended December 31, 1995 and 1994, respectively.
NOTE 17 -- LITIGATION:
The Company is involved in various litigation matters arising in the normal
course of business. Legal counsel's and management's assessment are that none of
these matters are anticipated to have a material adverse impact on the financial
position or results of operations of the Company.
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value. Fair value estimates are made at a specific point in time using
estimates of rates of return that the Company believes would be required by
independent third party investors. Accordingly, these estimates may not be
indicative of rates that would be required if actual sales had taken place.
F-20
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS: -- (CONTINUED)
Finance Receivables
The fair value of finance receivables is computed by using estimated market
rates of return desired by bulk purchasers.
Excess Servicing Receivable
Excess servicing cash flows over the estimated remaining life of the Loan
Contracts have been calculated using estimates for prepayments, losses and
weighted average discount rates, which the Company expects market participants
would use for similar instruments. Accordingly, the carrying amount approximates
the fair value.
Debt Participation Interests; Credit and Warehouse Facilities
The fair value of existing debt is computed based on rates currently
available to the Company for debt with similar terms and maturities.
Other Financial Liabilities
The fair value of other financial liabilities closely approximates carrying
amount.
The estimated fair values of the Company's financial instruments at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial Assets:
Cash......................................... $ 920,981 $ 920,981
Restricted cash.............................. 1,031,734 1,031,734
Finance receivables:
Automobile finance contracts............... 97,119,635 97,323,178
Consumer finance contracts................. 2,289,503 2,383,365
Mortgage finance contracts................. 1,805,068 1,981,481
Excess servicing receivable.................. 4,999,165 4,999,165
------------ ------------
Total................................... $108,166,086 $108,639,904
------------ ------------
------------ ------------
Financial Liabilities:
Debt participation interests................. $ 42,380,522 $ 42,305,963
Credit and warehouse facilities.............. 33,428,946 33,017,076
Convertible subordinated debt................ 12,924,379 12,924,379
Stockholder loans............................ 2,919,000 2,919,000
------------ ------------
Total................................... $ 91,652,847 $ 91,166,418
------------ ------------
------------ ------------
</TABLE>
NOTE 19 -- SUBSEQUENT EVENTS:
In January 1996, the Company completed the sale of $2.5 million of
additional subordinated debentures with terms similar to previously issued
convertible subordinated debt.
On March 22, 1996, the Company completed a securitization of Loan Contracts
of approximately $40.8 million.
F-21
<PAGE>
NAL FINANCIAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ 3,090 $ 921
Restricted cash................................. 1,482 1,032
Finance receivables, net........................ 87,739 101,214
Investment in operating Lease Contracts......... 8,905 4,055
Automobile inventory............................ 2,384 1,886
Excess servicing receivable..................... 22,898 4,999
Premises and equipment, net..................... 2,685 1,803
Accrued interest receivable..................... 2,875 1,460
Debt issue costs................................ 2,336 857
Goodwill........................................ 3,671 --
Other assets.................................... 6,768 3,808
--------- ---------
TOTAL ASSETS $ 144,833 $ 122,035
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Credit and warehouse facilities................. $ 49,191 $ 33,429
Debt participation interests.................... 21,682 42,380
Convertible subordinated debt................... 25,843 12,924
Accounts payable and accrued expenses........... 2,233 1,047
Income taxes payable............................ 4,713 1,604
Stockholder loan................................ -- 2,919
Other liabilities............................... 3,913 3,872
--------- ---------
TOTAL LIABILITIES 107,575 98,175
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred Stock - $1,000 par value:
10,000,000 shares authorized, no shares
issued
Common Stock - $.15 par value:
50,000,000 shares authorized, 7,252,935
shares outstanding at September 30, 1996
and 6,699,987 shares outstanding at
December 31, 1995.......................... 1,088 1,005
Paid in capital................................. 25,698 18,525
Retained earnings............................... 10,472 4,330
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 37,258 23,860
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 144,833 $ 122,035
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
NAL FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
------- -------
<S> <C> <C>
INTEREST INCOME:
Finance charges and discount accretion............... $17,154 $10,999
Interest expense..................................... (8,218) (4,636)
------- -------
Net interest income............................... 8,936 6,363
Provision for credit losses.......................... (2,801) (1,412)
------- -------
Net interest income after provision
for credit losses.............................. 6,135 4,951
------- -------
OTHER INCOME:
Gain on sale of contracts............................ 13,427 128
Fees and other....................................... 4,670 1,241
------- -------
Total other income............................. 18,097 1,369
------- -------
OTHER EXPENSES:
Salaries and employee benefits....................... 6,060 1,373
Depreciation and amortization........................ 1,250 691
Occupancy expense.................................... 773 289
Professional services................................ 1,401 488
Other operating expense.............................. 4,360 1,673
Non cash charge for the release of
escrow shares..................................... 301 80
------- -------
Total other expenses........................... 14,145 4,594
------- -------
Income before income taxes........................... 10,087 1,726
Provision for income taxes........................... (3,945) (656)
------- -------
NET INCOME............................................. $ 6,142 $ 1,070
------- -------
------- -------
Primary Earnings Per Share:
Net income available to common and common
equivalent shares.................................... $ 6,900 $ 1,070
Weighted average number of common and
common equivalent shares............................. 8,484 5,875
Net income per share................................... $ 0.81 $ 0.18
Fully Diluted Earnings Per Share:
Net income available to common and common
equivalent shares.................................... $ 7,827 $ 1,070
Weighted average number of common and
common equivalent shares............................. 10,369 6,013
Net income per share................................... $ 0.75 $ 0.18
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
NAL FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income........................................... $ 6,142 $ 1,070
Adjustments to reconcile net income to net
cash provided by operations:
Accretion of discount.......................... -- (599)
Provision for credit losses.................... 2,801 1,412
Depreciation and amortization.................. 3,101 691
Gain on sale of loan pools..................... (13,427) (128)
Non-cash charge - escrow shares................ 301 80
Return of excess servicing cashflows........... 1,949 --
Changes in assets and liabilities:
Other, net..................................... (760) 362
-------- --------
Net cash provided by operating activities:............. 107 2,888
-------- --------
Cash flows from investing activities:
Purchase of receivables........................... (197,445) (108,876)
Payments received on receivables.................. 42,427 31,788
Purchase of property and equipment................ (1,066) (689)
Proceeds from sale of loan pools.................. -- 1,623
Purchase of Special Finance, Inc.................. (750) (250)
-------- --------
Net cash used in investing activities:................. (156,834) (76,404)
-------- --------
Cash flows from financing activities:
Net proceeds from financings...................... 196,152 111,094
Repayments of financings.......................... (201,088) (40,662)
(Repayments) proceeds of stockholder loan......... (2,919) 791
Net proceeds from securitization of Loan
Contracts....................................... 149,251 --
Proceeds from subordinated debentures............. 17,500 --
Issuance of common stock.......................... -- 2,101
-------- --------
Net cash provided by financing activities:............. 158,896 73,324
-------- --------
Net increase (decrease) in cash and cash equivalents... 2,169 (192)
Cash and cash equivalents, beginning of period 921 665
-------- --------
Cash and cash equivalents, end of period............... $ 3,090 $ 473
-------- --------
-------- --------
Supplemental disclosures of cash flows information:
Cash paid during the period for interest............... $ 4,724 $ 3,965
-------- --------
-------- --------
Cash paid during the period for taxes.................. $ 1,465 $ 346
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION:
The interim financial information of NAL Financial Group Inc. (the
'Company'), which is included herein, is unaudited and has been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. In the opinion of
management, these interim financial statements include all the adjustments
necessary to fairly present the results of the interim periods and all such
adjustments which are of a normal recurring nature. The interim financial
statements presented herein include the accounts of the Company and its
wholly-owned subsidiaries and should be read in conjunction with the audited
financial statements, and the footnotes thereto, for the year ended December 31,
1995. Certain 1995 amounts have been reclassified to conform with the current
year presentation.
Operating results for the nine month period ended September 30, 1996 are
not necessarily indicative of the results which may be expected for the year
ending December 31, 1996.
NOTE 2 -- FINANCE RECEIVABLES:
Finance receivables as of September 30, 1996 and December 31, 1995 consist
of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Automobile finance contracts
Gross contracts receivable...................... $ 97,454 $ 106,983
Less: Unearned interest...................... (8,154) (7,069)
Deferred acquisition fees............... (382) (123)
-------- ---------
88,918 99,791
-------- ---------
Consumer contracts receivable
Gross contracts receivable...................... 2,056 2,768
Less: Unearned interest...................... (160) (286)
Purchase discount....................... (102) (193)
-------- ---------
1,794 2,289
-------- ---------
Mortgage loans receivable
Gross loans receivable.......................... 1,559 2,064
Less: Purchase discount...................... (285) (259)
-------- ---------
1,274 1,805
-------- ---------
Total finance receivables......................... 91,986 103,885
Reserve available for credit losses............... (4,247) (2,671)
-------- ---------
Total finance receivables, net.................... $ 87,739 $ 101,214
-------- ---------
-------- ---------
</TABLE>
The reserve available for credit losses consists of an allowance for losses
established through a provision from earnings, non-refundable purchase discount
on Loan Contracts purchased from Dealers, and refundable reserves such as dealer
holdback. Purchase discount represents the differential, if any, between the
amount financed on a Loan Contract and the price paid by the Company to acquire
the Loan Contract, net of any acquisition costs. Any discount on Loan Contracts
which management considers necessary to absorb future credit losses is allocated
to the reserve available for credit losses. The remaining portion of the
discount, if any, is recognized as interest income over the life of the Loan
Contracts.
F-25
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- EXCESS SERVICING RECEIVABLE:
Excess servicing receivable results from the sale of Loan Contracts on
which the Company retains servicing rights and a portion of the excess cash
flows. Excess servicing receivable is determined by computing the difference
between the weighted average yield of the Loan Contracts sold and the yield to
the purchaser of the asset-backed security, adjusted for the contractual
servicing fee based on the agreements between the Company and the purchaser. The
resulting differential is recorded as a gain in the year of the sale equal to
the present value of the estimated future cash flows, net of any portion of the
excess that may be due to the purchaser and adjusted for anticipated
prepayments, repossessions, liquidations and other losses. The excess servicing
cash flows over the estimated remaining life of the Loan Contracts have been
calculated using estimates for prepayments, losses (charge-offs) and weighted
average discount rates, which the Company expects market participants would use
for similar instruments. The Company updates its cash flows on a quarterly basis
using actual rates of prepayments and losses to assess the remaining value of
the excess servicing receivable in the aggregate.
NOTE 4 -- VOTING TRUST AGREEMENT:
On November 30, 1994, the Company became publicly held by virtue of the
Merger with an existing, yet inactive, public company. Of the 3,160,000 shares
of the Company's common stock received by certain stockholders in conjunction
with the Merger, 400,000 shares were placed into the Voting Trust Agreement by
which shares may be released on an annual basis pursuant to a formula tied to
net income earned by the Company. Any shares not released from the Voting Trust
Agreement at the end of three years will be canceled.
Management has evaluated the accounting treatment relating to the potential
release of the shares under the Voting Trust Agreement using recent accounting
guidance and the relevant facts and circumstances, and has determined that the
potential release of approximately 340,000 shares of the total amount of shares
held under the Voting Trust Agreement is not compensatory. The potential release
of the remaining approximately 60,000 shares is considered compensatory based on
the relevant facts and circumstances and, accordingly, an expense has been
reflected for financial reporting purposes as these shares became eligible for
release. This expense was a non-cash charge and did not affect working capital
or total stockholders' equity.
Compensation expense of $301,000 and $80,000 has been recorded for the nine
months ended September 30, 1996 and 1995, respectively, for the portion of the
60,000 shares that has become eligible for release under the Voting Trust
Agreement. As of September 30, 1996, all of the 400,000 shares under the Voting
Trust Agreement have become eligible for release.
NOTE 5 -- BUSINESS COMBINATION:
As of June 28, 1996, the Company purchased certain assets of SFI, a Florida
based automobile finance company pursuant to a Purchase Option for a purchase
price of $1 million, plus 125,000 shares of the Company's Common Stock and
options to purchase 65,000 shares of Common Stock at an exercise price of $6.00
per share. A Purchase Option price of $250,000 paid to SFI on August 1, 1995 was
credited against the purchase price. As a result of this purchase, the Company
recorded goodwill in the amount of $3.8 million.
NOTE 6 -- RECENT ACCOUNTING PRONOUNCEMENTS:
In October 1995, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 123 ('SFAS No. 123'),
'Accounting for Stock-Based Compensation.' SFAS No. 123 establishes financial
accounting and reporting standards for stock-
F-26
<PAGE>
NAL FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RECENT ACCOUNTING PRONOUNCEMENTS: -- (CONTINUED)
based employee compensation plans. The statement defines a 'fair value based
method' of accounting for employee stock options or similar equity instruments
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, SFAS No. 123 also allows an entity
to continue to measure compensation costs for those plans using the 'intrinsic
value based method' of accounting, which the Company currently uses. The
accounting requirements of SFAS No. 123 are effective for transactions entered
into during fiscal years beginning after December 15, 1995. The disclosure
requirements are effective for financial statements for fiscal years beginning
after December 15, 1995, or for an earlier fiscal year for which SFAS No. 123 is
initially adopted for recognizing compensation cost. Management has determined
that the Company will continue to measure compensation costs using the
'intrinsic value based method' and will disclose the effect on net income and
earnings per share using the 'fair value based method' in the footnotes to the
Company's financial statements upon the adoption of SFAS No. 123.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 ('SFAS No. 125'), 'Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities.' SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on a financial-components approach that
focuses on control. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be prospectively applied. However, a proposal has recently been
developed to defer, for one year, certain provisions of SFAS No. 125. Management
is currently evaluating the impact of adoption of SFAS No. 125 on its financial
position and results of operations.
NOTE 7 -- SUBSEQUENT EVENTS:
On November 8, 1996, the Company filed a Registration Statement on Form
SB-2 (No. 333-15787), as amended on November 22, 1996 by Pre-Effective Amendment
No. 1 to the Registration Statement, with the Securities and Exchange Commission
relating to a proposed public offering of 2,500,000 shares of Common Stock. Net
proceeds of the offering will be used to support growth and for general
corporate purposes, including working capital, future acquisitions, the
repayment of certain advances totaling $2,413,869 to the Chief Executive Officer
and the repayment of short-term indebtedness of $2,000,000. Pending such use,
the net proceeds will be used to repay indebtedness under the Company's
warehouse and other credit facilities.
F-27
<PAGE>
- ----------------------------------------------------------
- ----------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information....................................... 2
Prospectus Summary.......................................... 3
Summary Financial Information............................... 7
Risk Factors................................................ 8
Use of Proceeds............................................. 15
Price Range of Common Stock................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
The Company................................................. 33
Management.................................................. 52
Certain Transactions........................................ 59
Principal Stockholders...................................... 61
Description of Securities................................... 64
Shares Eligible for Future Sale............................. 70
Underwriting................................................ 71
Legal Matters............................................... 72
Statement of Indemnification................................ 72
Experts..................................................... 72
Additional Information...................................... 73
Index to Financial Statements............................... F-1
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
2,500,000 Shares
[LOGO]
NAL FINANCIAL GROUP INC.
Common Stock
------------------------
PROSPECTUS
------------------------
PRUDENTIAL SECURITIES INCORPORATED
PIPER JAFFRAY INC.
SANDS BROTHERS & CO., LTD.
December , 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Company has adopted the provisions of Section 102(b)(7) of the
Delaware General Corporation Law (the "Delaware Act") which eliminate or limit
the personal liability of a director to the Company or its stockholders for
monetary damages for breach of fiduciary duty under certain circumstances.
Furthermore, under Section 145 of the Delaware Act, the Company may indemnify
each of its directors and officers against his expenses (including reasonable
costs, disbursements and counsel fees) in connection with any proceeding
involving such person by reason of his having been an officer or director to the
extent he acted in good faith and in a manner reasonably believed to be in, or
not opposed to, the best interest of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The determination of whether indemnification is proper under the
circumstances, unless made by a court, shall be determined by the Board of
Directors.
Reference is made to Item 28 for the undertakings of the Registrant
with respect to indemnification of liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act").
Item 25. Other Expenses of Issuance and Distribution
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
SEC Registration Fee........................................$ 11,217
Printing and Engraving.......................................125,000
Accountants' Fees and Expenses...............................100,000
Blue Sky Filing Fees and Expenses.............................20,000
NASD Filing Fee................................................4,202
Listing Fees..................................................17,500
Legal Fees and Expenses......................................272,081
Other Offering Expenses......................................200,000
--------
TOTAL....................$750,000
========
Item 26. Recent Sales of Unregistered Securities
1. In December 1993, the Company sold 143,333 post-split shares of
Common Stock to Discretionary Investment Trust dated July 7, 1993 in
consideration for the purchase price of $100,000 plus certain valuable services
rendered. This sale was made in reliance on the exemption from registration
requirements provided by Section 4(2) of the Securities Act.
II-1
<PAGE>
2. During October 1994, the Company sold 714,999 shares of Common
Stock, $.15 par value, in private placement transactions exempt from
registration requirements under Section 4(2) of the Securities Act.
Number of Shares
Name of Common Stock Consideration
---- ---------------- -------------
Audley International Investments
Limited 300,000 $48,600
American Maple Leaf Financial 333,333 $19,999
Corporation
Ernest and Kathy Bartlett 19,166 $ 3,105
Kenneth A. Rosen 43,334 $ 7,020
SPH Investments
P/S Plan f/b/o Stephen P. Harrington 19,166 $ 3,105
3. During November and December 1994, the Company sold 1,549,667 shares
of Common Stock, $.15 par value, to accredited and sophisticated investors in a
private placement transaction exempt from registration pursuant to Rule 506 of
Regulation D. In connection with this transaction, brokerage commissions of
$539,370 (6.5%) were paid. The following individuals purchased shares at $6.00:
Number of Shares
Name of Common Stock
---- ----------------
Allen, Alvin 10,000
Alperin, David 3,375
Alperin, Judith 2,500
Alu, James M. 9,000
Angiuli, Nick 154,696
Apothaker, Jonathan 875
Beckerman, Sam 3,500
Bellino, Michael/Supnick, Richard 2,500
Steven R. Blecker TTEE for Athanacia Bell Trust 4,000
Steven R. Blecker TTEE for Elizabeth Bell Trust 4,000
Block, Charles 2,500
Borenstein, Howard 2,500
Brennan, Quinn 3,375
The Bridge Fund 8,500
Brown Valet, Inc. 5,250
Button, Richard 7,000
Buck, Paul 5,000
Cantor, Michael 30,000
Chaiken, Carl 875
Cohen, Bernard 6,000
Cohen, Susan 2,500
Colon, Jose F. 13,000
Costa, Neil and Ahrens, Lynne JTWROS 14,500
Cox, J. Douglas 3,500
Cox, Kathryn Retirement Trust 3,500
Diamond Import Group 3,500
II-2
<PAGE>
Diversified Securities Fund I, L.P. 3,500
Eugene M. Eisner MD PA Pension Trust 5,000
Fabrikant, Martin 2,500
Feldman, Joel & Shirley, JTWROS 1,750
Flam, Robert M. 5,000
Foreman, Michael 3,000
Frankel, Richard 10,000
Garnick, Michael 100,000
Garnick, Richard 1,250
Gates, Andrew and Gloria 1,750
Genack, Menachem 875
GiroCredit Bank (Switzerland) A.G. 17,500
Goldberg, Paul 3,500
Goldberg, Robert Theodore 3,500
Goldberg, Sheldon E. & Toni A. 2,500
GOP Partners 17,000
Henderson, Marilyn 7,000
Hess, Julie 5,000
Hollander, Bernard 3,500
Interbanc Mortgage Services, Inc. 33,000
Jackenthal, Herb 875
Jeddi Limited 25,000
Joseph, Gerson 5,000
Josephart, Herbert Employee Defined 5,000
Benefit Pension Plan dtd 1/1/91
Herbert and Marcia Josephart TTEES
JRJ, Inc. 13,000
Kaplan, Charles 875
Kaplan, Susan 2,500
Karp, Florence c/f Penelope Karp and Athena Karp 12,500
Kaufman, Richard and Adrienne JTWROS 1,500
Lambert, Terrence 2,500
Lilly, Richard M. 2,000
Linsker, Rita 3,500
Love, Douglas 5,000
Lucas, Russell 2,500
Luongo, Michael 875
Manheimer, Marvin 2,500
Marks, Mitchell 12,500
Masucci, Robert N., II 875
McCabe, William Dennis III 2,500
Miller, Alan I. 50,000
Miller, Marc 5,000
Moorman, Jeffrey 3,500
Moriuchi, Takashi B. 875
Morgenstern, Richard 4,000
Mousaieff, Yoram 7,000
MRS Investments 37,500
Najmy, Joseph 3,500
Nedwick, Robert & Barbara JTWROS 6,000
Pacht, Harvey & Joan 3,500
Prevor Marketing International Inc. 4,000
Rabin, Jeffrey 50,000
Rachenbach, Jack L. 3,500
Rauseo, Mark 2,500
Rehcam Investments, LP 4,500
Rehcam Investments, NV 4,500
Reiff, Geraldine ttee, Carol Reiff Gottlieb 5,000
Co-ttee f/b/o Geraldine Reiff UAD 1/2/91
Rice, Howard T. Revocable Trust 3/10/76 3,500
Howard T. Rice TTEE
II-3
<PAGE>
Rice, Irving & Elaine, JTWROS 3,500
Rogoff, Ellen 1,750
Rogoff, Les 7,000
Rosen, Joseph 3,334
Rosen, Kenneth A. 16,666
Rosen, Kenneth A. Pension Plan 20,000
Rosner, Anita 2,500
Sato, Ken 4,500
Schoenbaum, Jeff 10,000
Schnell, David 5,000
Schraub, Howard 10,658
Scinicariello, M. 3,500
Serota, Marvin & Marsha 3,500
SGA Trading Corp. 4,000
Shapiro, Allan 10,000
Shotz, Steven & Barbara 3,500
Shrem, Bella 7,000
Sibco Partners 3,500
Silverman, Eugene 7,000
Slovin, Gilbert 438
Slovin, Joel 875
Smolen, Eric 6,000
Sorrentino, Andrew 5,250
Staller, Jerome 15,000
Stanley, Michael 5,000
Strassberg, David 5,000
Tupper, Ronald W. 25,000
Van Brunt, Dwight S. 5,000
Ward, Dean 4,250
Wray, Paul & Herron, Diane JTWROS 16,000
Yanni, Louis 2,500
The following individuals purchased shares at $4.00:
Jeffrey I. Binder
& Rosalie Binder 250,000
George A. Levin
& Gayla Sue Levin 250,000
II-4
<PAGE>
4. As of November 30, 1994, the Company issued a total of 3,160,000
shares of Common Stock, $.15 par value, to the stockholders set forth in the
table below in consideration for the exchange of 100% of the stock of NAL
Financial Group Inc., a Florida corporation.
Shares of
Name Common Stock
- ---- ------------
Edward M. Bartolini 50,000
Marcia G. Bartolini and Robert R. Bartolini as co-trustees of
the Marcia G. Bartolini Revocable Trust dated July 27, 1992 264,022
Robert R. Bartolini and Marcia G. Bartolini as co-trustees of
the Robert R. Bartolini Revocable Trust dated July 27, 1992 2,212,180
Robert J. Carlson 60,196
George Schnabel as trustee of the Robert R. Bartolini and
Marcia G. Bartolini Irrevocable Trust dated July 27, 1992 264,022
John T. Schaeffer 309,580
The issuance of such shares was made in reliance on the exemption from
registration requirements provided by Section 4(2) of the Securities Act.
5. During the period from April 1995 through January 1996, the Company
sold $23,825,000 of 9% Convertible Subordinated Debenture Units in a private
placement transaction exempt from the registration requirements under Section
506 of Regulation D and Section 4(2) of the Securities Act, as set forth below.
Each Unit consists of a 9% Convertible Subordinated Debenture and common stock
purchase warrants as set forth below. In connection with this transaction,
brokerage commissions of $1,229,000 were paid.
Amount of Number of
Name Debenture Warrants
---- --------- ---------
American Maple Leaf $1,200,000 120,000
Financial Corporation
Gerald Appel $25,000 1,250
Myles Bass $925,000 64,750
$575,000 40,250
S. Beckerman $100,000 4,500
R. Button $100,000 4,500
Capital Growth Investment $50,000 5,000
Trust
Centaur Financial Corp. $100,000 10,000
Doug Cox $125,000 5,625
K. Cox $100,000 4,500
Discretionary Investment $900,000 90,000
Trust dated July 7, 1993
Diversified Securities Fund I, L.P. $100,000 5,000
Equity Associates Corp. $50,000 5,000
FAC Enterprises $750,000 75,000
Bruce Ginsburg $250,000 25,000
GRA Investments, Corp. $1,550,000 155,000
II-5
<PAGE>
Michael Garnick $300,000 12,000
Norton Herrick $1,250,000 87,500
HMA Investments, Inc. $600,000 60,000
Profit Sharing f/b/o
Howard Appel
Interbanc Mortgage $200,000 9,000
Florence Karp as c/f $750,000 75,000
Penelope Karp,
Athena Karp,
Justine Karp, and
Ulysses Karp
Florence Karp $5,500,000 550,000
as c/f Penelope and Athena Karp
Provence Holdings $625,000 56,250
Steven B. Rosner $250,000 25,000
Steven B. Rosner $150,000 15,000
Money Purchase Pension Plan
Rozel International $1,750,000 175,000
Holdings Limited $1,300,000 58,500
Martin Solomon $2,000,000 80,000
TGP Associates Limited Partnership $1,000,000 40,000
Westminster Capital, Inc. $1,250,000 87,500
6. During May 1995 and September 1995, the Company issued 190,000
common stock purchase warrants in connection with certain financial advisory
services provided, as follows:
Number of
Name Warrants Date of Grant
---- --------- -------------
American Maple Leaf Financial Corporation 33,000 May 4, 1995
Ernest & Kathy Bartlett 15,000 May 4, 1995
Centaur Financial Corporation 33,000 May 4, 1995
FAC Enterprises, Inc. 50,000 August 28, 1995
25,000 September 14, 1995
34,000 May 4, 1995
7. During August 1995, the Company sold 176,500 shares of Common Stock
in an offshore offering at a purchase price of $12.30 per share, for an
aggregate purchase price of $2,160,000, as set forth below. In connection with
this transaction, brokerage commissions of $70,000 were paid.
Name Shares of Common Stock
---- ----------------------
Everest Capital Investment, Ltd. 78,295
Everest Capital International, Ltd. 98,205
The issuance of such shares was exempt from registration pursuant to Regulation
S promulgated under the Act.
8. Effective as of April 23, 1996, the Company sold to Great American
Reserve Insurance Company and Beneficial Standard Life Insurance Company, as
wholly-owned subsidiaries of Conseco, Inc., $10,000,000 principal amount of 9%
Convertible Subordinated
II-6
<PAGE>
Debentures and issued 515,000 common stock purchase warrants in a private
placement transaction exempt from registration requirements under Section 506 of
Regulation D and Section 4(2) of the Securities Act. In connection with this
transaction, brokerage commissions and investment banking fees of $550,000 and
160,000 common stock purchase warrants were paid.
9. Effective as of September 12, 1996, the Company sold to Convertible
Holdings, Inc. and Merrill Lynch World Income Fund, Inc. $5,000,000 principal
amount of 10% Convertible Subordinated Debentures and issued 62,500 common stock
purchase warrants in a private placement transaction exempt from registration
requirements under Section 506 of Regulation D and Section 4(2) of the
Securities Act. In connection with this transaction, brokerage commissions of
$300,000 were paid.
Item 27. Exhibits
The following Exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
1.1 Form of Underwriting Agreement between the Incorporated by reference to Exhibit 1.1 to
Registrant and Prudential Securities the Registrant's Pre-effective Amendment
Incorporated, Piper Jaffray Inc. and Sands No. 1 to the Registration Statement on Form
Brothers & Co., Ltd. SB-2 filed under the Securities Act on
November 22, 1996, Registration No.
333-15787 ("Pre-effective Amendment No. 1
to the November 1996 Registration
Statement")
- -------------------------------------------------------------------------------------------------------------------
2.1 Merger Agreement between the shareholders Incorporated by reference to Exhibit 2.1 to
of NAL Financial Group Inc., NAL Financial the Registrant's Form 8-K filed under the
Group Inc., and the Registrant dated Exchange Act on December 8, 1994 (the "Form
October 4, 1994 and as amended, November 8-K")
30, 1994
- -------------------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Incorporated by reference to Exhibit 3.1 to
Registrant, as amended December 1, 1994 the Registrant's Registration Statement on
Form SB-2 filed under the Securities Act on
January 31, 1995, Registration No. 33-88966
(the "January 1995 Registration Statement")
- -------------------------------------------------------------------------------------------------------------------
3.2 Certificate of Amendment to Certificate of Incorporated by reference to Exhibit 3.3 to
Incorporation of the Registrant dated May the Registrant's Quarterly Report on Form
31, 1996 10-QSB for the period ended June 30, 1996
("June 1996 10-QSB")
- -------------------------------------------------------------------------------------------------------------------
3.3 Amended and Restated Bylaws of the Incorporated by reference to Exhibit 3.4 to
Registrant dated May 31, 1996 the June 1996 10-QSB
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
4.1 Copy of Specimen Common Stock Certificate Incorporated by reference to Exhibit 4.1 to
the January 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
4.2 Form of 9% Subordinated Convertible Incorporated by reference to Exhibit 4.2 to
Debenture the Registration Statement on Form SB-2,
Registration No. 33-97948, filed on October
25, 1995 (the "October 1995 Registration
Statement")
-------------------------------------------------------------------------------------------------------------------
4.3 Form of Common Stock Incorporated by reference to Exhibit 4.3 to
Purchase Warrant the October 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
4.4 Form of Common Stock Purchase Warrant Incorporated by reference to Exhibit 4.4 of
the October 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
4.5 Securities Purchase Agreement between NAL Incorporated by reference to Exhibit 4.5 to
Financial Group Inc., Beneficial Standard the Registrant's Quarterly Report on Form
Life Insurance Company and Great American 10-QSB for the period ended March 31, 1996
Reserve Insurance Company dated as of ("March 1996 10-QSB")
April 23, 1996
- -------------------------------------------------------------------------------------------------------------------
4.6 9% Subordinated Convertible Debenture in Incorporated by reference to Exhibit 4.12
the principal amount of $5,000,000 payable to the March 1996 10-QSB
to Great American Reserve Insurance Company
- -------------------------------------------------------------------------------------------------------------------
4.7 9% Subordinated Convertible Debenture in Incorporated by reference to Exhibit 4.7 to
the principal amount of $5,000,000 payable the March 1996 10-QSB
to Beneficial Standard Life Insurance
Company
- -------------------------------------------------------------------------------------------------------------------
4.8 Common Stock Purchase Warrant granted to Incorporated by reference to Exhibit 4.8 to
Conseco, Inc. ($12.625) the March 1996 10-QSB
- -------------------------------------------------------------------------------------------------------------------
4.9 Common Stock Purchase Warrant granted to Incorporated by reference to Exhibit 4.9 to
Conseco, Inc. ($14.52) the March 1996 10-QSB
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
4.10 Stockholders' Agreement entered into as of Incorporated by reference to Exhibit 4.10
April 23, 1996 among NAL Financial Group to the March 1996 10-QSB
Inc., Beneficial Standard Life Insurance
Company and Great American Reserve
Insurance Company
- -------------------------------------------------------------------------------------------------------------------
4.11 Registration Rights Agreement between NAL Incorporated by reference to Exhibit 4.11
Financial Group Inc. and Conseco, Inc. to the March 1996 10-QSB
- -------------------------------------------------------------------------------------------------------------------
4.12 Registration Rights Agreement between NAL Incorporated by reference to Exhibit 4.12
Financial Group Inc., Beneficial Standard to the March 1996 10-QSB
Life Insurance Company and Great American
Reserve Life Insurance Company
- -------------------------------------------------------------------------------------------------------------------
4.13 Form of Amended and Restated Registration Incorporated by reference to Exhibit 4.13
Rights Agreement to the June 1996 10-QSB
-------------------------------------------------------------------------------------------------------------------
4.14 Securities Purchase Agreement between NAL Incorporated by reference to Exhibit 4.14
Financial Group Inc. and Merrill Lynch to the Registrant's Quarterly Report on
World Income Fund, Inc. and Convertible Form 10-QSB for the period ended September
Holdings, Inc. dated September 12, 1996 30, 1996 ("September 1996 10-QSB")
- -------------------------------------------------------------------------------------------------------------------
4.15 10% Subordinated Convertible Debenture in Incorporated by reference to Exhibit 4.15
the principal amount of $2,250,000 payable to the September 1996 10-QSB
to Bridge Rope & Co.
- -------------------------------------------------------------------------------------------------------------------
4.16 10% Subordinated Convertible Debenture in Incorporated by reference to Exhibit 4.16
the principal amount of $2,750,000 payable to the September 1996 10-QSB
to Kane & Co.
- -------------------------------------------------------------------------------------------------------------------
4.17 Common Stock Purchase Warrant granted to Incorporated by reference to Exhibit 4.17
Bridge Rope & Co. ($13.92) to the September 1996 10-QSB
- -------------------------------------------------------------------------------------------------------------------
4.18 Common Stock Purchase Warrant granted to Incorporated by reference to Exhibit 4.18
Kane & Co. ($13.92) to the September 1996 10-QSB
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
4.19 Registration Rights Agreement between NAL Incorporated by reference to Exhibit 4.19
Financial Group Inc. and Merrill Lynch to the September 1996 10-QSB
World Income Fund, Inc. and Convertible
Holdings, Inc. dated September 12, 1996
- -------------------------------------------------------------------------------------------------------------------
5.1 Opinion of Buchanan Ingersoll Professional Incorporated by reference to Exhibit 5.1 to
Corporation Pre-effective Amendment No. 1 to the
November 1996 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
9.1 Voting Trust Agreement by and among Incorporated by reference to Exhibit 2.2 to
English, McCaughan & O'Bryan, P.A., John the Form 8-K
T. Schaeffer, Robert J. Carlson and The
Robert R. Bartolini Trust, dated
November 30, 1994
-------------------------------------------------------------------------------------------------------------------
10.1 Loan and Security Agreement between Incorporated by reference to Exhibit 10.2
Congress Financial Corporation and the to the Jahuary 1995 Registration Statement
Registrant dated March 16, 1993
- -------------------------------------------------------------------------------------------------------------------
10.2 Program Agreement between NAL Acceptance Incorporated by reference to Exhibit 10.3
Corporation and General Electric Capital to the October 1995 Registration Statement
Auto Lease, Inc. dated July 1, 1995
- -------------------------------------------------------------------------------------------------------------------
10.3 Amended and Restated Loan and Security Incorporated by reference to Exhibit 10.4
Agreement between General Electric Capital to the January 1995 Registration Statement
Corporation and NAL Acceptance Corporation
dated September 28, 1994
- -------------------------------------------------------------------------------------------------------------------
10.4 Loan Purchase Agreement between Fairfax Incorporated by reference to Exhibit 10.5
Savings Bank and the Registrant dated to the January 1995 Registration Statement
October 6, 1994
- -------------------------------------------------------------------------------------------------------------------
10.5 Participation Agreement between Fairfax Incorporated by reference to Exhibit 10.6
Savings, FSB and NAL Acceptance to the January 1995 Registration Statement
Corporation dated December 14, 1993
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.6 Employment Agreement by and between the Incorporated by reference to Exhibit 10.7
Registrant and Robert R. Bartolini dated to the October 1995 Registration Statement
November 30, 1994
-------------------------------------------------------------------------------------------------------------------
10.7 Lease Agreement by and between NAL Incorporated by reference to Exhibit 10.8
Acceptance Corporation and The to the October 1995 Registration Statement
Northwestern Mutual Life Insurance Company
dated October 2, 1991, as modified by Lease
Modification Agreement #1 dated February 18,
1994 and Lease Modification Agreement #2
dated January 20, 1995
- -------------------------------------------------------------------------------------------------------------------
10.8 Lease Agreement by and between NAL Incorporated by reference to Exhibit 10.9
Acceptance Corporation and The to the October 1995 Registration Statement
Northwestern Mutual Life Insurance Company
dated June 7, 1994 as modified by Lease
Modification Agreement #1 dated June 28,
1994, Lease Modification Agreement #2
dated December 1, 1994 and Lease
Modification Agreement #3 dated January
20, 1995
- -------------------------------------------------------------------------------------------------------------------
10.9 Modification Agreement #4 dated July 1, Incorporated by reference to Exhibit 10.10
1995 to Lease Agreement by and between NAL to the October 1995 Registration Statement
Acceptance Corporation and The
Northwestern Mutual Life Insurance Company
dated June 7, 1994
- -------------------------------------------------------------------------------------------------------------------
10.10 Master Repurchase Agreement between Incorporated by reference to Exhibit 10.13
Greenwich Capital Financial Products, Inc. to the October 1995 Registration Statement
and Autorics, Inc. dated September 5, 1995
- -------------------------------------------------------------------------------------------------------------------
10.11 Option to Purchase Assets of Special Incorporated by reference to Exhibit 10.14
Finance, Inc. dated August 1, 1995 to the October 1995 Registration Statement
-------------------------------------------------------------------------------------------------------------------
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.12 Receivables Purchase Agreement among NAL Incorporated by reference to Exhibit 10.15
Acceptance Corporation, Autorics II, Inc. to Post-effective Amendment No. 1 to the
and Autorics, Inc. dated December 1, 1995 October 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
10.13 Sale and Servicing Agreement among NAL Incorporated by reference to Exhibit 10.16
Auto Trust 1995-1 and Autorics II, Inc., to Post-effective Amendment No. 1 to the
NAL Acceptance Corporation and Bankers October 1995 Registration Statement
Trust Company dated December 1, 1995
- -------------------------------------------------------------------------------------------------------------------
10.14 Indenture between NAL Auto Trust 1995-1 Incorporated by reference to Exhibit 10.17
and Bankers Trust Company dated December to Post-effective Amendment No. 1 to the
1, 1995 October 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
10.15 Administration Agreement among NAL Auto Incorporated by reference to Exhibit 10.18
Trust 1995-1, NAL Acceptance Corporation, to Post-Effective Amendment No. 1 to the
and Bankers Trust Company dated December October 1995 Registration Statement
1, 1995
- -------------------------------------------------------------------------------------------------------------------
10.16 Trust Agreement between Autorics II, Inc. Incorporated by reference to Exhibit 10.19
and Wilmington Trust dated December 1, 1995 to Post-effective Amendment No. 1 to the
October 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
10.17 Certificate Purchase Agreement between Incorporated by reference to Exhibit 10.20
Autorics II, Inc. and NAL Acceptance to Post-effective Amendment No. 1 to the
Corporation dated December 20, 1995 October 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
10.18 Note Purchase Agreement between Autorics Incorporated by reference to Exhibit 10.21
II, Inc. and NAL Acceptance Corporation to Post-effective Amendment No. 1 to the
dated December 20, 1995 October 1995 Registration Statement
- -------------------------------------------------------------------------------------------------------------------
10.19 Receivables Purchase Agreement among NAL Incorporated by reference to Exhibit 10.25
Acceptance Corporation, Autorics, Inc. and to the March 1996 10-QSB
Autorics II, Inc. dated as of March 8, 1996
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.20 Sales and Servicing Agreement among NAL Incorporated by reference to Exhibit 10.26
Auto Trust 1996-1, Autorics II, Inc., NAL to the March 1996 10-QSB
Acceptance Corporation and Bankers Trust
Company dated as of March 8, 1996
- -------------------------------------------------------------------------------------------------------------------
10.21 Indenture between NAL Auto Trust 1996-1 Incorporated by reference to Exhibit 10.27
and Bankers Trust Company dated as of to the March 1996 10-QSB
March 8, 1996
-------------------------------------------------------------------------------------------------------------------
10.22 Trust Agreement between Autorics II, Inc. Incorporated by reference to Exhibit 10.28
and Wilmington Trust Company dated as of to the March 1996 10-QSB
March 8, 1996
- -------------------------------------------------------------------------------------------------------------------
10.23 Administration Agreement among NAL Auto Incorporated by reference to Exhibit
Trust 1996-2, NAL Acceptance Corporation, 10.29 to the June 1996 10-QSB
and Bankers Trust Company dated June 17,
1996
- -------------------------------------------------------------------------------------------------------------------
10.24 Receivables Purchase Agreement among NAL Incorporated by reference to Exhibit 10.30
Acceptance Corporation, Autorics, Inc. and to the June 1996 10-QSB
Autorics II, Inc. dated as of June 17, 1996
- -------------------------------------------------------------------------------------------------------------------
10.25 Sales and Servicing Agreement among NAL Incorporated by reference to Exhibit 10.31
Auto Trust 1996-2, Autorics II, Inc., NAL to the June 1996 10-QSB
Acceptance Corporation and Bankers Trust
Company dated as of June 17, 1996
- -------------------------------------------------------------------------------------------------------------------
10.26 Indenture between NAL Auto Trust 1996-2 Incorporated by reference to Exhibit 10.32
and Bankers Trust Company dated as of June to the June 1996 10-QSB
17, 1996
- -------------------------------------------------------------------------------------------------------------------
10.27 Trust Agreement between Autorics II, Inc. Incorporated by reference to Exhibit 10.33
and Wilmington Trust Company dated as of to the June 1996 10-QSB
June 17, 1996
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.28 Amended and Restated 1994 Stock Option Incorporated by reference to Exhibit 3 to
Plan of the Registrant the Registrant's Proxy Statement filed
under the Exchange Act on May 2, 1996
- -------------------------------------------------------------------------------------------------------------------
10.29 Administration Agreement among NAL Auto Incorporated by reference to Exhibit 10.32
Trust 1996-3, NAL Acceptance Corporation to the September 1996 10-QSB
and Bankers Trust Company dated as of
September 11, 1996
- -------------------------------------------------------------------------------------------------------------------
10.30 Receivables Purchase Agreement among NAL Incorporated by reference to Exhibit 10.33
Acceptance Corporation, Autorics, Inc. and to the September 1996 10-QSB
Autorics II, Inc. dated as of September
11, 1996
-------------------------------------------------------------------------------------------------------------------
10.31 Sale and Servicing Agreement among NAL Incorporated by reference to Exhibit 10.34
Auto Trust 1996-3, Autorics II, Inc., NAL to the September 1996 10-QSB
Acceptance Corporation and Bankers Trust
Company dated as of September 11, 1996
- -------------------------------------------------------------------------------------------------------------------
10.32 Indenture between NAL Auto Trust 1996-3 Incorporated by reference to Exhibit 10.35
and Bankers Trust Company dated as of to the September 1996 10-QSB
September 11, 1996
- -------------------------------------------------------------------------------------------------------------------
10.33 Trust Agreement between Autorics II, Inc. Incorporated by reference to Exhibit 10.36
and Wilmington Trust Company dated as of to the September 1996 10-QSB
September 11, 1996
- -------------------------------------------------------------------------------------------------------------------
10.34 Form of Custody Agreement and Power of Incorporated by reference to Exhibit 10.34
Attorney between each Selling Stockholder, to Pre-effective Amendment No. 1 to the
Robert R. Bartolini as Attorney-in-Fact November 1996 Registration Statement
and Stock Trans, Inc. as Custodian
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.35 Form of Lock-Up Agreement between certain Incorporated by reference to Exhibit 10.35
Debenture holders and certain Warrant to Pre-effective Amendment No. 1 to the
holders and Prudential Securities November 1996 Registration Statement
Incorporated, Piper Jaffray Inc. and Sands
Brothers & Co., Ltd.
- -------------------------------------------------------------------------------------------------------------------
10.36 Directors' 1996 Stock Option Plan of the Filed herewith
Registrant
- -------------------------------------------------------------------------------------------------------------------
10.37 Administration Agreement among NAL Auto Filed herewith
Trust 1996-4, NAL Acceptance Corporation
and Bankers Trust Company dated as of
December 9, 1996
- -------------------------------------------------------------------------------------------------------------------
10.38 Receivables Purchase Agreement among NAL Filed herewith
Acceptance Corporation, Autorics, Inc. and
Autorics II, Inc. dated as of December 9,
1996
- -------------------------------------------------------------------------------------------------------------------
10.39 Sale and Servicing Agreement among NAL Filed herewith
Auto Trust 1996-4, Autorics II, Inc., NAL
Acceptance Corporation and Bankers Trust
Company dated as of December 9, 1996
-------------------------------------------------------------------------------------------------------------------
10.40 Indenture between NAL Auto Trust 1996-4 Filed herewith
and Bankers Trust Company dated as of
December 9, 1996
- -------------------------------------------------------------------------------------------------------------------
10.41 Trust Agreement between Autorics II, Inc. Filed herewith
and Wilmington Trust Company dated as of
December 9, 1996
- -------------------------------------------------------------------------------------------------------------------
11 Statement re: computation of Incorporated by reference to
per share earnings Exhibit 11 to the September 1996 10-QSB
- -------------------------------------------------------------------------------------------------------------------
21 Subsidiaries of the Registrant Incorporated by reference to Exhibit 21 to
the November 1996 Registration Statement.
- -------------------------------------------------------------------------------------------------------------------
23.1 Consent to Buchanan Ingersoll Included within Exhibit 5.1 hereto
Professional Corporation
- -------------------------------------------------------------------------------------------------------------------
23.2 Consent of Price Waterhouse LLP Filed herewith
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
1. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
II-15
<PAGE>
Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in a
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
2. For determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
3. For determining any liability under the Securities Act, the
Registrant will treat each post-effective amendment that contains a form of
prospectus as a new registration statement for
II-16
<PAGE>
the securities offered in the Registration Statement, and that offering of
securities at that time as the initial bona fide offering of those securities.
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has duly caused this Pre-effective
Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 to be
signed on its behalf by the undersigned, thereunto authorized on December 20,
1996.
NAL FINANCIAL GROUP INC.
By: /s/ Robert R. Bartolini
-------------------------------
Robert R. Bartolini
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below under the heading "Signatures" constitutes and appoints ROBERT R.
BARTOLINI his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any or all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 2 to the Registrant's Registration Statement on Form
SB-2 was signed by the following persons in the capacities and on the dates
stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert R. Bartolini Chairman of the Board, December 20, 1996
- -------------------------------------- President and Chief Executive
Robert R. Bartolini Officer (Principal Executive
Officer)
* Vice President (Principal December 20, 1996
- -------------------------------------- Accounting Officer)
Robert J. Carlson
II-18
<PAGE>
* Director December 20, 1996
- --------------------------------------
John T. Schaeffer
* Director December 20, 1996
- --------------------------------------
Ngaire E. Cuneo
* Director December 20, 1996
- --------------------------------------
James F. DeVoe
* Director December 20, 1996
- --------------------------------------
David R. Jones
*By: /s/ Robert R. Bartolini
- -------------------------------------
Robert R. Bartolini
Attorney-in-Fact
</TABLE>
II-19
<PAGE>
Registration No. 333-15787
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
EXHIBITS
Filed with PRE-EFFECTIVE
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
NAL FINANCIAL GROUP INC.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ---------- ----------- ----
10.36 Directors' 1996 Stock Option Plan of the Registrant
10.37 Administration Agreement among NAL Auto Trust 1996-4,
NAL Acceptance Corporation and Bankers Trust Company
dated as of December 9, 1996
10.38 Receivables Purchase Agreement among NAL Acceptance
Corporation, Autorics, Inc. and Autorics II, Inc. dated
as of December 9, 1996
10.39 Sale and Servicing Agreement among NAL Auto Trust
1996-4, Autorics II, Inc., NAL Acceptance Corporation
and Bankers Trust Company dated as of December 9, 1996
10.40 Indenture between NAL Auto Trust 1996-4 and Bankers
Trust Company dated as of December 9, 1996
10.41 Trust Agreement between Autorics II, Inc. and Wilmington
Trust Company dated as of December 9, 1996
23.2 Consent of Price Waterhouse LLP
NAL FINANCIAL GROUP INC.
DIRECTORS' 1996 STOCK OPTION PLAN
This NAL Financial Group Inc. Directors' 1996 Stock Option Plan (the
"Plan") is adopted effective as of November 20, 1996. The Plan provides for the
grant, to certain members of the Board of Directors of NAL Financial Group Inc.
(the "Company") and its subsidiaries who are not at the time of such grant
employees of the Company or any subsidiary thereof, of Options to purchase
("Options") shares of common stock of the Company and related stock appreciation
rights and for the issuance, transfer or sale of such stock upon the exercise of
such Options.
1. Purpose. The purpose of the Plan is to provide additional incentive
to the non-employee directors of the Company and its subsidiaries, who are
responsible for the management and growth of the Company or otherwise materially
contribute to the conduct and direction of its business, operations and affairs,
in order to strengthen their desire to remain as directors of the Company or its
subsidiaries, to strengthen their bond to the Company, to stimulate their
efforts on behalf of the Company and to retain and attract persons of
competence, and, by encouraging ownership of a stock interest in the Company, to
gain for the organization the advantages inherent in directors having a sense of
proprietorship.
2. The Stock. The aggregate number of shares of stock which may be
issued, transferred or sold upon the exercise of Options granted under the Plan
shall not, except as such number may be adjusted in accordance with Paragraph
(g) of Article 5 hereof, exceed 250,000 shares of Common Stock of NAL ("Common
Stock"), which may be either authorized and unissued shares or issued shares
reacquired by the Company. Notwithstanding the above limitation, if any Option
granted under the Plan shall expire, terminate or be canceled for any reason
without having been exercised in full, the corresponding number of unexercised
shares shall again be available for the purposes of the Plan.
3. Eligibility. Options and related stock appreciation rights shall be
granted only to members of the Board of Directors of the Company or a subsidiary
thereof who, at the time of the grant of the Option, are not employees of the
Company or any subsidiary thereof. A person to whom the Option is granted
hereunder is hereinafter sometimes referred to as an "Optionee." The Board of
Directors of the Company will determine the directors who are to be granted
Options under the Plan and the number of shares subject to each Option.
Notwithstanding anything herein to the contrary, no otherwise eligible person
serving upon the Board of Directors (if administering the Plan) or the committee
appointed by its Board of Directors and constituted as provided in Article 7
hereof (the "Committee") shall be prohibited from receiving Options during any
period, provided, however, such person must abstain from voting upon the grant
of such Options.
1
<PAGE>
4. Grant of Stock Appreciation Rights.
(a) The Board of Directors may, in connection with all or any
part of an Option granted to a director under the Plan, grant to such director
(or to any person or persons having the right to exercise such Option upon the
death or incapacity of the director as provided in Paragraph (d) of Article 6
hereof) a related stock appreciation right, either at the time the related
Option is granted or at any time thereafter prior to the exercise, termination
or cancellation of such Option, on such terms and conditions as the Board of
Directors shall from time to time determine. The grantee of a related stock
appreciation right shall have the right to surrender to the Company for
cancellation all or a portion of the related Option granted under the Plan, but
only to the extent that such Option is then exercisable, and to be paid therefor
an amount equal to the excess (if any) of: (i) the aggregate fair market value
of the shares of Common Stock subject to the Option or portion thereof
surrendered (determined as of the date of exercise of such stock appreciation
right); over (ii) the aggregate exercise price of the shares of Common Stock
subject to the portion thereof surrendered.
(b) Payment due upon exercise of a stock appreciation right
shall be made (i) in cash, (ii) in Common Stock (valued at the fair market value
thereof as of the date of exercise), or (iii) partly in cash and partly in
Common Stock (valued at the fair market value thereof as of the date of
exercise), all as determined by the Board of Directors in its sole discretion.
If the Board of Directors shall determine to make all of such payment in Common
Stock, no fractional shares of Common Stock shall be issued and no payments
shall be made in lieu of fractional shares.
(c) The grant of a stock appreciation right shall be subject to
execution, by the recipient thereof, of an instrument in writing in a form
approved by the Board of Directors, which shall contain further terms and
conditions, as deemed appropriate by the Board of Directors, relative to, among
others, the grant, exercise or disposition of such stock appreciation rights.
The terms of such instrument need not be identical for all grantees of such
stock appreciation rights.
5. General Terms of Options.
(a) Consideration. Subject to the terms of Paragraph (a) of
Article 6 hereof, the Board of Directors shall determine the consideration to
the Company, if any, for the granting of Options under the Plan, as well as the
conditions, if any, which it may deem appropriate to ensure that such
consideration will be received by, or will accrue to, the Company, and in the
discretion of the Board of Directors, such consideration need not be the same,
but may vary for Options granted under the Plan at the same time or from time to
time.
2
<PAGE>
(b) Number of Options which may be Granted to, and Number of
Shares which may be Acquired by, Optionees. The Board of Directors may grant
more than one Option to an individual during the life of the Plan and, such
Option may be in addition to, in tandem with, or in substitution for, Options
previously granted under the Plan or of another corporation and assumed by the
Company.
The Board of Directors may permit the voluntary surrender of all
or a portion of any Option granted under the Plan to be conditioned upon the
granting to the director of a new Option for the same or a different number of
shares as the Option surrendered, or may require such voluntary surrender as a
condition precedent to a grant of a new Option to such director. Such new Option
shall be exercisable at the price, during the period, and in accordance with any
other terms or conditions specified by the Board of Directors at the time the
new Option is granted, all determined in accordance with the provisions of the
Plan without regard to the price, period of exercise, or any other terms or
conditions of the Option surrendered (except as otherwise provided in Paragraph
(f) below).
(c) Period of Grant of Options. Options under the Plan may be
granted at any time after the Plan has become effective and has been approved by
the Board of Directors of the Company. However, no Options shall be granted
under the Plan after November 20, 2006.
(d) Option Agreement. The Company shall effect the grant of
Options under the Plan, in accordance with determinations made by the Board of
Directors or the Committee, by execution of instruments in writing in a form
approved by the Board of Directors or the Committee ("Option Agreement"). Each
Option Agreement shall contain such terms and conditions (which need not be the
same for all Options, whether granted at the same time or at different times) as
the Board of Directors shall deem to be appropriate and not inconsistent with
the provisions of the Plan, and such terms and conditions shall be agreed to in
writing by the Optionee. The Board of Directors may, in its sole discretion, and
subject to such terms and conditions as it may adopt, accelerate the date or
dates on which some or all outstanding Options may be exercised. Options shall
be exercised by submitting to the Company a signed copy of a notice of exercise
in a form to be supplied by the Company. The exercise of an Option shall be
effective on the date on which the Company receives such notice at its principal
corporate offices.
(e) Non-Transferability of Option, No Option granted under the
Plan shall be transferable by the holder thereof otherwise than by will or by
the laws of descent and distribution, and such Option shall be exercisable,
during the holder's lifetime, only by such holder, or in case of the legal
incapacity of a holder, by such holder's legal representative.
(f) Reorganization, Merger or Sale of Assets. If at any time
while an Option, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of substantially all of the Company's
3
<PAGE>
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the holder of an Option, subject to
Paragraph (h) below, shall upon such reorganization, merger, consolidation, sale
or transfer thereafter be entitled to receive upon payment of the exercise price
then in effect, the number of shares of stock or other securities or property of
the successor corporation resulting from such reorganization, merger,
consolidation, sale or transfer that a holder of the shares deliverable upon
exercise of the Option would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if the Option had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Paragraph (f)
shall similarly apply to successive reorganizations, consolidations, mergers,
sales and transfers and to the stock or securities of any other corporation that
are at the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Optionee hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Committee.
(g) Capital Adjustments. The maximum number of shares as to
which Options or stock appreciation rights may be granted under the Plan shall
be proportionately adjusted, and the terms of outstanding Options or stock
appreciation rights shall be adjusted, as the Board of Directors or the
Committee shall determine to be equitably required, in the event that the
Company effects one or more stock dividends, stock split-ups or reverse stock
splits, recapitalization, combinations, reclassifications, subdivisions,
consolidations of shares or like change in the capital structure of the Company.
Any determination made under this Paragraph (g) by the Board of Directors or the
Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
outstanding awards of Options or stock appreciation rights.
The Board of Directors may grant Options or stock appreciation
rights in substitution for stock options, stock appreciation rights, or similar
awards in connection with a transaction described in the first paragraph of this
Paragraph (g). Notwithstanding any provision of the Plan (other than the
limitation of Article 2), the terms of such substituted Option grant shall be as
the Board of Directors, in its discretion, determines is appropriate; provided,
however, that no such action by the Committee shall deprive any person, without
such person's consent, of any rights previously granted pursuant to the Plan.
(h) Termination of Options and Rights. The Board of Directors,
in its sole discretion, may terminate all or less than all of the outstanding
Options and stock appreciation rights in the event of the liquidation of the
Company or in the event that the Company is party to a corporate transaction
described in Paragraph (f) above. In the event of such termination, the
Committee shall give each Participant written notice of the termination and a
period of fourteen days in which to exercise his Options and stock appreciation
rights, to the extent they are
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otherwise exercisable. The Board of Directors, in its sole discretion, may
accelerate the exercisability of an Option or stock appreciation rights to
allow for its exercise during such fourteen day period.
(i) Optionees not Stockholders, An Optionee or a legal
representative thereof shall have none of the rights of a stockholder with
respect to shares subject to Options until such shares shall be issued,
transferred or sold upon exercise of the Option.
(j) Fair Market Value. As used in the Plan, the term "fair
market value" shall: (i) if the Common Stock of the Company is traded in the
over-the-counter market, be the mean between the closing bid and asked sales
prices for Common Stock of the Company as reported by the National Quotations
Bureau, Inc. (or similar quotation agency) on the date the calculation thereof
shall be made; or the NASDAQ Small-Cap Index or National Market System; or (ii)
if the Common Stock of the Company is listed on a national securities exchange,
be the mean between the high and low sales prices for Common Stock of the
Company on such exchange on the date the calculation thereof shall be made, in
each case with such adjustments, if any, as shall be made in accordance with
Paragraph (f) of this Article 5. In the event the date of calculation shall be a
date on which there shall not have been reported a closing bid and asked price
for Common Stock of the Company, or a date which shall not be a trading date on
such national securities exchange, as the case may be, determination of fair
market value shall be made as of the first date prior thereto on which there
shall have been reported a closing bid and asked price for Common Stock of the
Company or the first date prior thereto which shall have been a trading date on
such national securities exchange, as the case may be.
(k) Type of Option. Options granted under the Plan shall be in a
form of Options not qualifying as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended. It is intended that the Options
and stock appreciation rights granted hereunder shall be exempt from Section
16(b) of the Securities Exchange Act of 1934, as amended ("Exchange Act").
Whenever possible, each provision of the Plan or each Option Agreement shall be
interpreted in such a manner as to cause such Option or stock appreciation right
to be so exempt from Section 16(b) of the Exchange Act. If a provision of this
Plan or the Option Agreement shall cause such Option or stock appreciation right
not to be exempt under Section 16(b) of the Exchange Act, such provision at the
discretion of the Committee shall be deemed ineffective to the extent it shall
cause such failure to be exempt without invalidating the remainder of such
provision, the Plan or the Option Agreement.
6. Specific Terms of Options.
(a) Option Price. The price or prices per share for shares of
Common Stock to be sold pursuant to an Option shall be fixed by the Board of
Directors, but not less, in any case, than the fair market value per share of
such stock on the date of the granting of the Option.
For the purposes of this Article 6, the date of the granting of
an Option under the Plan shall be the date fixed by the Board of Directors as
the date for such Option.
(b) Period of Option.
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<PAGE>
(i) Notwithstanding any other provisions contained in
this Plan, each Option granted under the Plan shall be exercisable at such
time or times, or upon the occurrence of such event or events, and in such
amounts, as the Board of Directors shall specify in the Option Agreement.
(ii) Options will be exercisable thereafter over the
Option Period, which shall be for that period fixed by the Board of Directors,
and shall be exercisable at such times and in such amounts as determined by the
Board of Directors at the time each Option is granted. Notwithstanding any other
provision contained in this Plan, no Option shall be exercisable after the
expiration of the Option Period. Except as provided in Paragraphs (c) and (d) of
this Article 6, no Option may be exercised unless the Optionee is then a
director of the Company or a subsidiary thereof.
(c) Termination of Status as Director.
(i) Except as may otherwise be provided in an Option
Agreement, an Optionee whose status as a director of the Company or a subsidiary
thereof terminates by reason other than death, incapacity or for cause shall be
entitled to exercise such Option (A) only if and to the extent that the Optionee
was entitled to exercise the Option at the date of the termination of his status
as a director, (B) only within the 30 day period next succeeding such
termination and (C) in no event after the expiration of the Option Period.
(ii) An Optionee whose status as a director of the
Company or a subsidiary thereof is terminated for cause, as determined by the
Board of Directors in its sole discretion, shall not be entitled to exercise any
Option following such termination and any such Option which the director was
otherwise entitled to exercise immediately prior to such termination shall be
forfeited upon such termination.
(d) Death or Incapacity of Optionee. If an Optionee should die
while a director of the Company or a subsidiary thereof, an Option theretofore
granted shall be exercisable by the estate of the Optionee, or by a person who
acquired the right to exercise such Option by bequest or inheritance or by
reason of the death of the Optionee, but then only if and to the extent that the
Optionee was entitled to exercise the Option at the date of death and only
within the twelve-month period next succeeding the death of the Optionee and in
no event after the expiration of the Option Period. Upon the legal incapacity of
an Optionee, any Option held by the Optionee shall be exercisable by the
Optionee's legal representative pursuant to the terms of this Paragraph (d) of
Article 6. Notwithstanding any other provision of this Plan, the exercise of an
Option or a related stock appreciation right following the death or legal
incapacity of an Optionee shall be subject to the terms, conditions and
limitations imposed by the Board of Directors in connection with the Option
grant and/or in the Option Agreement.
(e) Payment for Shares. Payment for shares of Common Stock
purchased shall be made in full at the time of exercise of the Option by check
made payable to the Company.
7. Administration of the Plan. The Plan shall be administered under the
supervision of the Board of Directors of the Company or by a Committee, which
the Board of Directors may
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<PAGE>
appoint at any time, consisting of at least three members of the Board of
Directors, who shall be appointed by, and shall serve at the pleasure
of, the Board of Directors. A majority of the Committee shall constitute
a quorum and the acts of a majority of the members present at any meeting
at which a quorum is present, or acts approved in writing by a majority
of the Committee, shall be acts of the Committee.
In addition to the discretionary authority of the Board of
Directors or of the Committee set forth in other Articles hereof, the Board of
Directors or the Committee is authorized to establish such rules and regulations
for the proper administration of the Plan as it may deem advisable and not
inconsistent with provisions of the Plan. Unless otherwise determined by the
Board of Directors, all questions arising under the Plan or under any rule or
regulation with respect to the Plan adopted by the Board of Directors or the
Committee, whether such questions involve an interpretation of the Plan or
otherwise, shall be decided by the Board of Directors or the Committee, and its
decisions shall be conclusive and binding in all cases.
The Board of Directors shall determine the directors to whom
Options under the Plan are to be granted and the number of shares to be covered
by each Option granted. In selecting the individuals to whom Options shall be
granted, as well as in determining the number of shares subject to each Option,
the Board of Directors shall consider the positions and responsibilities of the
individuals being considered, the nature of the services and accomplishments of
each, the value to the Company of their services, their present and potential
contribution to the success of the Company, the anticipated number of years of
service remaining, and such other factors as the Board of Directors may deem
relevant.
8. Amendment and Discontinuance of the Plan.
(a) The Board of Directors of the Company may at any time alter,
suspend or terminate the Plan, but, except in accordance with the provisions of
Paragraph (f) of Article 5 and this Article 8, no change shall be made which
will have a material adverse effect upon any Option previously granted unless
the consent of the Optionee is obtained.
(b) The Company intends that Options granted hereunder shall
comply with the provisions of applicable law. Should any of the foregoing
provisions not be necessary in order to so comply or should any additional
provisions be required, the Board of Directors may in its complete and total
discretion amend the Plan in the manner it deems appropriate.
(c) Notwithstanding the foregoing provisions of this Article 8,
no person may be divested of the ownership of Common Stock previously issued,
sold or transferred under the Plan.
9. Other Conditions. If at any time counsel to the Company shall be of
the opinion that any sale or delivery of shares of Common Stock pursuant to an
Option granted under the Plan is or may in the circumstances be unlawful under
the statutes, rules or regulations of the United States, or any applicable
jurisdiction, the Company shall have no obligation to make such sale or
delivery, or to make any application or to effect or to maintain any
qualification or
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<PAGE>
registration under the Securities Act of 1933 or otherwise with respect
to shares of stock or Options under the Plan, until the right to exercise any
such Option shall be lawful.
Upon the termination or suspension of any period set forth
herein, any Option affected by such suspension which shall not then have expired
or terminated shall be reinstated as to all shares available upon exercise of
the Option before such suspension and to shares which would otherwise have
become available for purchase during the period of such suspension, but no such
suspension shall extend any Option Period.
At the time of any grant or exercise of any Option, the Company
may, if it shall deem it necessary or desirable for any reason connected with
any law or regulation of any governmental authority relative to the regulation
of securities, condition the grant and/or exercise of such Option by the
Optionee upon requiring the Optionee to make certain representations to the
Company to the satisfaction of the Company as to correctness of such
representations.
10. Approval; Effective Date. The Plan was adopted by the Board of
Directors of the Company and became effective as of November 20, 1996
("Effective Date"); however, Options granted to otherwise eligible directors in
1996 prior to the Effective Date shall be deemed to be granted under the Plan
and the Plan shall be deemed to be effective as of the dates of such grants for
such purpose.
NAL FINANCIAL GROUP INC.
By: /s/ Robert R. Bartolini
-------------------------
Robert R. Bartolini
Chief Executive Officer
8
EXECUTION COPY
This ADMINISTRATION AGREEMENT dated as of December 9,
1996, among NAL AUTO TRUST 1996-4, a Delaware business trust
(the "Issuer"), NAL ACCEPTANCE CORPORATION, a Florida
corporation, as administrator (the "Administrator"), and
BANKERS TRUST COMPANY, a New York banking corporation, not
in its individual capacity but solely as Indenture Trustee
(the "Indenture Trustee"),
W I T N E S S E T H :
WHEREAS, the Issuer is issuing the 6.90% Asset Backed Notes (the
"Notes") pursuant to the Indenture dated as of December 9, 1996 (as amended and
supplemented from time to time, the "Indenture"), between the Issuer and the
Indenture Trustee (capitalized terms used and not otherwise defined herein shall
have the meanings assigned to such terms in the Indenture);
WHEREAS, the Issuer has entered into certain agreements in connection
with the issuance of the Notes and of certain beneficial ownership interests in
the Issuer, including (i) a Sale and Servicing Agreement dated as of December 9,
1996 (as amended and supplemented from time to time, the "Sale and Servicing
Agreement"), among the Issuer, NAL Acceptance Corporation, as servicer, Bankers
Trust Company, as back-up servicer, and Autorics II, Inc., as depositor (the
"Depositor"), and (ii) the Indenture (the Sale and Servicing Agreement and the
Indenture being referred to hereinafter collectively as the "Related
Agreements");
WHEREAS, pursuant to the Related Agreements, the Issuer and the Owner
Trustee are required to perform certain duties in connection with (a) the Notes
and the collateral therefor pledged pursuant to the Indenture (the "Collateral")
and (b) the beneficial ownership interests in the Issuer (the registered holders
of such interests being referred to herein as the "Owners");
WHEREAS, the Issuer and the Owner Trustee desire to have the
Administrator perform certain of the duties of the Issuer and the Owner Trustee
referred to in the preceding clause and to provide such additional services
consistent with the terms of this Agreement and the Related Agreements as the
Issuer and the Owner Trustee may from time to time request; and
WHEREAS, the Administrator has the capacity to provide the services
required hereby and is willing to perform such services for the Issuer and the
Owner Trustee on the terms set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
1. Duties of the Administrator. (a) Duties with Respect to the
Indenture. (i) The Administrator agrees to perform all its duties as
Administrator. In addition, the Administrator shall consult with the Owner
Trustee regarding the duties of the Issuer or the Owner Trustee under the
Indenture. The Administrator shall monitor the performance of the Issuer and
shall advise the Owner Trustee when action is necessary to comply with the
Issuer's or the Owner Trustee's duties under the Indenture. The Administrator
shall prepare for execution by the Issuer, or shall cause the preparation by
other appropriate persons of, all such documents, reports, filings, instruments,
certificates and opinions that it shall be the duty of the Issuer or the Owner
Trustee to prepare, file or deliver pursuant to the Indenture. In furtherance
of the foregoing, the Administrator shall take all appropriate action that is
the duty of the Issuer or the Owner Trustee to take pursuant to the Indenture
including, without limitation, such of the foregoing as are required with
respect to the following matters under the Indenture (references are to sections
of the Indenture):
(A) the duty to cause the Note Register to be kept and to give the
Indenture Trustee notice of any appointment of a new Note Registrar and the
location, or change in location, of the Note Register (Section 2.05);
(B) the notification of Noteholders of the final principal payment
on their Notes (Section 2.08(b));
(C) the fixing or causing to be fixed of any special record date and
the notification of the Noteholders with respect to special payment dates, if
any (Section 2.08(c));
(D) the preparation of or obtaining of the documents and instruments
required for authentication of the Notes and delivery of the same to the
Indenture Trustee (Section 2.02);
(E) the maintenance of an office in the Borough of Manhattan, City
of New York, for registration of transfer or exchange of Notes (Section 3.02);
(F) the duty to cause newly appointed Paying Agents, if any, to
deliver to the Indenture Trustee the instrument specified in the Indenture
regarding funds held in trust (Section 3.03);
(G) the direction to the Indenture Trustee to deposit moneys with
Paying Agents, if any, other than the Indenture Trustee (Section 3.03);
(H) the obtaining and preservation of the Issuer's qualification to
do business in each jurisdiction in which such
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qualification is or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes, the Collateral and each other
instrument and agreement included in the Trust Estate (Section 3.04);
(I) the preparation of all supplements and amendments to the
Indenture and all financing statements, continuation statements, instruments
of further assurance and other instruments and the taking of such other action
as is necessary or advisable to protect the Trust Estate (Section 3.05);
(J) the delivery of the Opinion of Counsel on the Closing Date and
the annual delivery of Opinions of Counsel as to the Trust Estate, and the
annual delivery of the Officer's Certificate and certain other statements as
to compliance with the Indenture (Sections 3.06 and 3.09);
(K) the identification to the Indenture Trustee in an Officer's
Certificate of a Person with whom the Issuer has contracted to perform its
duties under the Indenture (Section 3.07(b));
(L) the notification of the Indenture Trustee and the Rating Agencies
of a Servicer Default under the Sale and Servicing Agreement and, if such
Servicer Default arises from the failure of the Servicer to perform any of its
duties under the Sale and Servicing Agreement with respect to the Receivables,
the taking of all reasonable steps available to remedy such failure
(Section 3.07(d));
(M) the duty to cause the Servicer to comply with Sections 4.09,
4.10, 4.11 and Article IX of the Sale and Servicing Agreement (Section 3.14);
(N) the preparation and obtaining of documents and instruments
required for the release of the Issuer from its obligations under the
Indenture (Section 3.11(b));
(O) the delivery of written notice to the Indenture Trustee and the
Rating Agencies of each Event of Default under the Indenture and each default
by the Servicer or the Depositor under the Sale and Servicing Agreement
(Section 3.19);
(P) the monitoring of the Issuer's obligations as to the satisfaction
and discharge of the Indenture and the preparation of an Officer's Certificate
and the obtaining of the Opinion of Counsel and the Independent Certificate
relating thereto (Section 4.01);
(Q) the compliance with any written directive of the Indenture
Trustee with respect to the sale of the Trust Estate in a commercially
reasonable manner if an Event of Default shall have occurred and be continuing
(Section 5.04);
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<PAGE>
(R) the preparation and delivery of notice to Noteholders of the
removal of the Indenture Trustee and the appointment of a successor Indenture
Trustee (Section 6.08);
(S) the preparation of any written instruments required to confirm
more fully the authority of any co-trustee or separate trustee and any written
instruments necessary in connection with the resignation or removal of any
co-trustee or separate trustee (Sections 6.08 and 6.10);
(T) the furnishing of the Indenture Trustee with the names and
addresses of Noteholders during any period when the Indenture Trustee is not
the Note Registrar (Section 7.01);
(U) the opening of one or more accounts in the Issuer's name, the
preparation and delivery of Issuer Orders, Officer's Certificates and Opinions
of Counsel and all other actions necessary with respect to investment and
reinvestment of funds in the Trust Accounts (Sections 8.02 and 8.03);
(V) the preparation of an Issuer Request and Officer's Certificate
and the obtaining of an Opinion of Counsel and Independent Certificates, if
necessary, for the release of the Trust Estate (Sections 8.04 and 8.05);
(W) the preparation of Issuer Orders and the obtaining of Opinions
of Counsel with respect to the execution of supplemental indentures and the
mailing to the Noteholders of notices with respect to such supplemental
indentures (Sections 9.01, 9.02 and 9.03);
(X) the execution and delivery of new Notes conforming to any
supplemental indenture (Section 9.05);
(Y) the duty to notify Noteholders of redemption of the Notes or to
cause the Indenture Trustee to provide such notification (Section 10.02);
(Z) the preparation and delivery of all Officer's Certificates and
Opinions of Counsel with respect to any requests by the Issuer to the Indenture
Trustee to take any action under the Indenture (Section 11.01);
(AA) the notification of the Rating Agencies, upon the failure of the
Indenture Trustee to give such notification, of the information required
pursuant to Section 11.04 of the Indenture (Section 11.04);
(BB) the preparation and delivery to Noteholders and the Indenture
Trustee of any agreements with respect to alternate payment and notice
provisions (Section 11.06);
(CC) the recording of the Indenture, if applicable (Section 11.15); and
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(DD) the delivery to each Noteholder of such information as may
be required to enable such holder to prepare its federal and state tax returns
(Section 6.06).
(ii) The Administrator will:
(A) pay the Indenture Trustee (and any separate trustee or co-trustee
appointed pursuant to Section 6.10 of the Indenture (a "Separate Trustee")) from
time to time reasonable compensation for all services rendered by the Indenture
Trustee or Separate Trustee, as the case may be, under the Indenture (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(B) except as otherwise expressly provided in the Indenture,
reimburse the Indenture Trustee or any Separate Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Indenture Trustee or Separate Trustee, as the case may be, in accordance with
any provision of the Indenture (including the reasonable compensation, expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
(C) indemnify the Indenture Trustee and its officers, directors,
agents and employees and any Separate Trustee and their respective agents for,
and hold them harmless against, any losses, liability or expense (including
attorney's fees and expenses) incurred by it in connection with the
administration of the trust created by the Indenture and the performance of its
duties under the Indenture; provided, that, the Administrator need not
reimburse any expense or indemnify against any loss, liability or expense
incurred by the Indenture Trustee through the Indenture Trustee's own willful
misconduct, negligence or bad faith; and
(D) pay the Owner Trustee (and any Indemnified Party, as defined in
Section 8.02 of the Trust Agreement) any amounts owed to it under Section 8.01
or 8.02 of the Trust Agreement.
(b) Additional Duties. (i) In addition to the duties of
the Administrator set forth above, the Administrator shall perform such
calculations and shall prepare or shall cause the preparation by other
appropriate persons of, and shall execute on behalf of the Issuer or the Owner
Trustee, all such documents, reports, filings, instruments, certificates and
opinions that it shall be the duty of the Issuer or the Owner Trustee to
prepare, file or deliver pursuant to the Related Agreements or Section 5.05(a),
(b), (c) or (d) of the Trust Agreement, and at the request of the Owner Trustee
shall take all appropriate action that it is the duty of the Issuer or the Owner
Trustee to take pursuant to the Related Agreements. In furtherance thereof,
the Owner Trustee shall, on behalf of itself and of the Issuer, execute and
deliver to the Administrator and to each successor Administrator appointed
pursuant to the terms hereof, one or more
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<PAGE>
powers of attorney substantially in the form of Exhibit A hereto, appointing
the Administrator the attorney-in-fact of the Owner Trustee and the Issuer for
the purpose of executing on behalf of the Owner Trustee and the Issuer all such
documents, reports, filings, instruments, certificates and opinions. Subject to
Section 5 of this Agreement, and in accordance with the directions of the Owner
Trustee, the Administrator shall administer, perform or supervise the
performance of such other activities in connection with the Collateral
(including the Related Agreements) as are not covered by any of the foregoing
provisions and as are expressly requested by the Owner Trustee and are
reasonably within the capability of the Administrator.
(ii) Notwithstanding anything in this Agreement or the Related
Agreements to the contrary, the Administrator shall be responsible for promptly
notifying the Owner Trustee in the event that any withholding tax is imposed on
the Trust's payments (or allocations of income) to an Owner as contemplated in
Section 5.02(c) of the Trust Agreement. Any such notice shall specify the
amount of any withholding tax required to be withheld by the Owner Trustee
pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Related
Agreements to the contrary, the Administrator shall be responsible for
performance of the duties of the Owner Trustee set forth in Section 5.05(a),
(b), (c) and (d), the penultimate sentence of Section 5.05 and Section 5.06(a)
of the Trust Agreement with respect to, among other things, accounting and
reports to Owners; provided, however, that the Owner Trustee shall retain
responsibility for the distribution of the Schedule K-1s necessary to enable
each Owner to prepare its federal and state income tax returns.
(iv) The Administrator shall satisfy its obligations with respect to
clauses (ii) and (iii) above by retaining, at the expense of the Trust payable
by the Administrator, a firm of independent public accountants (the
"Accountants") acceptable to the Owner Trustee, which shall perform the
obligations of the Administrator thereunder. In connection with paragraph (ii)
above, the Accountants will provide prior to December 31, 1996, a letter in form
and substance satisfactory to the Owner Trustee as to whether any tax
withholding is then required and, if required, the procedures to be followed
with respect thereto to comply with the requirements of the Code. The
Accountants shall be required to update the letter in each instance that any
additional tax withholding is subsequently required or any previously required
tax withholding shall no longer be required.
(v) The Administrator shall perform the duties of the Administrator
specified in Section 10.02 of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and any other
duties expressly required to be performed by the Administrator under the Trust
Agreement.
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<PAGE>
(vi) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Administrator may enter into transactions
or otherwise deal with any of its affiliates; provided, however, that the terms
of any such transactions or dealings shall be in accordance with any directions
received from the Issuer and shall be, in the Administrator's opinion, no less
favorable to the Issuer than would be available from unaffiliated parties.
(c) Non-Ministerial Matters. (i) With respect to matters that in the
reasonable judgment of the Administrator are non-ministerial, the Administrator
shall not take any action unless within a reasonable time before the taking of
such action, the Administrator shall have notified the Owner Trustee of the
proposed action and the Owner Trustee shall not have withheld consent or
provided an alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include, without limitation:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Receivables);
(C) the amendment, change or modification of the Related Agreements;
(D) the appointment of successor Note Registrars, successor Paying
Agents and successor Indenture Trustees pursuant to the Indenture or the
appointment of successor Administrators or Successor Servicers, or the consent
to the assignment by the Note Registrar, Paying Agent or Indenture Trustee of
its obligations under the Indenture; and
(E) the removal of the Indenture Trustee.
(ii) Notwithstanding anything to the contrary in this Agreement, the
Administrator shall not be obligated to, and shall not, (x) make any payments to
the Noteholders under the Related Agreements, (y) sell the Trust Estate pursuant
to Section 5.04 of the Indenture or (z) take any other action that the Issuer
directs the Administrator not to take on its behalf.
2. Records. The Administrator shall maintain appropriate books of
account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Issuer at any time
during normal business hours.
3. Compensation. As compensation for the performance of the
Administrator's obligations under this Agreement and as reimbursement for its
expenses related thereto, the Administrator
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<PAGE>
shall be entitled to $1,000 per annum which shall be solely an obligation of the
Servicer.
4. Additional Information To Be Furnished to the Issuer. The
Administrator shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
5. Independence of the Administrator. For all purposes of this
Agreement, the Administrator shall be an independent contractor and shall not be
subject to the supervision of the Issuer or the Owner Trustee with respect to
the manner in which it accomplishes the performance of its obligations
hereunder. Unless expressly authorized by the Issuer, the Administrator shall
have no authority to act for or represent the Issuer or the Owner Trustee in any
way and shall not otherwise be deemed an agent of the Issuer or the Owner
Trustee.
6. No Joint Venture. Nothing contained in this Agreement (i) shall
constitute the Administrator and either of the Issuer or the Owner Trustee as
members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
7. Other Activities of Administrator. Nothing herein shall prevent
the Administrator or its Affiliates from engaging in other businesses or, in its
sole discretion, from acting in a similar capacity as an administrator for any
other person or entity even though such person or entity may engage in business
activities similar to those of the Issuer, the Owner Trustee or the Indenture
Trustee.
8. Term of Agreement; Resignation and Removal of Administrator.
(a) This Agreement shall continue in force until the dissolution of the
Issuer, upon which event this Agreement shall automatically terminate.
(b) Subject to Section 8(e), the Administrator may resign its duties
hereunder by providing the Issuer with at least 60 days' prior written notice.
(c) Subject to Section 8(e), the Issuer may remove the Administrator
without cause by providing the Administrator with at least 60 days' prior
written notice.
(d) Subject to Section 8(e), at the sole option of the Issuer, the
Administrator may be removed immediately upon written notice of termination from
the Issuer to the Administrator if any of the following events shall occur:
(i) the Administrator shall default in the performance of any of its
duties under this Agreement and, after notice of such
8
<PAGE>
default, shall not cure such default within ten days (or, if such default
cannot be cured in such time, shall not give within ten days such assurance of
cure as shall be reasonably satisfactory to the Issuer);
(ii) a court having jurisdiction in the premises shall enter a decree
or order for relief, and such decree or order shall not have been vacated
within 60 days, in respect of the Administrator in any involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect or appoint a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for the Administrator or any substantial part
of its property or order the winding-up or liquidation of its affairs; or
(iii) the Administrator shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary
case under any such law, shall consent to the appointment of a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar official for
the Administrator or any substantial part of its property, shall consent to the
taking of possession by any such official of any substantial part of its
property, shall make any general assignment for the benefit of creditors or
shall fail generally to pay its debts as they become due.
The Administrator agrees that if any of the events specified in
clauses (ii) or (iii) of this Section shall occur, it shall give written notice
thereof to the Issuer and the Indenture Trustee within seven days after the
happening of such event.
(e) No resignation or removal of the Administrator pursuant to this
Section shall be effective until (i) a successor Administrator shall have been
appointed by the Issuer and (ii) such successor Administrator shall have agreed
in writing to be bound by the terms of this Agreement in the same manner as the
Administrator is bound hereunder.
(f) The appointment of any successor Administrator shall be effective
only after satisfaction of the Rating Agency Condition with respect to the
proposed appointment.
(g) Subject to Section 8(e) and 8(f), the Administrator acknowledges
that upon the appointment of a Successor Servicer pursuant to the Sale and
Servicing Agreement, the Administrator shall immediately resign and such
Successor Servicer shall automatically become the Administrator under this
Agreement.
9. Action upon Termination, Resignation or Removal. Promptly upon
the effective date of termination of this Agreement pursuant to Section 8(a) or
the resignation or removal of the Administrator pursuant to Section 8(b) or (c),
respectively, the Administrator shall be entitled to be paid all fees and
reimbursable expenses accruing to it to the date of such
9
<PAGE>
termination, resignation or removal. The Administrator shall forthwith upon
such termination pursuant to Section 8(a) deliver to the Issuer all property
and documents of or relating to the Collateral then in the custody of the
Administrator. In the event of the resignation or removal of the
Administrator pursuant to Section 8(b) or (c), respectively, the Administrator
shall cooperate with the Issuer and take all reasonable steps requested to
assist the Issuer in making an orderly transfer of the duties of the
Administrator.
10. Notices. Any notice, report or other communication given
hereunder shall be in writing and addressed as follows:
(a) if to the Issuer or the Owner Trustee, to:
NAL Auto Trust 1996-4
In care of Wilmington Trust Company
Rodney Square North
1100 Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
(b) if to the Administrator, to:
NAL Acceptance Corporation
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, FL 33309
Attention: Dennis LaVigne
(c) if to the Indenture Trustee, to:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group,
Structured Finance Team
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed
given if such notice is mailed by certified mail, postage prepaid, or
hand-delivered to the address of such party as provided above.
11. Amendments. This Agreement may be amended from time to time by
a written amendment duly executed and delivered by the Issuer, the Administrator
and the Indenture Trustee, with the written consent of the Owner Trustee,
without the consent of the Noteholders and the Certificateholders, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Noteholders or Certificateholders; provided that such amendment will not,
in the Opinion of Counsel satisfactory to the Indenture Trustee and each Rating
Agency,
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<PAGE>
materially and adversely affect the interest of any Noteholder or
Certificateholder. This Agreement may also be amended by the Issuer, the
Administrator and the Indenture Trustee with the written consent of the Owner
Trustee and the holders of Notes evidencing at least a majority of the
Outstanding Amount of the Notes and the holders of Certificates evidencing at
least a majority of the Certificate Balance for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of Noteholders or the
Certificateholders; provided, however, that no such amendment may (i)increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that are required to be
made for the benefit of the Noteholders or Certificateholders or (ii)reduce the
aforesaid percentage of the holders of Notes and Certificates which are required
to consent to any such amendment, without the consent of the holders of all the
outstanding Notes and Certificates. Notwithstanding the foregoing, the
Administrator may not amend this Agreement without the permission of the
Depositor, which permission shall not be unreasonably withheld.
12. Successors and Assigns. This Agreement may not be assigned by
the Administrator unless such assignment is previously consented to in writing
by the Issuer and the Owner Trustee and subject to the satisfaction of the
Rating Agency Condition in respect thereof. An assignment with such consent and
satisfaction, if accepted by the assignee, shall bind the assignee hereunder in
the same manner as the Administrator is bound hereunder. Notwithstanding the
foregoing, this Agreement may be assigned by the Administrator without the
consent of the Issuer or the Owner Trustee to a corporation or other
organization that is a successor (by merger, consolidation or purchase of
assets) to the Administrator; provided that such successor organization executes
and delivers to the Issuer, the Owner Trustee and the Indenture Trustee an
agreement in which such corporation or other organization agrees to be bound
hereunder by the terms of said assignment in the same manner as the
Administrator is bound hereunder. Subject to the foregoing, this Agreement
shall bind any successors or assigns of the parties hereto.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
14. Headings. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
15. Counterparts. This Agreement may be executed in counterparts,
each of which when so executed shall be an
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<PAGE>
original, but all of which together shall constitute but one and the same
agreement.
16. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
17. Not Applicable to NAL Acceptance Corporation in Other Capacities.
Nothing in this Agreement shall affect any obligation NAL Acceptance Corporation
may have in any other capacity.
18. Limitation of Liability of Owner Trustee and Indenture Trustee.
(a) Notwithstanding anything contained herein to the contrary, this instrument
has been countersigned by Wilmington Trust Company not in its individual
capacity but solely in its capacity as Owner Trustee of the Issuer and in no
event shall Wilmington Trust Company in its individual capacity or any
beneficial owner of the Issuer have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder,
as to all of which recourse shall be had solely to the assets of the Issuer.
For all purposes of this Agreement, in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Articles VI, VII and
VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Bankers Trust Company not in its individual
capacity but solely as Indenture Trustee and in no event shall Bankers Trust
Company have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
19. Third-Party Beneficiary. The Owner Trustee is a third-party
beneficiary to this Agreement and is entitled to the rights and benefits
hereunder and may enforce the provisions hereof as if it were a party hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed and delivered as of the day and year first
above written.
NAL AUTO TRUST 1996-4
By: WILMINGTON TRUST COMPANY, not
in its individual capacity but
solely as Owner Trustee
By: _____________________________
Name: Emmett R. Harmon
Title: Vice President
BANKERS TRUST COMPANY,
not in its individual capacity
but solely as Indenture Trustee
By: __________________________________
Name:
Title:
NAL ACCEPTANCE CORPORATION,
as Administrator
By: ___________________________________
Name: Robert Carlson
Title: Vice President/Finance
<PAGE>
EXHIBIT A
POWER OF ATTORNEY
STATE OF NEW YORK }
}
COUNTY OF NEW YORK }
KNOW ALL MEN BY THESE PRESENTS, that Wilmington Trust Company, a
Delaware banking corporation, not in its individual capacity but solely as owner
trustee (the "Owner Trustee") for NAL Auto Trust 1996-4 (the "Trust"), does
hereby make, constitute and appoint NAL Acceptance Corporation, as administrator
under the Administration Agreement dated as of December 9, 1996 (the
"Administration Agreement"), among the Trust, NAL Acceptance Corporation and
Bankers Trust Company, as Indenture Trustee, as the same may be amended from
time to time, and its agents and attorneys, as Attorneys-in-Fact to execute on
behalf of the Owner Trustee or the Trust all such documents, reports, filings,
instruments, certificates and opinions as it should be the duty of the Owner
Trustee or the Trust to prepare, file or deliver pursuant to the Related
Agreements, or pursuant to Section 5.05(a), (b), (c) or (d) of the Trust
Agreement dated as of December 9, 1996, between Autorics II, Inc. and Wilmington
Trust Company, as Owner Trustee, including, without limitation, to appear for
and represent the Owner Trustee and the Trust in connection with the
preparation, filing and audit of federal, state and local tax returns pertaining
to the Trust, and with full power to perform any and all acts associated with
such returns and audits that the Owner Trustee could perform, including without
limitation, the right to distribute and receive confidential information, defend
and assert positions in response to audits, initiate and defend litigation, and
to execute waivers of restrictions on assessments of deficiencies, consents to
the extension of any statutory or regulatory time limit, and settlements.
All powers of attorney for this purpose heretofore filed or executed
by the Owner Trustee are hereby revoked.
Capitalized terms that are used and not otherwise defined herein shall
have the meanings ascribed thereto in the Administration Agreement.
EXECUTED this 16th day of December, 1996.
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
-------------------------------
Name: Emmett R. Harmon
Title: Vice President
A-1
<PAGE>
STATE OF NEW YORK }
}
COUNTY OF NEW YORK }
Before me, the undersigned authority, on this day personally
appeared Emmett R. Harmon, known to me to be the person whose name is subscribed
to the foregoing instrument, and acknowledged to me that he signed the same for
the purposes and considerations therein expressed.
Sworn to before me this 16th
day of December, 1996.
- -----------------------------------------------------------------------
Notary Public - State of New York
A-2
Execution Copy
RECEIVABLES PURCHASE AGREEMENT dated as of December 9, 1996, among NAL
ACCEPTANCE CORPORATION, a Florida corporation ("NAL"), AUTORICS, INC., a
Delaware Corporation (the "Seller"), and AUTORICS II, INC., a Delaware
corporation (the "Purchaser").
WHEREAS in the regular course of its business, the Seller has purchased
certain motor vehicle retail installment sale contracts secured by new and used
automobiles, light-duty trucks and vans from NAL which, in turn purchased such
contracts from motor vehicle dealers and 3 others; and
WHEREAS the Purchaser wishes to purchase the Receivables (as
hereinafter defined) and to transfer the Receivables to NAL Auto Trust 1996-4
(the "Trust"), which will issue the 6.90% Asset Backed Notes (the "Notes"),
payment of which will be secured by the Receivables, and the 8.15% Asset Backed
Certificates representing fractional undivided interests in the property of the
Trust including the Receivables, subject to the rights of the Indenture Trustee
on behalf of the Noteholders;
WHEREAS the Seller and Purchaser are wholly owned subsidiaries of NAL
and NAL wishes to facilitate the transfer of the Receivables and, to that end,
has agreed to make certain representations and warranties relating to the
Receivables and to pay certain expenses and amounts with respect hereto; and
WHEREAS NAL, the Seller and the Purchaser wish to set forth the terms
pursuant to which the Seller will sell the Receivables to the Purchaser;
NOW, THEREFORE, in consideration of the foregoing, other good and
valuable consideration and the mutual terms and covenants contained herein, the
parties hereto agree as follows:
ARTICLE I
Certain Definitions
Terms not defined in this Agreement shall have the meaning set forth in
the Sale and Servicing Agreement or the Indenture, as applicable. As used in
this Agreement, the following terms shall, unless the context otherwise
requires, have the following meanings (such meanings to be equally applicable to
the singular and plural forms of the terms defined):
"Agreement" shall mean this Receivables Purchase Agreement, as the same
may be amended and supplemented from time to time.
"Assignment" shall mean the document of assignment substantially in the
form of Exhibit A.
"Certificates" shall mean the Trust Certificates (as defined in the
Trust Agreement).
<PAGE>
"Certificateholders" shall mean the holders of Certificates.
"Closing Date" shall mean December 18, 1996.
"Collections" shall mean all amounts collected by the Servicer (from
whatever source) on or with respect to the Receivables.
"Cutoff Date" means December 9, 1996.
"Indenture" shall mean the Indenture dated as of December 9, 1996
between the Trust and Bankers Trust Company, as trustee (the "Indenture
Trustee"), as the same may be amended and supplemented from time to time.
"NAL" shall mean NAL Acceptance Corporation, a Florida corporation, its
successors and assigns.
"Noteholders" shall mean the holders of the Notes.
"Private Placement Memorandum" shall mean the Private Placement
Memorandum dated December 16, 1996, relating to the Notes and the Certificates.
"Purchaser" shall mean AUTORICS II, Inc., a Delaware corporation, its
successors and assigns.
"Receivable" shall mean any Contract listed on Schedule I hereto (which
Schedule may be in the form of microfiche).
"Repurchase Event" shall have the meaning specified in Section 6.02.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of December 9, 1996, among the Trust, the Purchaser, Bankers
Trust Company, as Back- up Servicer, and the Seller, as the same may be amended
and supplemented from time to time.
"Schedule of Receivables" shall mean the list of Receivables annexed
hereto as Schedule I.
"Seller" shall mean Autorics, Inc., a Delaware corporation, its
successors and assigns.
"Trust Agreement" shall mean the Trust Agreement dated as of December
9, 1996, between the Purchaser and Wilmington Trust Company, as the owner
trustee (the "Owner Trustee"), as the same may be amended and supplemented from
time to time.
ARTICLE II
Conveyance of Receivables
SECTION 2.01. Conveyance of Receivables. In consideration of the
Purchaser's delivery to or upon the order of the Seller of $83,232,671.28, the
Seller does hereby sell, transfer, assign, set over and otherwise convey to the
Purchaser, without recourse (subject
2
<PAGE>
to the obligations of the Seller and NAL herein), all right, title and interest
of the Seller in and to (but none of the obligations of the Seller with respect
to):
(a) the Receivables, and all moneys received thereon on and after
the Cutoff Date plus all Payaheads as of the Cutoff Date;
(b) the security interests in the Financed Vehicles granted by
Obligors pursuant to the Receivables, any other right to realize upon property
securing a Receivable and any other interest of the Seller in such Financed
Vehicles including the Seller's right, title and interest in the lien on the
Financed Vehicles in the name of Autorics, Inc. or the Seller's agents, NAL
or SFI;
(c) any proceeds with respect to the Receivables from claims on
any Insurance Policies relating to the Financed Vehicles or Obligors;
(d) proceeds of any recourse (but none of the obligations) to
Dealers on Receivables;
(e) any Financed Vehicle that shall have secured a Receivable and
shall have been acquired by or on behalf of the Seller, the Purchaser, or, upon
the assignment contemplated by the Sale and Servicing Agreement, the Servicer
or the Trust;
(f) the Receivables Files;
(g) the obligations, duties and responsibilities of NAL to the
Seller made hereunder, including without limitation, the representations and
warranties made by NAL pursuant to Section 3.02(b) of this Agreement and the
representations and warranties on the Receivables made by NAL pursuant to
Section 3.02(c) of this Agreement and the right of the Seller to cause NAL to
purchase the Receivables under certain circumstances; and
(h) the proceeds of any and all of the foregoing.
SECTION 2.02. The Closing. The sale and purchase of the Receivables
shall take place at a closing (the "Closing") at the offices of Brown & Wood
LLP, One World Trade Center, New York, New York 10048 on the Closing Date,
simultaneously with the closings under (a) the Sale and Servicing Agreement and
(b) the Indenture.
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Seller as of the Closing Date:
(a) Organization and Good Standing. The Purchaser has been duly
organized and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with the power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the power, authority and legal right to acquire and own the Receivables.
3
<PAGE>
(b) Due Qualification. The Purchaser is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the ownership
or lease of its property or the conduct of its business shall require such
qualifications.
(c) Power and Authority. The Purchaser has the power and authority
to execute and deliver this Agreement and to carry out its terms, and the
execution, delivery and performance of this Agreement has been duly authorized
by the Purchaser by all necessary corporate action.
(d) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under, the
certificate of incorporation or bylaws of the Purchaser, or any indenture,
agreement or other instrument to which the Purchaser is a party or by which it
is bound; or result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than the Sale and Servicing Agreement, the Indenture and the
Trust Agreement); or violate any law or, to the best of the Purchaser's
knowledge, any order, rule or regulation applicable to the Purchaser of any
court or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Purchaser or its
properties.
(e) No Proceedings. There are no proceedings or investigations
pending or, to the Purchaser's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Purchaser or its properties: (i) asserting the
invalidity of this Agreement, (ii) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Purchaser of its obligations under, or the validity or
enforceability of, this Agreement.
SECTION 3.02. Representations and Warranties of the Seller and NAL.
(a) The Seller hereby represents and warrants to the Purchaser as of the
Closing Date:
(i) Organization and Good Standing. The Seller has been
duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware, with the power and
authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently
conducted, and had at all relevant times, and has, the power, authority
and legal right to acquire and own the Receivables.
(ii) Due Qualification. The Seller is duly qualified to
do business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of its property or the conduct of its business shall
require such qualifications.
(iii) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and to carry out its
terms; the Seller has full power and authority to sell and assign the
property sold and assigned to the Purchaser hereby and has duly
authorized such sale and assignment to the Purchaser by all necessary
corporate action; and the execution, delivery and performance of this
Agreement has been duly authorized by the Seller by all necessary
corporate action.
4
<PAGE>
(iv) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
shall not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time)
a default under, the articles of incorporation or bylaws of the Seller,
or any indenture, agreement or other instrument to which the Seller is
a party or by which it is bound; or result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms
of any such indenture, agreement or other instrument (other than this
Agreement); or violate any law or, to the best of the Seller's
knowledge, any order, rule or regulation applicable to the Seller of
any court or of any federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over
the Seller or its properties.
(v) No Proceedings. There are no proceedings or
investigations pending or, to the Seller's best knowledge, threatened
before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (A) asserting the invalidity of this Agreement, (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Agreement or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Seller of its
obligations under or the validity or enforceability of, this Agreement.
(vi) Principal Place of Business. The principal place of
business and chief executive office of the Seller are located at the
place set forth in Section 6.08(a) and such location has not changed
since the date the Seller was incorporated.
(vii) Use of Names. The legal name of the Seller is the
name used by it in this Agreement and the Seller has not changed its
name since the date of its incorporation and does not have trade names,
fictitious names, assumed names or "doing business" names.
(viii) Solvency. The Seller is solvent and will not become
insolvent after giving effect to the transactions contemplated in this
Agreement; the Seller is paying its debts, if any, as they become due;
the Seller, after giving effect to the transactions contemplated in
this Agreement, will have adequate capital to conduct its business.
(b) NAL hereby represents and warrants to the Seller as of the
Closing Date:
(i) Organization and Good Standing. NAL has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Florida, with the power and authority to
own its properties and to conduct its business as such properties are
currently owned and such business is presently conducted, and had at
all relevant times, and has, the power, authority and legal right to
acquire and own the Receivables.
(ii) Due Qualification. NAL is duly qualified to do
business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of its property or the conduct of its business shall
require such qualifications.
(iii) Power and Authority. NAL has the power and
authority to execute and deliver this Agreement and to carry out its
terms; NAL has full power and authority to
5
<PAGE>
perform its obligations under this Agreement; and the execution,
delivery and performance of this Agreement has been duly authorized by
NAL by all necessary corporate action.
(iv) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
shall not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time)
a default under, the articles of incorporation or bylaws of NAL, or any
indenture, agreement or other instrument to which NAL is a party or by
which it is bound; or result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument (other than this Agreement); or violate
any law or, to the best of NAL's knowledge, any order, rule or
regulation applicable to NAL of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over NAL or its properties.
(v) No Proceedings. There are no proceedings or
investigations pending or, to NAL's best knowledge, threatened before
any court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over NAL or its properties: (A)
asserting the invalidity of this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement
or (C) seeking any determination or ruling that might materially and
adversely affect the performance by NAL of its obligations under or the
validity or enforceability of, this Agreement.
NAL agrees that such representations and warranties shall be conveyed
hereunder by the Seller to the Purchaser, by the Purchaser to the Issuer under
the Sale and Servicing Agreement, and pledged by the Issuer to the Indenture
Trustee. NAL further agrees that any such Person to whom such rights are
conveyed may enforce any and all remedies for the breach thereof directly
against NAL. NAL agrees that the Purchaser shall rely on such representations
and warranties in accepting the Receivables.
(c) NAL makes the following representations and warranties to the
Seller in respect of the Receivables. NAL agrees that such representations and
warranties shall be conveyed hereunder by the Seller to the Purchaser, by the
Purchaser to the Issuer under the Sale and Servicing Agreement, and pledged by
the Issuer to the Indenture Trustee. NAL further agrees that any such Person to
whom such rights are conveyed may enforce any and all remedies for the breach
thereof directly against NAL. NAL agrees that the Purchaser shall rely on such
representations and warranties in accepting the Receivables. Such
representations and warranties speak as of the execution and delivery of this
Agreement, but shall survive the sale, transfer and assignment of the
Receivables to the Purchaser and the subsequent sale, assignment and transfer of
the Receivables pursuant to the Sale and Servicing Agreement and the Grant
thereof pursuant to the Indenture:
(i) Characteristics of Receivables. Each Receivable (A)
was originated in the United States of America by a Dealer for the
retail sale of a Financed Vehicle in the ordinary course of such
Dealer's business, was fully and properly executed by the parties
thereto, was purchased by NAL from such Dealer under an existing dealer
agreement, and was validly assigned by such Dealer to NAL in accordance
with the terms of such dealer agreement and from NAL to the Seller
pursuant to the Contract Purchase Agreement dated September 5, 1995
between NAL and the Seller, (B) has
6
<PAGE>
created a valid, subsisting and enforceable first priority security
interest in favor of the Seller in the Financed Vehicle, which security
interest is assignable by the Seller to the Purchaser, by the Purchaser
to the Trust and by the Trust to the Indenture Trustee, (C) contains
customary and enforceable provisions such that the rights and remedies
of the holder thereof are adequate for realization against the
collateral of the benefits of the security, (D) provides for level
monthly payments (provided that the payment in the first or last month
in the life of the Receivable may be different from the level payments)
that fully amortize the Amount Financed by maturity and yield interest
at the Annual Percentage Rate, and (E) provides, in the event that such
Contract is prepaid, for a prepayment that fully pays the Principal
Balance of the Receivable and includes a full month's interest in the
month of prepayment at the Annual Percentage Rate.
(ii) Schedule of Receivables. The information set forth
in Schedule I to this Agreement is true and correct in all material
respects as of the opening of business on the Cutoff Date, and no
selection procedures believed to be adverse to the Noteholders or the
Certificateholders were utilized in selecting the Receivables. The
computer tape regarding the Receivables made available to the Purchaser
and its assigns is true and correct in all respects.
(iii) Compliance with Law. Each Receivable and the sale
of the related Financed Vehicle complied at the time it was originated
or made, and at the execution of this Agreement complies, in all
material respects with all requirements of applicable federal, state
and local laws and regulations thereunder, including usury laws, the
Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and S and state adaptations of
the National Consumer Act and of the Uniform Consumer Credit Code, and
other consumer credit laws and equal credit opportunity and disclosure
laws.
(iv) Binding Obligation. Each Receivable represents the
genuine, legal, valid and binding payment obligation in writing of the
Obligor, enforceable by the holder thereof in accordance with its
terms.
(v) No Government Obligor. None of the Receivables is
due from the United States of America or any state or from any agency,
department or instrumentality of the United States of America or any
state.
(vi) Security Interest in Financed Vehicle. Immediately
prior to the sale, assignment and transfer thereof, each Receivable
shall be secured by a validly perfected first security interest in the
Financed Vehicle in favor of the Seller as secured party or all
necessary and appropriate actions have been commenced that would result
in the perfection of a first security interest in the Financed Vehicle
in favor of the Seller as secured party.
(vii) Receivables in Force. No Receivable has been
satisfied, subordinated or rescinded, nor has any Financed Vehicle been
released from the lien granted by the related Receivable in whole or in
part.
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(viii) No Waiver. No provision of a Receivable has been
waived except by a writing constituting an amendment to the applicable
Contract.
(ix) No Amendments. No Receivable has been amended such
that the amount of the Obligor's scheduled payments has been increased.
(x) No Defenses. No right of rescission, setoff,
counterclaim or defense has been asserted or threatened with respect to
any Receivable.
(xi) No Liens. To the best of the Seller's knowledge, no
liens or claims have been filed for work, labor or materials relating
to a Financed Vehicle that are liens prior to, or equal or coordinate
with, the security interest in the Financed Vehicle created by any
Receivable.
(xii) No Default. No Receivable has a payment that is
more than 30 days overdue as of the Cutoff Date and no default, breach,
violation or event permitting acceleration under the terms of any
Receivable has occurred; no continuing condition that with notice or
the lapse of time would constitute a default, breach, violation or
event permitting acceleration under the terms of any Receivable has
arisen; and the Seller has not waived any of its rights regarding the
occurrence of any of the foregoing.
(xiii) Insurance. The Seller, in accordance with its
customary procedures, has determined that each Obligor has obtained
physical damage insurance covering the Financed Vehicle and under the
terms of the Receivable the Obligor is required to maintain such
insurance.
(xiv) Title. It is the intention of the parties hereto
that the transfer and assignment herein contemplated constitute a sale
of the Receivables from the Seller to the Purchaser, and that the
beneficial interest in and title to the Receivables not be part of the
debtor's estate in the event of the filing of a bankruptcy petition by
or against the Seller under any bankruptcy law. Immediately prior to
the transfer and assignment herein contemplated, the Seller had good
and marketable title to each Receivable free and clear of all Liens
and, immediately upon the transfer thereof, the Purchaser shall have
good and marketable title to each Receivable, free and clear of all
Liens; and the transfer has been perfected under the UCC.
(xv) Lawful Assignment. No Receivable was originated in,
or is subject to the laws of, any jurisdiction under which the sale,
transfer and assignment of such Receivable or any Receivable under this
Agreement, the Sale and Servicing Agreement or the Indenture is
unlawful, void or voidable.
(xvi) All Filings Made. All filings (including UCC
filings) necessary in any jurisdiction to give the Purchaser a first
perfected ownership interest in the Receivables have been made.
(xvii) One Original. There is only one executed original
of each Receivable.
(xviii) Maturity of Receivables. Each Receivable has an
original maturity of not more than 60 months; the weighted average
remaining term of the Receivables is 50.03 months as of the Cutoff
Date.
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(xix) Scheduled Payments. (A) Each Receivable has a first
Scheduled Payment due, in the case of Precomputed Receivables, or a
scheduled due date, in the case of Simple Interest Receivables, on or
prior to January 17, 1997 and (B) no Receivable has a final scheduled
payment date later than the Final Scheduled Maturity Date.
(xx) Location of Receivable Files. The Receivable Files
are kept at one or more of the locations listed in Schedule II hereto.
(xxi) Outstanding Principal Balance. The Amount Financed
pursuant to each Receivable is at least $1,000.
(xxii) Financing. Approximately 78.32% of the aggregate
principal balance of the Receivables, constituting 82.83% of the number
of Receivables as of the Cutoff Date, represent financing of used
vehicles; the remainder of the Receivables represent financing of new
vehicles; approximately 88.54% of the aggregate principal balance of
the Receivables as of the Cut-off Date represent Precomputed
Receivables; and the remainder of the Receivables represent Simple
Interest Receivables. The aggregate Principal Balance of the
Receivables as of the Cutoff Date is $88,044,150.40.
(xxiii) No Bankruptcies. As of the Cutoff Date, no Obligor
on any Receivable was noted in the related Receivable File as having
filed for bankruptcy.
(xxiv) No Repossessions. No Financed Vehicle securing any
Receivable is in repossession status.
(xxv) Chattel Paper. Each Receivable constitutes "chattel
paper" as defined in the UCC.
(xxvi) Underwriting Guidelines. Each Receivable was
originated by the Dealer and purchased by NAL in accordance with the
underwriting guidelines described in the Private Placement Memorandum.
(xxvii) Servicing. As of the Cutoff Date each Receivable
was being serviced by the Servicer and no other person had a right to
service such Receivable.
(xxviii) Full Amount Advanced. The full principal amount of
each Receivable has been advanced to each Obligor, and there is no
requirement for future advances thereunder. The Obligor with respect to
the Receivable does not have any option under the Receivables to borrow
from any person additional funds secured by the Financed Vehicle.
(xxix) Obligation to Dealers or Others. The Purchaser and
its assignees will assume no obligations to Dealers or other
originators of prior holders of the Receivables (including, but not
limited to obligations under dealer reserves) as a result of its
purchase of the Receivables.
(xxx) Collection Practices. The Collection practices
utilized by any person servicing a Receivable in seeking payment under
the documentation evidencing such Receivable have been in all respects
legal, proper and customary in the automobile loan servicing business.
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(xxxi) First Payment. The first payment on each Receivable
with respect to which the first payment was not yet due as of the
Cutoff Date will be made in full no later than the 45th day after its
due date.
(xxxii) Private Placement Memorandum. The Private Placement
Memorandum does not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading.
(xxxiii) Subsequent Transfer. The representations and
warranties of the Depositor in Section 3.01 of the Sale and Servicing
Agreement are true and correct.
ARTICLE IV
Conditions
SECTION 4.01. Conditions to Obligation of the Purchaser. The
obligation of the Purchaser to purchase the Receivables is subject to the
satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Seller and NAL hereunder shall be true and correct on the
Closing Date with the same effect as if then made, and each of the Seller and
NAL shall have performed all obligations to be performed by it hereunder on or
prior to the Closing Date.
(b) Computer Files Marked. The Seller shall, at its own expense,
on or prior to the Closing Date indicate in its computer files that the
Receivables have been sold to the Purchaser pursuant to this Agreement, and
deliver to the Purchaser the Schedule of Receivables certified by the Chairman,
the President, a Vice President or the Treasurer to be true, correct and
complete.
(c) Documents To Be Delivered by the Seller at the Closing.
(i) The Assignment. At the Closing, the Seller will execute
and deliver an Assignment in the form of Exhibit A hereto.
(ii) Evidence of UCC Filing. On or prior to the Closing Date,
the Seller shall record and file, at its own expense, a UCC-1 financing
statement in each jurisdiction in which required by applicable law,
executed by the Seller, as seller or debtor, and naming the Purchaser
as purchaser or secured party, describing the Receivables and the other
property included in the Owner Trust Estate, meeting the requirements
of the laws of each such jurisdiction and in such manner as is
necessary to perfect the sale, transfer, assignment and conveyance of
such Receivables to the Purchaser. The Seller shall deliver a
file-stamped copy or other evidence satisfactory to the Purchaser of
such filing to the Purchaser on or prior to the Closing Date.
(iii) Other Documents. Such other documents as the Purchaser
may reasonably request.
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(d) Other Transactions. The transactions contemplated by the Sale
and Servicing Agreement, the Indenture and the Trust Agreement to be consummated
on the Closing Date shall be consummated on such date.
SECTION 4.02. Conditions to Obligation of the Seller. The obligation of
the Seller to sell the Receivables to the Purchaser is subject to the
satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Purchaser hereunder shall be true and correct on the Closing
Date with the same effect as if then made, and the Seller shall have performed
all obligations to be performed by it hereunder on or prior to the Closing Date.
(b) Receivables Purchase Price. On the Closing Date, the
Purchaser shall have delivered to the Seller the purchase price specified in
Section 2.01.
ARTICLE V
Covenants of the Seller and NAL
The Seller and NAL agree with the Purchaser as follows:
SECTION 5.01. Protection of Right, Title and Interest. (a) Filings. NAL
and the Seller shall cause all financing statements and continuation statements
and any other necessary documents covering the right, title and interest of the
Seller and the Purchaser, respectively, in and to the Receivables and the other
property included in the Owner Trust Estate to be promptly filed and at all
times to be kept recorded, registered and filed, all in such manner and in such
places as may be required by law fully to preserve and protect the right, title
and interest of the Purchaser hereunder in and to the Receivables and the other
property included in the Owner Trust Estate. NAL and the Seller shall deliver to
the Purchaser file stamped copies of, or filing receipts for, any document
recorded, registered or filed as provided above, as soon as available following
such recordation, registration or filing. The Purchaser shall cooperate fully
with NAL and the Seller (and the Seller will cooperate with NAL) in connection
with the obligations set forth above and will execute any and all documents
reasonably required to fulfill the intent of this paragraph.
(b) Name Change. Within 15 days after the Seller makes any change in
its name, identity or corporate structure that would make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the applicable provisions of the UCC or any title
statute, the Seller shall give the Purchaser notice of any such change and, no
later than 5 days after the effective date thereof, shall file such financing
statements or amendments as may be necessary to continue the perfection of the
Purchaser's interest in the property included in the Owner Trust Estate.
(c) Resolution. The Seller shall have an obligation to give the
Purchaser at least 60 days' prior written notice of any relocation of its
principal executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new financing
statement and shall promptly file any such amendment or new financing statement.
The
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Servicer shall at all times maintain each office from which it shall service
Receivables, and its principal executive office, within the United States of
America.
(d) Notice. If at any time the Seller shall propose to sell, grant a
security interest in, or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender or other transferee, the Seller
shall give to such prospective purchaser, lender or other transferee computer
tapes, records or printouts (including any restored from backup archives) that,
if they shall refer in any manner whatsoever to any Receivable, shall indicate
clearly that such Receivable has been sold and is owned by the Purchaser. Should
any third party inquire of the Seller as to the Receivables, the Seller will
promptly indicate to such party that the Receivables have been sold to the
Purchaser pursuant to this Agreement.
SECTION 5.02. Other Liens or Interests. Except for the conveyances
hereunder and under the Sale and Servicing Agreement, the Indenture, the Trust
Agreement and the other Basic Documents, the Seller will not sell, pledge,
assign or transfer to any Person, or grant, create, incur, assume or suffer to
exist any Lien on, or any interest in, to or under the Receivables, and the
Seller shall defend the right, title and interest of the Purchaser in, to and
under the Receivables against all claims of third parties claiming through or
under the Seller; provided, however, that the Seller's obligations under this
Section shall terminate upon the termination of the Trust pursuant to the Trust
Agreement.
SECTION 5.03. Costs and Expenses. NAL agrees to pay all reasonable
costs and disbursements in connection with the perfection, as against all third
parties, of the Seller's or any of its assignees right, title and interest in
and to the Receivables.
SECTION 5.04. Indemnification. NAL shall indemnify the Purchaser for
any liability resulting from the failure of a Receivable to be originated in
compliance with all requirements of law and for any breach of any of its or the
Seller's representations and warranties contained herein and for any failure by
the Seller to comply with its obligations under Sections 5.01 and 5.02 hereof.
These indemnity obligations shall be in addition to any obligation that NAL or
the Seller may otherwise have.
ARTICLE VI
Miscellaneous Provisions
SECTION 6.01. Obligations of Seller and NAL. The obligations of the
Seller and NAL under this Agreement shall not be affected by reason of any
invalidity, illegality or irregularity of any Receivable.
SECTION 6.02. Repurchase Events. NAL hereby covenants and agrees with
the Seller for the benefit of the Seller and its assignees or their respective
assignees the occurrence of a breach of any of NAL's representations and
warranties contained in Section 3.02(c), unless any such breach shall have been
cured by the last day of the Collection Period following the discovery thereof
by NAL, or receipt by NAL of written notice from the Owner Trustee, the
Indenture Trustee, the Depositor, the Servicer, or the Back-up Servicer, shall
constitute an event obligating NAL to purchase as of such last day any
Receivable hereunder with respect to which such breach occurred if such breach
has had a material and adverse effect on the interests of the Purchaser or the
Trust in and to such Receivable (each, a "Repurchase Event"), at the Purchase
Amount from the Purchaser or, upon the assignment
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contemplated by the Sale and Servicing Agreement, from the Trust. The repurchase
obligation of NAL shall constitute the sole remedy (other than that provided by
Section 5.04) of the Purchaser, the Trust, the Indenture Trustee, the
Noteholders, the Owner Trustee or the Certificateholders against NAL with
respect to any Repurchase Event.
SECTION 6.03. Purchaser Assignment of Repurchased Receivables. With
respect to all Receivables purchased by NAL pursuant to this Agreement, the
Purchaser shall assign, without recourse, representation or warranty, to NAL all
the Purchaser's right, title and interest in and to such Receivables and all
security and documents relating thereto.
SECTION 6.04. The Trust. The Seller and NAL acknowledge and agree that
(a) the Purchaser will, pursuant to the Sale and Servicing Agreement, sell the
Receivables to the Trust and assign its rights under this Agreement to the
Trust, (b) the Trust will, pursuant to the Indenture, Grant the Receivables and
its rights under this Agreement and the Sale and Servicing Agreement to the
Indenture Trustee on behalf of the Noteholders and (c) the representations and
warranties contained in this Agreement and the rights of the Purchaser under
this Agreement, including under Section 6.02 are intended to benefit the Trust,
the Certificateholders and the Noteholders. The Seller and NAL hereby consent to
all such sales and assignments and agree that the Owner Trustee or, if pursuant
to the Indenture, the Indenture Trustee may exercise the rights of the Purchaser
and enforce the obligations of the Seller and NAL hereunder directly and without
the consent of the Purchaser.
SECTION 6.05. Amendment. This Agreement may be amended from time to
time, with prior written notice to each Rating Agency, by a written amendment
duly executed and delivered by NAL, the Seller and the Purchaser, to cure any
ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to add any other provision with
respect to matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement or the Sale and Servicing
Agreement, the Trust Agreement or the Indenture; provided that such amendment
shall not, in the Opinion of Counsel satisfactory to the Owner Trustee and the
Indenture Trustee, materially and adversely affect the interest of any
Noteholder or Certificateholder in the Trust or the Receivables. This Agreement
may also be amended by NAL, the Seller and the Purchaser, with prior written
notice to each Rating Agency, with the consent of the holders of Notes
evidencing at least a majority of the Outstanding Amount of the Notes and the
holders of Certificates evidencing at least a majority of the Certificate
Balance for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Noteholders or the Certificateholders in the Trust or
Receivables; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that are required to be
made for the benefit of Noteholders or Certificateholders or (ii) reduce the
aforesaid percentage of the Notes and Certificates that is required to consent
to any such amendment, without the consent of the holders of all the outstanding
Notes and Certificates.
SECTION 6.06. Accountants' Letters. (a) Price Waterhouse LLP will
review the characteristics of the Receivables and will compare those
characteristics to the information with respect to the Receivables contained in
the Private Placement Memorandum; (b) the Seller will cooperate with the
Purchaser and Price Waterhouse LLP in making available all information and
taking all steps reasonably necessary to permit such accountants to complete the
review set forth in clause (a) above and to deliver the letters required of them
under the Private Placement Memorandum; (c) Price Waterhouse LLP will deliver to
the Purchaser a letter, dated
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the date of the Private Placement Memorandum, in the form previously agreed to
by the Seller and the Purchaser, with respect to the financial and statistical
information contained in the Private Placement Memorandum and with respect to
such other information as may be agreed in the form of letter.
SECTION 6.07. Waivers. No failure or delay on the part of the
Purchaser, or any assignee of the Purchaser, in exercising any power, right or
remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude any other
or further exercise thereof or the exercise of any other power, right or remedy.
SECTION 6.08. Notices. All demands, notices and communications under
this Agreement shall be in writing, personally delivered or mailed by certified
mail, return receipt requested, or recognized overnight courier or by facsimile
confirmed by delivery or mail as described above, and shall be deemed to have
been duly given upon receipt (a) in the case of the Seller, to AUTORICS, Inc.,
500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309,
Telephone: 954-958-3590: Fax: 954-938-8209, Attention: Dennis LaVigne; (b) in
the case of the Purchaser, to AUTORICS II, Inc., 500 Cypress Creek Road West,
Suite 590, Fort Lauderdale, Florida 33309, Telephone: 954-958-3591; Fax:
954-938-8209, Attention: Dennis LaVigne; (c) in the case of NAL, to NAL
ACCEPTANCE CORPORATION, 500 Cypress Creek Road West, Suite 590, Fort Lauderdale,
Florida 33309, Telephone: 305-938- 8200; Fax: 305-938-8209, Attention: Dennis
LaVigne; and (d) in the case of each Rating Agency, to Duff & Phelps Credit
Rating Co., 55 East Monroe Street, Chicago, Ill. 60603; Tel: 312-263-2610; Fax:
312-263-2852; Attn: Asset-Backed Research and Monitoring and to Fitch Investors
Service, L.P., One State Street Plaza, 32nd Floor, New York, N.Y. 10004 Tel:
(212) 908-0637; Fax: (212) 480-4438; Attn: Michael N. Babick; or as to each of
the foregoing, at such other address as shall be designated by written notice to
the other parties.
SECTION 6.09. Costs and Expenses. The Seller shall pay all expenses
incident to the performance of its obligations under this Agreement and NAL
agrees to pay all reasonable out-of-pocket costs and expenses of the Purchaser,
excluding fees and expenses of counsel, in connection with the perfection as
against third parties of the Purchaser's right, title and interest in and to the
Receivables and the enforcement of any obligation of the Seller hereunder.
SECTION 6.10. Representations of the Seller and the Purchaser. The
respective agreements, representations, warranties and other statements by NAL,
the Seller and the Purchaser set forth in or made pursuant to this Agreement
shall remain in full force and effect and will survive the sales and assignments
referred to in Section 6.04.
SECTION 6.11. Confidential Information. The Purchaser agrees that it
will neither use nor disclose to any Person the names and addresses of the
Obligors, except in connection with the enforcement of the Purchaser's rights
hereunder, under the Receivables, under the Sale and Servicing Agreement, the
Indenture, the Trust Agreement or any other Basic Document or as required by any
of the foregoing or by law.
SECTION 6.12. Headings and Cross-References. The various headings in
this Agreement are included for convenience only and shall not affect the
meaning or interpretation of any provision of this Agreement. References in this
Agreement to Section names or numbers are to such Sections of this Agreement.
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SECTION 6.13. GOVERNING LAW. THIS AGREEMENT AND THE ASSIGNMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER OR THEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 6.14. Counterparts. This Agreement may be executed in two or
more counterparts and by different parties on separate counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers duly authorized as of the date and year
first above written.
AUTORICS, INC.,
by ____________________________________
Name: Robert Carlson
Title: Vice President/Finance
NAL ACCEPTANCE CORPORATION,
by ____________________________________
Name: Robert Carlson
Title: Vice President/Finance
AUTORICS II, INC.,
by __________________________________
Name: Robert Carlson
Title: Vice President/Finance
16
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ASSIGNMENT
For value received, in accordance with the Receivables Purchase
Agreement dated as of December 9, 1996, among AUTORICS, INC. (the "Seller"), NAL
ACCEPTANCE CORPORATION and AUTORICS II, INC. (the "Purchaser"), the Seller does
hereby sell, assign, transfer and otherwise convey unto the Purchaser, without
recourse (subject to the obligations of the Seller and NAL in the Receivables
Purchase Agreement), all right, title and interest of the Seller in and to (but
none of the obligations of the Seller with respect to) (i) the Receivables, and
all moneys received thereon on and after the Cutoff Date plus all Payaheads as
of the Cutoff Date; (ii) the security interests in the Financed Vehicles granted
by Obligors pursuant to the Receivables, any other right to realize upon
property securing a Receivable and any other interest of the Seller in such
Financed Vehicles including the Seller's right, title and interest in the lien
on the Financed Vehicles in the name of Autorics, Inc. or the Seller's agents,
NAL or SFI; (iii) any proceeds with respect to the Receivables from claims on
any Insurance Policies relating to the Financed Vehicles or Obligors; (iv)
proceeds of any recourse (but none of the obligations) to Dealers on
Receivables; (v) any Financed Vehicle that shall have secured a Receivable and
shall have been acquired by or on behalf of the Purchaser, or, upon the
assignment contemplated by the Sale and Servicing Agreement, the Servicer or the
Trust; (vi) the Receivables Files; (vii) the obligations, duties and
responsibilities of NAL to the Seller made under the Receivables Purchase
Agreement, including without limitation, the representations and warranties on
the Receivables made by NAL pursuant to Section 3.02(b) of the Receivables
Purchase Agreement and the representations and warranties on the Receivables
made by NAL pursuant to Section 3.02(c) of the Receivables Purchase Agreement
and the right of the Seller to cause NAL to purchase the Receivables under
certain circumstances; and (viii) the proceeds of any and all of the foregoing.
The foregoing sale does not constitute and is not intended to result in any
assumption by the Purchaser of any obligation of the undersigned to the
Obligors, insurers, Dealers or any other person in connection with the
Receivables, Receivable Files, any insurance policies or any agreement or
instrument relating to any of them.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the
Receivables Purchase Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Receivables Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be
duly executed as of December 9, 1996.
AUTORICS, INC.
by ________________________
Name:
Title:
<PAGE>
SCHEDULE I
Schedule of Receivables
[To Be Delivered at Closing]
I-1
<PAGE>
SCHEDULE II
Location of Receivable Files
Bankers Trust Company
Four Albany Street
New York, NY 10006
II-1
Execution Copy
================================================================================
SALE AND SERVICING AGREEMENT
among
NAL AUTO TRUST 1996-4,
Issuer,
and
AUTORICS II, INC.,
Depositor,
and
NAL ACCEPTANCE CORPORATION,
Servicer
and
BANKERS TRUST COMPANY,
Backup Servicer
Dated as of December 9, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Definitions ................................................. 1
SECTION 1.02. Other Definitional Provisions ............................... 16
ARTICLE II
Conveyance of Receivables
SECTION 2.01. Conveyance of Receivables ................................... 17
ARTICLE III
The Receivables
SECTION 3.01. Representations and Warranties of
the Depositor with Respect to the
Receivables ................................................. 18
SECTION 3.02. Repurchase upon Breach ...................................... 18
SECTION 3.03. Custody of Receivable Files ................................. 19
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.01. Duties of Servicer .......................................... 20
SECTION 4.02. Collection and Allocation of Receivable
Payments .................................................... 21
SECTION 4.03. Realization upon Receivables ................................ 21
SECTION 4.04. Insurance ................................................... 22
SECTION 4.05. Maintenance of Security Interests in
Financed Vehicles ........................................... 22
SECTION 4.06. Covenants of Servicer ....................................... 22
SECTION 4.07. Purchase of Receivables upon Breach ......................... 23
SECTION 4.08. Servicing Fee ............................................... 23
SECTION 4.09. Servicer's Certificate ...................................... 23
SECTION 4.10. Annual Statement as to Compliance;
Notice of Default ........................................... 24
SECTION 4.11. Annual Independent Certified Public
Accountants' Report ......................................... 24
SECTION 4.12. Servicer Expenses ........................................... 25
SECTION 4.13. Appointment of Subservicer .................................. 25
SECTION 4.14. Oversight of Servicing ...................................... 25
SECTION 4.15. Duties of Backup Servicer ................................... 26
i
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ARTICLE V
Trust Accounts; Distributions; Reserve Account;
Statements to Certificateholders and Noteholders
SECTION 5.01. Establishment of Trust Accounts ............................. 27
SECTION 5.02. Collections ................................................. 30
SECTION 5.03. Application of Collections .................................. 30
SECTION 5.04. Additional Deposits ......................................... 30
SECTION 5.05. Distributions ............................................... 30
SECTION 5.06. Reserve Account ............................................. 31
SECTION 5.07. Statements to Certificateholders and
Noteholders ................................................. 33
SECTION 5.08. Transfer of the Notes ....................................... 35
SECTION 5.09. Dealer Reserve Account ...................................... 35
ARTICLE VI
The Depositor
SECTION 6.01. Representations of Depositor ................................ 35
SECTION 6.02. Corporate Existence ......................................... 37
SECTION 6.03. Liability of Depositor; Indemnities ......................... 38
SECTION 6.04. Merger or Consolidation of, or
Assumption of the Obligations of, Depositor ................. 38
SECTION 6.05. Limitation on Liability of Depositor and
Others ...................................................... 39
SECTION 6.06. Depositor May Own Certificates or Notes ..................... 39
SECTION 6.07. Sale of Receivables ......................................... 40
ARTICLE VII
The Servicer; Backup Servicer
SECTION 7.01. Representations of Servicer ................................. 40
SECTION 7.02. Indemnities of Servicer ..................................... 41
SECTION 7.03. Merger or Consolidation of, or
Assumption of the Obligations of, Servicer .................. 43
SECTION 7.04. Limitation on Liability of Servicer and
Others ...................................................... 43
SECTION 7.05. NAL Not To Resign as Servicer ............................... 44
SECTION 7.06. Representations of Backup Servicer .......................... 44
SECTION 7.07. Merger or Consolidation of, or
Assumption of the Obligations of, Backup
Servicer .................................................... 45
SECTION 7.08. Resignation as Backup Servicer .............................. 45
ARTICLE VIII
Default
SECTION 8.01. Servicer Default ............................................ 46
SECTION 8.02. Appointment of Successor .................................... 47
SECTION 8.03. Notification to Noteholders and
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Certificateholders Waiver of Past Defaults .................. 49
SECTION 8.04. Waiver of Past Defaults ..................................... 49
ARTICLE IX
Termination
SECTION 9.01. Optional Purchase of All Receivables ........................ 49
ARTICLE X
Miscellaneous
SECTION 10.01. Amendment ................................................... 51
SECTION 10.02. Protection of Title to Trust ................................ 52
SECTION 10.03. Notices ..................................................... 54
SECTION 10.04. Assignment by the Depositor or the
Servicer .................................................... 55
SECTION 10.05. Limitations on Rights of Others ............................. 55
SECTION 10.06. Severability ................................................ 55
SECTION 10.07. Separate Counterparts ....................................... 55
SECTION 10.08. Headings .................................................... 55
SECTION 10.09. Governing Law ............................................... 55
SECTION 10.10. Assignment by Issuer ........................................ 55
SECTION 10.11. Nonpetition Covenants ....................................... 56
SECTION 10.12. Limitation of Liability of Owner
Trustee and Indenture Trustee ............................... 56
SCHEDULE A Schedule of Receivables
EXHIBIT A Form of Distribution Date Statement to Noteholders
EXHIBIT B Form of Distribution Date Statement to
Certificateholders
EXHIBIT C Form of Servicer's Certificate
EXHIBIT D Form of Receivables Checklist
EXHIBIT E Form of Receivables Assignment
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SALE AND SERVICING AGREEMENT dated as of December 9, 1996, among NAL AUTO
TRUST 1996-4, a Delaware business trust (the "Issuer"), AUTORICS II, INC.,
a Delaware corporation (the "Depositor"), NAL ACCEPTANCE CORPORATION, a
Florida corporation (the "Servicer") and BANKERS TRUST COMPANY, a New York
banking corporation (the "Backup Servicer").
WHEREAS the Issuer desires to purchase a portfolio of receivables arising
in connection with automobile retail installment sale contracts generated by NAL
Acceptance Corporation in the ordinary course of business which were sold by NAL
Acceptance Corporation to the Seller and by the Seller to the Depositor;
WHEREAS the Depositor is willing to sell such receivables to the Issuer;
and
WHEREAS NAL Acceptance Corporation is willing to service such receivables;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
"AA" means Auto Analyst, Inc., a Georgia corporation, and any successor in
interest.
"Amount Financed" means, with respect to any Receivable, the amount
advanced under the Receivable toward the purchase price of the Financed Vehicle
and any related costs, exclusive of any amount allocable to the premium of "dual
interest" insurance covering the Financed Vehicle.
"Annual Percentage Rate" or "APR" of a Receivable means the annual rate of
finance charges stated in the related Contract.
"Backup Servicer" means, Bankers Trust Company, a New York banking
corporation, and its successors or assigns, when acting in its capacity as
Backup Servicer under this Agreement.
"Certificate Balance" equals, as of the Closing Date, the Initial
Certificate Balance and, thereafter, will equal the Initial Certificate Balance
reduced by all amounts allocable to principal previously distributed to
Certificateholders.
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"Certificate Distribution Account" has the meaning assigned to such term
in the Trust Agreement.
"Certificate Pool Factor" means, as of the close of business on the last
day of a Collection Period, a seven-digit decimal figure equal to the
Certificate Balance (after giving effect to any reductions therein to be made on
the immediately following Distribution Date) divided by the Initial Certificate
Balance. The Certificate Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Certificate Pool Factor will decline to reflect reductions in
the Certificate Balance.
"Certificateholders' or "Holders" (when used in the context of the Holders
of Certificates) has the meaning assigned to such term in the Trust Agreement.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount for such date.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, (i) the excess of the Certificateholders' Interest
Distributable Amount for the preceding Distribution Date, over the amount in
respect of interest that is actually deposited in the Certificate Distribution
Account on such preceding Distribution Date, plus (ii) 90 days of interest on
the amount of such excess for such preceding Distribution Date, to the extent
permitted by law, at the Pass-Through Rate.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Quarterly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date. Interest with respect
to the Certificates shall be computed on the basis of a 360-day year consisting
of twelve 30-day months for all purposes of this Agreement and the Basic
Documents.
"Certificateholders' Quarterly Interest Distributable Amount" means, with
respect to any Distribution Date, 90 days of interest at the Pass-Through Rate
on the Certificate Balance on the immediately preceding Distribution Date (or,
in the case of the first Distribution Date, on the Closing Date) after giving
effect to all payments of principal to Certificateholders on such immediately
preceding Distribution Date.
"Certificateholders' Quarterly Principal Distributable Amount" means, with
respect to any Distribution Date prior to the Distribution Date on which the
Notes are paid in full, zero; and with respect to any Distribution Date on or
after the Distribution Date on which the Notes are paid in full, 100% of the
Principal Distribution Amount for such Distribution Date
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(less, on the Distribution Date on which the Notes are paid in full, the portion
thereof payable as principal of the Notes).
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of a particular Distribution Date, the excess of the Certificateholders'
Quarterly Principal Distributable Amount and any outstanding Certificateholders'
Principal Carryover Shortfall from the preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account on such particular Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with respect
to any Distribution Date, the sum of the Certificateholders' Quarterly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Final
Scheduled Distribution Date, the principal required to be included in the
Certificateholders' Principal Distributable Amount will include the lesser of
(a) (i) any Scheduled Payments of principal due and remaining unpaid on each
Precomputed Receivable and (ii) any principal due and remaining unpaid on each
Simple Interest Receivable, in each case, in the Trust as of the Final Scheduled
Distribution Date or (b) the amount that is necessary (after giving effect to
the other amounts to be deposited in the Certificate Distribution Account on
such Distribution Date and allocable to principal) to reduce the Certificate
Balance to zero.
"Certificates" means the Trust Certificates (as defined in the Trust
Agreement).
"Closing Date" means December 18, 1996.
"Collection Account" means the account designated as such, established and
maintained pursuant to Section 5.01(a)(i).
"Collection Period" means the three calendar-month period ending on the
last day of the month preceding the month of each Distribution Date. Any amount
or balance stated as of the last day of a Collection Period shall give effect to
the following calculations as determined as of the close of business on such
last day: (1) all applications of collections, (2) all current and previous
Payaheads, (3) all applications of Payahead Balances and (4) all distributions
to be made on the following Distribution Date.
"Computer Tape" means a computer tape generated by the Servicer which
provides information relating to the Receivables.
"Contract" means a motor vehicle retail installment sale contract.
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"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Agreement is
located at Four Albany Street, New York, New York, Corporate Trust and Agency
Group, Structured Finance Team; or at such other address as the Indenture
Trustee may designate from time to time by notice to the Noteholders and the
Depositor, or the principal corporate trust office of any successor Indenture
Trustee (of which address such successor Indenture Trustee will notify the
Noteholders and the Depositor).
"Custodial Agreement" means the Custodial Agreement dated as of December
9, 1996, among the Issuer, Bankers Trust Company, as Indenture Trustee and
Custodian, and the Servicer.
"Custodian" means Bankers Trust Company, as Custodian under the Custodial
Agreement and any successor Custodian pursuant to the Custodial Agreement.
"Cutoff Date" means December 9, 1996.
"Dealer" means the dealer, SF1, AA or other entity who sold a Financed
Vehicle and who originated the related Contract or who acquired a Contract and
in either case assigned the related Receivable to NAL under an existing
agreement between it and NAL.
"Dealer Reserve Account" means the account designated as such, established
and maintained pursuant to Section 5.01.
"Delinquency Trigger Event" means, as to any Collection Period, that the
Average Three Month Delinquency Ratio as of the last day of such Collection
Period is greater than 6%. "Average Three Month Delinquency Ratio" means, as of
any date, the ratio of the average aggregate Principal Balances of Receivables
that are 60 days or more delinquent for each of the three prior calendar months
prior to such date to the average of the Pool Balances as of the end of such
periods.
"Delivery" when used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and
are susceptible of physical delivery, transfer thereof to the Indenture
Trustee or its nominee or custodian by physical delivery to the Indenture
Trustee or its nominee or custodian endorsed to, or registered in the name
of, the Indenture Trustee or its nominee or custodian or endorsed in
blank, and, with respect to a "certificated security" (as defined in
Section 8-102(1) (a) of the UCC) transfer thereof (i) by delivery of such
certificated security endorsed to, or registered in the name of, the
Indenture Trustee or its nominee or custodian or endorsed in blank to a
financial
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intermediary (as defined in Section 8-313 of the UCC) and the making by
such financial intermediary of entries on its books and records
identifying such certificated securities as belonging to the Indenture
Trustee or its nominee or custodian and the sending by such financial
intermediary of a confirmation of the purchase of such certificated
security by the Indenture Trustee or its nominee or custodian, or (ii) by
delivery thereof to a "clearing corporation" (as defined in Section
8-102(3) of the UCC) and the making by such clearing corporation of
appropriate entries on its books reducing the appropriate securities
account of the transferor and increasing the appropriate securities
account of a financial intermediary by the amount of such certificated
security, the identification by the clearing corporation of the
certificated securities for the sole and exclusive account of the
financial intermediary, the maintenance of such certificated securities by
such clearing corporation or a "custodian bank" (as defined in Section
8-102(4) of the UCC) or the nominee of either subject to the clearing
corporation's exclusive control, the sending of a confirmation by the
financial intermediary of the purchase by the Indenture Trustee or its
nominee or custodian of such securities and the making by such financial
intermediary of entries on its books and records identifying such
certificated securities as belonging to the Indenture Trustee or its
nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the
name of the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate
to effect the complete transfer of ownership of any such Trust Account
Property (as defined herein) to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
Federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such Trust Account Property to an appropriate book-entry
account maintained with a Federal Reserve Bank by a financial intermediary
which is also a "depository" pursuant to applicable Federal regulations
and issuance by such financial intermediary of a deposit advice or other
written confirmation of such book-entry registration to the Indenture
Trustee or its nominee or custodian of the purchase by the Indenture
Trustee or its nominee or custodian of such book-entry security; the
making by such financial intermediary of entries in its books and records
identifying such book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations as belonging to the
Indenture Trustee or its
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nominee or custodian and indicating that such custodian holds such Trust
Account Property solely as agent for the Indenture Trustee or its nominee
or custodian; and such additional or alternative procedures as may
hereafter become appropriate to effect complete transfer of ownership of
any such Trust Account Property to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not
governed by clause (b) above, registration on the books and records of the
issuer thereof in the name of the financial intermediary, the sending of a
confirmation by the financial intermediary of the purchase by the
Indenture Trustee or its nominee or custodian of such uncertificated
security, and the making by such financial intermediary of entries on its
books and records identifying such uncertificated certificates as
belonging to the Indenture Trustee or its nominee or custodian.
"Depositor" means AUTORICS II, Inc., a Delaware corporation and any
successor in interest.
"Distribution Date" means March 15, June 15, September 15 and December 15
of each year or, if such day is not a Business Day, the immediately following
Business Day, commencing on March 17, 1997.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution shall have a credit rating from each
Rating Agency in one of its generic rating categories that signifies investment
grade.
"Eligible Institution" means (a) the corporate trust department of the
Indenture Trustee or the Owner Trustee or (b) a depository institution organized
under the laws of the United States of America or any one of the states thereof
or the District of Columbia (or any domestic branch of a foreign bank), which
(i) has either (A) a long-term unsecured debt rating of A or better by each
Rating Agency, or if not rated by each Rating Agency, of A or better by Standard
& Poor's, A1 or better by Moody's and, if rated by one of the Rating Agencies, A
or better by such agency and (ii) whose deposits are insured by the FDIC. If so
qualified, the Indenture Trustee or the Owner Trustee may be considered an
Eligible Institution for the purposes of clause (b) of this definition.
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"Eligible Investments" means book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence:
(a) direct obligations of, and obligations fully guaranteed as to
the full and timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof (or any domestic branch of a
foreign bank) and subject to supervision and examination by federal or
state banking or depository institution authorities; provided, however,
that at the time of the investment or contractual commitment to invest
therein, the commercial paper or other short-term unsecured debt
obligations thereof (other than such obligations the rating of which is
based on the credit of a Person other than such depository institution or
trust company) shall have a short-term credit rating from each Rating
Agency in the highest investment category granted thereby;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from each Rating Agency
in the highest investment category granted thereby;
(d) investments in money market mutual funds having a rating from
Standard & Poor's and Moody's and, if any Rating Agency rates such fund,
from such agency in the highest investment category granted by each Rating
Agency so rating such fund (including funds for which the Indenture
Trustee or the Owner Trustee or any of their respective Affiliates is
investment manager or advisor);
(e) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with a depository institution or trust company
(acting as principal) described in clause (b); and
(g) any other investment with respect to which the Issuer or the
Servicer has received written notification from each Rating Agency that
the acquisition of such investment as an Eligible Investment will not
result in a withdrawal or downgrading of the ratings on the Notes or
Certificates.
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"Excess Spread" shall have the meaning set forth in Section 5.06(a)(ii).
"FDIC" means the Federal Deposit Insurance Corporation.
"Final Scheduled Distribution Date" means the March, 2002 Distribution
Date.
"Final Scheduled Maturity Date" means December 17, 2001.
"Financed Vehicle" means an automobile, light-duty truck or van, together
with all accessions thereto, securing an Obligor's indebtedness under the
related Receivable.
"Indenture" means the Indenture dated as of December 9, 1996, between the
Issuer and the Indenture Trustee.
"Indenture Trustee" means the Person acting as Indenture Trustee under the
Indenture, its successors in interest and any successor trustee under the
Indenture.
"Initial Certificate Balance" shall have the meaning set forth in the
Trust Agreement.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator, or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (b)
the commencement by such Person of a voluntary case under any applicable federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator, or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"Insolvency Proceeds" shall have the meaning set forth in Section 9.01.
"Insurance Policies" means any physical damage, credit life, disability,
theft, mechanical breakdown, dual interest or guaranteed auto-protection
insurance policies or coverage relating to the Financed Vehicles or Obligors.
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"Investment Earnings" means, with respect to any Payment Determination
Date, the investment earnings (net of losses and investment expenses) on amounts
on deposit in the Trust Accounts (other than the Dealer Reserve Account) to be
deposited into the Collection Account and to be deemed to constitute a portion
of the Total Distribution Amount for the related Distribution Date pursuant to
Section 5.01(b).
"Issuer" means NAL Auto Trust 1996-4.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to a Receivable by operation of law as a result of any act or
omission by the related Obligor.
"Liquidated Receivable" means any defaulted Receivable as to which the
Servicer has determined that all amounts which it expects to recover from or on
account of such Receivables have been recovered or with respect to which the
related Financed Vehicle has been realized upon and disposed of and the proceeds
of such disposition have been received; provided that any Receivable which is
120 days or more past due shall be deemed to be a Liquidated Receivable.
"Liquidation Proceeds" means, with respect to any Liquidated Receivable,
the moneys collected in respect thereof, from whatever source, including
Insurance Policy proceeds, net of the sum of any amounts expended by the
Servicer in connection with such liquidation and any amounts required by law to
be remitted to the Obligor on such Liquidated Receivable.
"Loss Trigger Event" means, as to any Collection Period, that the Average
Six Month Realized Loss Ratio as of the last day of such Collection Period is
greater than 5%. The "Average Six Month Realized Loss Ratio" as of any date is
the ratio, expressed on an annualized basis, of the average of the aggregate
Realized Losses in respect of Liquidated Receivables for each of the six
calendar month periods (or lesser number of calendar months from the Cutoff
Date) prior to such date to the average of the Pool Balance as of the beginning
of such periods.
"Moody's" means Moody's Investors Service, Inc., and any successors in
interest.
"NAL" means NAL Acceptance Corporation, a Florida corporation and any
successor in interest.
"Note Distribution Account" means the account designated as such,
established and maintained pursuant to Section 5.01.
"Note Final Scheduled Distribution Date" means the December, 2000
Distribution Date.
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"Note Pool Factor" means, as of the close of business on the last day of a
Collection Period, a seven-digit decimal figure equal to the Outstanding Amount
of the Notes divided by the original Outstanding Amount of the Notes. The Note
Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the Note Pool
Factor will decline to reflect reductions in the Outstanding Amount of the
Notes.
"Noteholder" means the Person in whose name a Note is registered in the
Note Register.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount for such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, (i) the excess of the Noteholders' Interest Distributable
Amount for the preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Note Distribution Account on such
preceding Distribution Date, plus (ii) 90 days of interest on the amount of such
excess for such preceding Distribution Date, to the extent permitted by law, at
the Note Rate.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Quarterly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carryover
Shortfall for such Distribution Date. For all purposes of this Agreement and the
Basic Documents, interest with respect to the Notes shall be computed on the
basis of a 360-day year consisting of twelve 30-day months.
"Noteholders' Quarterly Interest Distributable Amount" means, with respect
to any Distribution Date, 90 days of interest on the Notes at the Note Rate on
the Outstanding Amount of the Notes on the immediately preceding Distribution
Date (or, in the case of the first Distribution Date, the Closing Date) after
giving effect to all payments of principal to the Noteholders on such
immediately preceding Distribution Date.
"Noteholders' Quarterly Principal Distributable Amount" means, with
respect to any Distribution Date, for so long as the Notes are outstanding, 100%
of the Principal Distribution Amount; provided, however, that on the
Distribution Date on which the Outstanding Amount of the Notes is reduced to
zero, the portion, if any, of the Principal Distribution Amount that is not
applied to the Notes will be applied to the principal of the Certificates.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
business on a particular Distribution Date, the excess of the Noteholders'
Quarterly Principal Distributable Amount and any outstanding Noteholders'
Principal Carryover Shortfall from
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the preceding Distribution Date, over the amount in respect of principal that is
actually deposited in the Note Distribution Account on such particular
Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Quarterly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date; provided1 however,
that the Noteholders' Principal Distributable Amount shall not exceed the
Outstanding Amount of the Notes. In addition, on the Note Final Scheduled
Distribution Date, the Noteholders' Principal Distributable Amount will not be
less than the amount that is necessary (after giving effect to all other amounts
to be deposited in the Note Distribution Account on such Distribution Date and
allocable to principal) to reduce the Outstanding Amount of the Notes to zero.
"Obligor" on a Receivable means the purchaser or co-purchasers of the
Financed Vehicle and any other Person who owes payments under the Receivable.
"Officers' Certificate" means a certificate signed by (a) the chairman of
the board, the president or any vice president and (b) a treasurer, assistant
treasurer, the controller or any assistant controller, secretary or assistant
secretary of the Seller, the Depositor, the Servicer or the Backup Servicer, as
appropriate.
"Opinion of Counsel" means one or more written opinions of counsel, who
may be an employee of or counsel to the Seller, the Depositor, Servicer or the
Backup Servicer, which counsel shall be acceptable to the Indenture Trustee, the
Owner Trustee or each Rating Agency, as applicable.
"Original Pool Balance" means the Pool Balance as of the Cutoff Date.
"Owner Trust Estate" has the meaning assigned to such term in the Trust
Agreement.
"Owner Trustee" means the Person acting as Owner Trustee under the Trust
Agreement, its successors in interest and any successor owner trustee under the
Trust Agreement.
"Pass-Through Rate" means 8.15% per annum.
"Payahead" on a Receivable that is a Precomputed Receivable means the
amount, as of the close of business on the last day of a Collection Period,
computed in accordance with Section 5.03 with respect to such Receivable.
"Payahead Account" means the account designated as such, established and
maintained pursuant to Section 5.01.
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"Payahead Balance" on a Receivable that is a Precomputed Receivable means
the sum, as of the close of business on the last day of a Collection Period, of
all Payaheads made by or on behalf of the Obligor with respect to such
Precomputed Receivable, as reduced by applications of previous Payaheads with
respect to such Precomputed Receivable pursuant to Section 5.03.
"Payment Determination Date" means, with respect to any Distribution Date,
the 10th day of the month (or if such day is not a Business Day, the next
succeeding Business Day) of such Distribution Date.
"Physical Property" has the meaning assigned to such term in the
definition of "Delivery" above.
"Pool Balance" means, as of the close of business on the last day of a
Collection Period or any other date of determination, the aggregate Principal
Balance of the Receivables as of such day (excluding Purchased Receivables and
Liquidated Receivables).
"Precomputed Receivable" means any Receivable under which the portion of a
payment allocable to earned interest (which may be referred to in the related
Contract as an add-on finance charge) and the portion allocable to the Amount
Financed is determined according to the sum of periodic balances or the sum of
monthly balances or any equivalent method or are monthly actuarial receivables.
"Principal Balance" means (a) with respect to any Precomputed Receivable
as of the close of business on the last day of a Collection Period, the Amount
Financed minus the sum of (i) that portion of all Scheduled Payments due on or
prior to such day allocable to principal using the actuarial or constant yield
method, (ii) any payment of the Purchase Amount with respect to the Precomputed
Receivable allocable to principal and (iii) any prepayment in full applied to
reduce the Principal Balance of the Precomputed Receivable and (b) with respect
to any Simple Interest Receivable as of the close of business on the last day of
a Collection Period, the Amount Financed minus the sum of (i) the portion of all
payments made by or on behalf of the related Obligor on or prior to such day and
allocable to principal using the Simple Interest Method and (ii) any payment of
the Purchase Amount with respect to the Simple Interest Receivable allocable to
principal.
"Principal Distribution Amount" means, with respect to any Distribution
Date, an amount equal to the sum of the following amounts with respect to the
related Collection Period (i) with respect to Precomputed Receivables, the
principal component of all monthly payments scheduled to be received with
respect to such Receivables and all prepayments in full of such Receivables
(including amounts with respect thereto withdrawn from the Payahead Account);
(ii) with respect to Simple Interest Receivables, that portion of all
collections on such Receivables allocable to principal; (iii) the Principal
Balance of all
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Precomputed Receivables that became Liquidated Receivables during such
Collection Period; (iv) all Liquidation Proceeds attributable to the principal
amount of Simple Interest Receivables that became Liquidated Receivables during
such Collection Period, plus all Realized Losses with respect to such Liquidated
Receivables; and (v) to the extent attributable to principal, the Purchase
Amount of each Receivable that was purchased by NAL or by the Servicer during
the related Collection Period.
"Purchase Amount" means the amount, as of the close of business on the
last day of a Collection Period, required to prepay in full a Receivable under
the terms thereof including interest to the end of the month of purchase.
"Purchased Receivable" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the Servicer pursuant to
Section 4.07 or by NAL pursuant to Section 3.02.
"Rating Agency" means each of Fitch Investors Service, L.P. and Duff &
helps Credit Rating Co. and their successors in interest.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to such Rating Agency) prior notice thereof and that each Rating
Agency shall have notified the Depositor, the Servicer, the Owner Trustee and
the Indenture Trustee in writing that such action will not result in a reduction
or withdrawal of the then current rating of the Notes or the Certificates.
"Realized Losses" means, with respect to any Receivable that becomes a
Liquidated Receivable, the excess of the Principal Balance of such Liquidated
Receivable over Liquidation Proceeds to the extent allocable to principal.
"Receivable" means any Contract listed on Schedule A (which Schedule may
be in the form of microfiche).
"Receivable Files" means the documents specified in Section 3.03.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement
dated as of December 9, 1996, among NAL, Autorics, Inc., as seller, and the
Depositor, as purchaser.
"Recoveries" means, with respect to any Receivable that becomes a
Liquidated Receivable, monies collected in respect thereof, from whatever
source, during any Collection Period following the Collection Period in which
such Receivable became a Liquidated Receivable, net of the sum of any amounts
expended by the Servicer for the account of the Obligor and any amounts required
by law to be remitted to the Obligor.
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"Repossession Trigger Event" means, as to any Collection Period, that the
Average Six Month Repossession Ratio as of the last day of such Collection
Period is greater than 12%. "Average Six Month Repossession Ratio" as of any
date is the ratio (expressed on an annualized basis) of the average of the
aggregate Principal Balances of Receivables with respect to which the related
Financed Vehicle has been repossessed by the Servicer for each of the six
calendar months (or lesser number of calendar months since the Cutoff Date)
prior to such date to the average Pool Balances as of the beginning of such
periods.
"Reserve Account" means the account designated as such, established and
maintained pursuant to Section 5.01.
"Reserve Account Initial Deposit" means $4,842,428.27.
"Scheduled Payment" on a Precomputed Receivable means that portion of the
payment required to be made by the Obligor during a calendar month sufficient to
amortize the Principal Balance under the actuarial method over the term of the
Receivable and to provide interest at the APR.
"Seller" means AUTORICS, Inc., a Delaware corporation, and any successor
in interest.
"Servicer" means NAL, in its capacity as the servicer of the Receivables,
and each successor to NAL (in the same capacity) pursuant to Section 7.03 or
8.02.
"Servicer Default" means an event specified in Section 8.01.
"Servicer's Certificate" means an Officers' Certificate of the Servicer
delivered pursuant to Section 4.09, substantially in the form of Exhibit C.
"Servicing Fee" means the fee payable to the Servicer for services
rendered during a Collection Period, determined pursuant to Section 4.08.
"Servicing Fee Rate" means 3.00% per annum.
"SFI" means Special Finance, Inc., a Florida corporation, and any
successor in interest.
"Simple Interest Method" means the method of allocating a fixed level
payment to principal and interest, pursuant to which the portion of such payment
that is allocated to interest is equal to the product of the fixed rate of
interest multiplied by the unpaid principal balance multiplied by the period of
time elapsed since the preceding payment of interest was made, and the remainder
of such payment is allocable to principal.
"Simple Interest Receivable" means any Receivable under which the portion
of a payment allocable to interest and the portion
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allocable to principal is determined in accordance with the Simple Interest
Method.
"Specified Reserve Account Balance" means, with respect to any
Distribution Date, the greater of 9% of the Pool Balance on the close of
business on the last day of the related Collection Period and $1,760,883.01
until the first Distribution Date on which the Pool Balance on the close of
business on the last day of the preceding Collection Period is less than or
equal to $1,760,883.01. On such Distribution Date and thereafter the Specified
Reserve Account Balance shall equal 100% of the Pool Balance on the close of
business on the last day of the related Collection Period. In no event, however,
shall the Specified Reserve Account Balance exceed the aggregate outstanding
principal balance of the Notes and the Certificates.
"Standard & Poor's" means Standard & Poor's Rating Services, a division of
the McGraw-Hill Companies and any successor in interest.
"Total Distribution Amount" means, with respect to a Distribution Date,
the sum of the following amounts with respect to the related Collection Period:
(i) that portion of all collections on the Receivables (including amounts
withdrawn from the Payahead Account but excluding amounts deposited into the
Payahead Account) allocable to principal and interest; (ii) all Liquidation
Proceeds, and all Recoveries in respect of Liquidated Receivables that were
written off in prior Collection Periods; (iii) the Purchase Amount of each
Receivable that was purchased by NAL or by the Servicer during the related
Collection Period; and (iv) Investment Earnings.
"Trigger Event" means any Distribution Date on which one or more of a
Delinquency Trigger Event, a Repossession Trigger Event or a Loss Trigger Event
has occurred with respect to the previously ended Collection Period. A Trigger
Event will be deemed to have terminated as to any Distribution Date (subject to
the reoccurrence of such event) if neither a Delinquency Trigger Event, a Loss
Trigger Event or a Repossession Trigger Event shall have occurred during the
related Collection Period.
"Trigger Event Reserve Account Balance" means, with respect to any
Distribution Date after a Trigger Event has occurred and not terminated, 13.5%
of the Pool Balance on the close of business on the last day of the related
Collection Period.
"Trust" means the Issuer.
"Trust Account Property" means the Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit, and all
proceeds of the foregoing.
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"Trust Accounts" has the meaning assigned thereto in Section 5.01.
"Trust Agreement" means the Trust Agreement dated as of December 9, 1996,
between the Depositor and the Owner Trustee.
"Trust Officer" means, in the case of the Indenture Trustee, any Officer
within the Corporate Trust Office of the Indenture Trustee, including any Vice
President, Assistant Vice President, Secretary, Assistant Secretary or any other
officer of the Indenture Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject and, with respect to the Owner Trustee, any officer in the Corporate
Trust Administration Department of the Owner Trustee with direct responsibility
for the administration of the Trust Agreement and the Basic Documents on behalf
of the Owner Trustee.
SECTION 1.02. Other Definitional Provisions. (a) Capitalized terms used
and not otherwise defined herein have the meanings assigned to them in the
Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such
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terms and to the masculine as well as to the feminine and neuter genders of such
terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
Conveyance of Receivables
SECTION 2.01. Conveyance of Receivables. (a) In consideration of the
Issuer's delivery on the Closing Date to or upon the order of the Depositor of
(i) Certificates with a Certificate Balance of $90,150.45 and (ii)
$87,984,949.15, the Depositor does hereby sell, transfer, assign, set over and
otherwise convey to the Issuer, without recourse (subject to the obligations
herein), all right, title and interest of the Depositor in and to (but none of
the Depositor's obligations with respect to):
(1) the Receivables and all moneys received thereon on and after the
Cutoff Date plus all Payaheads as of the Cutoff Date;
(2) the security interests in the Financed Vehicles granted by
Obligors pursuant to the Receivables, any other right to realize upon
property securing a Receivable and any other interest of the Depositor in
such Financed Vehicles including the Depositor's right, title and interest
in the lien on the Financed Vehicles in the name of the Depositor's agent,
Autorics, Inc., NAL or SFI;
(3) any proceeds with respect to the Receivables from claims on any
Insurance Policies relating to Financed Vehicles or Obligors;
(4) proceeds of any recourse (but none of the obligations) to
Dealers on Receivables;
(5) any Financed Vehicle that shall have secured a Receivable and
shall have been acquired by or on behalf of the Seller, the Depositor, the
Servicer, or the Trust;
(6) the Receivables Files;
(7) all right, title and interest of the Depositor under the
Receivables Purchase Agreement, including, without
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limitation, the right of the Depositor to cause NAL to purchase
Receivables under certain circumstances;
(8) the Trust Accounts; and
(9) the proceeds of any and all of the foregoing.
ARTICLE III
The Receivables
SECTION 3.01. Representations and Warranties of the Depositor with Respect
to the Receivables. The Depositor makes the following representations and
warranties with respect to the Receivables on which the Issuer relies in
acquiring the Receivables and issuing the Notes and Certificates. Such
representations and warranties speak as of the execution and delivery of this
Agreement and as of the Closing Date, but shall survive the sale, transfer and
assignment of the Receivables to the Issuer and the pledge thereof to the
Indenture Trustee pursuant to the Indenture.
(a) Title. It is the intention of the Depositor that the transfer and
assignment herein contemplated constitute a sale of the Receivables from the
Depositor to the Issuer and that the beneficial interest in and title to the
Receivables not be part of the debtor's estate in the event of the filing of a
bankruptcy petition by or against the Depositor under any bankruptcy law. No
Receivable has been sold, transferred, assigned or pledged by the Depositor to
any Person other than the Issuer. Immediately prior to the transfer and
assignment herein contemplated, the Depositor had good and marketable title to
each Receivable, free and clear of all Liens and rights of others and,
immediately upon the transfer thereof, the Issuer shall have good and marketable
title to each Receivable, free and clear of all Liens and rights of others; and
the transfer has been perfected under the UCC.
(b) All Filings Made. All filings (including UCC filings) necessary in any
jurisdiction to give (i) the Issuer a first perfected ownership interest in the
Receivables and (ii) the Indenture Trustee a first perfected security interest
in the Receivables shall have been made.
SECTION 3.02. Repurchase upon Breach. The Depositor, the Servicer, the
Backup Servicer and the Issuer, as the case may be, shall inform the other
parties to this Agreement, NAL and the Indenture Trustee promptly, in writing,
upon the discovery of any breach of the Depositor's representations and
warranties made pursuant to Section 3.01 or of NAL's representations and
warranties made pursuant to Section 3.02(c) of the Receivables Purchase
Agreement. Unless any such breach shall have been cured by the last day of the
Collection Period following the discovery thereof by NAL or the receipt by NAL
of written notice thereof from the Owner Trustee, the Indenture Trustee, the
Depositor, the
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Servicer or the Backup Servicer, the Depositor, the Issuer or the Owner Trustee
shall enforce the obligation of NAL under the Receivables Purchase Agreement, to
purchase as of such last day any Receivable with respect to which such a breach
had occurred if such breach has a material and adverse effect on the interests
of the Depositor or the Trust in and to such Receivable. In consideration for
the purchased Receivable, NAL shall remit the Purchase Amount in the manner
specified in Section 6.02 of the Receivables Purchase Agreement. Subject to the
provisions of Section 6.03, the sole remedy of the Issuer, the Owner Trustee,
the Indenture Trustee, the Noteholders or the Certificateholders with respect to
a breach of representations and warranties pursuant to Section 3.01 and the
agreement contained in this Section shall be to require NAL to purchase
Receivables pursuant to this Section and the Receivables Purchase Agreement.
SECTION 3.03. Custody of Receivable Files. (a) In connection with the sale
and transfer of the Receivables pursuant to this Agreement, the Issuer,
simultaneously with the execution and delivery of this Agreement, is entering
into the Custodial Agreement with the Custodian pursuant to which the Issuer
appoints the Custodian, and the Custodian accepts such appointment, to act as
the agent and bailee of the Issuer (initially), the Indenture Trustee (until all
amounts in respect of the Notes have been paid) and thereafter the Issuer,, all
in accordance with the terms of the Custody Agreement, for all purposes of
Article 9 of the UCC, as Custodian of the following documents or instruments,
which are hereby constructively delivered to the Issuer or Indenture Trustee, as
pledgee of the Issuer, as the case may be, with respect to each Receivable:
(i) a list of Receivables in the form of Schedule A hereto,
identifying such Receivable together with the Computer Tape identifying
such Receivable and a completed checklist in the form of Exhibit D hereto
(it being expressly understood and agreed that the Custodian and Indenture
Trustee have no duties or responsibilities for checking or verifying the
accuracy or completeness of such checklist);
(ii) the fully executed original Receivable with manual signatures
and Dealer endorsements, together with executed assignments thereof by
NAL, the Seller and the Depositor in blank, which assignments shall be
substantially in the form of Exhibit E hereto;
(iii) a written confirmation from the Servicer certifying as to the
Insurance Policies covering the Receivable and stating that they are in
full force and effect;
(iv) the original certificate of title relating to the Financed
Vehicle or (a) a copy of the application for a certificate of title and
(b) a copy of the existing title, lien entry form or receipt of
registration or (c) a copy of the related letter guarantee, in each case
noting the lien of
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NAL, the Seller or SFI; provided, however, that at any time during the
term hereof the Owner Trustee may request and require that the Depositor
cause the party in whose name the lien is noted to transfer such lien to
the Depositor;
(v) an original or copy of the credit application of the Obligor;
and
(vi) financing statements on Form UCC-l listing the Owner Trustee as
the secured party with respect to each Receivable and the other items
conveyed pursuant to Section 2.01 and stamped to indicate filing with the
Office of the Secretary of State of the State of Florida and with the
Office of the Secretary of State of Delaware.
(b) Access to Records. The Servicer or the Custodian, as the case may be,
shall provide to (or in the case of the Custodian shall be required pursuant to
the Custodial Agreement to provide to) the Indenture Trustee, the Issuer, the
Backup Servicer, Noteholders and Certificateholders and their duly authorized
representatives, attorneys or auditors access to the Receivable Files in such
cases where the Indenture Trustee, the Issuer, a Noteholder or a
Certificateholder is required by applicable statutes or regulations to review
the related accounts, records and computer systems maintained by the Servicer or
the Custodian, as the case may be, such access being afforded without charge but
only upon reasonable request and during normal business hours at offices of the
Servicer or the Custodian, as the case may be, designated by the Servicer or the
Custodian. Nothing in this Section shall derogate from the obligation of the
Servicer or the Custodian to observe any applicable law prohibiting disclosure
of information regarding the Obligors, and the failure of the Servicer or the
Custodian to provide access as provided in this Section as the result of such
obligation shall not constitute a breach of this Section.
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.01. Duties of Servicer. The Servicer, for the benefit of the
Issuer (to the extent provided herein), shall manage, service, administer and
make collections on the Receivables (other than Purchased Receivables) with
reasonable care, acting prudently and in accordance with customary and usual
servicing procedures for other institutional servicers of receivables of the
type subject to this Agreement and applicable law, and to the degree not
inconsistent with the foregoing, using that degree of skill and attention that
the Servicer exercises with respect to all comparable automotive receivables
that it services for itself or others. The Servicer's duties shall include
collection and posting of all payments, responding to inquiries of Obligors on
such Receivables, investigating delinquencies, sending billing statements to
Obligors, reporting
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tax information to Obligors, accounting for collections, and furnishing monthly,
and annual statements to the Owner Trustee and the Indenture Trustee with
respect to distributions. Subject to the provisions of Section 4.02, the
Servicer shall follow its customary standards, policies and procedures in
performing its duties as Servicer. Without limiting the generality of the
foregoing, the Servicer is authorized and empowered to execute and deliver, on
behalf of itself, the Issuer, the Owner Trustee, the Indenture Trustee, the
Certificateholders and the Noteholders or any of them, any and all instruments
of satisfaction or cancellation, or partial or full release or discharge, and
all other comparable instruments, with respect to such Receivables or to the
Financed Vehicles securing such Receivables. If the Servicer shall commence a
legal proceeding to enforce a Receivable, the Issuer (in the case of a
Receivable other than a Purchased Receivable) shall thereupon be deemed to have
automatically assigned, solely for the purpose of collection, such Receivable to
the Servicer. If in any enforcement suit or legal proceeding it shall be held
that the Servicer may not enforce a Receivable on the ground that it shall not
be a real party in interest or a holder entitled to enforce such Receivable, the
Owner Trustee shall, at the Servicer's expense and direction, take steps to
enforce such Receivable, including bringing suit in its name or the name of the
Owner Trustee, the Indenture Trustee, the Certificateholders or the Noteholders.
The Owner Trustee shall (and the Custodian pursuant to the Custodial Agreement
shall be required) upon the written request of the Servicer furnish the Servicer
with any powers of attorney and other documents reasonably necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder.
SECTION 4.02. Collection and Allocation of Receivable Payments. The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Receivables as and when the same shall become
due and shall follow such collection procedures as it follows with respect to
all comparable automotive receivables that it services for itself or others. The
Servicer may grant extensions, rebates or adjustments on a Receivable or arrange
with the Obligor to extend or modify the payment schedule, which actions shall
not, for the purposes of this Agreement, modify the original due dates or
amounts of the Scheduled Payments on a Precomputed Receivable or the original
due dates or amounts of the originally scheduled payments of interest on Simple
Interest Receivables; provided, however, that if the Servicer extends the date
for final payment by the Obligor of any Receivable beyond the Final Scheduled
Maturity Date, it shall promptly repurchase the Receivable from the Issuer in
accordance with the terms of Section 4.07. The Servicer may in its discretion
waive any late payment charge or any other fees that may be collected in the
ordinary course of servicing a Receivable. The Servicer shall not agree to any
alteration of the interest rate on any Receivable or of the amount of any
Scheduled Payment on Precomputed Receivables or the originally scheduled
payments on Simple Interest Receivables.
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SECTION 4.03. Realization upon Receivables. On behalf of the Issuer, the
Servicer shall use its best efforts, consistent with its customary servicing
procedures, to repossess or otherwise convert the ownership of and liquidate the
Financed Vehicle securing any Receivable as to which the Servicer shall have
determined eventual payment in full is unlikely. The Servicer shall follow such
customary and usual practices and procedures as it shall deem necessary or
advisable in its servicing of automotive receivables, which may include
reasonable efforts to realize upon any recourse to Dealers and selling the
Financed Vehicle at public or private sale. The foregoing shall be subject to
the provision that, in any case in which the Financed Vehicle shall have
suffered damage, the Servicer shall not expend funds in connection with the
repair or the repossession of such Financed Vehicle unless it shall determine in
its discretion that such repair and/or repossession will increase the
Liquidation Proceeds by an amount greater than the amount of such expenses. The
Servicer may not sell any Financed Vehicles to J.D. Byrider Systems, Inc. for
less than 100% of such Financed Vehicles' wholesale value, determined from the
"Black Book".
SECTION 4.04. Insurance. The Servicer shall, in accordance with its
customary servicing procedures, require that each Obligor shall have obtained
physical damage and theft insurance covering the Financed Vehicle as of the
execution of the Receivable. The Servicer shall notify each insurer providing a
"guaranteed auto protection" insurance policy with respect to the Receivables to
include the Indenture Trustee as an additional insured and its payee on each
such policy. Upon receipt of notification that the insurance required pursuant
to the terms of any Receivable is not in place, the Servicer shall obtain "dual
interest" insurance chargeable to the Obligor in accordance with its customary
servicing procedures.
SECTION 4.05. Maintenance of Security Interests in Financed Vehicles. The
Servicer shall, in accordance with its customary servicing procedures, take such
steps as are necessary to maintain perfection of the security interest created
by each Receivable in the related Financed Vehicle. The Servicer is hereby
authorized to take such steps as are necessary to re-perfect such security
interest on behalf of the Issuer and the Indenture Trustee in the event of the
relocation of a Financed Vehicle or for any other reason.
SECTION 4.06. Covenants of Servicer. The Servicer shall not release the
Financed Vehicle securing any Receivable from the security interest granted by
such Receivable in whole or in part except in the event of payment in full by
the Obligor thereunder or repossession, nor shall the Servicer impair the rights
of the Issuer, the Indenture Trustee, the Certificateholders or the Noteholders
in such Receivable, nor shall the Servicer (except in the case of an extension
permitted pursuant to Section 4.02) increase the number of scheduled payments
due under a Receivable.
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Neither NAL nor any Affiliate thereof shall incur liabilities of any kind
to SunTrust Bank, South Florida, National Association ("SunTrust"), if the total
amount of such liabilities outstanding at any time exceeds $10,000 except for
liabilities with respect to which SunTrust has expressly agreed to irrevocably
and unconditionally waive all right of set-off or other claims that it may have
under contract, applicable law or otherwise with respect to any funds or monies
SunTrust may hold from time to time pursuant to the Lock-box Agreement dated
November 27, 1995 between NAL, SunTrust and General Electric Capital
Corporation, or any other agreement related to the holding of any proceeds of
the Receivables or the other property conveyed pursuant to Section 2.01.
SECTION 4.07. Purchase of Receivables upon Breach. The Servicer or the
Owner Trustee shall inform the other party and the Indenture Trustee and the
Depositor promptly, in writing, upon the discovery of any breach pursuant to
Section 4.02, 4.05 or 4.06. Unless the breach shall have been cured by the last
day of the Collection Period following such discovery, the Servicer shall
purchase as of such last day any Receivable with respect to which such breach
had occurred if such breach has a material and adverse effect on the interests
of the Depositor or the Trust in and to such Receivable. If the Servicer takes
any action during any Collection Period pursuant to Section 4.02 that impairs
the rights of the Issuer, the Indenture Trustee, the Certificateholders or the
Noteholders in any Receivable or as otherwise provided in Section 4.02, the
Servicer shall purchase such Receivable as of the last day of such Collection
Period. In consideration of the purchase of any such Receivable pursuant to
either of the two preceding sentences, the Servicer shall remit the Purchase
Amount in the manner specified in Section 5.04. Subject to Section 7.02, the
sole remedy of the Issuer, the Owner Trustee, the Indenture Trustee, the
Certificateholders or the Noteholders with respect to a breach pursuant to
Section 4.02, 4.05 or 4.06 shall be to require the Servicer to purchase
Receivables pursuant to this Section. The Owner Trustee shall have no duty to
conduct any affirmative investigation as to the occurrence of any condition
requiring the repurchase of any Receivable pursuant to this Section.
SECTION 4.08. Servicing Fee. The Servicing Fee for a Distribution Date
shall equal the product of (a) one-fourth, (b) the Servicing Fee Rate and (c)
the Pool Balance as of the first day of the preceding Collection Period. The
Servicer shall also be entitled to all late fees, prepayment charges (including,
in the case of a Receivable that provides for payments according to the "Rule of
78s" and that is prepaid in full, the difference between the Principal Balance
of such Receivable (plus accrued interest to the date of prepayment) and the
principal balance of such Receivable computed according to the "Rule of 78s") ,
and other administrative fees or similar charges allowed by applicable law with
respect to the Receivables, collected (from whatever source) on the Receivables,
plus any reimbursement pursuant to the last paragraph of Section 7.02.
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SECTION 4.09. Servicer's Certificate. Not later than 11:00 a.m. (New York
time) on the 10th day of each month, or if such lath day is not a Business Day,
the next succeeding Business Day, the Servicer shall deliver to the Owner
Trustee, each Paying Agent, the Indenture Trustee, the Backup Servicer (in
electronic media form acceptable to the Backup Servicer) and the Depositor, with
a copy to the Rating Agencies, a Servicer's Certificate substantially in the
form attached hereto as Exhibit C setting forth the applicable information for
each of the items set forth therein. Receivables to be purchased by the Servicer
or by NAL shall be identified by the Servicer by account number with respect to
such Receivable (as specified in Schedule A).
SECTION 4.10. Annual Statement as to Compliance; Notice of Default. (a)
The Servicer shall deliver to the Owner Trustee and the Indenture Trustee, on or
before February 28 of each year beginning February 28, 1997, an Officers'
Certificate, dated as of December 31 of the preceding year, stating that (i) a
review of the activities of the Servicer during the preceding 12-month period
(or such shorter period as shall have elapsed since the Closing Date) and of its
performance under this Agreement has been made under such officers' supervision
and (ii) to the best of such officers' knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout such
year or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officers and the nature and status
thereof. The Indenture Trustee shall send a copy of such certificate and the
report referred to in Section 4.11 to each Rating Agency. A copy of such
certificate and the report referred to in Section 4.11 may be obtained by any
Certificateholder or Noteholder by a request in writing to the Owner Trustee
addressed to the Corporate Trust Office. Upon the telephone request of the Owner
Trustee, the Indenture Trustee will promptly furnish the Owner Trustee with a
list of Noteholders as of the date specified by the Owner Trustee.
(b) The Servicer shall deliver to the Owner Trustee, the Indenture
Trustee, the Backup Servicer and each Rating Agency, promptly after having
obtained knowledge thereof, but in no event later than five (5) Business Days
thereafter, written notice in an Officers' Certificate of any event which with
the giving of notice or lapse of time, or both, would become a Servicer Default
under Section 8.01.
SECTION 4.11. Annual Independent Certified Public Accounts' Report. The
Servicer shall cause a firm of independent certified public accountants, which
may also render other services to the Servicer, the Depositor or their
Affiliates, to deliver to the Owner Trustee and the Indenture Trustee on or
before February 28 of each year beginning February 28, 1997, a report addressed
to the Board of Directors of the Servicer, to the effect that such firm has
examined the financial statements of the Servicer for the preceding twelve
months or, in the case of the first such report, during such longer period that
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shall have elapsed since the Closing Date) and issued its report thereon and
that such examination (a) was made in accordance with generally accepted
auditing standards and accordingly included such tests of the accounting records
and such other auditing procedures as such firm considered necessary in the
circumstances; (b) included tests relating to automotive loans serviced for
others in accordance with the requirements of the Uniform Single Audit Program
for Mortgage Bankers (the "Program"), to the extent the procedures in such
Program are applicable to the servicing obligations set forth in this Agreement;
and (c) except as described in the report, disclosed no exceptions or errors in
the records relating to automobile, light-duty truck and van loans serviced for
others that, in the firm's opinion, paragraph four of such Program requires such
firm to report.
Such report will also indicate that the firm is independent of the
Servicer within the meaning of the Code of professional Ethics of the American
Institute of Certified Public Accountants.
SECTION 4.12. Servicer Expenses. The Servicer shall be required to pay all
expenses incurred by it in connection with its activities hereunder, including
fees and disbursements of independent accountants, taxes imposed on the Servicer
and expenses incurred in connection with distributions and reports to
Certificateholders and Noteholders.
SECTION 4.13. Appointment of Subservicer. The Servicer may at any time
appoint a subservicer to perform all or any portion of its obligations as
Servicer hereunder; provided, however, that the Rating Agency Condition shall
have been satisfied in connection therewith; and provided, further, that the
Servicer shall remain obligated and be liable to the Issuer, the Owner Trustee,
the Indenture Trustee, the Certificateholders and the Noteholders for the
servicing and administering of the Receivables in accordance with the provisions
hereof without diminution of such obligation and liability by virtue of the
appointment of such subservicer and to the same extent and under the same terms
and conditions as if the Servicer alone were servicing and administering the
Receivables. The fees and expenses of the subservicer shall be as agreed between
the Servicer and its subservicer from time to time, and none of the Issuer, the
Owner Trustee, the Indenture Trustee, the Certificateholders or the Noteholders
shall have any responsibility therefor.
SECTION 4.14. Oversight of Servicing.
(a) Commencing on the date of execution of this Agreement and continuing
until the earlier of (i) the termination of the Trust created by the Trust
Agreement and (ii) the appointment of the Backup Servicer as Servicer under this
Agreement, the Servicer shall, on the last day of each calendar month, deliver
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to the Backup Servicer in the Computer Tape format acceptable to the Backup
Servicer, such information as is necessary to permit the Backup Servicer to
service the Receivables in accordance with the provisions of this Agreement. The
Backup Servicer shall accept and store, but shall not be required to examine,
such information. Upon notice that the Servicer has resigned or upon the removal
of the Servicer under this Agreement, the Backup Servicer shall assume all
responsibilities of the Servicer (or of Indenture Trustee or any other Person
then acting as successor to such Servicer in accordance with Sections 8.01 and
8.02) under this Agreement within thirty days of such notice or removal. The
Backup Servicer shall service the Receivables in accordance with provisions of
this Agreement.
(b) On the date that each Servicer's Certificate is delivered by the
Servicer to the Owner Trustee and Indenture Trustee, the Servicer shall also
deliver a Computer Tape containing detailed information with respect to the
Receivables for the related Collection Period. The Backup Servicer shall
determine that (i) the Servicer's Certificate appears on its face to be complete
and (ii) that amounts credited to and withdrawn from the Trust Accounts and the
balance of such Trust Accounts are the same as the amount set forth in such
Servicer's Certificate. To the extent verifiable using the information contained
in the Servicer's Certificate, the Backup Servicer shall calculate and check
that the calculations made by the Servicer in the Servicer's Certificate are
mathematically accurate.
(c) In the event of any discrepancies or exceptions noted by the Backup
Servicer in the Servicer's Certificate, the Backup Servicer shall, within three
Business Days of its receipt of the Servicer's Certificate, notify the Servicer
of such discrepancies or exceptions. The Servicer shall consult with the Backup
Servicer and use its best efforts to ensure that such Servicer's Certificate is
corrected, and that subsequent Servicer's Certificates are accurate. If such
discrepancies or exceptions cannot be reconciled within 30 days, the Backup
Servicer's interpretation shall prevail for all subsequent Distribution Dates.
(d) The Backup Servicer will not be responsible for delays attributable to
the Servicer's failure to deliver information, defects in the information
supplied by Servicer or other circumstances beyond the control of the Backup
Servicer.
SECTION 4.15. Duties of Backup Servicer.
(a) The Backup Servicer shall perform such duties and only such duties as
are specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Backup Servicer.
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(b) In the absence of bad faith or negligence on its part, the Backup
Servicer may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Backup Servicer and conforming to the requirements of this
Agreement.
(c) The Backup Servicer shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if the
repayment of such funds or adequate written indemnity against such risk or
liability is not reasonably assured to it in writing prior to the expenditure or
risk of such funds or incurrence of financial liability.
(d) The Servicer shall indemnify, defend and hold harmless the Backup
Servicer, its agents, officers, directors or employees from and against any
claim, action, loss, damage, penalty, fine, cost, expense, or other liability,
including court costs and reasonable attorney's fees and expenses, incurred as a
result of its acts or omissions or its breach of its own representations made in
this Agreement or the Backup Servicer's performance of its duties under this
Agreement. The right of indemnification provided hereby shall survive the
termination of this Agreement. The Servicer shall not be liable to the Backup
Servicer, under this Section 4.15 or otherwise, for the improper acts,
negligence or bad faith of the Backup Servicer.
ARTICLE V
Trust Accounts; Distributions; Reserve Account;
Statements to Certificateholders and Noteholders
SECTION 5.01. Establishment of Trust Accounts. (a) (i) The Servicer, for
the benefit of the Noteholders and the Certificateholders, shall establish
and maintain in the name of the Indenture Trustee an Eligible Deposit
Account (the "Collection Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of
the Noteholders and the Certificateholders.
(ii) The Servicer, for the benefit of the Noteholders, shall
establish and maintain in the name of the Indenture Trustee an Eligible
Deposit Account (the "Note Distribution Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the
benefit of the Noteholders.
(iii) The Servicer, for the benefit of the Noteholders and the
Certificateholders, shall establish and maintain in the name of the
Indenture Trustee an Eligible Deposit Account (the "Reserve Account"),
bearing a designation clearly
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indicating that the funds deposited therein are held for the benefit of
the Noteholders and the Certificateholders.
(iv) The Servicer, for the benefit of the Noteholders and the
Certificateholders, shall establish and maintain in the name of the
Indenture Trustee an Eligible Deposit Account (the "Payahead Account"),
bearing a designation clearly indicating that the funds deposited therein
are held for the benefit of the Noteholders and the Certificateholders.
(v) The Servicer, for the benefit of the Noteholders, the
Certificateholders and NAL, shall establish and maintain in the name of
the Indenture Trustee an Eligible Deposit Account (the "Dealer Reserve
Account") bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Noteholders, the
Certificateholders, the Depositor and NAL.
(b) With respect to the Collection Account, the Note Distribution Account,
the Reserve Account, the Payahead Account and the Dealer Reserve Amount
(collectively the "Trust Accounts") funds on deposit in such Trust Accounts
(other than the Note Distribution Account) shall be invested by the Indenture
Trustee in Eligible Investments. All such Eligible Investments of the Trust Fund
shall be held by the Indenture Trustee for the benefit of the beneficiaries of
such accounts; provided, that on each Payment Determination Date all interest
and other investment income (net of losses and investment expenses) on funds on
deposit in the Trust Accounts (other than the Dealer Reserve Account) shall be
deposited into the Collection Account and shall be deemed to constitute a
portion of the Total Distribution Amount for the related Distribution Date.
Investment income (net of losses and investment expenses) on the Dealer Reserve
Account will be payable on each Distribution Date to the Depositor. Other than
as permitted by each Rating Agency, funds on deposit in the Trust Accounts shall
be invested in Eligible Investments that will mature not later than the Business
Day immediately preceding the next Distribution Date. Funds deposited in a Trust
Account on a day which immediately precedes a Distribution Date are not required
to be invested overnight.
(c) (i) The Indenture Trustee shall possess all right, title and interest
in all funds on deposit from time to time in the Trust Accounts and in all
proceeds thereof (including all income thereon) and all such funds,
investments, proceeds and income shall be part of the Trust Estate. The
Trust Accounts shall be under the sole dominion and control of the
Indenture Trustee for the benefit of the Noteholders and the
Certificateholders (and in the case of the Dealer Reserve Account, NAL),
as the case may be. If, at any time, any of the Trust Accounts ceases to
be an Eligible Deposit Account, the Indenture Trustee (or the Servicer on
its behalf) shall within 10 Business Days (or such longer period, not to
exceed
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30 calendar days, as to which each Rating Agency may consent) establish a
new Trust Account as an Eligible Deposit Account and shall transfer any
cash and/or any investments to such new Trust Account.
(ii) With respect to the Trust Account Property, the Indenture
Trustee agrees, by its acceptance hereof, that:
(A) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Deposit Accounts,
subject to the last sentence of Section 5.01(c) (i); and each such
Eligible Deposit Account shall be subject to the exclusive custody
and control of the Indenture Trustee, and the Indenture Trustee
shall have sole signature authority with respect thereto;
(B) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance
with paragraph (a) of the definition of "Delivery" and shall be
held, pending maturity or disposition, solely by the Indenture
Trustee or a financial intermediary (as such term is defined in
Section 8-313(4) of the UCC) acting solely for the Indenture
Trustee;
(C) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal
book-entry regulations shall be delivered in accordance with
paragraph (b) of the definition of "Delivery" and shall be
maintained by the Indenture Trustee, pending maturity or
disposition, through continued book-entry registration of such Trust
Account Property as described in such paragraph; and
(D) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (C) above shall be delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of "Delivery" and
shall be maintained by the Indenture Trustee, pending maturity or
disposition, through continued registration of the Indenture
Trustee's (or its nominee's) ownership of such security.
(iii) The Servicer shall have the power, revocable by the Indenture
Trustee or by the Owner Trustee with the consent of the Indenture Trustee,
to instruct the Indenture Trustee to make withdrawals and payments from
the Trust Accounts for the purpose of permitting the Servicer or the Owner
Trustee to carry out its respective duties hereunder or permitting the
Indenture Trustee to carry out its duties under the Indenture.
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(d) The Servicer shall on or prior to each Distribution Date (and prior to
deposits to the Note Distribution Account or the Certificate Distribution
Account) transfer from the Collection Account to the Payahead Account an amount
equal to the increase in the Payahead Balance as described in Section 5.03
received by the Servicer during the related Collection Period or, if the
Payahead Balance decreased during such Collection Period, shall transfer an
amount equal to the amount of such decrease from the Payahead Account to the
Collection Account.
SECTION 5.02. Collections. The Servicer shall remit within two Business
Days of receipt thereof to the Collection Account all payments by or on behalf
of the Obligors with respect to the Receivables (other than Purchased
Receivables) and all Liquidation Proceeds and Recoveries, both as collected
during the Collection Period.
SECTION 5.03. Application of Collections. All collections for the
Collection Period shall be applied by the Servicer as follows:
With respect to each Receivable (other than a Purchased Receivable),
payments by or on behalf of the Obligor shall be applied first, in the
case of Precomputed Receivables, to the Scheduled Payment and, in the case
of Simple Interest Receivables, to interest and principal in accordance
with the Simple Interest Method. With respect to Precomputed Receivables,
any remaining excess shall be added to the Payahead Balance, and shall be
applied to prepay the Precomputed Receivable (in reduction of the Payahead
Balance as evidenced by a transfer of the net amount of such reduction
from the Payahead Account to the Collection Account), but only if the sum
of such excess and the previous Payahead Balance shall be sufficient to
prepay the Receivable in full. Otherwise, any such remaining excess
payments shall constitute a Payahead (as shall the accumulated amount of
such excess on the Receivables as of the Cut-off Date) and shall increase
the Payahead Balance. With respect to a Precomputed Receivable the related
payment on behalf of which is less than the Scheduled Payment, amounts (to
the extent of the related Payahead Balance) in respect of such deficiency
will be transferred from the Payahead Account to the Collection Account in
accordance with Section 5.01(d).
SECTION 5.04. Additional Deposits. The Servicer and the Depositor shall
deposit or cause to be deposited in the Collection Account the aggregate
Purchase Amount with respect to Purchased Receivables, and the Servicer shall
deposit therein all amounts to be paid under Section 9.01. The Servicer will
deposit the aggregate Purchase Amount with respect to Purchased Receivables in
the Collection Account when such obligations are due.
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SECTION 5.05. Distributions. (a) On each Payment Determination Date, the
Servicer shall calculate all amounts required to be deposited in the Note
Distribution Account and the Certificate Distribution Account.
(b) On each Distribution Date, the Servicer shall instruct the Indenture
Trustee (based on the information contained in the Servicer's Certificate
delivered on the related Payment Determination Date pursuant to Section 4.09) to
make the following deposits and distributions for receipt by the Servicer or
deposit in the applicable account by 1:00 p.m. (New York time), to the extent of
the Total Distribution Amount, in the following order of priority:
(i) only in the event NAL is not the Servicer, to the Servicer, the
Servicing Fee (and all unpaid Servicing Fees from prior Collection
Periods);
(ii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clause (i), the Noteholders'
Interest Distributable Amount;
(iii) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) and
(ii), the Certificateholders' Interest Distributable Amount;
(iv) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) through (iii), the
Noteholders' Principal Distributable Amount;
(v) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(iv), the Certificateholders' Principal Distributable Amount;
(vi) to the Reserve Account, the Total Distribution Amount remaining
after application of clauses (i) through (v), as and to the extent
provided in Section 5.06;
(vii) for so long as NAL is the Servicer, to the Servicer, from the
Total Distribution Amount remaining after the application of clauses (i)
through (vi), the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods; and
(viii) to the Depositor, any remaining amount.
Notwithstanding that the Notes have been paid in full, the Indenture Trustee
shall continue to maintain the Collection Account hereunder until the
Certificate Balance is reduced to zero.
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SECTION 5.06. Reserve Account. (a) (i) On the Closing Date, the Owner
Trustee will deposit, on behalf of the Depositor, the Reserve Account Initial
Deposit into the Reserve Account from the net proceeds of the sale of the Notes
and the Certificates.
(ii) If on a Distribution Date (i) the amount on deposit in the
Reserve Account, after any withdrawals therefrom on or prior to such
Distribution Date, is less than the Specified Reserve Account Balance,
there shall be deposited into the Reserve Account on such Distribution
Date pursuant to Section 5.05(b)(vi) the portion of the Total
Distribution Amount on such Distribution Date remaining after payment of
the Servicing Fee (but only in the event NAL is not the Servicer), the
Noteholders' Interest Distributable Amount, the Certificateholders'
Interest Distributable Amount, the Noteholders' Principal Distributable
Amount and the Certificateholders' Principal Distributable Amount (such
amount, the "Excess Spread") until the amount on deposit in the Reserve
Account equals the Specified Reserve Account Balance for such Distribution
Date or (ii) the amount on deposit in the Reserve Account, after any
withdrawals therefrom on or prior to such Distribution Date, is less than
the Trigger Event Reserve Account Balance and a Trigger Event has occurred
and not terminated, there shall be deposited into the Reserve Account on
such Distribution Date pursuant to Section 5.05(b)(vi) the Excess Spread,
if any, for such Distribution Date until the amount on deposit in the
Reserve Account equals the Trigger Event Reserve Account Balance.
(b) Unless a Trigger Event has occurred and has not terminated, if the
amount on deposit in the Reserve Account on any Distribution Date (after giving
effect to all deposits thereto or withdrawals therefrom on such Distribution
Date) is greater than the Specified Reserve Account Balance for such
Distribution Date, the Servicer shall instruct the Indenture Trustee to
distribute the amount of such excess to the Depositor. If a Trigger Event has
occurred and has not terminated, if the amount on deposit in the Reserve Account
on any Distribution Date (after giving effect to all deposits thereto or
withdrawals therefrom on such Distribution Date) is greater than the Trigger
Event Reserve Account Balance for such Distribution date, the Servicer shall
instruct the Indenture Trustee to distribute the amount of such excess to the
Depositor.
(c) In the event that the Noteholders' Interest Distributable Amount for a
Distribution Date exceeds the amount deposited into the Note 'Distribution
Account pursuant to Section 5.05(b)(ii) on such Distribution Date, the Servicer
shall instruct the Indenture Trustee to withdraw from the Reserve Account on
such Distribution Date an amount equal to such excess, to the extent of funds
available therein, and deposit such amount into the Note Distribution Account on
such Distribution Date.
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(d) In the event that the Certificateholders' Interest Distributable
Amount for a Distribution Date exceeds the amount deposited into the Certificate
Distribution Account pursuant to Section 5.05(b) (iii) on such Distribution
Date, the Servicer shall instruct the Indenture Trustee to withdraw from the
Reserve Account on such Distribution Date an amount equal to such excess, to the
extent of funds available therein after giving effect to paragraph (c) above,
and deposit such amount into the Certificate Distribution Account on such
Distribution Date.
(e) In the event that the Noteholders' Principal Distributable Amount for
a Distribution Date exceeds the amount deposited into the Note Distribution
Account pursuant to Section 5.05(b)(iv) on such Distribution Date, the Servicer
shall instruct the Indenture Trustee to withdraw from the Reserve Account on
such Distribution Date an amount equal to such excess, to the extent of funds
available therein after giving effect to paragraphs (c) and (d) above, and
deposit such amount into the Note Distribution Account on such Distribution
Date.
(f) In the event that the Certificateholders' Principal Distributable
Amount for a Distribution Date exceeds the amount deposited into the Certificate
Distribution Account pursuant to Section 5.05(b)(v) on such Distribution Date,
the Servicer shall instruct the Indenture Trustee to withdraw from the Reserve
Account on such Distribution Date an amount equal to such excess, to the extent
of funds available therein after giving effect to paragraphs (c), (d) and (e)
above, and deposit such amount into the Certificate Distribution Account on such
Distribution Date.
(g) Following the payment in full of the aggregate Outstanding Amount of
the Notes and the Certificate Balance and of all other amounts owing or to be
distributed hereunder or under the Indenture or the Trust Agreement to
Noteholders and Certificateholders and the termination of the Trust, any amount
remaining on deposit in the Reserve Account shall be distributed to the
Depositor.
(h) Upon any distribution to the Depositor of amounts from the Reserve
Fund in accordance with the terms hereof, neither the Noteholders nor the
Certificateholders will have any rights in, or claims to, such amounts.
SECTION 5.07. Statements to Certificateholders and Noteholders. (a) On or
prior to each Distribution Date, the Servicer shall provide to the Indenture
Trustee (with a copy to each Rating Agency and each Paying Agent) for the
Indenture Trustee to forward to each Noteholder of record as of the most recent
Record Date and to the Owner Trustee (with a copy to each Paying Agent) for the
Owner Trustee to forward to each Certificateholder of record as of the most
recent Record Date a statement substantially in the form of Exhibits A and B,
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respectively, setting forth at least the following information as to the Notes
and the Certificates to the extent applicable:
(i) the amount of such distribution allocable to principal allocable
to the Notes and to the Certificates;
(ii) the amount of such distribution allocable to interest allocable
to the Notes and to the Certificates;
(iii) the Pool Balance as of the close of business on the last day
of the preceding Collection Period;
(iv) the Outstanding Amount of the Notes, the Note Pool Factor, the
Certificate Balance and the Certificate Pool Factor as of the close of
business on the last day of the preceding Collection Period, after giving
effect to payments allocated to principal reported under clause (i) above;
(v) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period;
(vi) the amount of aggregate Realized Losses, if any, with respect
to the related Collection Period;
(vii) the aggregate Principal Balance of Receivables that are 30 to
59 days, 60 to 89 days and 90 days or more delinquent;
(viii) the Average Three Month Delinquency Ratio, the Average Six
Month Repossession Ratio and the Average Six Month Realized Loss Ratio as
of the last day of the related Collection Period;
(ix) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall, if
any, after giving effect to payments on such Distribution Date, and the
changes in such amounts from the preceding statement;
(x) the aggregate Purchase Amounts for Receivables, if any, that
were purchased by NAL or the Servicer during the related Collection
Period;
(xi) the balance, if any, of the Reserve Account after giving effect
to deposits and withdrawals to be made on such Distribution Date, and the
change in such balance from the preceding statement; and
(xii) the aggregate Payahead Balance.
Each amount set forth under clauses (i), (ii), (v) and (ix) above shall be
expressed as a dollar amount per $1,000 of
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original principal balance of a Certificate or Note, as applicable.
(b) On or prior to the 15th day of each month that is not a month in
which a Distribution Date occurs and on or prior to each Distribution
Date, the Indenture Trustee shall forward to each Noteholder of record and
the Owner Trustee shall forward to each Certificateholder of record the
Servicer's Certificate provided to it pursuant to Section 4.09 (except
that on any Distribution Date information otherwise provided to such
holder pursuant to clause (a) of this Section 5.08 need not have been
included in such certificate).
SECTION 5.08. Transfer of the Notes. In the event any Holder of the Notes
shall wish to transfer such Note, the Servicer shall provide to such Holder and
any prospective transferee designated by such Holder information regarding the
Notes and the Receivables and such other information as shall be necessary to
satisfy the condition to eligibility set forth in Rule 144A(d)(4) for transfer
of any such Note without registration thereof under the Securities Act of 1933,
as amended, pursuant to the exemption from registration provided by Rule 144A.
SECTION 5.09. Dealer Reserve Account. (a) On the Closing Date, the Owner
Trustee will deposit, on behalf of the Depositor, an amount equal to $173,150.76
into the Dealer Reserve Account.
(b) On each Distribution Date, the Servicer shall be entitled to withdraw
from the Dealer Reserve Account for payment to NAL, an amount equal to the
amount payable or paid by NAL to Dealers (other than SF1 and AA) during the
related Collection Period in respect of dealer reserves on the Receivables and
amounts to which NAL may be entitled from such dealer reserves under NAL's
agreements with such Dealers. After payment in full, or the provision for such
payment, of all amounts payable to Dealers (other than SF1 and AA) in respect of
dealer reserves on the Receivables, any funds remaining on deposit in the Dealer
Reserve Account will be paid to the Depositor. Amounts on deposit in the Dealer
Reserve Account will not be available to make payments on the Securities or for
any other purpose other than that set forth above in this clause (b).
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ARTICLE VI
The Depositor
SECTION 6.01. Representations of Depositor. The Depositor makes the
following representations on which the Issuer relies in acquiring the
Receivables and issuing the Notes and the Certificates. The representations
speak as of the execution and delivery of this Agreement and as of the Closing
Date and shall survive the sale of the Receivables to the Issuer and the pledge
thereof to the Indenture Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Depositor is duly organized and
validly existing as a corporation in good standing under the laws of the State
of Delaware, with the corporate power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted, and had at all relevant times, and has, the corporate
power, authority and legal right to acquire and own the Receivables.
(b) Due Qualification. The Depositor is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals, in all jurisdictions in which the ownership or lease of its
property or the conduct of its business shall require such qualifications.
(c) Power and Authority. The Depositor has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms; the
Depositor has full power and authority to sell and assign the property to be
sold and assigned to and deposited with the Issuer, and the Depositor shall have
duly authorized such sale and assignment to the Issuer by all necessary
corporate action; and the execution, delivery and performance of this Agreement
has been duly authorized by the Depositor by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Depositor enforceable in accordance with its terms.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the certificate of
incorporation or bylaws of the Depositor, or any indenture, agreement or other
instrument to which the Depositor is a party or by which it is bound; or result
in the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such indenture, agreement or other instrument (other than
pursuant to the Basic Documents); or violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable
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to the Depositor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Depositor or its properties.
(f) No Proceedings. There are no proceedings or investigations pending, or
to the Depositor's best knowledge, threatened, before any court, regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties: (i) asserting the invalidity
of this Agreement, the Receivables Purchase Agreement, the Indenture or any of
the other Basic Documents, the Notes or the Certificates, (ii) seeking to
prevent the issuance of the Notes or the Certificates or the consummation of any
of the transactions contemplated by this Agreement, the Receivables Purchase
Agreement, the Indenture or any of the other Basic Documents, (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Depositor of its obligations under, or the validity or
enforceability of, this Agreement, the Receivables Purchase Agreement, the
Indenture, any of the other Basic Documents, the Notes or the Certificates or
(iv) which might adversely affect the federal or state income tax attributes of
the Notes or the Certificates.
(g) Principal Place of Business. The principal. place of business and
chief executive office of the Depositor are located at the place set forth in
Section 10.03(a) and such location has not changed since the date the Depositor
was incorporated.
(h) Use of Names. The legal name of the Depositor is the name used by it
in this Agreement and the Depositor has not changed its name since the date of
its incorporation and does not have trade names, fictitious names, assumed names
or "doing business" names.
(i) Solvency. The Depositor is solvent and will not become insolvent after
giving effect to the transactions contemplated in this Agreement; the Depositor
is paying its debts, if any, as they become due; the Depositor, after giving
effect to the transactions contemplated in this Agreement, will have adequate
capital to conduct its business.
SECTION 6.02. Corporate Existence. (a) During the term of this Agreement,
the Depositor will keep in full force and effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
incorporation and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the Basic Documents
and each other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby.
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(b) During the term of this Agreement, the Depositor shall observe the
applicable legal requirements for the recognition of the Depositor as a legal
entity separate and apart from its Affiliates, including the following:
(i) the Depositor shall maintain corporate records and books of
account separate from those of its Affiliates;
(ii) except as otherwise provided in this Agreement, the Depositor
shall not commingle its assets and funds with those of its Affiliates;
(iii) the Depositor shall hold such appropriate meetings of its
board of directors as are necessary to authorize all the Depositor's
corporate actions required by law to be authorized by the board of
directors, shall keep minutes of such meetings and of meetings of its
stockholder(s) and observe all other customary corporate formalities (and
any successor Depositor not a corporation shall observe similar procedures
in accordance with its governing documents and applicable law);
(iv) the Depositor shall at all times hold itself out to the public
under the Depositor's own name as a legal entity separate and distinct
from its Affiliates;
(v) all transactions and dealings between the Depositor and its
Affiliates will be conducted on an arm's-length basis;
(vi) except as provided for by the Basic Documents, the Depositor
shall not utilize NAL as its agent and shall not agree to act as the agent
of any other Person; and
(vii) the Depositor shall at all times have at least one director
that is an "Independent Director" as such term is defined in the
certificate of incorporation.
SECTION 6.03. Liability of Depositor; Indemnities. (a) The Depositor shall
be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Depositor under this Agreement.
(b) The Depositor shall indemnify, defend and hold harmless the Issuer,
the Owner Trustee, the Indenture Trustee, the Certificateholders and the
Noteholders and any of the officers, directors, employees and agents of the
Issuer, the Owner Trustee and the Indenture Trustee from and against any loss,
liability or expense incurred by reason of (i) the Depositor's willful
misfeasance, bad faith or negligence in the performance of its duties under this
Agreement or by reason of reckless disregard of its obligations and duties under
this Agreement and (ii) the Depositor's or the Issuer's violation of
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federal or state securities laws in connection with the offering and sale of the
Notes and the Certificates.
Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee or the Indenture Trustee and the termination of
this Agreement and shall include reasonable fees and expenses of counsel and
expenses of litigation. If the Depositor shall have made any indemnity payments
pursuant to this Section and the Person to or on behalf of whom such payments
are made thereafter shall collect any of such amounts from others, such Person
shall promptly repay such amounts to the Depositor, without interest.
SECTION 6.04. Merger or Consolidation of, or Assumption of the Obligations
of, Depositor. Any Person (a) into which the Depositor may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Depositor shall be a party or (c) which may succeed to the properties and assets
of the Depositor substantially as a whole, which Person in any of the foregoing
cases executes an agreement of assumption to perform every obligation of the
Depositor under this Agreement, shall be the successor to the Depositor
hereunder without the execution or filing of any document or any further act by
any of the parties to this Agreement; provided, however, that (i) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 3.dl shall have been breached and no Servicer Default, and
no event that, after notice or lapse of time, or both, would become a Servicer
Default shall have occurred and be continuing, (ii) the Depositor shall have
delivered to the Owner Trustee and the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with, (iii) the Rating Agency
Condition shall have been satisfied with respect to such transaction and (iv)
the Depositor shall have delivered to the Owner Trustee and the Indenture
Trustee an Opinion of Counsel stating that, in the opinion of such counsel,
either (A) all financing statements and continuation statements and amendments
thereto have been executed and filed that are necessary fully to preserve and
protect the interest of the Owner Trustee and Indenture Trustee, respectively,
in the Receivables and reciting the details of such filings, or (B) no such
action shall be necessary to preserve and protect such interests.
Notwithstanding anything herein to the contrary, the execution of the foregoing
agreement of assumption and compliance with clauses (i), (ii), (iii) and (iv)
above shall be conditions to the consummation of the transactions referred to in
clause (a), (b) or (c) above.
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SECTION 6.05. Limitation on Liability of Depositor and Others. The
Depositor and any director, officer, employee or agent of the Depositor may rely
in good faith on the advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Depositor shall not be under any obligation to appear in,
prosecute or defend any legal action that shall not be incidental to its
obligations under this Agreement and that in its opinion may involve it in any
expense or liability.
SECTION 6.06. Depositor May Own Certificates or Notes. The Depositor and
any Affiliate thereof may in its individual or any other capacity become the
owner or pledgee of Certificates or Notes with the same rights as it would have
if it were not the Depositor or an Affiliate thereof, except as expressly
provided herein or in any Basic Document.
SECTION 6.07. Sale of Receivables. The Depositor shall take no actions
inconsistent with the Trust's ownership of the Receivables. The Depositor shall
promptly respond to any third-party inquiries regarding the Receivables by
indicating that ownership thereof has been transferred to the Trust.
ARTICLE VII
The Servicer; Backup Servicer
SECTION 7.01. Representations of Servicer. The Servicer makes the
following representations on which the Issuer relies in acquiring the
Receivables and issuing the Notes and the Certificates. The representations
speak as of the execution and delivery of this Agreement and as of the Closing
Date and shall survive the sale of the Receivables to the Issuer and the pledge
thereof to the Indenture Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Servicer is duly organized and
validly existing as a corporation in good standing under the laws of the state
of its incorporation, with the corporate power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the corporate power, authority and legal right to acquire, own, sell and
service the Receivables.
(b) Due Qualification. The Servicer is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals, in all jurisdictions in which the ownership or lease of property
or the conduct of its business (including the servicing of the Receivables as
required by this Agreement) shall require such qualifications.
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(c) Power and Authority. The Servicer has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Servicer enforceable in accordance with its terms.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof shall not conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Servicer, or any indenture, agreement or other
instrument to which the Servicer is a party or by which it is bound; or result
in the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such indenture, agreement or other instrument (other than this
Agreement); or violate any law or any order, rule or regulation applicable to
the Servicer of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Servicer or its properties.
(f) No Proceedings. There are no proceedings or investigations pending or,
to the Servicer's best knowledge, threatened, before any court, regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Servicer or its properties: (i) asserting the invalidity of this
Agreement, the Receivables Purchase Agreement, the Indenture, any of the other
Basic Documents, the Notes or the Certificates, (ii) seeking to prevent the
issuance of the Notes or the Certificates or the consummation of any of the
transactions contemplated by this Agreement, the Receivables Purchase Agreement,
the Indenture or any of the other Basic Documents, (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Servicer of its obligations under, or the validity or
enforceability of, this Agreement, the Receivables Purchase Agreement, the
Indenture, any of the other Basic Documents, the Notes or the Certificates or
(iv) relating to the Servicer and which might adversely affect the federal or
state income tax attributes of the Notes or the Certificates.
(g) No Insolvent Obligors. As of the Cutoff Date, no Obligor on a
Receivable is shown on the Receivable Files as the subject of a bankruptcy
proceeding.
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SECTION 7.02. Indemnities of Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement:
(a) The Servicer shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Indenture Trustee, the Backup Servicer, the Noteholders, the
Certificateholders, and the Depositor, their respective officers, directors,
employees and agents from and against any and all costs, expenses, losses,
damages, claims and liabilities, arising out of or resulting from the use,
ownership or operation by the Servicer or any Affiliate thereof of a Financed
Vehicle.
(b) The Servicer shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Indenture Trustee, the Backup Servicer and the Depositor and
their respective officers, directors, employees and agents from and against any
taxes that may at any time be asserted against any such Person with respect to
the transactions contemplated herein and in the Basic Documents, including any
sales, gross receipts, general corporation, tangible personal property,
privilege or license taxes (but, in the case of the Issuer, not including any
taxes asserted with respect to, and as of the date of, the sale of the
Receivables to the Issuer or the issuance and original sale of the Certificates
and the Notes, or asserted with respect to ownership of the Receivables, or
federal or other income taxes arising out of distributions on or transfers of
the Certificates or the Notes) and costs and expenses in defending against the
same.
(c) The Servicer shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Indenture Trustee, the Backup Servicer, the Depositor, the
Certificateholders and the Noteholders and their respective officers, directors,
employees and agents from and against any and all costs, expenses, losses,
claims, damages and liabilities to the extent that such cost, expense, loss,
claim, damage or liability arose out of, or was imposed upon any such Person
through, the negligence, willful misfeasance or bad faith of the Servicer in the
performance of its duties under this Agreement or by reason of reckless
disregard of its obligations and duties under this Agreement.
(d) The Servicer shall indemnify, defend and hold harmless the Owner
Trustee and the Indenture Trustee and their respective officers, directors,
employees and agents from and against all costs, expenses, losses, claims,
damages and liabilities arising out of or incurred in connection with the
acceptance or performance of the trusts and duties herein and in the Trust
Agreement contained, in the case of the Owner Trustee, and in the Indenture
contained, in the case of the Indenture Trustee, except to the extent that such
cost, expense, loss,
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claim, damage or liability: (i) in the case of the Owner Trustee, shall be due
to the willful misfeasance, bad faith or negligence (except for errors in
judgment) of the Owner Trustee or, in the case of the Indenture Trustee, shall
be due to the willful misfeasance, bad faith or negligence (except for errors in
judgment) of the Indenture Trustee; or (ii) in the case of the Owner Trustee,
shall arise from the breach by the Owner Trustee of any of its representations
or warranties set forth in Section 7.03 of the Trust Agreement.
(e) The Servicer shall pay any and all taxes levied or assessed upon all
or any part of the Owner Trust Estate.
For purposes of this Section, in the event of the termination of the
rights and obligations of NAL (or any successor thereto pursuant to Section
7.03) as Servicer pursuant to Section 8.01, or a resignation by such Servicer
pursuant to this Agreement, such Servicer shall be deemed to be the Servicer
pending appointment of a successor Servicer (other than the Indenture Trustee)
pursuant to Section 8.02.
Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee or the Indenture Trustee or the termination of this
Agreement and shall include reasonable fees and expenses of counsel and expenses
of litigation. If the Servicer shall have made any indemnity payments pursuant
to this Section and the Person to or on behalf of whom such payments are made
thereafter collects any of such amounts from others, such Person shall promptly
repay such amounts to the Servicer, without interest.
SECTION 7.03. Merger or Consolidation of, or Assumption of the Obligations
of, Servicer. Any Person (a) into which the Servicer may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Servicer shall be a party, (c) which may succeed to the properties and assets of
the Servicer substantially as a whole or (d) with respect to the Servicer's
obligations hereunder, which is a corporation 50% or more of the voting stock of
which is owned, directly or indirectly, by NAL, which Person executed an
agreement of assumption to perform every obligation of the Servicer hereunder,
shall be the successor to the Servicer under this Agreement without further act
on the part of any of the parties to this Agreement; provided, however, that (i)
immediately after giving effect to such transaction, no Servicer Default and no
event which, after notice or lapse of time, or both, would become a Servicer
Default shall have occurred and be continuing, (ii) the Servicer shall have
delivered to the Owner Trustee and the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
and that all conditions precedent provided for in this Agreement relating to
such transaction have been complied with,
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(iii) the Rating Agency Condition shall have been satisfied with respect to such
transaction, (iv) immediately after giving effect to such transaction, the
successor to the Servicer shall become the Administrator under the
Administration Agreement in accordance with Section 8 of such Agreement and (v)
the Servicer shall have delivered to the Owner Trustee and the Indenture Trustee
an Opinion of Counsel stating that, in the opinion of such counsel, either (A)
all financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary fully to preserve and protect the
interest of the Owner Trustee and the Indenture Trustee, respectively, in the
Receivables and reciting the details of such filings or (B) no such action shall
be necessary to preserve and protect such interests. Notwithstanding anything
herein to the contrary, the execution of the foregoing agreement of assumption
and compliance with clauses (i), (ii), (iii), (iv) and (v) above shall be
conditions to the consummation of the transactions referred to in clause (a),
(b) or (c) above.
SECTION 7.04. Limitation on Liability of Servicer and Others. Neither the
Servicer nor any of the directors, officers, employees or agents of the Servicer
shall be under any liability to the Issuer, the Noteholders or the
Certificateholders, except as provided under this Agreement, for any action
taken or for refraining from the taking of any action pursuant to this Agreement
or for errors in judgment; provided, however, that this provision shall not
protect the Servicer or any such person against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
and duties under this Agreement. The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any person respecting any
matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not be
incidental to its duties to service the Receivables in accordance with this
Agreement and that in its opinion may involve it in any expense or liability;
provided, however, that the Servicer may undertake any reasonable action that it
may deem necessary or desirable in respect of this Agreement and the Basic
Documents and the rights and duties of the parties to this Agreement and the
Basic Documents and the interests of the Certificateholders under the Trust
Agreement and the Noteholders under the Indenture.
SECTION 7.05. NAL Not To Resign as Servicer. Subject to the provisions of
Section 7.03, NAL shall not resign from the obligations and duties hereby
imposed on it as Servicer under this Agreement except upon a determination that
the performance of its duties under this Agreement shall no longer be
permissible
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under applicable law. Notice of any such determination permitting the
resignation of NAL shall be communicated to the Owner Trustee and the Indenture
Trustee at the earliest practicable time (and, if such communication is not in
writing, shall be confirmed in writing at the earliest practicable time) and any
such determination shall be evidenced by an Opinion of Counsel to such effect
delivered to the Owner Trustee and the Indenture Trustee concurrently with or
promptly after such notice. No such resignation shall become effective until the
Indenture Trustee or a successor Servicer shall (i) have assumed the
responsibilities and obligations of NAL in accordance with Section 8.02 and (ii)
have become the Administrator under the Administration Agreement in accordance
with Section 8 of such Agreement.
SECTION 7.06. Representations of Backup Servicer. The Backup Servicer
makes the following representations on which the Issuer relies in acquiring the
Receivables and issuing the Notes and the Certificates. The representations
speak as of the execution and delivery of this Agreement and as of the Closing
Date and shall survive the sale of the Receivables to the Issuer and the pledge
thereof to the Indenture Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Backup Servicer is duly organized
and validly existing as a New York banking corporation in good standing under
the laws of the state of its incorporation, with the corporate power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted, and had at all
relevant times, and has, the corporate power, authority and legal right to
acquire, own, sell and service the Receivables.
(b) Due Qualification. The Backup Servicer is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business (including the servicing of the
Receivables as required by this Agreement) shall require such qualifications.
(c) Power and Authority. The Backup Servicer has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Backup Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Backup Servicer enforceable in accordance with its
terms.
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SECTION 7.07. Merger or Consolidation of, or Assumption of the Obligations
of, Backup Servicer. Any Person (a) into which the Backup Servicer may be merged
or consolidated, (b) which may result from any merger or consolidation to which
the Backup Servicer shall be a party, (c) which may succeed to the properties
and assets of the Backup Servicer substantially as a whole or (d) with respect
to the Backup Servicer's obligations hereunder, shall be the successor to the
Backup Servicer under this Agreement without further act on the part of any of
the parties to this Agreement.
SECTION 7.08. Resignation as Backup Servicer. Subject to the provisions of
Section 7.07, the Backup Servicer may resign upon 30 days' written notice to the
Indenture Trustee and the Owner Trustee; provided, however, that no such
resignation shall become effective unless and until a successor reasonably
acceptable to the Indenture Trustee and the Owner Trustee shall have assumed the
responsibilities and obligations of the Backup Servicer and the Rating Agency
Condition shall have been satisfied in connection therewith; provided, further,
that if the Backup Servicer shall have resigned after its determination that the
performance of its duties under this Agreement shall no longer be permissible
under applicable law as evidenced by an Opinion of Counsel to such effect
delivered to the Owner Trustee and the Indenture Trustee, then, in the event a
successor Backup Servicer is not appointed within 30 days after such a
resignation, the Backup Servicer may petition a court for its removal.
ARTICLE VIII
Default
SECTION 8.01. Servicer Default. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deliver or cause to be delivered to the
Owner Trustee or the Indenture Trustee, as applicable, for deposit in any of the
Trust Accounts or the Certificate Distribution Account any required payment or
to direct the Owner Trustee or the Indenture Trustee, as applicable, to make any
required distributions therefrom, which failure continues unremedied for a
period of five Business Days after discovery of such failure by an officer of
the Servicer, or after the date on which written notice of such failure shall
have been given (A) to the Servicer by the Owner Trustee or the Indenture
Trustee, as applicable, or (B) to the Servicer, and to the Owner Trustee and the
Indenture Trustee, as applicable, by the Holders of Notes, evidencing not less
than 25% of the Outstanding Amount of the Notes or, if the Notes have been paid
in full, by Holders of Certificates evidencing not less than 25% of the
outstanding Certificate Balance; or
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(b) failure by the Servicer duly to observe or to perform in any material
respect any other covenants or agreements of the Servicer set forth in this
Agreement or any other Basic Document, which failure shall (i) materially and
adversely affect the rights of Certificateholders or Noteholders and (ii)
continue unremedied for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
(A) to the Servicer by the Owner Trustee or the Indenture Trustee or (B) to the
Servicer, and to the Owner Trustee and the Indenture Trustee by the Holders of
Notes or Certificates, as applicable, evidencing not less than 25% of the
Outstanding Amount of the Notes or 25% of the outstanding Certificate Balance;
or
(c) the occurrence of an Insolvency Event with respect to the Servicer;
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Indenture Trustee or the Holders of Notes evidencing
not less than 25% of the Outstanding Amount of the Notes, by notice then given
in writing to the Servicer (and to the Indenture Trustee and the Owner Trustee
if given by the Noteholders) may terminate all the rights and obligations (other
than the obligations set forth in Section 7.02 hereof) of the Servicer under
this Agreement. On or after the receipt by the Servicer of such written notice,
all authority and power of the Servicer under this Agreement, whether with
respect to the Notes, the Certificates or the Receivables or otherwise, shall,
without further action, pass to and be vested in the Indenture Trustee or such
successor Servicer as may be appointed under Section 8.02; and, without
limitation, the Indenture Trustee and the Owner Trustee are hereby authorized
and empowered to execute and deliver, for the benefit of the predecessor
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of the Receivables and related documents,
or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer, the Indenture Trustee and the Owner Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement, including the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Servicer for deposit, or shall thereafter be received by it with
respect to any Receivable. All reasonable costs and expenses (including, without
limitation, attorneys' fees and any expenses relating to the conversion of
computer files) incurred in connection with transferring the Receivable Files to
the successor Servicer and amending this Agreement to reflect such succession as
Servicer pursuant to this Section shall be paid by the predecessor Servicer upon
presentation of reasonable documentation of such costs and expenses. Upon
receipt of notice
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of the occurrence of a Servicer Default, the Owner Trustee shall give notice
thereof to each Rating Agency.
SECTION 8.02. Appointment of Successor. (a) Upon the Servicer's receipt of
notice of termination pursuant to Section 8.01 or the Servicer's resignation in
accordance with the terms of this Agreement, the predecessor Servicer shall
continue to perform its functions as Servicer under this Agreement, in the case
of termination, only until the date specified in such termination notice or, if
no such date is specified in a notice of termination, until receipt of such
notice and, in the case of resignation, until the later of (i) the date 45 days
from the delivery to the Owner Trustee, the Indenture Trustee and the Backup
Servicer of written notice of such resignation (or written confirmation of such
notice) in accordance with the terms of this Agreement and (ii) the date upon
which the predecessor Servicer shall become unable to act as Servicer, as
specified in the notice of resignation and accompanying Opinion of Counsel. In
the event of the Servicer's termination hereunder, the Indenture Trustee shall
appoint a successor Servicer, and the successor Servicer shall accept its
appointment (including its appointment as Administrator under the Administration
Agreement as set forth in Section 8.02(b)) by a written assumption in form
acceptable to the Owner Trustee and the Indenture Trustee. If the Indenture
Trustee appoints the Backup Servicer as successor Servicer in accordance with
Section 7.03 or 8.01 (after confirmation from each Rating Agency that such
appointment will not result in the withdrawal or downgrade of the then current
ratings of the Notes and the Certificates), the Backup Servicer shall be the
successor in all respects to the Servicer in its capacity as Servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof; provided, however,
that the Backup Servicer shall not be liable for any acts or omissions of the
Servicer occurring prior to such succession or for any breach by the Servicer of
any of its representations and warranties contained herein or in any related
document or agreement. Notwithstanding the above, if the Backup Servicer is
legally unable or unwilling to act as Servicer, the Indenture Trustee will
appoint a successor Servicer to act as Servicer, the effectiveness of which
appointment shall be subject to confirmation from each Rating Agency that such
appointment will not result in the withdrawal or downgrade of the then current
ratings of the Notes and the Certificates. As compensation for acting as
successor Servicer, the Backup Servicer shall be entitled to receive the
Servicing Fee. In the event that a successor Servicer has not been appointed at
the time when the predecessor Servicer has ceased to act as Servicer in
accordance with this Section, the Indenture Trustee without further action shall
automatically be appointed the successor Servicer and the Indenture Trustee
shall be entitled to the Servicing Fee. Notwithstanding the above, the Indenture
Trustee shall, if it
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shall be legally unable so to act, appoint or petition a court of competent
jurisdiction to appoint any established institution, having a net worth of not
less than $50,000,000 and whose regular business shall include the servicing of
automotive receivables, as the successor to the Servicer under this Agreement.
(b) Upon appointment, the successor Servicer (including the Indenture
Trustee acting as successor Servicer) shall (i) be the successor in all respects
to the predecessor Servicer and shall be subject to all the responsibilities,
duties and liabilities arising thereafter relating thereto placed on the
predecessor Servicer and shall be entitled to the Servicing Fee and all the
rights granted to the predecessor Servicer by the terms and provisions of this
Agreement and (ii) become the Administrator under the Administration Agreement
in accordance with Section 8 of such Agreement.
(c) The Servicer may not resign unless it is prohibited from serving as
such by law.
SECTION 8.03. Notification to Noteholders and Certificateholders. Upon
any termination of, or appointment of a successor to the Servicer pursuant to
this Article VIII, the Owner Trustee shall give prompt written notice thereof to
Certificateholders, and the Indenture Trustee shall give prompt written notice
thereof to Noteholders and each Rating Agency.
SECTION 8.04. Waiver of Past Defaults. The Holders of Notes evidencing not
less than a majority of the Outstanding Amount of the Notes or the Holders of
Certificates evidencing not less than a majority of the outstanding Certificate
Balance (in the case of any default which does not adversely affect the
Indenture Trustee or the Noteholders) may, on behalf of all Noteholders and
Certificateholders, waive in writing any default by the Servicer in the
performance of its obligations hereunder and its consequences, except a default
in making any required deposits to or payments from any of the Trust Accounts in
accordance with this Agreement or in respect of a covenant or the Servicer or
provision herein that cannot be waived without the consent of each
Securityholder (which event the related waiver will require the approval of the
Holders of all Securities). Upon any such waiver of a past default, such default
shall cease to exist, and any Servicer Default arising therefrom shall be deemed
to have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent
thereto.
49
<PAGE>
ARTICLE IX
Termination
SECTION 9.01. Optional Purchase of All Receivables. (a) As of the last day
of any Collection Period immediately preceding a Distribution Date as of which
the then outstanding Pool Balance is 5% or less of the Original Pool Balance,
the Servicer shall have the option to purchase the Owner Trust Estate, other
than the Trust Accounts and the Certificate Distribution Account. To exercise
such option, the Servicer shall deposit pursuant to Section 5.04 in the
Collection Account an amount equal to the aggregate Purchase Amount for the
Receivables (including defaulted Receivables), plus the appraised value of any
such other property held by the Trust other than the Trust Accounts and the
Certificate Distribution Account, such value to be determined by an appraiser
mutually agreed upon by the Servicer, the Owner Trustee and the Indenture
Trustee, and shall succeed to all interests in and to the Trust. Notwithstanding
the foregoing, the Servicer shall not be permitted to exercise such option
unless the amount to be deposited in the Collection Account pursuant to the
preceding sentence is greater than or equal to the sum of the Outstanding Amount
of the Notes and the Certificate Balance and all accrued but unpaid interest
(including any overdue interest) thereon to and including the last day of the
Collection Period immediately preceding the redemption date.
(b) Upon any sale of the assets of the Trust pursuant to Section 9.02 of
the Trust Agreement, the Servicer shall instruct the Indenture Trustee to
deposit the proceeds from such sale after all payments and reserves therefrom
have been made (the "Insolvency Proceeds") in the Collection Account. On the
Distribution Date on which the Insolvency Proceeds are deposited in the
Collection Account (or, if such proceeds are not so deposited on a Distribution
Date, on the Distribution Date immediately following such deposit), the Servicer
shall instruct the Indenture Trustee to make the following deposits (after the
application on such Distribution Date of the Total Distribution Amount and funds
on deposit in the Reserve Account pursuant to Sections 5.05 and 5.06) from the
Insolvency Proceeds and any funds remaining on deposit in the Reserve Account
(including the proceeds of any sale of investments therein as described in the
following sentence)
(i) to the Note Distribution Account, any portion of the
Noteholders' Interest Distributable Amount not otherwise deposited into
the Note Distribution Account on such Distribution Date;
(ii) to the Certificate Distribution Account, any portion of the
Certificateholders' Interest Distributable
50
<PAGE>
Amount not otherwise deposited into the Certificate Distribution Account
on such Distribution Date;
(iii) to the Note Distribution Account, the Outstanding Amount of
the Notes (after giving effect to the reduction in the Outstanding Amount
of the Notes to result from the deposits made in the Note Distribution
Account on such Distribution Date and on prior Distribution Dates); and
(iv) to the Certificate Distribution Account, the Certificate
Balance (after giving effect to the reduction in the Certificate Balance
to result from the deposits made in the Certificate Distribution Account
on such Distribution Date and on prior Distribution Dates).
Any investments on deposit in the Reserve Account or Note Distribution Account
which will not mature on or before such Distribution Date shall be sold by the
Indenture Trustee at such time as will result in the Indenture Trustee receiving
the proceeds from such sale not later than the Payment Determination Date
preceding such Distribution Date. Any Insolvency Proceeds remaining after the
deposits described above shall be paid to the Depositor.
(c) As described in Article 9 of the Trust Agreement, notice of any
termination of the Trust shall be given by the Servicer to the Owner Trustee and
the Indenture Trustee as soon as practicable after the Servicer has received
notice thereof.
(d) Following the satisfaction and discharge of the Indenture and the
payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the Noteholders hereunder and
the Owner Trustee will succeed to the rights of, and assume the obligations of,
the Indenture Trustee pursuant to this Agreement.
ARTICLE X
Miscellaneous
SECTION 10.01. Amendment. This Agreement may be amended by the Depositor,
the Servicer and the Issuer, with the consent of the Indenture Trustee, but
without the consent of any of the Noteholders or the Certificateholders, to cure
any ambiguity, to correct or supplement any provisions in this Agreement or for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions in this Agreement or of modifying in any manner the rights
of the Noteholders or the Certificateholders; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel delivered to the Owner
Trustee and the Indenture Trustee, adversely affect in any
51
<PAGE>
material respect the interests of any Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the Depositor, the
Servicer and the Issuer, with the consent of the Indenture Trustee, the consent
of the Holders of Notes evidencing not less than a majority of the Outstanding
Amount of the Notes and the consent of the Holders (as defined in the Trust
Agreement) of outstanding Certificates evidencing not less than a majority of
the outstanding Certificate Balance, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that shall be required
to be made for the benefit of the Noteholders or the Certificateholders or (b)
reduce the aforesaid percentage of the Outstanding Amount of the Notes and the
Certificate Balance, the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all the outstanding Notes and
the Holders (as defined in the Trust Agreement) of all the outstanding
Certificates.
Promptly after the execution of any such amendment or consent, the Owner
Trustee shall furnish written notification of the substance of such amendment or
consent to each Certificateholder, the Indenture Trustee and each Rating Agency.
It shall not be necessary for the consent of Certificateholders or
Noteholders pursuant to this Section to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Owner
Trustee and the Indenture Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement and the Opinion of Counsel referred to in Section
10.02(i) (1). The Owner Trustee and the Indenture Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Owner Trustee's or
the Indenture Trustee's, as applicable, own rights, duties or immunities under
this Agreement or otherwise. No amendment to this Agreement will have any effect
on the rights and obligations of the Backup Servicer hereunder unless the Backup
Servicer shall consent thereto in writing.
SECTION 10.02. Protection of Title to Trust. (a) The Depositor shall
execute and file such financing statements and cause to be executed and filed
such continuation statements, all
52
<PAGE>
in such manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of the Issuer and of the Indenture Trustee in
the Receivables and in the proceeds thereof. The Depositor shall deliver (or
cause to be delivered) to the Owner Trustee and the Indenture Trustee
file-stamped copies of, or filing receipts for, any document filed as provided
above, as soon as available following such filing.
(b) Neither the Depositor nor the Servicer shall change its name, identity
or corporate structure in any manner that would, could or might make any
financing statement or continuation statement filed in accordance with paragraph
(a) above seriously misleading within the meaning of ss. 9-402(7) of the UCC,
unless it shall have given the Owner Trustee and the Indenture Trustee at least
five days' prior written notice thereof and shall have promptly filed
appropriate amendments to all previously filed financing statements or
continuation statements.
(c) Each of the Depositor and the Servicer shall have an obligation to
give the Owner Trustee and the Indenture Trustee at least 60 days' prior written
notice of any relocation of its principal executive office if, as a result of
such relocation, the applicable provisions of the UCC would require the filing
of any amendment of any previously filed financing or continuation statement or
of any new financing statement and shall promptly file any such amendment or new
financing statement. The Servicer shall at all times maintain each office from
which it shall service Receivables, and its principal executive office, within
the United States of America.
(d) The Servicer shall maintain accounts and records as to each Receivable
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Receivable, including payments and recoveries made
and payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time deposited in the Collection Account and the Payahead Account
in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Receivables, the Servicer's
master computer records (including any backup archives) that refer to a
Receivable shall indicate clearly the interest of the Issuer and the Indenture
Trustee in such Receivable and that such Receivable is owned by the Issuer and
has been pledged to the Indenture Trustee. Indication of the Issuer's and the
Indenture Trustee's interest in a Receivable shall be deleted from or modified
on the Servicer's computer systems when, and only when, the related Receivable
shall have been paid in full or repurchased.
53
<PAGE>
(f) If at any time the Depositor or the Servicer shall propose to sell,
grant a security interest in, or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender or other transferee, the
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Issuer and has been pledged to the Indenture Trustee.
(g) The Servicer shall permit the Indenture Trustee, the Backup Servicer
and their agents at any time during normal business hours to inspect, audit and
make copies of and abstracts from the Servicer's records regarding any
Receivable.
(h) Upon request, the Servicer shall furnish to the Owner Trustee or to
the Indenture Trustee, within five Business Days, a list of all Receivables (by
contract number and name of Obligor) then held as part of the Trust, together
with a reconciliation of such list to the Schedule of Receivables and to each of
the Servicer's Certificates furnished before such request indicating removal of
Receivables from the Trust.
(i) The Servicer shall deliver to the Owner Trustee and the Indenture
Trustee:
(1) promptly after the execution and delivery of this Agreement and
of each amendment hereto, an Opinion of Counsel stating that, in the
opinion of such counsel, either (A) all financing statements and
continuation statements have been executed and filed that are necessary
fully to preserve and protect the interest of the Owner Trustee and the
Indenture Trustee in the Receivables, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details
are given, or (B) no such action shall be necessary to preserve and
protect such interest; and
(2) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the Closing Date, an Opinion of Counsel, dated as of a date during
such 90-day period, stating that, in the opinion of such counsel, either
(A) all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Owner Trustee and the Indenture Trustee in the
Receivables, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (B) no such
action shall be necessary to preserve and protect such interest.
54
<PAGE>
Each Opinion of Counsel referred to in clause (1) or (2) above shall specify any
action necessary (as of the date of such opinion) to be taken in the following
year to preserve and protect such interest.
SECTION 10.03. Notices. All demands, notices, communications and
instructions upon or to the Depositor, the Servicer, the Owner Trustee, the
Indenture Trustee or each Rating Agency under this Agreement shall be in
writing, personally delivered or mailed by certified mail, return receipt
requested, and shall be deemed to have been duly given upon receipt (a) in the
case of the Depositor, to NAL Acceptance Corporation, 500 Cypress Creek Road
West, Suite 590, Fort Lauderdale, Florida 33309, Telephone: 954-958-3591; Fax:
954-938-8209, Attention: Dennis La Vigne, (b) in the case of the Servicer, to
NAL Acceptance Corporation, 500 Cypress Road West, Suite 590, Fort Lauderdale,
Florida 33309, (c) in the case of the Issuer or the Owner Trustee, at the
Corporate Trust Office (as defined in the Trust Agreement), (d) in the case of
the Indenture Trustee or Backup Servicer, at the Corporate Trust Office, (e) in
the case of the Rating Agencies, to Fitch Investors Service, L.P., One State
Street Plaza, New York, New York 10004 and Duff & Phelps Credit Rating Co., 55
E. Monroe Street, Chicago, Illinois 60603, Telephone: 312-263-2610, Fax:
312-263-2852, Attention: Asset-Backed Research and Monitoring; or, as to each of
the foregoing, at such other address as shall be designated by written notice to
the other parties.
SECTION 10.04. Assignment by the Depositor or the Servicer.
Notwithstanding anything to the contrary contained herein, except as provided in
the remainder of this Section, as provided in Sections 6.04 and 7.03 herein and
as provided in the provisions of this Agreement concerning the resignation of
the Servicer, this Agreement may not be assigned by the Depositor or the
Servicer.
SECTION 10.05. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Depositor, the Servicer, the Backup
Servicer, the Issuer, the Owner Trustee, the Certificateholders, the Indenture
Trustee and the Noteholders, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 10.06. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
55
<PAGE>
SECTION 10.07. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 10.08. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 10.09. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 10.10. Assignment by Issuer. The Depositor and the Servicer hereby
acknowledge and consent to any mortgage, pledge, assignment and grant of a
security interest by the Issuer to the Indenture Trustee pursuant to the
Indenture for the benefit of the Noteholders of all right, title and interest of
the Issuer in, to and under the Receivables and the assignment of any or all of
the Issuer's rights and obligations hereunder to the Indenture Trustee.
SECTION 10.11. Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement, the Servicer, the Backup Servicer and the
Depositor shall not, prior to the date which is one year and one day after the
termination of this Agreement with respect to the Issuer or the Depositor,
acquiesce, petition or otherwise invoke or cause the Issuer or the Depositor to
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer or the Depositor under any
federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or the Depositor or any substantial part of its
property, or ordering the winding up or liquidation of the affairs of the Issuer
or the Depositor.
SECTION 10.12. Limitation of Liability of Owner Trustee and Indenture
Trustee. (a) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Wilmington Trust Company not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall Wilmington Trust Company in its individual capacity or,
except as expressly provided in the Trust Agreement, as beneficial owner of the
Issuer have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the
56
<PAGE>
Issuer. For all purposes of this Agreement, in the performance of its duties or
obligations hereunder or in the performance of any duties or obligations of the
Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the
benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been accepted by Bankers Trust Company, not in its individual
capacity but solely as Indenture Trustee and in no event shall Bankers Trust
Company have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
NAL AUTO TRUST 1996-4
By: WILMINGTON TRUST COMPANY, not in
its individual capacity but solely
as Owner Trustee on behalf of the
Trust
By: ________________________________
Name: Emmett R. Harmon
Title: Vice President
AUTORICS II, Inc.,
Depositor
By: ________________________________
Name: Robert Carlson
Title: Vice President/Finance
NAL ACCEPTANCE CORPORATION, Servicer
By: ________________________________
Name: Robert Carlson
Title: Vice President/Finance
BANKERS TRUST COMPANY, Backup
Servicer
By: ________________________________
Name:
Title:
Acknowledged and accepted as of the day and year
first above written:
BANKERS TRUST COMPANY,
not in its individual capacity
but solely as Indenture Trustee
By: ________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Schedule of Receivables
<PAGE>
EXHIBIT A
NAL Acceptance Corporation
NAL Auto Trust 1996-4 Distribution Date Statement to Noteholders
- --------------------------------------------------------------------------------
Principal Distribution Amount
($ per $1,000 original principal amount)
Interest Distribution Amount
($ per $1,000 original principal amount)
Pool Balance
Note Balance
Note Pool Factor
Certificate Balance
Servicing Fee
Servicing Fee Per $1,000 original principal amount
Realized Losses
Noteholders' Interest Carryover Shortfall per $1,000 original
principal amount
Noteholders' Principal Carryover Shortfall per $1,000 original
principal amount
Purchase Amounts
Reserve Account Balance
Payahead Balance
Average Three Month Delinquency Ratio
Average Six Month Realized Loss Ratio
Average Six Month Repossession Ratio
Delinquency Trigger Event [YES] [NO]
Repossession Trigger Event [YES] [NO]
Loss Trigger Event [YES] [NO]
Delinquent Receivables
30 days
60 days
90 days
A-1
<PAGE>
EXHIBIT B
NAL Acceptance Corporation
NAL Auto Trust 1996-4 Distribution Date Statement to
Certificateholders
- --------------------------------------------------------------------------------
Principal Distribution Amount
Principal Per $1,000 Initial Certificate Balance
Interest Distribution Amount
Interest Per $1,000 Initial Certificate Balance
Pool Balance
Note Balance
Note Pool Factor
Certificate Balance
Certificate Pool Factor
Servicing Fee
Servicing Fee Per $1,000 Initial Certificate Balance
Realized Losses
Noteholders' Interest Carryover Shortfall per $1,000 original
Note principal amount
Noteholders' Principal Carryover Shortfall per $1,000 original
Note principal amount
Certificateholders' Interest Carryover Shortfall per $1,000
Initial Certificate Balance
Certificateholders' Principal Carryover Shortfall per $1,000
Initial Certificate Balance
Purchase Amounts
Reserve Account Balance
Payahead Balance
Average Three Month Delinquency Ratio
Average Six Month Realized Loss Ratio
Average Six Month Repossession Ratio
Delinquency Trigger Event [YES] [NO]
Repossession Trigger Event [YES] [NO]
Loss Trigger Event [YES] [NO]
B-1
<PAGE>
Delinquent Receivables
30 days
60 days
90 days
- --------------------------------------------------------------------------------
B-2
<PAGE>
EXHIBIT C
Form of Servicer's Certificate
NAL Acceptance Corporation
NAL Auto Trust 1996-4 Monthly Servicer's Certificate (1)
[___________________, 199__]
Dates Covered: From & Incl. ___________ To & Incl. ___________
I. Collections
Principal Payments Received ............................. $
Interest Payments Received .............................. $
Liquidation Proceeds .................................... $
Recoveries on Previously Liquidated Receivables ......... $
Aggregate Purchase Amount for Purchased Receivables ..... $
Amount Attributable to Interest ....................... $
Amount Attributable to Principal ...................... $
Investment Earnings ..................................... $
Total Collections ....................................... $
II. Distributions*
Total Required Principal Reduction of the Securities $
Principal Distribution Amount
Notes ($________ per $1,000 original principal amount)
Certificates ($____ per $1,000 original principal amount)
Interest Distribution Amount
Notes ($________ per $1,000 original principal amount)
Certificates ($________ per $1,000 original principal amount)
Total Distributable Amount
Notes ($________ per $1,000 original principal amount)
Certificates ($________ per $1,000 original principal amount)
- ----------
(1) Items that are marked with an * will be delivered quarterly.
C-1
<PAGE>
Additional Required Distributions
Servicing Fee ......................................... $
Deposit to the Reserve Account ........................ $
Reserve Account
Withdrawals for this Distribution Date ................ $
Cumulative Withdrawals ................................ $
III. Payahead Account Information
Beginning Period Balance .............................. $
Amounts Deposited into Payahead Account ............... $
Amounts Withdrawn from Payahead Account ............... $
Ending Balance ........................................ $
IV. Pool Balance and Portfolio Information
Beginning End
of Period of Period
Pool Balance .................. $ $
Note Balance* ................. $ $
Note Pool Factor ..............
Certificate Balance* .......... $ $
Certificate Pool Factor*
Remaining Number of Receivables
Weighted Average A/R ..........
Weighted Average Remaining Term
V. Reconciliation of the Reserve Account
Beginning Balance ..................................... $
Withdrawals from Reserve Account ...................... $
Amounts Available for Deposit
to Reserve Account .................................. $
Specified Reserve Account Balance ..................... $
Amounts Deposited to Reserve Account .................. $
Ending Balance ........................................ $
VI. Loss and Delinquency Report Activity
Realized Losses for Collection Period ................. $
Liquidated Receivables $
Aggregate Principal Balance ......................... $
Liquidation Proceeds ................................ $
Recoveries on Previously
Liquidated Receivables ............................ $
Cumulative Realized Losses .......................... $
Delinquency
30-59 days
Principal Amount .................................... $
Number of Receivables ............................... $
C-2
<PAGE>
60-89 days
Principal Amount .................................... $
Number of Receivables ...............................
90 days or more
Principal Amount .................................... $
Number of Receivables ...............................
Total Amount
Principal Amount .................................... $
Number of Receivables ...............................
VII. Original Deal Parameter Inputs
Aggregate Principal Balance of the
Receivables as of the Cutoff Date ..................... $
Weighted Average APR of the Receivables
as of the Cutoff Date ................................. %
Weighted Average Remaining Term of the
Receivables as of the Cutoff Date ..................... months
Number of Receivables ...................................
Initial Reserve Account Balance ......................... $
C-3
<PAGE>
EXHIBIT D
NAL ACCEPTANCE CORPORATION
CREDIT FILE CONTENTS
LOAN AND LEASE
(RIGHT SIDE OF FILE)
RISK
NAME: ___________________ CODE: ______________________ ACCOUNT #: ______________
================================================================================
(X) (X)
UNDER EXCEPTIONS INT DOCUMENTATION AUDIT COMMENTS
- --------------------------------------------------------------------------------
Application
- --------------------------------------------------------------------------------
Credit Report
- --------------------------------------------------------------------------------
Explanation
Derogatory Credit
- --------------------------------------------------------------------------------
Credit Decision Notification
- --------------------------------------------------------------------------------
Investigation Work
A) Home Address Verified
B) Employment Verified
- --------------------------------------------------------------------------------
1040's/W-2/Paystubs
- --------------------------------------------------------------------------------
Current Telephone Bill in
Applicant's Name and Address
- --------------------------------------------------------------------------------
Reference Sheet (5 included)
- --------------------------------------------------------------------------------
Other Stips - Specify
- --------------------------------------------------------------------------------
Insurance Confirmation
by NAL Insurance Dept.
- --------------------------------------------------------------------------------
Loan/Lease Worksheet
- --------------------------------------------------------------------------------
Copy of Funding Check
- --------------------------------------------------------------------------------
Collections/Other
Correspondence
- --------------------------------------------------------------------------------
Approved Dealer
- --------------------------------------------------------------------------------
GE Approval
================================================================================
_______________________________ __________________________________
Signature - Funder Date
_______________________________ __________________________________
Signature - Auditor Date
D-1
<PAGE>
NAL ACCEPTANCE CORPORATION
CREDIT FILE CONTENTS
LOAN AND LEASE
(RIGHT SIDE OF FILE)
RISK
NAME: ___________________ CODE: ______________________ ACCOUNT #: ______________
================================================================================
(X) (X)
UNDER EXCEPTIONS INT DOCUMENTATION AUDIT COMMENTS
- --------------------------------------------------------------------------------
Contract:
A) Trade-In/Down Payment
B) Note Rate
C) Term
D) Monthly Payment
E) Add's Approved
F) Dealer Advance Per Approval
- --------------------------------------------------------------------------------
Original Assignment
- --------------------------------------------------------------------------------
Copy of Application for
Certificate of Title
- --------------------------------------------------------------------------------
Certificate of Origin (MSO)(New)
Copy of Title (Used)
- --------------------------------------------------------------------------------
Lien Guarantee/
Lien Registration
- --------------------------------------------------------------------------------
Bill of Sale /
Buyer's Order Signed
- --------------------------------------------------------------------------------
Manufacturers Invoice (New)
- --------------------------------------------------------------------------------
Copy Black Book /
NADA Valuation
- --------------------------------------------------------------------------------
Odometer Statement (Used)
- --------------------------------------------------------------------------------
Photocopy of Driver's License
- --------------------------------------------------------------------------------
Add's Documentation
- --------------------------------------------------------------------------------
Notice to Cosigner
- --------------------------------------------------------------------------------
Signed Disclosure Form for
A & H Insurance (if applicable)
- --------------------------------------------------------------------------------
Customer Phone Interview
Correspondence
================================================================================
_______________________________ __________________________________
Signature - Funder Date
_______________________________ __________________________________
Signature - Auditor Date
D-2
<PAGE>
EXHIBIT E
Form of Assignment
Reference is made to the Sale and Servicing Agreement dated as of December
9, 1996 (the "Sale and Servicing Agreement") among NAL Auto Trust 1996-4,
Autorics II, Inc. ("Autorics II"), NAL Acceptance Corporation ("NAL") and
Bankers Trust Company. All capitalized terms used herein without definition
shall have the respective meanings specified in the Sale and Servicing
Agreement.
[NAL] [Autorics, Inc.] [Autorics II] hereby assigns to _____________ for
which the Custodian is acting as custodian and bailee under the terms of the
Custodial Agreement all right, title and interest of [NAL] [Autorics, Inc.]
[Autorics II] in and to (but none of [NAL] [Autorics, Inc.] [Autorics II]'s
obligations with respect to)
(1) the Receivables and all moneys received thereon on and after the
Cutoff Date plus all Payaheads as of the Cutoff Date;
(2) the security interests in the Financed Vehicles granted by Obligors
pursuant to the Receivables, any other right to realize upon property securing a
Receivable and any other interest of [NAL] [Autorics, Inc.] [Autorics II] in
such Financed Vehicles including [NAL] [Autorics, Inc.] [Autorics II]'s right,
title and interest in the lien on the Financed Vehicles in the name of the
Depositor's agent, Autorics, Inc., NAL or SF1;
(3) any proceeds with respect to the Receivables from claims on any
Insurance Policies relating to Financed Vehicles or Obligors;
(4) proceeds of any recourse (but none of the obligations) to Dealers on
Receivables;
(5) any Financed Vehicle that shall have secured a Receivable and shall
have been acquired by or on behalf of the Seller, the Depositor, the Servicer,
or the Trust;
(6) the Receivables Files;
(7) all right, title and interest of [Autorics, Inc.] [Autorics II] under
the Receivables Purchase Agreement, including, without limitation, the right of
[Autorics, Inc.] [Autorics II] to cause NAL to purchase Receivables under
certain circumstances;
E-1
<PAGE>
(8) the Trust Accounts; and
(9) the proceeds of any and all of the foregoing.
[NAL] [AUTORICS, INC.]
[AUTORICS II, INC.]
By: ________________________________
Name:
Title:
E-2
EXECUTION COPY
================================================================================
INDENTURE
between
NAL AUTO TRUST 1996-4,
as Issuer
and
BANKERS TRUST COMPANY,
as Indenture Trustee
Dated as of December 9, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions............................................................................. 2
SECTION 1.02. Rules of Construction................................................................... 9
ARTICLE II
The Notes
SECTION 2.01. Form.................................................................................... 9
SECTION 2.02. Execution, Authentication and Delivery.................................................. 9
SECTION 2.03. Temporary Notes......................................................................... 10
SECTION 2.04. Limitations on Transfer of the Notes.................................................... 10
SECTION 2.05. Registration; Registration of Transfer
and Exchange.............................................................. 13
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen
Notes..................................................................... 15
SECTION 2.07. Persons Deemed Owner.................................................................... 16
SECTION 2.08. Payment of Principal and Interest;
Defaulted Interest........................................................ 16
SECTION 2.09. Cancellation............................................................................ 17
SECTION 2.10. Tax Treatment........................................................................... 18
ARTICLE III
Covenants
SECTION 3.01. Payment of Principal and Interest....................................................... 18
SECTION 3.02. Maintenance of Office or Agency......................................................... 18
SECTION 3.03. Money for Payments To Be Held in Trust.................................................. 19
SECTION 3.04. Existence............................................................................... 20
SECTION 3.05. Protection of Trust Estate.............................................................. 21
SECTION 3.06. Opinions as to Trust Estate............................................................. 21
SECTION 3.07. Performance of Obligations; Servicing of
Receivables............................................................... 22
SECTION 3.08. Negative Covenants...................................................................... 24
SECTION 3.09. Annual Statement as to Compliance....................................................... 24
SECTION 3.10. Issuer May Consolidate, etc., Only on
Certain Terms............................................................. 25
SECTION 3.11. Successor or Transferee................................................................. 26
SECTION 3.12. No Other Business....................................................................... 27
SECTION 3.13. No Borrowing............................................................................ 27
SECTION 3.14. Servicer's Obligations.................................................................. 27
SECTION 3.15. Guarantees, Loans, Advances and Other
Liabilities............................................................... 27
SECTION 3.16. Capital Expenditures.................................................................... 27
SECTION 3.17. Removal of Administrator................................................................ 27
SECTION 3.18. Restricted Payments..................................................................... 27
SECTION 3.19. Notice of Events of Default............................................................. 28
SECTION 3.20. Further Instruments and Acts............................................................ 28
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture................................................. 28
SECTION 4.02. Application of Trust Money.............................................................. 29
SECTION 4.03. Repayment of Moneys Held by Paying
Agent..................................................................... 29
ARTICLE V
Remedies
SECTION 5.01. Events of Default....................................................................... 30
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment................................................................. 31
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee.......................................... 32
SECTION 5.04. Remedies; Priorities.................................................................... 34
SECTION 5.05. Optional Preservation of the
Receivables............................................................... 35
SECTION 5.06. Limitation of Suits..................................................................... 36
SECTION 5.07. Unconditional Rights of Noteholders To
Receive Principal and Interest............................................ 36
SECTION 5.08. Restoration of Rights and Remedies...................................................... 37
SECTION 5.09. Rights and Remedies Cumulative.......................................................... 37
SECTION 5.10. Delay or Omission Not a Waiver.......................................................... 37
SECTION 5.11. Control by Noteholders.................................................................. 37
SECTION 5.12. Waiver of Past Defaults................................................................. 38
SECTION 5.13. Undertaking for Costs................................................................... 38
SECTION 5.14. Waiver of Stay or Extension Laws........................................................ 39
SECTION 5.15. Action on Notes......................................................................... 39
SECTION 5.16. Performance and Enforcement of Certain
Obligations............................................................... 39
ARTICLE VI
The Indenture Trustee
SECTION 6.01. Duties of Indenture Trustee............................................................. 40
SECTION 6.02. Rights of Indenture Trustee............................................................. 41
SECTION 6.03. Individual Rights of Indenture Trustee.................................................. 42
SECTION 6.04. Indenture Trustee's Disclaimer.......................................................... 42
SECTION 6.05. Notice of Defaults...................................................................... 42
SECTION 6.06. Reports by Indenture Trustee to Holders................................................. 42
SECTION 6.07. Compensation and Indemnity.............................................................. 43
SECTION 6.08. Replacement of Indenture Trustee........................................................ 43
SECTION 6.09. Successor Indenture Trustee by Merger................................................... 44
SECTION 6.10. Appointment of Co-Indenture Trustee or
Separate Indenture Trustee................................................ 45
SECTION 6.11. Eligibility; Disqualification........................................................... 46
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.01. Issuer To Furnish Indenture Trustee
Names and Addresses of Noteholders........................................ 47
SECTION 7.02. Preservation of Information;
Communications to Noteholders............................................. 47
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.01. Collection of Money..................................................................... 47
SECTION 8.02. Trust Accounts.......................................................................... 48
SECTION 8.03. General Provisions Regarding Accounts................................................... 48
SECTION 8.04. Release of Trust Estate................................................................. 49
SECTION 8.05. Opinion of Counsel...................................................................... 49
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent
of Noteholders.............................................................50
SECTION 9.02. Supplemental Indentures with Consent of
Noteholders............................................................... 51
SECTION 9.03. Execution of Supplemental Indentures.................................................... 53
SECTION 9.04. Effect of Supplemental Indenture........................................................ 53
SECTION 9.05. Reference in Notes to Supplemental
Indentures................................................................ 53
ARTICLE X
Redemption of Notes
SECTION 10.01. Redemption............................................................................. 54
SECTION 10.02. Form of Redemption Notice.............................................................. 54
SECTION 10.03. Notes Payable on Redemption Date....................................................... 55
ARTICLE XI
Miscellaneous
SECTION 11.01. Compliance Certificates and Opinions,
etc...................................................................... 55
SECTION 11.02. Form of Documents Delivered to
Indenture Trustee........................................................ 56
SECTION 11.03. Acts of Noteholders.................................................................... 56
SECTION 11.04. Notices, etc., to Indenture Trustee,
Issuer and Rating Agencies............................................... 57
SECTION 11.05. Notices to Noteholders; Waiver......................................................... 58
SECTION 11.06. Alternate Payment and Notice
Provisions............................................................... 58
SECTION 11.07. [Reserved]............................................................................. 59
</TABLE>
iii
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<TABLE>
<S> <C>
SECTION 11.08. Effect of Headings and Table of
Contents................................................................. 59
SECTION 11.09. Successors and Assigns................................................................. 59
SECTION 11.10. Separability........................................................................... 59
SECTION 11.11. Benefits of Indenture.................................................................. 59
SECTION 11.12. Legal Holidays......................................................................... 59
SECTION 11.13. Governing Law.......................................................................... 59
SECTION 11.14. Counterparts........................................................................... 59
SECTION 11.15. Recording of Indenture................................................................. 59
SECTION 11.16. Trust Obligation....................................................................... 60
SECTION 11.17. No Petition............................................................................ 60
SECTION 11.18. Inspection............................................................................. 60
</TABLE>
SCHEDULE I Schedule of Receivables
EXHIBIT A Form of Note
EXHIBIT B [Reserved]
EXHIBIT C Form of Transferor Certificate
EXHIBIT D Form of Investment Letter
EXHIBIT E Form of Depository Agreement
iv
<PAGE>
INDENTURE dated as of December 9, 1996, between NAL AUTO TRUST 1996-4, a
Delaware business trust (the "Issuer"), and BANKERS TRUST COMPANY, a New York
banking corporation, solely as trustee and not in its individual capacity (the
"Indenture Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Issuer's 6.90% Asset Backed
Notes (the "Notes"):
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date, as
Indenture Trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to (but none of the obligations with
respect to) (a) the Receivables and all moneys received thereon on and after the
Cutoff Date plus all Payaheads as of the Cutoff Date; (b) the security interests
in the Financed Vehicles granted by Obligors pursuant to the Receivables, any
other right to realize upon property securing a Receivable, and any other
interest of the Issuer in such Financed Vehicles including the Issuer's right,
title and interest in the lien on the Financed Vehicles held in the name of the
Depositor's agents, Autorics, Inc., NAL or SFI; (c) any proceeds with respect to
the Receivables from claims on any Insurance Policies relating to Financed
Vehicles or Obligors; (d) proceeds of any recourse (but none of the obligations)
to Dealers on Receivables; (e) any Financed Vehicle that shall have secured a
Receivable and that shall have been acquired by or on behalf of the Seller, the
Depositor, the Servicer, or the Issuer; (f) the Receivables Files; (g) the Trust
Accounts; (h) the Sale and Servicing Agreement and the Receivables Purchase
Agreement, including the right of the Issuer to cause NAL to purchase
Receivables under certain circumstances; and (i) all present and future claims,
demands, causes of action and choses in action in respect of any or all of the
foregoing, and all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion thereof, voluntary or involuntary, into cash or other
liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind, and
other forms of obligations, and receivables, instruments and other property that
at any time constitute all or part of, or are included in the proceeds of, any
of the foregoing (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction, and to secure
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trusts
<PAGE>
under this Indenture in accordance with the provisions of this Indenture and
agrees to perform its duties required in this Indenture to the best of its
ability to the end that the interests of the Holders of the Notes may be
adequately and effectively protected.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions. (a) Except as otherwise specified herein or
as the context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.03(a).
"Account Agreement" means the Account Agreement, dated December 16, 1996
by and between SunTrust Bank, South Florida, National Association and Servicer,
with the Issuer and the Indenture Trustee as third party beneficiaries.
"Administration Agreement" means the Administration Agreement dated as of
December 9, 1996, among the Administrator, the Issuer and the Indenture Trustee.
"Administrator" means NAL Acceptance Corporation, a Florida corporation,
or any successor Administrator under the Administration Agreement.
"Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer" means, with respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter) and, so
long as the Administration Agreement is in effect, any Vice President or more
senior officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Issuer and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified on
the list of Authorized Officers delivered by the Administrator to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).
2
<PAGE>
"AUTORICS II" means AUTORICS II, Inc., a Delaware corporation, and any
successor in interest.
"Basic Documents" means the Certificate of Trust, the Trust Agreement,
the Sale and Servicing Agreement, the Receivables Purchase Agreement, the
Administration Agreement, and other documents and certificates delivered in
connection therewith.
"Book-Entry Note" means the Note that (i) evidences all or part of the
Notes, (ii) the beneficial ownership of which is evidenced by book entries on
the ledger or accounts of the Depository where such Note is held and (iii) bears
the legend set forth in Exhibit A.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in the cities of New York, New
York, Wilmington, Delaware or Ft. Lauderdale, Florida are authorized or
obligated by law, regulation or executive order to remain closed.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means December 18, 1996.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Indenture.
"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Agreement is located
at Four Albany Street, New York, New York 10006; Attention: Corporate Trust and
Agency Group, Structured Finance Team, or at such other address as the Indenture
Trustee may designate from time to time by notice to the Noteholders and the
Issuer, or the principal corporate trust office of any successor Indenture
Trustee at the address designated by such successor Indenture Trustee by notice
to the Noteholders and the Issuer.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
3
<PAGE>
"Depositor" means AUTORICS II, Inc., a Delaware corporation, and any
successor in interest.
"Depository Agreement" means the agreement dated December 16, 1996, among
the Issuer, the Trustee, and The Depository Trust Company, as the initial
Clearing Agency, substantially in the form of Exhibit E.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary, or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and a right of set- off against, deposit, set over, and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
"Indenture Trustee" means Bankers Trust Company, a New York banking
corporation, solely as trustee under this Indenture and not in its individual
capacity, or any successor Indenture Trustee under this Indenture.
"Independent" means, when used with respect to any specified Person, that
the Person (a) is in fact independent of the Issuer, any other obligor on the
Notes, the Depositor and any Affiliate of any of the foregoing Persons, (b) does
not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Depositor or any Affiliate
of any of the foregoing Persons and (c) is not connected with the Issuer, any
such other obligor, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director, or person performing similar functions.
4
<PAGE>
"Independent Certificate" means a certificate or opinion to be delivered
to the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Issuer" means NAL Auto Trust 1996-4 until a successor replaces it and,
thereafter, means the successor and, for purposes of any provision contained
herein, each other obligor on the Notes.
"Issuer Order" or "Issuer Request" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
"NAL" means NAL Acceptance Corporation, a Florida corporation, and any
successor in interest.
"Note Owner" means, with respect to any Note held in book- entry form,
the Person who is the beneficial owner of such Note, as reflected on the books
of the Clearing Agency (directly as a Clearing Agency participant or as an
indirect participant, in each case in accordance with the rules of such Clearing
Agency.
"Note Rate" means 6.90% per annum (computed on the basis of a 360-day
year consisting of twelve 30-day months).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.05.
"Notes" means the 6.90% Asset Backed Notes, substantially in the form of
Exhibit A.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, and delivered to
the Indenture Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be an employee of
or counsel to the Issuer and who shall be satisfactory to the Indenture Trustee,
which opinion or opinions shall be addressed to the Indenture Trustee as
Indenture Trustee, shall comply with any applicable requirements of Section
11.01 and shall be in form and substance satisfactory to the Indenture Trustee.
5
<PAGE>
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Holders of such Notes
(provided, however, that if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
for such notice has been made, satisfactory to the Indenture Trustee);
and
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes
are held by a bona fide purchaser;
provided, that in determining whether the Holders of the requisite Outstanding
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Basic Document, Notes owned by
the Issuer, any other obligor upon the Notes, the Depositor or any Affiliate of
any of the foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, or waiver, only Notes that a Responsible Officer of the
Indenture Trustee actually knows to be so owned shall be so disregarded. Notes
so owned that have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Indenture Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Issuer, any other obligor upon the Notes, the Depositor or any Affiliate of
any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all Notes
Outstanding at the date of determination.
"Owner Trustee" means Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, or any successor
Owner Trustee under the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make payments to and distributions from the
Collection Account and the Note Distribution Account, including payments of
principal of or interest on the Notes on behalf of the Issuer.
6
<PAGE>
"Payment Date" means a Distribution Date.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, or government or any agency or political
subdivision thereof.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.06 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Rating Agency Condition" means, with respect to any action, that the
Rating Agency shall have been given 10 days (or such shorter period as is
acceptable to the Rating Agency) prior notice thereof and that the Rating Agency
shall have notified the Depositor, the Servicer and the Issuer in writing that
such action will not result in a reduction or withdrawal of the then current
rating of the Notes.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement
dated as of December 9, 1996, among Autorics, Inc., as seller, NAL, and Autorics
II, as purchaser.
"Record Date" means, with respect to a Distribution Date or Redemption
Date, the close of business on the last day of the preceding month.
"Redemption Date" means in the case of a redemption of the Notes pursuant
to Section 10.01(a) or a payment to Noteholders pursuant to Section 10.01(b),
the Distribution Date specified by the Servicer or the Issuer pursuant to
Section 10.01(a) or (b), as applicable.
"Redemption Price" means in the case of a redemption of the Notes
pursuant to Section 10.01(a), an amount equal to the unpaid principal amount of
the Notes redeemed plus accrued and unpaid interest thereon to and including the
last day of the month preceding the month of such Redemption Date at the Note
Rate or (b) in the case of a payment made to Noteholders pursuant to Section
10.01(b), the amount on deposit in the Note Distribution Account, but not in
excess of the amount specified in clause (a) above.
"Registered Holder" means the Person in whose name a Note is registered
on the Note Register on the applicable Record Date.
7
<PAGE>
"Responsible Officer" means, with respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary, Managing Director or any other officer of the Indenture Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of December 9, 1996, among the Issuer, AUTORICS II, the Back-up
Servicer and NAL.
"Schedule of Receivables" means the list of the Receivables set forth in
Schedule I (which Schedule may be in the form of microfiche).
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means AUTORICS, Inc., in its capacity as seller under the
Receivables Purchase Agreement, and its successor in interest.
"Servicer" means NAL in its capacity as servicer under the Sale and
Servicing Agreement, and any Successor Servicer thereunder.
"State" means any one of the 50 States of the United States of America
or the District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.07(e).
"TIA" means the Trust Indenture Act of 1939, as amended.
"Trust Estate" means all money, instruments, chattel paper, general
intangibles, rights and other property that are subject or intended to be
subject to the lien and security interest of this Indenture for the benefit of
the Noteholders (including, without limitation, all property and interests
Granted to the Indenture Trustee), including all proceeds thereof.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(b) Except as otherwise specified herein or as the context may otherwise
require, capitalized terms used but not otherwise defined herein have the
respective meanings set forth in the Sale and Servicing Agreement for all
purposes of this Indenture.
8
<PAGE>
SECTION 1.02. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to time
amended, modified or supplemented and includes (in the case of agreements
or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
ARTICLE II
The Notes
SECTION 2.01. Form. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
Each Note shall be dated the date of its authentication. The terms of the
Notes set forth in Exhibit A are part of the terms of this Indenture.
SECTION 2.02. Execution, Authentication and Delivery. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such
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individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes.
The Indenture Trustee shall upon its receipt of an Issuer Order
authenticate and deliver Notes for original issue in an aggregate principal
amount of $79,239,000.00.
Each Note shall be dated the date of its authentication. The Notes shall
be issuable as registered Notes in the minimum denomination of $100,000 and in
integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein executed by the
Indenture Trustee by the manual signature of one of its authorized signatories,
and such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder.
SECTION 2.03. Temporary Notes. Pending the preparation of definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the Indenture
Trustee shall authenticate and deliver, temporary Notes that are printed,
lithographed, typewritten, mimeographed, or otherwise produced, of the tenor of
the definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Indenture as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer shall cause definitive Notes to
be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.02, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute, and the Indenture Trustee shall authenticate and deliver in exchange
therefor, a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.04. Limitations on Transfer of the Notes. The Notes have not
been and will not be registered under the Securities Act and will not be listed
on any exchange. No transfer of a Note shall be made unless such transfer is
made pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws or is exempt from the registration
requirements under said Act and such state securities laws. In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act and
state securities laws, in order to assure compliance with the
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Securities Act and such laws, the Holder desiring to effect such transfer and
such Holder's prospective transferee shall each certify to the Indenture
Trustee and the Issuer in writing the facts surrounding the transfer in
substantially the forms set forth in Exhibit C (the "Transferor Certificate")
and Exhibit D (the "Investment Letter"). Except in the case of a transfer as to
which the proposed transferee has confirmed that it is a "qualified
institutional buyer" as provided in Section 2(b) of the Investment Letter,
there shall also be delivered to the Indenture Trustee an opinion of counsel
that such transfer may be made pursuant to an exemption from the Securities Act
and state securities laws, which opinion of counsel shall not be an expense of
the Trust, the Owner Trustee or the Indenture Trustee (unless it is the
transferee from whom such opinion is to be obtained) or of the Depositor or
NAL; provided that such opinion of counsel in respect of the applicable state
securities laws may be a memorandum of law rather than an opinion if such
counsel is not licensed in the applicable jurisdiction. The Depositor shall
cause the Servicer to provide to any Holder of a Note and any prospective
transferee designated by any such Holder information regarding the Notes and
the Receivables and such other information as shall be necessary to satisfy the
condition to eligibility set forth in Rule 144A(d)(4) for transfer of any such
Note without registration thereof under the Securities Act pursuant to the
registration exemption provided by Rule 144A. Each Holder of a Note desiring to
effect such a transfer shall, and does hereby agree to, indemnify the Issuer,
the Owner Trustee, the Indenture Trustee and the Depositor against any
liability that may result if the transfer is not so exempt or is not made in
accordance with federal and state securities laws.
If an election is made to hold a Note in book-entry form, the Note shall
be registered in the name of a nominee designated by the Clearing Agency (and
may be aggregated as to denominations with other Notes held by the Clearing
Agency). With respect to Notes held in book-entry form:
(i) the Note Registrar and the Trustee will be entitled to deal
with the Clearing Agency for all purposes of this Indenture (including
the payment of principal of and interest on the Notes and the giving of
instructions or directions hereunder) as the sole holder of the Notes,
and shall have no obligation to the Note Owners;
(ii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the provisions of this
Section shall control;
(iii) the rights of Note Owners will be exercised only through the
Clearing Agency and will be limited to those established by law and
agreements between such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants pursuant to the Depository Agreement;
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(vi) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Outstanding Amount of the Notes,
the Clearing Agency will be deemed to represent such percentage only to
the extent that it has received instructions to such effect from Note
Owners and/or Clearing Agency Participants owning or representing,
respectively, such required percentage of the beneficial interest in the
Notes and has delivered such instructions to the Trustee; and
(iv) without the consent of the Issuer and the Trustee, no such
Note may be transferred by the Depository except to a successor
Depository that agrees to hold such Note for the account of the Owners or
except upon the election of the Owner thereof or a subsequent transferee
to hold such Note in physical form.
Neither the Trustee nor the Registrar shall have any responsibility to monitor
or restrict the transfer of beneficial ownership in any Note an interest in
which is transferable through the facilities of the Depository.
If (i) the Administrator advises the Indenture Trustee in writing that
the Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to the Notes held in book-entry form and the
Administrator is unable to locate a qualified successor, (ii) the Administrator
at its option advises the Indenture Trustee in writing that it elects to
terminate the book-entry system through the Clearing Agency or (iii) after the
occurrence of an Event of Default or a Servicer Default, Note Owners
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of such Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Note Owners, then the Clearing Agency shall notify
all Note Owners and the Indenture Trustee of the occurrence of any such event
and of the availability of definitive Notes to Note Owners requesting the same.
Upon surrender to the Indenture Trustee of the typewritten Notes representing
the Notes held in book-entry form by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the definitive Notes in accordance with the instructions of
the Clearing Agency. None of the Issuer, the Note Registrar or the Indenture
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of definitive Notes, the Indenture Trustee shall recognize the
Holders of the definitive Notes as Noteholders.
The Issuer shall cause each Note to contain a legend stating that
transfer of the Notes is subject to certain restrictions and referring
prospective purchasers of the Notes to this Section 2.4 with respect to such
restrictions.
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SECTION 2.05. Registration; Registration of Transfer and Exchange. (a)
The Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe and the restrictions
on transfers of the Notes set forth herein, the Issuer shall provide for the
registration of Notes and the registration of transfers of Notes. The Indenture
Trustee initially shall be the "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. Upon any resignation of any
Note Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar, the Issuer will give the Indenture Trustee prompt written
notice of the appointment of such Note Registrar and of the location, and any
change in the location, of the Note Register, and the Indenture Trustee shall
have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Holders of the Notes and
the principal amounts and number of such Notes.
(b) Subject to the limitations on transfer set forth herein, upon
surrender for registration of transfer of any Note at the office or agency of
the Issuer to be maintained as provided in Section 3.02, if the requirements of
Section 8-401(1) of the UCC are met, the Issuer shall execute, and the Indenture
Trustee shall authenticate and the Noteholder shall obtain from the Indenture
Trustee, in the name of the designated transferee or transferees, one or more
new Notes in any authorized denominations, of a like aggregate principal amount.
(c) Notes may be exchanged for other Notes in any authorized
denominations, of a like aggregate principal amount, upon surrender of the Notes
to be exchanged at such office or agency. Whenever any Notes are so surrendered
for exchange, if the requirements of Section 8-401(1) of the UCC are met, the
Issuer shall execute, and the Indenture Trustee shall authenticate and the
Noteholder shall obtain from the Indenture Trustee, the Notes which the
Noteholder making the exchange is entitled to receive.
(d) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
(e) Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
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requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
(f) Any and all transfers from a Book-Entry Note to a transferee wishing
to take delivery in the form of a definitive Note will require the transferee to
take delivery subject to the restrictions on the transfer of such definitive
Note described in the legend set forth on the face of the Note substantially in
the form of Exhibit A as attached hereto (the "Legend"), and such transferee
agrees that it will transfer such a Note only as provided therein and herein. No
such transfer shall be made and the Trustee shall not register any such transfer
unless such transfer is made in accordance with this Section 2.05.
Upon acceptance for exchange or transfer of a beneficial interest in a
Book-Entry Note for a definitive Note, as provided herein, the Trustee shall
endorse on the schedule affixed to the related Book-Entry Note (or on a
continuation of such schedule affixed to the such Book-Entry Note and made a
part thereof) an appropriate notation evidencing the date of such exchange or
transfer and a decrease in the principal balance of such Book-Entry Note equal
to the principal balance of such definitive Note issued in exchange therefor or
upon transfer thereof. Unless determined otherwise by the Trustee in accordance
with applicable law, a definitive Note issued upon transfer of or exchange for a
beneficial interest in the Book-Entry Note shall bear the Legend.
(g) If a Holder of a definitive Note wishes at any time to transfer such
definitive Note to a Person who wishes to take delivery thereof in the form of a
beneficial interest in the Book-Entry Note, such transfer may be effected only
in accordance with the applicable procedures of the Depository and this Section
2.05 (g). Upon receipt by the Trustee at the Corporate Trust Office of (1) the
definitive Note to be transferred with an assignment and transfer, (2) written
instructions given in accordance with the applicable procedures from a
participant directing the Trustee to credit or cause to be credited to another
specified participant's account a beneficial interest in the Book-Entry Note, in
an amount equal to the principal balance of the definitive Note to be so
transferred, (3) a written order given in accordance with the applicable
procedures containing information regarding the account of the participant to be
credited with such beneficial interest, and (4) representations from the
transferee to the effect that it is a "qualified institutional buyer" as
provided in Section 2(b) of the Investment Letter, the Trustee shall cancel such
definitive Note, execute and deliver a new definitive Note for the principal
balance of the definitive Note not so transferred, registered in the name of the
Holder or the Holder's transferee (as instructed by the Holder), and the Trustee
shall instruct the Depository to increase the principal balance of the
Book-Entry Note, by the
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principal balance of the definitive Note to be so transferred, and to credit or
cause to be credited to the account of the Person specified in such
instructions a corresponding principal balance of the Book-Entry Note.
Under no circumstances may an institutional "accredited investor" within
Regulation D of the Securities Act take delivery in the form of a beneficial
interest in a Book-Entry Note if such purchaser is not a "qualified
institutional buyer" as defined under Rule 144A under the Securities Act.
(h) An exchange of a beneficial interest in a Book-Entry Note for a
definitive Note or Notes, an exchange of a definitive Note or Notes for a
beneficial interest in the Book-Entry Note and exchange of a definitive Note or
Notes for another definitive Note or Notes (in each case, whether or not such
exchange is made in anticipation of subsequent transfer, and in the case of the
Book-Entry Note, so long as the Book-Entry Note remains outstanding and is held
by or on behalf of the Depository), may be made only in accordance with this
Section 2.05 and in accordance with the rules of the Depository.
(i) No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.03 or 9.05 not involving any transfer.
(j) The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to the
Note.
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of written notice to the Issuer, the Note
Registrar or the Indenture Trustee that such Note has been acquired by a bona
fide purchaser, and provided that the requirements of Section 8-405 of the UCC
are met, the Issuer shall execute, and upon its written request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or
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stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was
issued presents for payment such original Note, the Issuer and the Indenture
Trustee shall be entitled to recover such replacement Note (or such payment)
from the Person to whom it was delivered or any Person taking such replacement
Note from such Person to whom such replacement Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee
in connection therewith.
Upon the issuance of any replacement Note under this Section, the Issuer
may require the payment by the Holder of such Note of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other reasonable expenses (including the fees and expenses of the Indenture
Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement of
any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.07. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest on such
Note and for all other purposes whatsoever, whether or not such Note be overdue,
and none of the Issuer, the Indenture Trustee or any agent of the Issuer or the
Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.08. Payment of Principal and Interest; Defaulted Interest. (a)
The Notes shall accrue interest at the Note Rate, as set forth in Exhibit A, and
such interest shall be payable on each Distribution Date as specified therein,
subject to Section 3.01. Any installment of interest or principal payable on a
Note that is punctually paid or duly provided for by the Issuer on the
applicable Distribution Date shall be paid to the
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Person in whose name such Note (or one or more Predecessor Notes) is registered
on the Record Date by check mailed first-class postage prepaid to such Person's
address as it appears on the Note Register on such Record Date, except that (i)
upon written request of a Noteholder to the Paying Agent not later than the
Record Date prior to the related Distribution Date or (ii) if the registered
Noteholder is the nominee of the Clearing Agency, payment will be made by wire
transfer in immediately available funds to the account designated by such
Holder and except for the final installment of principal payable with respect
to such Note on a Distribution Date or on the Note Final Scheduled Distribution
Date, which shall be payable as provided below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section 3.03.
(b) The principal of each Note shall be payable in installments on each
Distribution Date as provided in the form of the Note set forth in Exhibit A.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the date on which an Event
of Default shall have occurred and be continuing, if the Indenture Trustee or
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared the Notes to be immediately due and payable in
the manner provided in Section 5.02. All principal payments on the Notes shall
be made pro rata to the Noteholders entitled thereto. The Indenture Trustee
shall notify the Person in whose name a Note is registered at the close of
business on the Record Date preceding the Distribution Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Distribution Date and shall specify that such final installment will
be payable only upon presentation and surrender of such Note and shall specify
the place where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be mailed to
Noteholders as provided in Section 10.02.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) at the Note Rate in any lawful manner. The Issuer may pay
such defaulted interest to the persons who are Noteholders on a subsequent
special record date, which date shall be at least five Business Days prior to
the payment date. The Issuer shall fix or cause to be fixed any such special
record date and payment date and, at least 15 days before any such special
record date, the Issuer shall mail to each Noteholder a notice that states the
special record date, the payment date and the amount of defaulted interest to be
paid.
SECTION 2.09. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time
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deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Notes may be held or disposed of by the
Indenture Trustee in accordance with its standard retention or disposal policy
as in effect at the time unless the Issuer shall direct by an Issuer Order that
they be destroyed or returned to it and such Issuer Order is timely and the
Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.10. Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Trust Estate. The Issuer, by
entering into this Indenture, and each Noteholder, by its acceptance of a Note
(and each Note Owner by its acceptance of a beneficial interest in a Note held
in book-entry form), agree to treat the Notes for federal, state and local
income, single business and franchise tax purposes as indebtedness of the
Issuer.
ARTICLE III
Covenants
SECTION 3.01. Payment of Principal and Interest. The Issuer will duly and
punctually pay the principal of and interest, if any, on the Notes in accordance
with the terms of the Notes and this Indenture. Without limiting the foregoing,
subject to Section 8.02(c), the Issuer will cause to be distributed all amounts
on deposit in the Note Distribution Account on a Distribution Date deposited
therein pursuant to the Sale and Servicing Agreement for the benefit of the
Notes, to the Noteholders. Amounts properly withheld under the Code by any
Person from a payment to any Noteholder of interest and/or principal shall be
considered as having been paid by the Issuer to such Noteholder for all purposes
of this Indenture.
SECTION 3.02. Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Issuer will give
prompt written notice to the Indenture Trustee of the location, and of any
change in the location, of any such office or agency. If at any time the Issuer
shall fail to maintain any such office or agency or shall fail to furnish the
Indenture Trustee with the address thereof, such surrenders, notices and demands
may be made or served at the
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Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as
its agent to receive all such surrenders, notices and demands.
SECTION 3.03. Money for Payments To Be Held in Trust. As provided in
Section 8.02(a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Collection Account
and the Note Distribution Account pursuant to Section 8.02(c) shall be made on
behalf of the Issuer by the Indenture Trustee or by another Paying Agent, and no
amounts so withdrawn from the Collection Account and the Note Distribution
Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section.
On or before the Business Day preceding each Distribution Date and
Redemption Date, the Issuer shall deposit or cause to be deposited in the Note
Distribution Account an aggregate sum sufficient to pay the amounts then
becoming due under the Notes, such sum to be held in trust for the benefit of
the Persons entitled thereto, and (unless the Paying Agent is the Indenture
Trustee) shall promptly notify the Indenture Trustee of its action or failure so
to act.
The Issuer will cause each Paying Agent other than the Indenture Trustee
to execute and deliver to the Indenture Trustee an instrument in which such
Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as
herein provided;
(ii) give the Indenture Trustee written notice of any default by
the Issuer (or any other obligor upon the Notes) of which it has actual
knowledge in the making of any payment required to be made with respect
to the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on
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any Notes of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Order direct
any Paying Agent to pay to the Indenture Trustee all sums held in trust by such
Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts
as those upon which the sums were held by such Paying Agent; and upon such
payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and written direction of the Issuer cause to be published
once, in a newspaper published in the English language, customarily published on
each Business Day and of general circulation in The City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Issuer. The
Indenture Trustee shall also adopt and employ, at the expense and written
direction of the Issuer, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Holders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Indenture Trustee or of any
Paying Agent, at the last address of record for each such Holder).
SECTION 3.04. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other State or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this
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Indenture, the Notes, the Collateral and each other instrument or agreement
included in the Trust Estate.
SECTION 3.05. Protection of Trust Estate. The Issuer will from time to
time execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further assurance
and other instruments, and will take such other action necessary or advisable
to:
(i) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Trust Estate and the rights
of the Indenture Trustee and the Noteholders in such Trust Estate against
the claims of all persons and parties.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.05.
SECTION 3.06. Opinions as to Trust Estate. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording and filing of this Indenture, any indentures
supplemental hereto, and any other requisite documents, and with respect to the
execution and filing of any financing statements and continuation statements, as
are necessary to perfect and make effective the lien and security interest of
this Indenture and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective.
(b) On or before December 31, in each calendar year, beginning in 1997,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording, filing, re-recording and refiling of this Indenture,
any indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action, or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording
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and refiling of this Indenture, any indentures supplemental hereto and any
other requisite documents and the execution and filing of any financing
statements and continuation statements that will, in the opinion of such
counsel, be required to maintain the lien and security interest of this
Indenture until December 31 in the following calendar year.
SECTION 3.07. Performance of Obligations; Servicing of Receivables. (a)
The Issuer will not take any action and will use its best efforts not to permit
any action to be taken by others that would release any Person from any of such
Person's material covenants or obligations under any instrument or agreement
included in the Trust Estate or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in performing
its duties under this Indenture, and any performance of such duties by a Person
identified to the Indenture Trustee in an Officer's Certificate of the Issuer
shall be deemed to be action taken by the Issuer. Initially, the Issuer has
contracted with the Servicer and the Administrator to assist the Issuer in
performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its obligations
and agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Trust Estate, including but not
limited to filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Sale and Servicing Agreement in accordance with and within the time periods
provided for herein and therein. Except as otherwise expressly provided therein,
the Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee
or the Holders of at least a majority of the Outstanding Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Default under the Sale and Servicing Agreement, the Issuer shall promptly notify
the Indenture Trustee and the Rating Agencies thereof, and shall specify in such
notice the action, if any, the Issuer is taking with respect to such default. If
a Servicer Default shall arise from the failure of the Servicer to perform any
of its duties or obligations under the Sale and Servicing Agreement with respect
to the Receivables, the Issuer shall take all reasonable steps available to it
to remedy such failure.
(e) In the event of the Servicer's termination under the Sale and
Servicing Agreement, the Indenture Trustee shall appoint a successor Servicer,
and the successor Servicer shall accept its appointment (including its
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appointment as Administrator under the Administration Agreement as set forth in
Section 8.02(b) of the Sale and Servicing Agreement) by a written assumption in
form acceptable to the Owner Trustee and the Indenture Trustee. If the Indenture
Trustee appoints the Backup Servicer as successor Servicer in accordance with
Sections 7.03 or 8.01 of the Sale and Servicing Agreement (after confirmation
from each Rating Agency that such appointment will not result in the withdrawal
or downgrade of the then current ratings of the Notes and the Certificates), the
Backup Servicer shall be the successor in all respects to the Servicer in its
capacity as Servicer under the Sale and Servicing Agreement and the transactions
set forth or provided for therein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions thereof; provided, however, that the Backup Servicer
shall not be liable for any acts or omissions of the Servicer occurring prior to
such succession or for any breach by the Servicer of any of its representations
and warranties contained therein or in any related document or agreement.
Notwithstanding the above, if the Backup Servicer is legally unable or unwilling
to act as Servicer, the Indenture Trustee will appoint a successor Servicer to
act as Servicer. As compensation for acting as successor Servicer, the Backup
Servicer shall be entitled to receive the Servicing Fee. In the event that a
successor Servicer has not been appointed at the time when the predecessor
Servicer has ceased to act as Servicer in accordance with this Section, the
Indenture Trustee without further action shall automatically be appointed the
successor Servicer and the Indenture Trustee shall be entitled to the Servicing
Fee. Notwithstanding the above, the Indenture Trustee shall, if it shall be
legally unable or unwilling so to act, appoint or petition a court of competent
jurisdiction to appoint any established institution, having a net worth of not
less than $50,000,000 and whose regular business shall include the servicing of
automotive receivables, as the successor to the Servicer under the Sale and
Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers pursuant to
the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture
Trustee in writing. As soon as a Successor Servicer is appointed, the Issuer
shall notify the Indenture Trustee of such appointment, specifying in such
notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment granted
to the Indenture Trustee under this Indenture or the rights of the Indenture
Trustee hereunder, the Issuer agrees (i) that it will not, without the prior
written consent of the Indenture Trustee or the Holders of at least a majority
in Outstanding Amount of the Notes, amend, modify, waive, supplement, terminate
or surrender, or agree to any amendment, modification, supplement, termination,
waiver or surrender of, the terms of any Collateral (except to the extent
otherwise provided in the Sale and Servicing Agreement) or the Basic Documents,
or waive timely performance or observance by the
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Servicer or the Depositor under the Sale and Servicing Agreement; and (ii) that
any such amendment shall not (A) increase or reduce in any manner the amount
of, or accelerate or delay the timing of, distributions that are required to be
made for the benefit of the Noteholders or (B) reduce the aforesaid percentage
of the Notes that is required to consent to any such amendment, without the
consent of the Holders of all the Outstanding Notes. If any such amendment,
modification, supplement or waiver shall be so consented to by the Indenture
Trustee or such Holders, the Issuer agrees, promptly following a request by the
Indenture Trustee to do so, to execute and deliver, in its own name and at its
own expense, such agreements, instruments, consents and other documents as the
Indenture Trustee may deem necessary or appropriate in the circumstances.
SECTION 3.08. Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or the Sale and
Servicing Agreement, sell, transfer, exchange or otherwise dispose of any
of the properties or assets of the Issuer, including those included in
the Trust Estate, unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the principal
or interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against
any present or former Noteholder by reason of the payment of the taxes
levied or assessed upon any part of the Trust Estate; or
(iii) (A) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect to
the Notes under this Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this Indenture) to
be created on or extend to or otherwise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the proceeds
thereof (other than tax liens, mechanics' liens and other liens that
arise by operation of law, in each case on any of the Financed Vehicles
and arising solely as a result of an action or omission of the related
Obligor) or (C) permit the lien of this Indenture not to constitute a
valid first priority (other than with respect to any such tax,
mechanics' or other lien) security interest in the Trust Estate.
SECTION 3.09. Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee, within 120 days after the end of each fiscal year of
the Issuer (commencing with the fiscal
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year 1996), an Officer's Certificate stating, as to the Authorized Officer
signing such Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year and
of its performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a
default in its compliance with any such condition or covenant, specifying
each such default known to such Authorized Officer and the nature and
status thereof.
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms. (a)
The Issuer shall not consolidate or merge with or into any other Person,
unless:
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any State and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Indenture Trustee, in form satisfactory to the Indenture
Trustee, the due and punctual payment of the principal of and interest on
all Notes and the performance or observance of every agreement and
covenant of this Indenture on the part of the Issuer to be performed or
observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
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(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted (A) shall be a United States citizen or a Person
organized and existing under the laws of the United States of America or
any State, (B) expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form satisfactory to
the Indenture Trustee, the due and punctual payment of the principal of
and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly agrees by
means of such supplemental indenture that all right, title and interest
so conveyed or transferred shall be subject and subordinate to the rights
of Holders of the Notes, and (D) unless otherwise provided in such
supplemental indenture, expressly agrees to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
SECTION 3.11. Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.10(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and
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power of, the Issuer under this Indenture with the same effect as if such
Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of the
Issuer pursuant to Section 3.10(b), NAL Auto Trust 1996-4 will be released from
every covenant and agreement of this Indenture to be observed or performed on
the part of the Issuer with respect to the Notes immediately upon the delivery
of written notice to the Indenture Trustee stating that NAL Auto Trust 1996-4 is
to be so released.
SECTION 3.12. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Receivables in the manner contemplated by this Indenture and the Basic Documents
and activities incidental thereto.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14. Servicer's Obligations. The Issuer shall cause the
Servicer to comply with Sections 4.09, 4.10, 4.11 and Article IX of the Sale
and Servicing Agreement.
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by the Sale and Servicing Agreement or this Indenture, the
Issuer shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an instrument having the effect of assuring another's
payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or own,
purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.16. Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17. Removal of Administrator. So long as any Notes are
Outstanding, the Issuer shall not remove the Administrator without cause unless
the Rating Agency Condition shall have been satisfied in connection with such
removal.
SECTION 3.18. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such
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ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; provided, however, that the Issuer
may make, or cause to be made, (x) distributions to the Servicer, the Owner
Trustee and the Certificateholders as contemplated by, and to the extent funds
are available for such purpose under, the Sale and Servicing Agreement or the
Trust Agreement and (y) payments to the Indenture Trustee pursuant to Section
1(a)(ii) of the Administration Agreement. The Issuer will not, directly or
indirectly, make payments to or distributions from the Collection Account
except in accordance with this Indenture and the Basic Documents.
SECTION 3.19. Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Rating Agencies prompt written notice of each Event of
Default hereunder and each default on the part of the Servicer of its
obligations under the Sale and Servicing Agreement.
SECTION 3.20. Further Instruments and Acts. Upon request of the Indenture
Trustee, the Issuer will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.05, 3.08,
3.10, 3.12 and 3.13, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.02) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than
(i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 2.06 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuer and thereafter repaid to the Issuer or
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discharged from such trust, as provided in Section 3.03) have been
delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee
for cancellation
a. have become due and payable,
b. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving
of notice of redemption by the Indenture Trustee in the name, and
at the expense, of the Issuer,
and the Issuer, in the case of a. or b. above, has irrevocably deposited
or caused to be irrevocably deposited with the Indenture Trustee cash or
direct obligations of or obligations guaranteed by the United States of
America (which will mature prior to the date such amounts are payable),
in trust for such purpose, in an amount sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore delivered to the
Indenture Trustee for cancellation when due to the applicable final
scheduled Distribution Date or Redemption Date, as the case may be;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the Indenture
Trustee) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.01(a)
and, subject to Section 11.02, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
SECTION 4.02. Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Section 4.01 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Holders of the particular Notes for the
payment or redemption of which such moneys have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to the
extent required herein or in the Sale and Servicing Agreement or required by
law.
SECTION 4.03. Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and
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applied according to Section 3.03 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when the
same becomes due and payable, and such default shall continue for a
period of five days; or
(ii) default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due
and payable; or
(iii) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is
elsewhere in this Section specifically dealt with), or any representation
or warranty of the Issuer made in this Indenture or in any certificate or
other writing delivered pursuant hereto or in connection herewith proving
to have been incorrect in any material respect as of the time when the
same shall have been made, and such default shall continue or not be
cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 30 days after there shall
have been given, by registered or certified mail, to the Issuer by the
Indenture Trustee or to the Issuer and the Indenture Trustee by the
Holders of at least 25% of the Outstanding Amount of the Notes, a written
notice specifying such default or incorrect representation or warranty
and requiring it to be remedied and stating that such notice is a notice
of Default hereunder; or
(iv) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial
part of the Trust Estate in an involuntary case under any applicable
federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for
any substantial part of the Trust Estate, or ordering the winding-up or
liquidation of the Issuer's
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affairs, and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(v) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by the Issuer to the entry of
an order for relief in an involuntary case under any such law, or the
consent by the Issuer to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Trust
Estate, or the making by the Issuer of any general assignment for the
benefit of creditors, or the failure by the Issuer generally to pay its
debts as such debts become due, or the taking of any action by the Issuer
in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee, within five days after the
occurrence thereof, written notice in the form of an Officer's Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default under clause (iii), its status and what action the Issuer is
taking or proposes to take with respect thereto.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default should occur and be continuing, then and in every such case
the Indenture Trustee or the Holders of Notes representing not less than a
majority of the Outstanding Amount of the Notes may declare all the Notes to be
immediately due and payable, by a notice in writing to the Issuer (and to the
Indenture Trustee if given by Noteholders), and upon any such declaration the
unpaid principal amount of such Notes, together with accrued and unpaid
interest thereon through the date of acceleration, shall become immediately due
and payable.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee
a sum sufficient to pay:
(A) all payments of principal of and interest on all Notes and all
other amounts that would then be due hereunder or upon such Notes if
the Event of Default giving rise to such acceleration had not occurred;
and
(B) all sums paid or advanced by the Indenture Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances
of the Indenture Trustee and its agents and counsel; and
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(ii) all Events of Default, other than the nonpayment of the principal
of the Notes that has become due solely by such acceleration, have been
cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any right
consequent thereto.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issuer will, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of the Notes, the whole
amount then due and payable on such Notes for principal and interest, with
interest on the overdue principal, and, to the extent payment at such rate of
interest shall be legally enforceable, on overdue installments of interest, at
the rate borne by the Notes and in addition thereto such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Indenture Trustee, in its own name and as trustee of an express
trust, may institute a Proceeding for the collection of the sums so due and
unpaid, and may prosecute such Proceeding to judgment or final decree, and may
enforce the same against the Issuer or other obligor upon such Notes and collect
in the manner provided by law out of the property of the Issuer or other obligor
upon such Notes, wherever situated, the moneys adjudged or decreed to be
payable.
(c) If an Event of Default occurs and is continuing, the Indenture Trustee
may, as more particularly provided in Section 5.04, in its discretion, proceed
to protect and enforce its rights and the rights of the Noteholders, by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization, or
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer
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or its property or such other obligor or Person, or in case of any other
comparable judicial Proceedings relative to the Issuer or other obligor upon
the Notes, or to the creditors or property of the Issuer or such other obligor,
the Indenture Trustee, irrespective of whether the principal of any Notes shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel, and
for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith) and of the
Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Indenture Trustee on
their behalf; and
(iv) to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Indenture
Trustee or the Holders of Notes allowed in any Proceedings relative to the
Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or
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accept or adopt on behalf of any Noteholder any plan of reorganization,
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof or to authorize the Indenture Trustee to vote in respect of the
claim of any Noteholder in any such proceeding except, as aforesaid, to vote
for the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
SECTION 5.04. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee may do one or more of
the following (subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an express
trust for the collection of all amounts then payable on the Notes or under
this Indenture with respect thereto, whether by declaration or otherwise,
enforce any judgment obtained and collect from the Issuer and any other
obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies
of the Indenture Trustee and the Holders of the Notes; and
(iv) sell the Trust Estate or any portion thereof or rights or interest
therein, at one or more public or private sales called and conducted in any
manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, other than an Event of
Default described in Section 5.01(i) or (ii), unless (A) the Holders of 100% of
the
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Outstanding Amount of the Notes consent thereto, (B) the proceeds of such
sale or liquidation distributable to the Noteholders are sufficient to discharge
in full all amounts then due and unpaid upon such Notes for principal and
interest or (C) the Indenture Trustee determines that the Trust Estate will not
continue to provide sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent of
Holders of not less than 66-2/3% of the Outstanding Amount of the Notes. In
determining such sufficiency or insufficiency with respect to clause (B) and
(C), the Indenture Trustee may, but need not, obtain and rely upon an opinion of
an Independent investment banking or accounting firm of national reputation as
to the feasibility of such proposed action and as to the sufficiency of the
Trust Estate for such purpose, which opinion shall be conclusive evidence as to
such feasibility or sufficiency.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section 6.07;
SECOND: to Holders of the Notes for amounts due and unpaid on the
Notes for interest (including any premium), ratably, without preference
or priority of any kind, according to the amounts due and payable on
the Notes for interest (including any premium);
THIRD: to the Issuer for amounts required to be distributed to the
Certificateholders in respect of interest pursuant to the Trust Agreement;
FOURTH: to Holders of the Notes for amounts due and unpaid on the
Notes for principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal, until
the Outstanding Amount of the Notes is reduced to zero;
FIFTH: to the Issuer for amounts required to be distributed to the
Certificateholders in respect of principal pursuant to the Trust
Agreement.
The Indenture Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section. At least 15 days before such record date,
the Issuer shall mail to each Noteholder and the Indenture Trustee a notice that
states the record date, the payment date and the amount to be paid.
SECTION 5.05. Optional Preservation of the Receivables. If the Notes have
been declared to be due and payable under Section 5.02 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture
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Trustee may, but need not, elect to maintain possession of the Trust Estate. It
is the desire of the parties hereto and the Noteholders that there be at all
times sufficient funds for the payment of principal of and interest on the
Notes, and the Indenture Trustee shall take such desire into account when
determining whether or not to maintain possession of the Trust Estate. In
determining whether to maintain possession of the Trust Estate, the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose, which opinion shall be conclusive evidence as to such
sufficiency.
SECTION 5.06. Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding Amount of the
Notes have made written request to the Indenture Trustee to institute such
Proceeding in respect of such Event of Default in its own name as Indenture
Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Holders of a
majority of the Outstanding Amount of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its
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sole discretion may determine what action, if any, shall be taken,
notwithstanding any other provisions of this Indenture.
SECTION 5.07. Unconditional Rights of Noteholders To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective due dates thereof expressed in such Note or in this Indenture (or, in
the case of redemption, on or after the Redemption Date) and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
SECTION 5.08. Restoration of Rights and Remedies. If the Indenture Trustee
or any Noteholder has instituted any Proceeding to enforce any right or remedy
under this Indenture and such Proceeding has been discontinued or abandoned for
any reason or has been determined adversely to the Indenture Trustee or to such
Noteholder, then and in every such case the Issuer, the Indenture Trustee and
the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and the Noteholders
shall continue as though no such Proceeding had been instituted.
SECTION 5.09. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10. Delay or Omission Not a Waiver. No delay or omission of the
Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
SECTION 5.11. Control by Noteholders. The Holders of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
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(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction to the
Indenture Trustee to sell or liquidate the Trust Estate shall be by Holders
of Notes representing not less than 100% of the Outstanding Amount of the
Notes;
(iii) if the conditions set forth in Section 5.05 have been satisfied
and the Indenture Trustee elects to retain the Trust Estate pursuant to
such Section, then any direction to the Indenture Trustee by Holders of
Notes representing less than 100% of the Outstanding Amount of the Notes to
sell or liquidate the Trust Estate shall be of no force and effect; and
(iv) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
SECTION 5.12. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences except
a Default (a) in payment of principal of or interest on any of the Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note. In the case of any such waiver,
the Issuer, the Indenture Trustee and the Holders of the Notes shall be restored
to their former positions and rights hereunder, respectively, but no such waiver
shall extend to any subsequent or other Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of a Note by such Holder's acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in
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such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest on any Note on
or after the respective due dates expressed in such Note and in this Indenture
(or, in the case of redemption, on or after the Redemption Date).
SECTION 5.14. Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.15. Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Trust Estate or upon any
of the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.04(b).
SECTION 5.16. Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and observance
by the Depositor, the Servicer or NAL, as applicable, of each of their
obligations to the Issuer under or in connection with the Sale and Servicing
Agreement and the Receivable Purchase Agreement and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement or the Receivables
Purchase Agreement to the extent and in the manner directed by the Indenture
Trustee, including the transmission of notices of default on the part of the
Depositor, the Servicer, or NAL thereunder and the institution of legal or
administrative
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actions or proceedings to compel or secure performance by the Depositor or the
Servicer of each of their obligations under the Sale and Servicing Agreement or
the Receivables Purchase Agreement.
(b) If an Event of Default has occurred and is continuing, the Indenture
Trustee may, and at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of not less
than 66-2/3% of the Outstanding Amount of the Notes shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Depositor or
the Servicer under or in connection with the Sale and Servicing Agreement and
the Receivables Purchase Agreement including the right or power to take any
action to compel or secure performance or observance by the Depositor, the
Servicer or NAL, as the case may be, of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Sale and Servicing Agreement and the Receivables
Purchase Agreement, as the case may be, and any right of the Issuer to take such
action shall be suspended.
ARTICLE VI
The Indenture Trustee
SECTION 6.01. Duties of Indenture Trustee. (a) If an Event of Default has
occurred and is continuing of which a Responsible Officer of the Indenture
Trustee shall have actual knowledge, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Indenture Trustee and conforming to the requirements of this Indenture;
however, the Indenture Trustee shall examine the certificates and opinions
to determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
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(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(f) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or indemnity reasonably satisfactory to it against such risk or
liability is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Indenture Trustee shall be
subject to the provisions of this Section.
SECTION 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee may
conclusively rely, as to the truth of the statements or the correctness of the
opinions expressed therein, on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Indenture Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee,
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and the Indenture Trustee shall not be responsible for any misconduct or
negligence on the part of, or for the supervision of, any such agent, attorney,
custodian or nominee appointed with due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, including Issuer's
counsel, and the advice or opinion of counsel with respect to legal matters
relating to this Indenture and the Notes shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
SECTION 6.03. Individual Rights of Indenture Trustee. The Indenture Trustee
in its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Indenture Trustee. Any Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Indenture Trustee must comply with Section 6.11.
SECTION 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
SECTION 6.05. Notice of Defaults. If a Default occurs and is continuing and
if it is either actually known or written notice of the existence thereof has
been delivered to a Responsible Officer of the Indenture Trustee, the Indenture
Trustee shall promptly mail to each Noteholder and each Rating Agency notice of
the Default. Except in the case of a Default in payment of principal of or
interest on any Note (including payments pursuant to the mandatory redemption
provisions of such Note), the Indenture Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders. To the extent that a
Responsible Officer has actual knowledge thereof or receives written notice
thereof, the Indenture Trustee shall provide each Rating Agency promptly with
notice in the event that any Event of Default is cured or waived, including a
description of the nature and extent of such Event of Default and the actions
taken to cure or waive it.
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SECTION 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns.
SECTION 6.07. Compensation and Indemnity. The Issuer shall, or shall cause
the Administrator to, pay to the Indenture Trustee from time to time reasonable
compensation for its services. The Indenture Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Issuer
shall, or shall cause the Administrator to, reimburse the Indenture Trustee for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer shall, or shall cause the Administrator to, indemnify the Indenture
Trustee against any and all loss, liability or expense (including attorneys'
fees and expenses) incurred by it in connection with the administration of this
trust and the performance of its duties hereunder and under the Account
Agreement. The Indenture Trustee shall notify the Issuer and the Administrator
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to so notify the Issuer and the Administrator shall not relieve the
Issuer or the Administrator of its obligations hereunder. The Issuer shall, or
shall cause the Administrator to, defend any such claim, and the Indenture
Trustee may have separate counsel and the Issuer shall, or shall cause the
Administrator to, pay the fees and expenses of such counsel. Neither the Issuer
nor the Administrator need reimburse any expense or indemnify against any loss,
liability or expense incurred by the Indenture Trustee through the Indenture
Trustee's own willful misconduct, negligence or bad faith.
The Issuer's obligations to the Indenture Trustee pursuant to this Section
shall survive the discharge of this Indenture, the maturity of the Notes and the
resignation or removal of the Indenture Trustee. When the Indenture Trustee
incurs expenses after the occurrence of a Default specified in Section 5.01(iv)
or (v) with respect to the Issuer, the expenses are intended to constitute
expenses of administration under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or similar law.
SECTION 6.08. Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee may
resign at any time by so notifying the Issuer. The Holders of a majority in
Outstanding Amount of the Notes may remove the Indenture Trustee by so notifying
the Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer
shall remove the Indenture Trustee if:
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(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists in the
office of Indenture Trustee for any reason (the Indenture Trustee in such event
being referred to herein as the retiring Indenture Trustee), the Issuer shall
promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property of the Issuer, including all
property in the Trust Estate, held by it as Indenture Trustee to the successor
Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days after
the retiring Indenture Trustee resigns or is removed, the retiring Indenture
Trustee, the Issuer or the Holders of a majority in Outstanding Amount of the
Notes may petition any court of competent jurisdiction for the appointment of a
successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any Noteholder
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to this
Section, the Issuer's and the Administrator's obligations under Section 6.07
shall continue for the benefit of the retiring Indenture Trustee. The Indenture
Trustee shall not be liable for the acts or omissions of any successor Indenture
Trustee.
SECTION 6.09. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided,
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that such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
Trustee. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate or any portion thereof
in any
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such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co- trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11. Eligibility; Disqualification. The Indenture Trustee shall at
all times be a financial institution organized and doing business under the laws
of the United States of America or any state, be authorized under such laws to
exercise corporate trust powers, be subject to supervision and examination by
Federal or state authority, and have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition.
SECTION 6.12. Authorization Concerning the Account Agreement. The
Indenture Trustee is hereby authorized to enter into the Account Agreement.
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ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.01. Issuer To Furnish Indenture Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) three months after the last Record Date, a list, in such form as the
Indenture Trustee may reasonably require, of the names and addresses of the
Holders of Notes as of such Record Date, and (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Indenture Trustee is the Note Registrar, no such list shall
be required to be furnished.
SECTION 7.02. Preservation of Information; Communications to Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Notes contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.01
and the names and addresses of Holders of Notes received by the Indenture
Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any
list furnished to it as provided in such Section 7.01 upon receipt of a new list
so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have the
protection of TIA ss. 312(c).
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.01. Collection of Money. Except as otherwise expressly provided
herein, the Indenture Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without
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prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
SECTION 8.02. Trust Accounts. (a) On or prior to the Closing Date, the
Issuer shall cause the Servicer to establish and maintain, in the name of the
Indenture Trustee, for the benefit of the Noteholders and the
Certificateholders, the Trust Accounts as provided in Section 5.01 of the Sale
and Servicing Agreement.
(b) On or before each Distribution Date, all amounts required to be
deposited in the Note Distribution Account with respect to the preceding
Collection Period pursuant to Sections 5.05 and 5.06 of the Sale and Servicing
Agreement will be transferred from the Collection Account and/or the Reserve
Account to the Note Distribution Account.
(c) On each Distribution Date and Redemption Date, the Indenture Trustee
shall distribute all amounts on deposit in the Note Distribution Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes for principal and interest (including any premium) in the following
amounts and in the following order of priority (except as otherwise provided in
Section 5.04(b)):
(i) to the Holders of the Notes, accrued and unpaid interest on the
Notes;
(ii) to the Holders of the Notes on account of principal until the
Outstanding Amount of the Notes is reduced to zero.
SECTION 8.03. General Provisions Regarding Accounts. (a) So long as no
Default or Event of Default shall have occurred and be continuing, all or a
portion of the funds in the Trust Accounts (other than the Note Distribution
Account) shall be invested in Eligible Investments and reinvested by the
Indenture Trustee upon Issuer Order, subject to the provisions of Section
5.01(b) of the Sale and Servicing Agreement. All income or other gain from
investments of moneys deposited in the Trust Accounts (other than the Dealer
Reserve Account) shall be deposited by the Indenture Trustee in the Collection
Account, and any loss resulting from such investments shall be charged to such
account. All income and other gain from investment of monies in the Dealer
Reserve Account (net of any losses and investment expenses) will be payable on
each Distribution Date to the Depositor. The Issuer will not direct the
Indenture Trustee to make any investment of any funds or to sell any investment
held in any of the Trust Accounts unless the security interest Granted and
perfected in such account will continue to be perfected in such investment or
the proceeds of such sale, in either case without any further action by any
Person, and, in connection with any direction to the Indenture Trustee to make
any such investment or sale, if requested by the Indenture Trustee, the Issuer
shall deliver to
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the Indenture Trustee an Opinion of Counsel, acceptable to the Indenture
Trustee, to such effect.
(b) Subject to Section 6.01(c), the Indenture Trustee shall not in any way
be held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Issuer (or the Servicer) shall have failed to give
investment directions for any funds on deposit in the Trust Accounts to the
Indenture Trustee by 10:00 a.m. Eastern Time (or such other time as may be
agreed by the Issuer and Indenture Trustee) on any Business Day or (ii) a
Default or Event of Default shall have occurred and be continuing with respect
to the Notes but the Notes shall not have been declared due and payable pursuant
to Section 5.02 or (iii) if such Notes shall have been declared due and payable
following an Event of Default and amounts collected or received from the Trust
Estate are being applied in accordance with Section 5.05 as if there had not
been such a declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments.
SECTION 8.04. Release of Trust Estate. (a) Subject to the payment of its
fees and expenses pursuant to Section 6.07, the Indenture Trustee may, and when
required by the provisions of this Indenture shall, execute instruments to
release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due the Indenture Trustee pursuant to Section 6.07 have
been paid, release any remaining portion of the Trust Estate that secured the
Notes from the lien of this Indenture and release to the Issuer or any other
Person entitled thereto any funds then on deposit in the Trust Accounts. The
Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Section 8.04(b) only upon receipt of an Issuer Request
accompanied by an Officer's Certificate and an Opinion of Counsel meeting the
applicable requirements of Section 11.01.
SECTION 8.05. Opinion of Counsel. The Indenture Trustee shall receive at
least seven days notice when requested by the Issuer to take any action pursuant
to Section 8.04(a),
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accompanied by copies of any instruments involved, and the Indenture Trustee
shall also require, as a condition to such action, an Opinion of Counsel, in
form and substance satisfactory to the Indenture Trustee, stating the legal
effect of any such action, outlining the steps required to complete the same,
and concluding that all conditions precedent to the taking of such action have
been complied with and such action will not materially and adversely impair the
security for the Notes or the rights of the Noteholders in contravention of the
provisions of this Indenture; provided, however, that such Opinion of Counsel
shall not be required to express an opinion as to the fair value of the Trust
Estate. Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Indenture Trustee in connection with any such
action.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders. (a)
Without the consent of the Holders of any Notes but with prior notice to the
Rating Agencies, the Issuer and the Indenture Trustee, when authorized by an
Issuer Order, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Indenture Trustee,
for any of the following purposes:
(i) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture that may be inconsistent with any
other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided, that such action
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shall not adversely affect the interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to or
change any of the provisions of this Indenture as shall be necessary to
facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI; or
(vii) if required by law, to modify, eliminate or add to the provisions
of this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar federal
statute hereafter enacted and to add to this Indenture such other
provisions as may be expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but with
prior notice to the Rating Agencies, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.02. Supplemental Indentures with Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may,
with prior notice to the Rating Agencies and with the consent of the Holders of
not less than a majority of the Outstanding Amount of the Notes, by Act of such
Holders delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(i) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof, the interest
rate thereon or the Redemption Price with respect thereto, change the
provisions of this Indenture relating to the application of collections on,
or the proceeds of the sale of, the Trust Estate to payment of principal of
or interest on the Notes, or change any place of
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payment where, or the coin or currency in which, any Note or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of the provisions of this Indenture requiring the application
of funds available therefor, as provided in Article V, to the payment of
any such amount due on the Notes on or after the respective due dates
thereof (or, in the case of redemption, on or after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the definition
of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified or
waived without the consent of the Holder of each Outstanding Note affected
thereby;
(vi) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or
principal due on any Note on any Distribution Date (including the
calculation of any of the individual components of such calculation) or to
affect the rights of the Holders of Notes to the benefit of any provisions
for the mandatory redemption of the Notes contained herein; or
(vii) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Trust
Estate or, except as otherwise permitted or contemplated herein, terminate
the lien of this Indenture on any property at any time subject hereto or
deprive the Holder of any Note of the security provided by the lien of this
Indenture.
The Indenture Trustee may, but shall in no way be obligated to, in its sole
discretion determine whether or not any Notes would be affected by any
supplemental indenture and any such determination shall be conclusive upon the
Holders of all Notes, whether theretofore or thereafter authenticated and
delivered hereunder. The Indenture Trustee shall not be liable for any such
determination made in good faith.
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It shall not be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of any
supplemental indenture pursuant to this Section, the Indenture Trustee shall
mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture, which opinion shall be conclusive
evidence as to such authorization or permission. The Indenture Trustee may, but
shall not be obligated to, enter into any such supplemental indenture that
affects the Indenture Trustee's own rights, duties, liabilities or immunities
under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and shall be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.05. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
Redemption of Notes
SECTION 10.01. Redemption. (a) The Notes are subject to redemption in
whole, but not in part, at the direction of the Servicer pursuant to Section
9.01(a) of the Sale and Servicing Agreement, on any Distribution Date on which
the Servicer exercises its option to purchase the Trust Estate pursuant to said
Section 9.01(a), for a purchase price equal to the Redemption Price; provided,
that the Issuer has available funds sufficient to pay the Redemption Price. The
Servicer or the Issuer shall furnish the Rating Agencies notice of such
redemption. If the Notes are to be redeemed pursuant to this Section 10.01(a),
the Servicer or the Issuer shall furnish notice of such election to the
Indenture Trustee not later than 20 days prior to the Redemption Date, and the
Issuer shall deposit by 10:00 A.M. New York City time on the Redemption Date
with the Indenture Trustee in the Note Distribution Account the Redemption Price
of the Notes to be redeemed, whereupon all such Notes shall be due and payable
on the Redemption Date upon the furnishing of a notice complying with Section
10.02 to each Holder of the Notes.
(b) In the event that the assets of the Trust are sold pursuant to Section
9.02 of the Trust Agreement, all amounts on deposit in the Note Distribution
Account shall be paid to the Noteholders up to the Outstanding Amount of the
Notes and all accrued and unpaid interest thereon. If amounts are to be paid to
Noteholders pursuant to this Section 10.01(b), the Servicer or the Issuer shall,
to the extent practicable, furnish notice of such event to the Indenture Trustee
not later than 20 days prior to the Redemption Date, whereupon all such amounts
shall be payable on the Redemption Date.
SECTION 10.02. Form of Redemption Notice. (a) Notice of redemption under
Section 10.01(a) shall be given by the Indenture Trustee by first-class mail,
postage prepaid, or by facsimile mailed or transmitted not later than 10 days
prior to the applicable Redemption Date to each Holder of Notes as of the close
of business on the Record Date preceding the applicable Redemption Date, at such
Holder's address or facsimile number appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for payment of the
Redemption Price.
Notice of redemption of the Notes shall be given by the Indenture Trustee in the
name and at the expense of the Issuer. Failure to give notice of redemption, or
any defect therein, to any Holder of any Note shall not impair or affect the
validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.01(b) is not required to
be given to Noteholders.
SECTION 10.03. Notes Payable on Redemption Date. The Notes or portions
thereof to be redeemed shall, following notice of redemption as required by
Section 10.02 (in the case of redemption pursuant to Section 10.01(a)), become
due and payable at the Redemption Price on the Redemption Date and (unless the
Issuer shall default in the payment of the Redemption Price) no interest shall
accrue on the Redemption Price for any period after the date to which accrued
interest is calculated for purposes of calculating the Redemption Price.
ARTICLE XI
Miscellaneous
SECTION 11.01. Compliance Certificates and Opinions, etc. Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee (i) an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with, and (ii) an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or opinion has
read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
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SECTION 11.02. Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion is
based are erroneous. Any such certificate of an Authorized Officer or Opinion of
Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Servicer, the Depositor, the Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Depositor, the Issuer or the Administrator, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.03. Acts of Noteholders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Noteholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Noteholders in person
or by agents duly appointed in writing; and except as herein otherwise expressly
provided such action shall
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become effective when such instrument or instruments are delivered to the
Indenture Trustee and, where it is hereby expressly required, to the Issuer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Section 6.01) conclusive in favor
of the Indenture Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any person of any such instrument
or writing may be proved in any manner that the Indenture Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Notes shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.04. Notices, etc., to Indenture Trustee, Issuer and Rating
Agencies. Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other documents provided or permitted by this Indenture
shall be in writing and if such request, demand, authorization, direction,
notice, consent, waiver or act of Noteholders is to be made upon, given or
furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing to or with the Indenture Trustee at its Corporate Trust Office,
or
(ii) the Issuer by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if in writing and personally
delivered or mailed postage prepaid or by recognized overnight courier or
by facsimile confirmed by delivery or mail as described above to the Issuer
addressed to: NAL Auto Trust 1996-4, in care of Wilmington Trust Company,
as Owner Trustee, 1100 N. Market Street, Rodney Square North, Wilmington,
Delaware 19801; facsimile: 302-651- 8882; Attention of Corporate Trust
Administration, or at any other address previously furnished in writing to
the Indenture Trustee by the Issuer or the Administrator. The Issuer shall
promptly transmit any notice received by it from the Noteholders to the
Indenture Trustee.
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Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
Fitch Investors Service, L.P., at the following address: One State Street Plaza,
New York, N.Y. 10004, and (ii) in the case of Duff & Phelps Credit Rating Co. at
the following address: 55 E. Monroe Street (35th Floor), Chicago, Illinois
60603; or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Holder's address as it appears on the Note Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Noteholders shall be filed with the Indenture Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure to
give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
SECTION 11.06. Alternate Payment and Notice Provisions. Notwithstanding any
provision of this Indenture or any of the Notes to the contrary, the Issuer may
enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Paying Agent to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer will furnish to the Indenture Trustee a copy of
each such agreement and the
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Indenture Trustee will cause payments to be made and notices to be given in
accordance with such agreements.
SECTION 11.07. [Reserved]
SECTION 11.08. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.09. Successors and Assigns. All covenants and agreements in this
Indenture and the Notes by the Issuer shall bind its successors and assigns,
whether so expressed or not. All agreements of the Indenture Trustee in this
Indenture shall bind its successors, co-trustees and agents.
SECTION 11.10. Separability. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 11.11. Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Trust Estate, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 11.12. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14. Counterparts. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
SECTION 11.15. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to
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the Indenture Trustee) to the effect that such recording is necessary either
for the protection of the Noteholders or any other Person secured hereunder or
for the enforcement of any right or remedy granted to the Indenture Trustee
under this Indenture.
SECTION 11.16. Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed in
writing (it being understood that the Indenture Trustee and the Owner Trustee
have no such obligations in their individual capacity) and except that any such
partner, owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity. For
all purposes of this Indenture, in the performance of any duties or obligations
of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to
the benefits of, the terms and provisions of Article VI, VII and VIII of the
Trust Agreement.
SECTION 11.17. No Petition. The Indenture Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Depositor or the Issuer, or
join in any institution against the Depositor or the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, this Indenture or any
of the Basic Documents.
SECTION 11.18. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall, and shall cause its representatives to, hold in confidence all
such information provided, however, that the foregoing shall not be construed to
prohibit (i) disclosure of any and all information that is or becomes publicly
known, or information obtained by the Indenture Trustee from sources other than
the Issuer, Administrator, Seller or Servicer, (ii) disclosure of any and all
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information (A) if required to do so by any applicable statute, law, rule or
regulation, (B) to any government agency or regulatory or self-regulatory body
having or claiming authority to regulate or oversee any aspects of the Indenture
Trustee's business or that of its Affiliates, (C) pursuant to any subpoena,
civil investigative demand or similar demand or request of any court, regulatory
authority, arbitrator or arbitration to which the Indenture Trustee or an
Affiliate or an officer, director, employer or shareholder thereof is a party,
(D) in any preliminary or final offering circular, registration statement or
contract or other document pertaining to the transactions contemplated by this
Agreement approved in advance by the Issuer or (E) to any Affiliate, independent
or internal auditor, agent, employee or attorney of the Indenture Trustee having
a need to know the same, provided that the Indenture Trustee advises such
recipient of the confidential nature of the information being disclosed, (iii)
any other disclosure authorized by the Seller, Administrator, Issuer or Servicer
or (iv) disclosure to the other parties to the transactions contemplated by this
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
NAL AUTO TRUST 1996-4,
by: WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee,
by:
------------------------------------
Name: Emmett R. Harmon
Title: Vice President
BANKERS TRUST COMPANY,
not in its individual capacity but
solely as Indenture Trustee,
by:
------------------------------------
Name:
Title:
62
<PAGE>
STATE OF NEW YORK }
} ss.:
COUNTY OF NEW YORK }
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Emmett R. Harmon, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said NAL AUTO
TRUST 1996-4, a Delaware business trust, and that he executed the same as the
act of said business trust for the purpose and consideration therein expressed,
and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 16th day of December,
1996.
- --------------------------------------------------------------------------------
Notary Public in and for the State of New York.
My commission expires:
- ------------------------------------
<PAGE>
STATE OF NEW YORK }
} ss.:
COUNTY OF NEW YORK }
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Lara Graff, known to me to be
the person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of BANKERS TRUST COMPANY, a New
York banking corporation, and that she executed the same as the act of said
corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 16th day of December,
1996.
- --------------------------------------------------------------------------------
Notary Public in and for the State of New York.
My commission expires:
- ------------------------------------
<PAGE>
SCHEDULE 1
<PAGE>
EXHIBIT A
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF
ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. BY ITS ACCEPTANCE
OF THIS NOTE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE DEPOSITOR AND THE
INDENTURE TRUSTEE (i) THAT IT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE 1933 ACT (AN
"ACCREDITED INVESTOR") AND THAT IT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT
(AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH
OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS
FIDUCIARY CAPACITY) FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE
IN CONNECTION WITH, THE PUBLIC DISTRIBUTION HEREOF OR (ii) THAT IT IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE 1933 ACT AND
IS ACQUIRING SUCH NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS)
OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED
INSTITUTIONAL BUYERS).
NO SALE, PLEDGE OR OTHER TRANSFER OF THIS NOTE MAY BE MADE BY ANY PERSON UNLESS
EITHER (i) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO THE DEPOSITOR, (ii)
SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO AN ACCREDITED INVESTOR THAT
EXECUTES A CERTIFICATE, SUBSTANTIALLY IN THE FORM SPECIFIED IN THE INDENTURE, TO
THE EFFECT THAT IT IS AN ACCREDITED INVESTOR ACTING FOR ITS OWN ACCOUNT (AND NOT
FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS
ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS
FIDUCIARY CAPACITY), (iii) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A UNDER THE 1933 ACT, SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO
A PERSON WHO THE PROSPECTIVE TRANSFEROR REASONABLY BELIEVES AFTER DUE INQUIRY IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A), ACTING FOR ITS OWN
ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR
OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL BUYERS) TO WHOM NOTICE IS
GIVEN THAT THE SALE, PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
OR (iv) SUCH SALE, PLEDGE OR OTHER TRANSFER IS OTHERWISE MADE IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT, IN WHICH CASE THE
INDENTURE TRUSTEE SHALL REQUIRE THAT BOTH THE PROSPECTIVE TRANSFEROR AND THE
PROSPECTIVE TRANSFEREE CERTIFY TO THE INDENTURE TRUSTEE AND THE DEPOSITOR IN
WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION SHALL BE IN
FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE DEPOSITOR.
EXCEPT IN THE CASE OF A TRANSFER DESCRIBED IN CLAUSES (i) OR (iii) ABOVE, THE
INDENTURE TRUSTEE SHALL REQUIRE A WRITTEN OPINION OF COUNSEL (WHICH SHALL NOT BE
AT THE EXPENSE OF THE DEPOSITOR, ANY AFFILIATE OF THE DEPOSITOR OR THE INDENTURE
TRUSTEE) SATISFACTORY TO THE DEPOSITOR AND THE INDENTURE TRUSTEE TO THE EFFECT
THAT SUCH TRANSFER WILL NOT VIOLATE THE 1933 ACT.
A-1
<PAGE>
NO SALE, PLEDGE OR OTHER TRANSFER MAY BE MADE TO ANY ONE PERSON FOR SECURITIES
WITH A FACE AMOUNT OF LESS THAN $100,000 AND, IN THE CASE OF ANY PERSON ACTING
ON BEHALF OF ONE OR MORE THIRD PARTIES (OTHER THAN A BANK (AS DEFINED IN
SECTION 3(a)(2) OF THE 1933 ACT) ACTING IN ITS FIDUCIARY CAPACITY), FOR
SECURITIES WITH A FACE AMOUNT OF LESS THAN $100,000 FOR EACH SUCH THIRD PARTY.
SECTION 2.04 OF THE INDENTURE CONTAINS FURTHER RESTRICTIONS ON THE TRANSFER AND
RESALE OF THIS NOTE. EACH TRANSFEREE OF THIS NOTE, BY ACCEPTANCE HEREOF, IS
DEEMED TO HAVE ACCEPTED THIS NOTE SUBJECT TO THE FOREGOING RESTRICTIONS ON
TRANSFERABILITY.
EACH NOTEHOLDER OR NOTE OWNER, BY ITS ACCEPTANCE OF THIS SECURITY, COVENANTS AND
AGREES THAT SUCH NOTEHOLDER OR NOTE OWNER SHALL NOT, PRIOR TO THE DATE THAT IS
ONE YEAR AND ONE DAY AFTER THE TERMINATION OF THE TRUST AGREEMENT, ACQUIESCE,
PETITION OR OTHERWISE INVOKE OR CAUSE THE TRUST, THE DEPOSITOR OR THE SELLER TO
INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF
COMMENCING OR SUSTAINING A CASE AGAINST THE TRUST, THE DEPOSITOR OR THE SELLER
UNDER ANY FEDERAL OR STATE BANKRUPTCY, INSOLVENCY, REORGANIZATION OR SIMILAR
LAW, OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN,
SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE TRUST, THE DEPOSITOR OR THE SELLER
OR ANY SUBSTANTIAL PART OF ITS PROPERTY, OR ORDERING THE WINDING UP OR
LIQUIDATION OF THE AFFAIRS OF THE TRUST, THE DEPOSITOR OR THE SELLER.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
[UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
REGISTERED $________________
No. R- CUSIP NO. 628948 AK 7
NAL AUTO TRUST 1996-4
6.90% ASSET BACKED NOTES
NAL Auto Trust 1996-4, a business trust organized and existing under
the laws of the State of Delaware (herein referred
A-2
<PAGE>
to as the "Issuer"), for value received, hereby promises to pay to
_______________________________, or registered assigns, the principal sum of
_______________________ DOLLARS payable on each Distribution Date in an amount
equal to the result obtained by multiplying (i) a fraction the numerator of
which is $__________ and the denominator of which is $79,239,000.00 by (ii) the
aggregate amount, if any, payable from the Note Distribution Account in respect
of principal on the Notes pursuant to Section 3.01 of the Indenture dated as of
December 9, 1996 (the "Indenture"), between the Issuer and Bankers Trust
Company, a New York banking corporation, as Indenture Trustee (the "Indenture
Trustee"); provided, however, that the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the December 15, 2000
Distribution Date (the "Note Final Scheduled Distribution Date") and the
Redemption Date, if any, pursuant to Section 10.01 of the Indenture.
Capitalized terms used but not defined herein are defined in Article I of the
Indenture, which also contains rules as to construction that shall be
applicable herein.
The Issuer will pay interest on this Note at the rate per annum shown
above on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (or, in the case of the first Distribution Date, the
Closing Date) after giving effect to all payments of principal made on the
preceding Distribution Date, subject to certain limitations contained in Section
3.01 of the Indenture. Interest on this Note for each Distribution Date will
accrue from and including the first day of the preceding Collection Period (or,
in the case of the first Distribution Date, from and including the Cutoff Date).
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
A-3
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer, as of the date set
forth below.
Date: _________________ NAL AUTO TRUST 1996-4,
by: WILMINGTON TRUST COMPANY, not in
its individual capacity but solely
as Owner Trustee under the Trust
Agreement,
by:
------------------------------
Authorized Signatory
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: _________________ BANKERS TRUST COMPANY, not in
its individual capacity but solely
as Indenture Trustee,
by:
-----------------------------------
Authorized Signatory
A-4
<PAGE>
Reverse
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its 6.90% Asset Backed Notes (herein called the "Notes"), all
issued under the Indenture, to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Distribution Date in an
amount described on the face hereof. "Distribution Date" means the 15th day of
each March, June, September and December or, if any such date is not a Business
Day, the next succeeding Business Day, commencing March 1997.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Note Final Scheduled Distribution
Date and the Redemption Date, if any, pursuant to Section 10.01 of the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of
the Notes shall be due and payable on the date on which an Event of Default
shall have occurred and be continuing and the Indenture Trustee or the Holders
of Notes representing not less than a majority of the Outstanding Amount of the
Notes have declared the Notes to be immediately due and payable in the manner
provided in Section 5.02 of the Indenture. All principal payments on the Notes
shall be made pro rata to the Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
unless either (i) such Person notifies the Paying Agent in writing not later
than the Record Date prior to a Distribution Date or (ii) the Registered Holder
of this Note is the nominee of the Clearing Agency, in which case, payments are
to be made by wire transfer in immediately available funds to the account
designated by such Person. Payments by check shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as
A-5
<PAGE>
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Distribution Date, then the Indenture
Trustee, in the name of and on behalf of the Issuer, will notify the Person who
was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed or transmitted by facsimile prior to such
Distribution Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the Indenture Trustee's
principal Corporate Trust Office or at the office of the Indenture Trustee's
agent appointed for such purposes located in The City of New York.
The Issuer shall pay interest on overdue installments of interest at
the Note Rate to the extent lawful.
As provided in the Indenture and subject to the limitations set forth
therein and on the face hereof, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Holder hereof or
such Holder's attorney duly authorized in writing, with such signature
guaranteed by an "eligible guarantor institution" meeting the requirements of
the Note Registrar, which requirements include membership or participation in
the Securities Transfer Agent's Medallion Program ("STAMP") or such other
"signature guarantee program" as may be determined by the Note Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended, and thereupon one or more new Notes
of authorized denominations and in the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
charged for any registration of transfer or exchange of this Note, but the
transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note, covenants and
agrees that no recourse may be taken, directly or indirectly, with respect to
the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, owner or beneficiary shall be
fully liable, to the extent provided by applicable law,
A-6
<PAGE>
for any unpaid consideration for stock, unpaid capital contribution or failure
to pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note covenants and
agrees by accepting the benefits of the Indenture that such Noteholder will not
at any time institute against the Depositor, the Seller or the Issuer, or join
in any institution against the Depositor, the Seller or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
under any United States federal or state bankruptcy or similar law in connection
with any obligations relating to the Notes, the Indenture or the Basic
Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder or Note Owner, by acceptance of a
Note, agrees to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
A-7
<PAGE>
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of Wilmington Trust Company in its
individual capacity, Bankers Trust Company in its individual capacity, any owner
of a beneficial interest in the Issuer, or any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on this Note or performance of, or
failure to perform, any of the covenants, obligations or indemnifications
contained in the Indenture. The Holder of this Note by its acceptance hereof
agrees that, except as expressly provided in the Basic Documents, in the case of
an Event of Default under the Indenture, the Holder shall have no claim against
any of the foregoing for any deficiency, loss or claim therefrom; provided,
however, that nothing contained herein shall be taken to prevent recourse to,
and enforcement against, the assets of the Issuer for any and all liabilities,
obligations and undertakings contained in the Indenture or in this Note.
A-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _____________________________ , attorney, to transfer said Note on
the books kept for registration thereof, with full power of substitution in the
premises.
Dated: */
---------------- -------------------------------
Signature Guaranteed:
*/
-------------------------------
- ------------------------
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note
in every particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in STAMP or such
other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-9
<PAGE>
EXHIBIT B
[RESERVED]
B-1
<PAGE>
EXHIBIT C
FORM OF TRANSFEROR CERTIFICATE
[DATE]
[Depositor]
[Depositor Address]
[Owner Trustee]
[Owner Trustee Address]
[Indenture Trustee]
[Indenture Trustee Address]
Re: NAL Auto Trust 1996-4
6.90% Asset Backed Notes
------------------------
Ladies and Gentlemen:
In connection with our disposition of the above-referenced 6.90% Asset
Backed Notes (the "Notes") we certify that (a) we understand that the Notes have
not been registered under the Securities Act of 1933, as amended (the "Act"),
and are being transferred by us in a transaction that is exempt from the
registration requirements of the Act and (b) we have not offered or sold any
Notes to, or solicited offers to buy any Notes from, any person, or otherwise
approached or negotiated with any person with respect thereto, in a manner that
would be deemed, or taken any other action which would result in, a violation of
Section 5 of the Act.
Very truly yours,
[NAME OF TRANSFEROR]
By:
---------------------------
Authorized Officer
C-1
<PAGE>
EXHIBIT D
FORM OF INVESTMENT LETTER
Autorics II, Inc.
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, Florida 33309
Wilmington Trust Company, as Owner Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Bankers Trust Company
4 Albany Street
New York, New York 10006
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate principal
amount of 6.90% Asset Backed Notes (the "Securities") of NAL Auto Trust 1996-4
(the "Issuer"), we confirm that:
1. We understand that the Securities have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), and may
not be sold except as permitted in the following sentence. We
understand and agree, on our own behalf and on behalf of any accounts
for which we are acting as hereinafter stated, (x) that such Securities
are being offered only in a transaction not involving any public
offering within the meaning of the 1933 Act and (y) that such
Securities may be resold, pledged or transferred only (i) to the
Depositor, (ii) to an "accredited investor" as defined in Rule
501(a)(1),(2),(3) or (7) (an "Accredited Investor") under the 1933 Act
acting for its own account (and not for the account of others) or as a
fiduciary or agent for others (which others also are Accredited
Investors unless the holder is a bank acting in its fiduciary capacity)
that executes a certificate substantially in the form hereof, (iii) so
long as such Security is eligible for resale pursuant to Rule 144A
under the 1933 Act ("Rule 144A"), to a person whom we reasonably
believe after due inquiry is a "qualified institutional buyer" as
defined in Rule 144A, acting for its own account (and not for the
account of others) or as a fiduciary or agent for others (which others
also are "qualified institutional buyers") to whom notice is given that
the resale, pledge or transfer is being made in reliance on Rule 144A
or (iv) in a sale, pledge or other transfer made in a transaction
otherwise exempt from the registration requirements of the 1933 Act, in
which case, the Indenture Trustee shall require that both the
prospective transferor and the prospective transferee
D-1
<PAGE>
certify to the Indenture Trustee and the Depositor in writing the
facts surrounding such transfer, which certification shall be in form
and substance satisfactory to the Indenture Trustee and the Depositor.
Except in the case of (i) or (iii), the Indenture Trustee shall
require a written opinion of counsel (which will not be at the expense
of the Depositor, any affiliate of the Depositor or the Indenture
Trustee) which is satisfactory to the Depositor and the Indenture
Trustee be delivered to the Indenture Trustee and the Depositor to the
effect that such transfer will not violate the 1933 Act, in each case
in accordance with any applicable securities laws of any state of the
United States. We will notify any purchaser of the Security from us of
the above resale restrictions, if then applicable. We further
understand that in connection with any transfer of the Security by us
that the Depositor and the Indenture Trustee may request, and if so
requested we will furnish such certificates and other information as
they may reasonably require to confirm that any such transfer complies
with the foregoing restrictions. We understand that no sale, pledge or
other transfer may be made to any one person of Securities with a face
amount of less than $100,000 and, in the case of any person acting on
behalf of one or more third parties (other than a bank (as defined in
Section 3(a)((2) of the 1933 Act) acting in its fiduciary capacity),
of Securities with a face amount of less than $100,000 for each such
third party.
2. [CHECK ONE]
|_| (a) We are an "accredited investor" (as defined in Rule
501(a)(1),(2),(3) or (7) of Regulation D under the Securities
Act) acting for our own account (and not for the account of
others) or as a fiduciary or agent for others (which others
also are Accredited Investors unless we are a bank acting in
its fiduciary capacity). We have such knowledge and
experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the
Security, and we and any accounts for which we are acting are
each able to bear the economic risk of our or their
investment for an indefinite period of time. We are
acquiring the Security for investment and not with a view to,
or for offer and sale in connection with, a public
distribution.
|_| (b) We are a "qualified institutional buyer" as defined under
Rule 144A under the 1933 Act and are acquiring the Security
for our own account (and not for the account of others) or as
a fiduciary or agent for others (which others also are
"qualified institutional buyers"). We are familiar with Rule
144A under the 1933 Act and are aware that the seller of the
Security and other parties intend to rely on the statements
made
D-2
<PAGE>
herein and the exemption from the registration
requirements of the 1933 Act provided by Rule 144A.
3. We understand that the Depositor, the Trust, Greenwich
Capital Markets, Inc. ("Greenwich") and others will rely upon the truth
and accuracy of the foregoing acknowledgments, representations and
agreements, and we agree that if any of the acknowledgments,
representations and warranties deemed to have been made by us by our
purchase of the Securities, for our own account or for one or more
accounts as to each of which we exercise sole investment discretion,
are no longer accurate, we shall promptly notify the Depositor and
Greenwich.
4. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:
---------------------------
Name:
Title:
Date:
--------------------
D-3
<PAGE>
EXHIBIT E
FORM OF DEPOSITORY AGREEMENT
E-1
<PAGE>
EXECUTION COPY
================================================================================
TRUST AGREEMENT
between
AUTORICS II, INC.,
as Depositor,
and
WILMINGTON TRUST COMPANY,
as Owner Trustee
Dated as of December 9, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Capitalized Terms............................................ 1
SECTION 1.02. Other Definitional Provisions................................ 3
ARTICLE II
Organization
SECTION 2.01. Name......................................................... 4
SECTION 2.02. Office....................................................... 4
SECTION 2.03. Purposes and Powers.......................................... 4
SECTION 2.04. Appointment of Owner Trustee................................. 5
SECTION 2.05. Initial Capital Contribution of Owner Trust
Estate.................................................... 5
SECTION 2.06. Declaration of Trust......................................... 5
SECTION 2.07. Liability of the Owners...................................... 6
SECTION 2.08. Title to Trust Property...................................... 7
SECTION 2.09. Situs of Trust............................................... 7
SECTION 2.10. Representations and Warranties of the
Depositor................................................. 7
SECTION 2.11. Maintenance of the Demand Note............................... 8
SECTION 2.12. Federal Income Tax Provisions................................ 8
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.01. Initial Ownership............................................ 8
SECTION 3.02. The Trust Certificates....................................... 8
SECTION 3.03. Authentication of Trust Certificates......................... 9
SECTION 3.04. Registration of Transfer and Exchange of
Trust Certificates........................................ 9
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust
Certificates.............................................. 11
SECTION 3.06. Persons Deemed Owners........................................ 12
SECTION 3.07. Access to List of Certificateholders' Names
and Addresses............................................. 12
SECTION 3.08. Maintenance of Office or Agency.............................. 12
SECTION 3.09. Appointment of Paying Agent.................................. 13
SECTION 3.10. Ownership by Depositor of Trust
Certificates.............................................. 13
i
<PAGE>
ARTICLE IV
Actions by Owner Trustee
SECTION 4.01. Prior Notice to Owners with Respect to
Certain Matters........................................... 14
SECTION 4.02. Action by Owners with Respect to Certain
Matters................................................... 14
SECTION 4.03. Action by Owners with Respect to Bankruptcy.................. 15
SECTION 4.04. Restrictions on Owners' Power................................ 15
SECTION 4.05. Majority Control............................................. 15
ARTICLE V
Application of Trust Funds; Certain Duties
SECTION 5.01. Establishment of Trust Account............................... 15
SECTION 5.02. Application of Trust Funds................................... 16
SECTION 5.03. Method of Payment............................................ 16
SECTION 5.04. No Segregation of Moneys; No Interest........................ 16
SECTION 5.05. Accounting and Reports to the Noteholders,
Owners, the Internal Revenue Service and
Others.................................................... 16
SECTION 5.06. Signature on Returns......................................... 17
ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.01. General Authority............................................ 17
SECTION 6.02. General Duties............................................... 17
SECTION 6.03. Action upon Instruction...................................... 18
SECTION 6.04. No Duties Except as Specified in this
Agreement or in Instructions.............................. 19
SECTION 6.05. No Action Except Under Specified Documents
or Instructions........................................... 19
SECTION 6.06. Restrictions................................................. 19
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.01. Acceptance of Trusts and Duties.............................. 19
SECTION 7.02. Furnishing of Documents...................................... 21
SECTION 7.03. Representations and Warranties............................... 21
SECTION 7.04. Reliance; Advice of Counsel.................................. 21
SECTION 7.05. Not Acting in Individual Capacity............................ 22
SECTION 7.06. Owner Trustee Not Liable for Trust
Certificates or Receivables............................... 22
SECTION 7.07. Owner Trustee May Own Trust Certificates and
Notes..................................................... 23
ii
<PAGE>
ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.01. Owner Trustee's Fees and Expenses............................ 23
SECTION 8.02. Indemnification.............................................. 23
SECTION 8.03. Payments to the Owner Trustee................................ 24
ARTICLE IX
Termination of Trust Agreement
SECTION 9.01. Termination of Trust Agreement............................... 24
SECTION 9.02. Dissolution upon Bankruptcy of the
Depositor................................................. 25
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.01. Eligibility Requirements for Owner Trustee................... 26
SECTION 10.02. Resignation or Removal of Owner Trustee...................... 26
SECTION 10.03. Successor Owner Trustee...................................... 27
SECTION 10.04. Merger or Consolidation of Owner Trustee..................... 28
SECTION 10.05. Appointment of Co-Trustee or Separate
Trustee................................................... 28
ARTICLE XI
Miscellaneous
SECTION 11.01. Supplements and Amendments................................... 29
SECTION 11.02. No Legal Title to Owner Trust Estate in
Owners.................................................... 31
SECTION 11.03. Limitations on Rights of Others.............................. 31
SECTION 11.04. Notices...................................................... 31
SECTION 11.05. Severability................................................. 32
SECTION 11.06. Separate Counterparts........................................ 32
SECTION 11.07. Successors and Assigns....................................... 32
SECTION 11.08. Covenants of the Depositor................................... 32
SECTION 11.09. No Petition.................................................. 32
SECTION 11.10. No Recourse.................................................. 33
SECTION 11.11. Headings..................................................... 33
SECTION 11.12. GOVERNING LAW................................................ 33
SECTION 11.13. [Reserved.].................................................. 33
SECTION 11.14. Depositor Payment Obligation................................. 33
EXHIBIT A Form of Trust Certificate
EXHIBIT B Form of Certificate of Trust
EXHIBIT C Form of Transferor Certificate
EXHIBIT D Form of Investment Letter
ANNEX A Tax Partnership Provisions
iii
<PAGE>
TRUST AGREEMENT dated as of December 9, 1996, between AUTORICS II,
INC., a Delaware corporation, as depositor (the "Depositor") and
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as owner
trustee (the "Owner Trustee").
ARTICLE I
Definitions
SECTION 1.01. Capitalized Terms. For all purposes of this Agreement,
the following terms shall have the meanings set forth below:
"Administration Agreement" shall mean the Administration Agreement
dated as of December 9, 1996, among the Trust, the Indenture Trustee and NAL
Acceptance Corporation, as Administrator.
"Agreement" shall mean this Trust Agreement, as the same may be amended
and supplemented from time to time.
"Basic Documents" shall mean the Sale and Servicing Agreement, the
Indenture, the Administration Agreement, the Custodial Agreement and the other
documents, instruments and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term
in Section 3.04.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from
time to time.
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.01.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit B filed for the Trust pursuant to Section 3810(a) of the Business
Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned in and the registrar appointed pursuant to Section 3.04.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Trust Certificate is registered.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at 1100 N.
Market Street, Rodney Square North, Wilmington, DE 19890, Attn: Corporate Trust
Administration, or at such other
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<PAGE>
address as the Owner Trustee may designate by notice to the Owners and the
Depositor, or the principal corporate trust office of any successor Owner
Trustee at the address designated by such successor Owner Trustee by notice to
the Owners and the Depositor.
"Custodial Agreement" shall mean the Custodial Agreement dated as of
December 9, 1996, between the Trust and Bankers Trust Company, as Custodian.
"Demand Note" shall mean, in the case of the Depositor, the Demand Note
dated December 16, 1996, from NAL to the Depositor.
"Depositor" shall mean AUTORICS II, Inc. in its capacity as
depositor hereunder.
"Depositor's Interest" shall mean the Trust Certificate owned by the
Depositor evidencing (i) a not less than 1% undivided interest in the
Certificate Balance and interest at the Pass- Through Rate and (ii) all other
amounts in respect of the Trust property to which the Depositor is entitled
hereunder.
"ERISA" shall have the meaning assigned thereto in
Section 3.04.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Expenses" shall have the meaning assigned to such term in
Section 8.02.
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.02.
"Indenture" shall mean the Indenture dated as of December 9, 1996
between the Trust and Bankers Trust Company, as Indenture Trustee.
"Initial Certificate Balance" shall mean $8,805,150.40.
"NAL" shall mean NAL Acceptance Corporation, a Florida Corporation, and
any successor in interest.
"Owner" shall mean each Holder of a Trust Certificate.
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and the Certificate Distribution Account and all
other property of the Trust from time to time, including any rights of the Owner
Trustee and the Trust pursuant to the Sale and Servicing Agreement and the
Administration Agreement.
2
<PAGE>
"Owner Trustee" shall mean Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor Owner Trustee hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent appointed
pursuant to Section 3.09 and shall initially be Wilmington Trust Company.
"Person" shall mean any individual, corporation, estate, partnership,
joint venture, association, joint stock company, trust (including any
beneficiary thereof), unincorporated organization, or government or any agency
or political subdivision thereof.
"Record Date" shall mean, with respect to any Distribution Date, the
close of business on the last day of the month immediately preceding such
Distribution Date.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of December 9, 1996, among the Trust, as issuer, the
Depositor, as seller, NAL Acceptance Corporation, as servicer and Bankers Trust
Company, as Backup Servicer as the same may be amended or supplemented from time
to time.
"Secretary of State" shall mean the Secretary of State of
the State of Delaware.
"Treasury Regulations" shall mean regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Certificate" shall mean a certificate evidencing the beneficial
interest of an Owner in the Trust, substantially in the form attached hereto as
Exhibit A.
SECTION 1.02. Other Definitional Provisions. (a) Capi- talized terms
used and not otherwise defined herein have the meanings assigned to them in the
Sale and Servicing Agreement or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the
3
<PAGE>
extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles. To the extent that the definitions of
accounting terms in this Agreement or in any such certificate or other document
are inconsistent with the meanings of such terms under generally accepted
accounting principles, the definitions contained in this Agreement or in any
such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
Organization
SECTION 2.01. Name. The Trust created hereby shall be known as "NAL
Auto Trust 1996-4" in which name the Owner Trustee may conduct the business of
the Trust, make and execute contracts and other instruments on behalf of the
Trust and sue and be sued.
SECTION 2.02. Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Owners and the
Depositor.
SECTION 2.03. Purposes and Powers. (a) The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and
the Trust Certificates pursuant to this Agreement and to sell the Notes
and the Trust Certificates;
4
<PAGE>
(ii) with the proceeds of the sale of the Notes and the
Trust Certificates, to purchase the Receivables, to fund the Reserve
Account and to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture and to hold, manage
and distribute to the Owners pursuant to the terms of the Sale and
Servicing Agreement any portion of the Trust Estate released from the
Lien of, and remitted to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under
the Basic Documents to which it is to be a party;
(v) to engage in those activities, including entering
into agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(vi) subject to compliance with the Basic Documents, to
engage in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Owners and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.04. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.05. Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Depositor
shall pay organizational expenses of the Trust as they may arise or shall, upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee for any
such expenses paid by the Owner Trustee.
SECTION 2.06. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Owners, subject to
the obligations of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a business trust under the Business
Trust
5
<PAGE>
Statute and that this Agreement constitute the governing instrument of
such business trust. It is the intention of the parties hereto that, solely for
income and franchise tax purposes, the Trust shall be treated as a partnership,
with the assets of the partnership being the Receivables and other assets held
by the Trust, the partners of the partnership being the Certificateholders
(including the Depositor, in its capacity as recipient of distributions from the
Reserve Account), and the Notes being debt of the partnership. The parties agree
that, unless otherwise required by appropriate tax authorities, the Trust will
file or cause to be filed annual or other necessary returns, reports and other
forms consistent with the characterization of the Trust as a partnership for
such tax purposes. Effective as of the date hereof, the Owner Trustee shall have
all rights, powers and duties set forth herein and in the Business Trust Statute
with respect to accomplishing the purposes of the Trust.
SECTION 2.07. Liability of the Owners. (a) The Depositor shall be
liable directly to and will indemnify any injured party for all losses, claims,
damages, liabilities and expenses of the Trust (including Expenses, to the
extent not paid out of the Owner Trust Estate) to the extent that the Depositor
would be liable if the Trust were a partnership under the Delaware Revised
Uniform Limited Partnership Act in which the Depositor were a general partner;
provided, however, that the Depositor shall not be liable for any losses
incurred by a Certificateholder in the capacity of an investor in the Trust
Certificates, or by a Noteholder in the capacity of an investor in the Notes. In
addition, any third party creditors of the Trust (other than in connection with
the obligations described in the preceding sentence for which the Depositor
shall not be liable) shall be deemed third party beneficiaries of this paragraph
and paragraph (c) below. The obligations of the Depositor under this paragraph
and paragraph (c) below shall be evidenced by the Trust Certificates described
in Section 3.10, which for purposes of the Business Trust Statute shall be
deemed to be a separate class of Trust Certificates from all other Trust
Certificates issued by the Trust; provided that the rights and obligations
evidenced by all Trust Certificates, regardless of class, shall, except as
provided in this Section, be identical.
(b) No Owner, other than to the extent set forth in paragraphs (a) and
(c), shall have any personal liability for any liability or obligation of the
Trust.
(c) The Depositor agrees to be liable directly to and will indemnify
any injured party for all losses, claims, damages, liabilities and expenses
(other than those incurred by a Certificateholder in the capacity of an investor
in the Trust Certificates and a Noteholder in the capacity of an investor in the
Notes) as though such arrangements were a partnership under the Delaware Revised
Uniform Limited Partnership Act in which the Depositor were a general partner.
6
<PAGE>
SECTION 2.08. Title to Trust Property. Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
SECTION 2.09. Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of New York. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware.
Payments will be received by the Trust only in Delaware or New York, and
payments will be made by the Trust only from Delaware or New York. The only
office of the Trust will be at the Corporate Trust Office in Delaware.
SECTION 2.10. Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Owner Trustee that:
(a) The Depositor is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware,
with power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(b) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications.
(c) The Depositor has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Depositor has
full power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trust and the Depositor has duly
authorized such sale and assignment and deposit to the Trust by all
necessary corporate action; and the execution, delivery and performance
of this Agreement have been duly authorized by the Depositor by all
necessary corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the certificate of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is
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bound; nor result in the creation or imposition of any Lien upon any of
its properties pursuant to the terms of any such indenture, agreement
or other instrument (other than pursuant to the Basic Documents); nor
violate any law or, to the best of the Depositor's knowledge, any
order, rule or regulation applicable to the Depositor of any court or
of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Depositor or
its properties.
(e) There are no proceedings or investigations pending or, to
the Depositor's best knowledge, threatened before any court, regulatory
body, administrative agency or other governmental instrumentality
having jurisdiction over the Depositor or its properties: (A) asserting
the invalidity of this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement
or (C) seeking any determination or ruling that might materially and
adversely affect the performance by the Depositor of its obligations
under, or the validity or enforceability of, this Agreement.
SECTION 2.11. Maintenance of the Demand Note. To the fullest extent
permitted by applicable law, the Depositor agrees that it shall not sell,
convey, pledge, transfer or otherwise dispose of the Demand Note.
SECTION 2.12. Federal Income Tax Provisions. Annex A to this Agreement
sets forth the tax accounting and administration of the Trust in a manner
consistent with its treatment as a partnership for federal, state and local tax
purposes.
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.01. Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the issuance of
the Trust Certificates, the Depositor shall be the sole beneficiary of the
Trust.
SECTION 3.02. The Trust Certificates. The Trust Certificates shall be
issued in minimum denominations of $100,000 and in integral multiples of $1,000
in excess thereof; provided, however, that the Trust Certificates issued to the
Depositor pursuant to Section 3.10 may be issued in such denomination as
required to include any residual amount. The Trust Certificates shall be
executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Owner Trustee. Trust Certificates bearing the manual
or facsimile signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign on behalf of the Trust,
shall be validly issued
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and entitled to the benefit of this Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Trust Certificates or did not hold such
offices at the date of authentication and delivery of such Trust Certificates.
A transferee of a Trust Certificate shall become a Certificateholder
and shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Trust
Certificate duly registered in such transferee's name pursuant to Section 3.04.
SECTION 3.03. Authentication of Trust Certificates. On the Closing
Date, the Owner Trustee shall cause the Trust Certificates in an aggregate
principal amount equal to the Initial Certificate Balance to be executed on
behalf of the Trust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president, any vice
president, secretary or any assistant treasurer, without further corporate
action by the Depositor, in authorized denominations. No Trust Certificate shall
entitle its Holder to any benefit under this Agreement or be valid for any
purpose unless there shall appear on such Trust Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee, by manual signature; such authentication shall constitute
conclusive evidence that such Trust Certificate shall have been duly
authenticated and delivered hereunder. All Trust Certificates shall be dated the
date of their authentication.
SECTION 3.04. Registration of Transfer and Exchange of Trust
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.08, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided. Wilmington
Trust Company shall be the initial Certificate Registrar.
The Certificates have not been and will not be registered under the
Securities Act and will not be listed on any exchange. No transfer of a
Certificate shall be made unless such transfer is made pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws or is exempt from the registration requirements under said Act
and such state securities laws. In the event that a transfer is to be made in
reliance upon an exemption from the Securities Act and state securities laws, in
order to assure compliance with the Securities Act and such laws, the Holder
desiring to effect such transfer and such Holder's prospective transferee shall
each certify to the Owner Trustee and the Depositor in writing the facts
surrounding the transfer in substantially the forms set forth in Exhibit C (the
"Transferor Certificate") and Exhibit D (the "Investment Letter"). Except in the
case of a transfer as to which the proposed
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transferee has provided an Investment Letter with respect to a Rule 144A
transaction, there shall also be delivered to the Owner Trustee an opinion of
counsel that such transfer may be made pursuant to an exemption from the
Securities Act and state securities laws, which opinion of counsel shall not be
an expense of the Trust, the Owner Trustee or the Indenture Trustee (unless it
is the transferee from whom such opinion is to be obtained) or of the Depositor
or NAL; provided that such opinion of counsel in respect of the applicable state
securities laws may be a memorandum of law rather than an opinion if such
counsel is not licensed in the applicable jurisdiction. The Depositor shall
provide to any Holder of a Certificate and any prospective transferee designated
by any such Holder information regarding the Certificates and the Receivables
and such other information as shall be necessary to satisfy the condition to
eligibility set forth in Rule 144A(d)(4) for transfer of any such Certificate
without registration thereof under the Securities Act pursuant to the
registration exemption provided by Rule 144A. Each Holder of a Certificate
desiring to effect such a transfer shall, and does hereby agree to, indemnify
the Issuer, the Owner Trustee, the Indenture Trustee and the Depositor against
any liability that may result if the transfer is not so exempt or is not made in
accordance with federal and state securities laws.
No transfer of a Trust Certificate shall be made to any Person unless
the Owner Trustee has received (A) a certificate in the form of paragraph 3 to
the Investment Letter attached hereto as Exhibit D from such Person to the
effect that such Person is not (i) an employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Code or (iii) any entity whose underlying
assets include plan assets by reason of a plan's investment in the entity (each,
a "Benefit Plan"), (B) an opinion of counsel satisfactory to the Owner Trustee
and the Depositor to the effect that the purchase and holding of such Trust
Certificate will not constitute or result in the assets of the Issuer being
deemed to be "plan assets" subject to the prohibited transactions provisions of
ERISA or Section 4975 of the Code and will not subject the Owner Trustee, the
Indenture Trustee or the Depositor to any obligation in addition to those
undertaken in the Basic Documents or (C) if such Person is an insurance company,
a representation that such Person is an insurance company that is purchasing
such Certificates with funds contained in an "insurance company general account"
(as such term is defined in section v(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such
Certificates and any deemed extension of credit from a Certificateholder which
is a party in interest to a Plan, the assets of which are held by such
"Insurance Company" are covered under PTCE 95-60; provided, however, that the
Owner Trustee will not require such certificate or opinion in the event that, as
a result of a change of law or otherwise, counsel satisfactory to the Owner
Trustee has rendered an opinion to the
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effect that the purchase and holding of a Trust Certificate by a Benefit Plan or
a Person that is purchasing or holding such a Trust Certificate with the assets
of a Benefit Plan will not constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code. The preparation and delivery of the
certificate and opinions referred to above shall not be an expense of the
Issuer, the Owner Trustee, the Indenture Trustee, the Servicer or the Depositor.
The Owner Trustee shall cause each Certificate to contain a legend
stating that transfer of the Certificates is subject to certain restrictions and
referring prospective purchasers of the Certificates to the terms of this
Agreement with respect to such restrictions.
Upon surrender for registration of transfer of any Trust Certificate at
the office or agency maintained pursuant to Section 3.08, the Owner Trustee
shall execute, authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Trust Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder, Trust
Certificates may be exchanged for other Trust Certificates of authorized
denominations of a like aggregate amount upon surrender of the Trust
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.08.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Trust Certificate surrendered for registration of transfer or exchange
shall be cancelled and subsequently disposed of by the Owner Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of, Trust Certificates for a period of 15 days preceding
the due date for any payment with respect to the Trust Certificates.
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates.
If (a) any mutilated Trust Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the
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destruction, loss or theft of any Trust Certificate and (b) there shall be
delivered to the Certificate Registrar and the Owner Trustee such security or
indemnity as may be required by them to save each of them harmless, then in the
absence of notice that such Trust Certificate has been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Trust Certificate, a new Trust Certificate
of like tenor and denomination. In connection with the issuance of any new Trust
Certificate under this Section, the Owner Trustee or the Certificate Registrar
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Trust Certificate issued pursuant to this Section shall constitute conclusive
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Trust Certificate shall be found at any time.
SECTION 3.06. Persons Deemed Owners. Prior to due presentation of a
Trust Certificate for registration of transfer, the Owner Trustee, the
Certificate Registrar or any Paying Agent may treat the Person in whose name any
Trust Certificate is registered in the Certificate Register as the owner of such
Trust Certificate for the purpose of receiving distributions pursuant to Section
5.02 and for all other purposes whatsoever, and none of the Owner Trustee, the
Certificate Registrar or any Paying Agent shall be bound by any notice to the
contrary.
SECTION 3.07. Access to List of Certificateholders' Names and
Addresses. The Owner Trustee shall furnish or cause to be furnished to the
Servicer and the Depositor, within 15 days after receipt by the Owner Trustee of
a written request therefor from the Servicer or the Depositor, a list, in such
form as the Servicer or the Depositor may reasonably require, of the names and
addresses of the Certificateholders as of the most recent Record Date. If three
or more Certificateholders or one or more Holders of Trust Certificates
evidencing not less than 25% of the Certificate Balance apply in writing to the
Owner Trustee, and such application states that the applicants desire to
communicate with other Certificateholders with respect to their rights under
this Agreement or under the Trust Certificates and such application is
accompanied by a copy of the communication that such applicants propose to
transmit, then the Owner Trustee shall, within five Business Days after the
receipt of such application, afford such applicants access during normal
business hours to the current list of Certificateholders. Each Holder, by
receiving and holding a Trust Certificate, shall be deemed to have agreed not to
hold any of the Depositor, the Certificate Registrar or the Owner Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 3.08. Maintenance of Office or Agency. The Owner Trustee shall
maintain in the Borough of Manhattan, The City of New
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York, an office or offices or agency or agencies where Trust Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Trust Certificates and
the Basic Documents may be served. The Owner Trustee initially designates Harris
Trust Company of New York, 77 Water Street, 4th Floor, New York, New York 10005,
Attention: Wilbert Myles, as its office for such purposes. The Owner Trustee
shall give prompt written notice to the Depositor and to the Certificateholders
of any change in the location of the Certificate Register or any such office or
agency.
SECTION 3.09. Appointment of Paying Agent. The Paying Agent shall make
distributions to Certificateholders from the Certificate Distribution Account
pursuant to Section 5.02 and shall report the amounts of such distributions to
the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw
funds from the Certificate Distribution Account for the purpose of making the
distributions referred to above. The Owner Trustee may revoke such power and
remove the Paying Agent if the Owner Trustee determines in its sole discretion
that the Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Owner Trustee will be the initial Paying
Agent. In the event that the Owner Trustee shall no longer be the Paying Agent,
the Owner Trustee shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company). The Owner Trustee shall cause such successor Paying
Agent or any additional Paying Agent appointed by the Owner Trustee to execute
and deliver to the Owner Trustee an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Owner Trustee that, as
Paying Agent, such successor Paying Agent or additional Paying Agent will hold
all sums, if any, held by it for payment to the Certificateholders in trust for
the benefit of the Certificateholders entitled thereto until such sums shall be
paid to such Certificateholders. The Paying Agent shall return all unclaimed
funds to the Owner Trustee and upon removal of a Paying Agent such Paying Agent
shall also return all funds in its possession to the Owner Trustee. The
provisions of Sections 7.01, 7.03, 7.04 and 8.01 shall apply to the Owner
Trustee also in its role as Paying Agent, for so long as the Owner Trustee shall
act as Paying Agent and, to the extent applicable, to any other paying agent
appointed hereunder. Any reference in this Agreement to the Paying Agent shall
include any co-paying agent unless the context requires otherwise.
SECTION 3.10. Ownership by Depositor of Trust Certificates. The
Depositor shall on the Closing Date retain Trust Certificates representing at
least 1% of the Initial Certificate Balance and shall thereafter retain
beneficial and record ownership of Trust Certificates representing at least 1%
of the Certificate Balance. Any attempted transfer of the Depositor's Trust
Certificate that would reduce such interest of the Depositor below 1% of the
Certificate Balance shall be void. The Owner Trustee shall cause
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the Depositor's Trust Certificate to contain a legend stating "THIS CERTIFICATE
IS NON-TRANSFERABLE".
ARTICLE IV
Actions by Owner Trustee
SECTION 4.01. Prior Notice to Owners with Respect to Certain Matters.
With respect to the following matters, the Owner Trustee shall not take action
unless at least 30 days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders in writing of the proposed action and
the Owners shall not have notified the Owner Trustee in writing prior to the
30th day after such notice is given that such Owners have withheld consent or
provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of the Receivables) and
the compromise of any action, claim or lawsuit brought by or against the Trust
(except with respect to the aforementioned claims or lawsuits for collection of
the Receivables);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment would materially adversely affect the interests of the Owners;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Owners; or
(f) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a
successor Certificate Registrar, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its
obligations under the Indenture or this Agreement, as applicable.
SECTION 4.02. Action by Owners with Respect to Certain Matters. The
Owner Trustee shall not have the power, except upon the written direction of the
Owners, to (a) remove the
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Administrator under the Administration Agreement pursuant to Section 8 thereof,
(b) appoint a successor Administrator under the Administration Agreement
pursuant to Section 8 thereof, (c) remove the Servicer under the Sale and
Servicing Agreement pursuant to Section 8.01 thereof or (d) except as expressly
provided in the Basic Documents, sell the Receivables after the termination of
the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the Owners.
SECTION 4.03. Action by Owners with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Owners and the delivery to the Owner Trustee by each such Owner of a certificate
certifying that such Owner reasonably believes that the Trust is insolvent.
SECTION 4.04. Restrictions on Owners' Power. The Owners shall not
direct the Owner Trustee to take or to refrain from taking any action if such
action or inaction would be contrary to any obligation of the Trust or the Owner
Trustee under this Agreement or any of the Basic Documents or would be contrary
to Section 2.03 or contrary to applicable law, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
SECTION 4.05. Majority Control. Except as expressly provided herein,
any action that may be taken by the Owners under this Agreement may be taken by
the Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance. Except as expressly provided herein, any written notice of
the Owners delivered pursuant to this Agreement shall be effective if signed by
Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance at the time of the delivery of such notice.
ARTICLE V
Application of Trust Funds; Certain Duties
SECTION 5.01. Establishment of Trust Account. The Owner Trustee, for
the benefit of the Certificateholders, shall establish and maintain in the name
of the Trust an Eligible Deposit Account (the "Certificate Distribution
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders.
The Owner Trustee shall possess all right, title and interest in all
funds on deposit from time to time in the Certificate Distribution Account and
in all proceeds thereof. Except as otherwise expressly provided herein, the
Certificate Distribution Account shall be under the sole dominion and control of
the Owner Trustee for the benefit of the Certificateholders. If, at any
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time, the Certificate Distribution Account ceases to be an Eligible Deposit
Account, the Owner Trustee (or the Depositor on behalf of the Owner Trustee, if
the Certificate Distribution Account is not then held by the Owner Trustee or an
affiliate thereof) shall within 10 Business Days (or such longer period, not to
exceed 30 calendar days, as to which each Rating Agency may consent) establish a
new Certificate Distribution Account as an Eligible Deposit Account and shall
transfer any cash and/or any investments to such new Certificate Distribution
Account.
SECTION 5.02. Application of Trust Funds. (a) On each Distribution
Date, the Owner Trustee will distribute to Certificateholders, on a pro rata
basis, amounts deposited in the Certificate Distribution Account pursuant to
Sections 5.05 and 5.06 of the Sale and Servicing Agreement with respect to such
Distribution Date.
(b) On each Distribution Date, the Owner Trustee shall send to each
Certificateholder the statement or statements provided to the Owner Trustee by
the Servicer pursuant to Section 5.07 of the Sale and Servicing Agreement with
respect to such Distribution Date.
SECTION 5.03. Method of Payment. Subject to Section 9.01(c),
distributions required to be made to Certificateholders on any Distribution Date
shall be made to each Certificateholder of record on the preceding Record Date
either (x) by wire transfer, in immediately available funds, to the account of
such Holder at a bank or other entity having appropriate facilities therefor, if
such Certificateholder shall have provided to the Certificate Registrar
appropriate written instructions no later than the Record Date prior to such
Distribution Date, or (y) if such Holder does not qualify under clause (x), by
check mailed to such Certificateholder at the address of such holder appearing
in the Certificate Register.
SECTION 5.04. No Segregation of Moneys; No Interest. Subject to
Sections 5.01 and 5.02, moneys received by the Owner Trustee hereunder need not
be segregated in any manner except to the extent required by law or the Sale and
Servicing Agreement and may be deposited under such general conditions as may be
prescribed by law, and the Owner Trustee shall not be liable for any interest
thereon.
SECTION 5.05. Accounting and Reports to the Noteholders, Owners, the
Internal Revenue Service and Others. In accordance with Annex A hereto, the
Owner Trustee shall (a) maintain (or cause to be maintained) the books of the
Trust on a calendar year basis and the accrual method of accounting, in a manner
consistent with its treatment as a partnership for federal and applicable state
and local tax purposes, (b) deliver to each Owner, as may be required by the
Code and applicable Treasury Regulations, such information as may be required
(including Schedule K-1) to enable each Owner to
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prepare its federal and state income tax returns, (c) file such tax returns
relating to the Trust (including a partnership information return, IRS Form
1065) and make such elections as from time to time may be required or
appropriate under any applicable state or federal statute or any rule or
regulation thereunder so as to maintain the Trust's characterization as a
partnership for federal income tax purposes, (d) cause such tax returns to be
signed in the manner required by law and (e) collect or cause to be collected
any withholding tax as described in and in accordance with Section 5.02(c) with
respect to income or distributions to Owners. The Owner Trustee shall elect
under Section 1278 of the Code to include in income currently any market
discount that accrues with respect to the Receivables. The Owner Trustee shall
not make the election provided under Section 754 of the Code.
SECTION 5.06. Signature on Returns. The Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust, unless applicable law requires
an Owner to sign such documents, in which case such documents shall be signed by
the Depositor.
ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.01. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and, in
each case, in such form as the Depositor shall approve, as evidenced
conclusively by the Owner Trustee's execution thereof. In addition to the
foregoing, the Owner Trustee is authorized, but shall not be obligated, to take
all actions required of the Trust pursuant to the Basic Documents. The Owner
Trustee is further authorized from time to time to take such action as the
Administrator recommends with respect to the Basic Documents.
SECTION 6.02. General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Basic Documents to which the Trust is a
party and to administer the Trust in the interest of the Owners, subject to the
Basic Documents and in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the Owner Trustee shall be deemed to have
discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Administrator has agreed in the Administration
Agreement to perform any act or to discharge any duty of the Owner Trustee
hereunder or under any Basic Document, and the Owner Trustee shall not be held
liable for the default or failure of the Administrator to carry out its
obligations under the Administration Agreement.
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SECTION 6.03. Action upon Instruction. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Owners may by written
instruction direct the Owner Trustee in the management of the Trust. Such
direction may be exercised at any time by written instruction of the Owners
pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or under
any Basic Document, the Owner Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the Owners requesting
instruction as to the course of action to be adopted, and to the extent the
Owner Trustee acts in good faith in accordance with any written instruction of
the Owners received, the Owner Trustee shall not be liable on account of such
action to any Person. If the Owner Trustee shall not have received appropriate
instruction within 10 days of such notice (or within such shorter period of time
as reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the application
of any provision of this Agreement or any Basic Document or any such provision
is ambiguous as to its application, or is, or appears to be, in conflict with
any other applicable provision, or in the event that this Agreement permits any
determination by the Owner Trustee or is silent or is incomplete as to the
course of action that the Owner Trustee is required to take with respect to a
particular set of facts, the Owner Trustee may give notice (in such form as
shall be appropriate under the circumstances) to the Owners requesting
instruction and, to the extent that the Owner Trustee acts or refrains from
acting in good faith in accordance with any such instruction received, the Owner
Trustee shall not be liable, on account of such action or inaction, to any
Person. If the Owner Trustee shall not have received appropriate instruction
within 10 days of such notice (or within such shorter period of time as
reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
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SECTION 6.04. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.03; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
SECTION 6.05. No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.03.
SECTION 6.06. Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section
2.03 or (b) that, to the actual knowledge of the Owner Trustee, would result in
the Trust's becoming taxable as a corporation for federal income tax purposes.
The Owners shall not direct the Owner Trustee to take action that would violate
the provisions of this Section.
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.01. Acceptance of Trusts and Duties. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts, but only upon the terms of this Agreement. The
Owner Trustee also agrees to disburse all moneys actually received by it
constituting part of the Owner Trust Estate upon the terms of the Basic
Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic Document under any
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circumstances, except (i) for its own willful misconduct or gross negligence (or
negligence in the case of handling funds), (ii) for liabilities arising from the
failure by the Owner Trustee to perform obligations expressly undertaken by it
in the last sentence of Section 6.04 hereof, (iii) for any investments made by
the Owner Trustee with Wilmington Trust Company (in its individual capacity) in
its commercial capacity, (iv) in the case of the inaccuracy of any
representation or warranty contained in Section 7.03 expressly made by the Owner
Trustee or (v) for federal or Delaware taxes, fees or other charges, based on or
measured by any fees, commissions or compensation received by the Owner Trustee
in connection with any of the transactions contemplated by this Agreement or any
of the Basic Documents. In particular, but not by way of limitation (and subject
to the exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable for any error of judgment
made by a Trust Officer of the Owner Trustee;
(b) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or any Owner;
(c) No provision of this Agreement or any Basic Document shall require
the Owner Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder or under
any Basic Document if the Owner Trustee shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured or provided to it;
(d) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Agreement or for the due execution hereof by the
Depositor or for the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate, or for or in respect of the validity
or sufficiency of the Basic Documents, other than the certificate of
authentication on the Trust Certificates, and the Owner Trustee shall in no
event assume or incur any liability, duty or obligation to any Noteholder or to
any Owner, other than as expressly provided for herein or expressly agreed to in
the Basic Documents;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Depositor, the Indenture Trustee, the Servicer or the
Backup Servicer under any of the Basic Documents or otherwise, and the Owner
Trustee shall have no obligation or liability to perform the obligations of the
Trust under this Agreement or the Basic Documents that are required to be
performed by the Administrator under the Administration Agreement,
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the Indenture Trustee under the Indenture or the Servicer or AUTORICS II, Inc.,
as Depositor under the Sale and Servicing Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement or any Basic Document, at the request, order or direction of any of
the Owners, unless such Owners have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
SECTION 7.02. Furnishing of Documents. The Owner Trustee shall furnish
to the Owners promptly upon receipt of a written request therefor, duplicates or
copies of all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Owner Trustee under the
Basic Documents.
SECTION 7.03. Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the Owners, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution or the delivery by it of this Agreement, nor
the consummation by it of the transactions contemplated hereby, nor compliance
by it with any of the terms or provisions hereof will contravene any federal or
Delaware law, governmental rule or regulation governing the banking or trust
powers of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or bylaws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by which
any of its properties may be bound.
SECTION 7.04. Reliance; Advice of Counsel. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order,
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certificate, report, opinion, bond, or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties. The
Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of determination of
which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter, and such certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled Persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Agreement or
any Basic Document.
SECTION 7.05. Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Wilmington Trust
Company acts solely as Owner Trustee hereunder and not in its individual
capacity, and all Persons having any claim against the Owner Trustee by reason
of the transactions contemplated by this Agreement or any Basic Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.06. Owner Trustee Not Liable for Trust Certificates or
Receivables. The Owner Trustee makes no representations as to the validity or
sufficiency of this Agreement, of any Basic Document or of the Trust
Certificates (other than the signature and countersignature of the Owner Trustee
on the Trust Certificates) or the Notes, or of any Receivable or related
documents. The Owner Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Receivable, or the perfection and priority of any security interest created
by any Receivable in any Financed Vehicle or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Owner
Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Noteholders under the Indenture,
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including, without limitation: the existence, condition and ownership of any
Financed Vehicle; the existence and enforceability of any insurance thereon; the
existence and contents of any Receivable on any computer or other record
thereof; the validity of the assignment of any Receivable to the Trust or of any
intervening assignment; the completeness of any Receivable; the performance or
enforcement of any Receivable; the compliance by the Depositor or the Servicer
with any warranty or representation made under any Basic Document or in any
related document or the accuracy of any such warranty or representation, or any
action of the Administrator, the Indenture Trustee or the Servicer or any
subservicer taken in the name of the Owner Trustee.
SECTION 7.07. Owner Trustee May Own Trust Certificates and Notes. The
Owner Trustee in its individual or any other capacity may become the owner or
pledgee of Trust Certificates or Notes and may deal with the Depositor, the
Administrator, the Indenture Trustee and the Servicer in banking transactions
with the same rights as it would have if it were not Owner Trustee.
ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.01. Owner Trustee's Fees and Expenses. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Depositor and the
Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Administrator pursuant to the Administration Agreement for its other reasonable
expenses hereunder, including the reasonable compensation, expenses and
disbursements of such agents, representatives, experts and counsel as the Owner
Trustee may employ in connection with the exercise and performance of its rights
and its duties hereunder.
SECTION 8.02. Indemnification. Pursuant to the Administration
Agreement, the Administrator shall be liable as primary obligor for, and shall
indemnify the Owner Trustee and its successors, assigns, agents and servants
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may at any time be imposed on, incurred by, or asserted
against the Owner Trustee or any Indemnified Party in any way relating to or
arising out of this Agreement, the Basic Documents, the Owner Trust Estate, the
administration of the Owner Trust Estate or the action or inaction of the Owner
Trustee hereunder, except only that the Administrator shall not be liable for or
required to indemnify an Indemnified Party from and against Expenses arising or
resulting from any of the matters described in the third sentence of Section
7.01. The
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indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Administrator, which approval shall not be
unreasonably withheld.
SECTION 8.03. Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
ARTICLE IX
Termination of Trust Agreement
SECTION 9.01. Termination of Trust Agreement. (a) This Agreement (other
than Article VIII) and the Trust shall terminate and be of no further force or
effect (i) upon the final distribution by the Owner Trustee of all moneys or
other property or proceeds of the Owner Trust Estate in accordance with the
terms of the Indenture, the Sale and Servicing Agreement and Article V or (ii)
at the time provided in Section 9.02. The bankruptcy, liquidation, dissolution,
death or incapacity of any Owner, other than the Depositor as described in
Section 9.02, shall not (x) operate to terminate this Agreement or the Trust or
(y) entitle such Owner's legal representatives or heirs to claim an accounting
or to take any action or proceeding in any court for a partition or winding up
of all or any part of the Trust or Owner Trust Estate or (z) otherwise affect
the rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 9.01(a), neither the Depositor nor
any Owner shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Distribution
Date upon which Certificateholders shall surrender their Trust Certificates to
the Paying Agent for payment of the final distribution and cancellation, shall
be given by the Owner Trustee by letter to Certificateholders mailed within five
Business Days of receipt of notice of such termination from the Servicer given
pursuant to Section 9.01(c) of the Sale and Servicing Agreement, stating (i) the
Distribution Date upon or with respect to which final payment of the Trust
Certificates shall be made upon presentation and surrender of the Trust
Certificates at the office of the Paying Agent therein designated, (ii) the
amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Trust Certificates at the office of the
Paying Agent therein specified. The Owner
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Trustee shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Paying Agent at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Trust Certificates,
the Paying Agent shall cause to be distributed to Certificateholders amounts
distributable on such Distribution Date pursuant to Section 5.02.
In the event that all of the Certificateholders shall not surrender
their Trust Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Trust Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Owner Trustee
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders concerning surrender of their Trust
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies shall be distributed by the Owner
Trustee to the Depositor.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
SECTION 9.02. Dissolution upon Bankruptcy of the Depositor. In the
event that an Insolvency Event shall occur with respect to the Depositor, this
Agreement shall be terminated in accordance with Section 9.01 90 days after the
date of such Insolvency Event, unless, before the end of such 90-day period, the
Owner Trustee shall have received written instructions from (a) Holders of
Certificates (other than the Depositor) representing more than 50% of the
Certificate Balance (not including the Certificate Balance of the Trust
Certificates held by the Depositor) and (b) Holders (as defined in the
Indenture) of Notes representing more than 50% of the Outstanding Amount of the
Notes, to the effect that each such party disapproves of the liquidation of the
Receivables and termination of the Trust. Promptly after the occurrence of any
Insolvency Event with respect to the Depositor, (A) the Depositor shall give the
Indenture Trustee and the Owner Trustee written notice of such Insolvency Event,
(B) the Owner Trustee shall, upon the receipt of such written notice from the
Depositor, give prompt written notice to the Certificateholders and the
Indenture Trustee, of the occurrence of such event and (C) the Indenture Trustee
shall, upon receipt of written notice of such Insolvency Event from the Owner
Trustee or the Depositor, give prompt written notice to the Noteholders of the
occurrence of such event; provided, however, that any failure to give a notice
required by this sentence shall not prevent or delay, in any manner, a
termination of the Trust
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pursuant to the first sentence of this Section 9.02. Upon a termination pursuant
to this Section, the Owner Trustee shall direct the Indenture Trustee promptly
to sell the assets of the Trust (other than the Trust Accounts and the
Certificate Distribution Account), in a commercially reasonable manner and on
commercially reasonable terms. The proceeds of such a sale of the assets of the
Trust shall be treated as collections under the Sale and Servicing Agreement.
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.01. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities. If such
corporation shall publish reports of condition at least annually pursuant to law
or to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Owner Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Owner Trustee shall resign immediately in the manner and with
the effect specified in Section 10.02.
SECTION 10.02. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Administrator. Upon receiving such
notice of resignation, the Administrator shall promptly appoint a successor
Owner Trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Owner Trustee and one copy to the successor
Owner Trustee. If no successor Owner Trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
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Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each Rating Agency.
SECTION 10.03. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to
the Administrator and to its predecessor Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Agreement, with like effect as if originally named as Owner Trustee.
The predecessor Owner Trustee shall upon payment of its fees and expenses
deliver to the successor Owner Trustee all documents and statements and monies
held by it under this Agreement; and the Administrator and the predecessor Owner
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
SECTION 10.04. Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting
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from any merger, conversion or consolidation to which the Owner Trustee shall be
a party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Owner Trustee, shall be the successor of the
Owner Trustee hereunder, without the execution or filing of any instrument or
any further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided, that such corporation shall be eligible
pursuant to Section 10.01 and, provided, further, that the Owner Trustee shall
mail notice of such merger or consolidation to each Rating Agency.
SECTION 10.05. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Financed Vehicle may at the time be located,
the Administrator and the Owner Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Administrator and Owner Trustee to act as co- trustee, jointly
with the Owner Trustee, or as separate trustee or separate trustees, of all or
any part of the Owner Trust Estate, and to vest in such Person, in such
capacity, such title to the Trust or any part thereof and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Administrator and the Owner Trustee may consider necessary or desirable.
If the Administrator shall not have joined in such appointment within 15 days
after the receipt by it of a request so to do, the Owner Trustee alone shall
have the power to make such appointment. No co-trustee or separate trustee under
this Agreement shall be required to meet the terms of eligibility as a successor
Owner Trustee pursuant to Section 10.01 and no notice of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
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(b) No trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement; and
(c) The Administrator and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor co-trustee or separate trustee.
ARTICLE XI
Miscellaneous
SECTION 11.01. Supplements and Amendments. This Agreement may be
amended by the Depositor and the Owner Trustee, with prior written notice to
each Rating Agency, without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interests
of any Noteholder or Certificateholder.
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This Agreement may also be amended from time to time by the Depositor
and the Owner Trustee, with prior written notice to each Rating Agency, with the
consent of the Holders (as defined in the Indenture) of Notes evidencing not
less than a majority of the Outstanding Amount of the Notes and the consent of
the Holders of Certificates evidencing not less than a majority of the
Certificate Balance, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Noteholders or the Certificateholders;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Receivables or distributions that shall be required to be made for
the benefit of the Noteholders or the Certificateholders or (b) reduce the
aforesaid percentage of the Outstanding Amount of the Notes and the Certificate
Balance required to consent to any such amendment, without the consent of the
holders of all the outstanding Notes and Certificates.
Section 2.07, Section 2.111 and Section 9.02 may be deleted or amended
pursuant to the first paragraph of this Section 11.01 if the Depositor shall
have provided to the Trustee, at the Depositor's expense, an Opinion of Counsel
to the effect that the Trustee has complied with any applicable temporary or
final Treasury Regulation or Notice of the Internal Revenue Service providing
for a "check-the-box" partnership classification for federal income tax
purposes; and such amendment shall further provide that Section 2 of Annex A
hereto shall be amended by adding the following sentence immediately following
the last sentence thereof: "If the Treasury Department or Internal Revenue
Service shall promulgate a temporary or final regulation notice or other rule
adopting a 'check-the-box' classification system for unincorporated
organizations and which shall be applicable to the Trust, the Servicer, on
behalf of the Tax Partners, shall elect in such manner as may be provided in
such regulation, notice or other rule, to treat the Trust as a partnership for
federal income tax purposes, and each Tax Partner irrevocably agrees to be bound
by such election." Moreover, no amendment to this Agreement shall be recognized
or be effective without the written consent of the Trustee and receipt by the
Trustee of an Opinion of Counsel to the effect that such amendment will not (i)
cause the Trust to be treated as an association taxable as a corporation or as a
publicly-traded partnership for federal income tax purposes or (ii) cause the
Trust to be subject to an entity-level tax for state tax purposes.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee and each
Rating Agency.
It shall not be necessary for the consent of Certificateholders,
Noteholders or the Indenture Trustee pursuant
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to this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment that affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
In connection with the execution of any amendment to this Trust
Agreement or any amendment of any other agreement to which the Issuer is a
party, the Owner Trustee shall be entitled to receive and conclusively rely upon
an Opinion of Counsel to the effect that such amendment is authorized or
permitted by the Basic Documents and that all conditions precedent in the Basic
Documents for the execution and delivery thereof by the Issuer or the Owner
Trustee, as the case may be, have been satisfied.
SECTION 11.02. No Legal Title to Owner Trust Estate in Owners. The
Owners shall not have legal title to any part of the Owner Trust Estate. The
Owners shall be entitled to receive distributions with respect to their
undivided ownership interest therein only in accordance with Articles V and IX.
No transfer, by operation of law or otherwise, of any right, title or interest
of the Owners to and in their ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
SECTION 11.03. Limitations on Rights of Others. Except for Section
2.07, the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Owners, the Administrator and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, and
nothing in this Agreement (other than Section 2.07 hereof), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
31
<PAGE>
SECTION 11.04. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt by the intended recipient or three Business Days after
mailing if personally delivered or mailed by certified mail, return receipt
requested and postage prepaid or by recognized overnight courier or by facsimile
confirmed by delivery or mail as described above (except that notice to the
Owner Trustee shall be deemed given only upon actual receipt by the Owner
Trustee), if to the Owner Trustee, addressed to the Corporate Trust Office; if
to the Depositor, addressed to AUTORICS II, Inc., 500 Cypress Creek Road West,
Suite 590, Fort Lauderdale, FL 33309; tel.: 954-958-3591; facsimile:
954-938-8209, Attention: Dennis LaVigne; or, as to each party, at such other
address as shall be designated by such party in a written notice to each other
party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
SECTION 11.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.06. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.07. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, each of the
Depositor and its permitted assignees, the Owner Trustee and its successors and
each Owner and its successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by an
Owner shall bind the successors and assigns of such Owner.
SECTION 11.08. Covenants of the Depositor. In the event that (a)
Certificateholders' Principal Carryover Shortfalls shall occur or (b) any
litigation with claims in excess of $1,000,000 to which the Depositor is a party
which shall be reasonably likely to result in a material judgment against the
Depositor that the Depositor will not be able to satisfy shall be commenced by
an Owner, during the period beginning nine months following the commencement of
such litigation and continuing until such litigation is dismissed or
32
<PAGE>
otherwise terminated (and, if such litigation has resulted in a final judgment
against the Depositor, such judgment has been satisfied), the Depositor shall
not pay any dividend to NAL, or make any distribution on or in respect of its
capital stock to NAL, or repay the principal amount of any indebtedness of the
Depositor held by NAL, unless (i) after giving effect to such payment,
distribution or repayment, the Depositor's liquid assets shall not be less than
the amount of actual damages claimed in such litigation or (ii) the Rating
Agency Condition shall have been satisfied with respect to any such payment,
distribution or repayment. The Depositor will not at any time institute against
the Trust any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Trust Certificates, the Notes, the Trust Agreement or any of the Basic
Documents.
SECTION 11.09. No Petition. The Owner Trustee, by entering into this
Agreement, each Certificateholder, by accepting a Trust Certificate, and the
Indenture Trustee and each Noteholder, by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the Depositor or the Trust, or join in any institution against the
Depositor or the Trust of, any bankruptcy proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Trust Certificates, the Notes, this Agreement or any of the
Basic Documents.
SECTION 11.10. No Recourse. Each Certificateholder by accepting a Trust
Certificate acknowledges that such Certificateholder's Trust Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Depositor, the Servicer, the Administrator, the Owner
Trustee, the Indenture Trustee or any Affiliate thereof and no recourse may be
had against such parties or their assets, except as may be expressly set forth
or contemplated in this Agreement, the Trust Certificates or the Basic
Documents.
SECTION 11.11. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. [Reserved.]
SECTION 11.14. Depositor Payment Obligation. The Depositor shall be
responsible for payment of the Administrator's fees under the Administration
Agreement and shall reimburse the Administrator for all expenses and liabilities
of the Administrator incurred
33
<PAGE>
thereunder. In addition, the Depositor shall be responsible for the payment of
all fees and expenses of the Trust, the Owner Trustee and the Indenture Trustee
paid by any of them in connection with any of their obligations under the Basic
Documents to obtain or maintain any required license under the Motor Vehicle
Sales Finance Act.
* * * * * *
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
AUTORICS II, INC., as Depositor,
by:
-----------------------------------
Name: Robert Carlson
Title: Vice President/Finance
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee,
by:
-----------------------------------
Name: Emmett R. Harmon
Title: Vice President
<PAGE>
EXHIBIT A
FORM OF TRUST CERTIFICATE
THIS CERTIFICATE IS SUBORDINATED TO THE NOTES, AS AND TO THE EXTENT SET FORTH IN
THE SALE AND SERVICING AGREEMENT.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES OR BLUE SKY
LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. BY ITS
ACCEPTANCE OF THIS CERTIFICATE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE
DEPOSITOR AND THE OWNER TRUSTEE (i) THAT IT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE
1933 ACT (AN "ACCREDITED INVESTOR") AND THAT IT IS ACQUIRING THIS CERTIFICATE
FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR
AGENT FOR OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER
IS A BANK ACTING IN ITS FIDUCIARY CAPACITY) FOR INVESTMENT AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, THE PUBLIC DISTRIBUTION HEREOF,
(ii) THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
THE 1933 ACT AND IS ACQUIRING SUCH CERTIFICATE FOR ITS OWN ACCOUNT (AND NOT FOR
THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO
ARE QUALIFIED INSTITUTIONAL BUYERS) OR (iii) THAT IT IS AN INVESTOR THAT IS
OTHERWISE PERMITTED TO ACQUIRE THIS CERTIFICATE UNDER THE TRUST AGREEMENT.
NO SALE, PLEDGE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE BY ANY PERSON
UNLESS EITHER (i) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO THE DEPOSITOR,
(ii) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO AN ACCREDITED INVESTOR THAT
EXECUTES A CERTIFICATE, SUBSTANTIALLY IN THE FORM SPECIFIED IN THE TRUST
AGREEMENT, TO THE EFFECT THAT IT IS AN ACCREDITED INVESTOR ACTING FOR ITS OWN
ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR
OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK
ACTING IN ITS FIDUCIARY CAPACITY), (iii) SO LONG AS THIS CERTIFICATE IS ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, SUCH SALE, PLEDGE OR OTHER
TRANSFER IS MADE TO A PERSON WHO THE PROSPECTIVE TRANSFEROR REASONABLY BELIEVES
AFTER DUE INQUIRY IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A), ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A
FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL
BUYERS) TO WHOM NOTICE IS GIVEN THAT THE SALE, PLEDGE OR TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, OR (iv) SUCH SALE, PLEDGE OR OTHER TRANSFER IS
OTHERWISE MADE IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT, IN WHICH CASE THE OWNER TRUSTEE SHALL REQUIRE THAT BOTH THE
PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE OWNER
TRUSTEE AND THE
A-1
<PAGE>
DEPOSITOR IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION
SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE OWNER TRUSTEE AND THE
DEPOSITOR. EXCEPT IN THE CASE OF A TRANSFER DESCRIBED IN CLAUSES (i) OR (iii)
ABOVE, THE OWNER TRUSTEE SHALL REQUIRE A WRITTEN OPINION OF COUNSEL (WHICH SHALL
NOT BE AT THE EXPENSE OF THE DEPOSITOR, ANY AFFILIATE OF THE DEPOSITOR OR THE
OWNER TRUSTEE) SATISFACTORY TO THE DEPOSITOR AND THE OWNER TRUSTEE TO THE EFFECT
THAT SUCH TRANSFER WILL NOT VIOLATE THE 1933 ACT. NO SALE, PLEDGE OR OTHER
TRANSFER MAY BE MADE TO ANY ONE PERSON FOR SECURITIES WITH A FACE AMOUNT OF LESS
THAN $100,000 AND, IN THE CASE OF ANY PERSON ACTING ON BEHALF OF ONE OR MORE
THIRD PARTIES (OTHER THAN A BANK (AS DEFINED IN SECTION 3(a)(2) OF THE 1933 ACT)
ACTING IN ITS FIDUCIARY CAPACITY), FOR SECURITIES WITH A FACE AMOUNT OF LESS
THAN $100,000 FOR EACH SUCH THIRD PARTY.
EACH SECURITYHOLDER, BY ITS ACCEPTANCE OF THIS SECURITY, COVENANTS AND AGREES
THAT SUCH SECURITYHOLDER, SHALL NOT, PRIOR TO THE DATE THAT IS ONE YEAR AND ONE
DAY AFTER THE TERMINATION OF THE TRUST AGREEMENT, ACQUIESCE, PETITION OR
OTHERWISE INVOKE OR CAUSE THE TRUST, THE DEPOSITOR OR THE SELLER TO INVOKE THE
PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF COMMENCING OR
SUSTAINING A CASE AGAINST THE TRUST, THE DEPOSITOR OR THE SELLER UNDER ANY
FEDERAL OR STATE BANKRUPTCY, INSOLVENCY, REORGANIZATION OR SIMILAR LAW, OR
APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR OR
OTHER SIMILAR OFFICIAL OF THE TRUST, THE DEPOSITOR OR THE SELLER OR ANY
SUBSTANTIAL PART OF ITS PROPERTY, OR ORDERING THE WINDING UP OR LIQUIDATION OF
THE AFFAIRS OF THE TRUST, THE DEPOSITOR OR THE SELLER.
THIS CERTIFICATE WILL NOT BE REGISTERED FOR TRANSFER UNLESS THE OWNER TRUSTEE
RECEIVES EITHER (1) A REPRESENTATION FROM THE TRANSFEREE OF SUCH CERTIFICATE TO
THE EFFECT THAT SUCH TRANSFEREE NEITHER IS NOR IS ACTING ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT SECURITY ACT
OF 1974, AS AMENDED ("ERISA"), SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") OR GOVERNMENTAL PLANS (AS DEFINED IN SECTION 3(32)
OF ERISA) SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW ("SIMILAR LAW") WHICH IS,
TO A MATERIAL EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE
(COLLECTIVELY, A "PLAN") AND IS NOT USING THE ASSETS OF A PLAN SUBJECT TO ERISA
OR THE CODE TO INVEST IN THE CERTIFICATES, (2) IF THE TRANSFEREE IS A PLAN, OR
IS ACTING ON BEHALF OF A PLAN, OR IS USING THE ASSETS OF A PLAN, AN OPINION OF
COUNSEL SATISFACTORY TO THE OWNER TRUSTEE TO THE EFFECT THAT SUCH TRANSFER WILL
NOT RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO BE "PLAN ASSETS" OR
SUBJECT THE DEPOSITOR, THE SELLER, THE SERVICER, THE BACKUP SERVICER, THE OWNER
TRUSTEE, OR THE INDENTURE TRUSTEE TO ANY OBLIGATION IN ADDITION TO THOSE
UNDERTAKEN IN THE TRUST AGREEMENT, THE SALE AND SERVICING AGREEMENT AND THE
ADMINISTRATION AGREEMENT, INCLUDING ANY LIABILITIES ASSESSED FOR "PROHIBITED
TRANSACTIONS" UNDER ERISA, THE CODE OR SIMILAR LAW (3) IF THE TRANSFEREE IS AN
INSURANCE COMPANY, A REPRESENTATION THAT THE TRANSFEREE IS AN INSURANCE COMPANY
THAT IS ACQUIRING SUCH CERTIFICATES WITH FUNDS CONTAINED
A-2
<PAGE>
IN AN "INSURANCE COMPANY GENERAL ACCOUNT" (AS SUCH TERM IS DEFINED IN SECTION
V(e) OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ("PTCE 95-60")) AND THAT
THE PURCHASE AND HOLDING OF SUCH CERTIFICATES AND ANY DEEMED EXTENSION OF CREDIT
FROM A CERTIFICATEHOLDER WHICH IS A PARTY IN INTEREST TO A PLAN, THE ASSETS OF
WHICH ARE HELD BY SUCH "INSURANCE COMPANY" ARE COVERED UNDER PTCE 95-60. ANY
PURPORTED TRANSFER OF A CERTIFICATE TO OR ON BEHALF OF A PLAN WITHOUT THE
DELIVERY OF AN OPINION OF COUNSEL REFERRED TO IN CLAUSE (2) ABOVE OR THE
REPRESENTATION REFERRED TO IN CLAUSE (3) ABOVE SHALL BE VOID AND OF NO EFFECT.
[THIS CERTIFICATE IS NONTRANSFERABLE.](1)
- --------
(1) To be included only on the Certificates representing the 1% minimum required
to be retained by the Depositor and any Certificates issued in exchange
therefor.
A-3
<PAGE>
NUMBER $_________
R- CUSIP NO. 628948 AL 5
NAL AUTO TRUST 1996-4
8.15% ASSET BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined below, the
property of which consists of retail installment sale contracts for new and used
automobiles and light duty trucks (collectively, the "Receivables"), all monies
received on or after the related Cutoff Date, security interests in the vehicles
financed thereby, certain bank accounts and the proceeds thereof, proceeds from
claims on certain insurance policies and certain other rights under the Trust
Agreement and the Sale and Servicing Agreement and all proceeds of the
foregoing.
THIS TRUST CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
AUTORICS II, INC., NAL ACCEPTANCE CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THIS CERTIFIES THAT ________________ is the registered owner of
____________________________________________ DOLLARS nonassessable, fully-paid,
fractional undivided interest in NAL Auto Trust 1996-4 (the "Trust"), formed by
AUTORICS II, Inc., a Delaware corporation (the "Depositor").
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned Trust
Agreement.
WILMINGTON TRUST COMPANY, not
in its individual capacity,
but solely as Owner Trustee
by: ________________________
Authorized Signatory
A-4
<PAGE>
The Trust was created pursuant to a Trust Agreement dated as of
December 9, 1996, (as amended or supplemented from time to time, the "Trust
Agreement"), between the Depositor and Wilmington Trust Company, as owner
trustee (the "Owner Trustee"), a summary of certain of the pertinent provisions
of which is set forth below. To the extent not otherwise defined herein, the
capitalized terms used herein have the meanings assigned to them in the Trust
Agreement or the Sale and Servicing Agreement dated as of December 9, 1996 (as
amended and supplemented from time to time, the "Sale and Servicing Agreement"),
among the Trust, the Depositor, NAL Acceptance Corporation, as servicer (the
"Servicer"), and Bankers Trust Company, as backup servicer, as applicable.
This Certificate is one of the duly authorized Certificates designated
as "8.15% Asset Backed Certificates" (herein called the "Trust Certificates").
Also issued under an Indenture dated as of December 9, 1996 (the "Indenture"),
between the Trust and Bankers Trust Company, as indenture trustee, are the Notes
designated as "6.90% Asset Backed Notes" (the "Notes"). This Trust Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the Holder of this Trust Certificate
by virtue of its acceptance hereof assents and by which such Holder is bound.
The property of the Trust consists of retail installment sale contracts for new
and used automobiles, light duty trucks and vans (collectively, the
"Receivables"), all monies received on or after the Cutoff Date plus all
Payaheads as of the Cutoff Date; any proceeds with respect to the Receivables
from claims on any physical damage, credit life or disability, theft, mechanical
breakdown or "guaranteed auto protection" insurance policies relating to
Financed Vehicles or Obligors; proceeds of any recourse (but none of the
obligations) to Dealers on Receivables; any Financed Vehicle that shall have
secured a Receivable and shall have been acquired by or on behalf of the
Depositor, the Servicer, or the Trust; the Receivables Files; the Receivables
Purchase Agreement, including the right of the Depositor to cause NAL to
purchase Receivables under certain circumstances; the Trust Accounts; and
certain other rights under the Trust Agreement and the Sale and Servicing
Agreement and all proceeds of the foregoing. The rights of the Holders of the
Trust Certificates are subordinated to the rights of the Holders of the Notes,
as and to the extent set forth in the Sale and Servicing Agreement. [The
Depositor's Interest shall also entitle the Depositor to the distributions
specified in Sections 5.05 and 5.06 of the Sale and Servicing Agreement.]
Under the Trust Agreement, there will be distributed March 15, June 15,
September 15 and December 15 of each year or, if such day is not a Business Day,
the immediately following Business Day (each, a "Distribution Date"), commencing
on March 17, 1997, to the Person in whose name this Trust Certificate is
registered at the close of business on the last day of the month
A-5
<PAGE>
immediately preceding such Distribution Date (the "Record Date"), such
Certificateholder's fractional undivided interest in the amount to be
distributed to Certificateholders on such Distribution Date. No distributions of
principal will be made on any Certificate until all of the Notes have been paid
in full.
The Holder of this Trust Certificate acknowledges and agrees that its
rights to receive distributions in respect of this Trust Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement and the Indenture.
It is the intent of the Depositor, the Servicer and the
Certificateholders that, for purposes of federal income, state and local income
and single business tax and any other income taxes, the Trust will be treated as
a partnership and the Certificateholders (including the Depositor) will be
treated as partners in that partnership. The Depositor and the other
Certificateholders, by acceptance of a Trust Certificate, agree to treat, and to
take no action inconsistent with the treatment of, the Trust Certificates for
such tax purposes as partnership interests in the Trust.
Each Certificateholder, by its acceptance of a Trust Certificate,
covenants and agrees that such Certificateholder will not at any time institute
against the Depositor, or join in any institution against the Depositor of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Trust
Certificates, the Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Trust Certificate will be made as provided in the
Trust Agreement by the Owner Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Trust Certificate or the making of any notation hereon.
Except as otherwise provided in the Trust Agreement and notwithstanding the
above, the final distribution on this Trust Certificate will be made after due
notice by the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Trust Certificate at the office or agency
maintained for that purpose by the Owner Trustee in the Borough of Manhattan,
The City of New York.
Reference is hereby made to the further provisions of this Trust
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual signature,
this Trust Certificate shall not entitle the
A-6
<PAGE>
Holder hereof to any benefit under the Trust Agreement or the Sale and Servicing
Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Trust Certificate to be duly
executed.
NAL AUTO TRUST 1996-4
by: WILMINGTON TRUST
COMPANY, not in its individual
capacity but solely as
Owner Trustee
Dated: _____________ by: ________________________
Authorized Signatory
A-7
<PAGE>
[REVERSE OF TRUST CERTIFICATE]
The Trust Certificates do not represent an obligation of, or an
interest in, the Depositor, the Servicer, the Seller, the Owner Trustee or any
affiliates of any of them and no recourse may be had against such parties or
their assets, except as expressly set forth or contemplated herein or in the
Trust Agreement or the Basic Documents. In addition, this Trust Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Receivables (and certain other amounts), all as more specifically set forth
herein and in the Sale and Servicing Agreement. A copy of each of the Sale and
Servicing Agreement and the Trust Agreement may be examined by any
Certificateholder upon written request during normal business hours at the
principal office of the Depositor and at such other places, if any, designated
by the Depositor.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Depositor and the rights of the Certificateholders under the Trust Agreement at
any time by the Depositor and the Owner Trustee with the consent of the Holders
of the Trust Certificates and the Notes, each voting as a class, evidencing not
less than a majority of the Certificate Balance and the outstanding principal
balance of the Notes. Any such consent by the Holder of this Trust Certificate
shall be conclusive and binding on such Holder and on all future Holders of this
Trust Certificate and of any Trust Certificate issued upon the transfer hereof
or in exchange herefor or in lieu hereof, whether or not notation of such
consent is made upon this Trust Certificate. The Trust Agreement also permits
the amendment thereof, in certain limited circumstances, without the consent of
the Holders of any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Trust Certificate is registerable in the
Certificate Register upon surrender of this Trust Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Borough of Manhattan, The City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Owner Trustee and the Certificate Registrar duly executed by the Holder hereof
or such Holder's attorney duly authorized in writing, and thereupon one or more
new Trust Certificates of authorized denominations evidencing the same aggregate
interest in the Trust will be issued to the designated transferee. The initial
Certificate Registrar appointed under the Trust Agreement is the Owner Trustee.
Except as provided in the Trust Agreement, the Trust Certificates are
issuable only as registered Trust Certificates
A-8
<PAGE>
without coupons in denominations of $100,000 and in integral multiples of $1,000
in excess thereof. As provided in the Trust Agreement and subject to certain
limitations therein set forth, Trust Certificates are exchangeable for new Trust
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Registrar and any agent of the Owner
Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Registrar or any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the payment to Certificateholders
of all amounts required to be paid to them pursuant to the Trust Agreement and
the Sale and Servicing Agreement and the disposition of all property held as
part of the Owner Trust Estate. The Servicer of the Receivables may at its
option purchase the Owner Trust Estate at a price specified in the Sale and
Servicing Agreement, and such purchase of the Receivables and other property of
the Trust will effect early retirement of the Trust Certificates; however, such
right of purchase is exercisable only as of the last day of any Collection
Period as of which the Pool Balance is less than or equal to 5% of the Original
Pool Balance.
A-9
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
the within Trust Certificate, and all rights thereunder, and
hereby irrevocably constitutes and appoints , attorney,
to transfer said Trust Certificate on the books of the
Certificate Registrar, with full power of substitution in the premises.
Dated:
____________________________*/
Signature Guaranteed:
____________________________*/
- -----------------
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-10
<PAGE>
EXHIBIT B
CERTIFICATE OF TRUST OF
NAL AUTO TRUST 1996-4
THIS Certificate of Trust of NAL AUTO TRUST 1996-4 (the "Trust"), dated
September [ ], 1996, is being duly executed and filed by Wilmington Trust
Company, a Delaware banking corporation, as trustee, to form a business trust
under the Delaware Business Trust Act (12 Del. C. ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby is NAL Auto
Trust 1996-4.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attn:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon
filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first-above
written.
WILMINGTON TRUST COMPANY,
as trustee
By:
---------------------------------
Name:
Title:
B-1
<PAGE>
EXHIBIT C
FORM OF TRANSFEROR CERTIFICATE
[DATE]
Autorics II, Inc.
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, FL 33309
Wilmington Trust Company, as Owner Trustee
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890
Re: NAL Auto Trust 1996-4
8.15% Asset Backed Certificates
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Ladies and Gentlemen:
In connection with our disposition of the above-referenced 8.15% Asset
Backed Certificates (the "Certificates") we certify that (a) we understand that
the Certificates have not been registered under the Securities Act of 1933, as
amended (the "Act"), and are being transferred by us in a transaction that is
exempt from the registration requirements of the Act and (b) we have not offered
or sold any Certificates to, or solicited offers to buy any Certificates from,
any person, or otherwise approached or negotiated with any person with respect
thereto, in a manner that would be deemed, or taken any other action which would
result in, a violation of Section 5 of the Act.
Very truly yours,
[NAME OF TRANSFEROR]
By:
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Authorized Officer
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EXHIBIT D
FORM OF INVESTMENT LETTER
Autorics II, Inc.
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, FL 33309
Wilmington Trust Company, as Owner Trustee
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount of 8.15% Asset Backed Certificates (the "Certificates") of NAL
Auto Trust 1996-4 (the "Issuer"), we confirm that:
1. We understand that the Certificates have not been
registered under the Securities Act of 1933, as amended (the "1933
Act"), and may not be sold except as permitted in the following
sentence. We understand and agree, on our own behalf and on behalf of
any accounts for which we are acting as hereinafter stated, (x) that
such Certificates are being offered only in a transaction not involving
any public offering within the meaning of the 1933 Act and (y) that
such Certificates may be resold, pledged or transferred only (i) to the
Depositor, (ii) to an "accredited investor" as defined in Rule
501(a)(1),(2),(3) or (7) (an "Accredited Investor") under the 1933 Act
acting for its own account (and not for the account of others) or as a
fiduciary or agent for others (which others also are Accredited
Investors unless the holder is a bank acting in its fiduciary capacity)
that executes a certificate substantially in the form hereof, (iii) so
long as such Certificate is eligible for resale pursuant to Rule 144A
under the 1933 Act ("Rule 144A"), to a person whom we reasonably
believe after due inquiry is a "qualified institutional buyer" as
defined in Rule 144A, acting for its own account (and not for the
account of others) or as a fiduciary or agent for others (which others
also are "qualified institutional buyers") to whom notice is given that
the resale, pledge or transfer is being made in reliance on Rule 144A
or (iv) in a sale, pledge or other transfer made in a transaction
otherwise exempt from the registration requirements of the 1933 Act, in
which case the Owner Trustee shall require that both the prospective
transferor and the prospective transferee certify to the Owner Trustee
and the Depositor in writing the facts surrounding such transfer, which
certification shall be in form and substance
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satisfactory to the Owner Trustee and the Depositor. Except in the case
of a transfer described in clauses (i) or (iii) above, the Owner
Trustee shall require a written opinion of counsel (which will not be
at the expense of the Depositor, any affiliate of the Depositor or the
Owner Trustee) satisfactory to the Depositor and the Owner Trustee be
delivered to the Depositor and the Owner Trustee to the effect that
such transfer will not violate the 1933 Act, in each case in accordance
with any applicable securities laws of any state of the United States.
We will notify any purchaser of the Certificates from us of the above
resale restrictions, if then applicable. We further understand that in
connection with any transfer of the Certificates by us that the
Depositor and the Owner Trustee may request, and if so requested we
will furnish such certificates and other information as they may
reasonably require to confirm that any such transfer complies with the
foregoing restrictions. We understand that no sale, pledge or other
transfer may be made to any one person of Certificates with a face
amount of less than $100,000 and, in the case of any person acting on
behalf of one or more third parties (other than a bank (as defined in
Section 3(a)((2) of the 1933 Act) acting in its fiduciary capacity), of
Certificates with a face amount of less than $100,000 for each such
third party.
2. [CHECK ONE]
/ / (a) We are an "accredited investor" (as defined in
Rule 501(a)(1),(2),(3) or (7) of Regulation D under
the Certificates Act) acting for our own account (and not
for the account of others) or as a fiduciary or agent
for others (which others also are Accredited Investors
unless we are a bank acting in its fiduciary
capacity). We have such knowledge and experience in
financial and business matters as to be capable of
evaluating the merits and risks of our investment in
the Certificates, and we and any accounts for which we
are acting are each able to bear the economic risk of
our or their investment for an indefinite period of
time. We are acquiring the Certificates for
investment and not with a view to, or for offer and
sale in connection with, a public distribution.
/ / (b) We are a "qualified institutional buyer" as
defined under Rule 144A under the 1933 Act and are
acquiring the Certificates for our own account (and
not for the account of others) or as a fiduciary or
agent for others (which others also are "qualified
institutional buyers"). We are familiar with Rule
144A under the 1933 Act and are aware that the seller
of the Certificates and other parties intend to rely
on the statements made herein and the exemption from
the registration requirements of the 1933 Act provided
by Rule 144A.
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3. We are not (i) an employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) that is subject to the provisions of Title I of
ERISA, (ii) a plan described in Section 4975(e)(1) of the Code or (iii)
any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). We hereby
acknowledge that no transfer of any Certificate shall be permitted to
be made to any person unless the Trustee has received (i) a certificate
from such transferee to the effect of the preceding sentence, (ii) an
opinion of counsel satisfactory to the Trustee to the effect that the
purchase and holding of any such Certificate will not constitute or
result in the assets of the Issuer being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA or Section
4975 of the Code and will not subject the Owner Trustee, the Indenture
Trustee or the Depositor to any obligation in addition to those
undertaken in the Basic Documents with respect to the Certificates
(provided, however, that the Owner Trustee will not require such
certificate or opinion in the event that, as a result of change of law
or otherwise, counsel satisfactory to the Owner Trustee has rendered an
opinion to the effect that the purchase and holding of any such
Certificate by a Benefit Plan or a Person that is purchasing or holding
any such Certificate with the assets of a Benefit Plan will not
constitute or result in a prohibited transaction under ERISA or Section
4975 of the Code) or (iii) if the transferee is an insurance company, a
representation that the transferee is an insurance company that is
acquiring such Certificates with funds contained in an "Insurance
Company General Account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95- 60 ("PTCE 95-60)) and that
the purchase and holding of such Certificates and any deemed extension
of credit from a Certificateholder which is a party in interest to a
Plan, the assets of which are held by such "Insurance Company" are
covered under PTCE 95-60.
4. We understand that the Depositor, the Trust, Greenwich
Capital Financial Products, Inc. ("Greenwich") and others will rely
upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements, and we agree that if any of the
acknowledgments, representations and warranties deemed to have been
made by us by our purchase of the Certificates, for our own account or
for one or more accounts as to each of which we exercise sole
investment discretion, are no longer accurate, we shall promptly notify
the Depositor and Greenwich.
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5. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:
--------------------------------
Name:
Title:
Date:
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ANNEX A
TAX PARTNERSHIP PROVISIONS
1. Characterization for Tax Purposes. For United States federal and
applicable state and local income tax purposes, the Depositor's contribution of
the Receivables to the Trust in exchange for interests in the Trust, and the
sale by the Depositor of the Certificates (other than the retention by the
Depositor of the Depositor's Trust Certificate) is intended to constitute the
formation of a partnership (the "Tax Partnership") whose partners are the
Certificateholders (which are hereinafter collectively referred to as the "Tax
Partners").
2. Election with Respect to Subchapter K. Notwithstanding anything to
the contrary, each Tax Partner agrees: (a) not to elect to be excluded from the
application of Subchapter K of Chapter 1 of Subtitle A of the Code, or any
comparable provisions of applicable state laws; and (b) to join in the execution
of such additional documents and elections as may be required in order to
effectuate the foregoing.
3. Capital Contributions and Capital Accounts.
(a) The value of the interests contributed by the
Certificateholders (other than the Depositor) shall equal the amount
paid by such Certificateholders, respectively, for their Certificates
and such amounts shall constitute the opening balance in their Capital
Accounts (as hereinafter defined). The value of the interests
contributed by the Depositor shall equal the fair market value of the
Depositor's Interest, which the Tax Partners agree shall be based on
the sum, without duplication, of (i) the Reserve Account Initial
Deposit and (ii) the value of the Depositor's Interest based on (A) as
to the Certificate Balance and interest at the Pass- Through Rate of
the Depositor's Trust Certificate, the average price of the
Certificates to investors and (B) as to all other amounts due the
Depositor, the present value of the cash flow to the Depositor of the
amounts to which the Depositor is entitled to receive pursuant to
Sections 5.05(b)(viii) and 5.06(b) and (e) of the Sale and Servicing
Agreement at each Distribution Date or upon termination of the Trust
using a discount rate that reflects an appropriate arm's-length equity
rate of return and a prepayment assumption of 1.75 ABS, and such total
shall be submitted to the Owner Trustee in writing within ten (10)
Business Days after the Closing Date. Such amount shall constitute the
opening balance in the Depositor's Capital Account.
(b) An individual capital account (a "Capital Account") shall
be maintained for each Tax Partner in compliance with Treasury
Regulation Sections 1.704-1(b)(2)(iv) and 1.704-2 and accordingly,
except as otherwise provided herein:
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(i) The Capital Account of each Tax Partner shall be
credited by (A) the amount of cash and the fair market value
of property other than cash contributed (or deemed contributed
pursuant to Code Section 708) by such Tax Partner to the Tax
Partnership (net of any liabilities assumed by the Tax
Partnership upon such contribution or to which such property
is subject at the time of such contribution); and (B) the
amount of any item of taxable income or gain and the amount of
any item of income or gain exempt from tax allocated to such
Tax Partner.
(ii) The Capital Account of each Tax Partner shall be
debited by (A) the amount of any item of tax deduction or loss
allocated to such Tax Partner; (B) such Tax Partner's
allocable share of expenditures not deductible in computing
taxable income and not properly chargeable as capital
expenditures; and (C) the amount of cash and the fair market
value of any property other than cash (net of any liabilities
assumed by such Tax Partner or to which such property is
subject at the time of distribution) distributed to such Tax
Partner.
(iii) Immediately prior to any distribution of
property in kind, the Tax Partners' Capital Accounts shall be
adjusted by assuming that the distributed properties were sold
for cash at their respective fair market values as of the date
of distribution and crediting or debiting each Tax Partner's
Capital Account with its respective share of the hypothetical
gains or losses resulting from such assumed sales in the same
manner as gains or losses on actual sales of such properties
would be allocated under Paragraph 6 below.
5. Federal and State Income Tax Returns and Elections.
(a) The Tax Partners agree that the Depositor shall serve as
the "tax matters partner" (as such term is defined in Code Section
6231(a)(7) (the "Tax Matters Partner") of the Tax Partnership. The Tax
Matters Partner shall (i) apply to the Internal Revenue Service for a
taxpayer identification number for the Tax Partnership, (ii) elect to
adopt the accrual method of accounting and the calendar year as the Tax
Partnership's fiscal year (the "Fiscal Year"), (iv) make such other
elections as it deems proper, (v) prepare, execute and file the
necessary federal and state partnership income tax returns for the Tax
Partnership and (vi) keep the other Tax Partners informed of all
material matters that may come to its attention in its capacity as Tax
Matters Partner. Each Tax Partner agrees to furnish the Tax Matters
Partner with all pertinent information relating to activities under
this Agreement which is necessary for the Tax Matters Partner to
prepare and file federal and state partnership returns. In acting as
Tax Matters Partner, the Tax Matters Partner shall use its best
efforts, but shall incur no liability to the other Tax Partners.
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(b) Within 60 days after the end of each of the Tax
Partnership's taxable years, the Tax Matters Partner shall send to each
Tax Partner who has been a Tax Partner at any time during the taxable
year then ended such tax information as shall be necessary for the
preparation by such Tax Partner of its Federal income tax return and
state income and other tax returns, if any, in states where the Tax
Partnership is organized or is qualified to do business.
6. Allocations.
(a)(i) "Net Income" and "Net Loss" respectively, for any
period, means the income or losses of the Tax Partnership as determined
in accordance with the method of accounting followed by the Tax
Partnership for Federal income tax purposes, including, for all
purposes, any income exempt from tax and any expenditures of the Tax
Partnership described in Code Section 705(a)(2)(B); provided, however,
(i) that any item allocated under Paragraph 6(c) shall be excluded from
the computation of Net Loss and (ii) that if, as a result of the
contribution of an asset whose fair market value differs from its
adjusted basis for Federal income tax purposes or as a result of the
revaluation of the Tax Partnership's assets, the book value of any Tax
Partnership asset differs from its adjusted basis for Federal income
tax purposes, gain, loss, depreciation and amortization with respect to
such assets shall be computed using the asset's book value consistently
with the requirements of Treasury Regulation Section 1.704-
1(b)(2)(iv)(g).
(ii) "Period" shall mean the period ending on each
Distribution Date; provided that as to the month in which the
Closing Date occurs, Period shall mean the period commencing
on the Closing Date and ending on the first Distribution Date
and as to the period in which the Tax Partnership terminates,
Period shall mean the period beginning on the first day of
such period and ending on the date of the Tax Partnership's
termination.
(b) The Tax Partners agree that the Tax Partnership's Net
Income and Net Loss and each item of income, gain, loss, or deduction
entering into the computation thereof for any Fiscal Year shall be
allocated by first allocating the Tax Partnership's Net Income and Net
Loss (and each item of income, gain, loss, or deduction entering into
the computation thereof) for each Period or portion thereof within such
Fiscal Year (as if such Period (or portion) were a complete fiscal
year), dividing the amount of such allocations for the Period ending
March 15 on a daily basis between calendar years and then aggregating
the allocations for the portion of such Period within each Fiscal Year;
provided, that the Tax Partnership's Net Income or Net Loss for the
period commencing December 18 and ending December 31 may be determined
on an estimated basis to permit timely preparation of the Partnership's
tax returns and reporting to the Tax Partners.
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In the case of the transfer of any interest in the Tax Partnership, the
items of Net Income and Net Loss allocated for any Period with respect
to the transferred interest shall be allocated between the transferor
and transferee of such interest on a daily basis within such Period.
The Tax Partnership's Net Income and Net Loss for each Period within a
Fiscal Year shall be allocated as follows:
(i) Net Income for such Period shall be
allocated as follows:
(A) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of (1) the product of the Pass- Through
Rate and (2) the Certificate Balance amount for such
Period (and each such preceding Period) over (y) all
amounts allocated to the Certificateholders pursuant
to this Paragraph 6(b)(i)(A) shall be allocated 100%
to the Certificateholders (including the Depositor),
in proportion to their holdings of Trust
Certificates; provided that the product of (1) and
(2) in clause (x) shall be computed on the basis of a
360 day year consisting of twelve 30 day months.
(B) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of that portion of any excess of the
principal amount of the Trust Certificates over their
initial issue price (disregarding accrued interest)
that would have accrued with respect to such Periods
if the Trust Certificates were indebtedness and such
excess were original issue discount over (y) all
amounts previously allocated to the
Certificateholders pursuant to this Paragraph
6(b)(i)(B) shall be allocated 100% to the
Certificateholders (including the Depositor), in
proportion to their holdings of Trust Certificates.
(C) Any remaining Net Income shall be
allocated 100% to the Depositor.
(ii) Net Losses for such Period shall be
allocated as follows:
(A) 100% to the Depositor until the excess
of the Adjusted Capital Account (as hereinafter
defined) balance of the Depositor over the amount
specified in Paragraph 3(a)(i)(A) (as adjusted for
all prior distributions of principal and accruals of
market discount income allocable to the Depositor)
equals zero.
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(B) 100% to the Certificateholders
(including the Depositor) in proportion to their
holdings of Trust Certificates, until the Adjusted
Capital Account balances of the Certificateholders
equal zero; and
(C) Any remaining Net Losses shall be
allocated 100% to the Depositor.
(c)(i) Any deductions attributable to (w) the amortization of
premium on the Receivables, (x) payments to the Owner Trustee, (y)
payments to the Servicer and (z) payments of any other expenses, claims
and losses of the Trust shall be specially allocated to the Depositor.
(ii) If there is a net decrease in "partnership
minimum gain" (within the meaning of Treasury Regulation
Section 1.704-2(d)) for a Fiscal year, then there shall be
allocated to each Tax Partner items of income and gain for
that year equal to that Tax Partner's share of the net
decrease in partnership minimum gain (within the meaning of
Treasury Regulation Section 1.704-2(g)(2)), subject to the
exceptions set forth in Treasury Regulation Sections
1.704-2(f)(2), (3) and (5), provided, that if the Tax
Partnership has any discretion as to an exception set forth
pursuant to Treasury Regulation Section 1.704-2(f)(5), the Tax
Matters Partner may exercise such discretion on behalf of the
Tax Partnership. In the event the application of the minimum
gain chargeback requirement would cause a distortion in the
economic arrangement among the Tax Partners, the Tax Matters
Partner shall request the Commissioner to waive the minimum
gain chargeback requirement pursuant to Treasury Regulation
Section 1.704-2(f)(4). The foregoing is intended to be a
"minimum gain chargeback" provision as described in Treasury
Regulation Section 1.704-2(f) and shall be interpreted and
applied in all respects in accordance with that Treasury
Regulation.
If during a Fiscal Year there is a net decrease in
partner nonrecourse debt minimum gain (as determined in
accordance with Treasury Regulation Section 1.704- 2(i)(3)),
then, in addition to the amounts, if any, allocated pursuant
to the preceding paragraph, any Tax Partner with a share of
that partner nonrecourse debt minimum gain (determined in
accordance with Treasury Regulation Section 1.704-2(i)(5)) as
of the beginning of the Fiscal Year shall, subject to the
exceptions set forth in Treasury Regulation Section
1.704-2(i)(4), including exceptions analogous to those
provided pursuant to Treasury Regulation Sections
1.704-2(f)(2), (3) and (5) (provided, that if the Tax
Partnership has any discretion as to an exception set forth
pursuant to Treasury Regulation Section 1.704-2(f)(5) as made
applicable by Treasury Regulation Section 1.704-2(i)(4),
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the Tax Matters Partner may exercise such discretion on behalf
of the Tax Partnership) be allocated items of income and gain
for the year (and, if necessary, for succeeding years) equal
to that Tax Partner's share of the net decrease in the partner
nonrecourse minimum gain. In the event the application of the
minimum gain chargeback requirement would cause a distortion
in the economic arrangement among the Tax Partners, the Tax
Matters Partner shall request the Commissioner to waive the
minimum gain chargeback requirement pursuant to Treasury
Regulation Sections 1.704-2(i)(4) and 1.704- 2(f)(4). The
foregoing is intended to be the "chargeback of partner
nonrecourse debt minimum gain" required by Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted and applied in
all respects in accordance with that Treasury Regulation.
(iii) If during any Fiscal year of the Tax
Partnership a Tax Partner unexpectedly receives an adjustment,
allocation or distribution described in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes or
increases a deficit balance in the Tax Partner's Adjusted
Capital Account (as defined below), there shall be allocated
to the Tax Partner items of income and gain (consisting of a
pro rata portion of each item of Tax Partnership income,
including gross income, and gain for such year) in an amount
and manner sufficient to eliminate such deficit as quickly as
possible. The foregoing is intended to be a "qualified income
offset" provision as described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in
all respects in accordance with the Treasury Regulation.
A Tax Partner's "Adjusted Capital Account", at any
time, shall equal the Tax Partner's Capital Account at such
time (x) increased by the sum of (A) the amount of the Tax
Partner's share of partnership minimum gain (as defined in
Treasury Regulation Section 1.704-2(g)(1) and (3)), (B) the
amount of the Tax Partner's share of partner nonrecourse debt
minimum gain (as defined in Treasury Regulation Section
1.704-2(i)(5)), and (C) any amount of the deficit balance in
its Capital Account and Tax Partner is obligated to restore on
liquidation of the Tax Partnership and (y) decreased by
reasonably expected adjustments, allocations and distributions
described in Treasury Regulation Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(iv) Notwithstanding anything to the contrary in this
Paragraph 6, Tax Partnership losses, deductions, or Code
Section 705(a)(2)(B) expenditures that are attributable to a
particular partner nonrecourse liability shall be allocated to
the Tax Partner that bears the economic risk of loss for the
liability in
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accordance with the rules of Treasury Regulation Section
1.704-2(i).
(v) Notwithstanding any provision of Paragraphs 6(b)
and 6(c)(i), no allocation of items of loss or deduction shall
be made to a Tax Partner if it would cause the Tax Partner to
have a negative balance in its Adjusted Capital Account.
Allocations of items of loss or deduction that would be made
to a Tax Partner but for this Paragraph 6(c)(v) shall instead
be made first to the Depositor to the extent not inconsistent
with this Paragraph 6(c)(v), and second, to the
Certificateholders in proportion to the amounts distributable
for the related Period pursuant to Sections 5.05(b)(iv) or (v)
of the Sale and Servicing Agreement, to the extent
distributions under either such Section were reduced. To the
extent allocations of items of loss or deduction cannot be
made to any Tax Partner because of this Paragraph 6(c)(v),
such allocations shall be made to the Tax Partners in
accordance with Paragraphs 6(b) and 6(c)(i) notwithstanding
this Paragraph 6(c)(v).
(vi) To the extent that any item of income, gain,
loss or deduction has been specially allocated pursuant to
Paragraphs 6(c)(iii) and (v) and such allocation is
inconsistent with the way in which the same amount otherwise
would have been allocated under Paragraphs 6(b) and 6(c)(i),
subsequent allocations under Paragraph 6(b) and 6(c)(i) shall
be made, to the extent possible and without duplication, in a
manner consistent with Paragraphs 6(c)(ii), (iii), (iv) and
(v) which negate as rapidly as possible the effect of all such
inconsistent allocations.
(vii) Any allocations made pursuant to this Paragraph
6 shall be made in the following order:
(i) Paragraph 6(c)(ii)
(ii) Paragraph 6(c)(iii)
(iii) Paragraph 6(c)(iv)
(iv) Paragraph 6(c)(vi)
(v) Paragraph 6(c)(i)
(vi) Paragraph 6(b)(i) and (ii)
These provisions shall be applied as if all distributions and
allocations were made at the end of the Fiscal Year. Where any
provision depends on the Capital Account of any Tax Partner,
that Capital Account shall be determined after the operation
of all preceding provisions for the year. These allocations
shall be made consistently with
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the requirements of Treasury Regulation Section 1.704- 2(j).
(d) The income, gains, losses, deductions and credits of the
Tax Partnership for Federal, state and local income tax purposes shall
be allocated in the same manner as the corresponding items entering
into the computation of Net Income and Net Losses were allocated
pursuant to Paragraphs 6(b) and (c) provided that solely for Federal,
local and state income and franchise tax purposes and not for book or
Capital Account purposes, income, gain, loss and deduction with respect
to property properly carried on the Tax Partnership's books at a value
other than its tax basis shall be allocated (i) in the case of property
contributed in kind, in accordance with the requirements of Code
Section 704(c) and such Treasury Regulations as may be promulgated
thereunder from time to time, and (ii) in the case of other property,
in accordance with the principles of Code Section 704(c) and the
Treasury Regulations thereunder as incorporated among the requirements
of the relevant provisions of the Treasury Regulations under Code
Section 704(b).
(e) The Tax Partnership shall comply with all withholding
requirements under Federal, state and local law and shall remit amounts
withheld to and file required forms with the applicable jurisdictions.
To the extent the Tax Partnership is required to withhold and pay over
any amounts with respect to distributions or allocations to any Tax
Partner, the amount withheld shall be treated as a distribution to that
Tax Partner. In the event of any claimed overwithholding, Tax Partners
shall have no claim for recovery against the Tax Partnership or other
Tax Partners. If the amount withheld was not withheld from actual
distributions, the Tax Partnership, may at its option, (i) require the
Tax Partner to reimburse the Tax Partnership for such withholding (and
each Tax Partner agrees to reimburse the Tax Partnership promptly
following such request) or (ii) reduce any subsequent distributions by
the amount of such withholding. If there is a possibility that
withholding tax is payable with respect to a distribution (such as a
distribution to a non-U.S. Tax Partner), the Tax Partnership may in its
sole discretion withhold such amounts in accordance with this
Partnership may in its sole discretion withhold such amounts in
accordance with this Paragraph 6(e). Each Tax Partner agrees to furnish
the Tax Partnership with any representations and forms as shall
reasonably be requested by the Tax Partnership to assist it in
determining the extent of, and in fulfilling, its withholding
obligations. If a Tax Partner wishes to apply for a refund of any such
withholding tax, the Owner Trustee shall reasonably cooperate with such
Tax Partner in making such claim as long as the Tax Partner agrees to
reimburse the Tax Partnership for any out-of-pocket expenses incurred.
7. Sale of Interests. The Tax Partners agree that any sale by a Tax
Partner of any ownership interest in a Trust Certificate
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shall be deemed to be a sale of all or a portion of such Tax Partner's interest
in the Tax Partnership.
8. Termination of a Tax Partner's Interest. Any distribution by the Tax
Partnership in termination of any Tax Partner's interest in the Tax Partnership
other than pursuant to Paragraph 9 below shall be in an amount of cash or
property other than cash having a net fair market value equal to the positive
Capital Account balance of such Tax Partner at the time such interest is
terminated, after such Capital Account balance has been adjusted in accordance
with Paragraphs 4 and 6 above for all operations preceding such distribution and
the applicable Treasury Regulations under Code Section 704(b), and shall be made
by the later of: (a) the end of the Tax Partnership's taxable year in which such
termination occurs; or (b) within 90 days after the date of such termination.
9. Distributions upon Termination. Upon termination of the Agreement
pursuant to its terms, the activities of the Tax Partners under this Annex A
shall be concluded and the assets subject to the Agreement and this Annex A
shall be distributed to the Tax Partners in the manner and in the order set
forth below:
(a) Debts of the Tax Partnership created pursuant to the
Indenture on the Trust Agreement, other than to Tax Partners, shall be
paid.
(b) All cash on hand representing unexpended contributions by
any Tax Partner shall be returned to the contributor.
(c) The Tax Partners' Capital Accounts shall be adjusted by:
(i) assuming the sale of all remaining assets at their fair market
values as of the date of termination of the Trust Agreement; and (ii)
debiting or crediting each Tax Partner's Capital Account with the Tax
Partner's respective share of the hypothetical gains or losses
resulting from such assumed sales in the same manner as such Tax
Partner's Capital Account would be debited or credited under Paragraph
6 above for gains or losses on actual sales of such properties.
(d) All Tax Partnership assets shall be distributed to the Tax
Partners in accordance with their respective Capital Account balances
as so adjusted by the later of: (i) the end of the Tax Partnership's
taxable year in which the termination occurs; or (ii) within 90 days
after the date of such termination.
If property subject to the Agreement is distributed pursuant to this paragraph,
the amount of the distribution shall be equal to the net fair market value of
the distributed property.
9
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Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUTANTS
We hereby consent to the use in the Prospectus constituting part of
this Pre-Effective Amendment No. 2 to the Registration Statement on Form
SB-2 of our report dated February 27, 1996, except as to Note 19, which
is as of March 22, 1996, relating to the financial statements of NAL
Financial Group Inc., which appears in such Prospectus. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
December 20, 1996
