UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
NATIONAL AUTO FINANCE COMPANY, INC.
(Name of Issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
632528105
(CUSIP Number)
JOSEPH P. DONLAN
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
(212) 493-7882
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
DECEMBER 22, 1997
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
2
CUSIP No. 632528105
1 NAME OF REPORTING PERSON
THE 1818 MEZZANINE FUND, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
DELAWARE
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,177,475 (including Warrants to
EACH purchase 415,570 shares)
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
10 SHARED DISPOSITIVE POWER 1,177,475
(including Warrants to purchase
415,570 shares)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,177,475
(including Warrants to purchase 415,570 shares)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.5%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
3
CUSIP No. 632528105
1 NAME OF REPORTING PERSON
BROWN BROTHERS HARRIMAN & CO.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
NEW YORK
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,177,475 (including Warrants to
EACH purchase 415,570 shares)
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
10 SHARED DISPOSITIVE POWER 1,177,475
(including Warrants to purchase
415,570 shares)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,177,475
(including Warrants to purchase 415,570 shares)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.5%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
4
CUSIP No. 632528105
1 NAME OF REPORTING PERSON
JOSEPH P. DONLAN
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
UNITED STATES OF AMERICA
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,177,475 (including Warrants to
EACH purchase 415,570 shares)
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
10 SHARED DISPOSITIVE POWER 1,177,475
(including Warrants to purchase
415,570 shares)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,177,475
(including Warrants to purchase 415,570 shares)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.5%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
5
CUSIP No. 632528105
1 NAME OF REPORTING PERSON
ROBERT R. GOULD
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
UNITED STATES OF AMERICA
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,177,475 (including Warrants to
EACH purchase 415,570 shares)
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
10 SHARED DISPOSITIVE POWER 1,177,475
(including Warrants to purchase
415,570 shares)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,177,475
(including Warrants to purchase 415,570 shares)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.5%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
6
CUSIP No. 632528105
1 NAME OF REPORTING PERSON
T. MICHAEL LONG
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
UNITED STATES OF AMERICA
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,177,475 (including Warrants to
EACH purchase 415,570 shares)
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
10 SHARED DISPOSITIVE POWER 1,177,475
(including Warrants to purchase
415,570 shares)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,177,475
(including Warrants to purchase 415,570 shares)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.5%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
7
CUSIP No. 632528105
1 NAME OF REPORTING PERSON
LAWRENCE C. TUCKER
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
UNITED STATES OF AMERICA
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,177,475 (including Warrants to
EACH purchase 415,570 shares)
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
10 SHARED DISPOSITIVE POWER 1,177,475
(including Warrants to purchase
415,570 shares)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,177,475
(including Warrants to purchase 415,570 shares)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.5%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
8
ITEM 1. SECURITY AND ISSUER.
This Statement on Schedule 13D relates to the Common Stock, par
value $.01 per share (the "Common Stock"), of National Auto Finance Company,
Inc., a Delaware corporation (the "Issuer"), whose principal executive office is
located at 621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487.
ITEM 2. IDENTITY AND BACKGROUND.
(a), (b), (c) and (f). This Statement on Schedule 13D is being filed
by The 1818 Mezzanine Fund, L.P., a Delaware limited partnership (the "Fund"),
Brown Brothers Harriman & Co., a New York limited partnership and general
partner of the Fund ("BBH&Co."), Joseph P. Donlan ("Donlan"), Robert R. Gould
("Gould"), T. Michael Long ("Long") and Lawrence C. Tucker ("Tucker") (the Fund,
BBH&Co., Donlan, Gould, Long and Tucker are referred to collectively herein as
the "Reporting Persons").
The Fund was formed to provide a vehicle for institutional and
substantial investors to invest in a portfolio of mezzanine investments designed
to provide a substantial current return with the opportunity for significant
capital gains. BBH&Co. is a private bank. Pursuant to a resolution adopted by
the partners of BBH&Co., BBH&Co. has designated and appointed Donlan, Gould,
Long and Tucker, or any of them, the sole and exclusive persons having voting
power (including the power to direct the vote) and investment power (including
the power to dispose or to direct the disposition) with respect to the shares of
Common Stock and the Warrants (as defined below) beneficially owned by the
Reporting Persons.
<PAGE>
9
The address of the principal business and principal offices of the
Fund and BBH&Co. is 59 Wall Street, New York, New York 10005.
The business address of each of Donlan, Gould, Long and Tucker is 59
Wall Street, New York, New York 10005. The present principal occupation or
employment of each of Gould, Long and Tucker is as a general partner of BBH&Co.
The present principal occupation or employment of Donlan is as a senior manager
of BBH&Co. Donlan, Gould, Long and Tucker are citizens of the United States.
The name, business address, present principal occupation or
employment (and the name, principal business and address of any corporation or
other organization in which such employment is conducted) and the citizenship of
each general partner of BBH&Co. is set forth on Schedule I hereto and is
incorporated herein by reference.
(d) and (e). During the last five years, neither any Reporting
Person nor, to the best knowledge of each Reporting Person, any person
identified on Schedule I has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or was a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and as a result
of which any such person was or is subject to a judgement, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws.
<PAGE>
10
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Pursuant to a Securities Purchase Agreement (a copy of which is
attached hereto as Exhibit 1), dated as of December 22, 1997 (the "Purchase
Agreement"), by and among the Issuer, the Fund, PC Investment Company ("PCI"),
Progressive Investment Company, Inc. ("Progressive" and, together with PCI, the
"Progressive Entities"), and Manufacturers Life Insurance Company (U.S.A.)
("ML") (all such purchasers collectively, the "Purchasers"), the Issuer issued,
and the Fund acquired from the Issuer (i) $16,000,000 in principal amount of
Senior Subordinated Notes due December 22, 2004 (the "Notes"), together with
415,570 detachable warrants (the "Warrants") exercisable immediately to purchase
initially 415,570 shares of Common Stock at an exercise price of $.01 per share,
for an aggregate purchase price of $16,000,000, and (ii) 761,905 shares of
Common Stock (the "Shares") for an aggregate purchase price of $4,000,000, upon
the terms and subject to the conditions set forth in the Purchase Agreement. The
Notes, the Warrants and the Shares are sometimes referred to herein collectively
as the "Securities".
The funds used by the Fund to pay the purchase price for the
Securities were obtained from capital contributions made by the Fund's partners
pursuant to pre-existing capital commitments.
ITEM 4. PURPOSE OF TRANSACTION.
The Fund has acquired the Shares and the Warrants for investment
purposes. Except as provided below, none of the Reporting Persons has any
current
<PAGE>
11
plans or proposals which relate to or would result in any of the events
described in Items (a) through (j) of Item 4 of Schedule 13D.
The Reporting Persons may from time to time acquire additional
shares of Common Stock in the open market or in privately negotiated
transactions, subject to availability of such shares at prices deemed favorable,
the Issuer's business or financial condition and to other factors and conditions
the Reporting Persons deem appropriate. Alternatively, the Reporting Persons may
sell all or a portion of the Shares in open market or in privately negotiated
transactions or the Notes or Warrants in privately negotiated transactions, in
each case subject to the factors and conditions referred to above and to the
terms of the Purchase Agreement.
The Warrants contain anti-dilution provisions designed to protect
the Fund from the dilutive effects of the issuance of Common Stock, convertible
debt or stock, stockholder rights plans and other similar actions. These
anti-dilution provisions may result in the issuance of additional Common Stock
to the Fund upon exercise of the Warrants.
Pursuant to the terms of the Purchase Agreement, the Issuer caused
two (2) vacancies to be created on its board of directors (the "Board"), by
increasing the number of members of the Board. Such vacancies were filled by a
director nominated by the Fund and a director nominated by the Progressive
Entities. The Purchase Agreement and the Voting Agreement (as defined below)
with the Issuer's majority stockholder provide that these directors will remain
in place as long as certain conditions are satisfied.
<PAGE>
12
The Purchase Agreement also provides, among other things, that:
(a) without the prior written consent of the Purchasers, the
Issuer's certificate of incorporation or by-laws may not be amended in any
manner that would adversely affect the Issuer's obligation to pay principal and
interest on the Notes; (b) so long as any Notes remain outstanding, the Issuer
may not merge or dispose of substantially all of its assets, unless (i) the
surviving or acquiring company expressly assumes the obligations of the Issuer
under the Purchase Agreement and the documents related thereto, and (ii) the
surviving or acquiring company will be solvent following any such transaction;
(c) the Issuer must, if requested by the Purchasers, use its best efforts to
cause a sale transaction to be structured in a manner that ensures the
Purchasers' Warrants will be purchased as if such Warrants had been exercised
prior to any such transaction; and (d) so long as any Notes remain outstanding,
the Issuer is prohibited from disposing of assets without receiving at least
fair market value for such assets and utilizing the proceeds of any such
disposition to make additional investments in the Issuer's line of business or
to repay indebtedness of the Issuer, or if an event of default would occur under
the Purchase Agreement as a result of any such disposition.
The provisions of the Purchase Agreement described above and the
anti-dilutive provisions of the Warrants may impede a change of control of the
Issuer.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) and (b). As set forth above, on December 22, 1997, the Issuer
issued to the Fund, and the Fund acquired, 761,905 shares of Common Stock and
Warrants to acquire 415,570 shares of Common Stock. Accordingly, the Fund
<PAGE>
13
beneficially owns 1,177,435 shares of Common Stock, which, based on calculations
made in accordance with Rule 13d-3(d) and there being 9,030,762 Shares
outstanding on December 22, 1997, as represented by the Issuer in the Purchase
Agreement, represents approximately 12.5% of the outstanding shares of Common
Stock.
By virtue of BBH&Co.'s relationship with the Fund, BBH&Co. may be
deemed to own beneficially 1,177,475 shares of Common Stock, representing
approximately 12.5% of the outstanding shares of Common Stock. By virtue of the
resolution adopted by BBH&Co. designating Donlan, Gould, Long and Tucker, or any
of them, as the sole and exclusive persons having voting power (including the
power to direct the voting) and investment power (including the power to dispose
or to direct the disposition) with respect to the 1,177,475 shares of Common
Stock, each of Donlan, Gould, Long and Tucker may be deemed to own beneficially
1,177,475 shares of Common Stock, representing approximately 12.5% of the
outstanding shares of Common Stock.
(c) Except as set forth above, no Reporting Person nor, to the best
knowledge of each Reporting Person, any person identified on Schedule I,
beneficially owns any shares of Common Stock or has effected any transaction in
shares of Common Stock during the preceding 60 days.
Paragraphs (d) and (e) of Item 5 of Schedule 13D are not applicable
to this filing.
<PAGE>
14
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO THE COMMON
STOCK OF THE ISSUER.
(a) PURCHASE AGREEMENT. The Issuer and the Purchasers are parties
to the Purchase Agreement referred to in Item 3. Pursuant to the Purchase
Agreement, the Fund acquired the Securities.
As described above, the Purchase Agreement provides that the Fund
and the Progressive Entities are each entitled to one director nominated by them
to be elected to the Board. This right continues as long as the Fund or the
Progressive Entities continue to hold at least 50% of the aggregate outstanding
principal amount of the senior subordinated promissory notes or the shares of
Common Stock originally issued to such Purchaser.
(b) VOTING AGREEMENT. The Progressive Entities, the Fund and
National Auto Finance Company, L.P., a Delaware limited partnership, the
Issuer's majority stockholder (the "Majority Stockholder"), are parties to a
Voting Agreement (the "Voting Agreement"). The Majority Stockholder agreed to
vote all of the shares of Common Stock it beneficially owns in favor of the
persons nominated to the Board by the Fund and the Progressive Entities in
accordance with the Purchase Agreement.
(c) REGISTRATION RIGHTS AGREEMENT. The Issuer, the Fund, the
Progressive Entities and certain other stockholders of the Issuer are parties to
a Registration Rights Agreement (the "Registration Rights Agreement") relating
to the Common Stock, including the shares of Common Stock issuable upon exercise
of the Warrants. The Registration Rights Agreement provides that the Fund and
the
<PAGE>
15
Progressive Entities may collectively make two demands to have Common Stock
registered pursuant to the Securities Act of 1933, as amended (the "Securities
Act"). These demand registration rights are subject to certain blackout rights
and limitations in the event that other stockholders exercise their demand
rights.
The Fund and the Progressive Entities also have certain "piggy-back"
registration rights. The Fund and the Progressive Entities must be notified
prior to the filing of any registration statement under the Securities Act by
the Issuer. The Fund and the Progressive Entities may include Common Stock in
any such registration statement. The Issuer must use its best efforts to include
any such Common Stock in the registration statement.
(d) WARRANTS. The Warrants have an exercise price of $.01 per share
and are exercisable at any time prior to December 22, 2007, but in any event no
later than the date of completion of a transaction effectuating the sale of the
Issuer. The Warrants contain anti-dilution provisions designed to protect the
Fund from the dilutive effects of the issuance of Common Stock, convertible debt
or stock, stockholder rights plans and other similar actions.
Except as stated in this Item 6, none of the Reporting Persons has
any contracts, arrangements, understandings or relationships (legal or
otherwise) with any other person with respect to the shares of Common Stock,
including without limitation, any agreements concerning (i) transfer or voting
of any shares of Common Stock, (ii) finder's fees, (iii) joint ventures, (iv)
loan or option arrangement, (v) puts or calls, (vi) guarantees of profits, (vii)
division of profits or losses, or (viii) the giving or withholding of proxies.
<PAGE>
16
The foregoing response to this Item 6 is qualified in its entirety
by reference to the Purchase Agreement, the Registration Rights Agreement, the
Voting Agreement, the Form of Warrant and the Form of Note, the full texts of
which are respectively filed as Exhibits 1 through 5 hereto and incorporated
herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Purchase Agreement
2. Registration Rights Agreement
3. Voting Agreement
4. Form of Warrant
5. Form of Note
<PAGE>
17
SIGNATURE
After reasonable inquiry and to the best of its knowledge and
belief, each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: December 30, 1997
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
General Partner
By: /s/ Robert R. Gould
-----------------------------------
Name: Robert R. Gould
Title: Partner
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Robert R. Gould
-----------------------------------
Name: Robert R. Gould
Title: Partner
/s/ Joseph P. Donlan
---------------------------------------
Joseph P. Donlan
/s/ Robert R. Gould
---------------------------------------
Robert R. Gould
/s/ T. Michael Long
---------------------------------------
T. Michael Long
/s/ Lawrence C. Tucker
---------------------------------------
Lawrence C. Tucker
<PAGE>
18
SCHEDULE I
Set forth below are the names and positions of all of the general
partners of BBH&Co. The principal occupation or employment of each person listed
below is private banker, and, unless otherwise indicated, the business address
of each person is 59 Wall Street, New York, New York 10005. Unless otherwise
indicated, each person listed below is a citizen of the United States.
Business Address
(if other than as
Name indicated above)
- ---- ----------------
Peter B. Bartlett
Brian A. Berris
Walter H. Brown
Douglas A. Donahue, Jr. 40 Water Street
Boston, Massachusetts 02109
Anthony T. Enders
Alexander T. Ercklentz Veritas House
125 Finsbury Pavement
London EC2A 1PN, England
Terrence M. Farley
Elbridge T. Gerry, Jr.
Robert R. Gould
Kyosuko Kashimoto 8-14 Nihonbashi 30-Chome Chuo-ku
(citizen of Japan) Tokyo 103, Japan
Radford W. Klotz
Noah T. Herndon 40 Water Street
Boston, Massachusetts 02109
Landon Hilliard
<PAGE>
19
Business Address
(if other than as
Name indicated above)
- ---- ----------------
Michael Kraynak, Jr.
T. Michael Long
Hampton S. Lynch
Michael W. McConnell
William H. Moore III
Donald B. Murphy
John A. Nielsen
Eugene C. Rainis
A. Heaton Robertson 40 Water Street
Boston, Massachusetts 02109
Jeffrey A. Schoenfeld
Stokley P. Towles 40 Water Street
Boston, Massachusetts 02109
Lawrence C. Tucker
Maarten van Hengel
Douglas C. Walker 1531 Walnut Street
Philadelphia, Pennsylvania 19102
Laurence F. Whittemore
Richard H. Witmer, Jr.
<PAGE>
20
INDEX TO EXHIBITS
Page
EXHIBIT DESCRIPTION NUMBER
------- ----------- ------
1 Purchase Agreement
2 Registration Rights Agreement
3 Voting Agreement
4 Form of Warrant
5 Form of Note
Exhibit 1
================================================================================
SECURITIES PURCHASE AGREEMENT
By and Among
NATIONAL AUTO FINANCE COMPANY, INC.,
THE 1818 MEZZANINE FUND, L.P.,
PC INVESTMENT COMPANY,
PROGRESSIVE INVESTMENT COMPANY, INC.
and
MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
------------------------------
Dated December 22, 1997
------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS...............................................1
1.1 Definitions...............................................1
1.2 Accounting Terms; Financial Covenants....................15
ARTICLE 2 PURCHASE AND SALE........................................16
2.1 Purchase and Sale of Senior Subordinated Notes, Warrants
and Shares...............................................16
2.2 Fees.....................................................16
2.3 Closing..................................................17
ARTICLE 3 CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO CLOSE......................................17
3.1 Representations and Warranties True......................17
3.2 Compliance with this Agreement...........................17
3.3 Officer's Certificate....................................18
3.4 Secretary's Certificate..................................18
3.5 Documents................................................18
3.6 Purchase Permitted by Applicable Laws; Legal Investment..18
3.7 Opinion of Counsel.......................................18
3.8 Approval of Counsel to the Purchaser.....................18
3.9 Consents and Approvals...................................18
3.10 No Material Adverse Change...............................19
3.11 Employment Agreements....................................19
3.12 Registration Rights Agreement............................19
3.13 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries.....................................19
3.14 Market Conditions........................................19
3.15 No Default or Breach.....................................19
3.16 Fees.....................................................19
3.17 Morgan...................................................19
3.18 Termination of Other Registration Rights Agreements......20
3.19 Credit Agreement Waiver..................................20
3.20 Simultaneous Purchases...................................20
3.21 Subordination............................................20
3.22 National Auto Finance Company, L.P.......................20
3.23 Confirmation from Nasdaq National Market.................20
ARTICLE 4 CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE ......................................21
4.1 Representations and Warranties True......................21
i
<PAGE>
PAGE
4.2 Compliance with this Agreement...........................21
4.3 Approval of Counsel to the Company.......................21
4.4 Consents and Approvals...................................21
4.5 Amendments of Registration Rights Agreements.............21
4.6 Credit Agreement Waiver..................................21
4.7 General Partner's Certificate............................22
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF
THE COMPANY..............................................22
5.1 Corporate Existence and Power............................22
5.2 Corporate Authorization; No Contravention................22
5.3 Governmental Authorization; Third Party Consents.........23
5.4 Binding Effect...........................................23
5.5 No Legal Bar.............................................23
5.6 Litigation...............................................24
5.7 No Default or Breach.....................................24
5.8 Title to Properties......................................24
5.9 Financial Condition; No Undisclosed Liabilities..........24
5.10 No Material Adverse Change...............................25
5.11 Investment Company.......................................25
5.12 Subsidiaries.............................................25
5.13 Capitalization...........................................25
5.14 Solvency.................................................26
5.15 Private Offering.........................................26
5.16 Broker's, Finder's or Similar Fees.......................26
5.17 Full Disclosure..........................................26
5.18 Anti-Dilution Protection.................................27
5.19 Registration Rights Agreements...........................27
5.20 Labor Relations..........................................27
5.21 ERISA and Employee Benefit Plans.........................27
5.22 Environmental Matters....................................28
5.23 Taxes....................................................28
5.24 Patents, Trademarks, Etc.................................29
5.25 Potential Conflicts of Interest..........................30
5.26 Trade Relations..........................................30
5.27 Indebtedness.............................................30
5.28 Material Contracts.......................................30
5.29 Insurance................................................31
5.30 Projections..............................................31
5.31 Commission Documents.....................................31
5.32 Lending Activities.......................................31
ii
<PAGE>
PAGE
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER............................................32
6.1 Existence and Power......................................32
6.2 Authorization; No Contravention..........................32
6.3 Binding Effect...........................................32
6.4 No Legal Bar.............................................33
6.5 Purchase for Own Account.................................33
6.6 Investment Company.......................................34
6.7 Broker's, Finder's or Similar Fees.......................34
ARTICLE 7 INDEMNIFICATION..........................................34
7.1 Indemnification by the Company...........................34
7.2 Notification.............................................35
7.3 Registration Rights Agreement............................36
ARTICLE 8 PRE-CLOSING AFFIRMATIVE COVENANTS........................36
8.1 Operation of Company.....................................36
8.2 Exclusivity..............................................36
ARTICLE 9 AFFIRMATIVE COVENANTS....................................36
9.1 Financial Statements.....................................36
9.2 Certificates; Other Information..........................37
9.3 Preservation of Corporate Existence......................38
9.4 Payment of Obligations...................................38
9.5 Compliance with Laws.....................................38
9.6 Notices..................................................39
9.7 Issue Taxes..............................................39
9.8 Reservation of Shares....................................39
9.9 Inspection...............................................40
9.10 Board Representation; Visitation Rights..................41
9.11 Registration and Listing.................................42
9.12 Use of Proceeds..........................................42
9.13 Payment of Notes.........................................43
9.14 Sale of Company..........................................43
9.15 Allocation for Tax Purposes..............................43
9.16 Information on Internal Rate of Return...................43
ARTICLE 10 NEGATIVE AND FINANCIAL COVENANTS.........................44
10.1 Minimum Consolidated Net Worth...........................44
10.2 Adjusted Interest Expense................................44
10.3 Consolidations and Mergers...............................44
10.4 Transactions with Affiliates.............................45
10.5 No Inconsistent Agreements...............................45
10.6 Limitation on Indebtedness...............................45
iii
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PAGE
10.7 Limitation on Liens......................................46
10.8 Investments..............................................47
10.9 Limitations on Restricted Payments.......................48
10.10 Dispositions of Assets...................................48
10.11 Future Issuances of Preferred Stock......................49
10.12 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries.....................................49
10.13 Line of Business.........................................49
10.14 Vehicle Loan Policy......................................49
ARTICLE 11 DEFAULTS AND REMEDIES....................................49
11.1 Events of Default........................................49
11.2 Acceleration.............................................51
ARTICLE 12 SUBORDINATION............................................52
12.1 Definitions..............................................52
12.2 General..................................................53
12.3 Limitation on Payment and Remedies.......................53
12.4 Subordination Upon Certain Events........................55
12.5 Payments and Distributions Received......................55
12.6 Subrogation..............................................55
12.7 Relative Rights..........................................56
12.8 Subordination May Not Be Impaired by the Company.........56
12.9 Payments.................................................56
12.10 Section Not to Prevent Events of Default.................56
12.11 Defense to Enforcement...................................56
12.12 Further Covenants........................................57
12.13 Freedom of Dealing.......................................57
12.14 Subordinated Indebtedness Voting Rights..................57
12.15 Subordinated Indebtedness Unsecured......................58
12.16 Modification or Sale of the Subordinated Indebtedness....58
12.17 Termination of Subordination.............................58
12.18 Notices to Holders of Senior Indebtedness................59
ARTICLE 13 PREPAYMENT...............................................59
ARTICLE 14 MISCELLANEOUS............................................59
14.1 Survival of Provisions...................................59
14.2 Notices..................................................60
14.3 Successors and Assigns...................................61
14.4 Assignments..............................................62
14.5 Amendment and Waiver.....................................63
14.6 Counterparts.............................................64
14.7 Headings.................................................64
iv
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PAGE
14.8 Determinations...........................................64
14.9 Governing Law............................................64
14.10 Jurisdiction.............................................64
14.11 Severability.............................................65
14.12 Rules of Construction....................................65
14.13 Remedies.................................................65
14.14 Entire Agreement.........................................65
14.15 Attorneys' Fees..........................................65
14.16 Publicity................................................66
14.17 Expenses.................................................66
EXHIBITS
Exhibit A Form of Senior Subordinated Note
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Legal Opinion of Weil, Gotshal & Manges
Exhibit E Form of Legal Opinion of In-House Counsel
SCHEDULES
Schedule 2.1A List of Purchasers and Principal Amount
Schedule 2.1B List of Purchasers and Warrants
Schedule 2.1C List of Purchasers and Shares
Schedule 5.10 Material Adverse Change
Schedule 5.13 Capitalization Matters
Schedule 5.21 ERISA
Schedule 5.25 Potential Conflicts of Interest
Schedule 5.27 Indebtedness
Schedule 5.28 Material Contracts
Schedule 5.29 Insurance
Schedule 5.30 Projections
Schedule 5.32(b) Current Policies Regarding Purchase of
Retail Installment Vehicle Loans
Schedule 10.4 Transactions with Affiliates
Schedule 10.7 Liens
Schedule 10.8A Investments
v
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of December 22, 1997, by and
among NATIONAL AUTO FINANCE COMPANY, INC., a corporation organized under the
laws of Delaware (the "COMPANY"), THE 1818 MEZZANINE FUND, L.P., a limited
partnership organized under the laws of Delaware (the "FUND"), PC INVESTMENT
COMPANY, a corporation organized under the laws of Delaware ("PCI"), PROGRESSIVE
INVESTMENT COMPANY, INC., a corporation organized under the laws of Delaware
("PROGRESSIVE," and together with PCI, the "PROGRESSIVE ENTITIES"), and
MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.), a corporation organized under the
laws of Michigan ("ML," and together with the Fund and the Progressive Entities,
the "PURCHASERS").
WHEREAS, the Company proposes to issue and sell (A) to the Fund, PCI
and ML (i) Senior Subordinated Promissory Notes with a final maturity of
December 22, 2004 in the aggregate principal amount of $40,000,000.00 (the
"SENIOR SUBORDINATED NOTES" and, together with all notes issued in connection
with the substitution, replacement or transfer thereof, the "NOTES") and (ii)
1,038,924 detachable warrants (the "WARRANTS") exercisable immediately to
purchase initially 1,038,924 shares of the Company's Common Stock, par value
$.01 per share (the "COMMON STOCK"), at an exercise price of $.01 per share and
(B) to the Fund and Progressive, 1,904,762 shares (the "SHARES") of the
Company's Common Stock, in each case upon the terms and subject to the
conditions set forth in this Agreement.
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"AFFILIATE" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
"AGREEMENT" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"BBH & CO." means Brown Brothers Harriman and Co., a New York
limited partnership.
<PAGE>
2
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, any obligation
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of the Notes, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"CAPITAL STOCK" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"CLOSING" has the meaning assigned to that term in Section 2.3.
"CLOSING DATE" has the meaning assigned to such term in Section 2.3.
"CLOSING PRICE" means, for any day, the last reported sale price or,
in case no such sale takes place on such day, the highest reported bid quotation
for the Common Stock, in either case as reported on Nasdaq's automatic quotation
system.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"COMMISSION" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"COMMON STOCK" has the meaning assigned to that term in the first
Whereas clause.
"CONSOLIDATED NET WORTH" means, as of the date of determination with
respect to any Person, the consolidated stockholders' equity (excluding any
reductions resulting from mergers accounted for as a pooling-of-interests in
accordance with GAAP) of such Person and its Subsidiaries, determined in
accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, as of the date of
determination with respect to the Company, the Consolidated Net Worth of the
Company PLUS the aggregate amount of Junior Subordinated Indebtedness of the
Company MINUS the total book value of all assets of the Company and its
Subsidiaries properly classified as intangible assets under GAAP.
<PAGE>
3
"CONSOLIDATED TOTAL INTEREST EXPENSE" means for any period, the
aggregate amount of (a) interest scheduled to be paid or accrued by the Company
and its Subsidiaries during such period on all Funded Debt of the Company and
its Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of Capital
Lease Obligations PLUS (b) the net amount payable (or minus the net amount
receivable) under Rate Hedging Agreements during such period (whether or not
actually paid or received during such period) PLUS (c) dividends to be paid or
declared by the Company and its Subsidiaries during such period on all shares of
Preferred Stock and its Subsidiaries outstanding during all or any part of such
period.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty or other obligation (each a "PRIMARY OBLIGATION") of another
Person (the "PRIMARY OBLIGOR"), whether or not contingent, including, without
limitation, any agreement (a) to purchase, repurchase or otherwise acquire any
such primary obligation or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor in respect of any such primary obligation or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of such primary obligor, or (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor in respect
thereof to make payment of such primary obligation, or (d) otherwise to assure
or hold harmless the owner of any such primary obligation against loss or
failure or inability to perform in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof.
"CONTRACTUAL OBLIGATIONS" means as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"CREDIT AGREEMENT" means the Revolving Credit Agreement, dated as of
September 29, 1997, among the Company, the financial institutions party thereto
(the "BANKS") and BankBoston, N.A., a national banking association, as agent for
the Banks (the "AGENT"), as well as the notes, security documents and other
agreements entered into in connection therewith, each as amended, supplemented
or modified from time to time in accordance with its terms and including any
extensions, replacements, refinancings or refundings thereof, whether with same
or different lenders and/or agents and evidenced by one or more agreements.
<PAGE>
4
"CURRENT MARKET PRICE" has the meaning assigned such term in the
Warrants.
"CURRENT POLICIES REGARDING PURCHASE OF RETAIL INSTALLMENT VEHICLE
LOANS" means the Company's policies regarding the origination and purchase of
such retail installment car loans in the form of SCHEDULE 5.32(B) hereto, as
such policies may be amended, restated, supplemented, or otherwise modified from
time to time.
"DEFAULT" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"DISPOSITION" means any sale, lease, transfer or other disposition
by the Company or its Subsidiaries of their properties, assets, rights, licenses
and franchises to any Person (including, without limitation, dispositions in
exchange for similar assets and properties and commonly referred to as "asset
swaps").
"EBIT" shall mean, with respect to any Person for any period, the
sum of (a) Net Income for such period (excluding therefrom, to the extent
included in determining Net Income, any items of extraordinary gain (or loss),
including net gains (or losses) on sale of assets other than asset sales in the
ordinary course of business), (b) Consolidated Total Interest Expense deducted
from revenue in determining such Net Income and (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income.
All references contained herein to EBIT of the Company shall be to the EBIT of
the Company and its Subsidiaries, determined on a consolidated basis.
"ENVIRONMENT" means navigable waters, waters of the contiguous zone,
ocean waters, natural resources, surface waters, ground water, drinking water
supply, land surface, subsurface strata, ambient air, both inside and outside of
buildings and structures, man-made buildings and structures, and plant and
animal life on earth.
"ENVIRONMENTAL CLAIMS" means any notification, whether direct or
indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of the Company or any of its Subsidiaries, or any by-product thereof,
or any of the property currently or formerly owned, leased or operated by the
Company or any of its Subsidiaries, or the operations or property of any
predecessor of the Company or any of its Subsidiaries, is or may be implicated
in or subject to any claim, Requirement of Law, hearing, notice, agreement or
evaluation by any Governmental Authority or any other Person.
"ENVIRONMENTAL COMPLIANCE COSTS" means any expenditures, costs,
assessments or expenses (including any expenditures, costs, assessments or
expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether
<PAGE>
5
direct or indirect, necessary to cause the operations, real property, assets,
equipment or facilities owned, leased, operated or used by the Company or any of
its Subsidiaries to be in compliance with any and all requirements, as in effect
at the Closing Date, of Safety and Environmental Laws, principles of common law
concerning pollution, protection of the Environment or health and safety, or
Permits issued pursuant to Safety and Environmental laws; PROVIDED, HOWEVER,
that Environmental Compliance Costs do not include expenditures, costs,
assessments or expenses necessary in connection with normal maintenance of such
real property, assets, equipment or facilities or the replacement of equipment
in the normal course of events due to ordinary wear and tear.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EVENT OF DEFAULT" has the meaning assigned such term in
Section 11.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission hereunder.
"EXISTING JUNIOR SUBORDINATED INDEBTEDNESS" shall mean the Junior
Subordinated Indebtedness of the Company existing as of the date hereof and
evidenced by the Gurba Note, NFC Note, Nova Note, Otto Note and Shapiro Note.
"EXISTING SECURITIZATION TRANSACTION" means the securitization
program in existence as of the Closing Date comprised of the Company's sale,
assignment, pledge or contribution of some of its Vehicle Loans to a Special
Purpose Subsidiary as part of a securitization of such Vehicle Loans.
"FINANCIALS" has the meaning assigned to that term in Section 5.9.
"FISCAL YEAR" means the fiscal year for the Company. As of the date
of this Agreement, the fiscal year for the Company ends December 31.
"FSA REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated October 1, 1997, between the Company and FSA Portfolio
Management, Inc.
"FUND" has the meaning assigned to that term in the preamble of this
Agreement.
"FUNDED DEBT" means with respect to any Person and as at any date of
determination thereof, without duplication, (a) all Indebtedness of such Person
as at such date for money borrowed, (b) the principal component of all Capital
Lease Obligations, (c) all Indebtedness for the deferred purchase price of
property or services represented by a note or other security (other than in
respect of any trade
<PAGE>
6
payable) or other Indebtedness arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), and
(d) all Indebtedness of such Person secured by a purchase money mortgage or
other lien to secure all or part of the purchase price of property subject to
such mortgage or lien.
"GAAP" means generally accepted United States accounting principles
in effect from time to time.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"GURBA NOTE" means the Amended and Restated Promissory Note, dated
as of January 3, 1997, issued by National Auto Finance Company, L.P., to Stephen
L. Gurba in the aggregate principal amount, as of July 1, 1997, of $34,387 and
maturing on January 31, 2002, as assigned to, and assumed by the Company,
including the same as such may be amended, supplemented or modified from time to
time in accordance with its terms and the terms hereof.
"HAZARDOUS SUBSTANCE" means any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance or waste, petroleum or petroleum-derived substance or waste,
radioactive substance or waste, or any constituent of any such substance or
waste, or any other substance regulated under or defined by any Safety and
Environmental Law.
"HOLDER" means the Purchasers and any subsequent transferee or
transferees of Notes, Warrants, Warrant Shares or Shares, as reflected on the
books and records of the Company, other than a transferee who has acquired
Notes, Warrants, Warrant Shares or Shares that have been the subject of a
distribution pursuant to a registered public offering, or, in the case of Notes,
Warrants, Warrant Shares or Shares, a transferee who has acquired such Notes,
Warrants, Warrant Shares or Shares after such securities have been sold pursuant
to Rule 144 under the Securities Act or otherwise distributed under
circumstances not requiring a legend.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"INDEBTEDNESS" means as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all obligations to pay the
deferred purchase
<PAGE>
7
price of property or services, except trade accounts payable and accrued
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps and similar agreements under which payments are obligated to
be made, whether periodically or upon the happening of a contingency, (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations under Capital Lease Obligations, (g) all indebtedness secured by
any Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is non-recourse to the credit of that Person, and (h) any Contingent
Obligation.
"INTERCOMPANY INDEBTEDNESS" means Indebtedness of the Company to any
Subsidiary, directly or indirectly, wholly owned by the Company and Indebtedness
of any Subsidiary of the Company to the Company or another Subsidiary of the
Company.
"INTERIM FINANCIALS" has the meaning assigned to such term in
Section 5.9.
"INVESTMENT" means (i) the acquisition (whether for cash, property,
services, securities or otherwise) of Capital Stock, bonds, notes, debentures,
partner ship or other ownership interests or other securities of any other
Person or any agreement to make any such acquisition; and (ii) the making of any
advance, loan or other extension of credit to, any Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such Person, but
excluding any accounts receivable created in the ordinary course of business).
"JUNIOR SECURITIES" has the meaning assigned to such term in
Section 12.1.
"JUNIOR SUBORDINATED INDEBTEDNESS" shall mean Indebtedness that is
expressly subordinated and made junior to the payment and performance in full of
the Notes, has a Stated Maturity later than December 19, 2004, and is evidenced
as such by a written instrument containing subordination provisions in form and
substance approved by the holders of a majority in interest of the aggregate
principal amount of the Notes whose consent shall not be unreasonably withheld;
PROVIDED that any such subordination provisions shall be deemed reasonable so
long as the holder of the Junior Subordinated Indebtedness agrees to be
subordinated to the Notes at least to the same extent as the Existing Junior
Subordinated Indebtedness is subordinated to the Notes pursuant to the Junior
Subordination Agreement (except that nothing contained in this proviso shall be
deemed to permit the Stated Maturity of any such Junior Subordinated
Indebtedness to be earlier than December 20, 2004). Notwithstanding anything to
the contrary contained in the foregoing, however, Junior Subordinated
<PAGE>
8
Indebtedness shall be deemed to include the Existing Junior Subordinated
Indebtedness even though the Stated Maturity of such Indebtedness is January 31,
2002. The fact that the Stated Maturity of the Existing Junior Subordinated
Indebtedness is January 31, 2002 shall not be deemed to be a violation of the
terms of this Agreement.
"JUNIOR SUBORDINATION AGREEMENT" means the Junior Subordination
Agreement, dated as of the date hereof, among the Purchasers, Bank Boston, N.A.,
a national banking association, as agent for the Banks, other "Senior Creditors"
identified on the signature pages thereto and "Subordinating Creditors" as
identified on Schedule I thereto, including the same as such may be amended,
supplemented or modified from time to time.
"LIABILITIES" has the meaning assigned to such term in Section 5.9.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock or equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, any interest of a
lessor under a capital lease, or any financing lease having substantially the
same economic effect as any of the foregoing.
"MATERIAL ADVERSE EFFECT" has the meaning assigned to such term in
Section 3.10.
"ML" has the meaning assigned to that term in the preamble of this
Agreement.
"MORGAN NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement,
dated as of August 9, 1996, among the Company as successor by assumption to
National Auto Finance Company, L.P. and the "Purchasers" identified on the
signature pages thereto, including the same as such may be amended, supplemented
or modified from time to time.
"MORGAN REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated August 9, 1996, among the Company as successor by assumption to
National Auto Finance Company, L.P. and the "Investors" identified on Schedule I
thereto.
"NASDAQ" means the National Market System of Nasdaq Stock Market.
"NET INCOME" shall mean for any period, the net income (loss) of any
Person, determined in accordance with GAAP, after deducting all operating
expenses, provisions for taxes and reserves and all other proper deductions in
accordance with GAAP. All references contained herein to the Net Income of the
Company shall be
<PAGE>
9
to the Net Income of the Company and its Subsidiaries, determined on a
consolidated basis.
"NET SALE PROCEEDS" means with respect to any Disposition, the
aggregate amount of all cash payments received by the Company or its
Subsidiaries, directly or indirectly, in connection with such Disposition,
whether at the time thereof or after such Disposition under deferred payment
arrangements or Investments entered into or received in connection with such
Disposition, MINUS the aggregate amount of any reasonable and customary legal,
accounting, regulatory, title and recording tax expenses, transfer taxes,
commissions and other fees and expenses paid at any time by the Company or its
Subsidiaries in connection with such Disposition, and MINUS any cash income
taxes payable by the Company and its Subsidiaries in connection with such
Disposition. For purposes of this paragraph, the Company shall not be deemed to
have received any amounts held in escrow by a third party in connection with a
Disposition until the time, and only to the extent, such amounts are released to
the Company.
"NFC NOTE" means the Amended and Restated Promissory Note, dated as
of January 3, 1997, issued by National Auto Finance Company, L.P. to Nova
Financial Corporation in the aggregate principal amount, as of July 1, 1997, of
$27,789 and maturing on January 31, 2002, as assigned to, and assumed by the
Company, including the same as such may be amended, supplemented or modified
from time to time in accordance with its terms and the terms hereof.
"NOTES" has the meaning assigned to that term in the first Whereas
clause.
"NOVA NOTE" means the Amended and Restated Promissory Note, issued
by National Auto Finance Company, L.P. to Nova Corporation in the aggregate
principal amount, as of July 1, 1997, of $497,383 and maturing on January 31,
2002, as assigned to, and assumed by, the Company, including the same as such
may be amended, supplemented or modified from time to time in accordance with
its terms and the terms hereof.
"NYSE" means the New York Stock Exchange, Inc.
"OMNI" means Omni Financial Services of America, Inc., as assignee
of World Omni Financial Corporation, a Florida corporation.
"OMNI AGREEMENT" means the Fourth Amendment to the Amended and
Restated Servicing Agreement, dated as of October 12, 1997, by and between Omni
Financial Services of America, Inc. and National Auto Finance Company, Inc.
"OTTO NOTE" means the Amended and Restated Promissory Note, dated as
of January 3, 1997, issued by National Auto Finance Company, L.P. to Edgar Otto
in the aggregate principal amount, as of July 1, 1997, of $980,895 and maturing
on
<PAGE>
10
January 31, 2002, as assigned to, and assumed by, the Company, including the
same as such may be amended, supplemented or modified from time to time in
accordance with its terms and the terms hereof.
"PCI" has the meaning assigned to that term in the preamble of this
Agreement.
"PERMIT" means any license, permit, exemption, consent, waiver,
authorization, right, order or approval of, and required registration with, any
Governmental Authority.
"PERMITTED LIENS" has the meaning assigned to that term in Section
10.7.
"PERMITTED REFINANCING INDEBTEDNESS" means Junior Subordinated
Indebtedness issued in exchange for, or the net proceeds of which are used to
extend, refinance, replace, defease or refund any other Junior Subordinated
Indebtedness of the Company permitted to be incurred under this Agreement, but
only to the extent that such Indebtedness does not shorten the Stated Maturity
(or weighted average life to maturity) of such Indebtedness.
"PERMITTED SECURITIZATION TRANSACTION" means (a) the Existing
Securitization Transaction and (b) any similar transaction (including any whole
loan sales or similar transactions in the ordinary course of business) hereafter
entered into by the Company or any of its Subsidiaries provided that at the time
such similar transaction is consummated no Default or Event of Default shall
have occurred and be continuing or would occur immediately after giving effect
thereto.
"PERSON" means any individual, firm, corporation, division, part
nership, trust, incorporated or unincorporated association, joint venture, joint
stock company, Governmental Authority or other entity of any kind, and shall
include any successor (by merger or otherwise) of any such entity.
"PREDECESSOR FINANCIALS" has the meaning assigned to that term in
Section 5.9.
"PREFERRED STOCK" means any Capital Stock of a Person, however
designated, which entitles the holders thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"PROGRESSIVE" has the meaning assigned to that term in the preamble
of this Agreement.
"PROGRESSIVE ENTITIES" has the meaning assigned to that term in the
preamble of this Agreement.
<PAGE>
11
"PROXY STATEMENT" has the meaning assigned to that term in Section
8.3.
"PUBLIC OFFERING" means the sale in any offering by the Company or
any of its Subsidiaries of their Capital Stock pursuant to a registration
statement on Form S-1, Form S-3 or otherwise under the Securities Act.
"PURCHASE PRICE" shall mean the Unit Purchase Price PLUS the Stock
Purchase Price.
"PURCHASER SHARES" means, with respect to the Fund and the
Progressive Entities, the sum of the shares of Common Stock initially issuable
upon exercise of the Warrants (subject to any adjustments pursuant to the terms
thereof) plus the Shares and, with respect to ML, the shares of Common Stock
initially issuable upon exercise of the Warrants (subject to any adjustments
pursuant to the terms thereof) in each case issued thereto pursuant to this
Agreement.
"PURCHASERS" has the meaning assigned to that term in the preamble
of this Agreement.
"RATE HEDGING AGREEMENTS" means any written agreements evidencing
Rate Hedging Obligations.
"RATE HEDGING OBLIGATIONS" means any and all obligations of the
Company or any of its Subsidiaries, whether direct or indirect and whether
absolute or contingent, at any time created, arising, evidenced or acquired
(including all renewals, extensions, modifications and amendments thereof and
all substitutions therefor), in respect of: (a) any and all agreements,
arrangements, devices and instruments designed or intended to protect at least
one of the parties thereto from the fluctuations of interest rates, exchange
rates or forward rates applicable to such party's assets, liabilities or
exchange transactions, including without limitation dollar-denominated or cross
currency interest rate exchange agreements, forward rate currency or interest
rate options, puts and warrants and so-called "rate swap" agreements; and (b)
any and all cancellations, buy-backs, reversals, terminations or assignments of
any of the foregoing.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT C, as the same
may be amended or modified from time to time in accordance with its terms.
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
or through the indoor or outdoor Environment or into, through or out of any
property, including the movement of Hazardous Substances through or in the air,
soil, surface water, ground water or property.
<PAGE>
12
"REMEDIAL ACTION" means all actions, whether voluntary or
involuntary, reasonably necessary to comply with, or discharge any obligation
under, Safety and Environmental Laws to (i) clean up, remove, treat, cover or in
any other way adjust Hazardous Substances in the indoor or outdoor Environment;
(ii) prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; or (iii) perform remedial studies, investigations, restoration and
post-remedial studies, investigations and monitoring on, about or in any real
property.
"REQUIREMENTS OF LAW" means, as to any Person, any law, treaty, rule
or regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"RESTRICTED PAYMENT" means (a) any dividend (or other distribution
of evidences of Indebtedness, assets or other property) on any share of the
Company's or any Subsidiary's Capital Stock (except dividends payable solely in
shares of their Capital Stock or dividends paid to the Company or a wholly-owned
Subsidiary of the Company by a wholly-owned direct or indirect Subsidiary of the
Company) or (b) any payment by the Company or any of its Subsidiaries on account
of the direct or indirect purchase, redemption, retirement or other acquisition
of (i) any shares of the Company's or any such Subsidiary's Capital Stock
(except (x) the Warrants and (y) shares acquired upon the conversion, exchange
or exercise thereof into or for other shares of their Capital Stock), or (ii)
any Indebtedness of the Company or any such Subsidiary prior to any date set
forth for mandatory repayment or redemption of principal or interest thereon;
PROVIDED, HOWEVER, that this clause (ii) shall not apply to (w) Indebtedness
incurred pursuant to the Notes, (x) Senior Indebtedness, (y) Indebtedness that
is pari passu in right of payment to the Notes, to the extent that the Company
offers to purchase, redeem or retire the Notes pro rata with such pari passu
Indebtedness or (z) Permitted Refinancing Indebtedness in respect of Junior
Subordinated Indebtedness (other than Existing Junior Subordinated
Indebtedness)).
"SAFETY AND ENVIRONMENTAL LAWS" means all Requirements of Law
relating to pollution, protection of the Environment, public or worker health
and safety, or the emission, discharge, release or threatened release of
Hazardous Substances into the Environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 ET
SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 ET SEQ.,
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 ET SEQ., the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ., the Federal Insecticide, Fungicide anD Rodenticide Act, 7
U.S.C. ss. 121 ET SEQ., the Occupational Safety and Health Act, 29 U.S.C. ss.
651 ET SEQ., the Asbestos Hazard Emergency Response Act, 15 U.S.C. ss. 2601 ET
SEQ., the Safe Drinking Water Act, 42 U.S.C. ss. 300f ET SEQ., the Oil
<PAGE>
13
Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ., and analogous legislation and
regulation by any Governmental Authority.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"SENIOR DEFAULT" has the meaning assigned to such term in
Section 12.1.
"SENIOR EVENT OF DEFAULT" has the meaning assigned to such term in
Section 12.1.
"SENIOR INDEBTEDNESS" has the meaning assigned to such term in
Section 12.1.
"SENIOR PAYMENT DEFAULT" has the meaning assigned to such term in
Section 12.1.
"SENIOR SUBORDINATED NOTES" has the meaning assigned to such term in
the first Whereas clause.
"SERIES A PREFERRED STOCK" means the Company's Series A Preferred
Stock, $.01 par value per share.
"SHAPIRO NOTE" means the Amended and Restated Promissory Note, dated
as of January 3, 1997, issued by National Auto Finance Company, L.P. to Gary L.
Shapiro in the aggregate principal amount of $436,846 and maturing on January
31, 2002, as assigned to, and assumed by, the Company, including the same as
such may be amended, supplemented or modified from time to time in accordance
with its terms and the terms hereof.
"SHARES" has the meaning assigned to such term in the first Whereas
clause, as the same may be adjusted appropriately for any stock dividend, stock
split, reclassification or other similar event.
"SOLVENT" means, as to any Person, that the fair saleable value on a
going concern basis of the assets and property of such Person and its
Subsidiaries, taken as a whole, is, on the date of determination, greater than
the total amount of liabilities (including contingent and unliquidated
liabilities) of such Person as of such date and that, as of such date, such
Person is able to pay all liabilities of such Person as such liabilities mature.
In computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed as the amount which, in light of all the facts
and circumstances existing at such time, represents the amount that is probable
to become an actual or matured liability.
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14
"SPECIAL PURPOSE SUBSIDIARY" means any special purpose entity
including, without limitation, a wholly-owned Subsidiary of the Company or
trust, established in connection with a Permitted Securitization Transaction.
"STATED MATURITY" means, with respect to any Junior Subordinated
Indebtedness, the date on which the payment of the principal thereon is due and
payable, including pursuant to any mandatory redemption provision.
"STOCK PURCHASE PRICE" has the meaning assigned to such term in
Section 2.1(b).
"STOCK PURCHASERS" means, collectively, the Fund and Progressive.
"SUBORDINATED INDEBTEDNESS" has the meaning assigned to such term in
Section 12.1.
"SUBSIDIARY" means, with respect to any Person, a corporation or
other entity of which 50% or more of the voting power for the election of
directors under ordinary circumstances is exercisable, directly or indirectly,
by such Person; PROVIDED that the term Subsidiary shall not include a Special
Purpose Subsidiary.
"TAX" or "TAXES" means all federal, state, county, local, foreign
and other taxes (including, without limitation, income, profits, premium,
estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll-related and property taxes, import duties and
other governmental charges and assessments), whether or not measured in whole or
in part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with any proposed adjustment relating to any of the foregoing (including advice
in connection with contesting such adjustment).
"TEMPORARY CASH INVESTMENT" means any Investment in (i) marketable
direct or guaranteed obligations of the United States of America that mature
within one (1) year from the date of purchase by the Company; (ii) demand
deposits in, or certificates of deposit, bankers acceptances and time deposits
of United States banks having total assets in excess of $1,000,000,000; and
(iii) securities commonly known as "commercial paper" issued by a corporation
organized and existing under the laws of the United States of America or any
state thereof that at the time of purchase have been rated and the ratings for
which are not less than "P 1" by Moody's Investors Services, Inc., or not less
than "A 1" by Standard and Poor's.
"TOTAL INDEBTEDNESS" shall mean Funded Debt of the Company and its
Subsidiaries on a consolidated basis LESS Junior Subordinated Indebtedness.
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15
"TRANSACTION DOCUMENTS" has the meaning assigned to that term in
Section 5.17.
"UNIT PURCHASE PRICE" has the meaning assigned to that term in
Section 2.1(a).
"VEHICLE LOAN" means a motor vehicle installment sales contract
assigned to the Company that is secured by title to, security interests in, or
liens on a motor vehicle under applicable provisions of the motor vehicle or
other similar law of the jurisdiction in which the motor vehicle is title and
registered by the purchaser at the time the contract is originated or purchased.
"VOIDED PAYMENT" has the meaning assigned to that term in
Section 12.17.
"WARRANTS" has the meaning assigned to that term in the first
Whereas clause.
"WARRANT SHARES" has the meaning assigned to that term in
Section 5.13.
1.2 ACCOUNTING TERMS; FINANCIAL COVENANTS. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis. If any changes in
accounting principles are hereafter occasioned by promulgation of rules,
regulations, pronouncements or opin ions by or are otherwise required by the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions),
and any of such changes results in a change in the method of calculation of, or
affects the results of such calculation of, any of the financial cove nants,
standards or terms found herein, then the parties hereto agree to enter into and
diligently pursue in good faith negotiations in order to amend such financial
covenants, standards or terms so as to reflect fairly and equitably such
changes, with the desired result that the criteria for evaluating the Company's
financial condition and results of operations shall be the same as nearly as
practicable after such changes as if such changes had not been made.
<PAGE>
16
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF SENIOR SUBORDINATED NOTES, WARRANTS AND
SHARES.
(a) Subject to the terms and conditions set forth herein, the
Company agrees that it will issue to each of the Fund, PCI and ML, and each of
the Fund, PCI and ML agrees that it will acquire from the Company, at the
Closing, (i) the principal amounts of the Senior Subordinated Notes set forth
opposite the name of such Purchaser on SCHEDULE 2.1A hereto, with such Senior
Subordinated Notes being substantially in the form attached hereto as EXHIBIT A,
appropriately completed in conformity herewith and (ii) Warrants to purchase
initially the number of shares of Common Stock set forth opposite the name of
such Purchaser on SCHEDULE 2.1B hereto, with such Warrants being substantially
in the form attached hereto as EXHIBIT B, for its portion of the aggregate
purchase price of $40,000,000 (the "UNIT PURCHASE PRICE") set forth next to such
Purchaser's name on SCHEDULE 2.1A, in cash, by wire transfer of immediately
available funds to an account designated in a notice delivered to such
Purchasers not later than two Business Days prior to the Closing Date.
(b) Subject to the terms and conditions set forth herein, the
Company agrees that it will issue to the Stock Purchasers, and each Stock
Purchaser agrees that it will acquire from the Company, at the Closing, the
number of shares of Common Stock set forth opposite the name of such Stock
Purchaser on SCHEDULE 2.1C hereto, for its portion of the aggregate purchase
price of $10,000,000 (the "STOCK PURCHASE PRICE") set forth next to such Stock
Purchaser's name on SCHEDULE 2.1C, in cash, by wire transfer of immediately
available funds to an account designated in a notice delivered to such
Purchasers not later than two Business Days prior to the Closing Date.
2.2 FEES. The Company hereby agrees that it will pay to the Fund,
PCI and ML, at the Closing, a facility fee of $400,000 (less any portion thereof
previously paid by the Company to such Purchasers), payable $160,000 to the
Fund, $140,000 to PCI and $100,000 to ML, and an equity placement fee of
$300,000, payable $257,142.75 to the Fund and $42,857.25 to Progressive, in each
case in cash by wire transfer of immediately available funds to an account
designated in a notice delivered to the Company not later than two Business Days
prior to the Closing Date. At the Company's option, by notice to the Fund, PCI,
Progressive and ML at least two Business Days prior to the Closing Date, such
facility fee and placement fee may be paid by each such Purchaser by deducting
such amount from the Unit Purchase Price.
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2.3 CLOSING.
The purchase and issuance of the Senior Subordinated Notes, the
Warrants and the Shares shall take place at the closing (the "CLOSING") to be
held at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of
the Americas, New York, New York 10019-6064 on December 19, 1997, at 10:00 a.m.,
New York City time, or on such other date and at such other time as the
Purchasers and the Company may mutually agree (the "CLOSING DATE"). At the
Closing, subject to the terms and conditions set forth herein, the Company shall
sell the Senior Subordinated Notes and the Warrants to the Fund, PCI and ML by
delivering to the Fund, PCI and ML, the Senior Subordinated Notes and the
Warrants registered in the names of such Purchasers, with appropriate issue
stamps, if any, affixed at the expense of the Company, free and clear, upon
issuance, of any Lien (other than as may be created by such Purchasers), and
such Purchasers shall, severally and not jointly, purchase the Senior
Subordinated Notes and the Warrants for the Unit Purchase Price. At the Closing,
subject to the terms and conditions set forth herein, the Company shall sell the
Shares to the Stock Purchasers by delivering to the Stock Purchasers the Shares
registered in the name of the Stock Purchasers, with appropriate issue stamps,
if any, affixed at the expense of the Company, free and clear, upon issuance, of
any Lien (other than as may be created by the Stock Purchasers), and the Stock
Purchasers shall, severally and not jointly, purchase the Shares for the Stock
Purchase Price.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Senior Subordinated
Notes, the Warrants and the Shares, as the case may be, to pay the Purchase
Price therefor at the Closing, and to perform any of their obligations hereunder
in respect of transactions contemplated to occur on the Closing Date shall be
subject to the satisfaction or waiver of the following conditions on or before
the Closing Date:
3.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company contained in Article 5 hereof shall be true and
correct in all material respects (unless any representation or warranty is
qualified by its terms as to materiality, in which case such representation or
warranty shall be true and correct) at and as of the Closing Date, as if made at
and as of such date.
3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed
and complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Company on or
before the Closing Date.
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18
3.3 OFFICER'S CERTIFICATE. The Purchasers shall have received a
certificate, dated the Closing Date and signed by the Chief Executive Officer,
Vice Chairman or Chief Financial Officer of the Company, certifying that the
conditions set forth in Sections 3.1 and 3.2 hereof have been satisfied on and
as of such date.
3.4 SECRETARY'S CERTIFICATE. The Purchasers shall have received a
certificate, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, attaching a good standing certificate from the
Delaware Secretary of State with respect to the Company, and certifying the
correctness of attached copies of the certificate of incorporation and by-laws
of the Company and resolutions of the Board of Directors of the Company
approving this Agreement and the transactions contemplated hereby.
3.5 DOCUMENTS. The Purchasers shall have received copies of such
documents as they reasonably may request in connection with the sale of the
Senior Subordinated Notes, the Warrants and the Shares and the transactions
contemplated hereby, all in form and substance reasonably satisfactory to the
Purchasers.
3.6 PURCHASE PERMITTED BY APPLICABLE LAWS; LEGAL INVESTMENT. The
acquisition of and payment for the Senior Subordinated Notes, the Warrants and
the Shares and the consummation of the transactions contemplated hereby (a)
shall not be prohibited by any applicable law or governmental regulation, (b)
shall not subject the Purchasers to any penalty or, in their reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation and (c) shall be permitted by the laws and regulations
of the jurisdictions to which they are subject.
3.7 OPINION OF COUNSEL. The Purchasers shall have received the
opinion of Weil, Gotshal & Manges LLP, counsel to the Company, dated the Closing
Date, substantially in the form attached hereto as EXHIBIT D. The Purchasers
shall have received the opinion of in-house counsel to the Company, dated the
Closing Date, substantially in the form of the attached hereto as EXHIBIT E.
3.8 APPROVAL OF COUNSEL TO THE PURCHASER. All actions and
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Purchasers, as to their form and substance.
3.9 CONSENTS AND APPROVALS. All consents, waivers, exemptions,
authorizations (including, without limitation, stockholder approval), or other
actions by, or notices to, or filings with, Governmental Authorities and other
Persons necessary or required in connection with the execution, delivery or
performance by the Company or enforcement against the Company of this Agreement
or any other Transaction Document shall have been obtained and be in full force
and effect, and the Purchasers shall have been furnished with appropriate
evidence thereof.
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19
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, except as
disclosed in SCHEDULE 5.10, there shall have been no change, that has, or would
have, a material adverse effect on the assets, business, properties, operations
or financial or other condition of the Company and its Subsidiaries, taken as a
whole (a "MATERIAL ADVERSE EFFECT"), nor shall any such change be threatened.
3.11 EMPLOYMENT AGREEMENTS. Each of Roy E. Tipton and William G.
Magro shall have duly executed and delivered employment agreements with the
Company, the terms and conditions of which are reasonably acceptable to the
Purchasers.
3.12 REGISTRATION RIGHTS AGREEMENT. The Company shall have duly
executed and delivered to the Purchasers the Registration Rights Agreement.
3.13 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE COMPANY AND ITS
SUBSIDIARIES. No amendments to the certificate of incorporation or by-laws of
the Company as in effect on the date hereof shall have been effected.
3.14 MARKET CONDITIONS. On or prior to the Closing Date, (a) trading
in securities generally on the NYSE shall not have been suspended or limited or
minimum or maximum prices shall not have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall not have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
Governmental Authority, (b) a general banking moratorium shall not have been
declared by either federal or New York State authorities or (c) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall not have occurred.
3.15 NO DEFAULT OR BREACH. The Company shall not be or have been in
Default under this Agreement, any of the other Transaction Documents or any
Indebtedness and, after giving effect to the transactions contemplated hereby
and thereby, the Company will not be in Default under any of the Transaction
Documents or any Indebtedness.
3.16 FEES. The Company shall have paid or shall concurrently pay to
the Fund, PCI, Progressive and ML the fees provided for in Section 2.2 hereof.
3.17 MORGAN. The Company shall have delivered to the Purchasers, in
form and substance reasonably satisfactory to the Purchasers, evidence that the
Indebtedness incurred under the Morgan Note Purchase Agreement has been repaid
in full by the Company.
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20
3.18 TERMINATION OF OTHER REGISTRATION RIGHTS AGREEMENTS. The
Company shall have delivered to the Purchasers, in form and substance reasonably
satisfactory to the Purchasers, evidence of termination of each of the Morgan
Registration Rights Agreement, the FSA Registration Rights Agreement and Article
VI of the Second Amended and Restated Agreement of Limited Partnership, dated as
of September 1, 1995, of National Auto Finance Company, L.P., and each party to
such agreements shall have executed and delivered the Registration Rights
Agreement.
3.19 CREDIT AGREEMENT WAIVER. The Company shall have delivered to
the Purchasers, in form and substance reasonably satisfactory to the Purchasers,
a waiver of any provisions of the Credit Agreement prohibiting or otherwise
restricting the ability of the Company to enter into and perform its obligations
under this Agreement or any other Transaction Document.
3.20 SIMULTANEOUS PURCHASES. Each Purchaser's obligation to purchase
its agreed upon amount of the Senior Subordinated Notes, the Warrants and the
Shares, as the case may be, is hereby expressly conditioned upon the other
Purchasers simultaneously purchasing their agreed upon amount of the Senior
Subordinated Notes, the Warrants and the Shares, as the case may be.
3.21 SUBORDINATION. The Junior Subordination Agreement, dated as of
September 29, 1997, among BankBoston, N.A., Morgan Guaranty Trust Company of New
York, the Company and the other parties named therein shall have been amended in
form and substance reasonably satisfactory to the Purchasers.
3.22 NATIONAL AUTO FINANCE COMPANY, L.P. The Company shall have
delivered to the Fund and the Progressive Entities, in form and substance
reasonably satisfactory to the Fund and the Progressive Entities, an agreement
duly executed and delivered by National Auto Finance Company, L.P. pursuant to
which it agrees to vote its shares of Common Stock in favor of the Persons to be
nominated to the Company's Board of Directors by each of the Fund and the
Progressive Entities pursuant to the provisions of Section 9.10 hereof.
3.23 CONFIRMATION FROM NASDAQ NATIONAL MARKET. The Company shall
have delivered to the Purchasers, in form and substance reasonably satisfactory
to the Purchasers, written confirmation from The Nasdaq Stock Market evidencing
that no stockholder approval is required in order to close the transactions
contemplated to occur on the Closing Date.
<PAGE>
21
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Senior
Subordinated Notes, the Warrants and the Shares and to perform any of its other
obligations hereunder in respect of transactions contemplated to occur on the
Closing Date, shall be subject to the satisfaction or waiver of the following
conditions on or before the Closing Date:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Purchasers contained in Article 6 hereof shall be true and
correct in all material respects (unless any representation or warranty is
qualified by its terms as to materiality, in which case such representation or
warranty shall be true and correct) at and as of the Closing Date as if made at
and as of such date.
4.2 COMPLIANCE WITH THIS AGREEMENT. The Purchasers shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.
4.3 APPROVAL OF COUNSEL TO THE COMPANY. All actions and proceedings
hereunder and all documents required to be delivered by the Purchasers hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been reasonably acceptable to Weil,
Gotshal & Manges LLP, counsel to the Company, as to their form and substance.
4.4 CONSENTS AND APPROVALS. All consents, exemptions,
authorizations, waivers or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Purchasers or the Company or
enforcement against the Purchasers of this Agreement shall have been obtained
and be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
4.5 AMENDMENTS OF REGISTRATION RIGHTS AGREEMENTS. The parties to
each of the Morgan Registration Rights Agreement, the FSA Registration Rights
Agreement and the Second Amended and Restated Agreement of Limited Partnership,
dated as of September 1, 1995, of National Auto Finance Company, L.P., shall
have agreed to terminate the registration rights granted under each such
agreement and each party to such agreements shall have executed and delivered
the Registration Rights Agreement.
4.6 CREDIT AGREEMENT WAIVER. The Company shall have obtained a
waiver of any provisions of the Credit Agreement prohibiting or otherwise
restricting
<PAGE>
22
the ability of the Company to enter into and perform its obligations under this
Agreement or any other Transaction Document.
4.7 GENERAL PARTNER'S CERTIFICATE. The Company shall have received
from each Purchaser a certificate, dated the Closing Date and signed by the
general partner or an appropriate officer of each such Purchaser, certifying
that the conditions set forth in Sections 4.1 and 4.2 hereof have been satisfied
on and as of such date with respect to such Purchaser.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as
follows:
5.1 CORPORATE EXISTENCE AND POWER. The Company:
(a) is, and after giving effect to the transactions
contemplated by the Transaction Documents, will be duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization;
(b) has, and after giving effect to the transactions
contemplated hereby, will have (i) full corporate power and authority and (ii)
all Permits to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged;
(c) is, and after giving effect to the transactions
contemplated hereby, will be duly qualified as a foreign corporation, licensed
and in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification; and
(d) is, and after giving effect to the transactions
contemplated hereby, will be in compliance with (i) its certificate of
incorporation and by-laws or other organizational or governing documents and
(ii) all Requirements of Law;
except, in the case of (b)(ii), (c) or (d)(ii) of this Section 5.1, to the
extent that the failure to do, or be, so would not have a Material Adverse
Effect.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by the Company of this Agreement, the Registration
Rights Agreement, any other Transaction Document and the transactions
contemplated
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23
hereby and thereby, including without limitation, the issuance of the Senior
Subordinated Notes, the Warrants and the Shares:
(a) is within the Company's corporate power and authority and
has been duly authorized by all necessary corporate action; and
(b) does not, and will not after giving effect to the
transactions contemplated hereby, contravene the terms of the certificate of
incorporation or by-laws or other organizational or governing documents or any
amendment thereof of the Company; and
(c) does not, and will not after giving effect to the
transactions contemplated hereby, violate, conflict with or result in any breach
of, contravention of or the creation of any Lien under, any Contractual
Obligation of the Company or any order or decree directly relating to the
Company.
5.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. No approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority or any other Person, is necessary or required
in connection with the execution, delivery or performance by the Company or
enforcement against the Company of this Agreement, the Senior Subordinated
Notes, the Warrants, the Registration Rights Agreement, any other Transaction
Document or the transactions contemplated hereby or thereby, other than those
that have been obtained or made on or prior to the Closing.
5.4 BINDING EFFECT. This Agreement has been duly executed and
delivered by the Company, and at the Closing the Senior Subordinated Notes, the
Registration Rights Agreement, the Warrants and each other Transaction Document
will be duly executed and delivered by the Company, and this Agreement
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, and at the Closing the
Registration Rights Agreement, the Senior Subordinated Notes and the Warrants
will constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
5.5 NO LEGAL BAR. Neither the execution, delivery and performance of
this Agreement, the Registration Rights Agreement, or any other Transaction
Document nor the issuance of or performance of the terms of the Senior
Subordinated Notes or the Warrants will violate any Requirement of Law.
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24
5.6 LITIGATION. There are no actions, suits, proceedings, claims or
disputes pending, or to the knowledge of the Company, threatened, at law, in
equity, in arbitration or before any Governmental Authority against the Company:
(a) with respect to any Transaction Document or any of the
transactions contemplated thereby; or
(b) which would, if adversely determined, (i) have a Material
Adverse Effect or (ii) have a material adverse effect on the ability of the
Company to perform its obligations under this Agreement, the Senior Subordinated
Notes, the Warrants, the Registration Rights Agreement or any other Transaction
Document. No injunction, writ, temporary restraining order, decree or any order
of any nature has been issued by any court or other Governmental Authority
purporting to enjoin or restrain the execution, delivery and performance of this
Agreement, the Senior Subordinated Notes, the Warrants, the Registration Rights
Agreement or any other Transaction Document.
5.7 NO DEFAULT OR BREACH. No event has occurred and is continuing or
would result from the incurring of obligations by the Company under this
Agreement, the Registration Rights Agreement or any other Transaction Document
which constitutes a default under or breach of any of the provisions hereof or
of the Notes and no such event will occur or will be continuing immediately
after giving effect to the transactions contemplated hereby. The Company is not,
and after giving effect to the transactions contemplated by the Transaction
Documents will not be, in Default under or with respect to any Transaction
Document in any respect.
5.8 TITLE TO PROPERTIES. The Company has, and after giving effect to
the transactions contemplated by the Transaction Documents will have, good
record and marketable title to, or hold leases in full force and effect in all
its real property, except for such defects in title as could not, individually
or in the aggregate, have a Material Adverse Effect.
5.9 FINANCIAL CONDITION; NO UNDISCLOSED LIABILITIES. The Company
heretofore has delivered to the Purchasers true and correct copies of (i) the
audited consolidated balance sheets of National Auto Finance Company, L.P. and
its Subsidiaries for the fiscal years ended December 31, 1996 and December 31,
1995 and the related consolidated statements of income (loss), partners' capital
and cash flows for the years ended December 31, 1996 and December 31, 1995 and
for the period from October 1, 1994 (date of inception) to December 31, 1994
(the "PREDECESSOR FINANCIALS"), (ii) the unaudited pro forma balance sheet of
the Company for the fiscal year ended December 31, 1996 and an unaudited pro
forma statement of income for the year ended December 31, 1996 (the
"FINANCIALS") and (iii) the unaudited balance sheet of the Company as of
September 30, 1997 and the related statements of income, cash flows and
stockholder's equity, together with notes thereto, for the nine month period
then ended (the "INTERIM FINANCIALS"), certified, as stated in the immediately
following sentence, by the Treasurer or Chief Financial
<PAGE>
25
Officer of the Company. Except as disclosed therein, the Predecessor Financials,
the Financials and the Interim Financials have been prepared in accordance with
GAAP applied consistently throughout the periods covered thereby (except to the
extent of any inconsistency resulting from the fact that the Company's
predecessor was a limited partnership), and present fairly in all material
respects the financial condition of the Company (or its predecessor, as the case
may be) as of the dates thereof, and the results of operations of the Company
(or its predecessor, as the case may be) for the periods then ended. After
giving effect to the transactions contemplated hereby, will not have any
material direct or indirect Indebtedness or liability, whether known or unknown,
fixed or unfixed, contingent or otherwise, of a kind required by GAAP to be set
forth on a financial statement (collectively "LIABILITIES"), other than (i)
Liabilities fully and adequately reflected on the Financials and the Interim
Financials, (ii) those incurred since the date of the Interim Financials in the
ordinary course of business and (iii) Liabilities incurred pursuant to the
Senior Subordinated Notes.
5.10 NO MATERIAL ADVERSE CHANGE. Except as set forth on SCHEDULE
5.10, since December 31, 1996, there has not been any material adverse change,
nor to the knowledge of the Company is any such change threatened, in the
assets, business, properties, prospects, operations or financial or other
condition of the Company.
5.11 INVESTMENT COMPANY. Neither the Company nor National Auto
Finance Company, L.P. is, and after giving effect to the transactions
contemplated hereby will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
5.12 SUBSIDIARIES. The Company has no Subsidiaries.
5.13 CAPITALIZATION. At Closing, after giving effect to the
transactions contemplated hereby, (i) the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock and 1,000,000 shares
of Series A Preferred Stock and (ii) no shares of Common Stock or Series A
Preferred Stock will be held in the Company's treasury. As of the Closing, after
giving effect to the transactions contemplated hereby, 9,030,762 shares of
Common Stock and 2,295 shares of Series A Preferred Stock will be issued and
outstanding. All such shares of Capital Stock of the Company have been duly
authorized and all of the issued and outstanding shares of Common Stock and
Series A Preferred Stock as of the date hereof are fully paid and
non-assessable. The Warrants (assuming all such Warrants are exercised) to be
issued at the Closing will constitute 11.99% of the Common Stock (excluding the
Shares) on a fully diluted basis (assuming exercise, exchange or conversion, as
the case may be, of all options (including options reserved for issuance but not
yet issued), warrants, convertible or exchangeable securities or other Common
Stock equivalents) as of the Closing Date. The Warrants (assuming all such
Warrants are exercised) to be issued at the Closing and the Shares would
constitute, in the aggregate, 27.85% of the Common Stock on a fully diluted
basis (assuming exercise,
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26
exchange or conversion, as the case may be, of all options (including options
reserved for issuance but not yet issued), warrants, convertible or exchangeable
securities or other Common Stock equivalents) as of the Closing Date. Except as
set forth in SCHEDULE 5.13 or as reserved for issuance in connection with the
exercise of the Warrants and the sale of the Shares, there are no shares of
Capital Stock of the Company reserved for issuance. The Common Stock issuable
upon exercise of the Warrants (the "WARRANT SHARES") will be duly authorized,
and, when issued against payment therefor, the Warrant Shares will be fully paid
and non-assessable. The Shares are duly authorized and, when issued against
payment therefor, will be fully paid and non-assessable. Except for the Warrants
and as set forth in SCHEDULE 5.13, there are no options, warrants or other
rights to purchase shares of Capital Stock or any other securities of the
Company, nor is the Company obligated in any manner to issue shares of its
Capital Stock or other securities. Except as contemplated hereby and for
relevant state and federal securities laws, there are no restrictions on the
Company's ability to transfer shares of Capital Stock of the Company.
5.14 SOLVENCY. On and as of the Closing, after giving effect to the
transactions contemplated hereby, the Company will be Solvent.
5.15 PRIVATE OFFERING. No form of general solicitation or general
advertising was used by the Company or, to its knowledge, its representatives in
connection with the offer or sale of the Senior Subordinated Notes, the Warrants
or the Shares. No registration of the Senior Subordinated Notes, the Warrants,
the Warrant Shares or the Shares pursuant to the provisions of the Securities
Act or any state securities or "blue sky" laws will be required by the offer,
sale or issuance of any such securities pursuant to the transactions
contemplated hereby. The Company agrees that neither it, nor anyone acting on
its behalf, will offer or sell the Senior Subordinated Notes, the Warrants, the
Shares, or any other security in such a manner so as to require the registration
of the Senior Subordinated Notes, the Warrants or the Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws.
5.16 BROKER'S, FINDER'S OR SIMILAR FEES. Except for the Company's
agreement with First Union Capital Markets which requires the Company to pay
fees totaling $1,400,000, and the Company's agreement with National Financial
Companies LLC which requires the Company to pay fees totaling $300,000, which
fees shall be paid by the Company at Closing, and except for the facility fee
payable to the Purchasers pursuant to Section 2.2 hereof, there are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the offer or sale of the Senior Subordinated Notes, the Warrants or the
Shares contemplated hereby based on any agreement, arrangement or understanding
with the Company, or any action taken by the Company.
5.17 FULL DISCLOSURE. No statement by the Company contained in this
Agreement (including all Schedules hereto), the Senior Subordinated Notes, the
Warrants, the Registration Rights Agreement, the Subordination Agreement or the
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27
certificates referred to in Sections 3.3 and 3.4 hereof (collectively,
"TRANSACTION DOCUMENTS") delivered to the Purchasers in connection with the
purchase and sale of the Senior Subordinated Notes, the Warrants and the Shares
at or prior to the Closing contains (or will contain) an untrue statement of a
material fact or omits (or will omit) to state a material fact required to be
stated therein or necessary to make the statements made, in light of the
circumstances in which made, not materially false or misleading.
5.18 ANTI-DILUTION PROTECTION. No holder of shares of Common Stock
(or securities convertible into or exchangeable or exercisable for any of the
foregoing) has any rights to purchase or receive additional or other securities
upon the occurrence of an event that might dilute such holder's percentage
interest in the Company.
5.19 REGISTRATION RIGHTS AGREEMENTS. Upon execution of the
amendments referred to in Section 3.21 of this Agreement, the Company will not
be a party to any agreement granting any registration rights to any Person other
than the Registration Rights Agreement.
5.20 LABOR RELATIONS. The Company is not engaged in any unfair labor
practice. There is (a) no unfair labor practice complaint pending or, to the
knowledge of the Company, threatened against the Company before the National
Labor Relations Board or any other Governmental Authority and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending or, to the knowledge of the Company, threatened, (b) no
strike, labor dispute, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against the Company and (c) no union representation question
existing with respect to the employees of the Company and, to the knowledge of
the Company, no union organizing activities are taking place.
5.21 ERISA AND EMPLOYEE BENEFIT PLANS.
(a) There are no employee benefit plans or material employee
benefit arrangements, policies or commitments of any type (including, but not
limited to, plans described in section 3(3) of ERISA) maintained by the Company,
or with respect to which the Company has or could have any direct or indirect
liability, other than those described in SCHEDULE 5.21 ("BENEFIT PLANS").
(b) Accurate and complete copies of all plan text and
agreements, the most recent annual report, the most recent annual and periodic
accounting of plan assets, and the most recent actuarial valuation with respect
to each Benefit Plan have been delivered to the Purchasers.
(c) No Benefit Plan is subject to Title IV of ERISA or section
412 of the Code. No Benefit Plan is a "multiple employer plan" within the
meaning of the Code or ERISA.
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28
(d) With respect to each Benefit Plan, except as set forth in
SCHEDULE 5.21: (i) if it is intended to qualify under section 401(a) or 403(a)
of the Code, such plan so qualifies and has in effect a current determination
letter; (ii) such Benefit Plan has been maintained and administered at all times
in compliance in all material respects with its terms and applicable laws and
regulations; (iii) no event has occurred and there exists no circumstances under
which the Company could incur material liability under ERISA, the Code or
otherwise (other than routine claims for benefits) with respect to such plan or
with respect to any other entity's employee benefit plan; and (iv) all
contributions and premiums due with respect to such plan have been made on a
timely basis.
(e) With respect to each Benefit Plan that is a "welfare plan"
(as defined in ERISA section 3(1)): (i) no such plan provides medical or death
benefits with respect to current or former employees of the Company beyond their
termination of employment (other than as required to avoid an excise tax under
Code section 4980B); and (ii) the Company has complied in all material respects
with the requirements of Code section 4980B.
(f) The consummation of the transactions contemplated by this
Agreement will not: (i) entitle any individual to severance or termination pay;
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation due to any individual; or (iii) result in the payment that will be
taken into account in determining whether there is an "excess parachute payment"
under Code section 280G(b)(1).
5.22 ENVIRONMENTAL MATTERS. (i) The Company is and has been in
compliance in all material respects with all applicable Safety and Environmental
Laws; (ii) there is no Environmental Claim pending or, to the knowledge of the
Company, threatened against the Company, and there is no civil, criminal or
administrative judgement or notice of violation against the Company pursuant to
Safety and Environmental Laws or principles of common law relating to pollution,
protection of the Environment or health and safety; and (iii) there are no past
or present events, conditions, circumstances, activities, practices, incidents,
agreements, actions or plans which may prevent compliance with Environmental
Laws, or which have given rise to or will give rise to Environmental Claims,
individually or in the aggregate, in excess of $125,000 or to Environmental
Compliance Costs, individually or in the aggregate, in excess of $125,000.
5.23 TAXES.
(a) The Company has timely filed all returns with respect to
Taxes required to be filed through the date hereof in a manner consistent with
prior years and applicable laws and regulations and all such Tax returns are
true and complete in all material respects. The Company timely paid all Taxes
shown on such returns as are due through the date hereof, or that are claimed or
asserted by any taxing authority to be due through the date hereof, except for
those Taxes that are
<PAGE>
29
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been established. With respect to any period for
which Tax returns have not yet been filed, or for which Taxes are not yet due or
owing, the Company has no liability for Taxes in each case other than Taxes
incurred in the ordinary course of business or for which accruals are reflected
in the Financials or the Interim Financials.
(b) No audit or other proceeding by any court, taxing
authority, or similar person is pending or, to the knowledge of the Company,
threatened with respect to any Taxes due from or with respect to the operations
of the Company, or any Tax return filed by or with respect to the operations of
the Company. No assessment of Taxes is proposed against the Company or any of
its assets.
5.24 PATENTS, TRADEMARKS, ETC.
(a) The Company owns or has licensed or otherwise has the
right to use all patents, trademarks, service marks, trade names, copyrights,
licenses, franchises and other rights that are material to the operation of its
business as presently conducted or proposed to be conducted.
(b) The Company owns, licenses or otherwise has the right to
use all computer software, including the source codes thereto, that is material
to the operation of its business as presently conducted or proposed to be
conducted. All computer software owned by the Company, including the source
codes thereto, is free and clear of all Liens (except Permitted Liens), has not
in any material way been divulged to any third party and represents unique work
product to which the Company has good and marketable title. The Company uses and
has used its best efforts to secure and maintain its intellectual property
rights in any and all computer software it owns. Duplicates of all such computer
software, including the source codes thereto, are at a secure off-site location.
(c) No product, process, method, substance or other material
presently owned, sold, licensed or employed by the Company, or which the Company
contemplates owning, selling, licensing or employing, (i) infringes upon the
patents, trademarks, service marks, copyrights or licenses that are owned by
others or (ii) to the knowledge of the Company, is being infringed upon by any
other Person. No liti gation is pending and no claim has been made against the
Company or, to the knowledge of the Company, is threatened, contesting the right
of the Company to own, sell, license or use any product, process, method,
substance or other material presently owned, sold, licensed or employed by the
Company or which the Company intends to acquire an ownership interest in, sell,
license or employ. To the knowledge of the Company, no patent, invention,
device, principle or any statute, law, rule, regulation, standard or code is
pending or proposed which would be reasonably likely to have a Material Adverse
Effect.
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30
5.25 POTENTIAL CONFLICTS OF INTEREST. To the knowledge of the
Company, except as set forth on SCHEDULE 5.25, no officer, director or Affiliate
of the Company, and no relative or spouse of any such officer, director or
Affiliate: (a) owns, directly or indirectly, any interest in (excepting less
than 1% stock holdings for investment purposes in securities of publicly held
and traded companies), or is an officer, director, employee or consultant of,
any Person which is, or is engaged in business as, a competitor, lessor, lessee,
supplier, distributor, sales agent or customer of, or lender to or borrower
from, the Company; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Company uses in the conduct of its
business; or (c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company, except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements arising in the ordinary course
of business.
5.26 TRADE RELATIONS. To the knowledge of the Company, there exists
no actual or threatened termination, cancellation or limitation of, or any
adverse modification or change in, the business relationship or business of the
Company, or its business with any customer or any group of customers whose use
of its services are individually or in the aggregate material to the business of
the Company, or with any material supplier, and there exists no condition or
state of facts or circumstances that would have a Material Adverse Effect or
prevent the Company from conducting its business after the consummation of the
transactions contemplated by the Trans action Documents in substantially the
same manner in which it heretofore has been conducted.
5.27 INDEBTEDNESS. SCHEDULE 5.27 lists (i) the principal amount of
all Indebtedness of the Company (other than the Senior Subordinated Notes), (ii)
the Liens that relate to such Indebtedness of the Company and that encumber the
assets of the Company and (iii) the name of each lender thereof.
5.28 MATERIAL CONTRACTS. SCHEDULE 5.28 lists all contracts,
agreements and commitments of the Company (other than the Transaction Documents)
that are, or are required to be, filed as exhibits to any registration
statement, proxy statement, report or other document filed, or to be filed, by
the Company under the Securities Act or Exchange Act, and which have not, by
their terms, expired or lapsed. All such contracts, agreements and commitments
of the Company are in full force and effect and, to the knowledge of the Company
with respect to other parties thereto, are binding upon the parties thereto in
accordance with their terms. The Company is not in default under any such
contract, agreement or commitment to which it is a party, nor does any condition
exist that with notice or lapse of time or both would constitute a default
thereunder. Except with respect to the Omni Agreement, the Company has no
knowledge of any proposed, pending, or likely cancellation or termination of any
such contract, agreement or commitment.
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31
5.29 INSURANCE. SCHEDULE 5.29 sets forth all policies or binders of
fire, liability, workman's compensation, vehicular or other insurance held by or
on behalf of the Company (specifying the insurer, the policy number of covering
note numbers with respect to binders and describing each pending claim
thereunder of more than $10,000, other than any claim arising in the ordinary
course of business under the Company's vendor single interest insurance
policies). To the Company's knowledge, such policies and binders are in full
force and effect. The Company is not in default in any material respect with
respect to any provision contained in any such policy or binder and has not
failed to give any notice or present any claim under such policy or binder in
due and timely fashion.
5.30 PROJECTIONS. Prior to the date hereof, the Company delivered to
the Purchasers financial projections as set forth in SCHEDULE 5.30 (the
"PROJECTIONS"). The assumptions used in preparation of the Projections were
reasonable when made and continue to be reasonable as of the date hereof and as
of the Closing Date. The Projections have been prepared in good faith and the
Projections give effect to the transactions contemplated by the Transaction
Documents. The Purchasers acknowledge that the Projections contain assumptions
about future events and that actual results during the period or periods covered
may differ from the data and results contained in such Projections.
5.31 COMMISSION DOCUMENTS. The Company has filed all registration
statements, proxy statements, reports and other documents required to be filed
by it under the Securities Act and the Exchange Act, and all amendments thereto
(collectively, the "COMMISSION DOCUMENTS"), and the Company has furnished to the
Purchasers correct and complete copies of all Commission Documents, each as
filed with the Commission. Each Commission Document was true and accurate in all
material respects when filed with the Commission and in compliance in all
material respects with the requirements of its respective report form.
5.32 LENDING ACTIVITIES.
(a) All Vehicle Loans and all advertising, origination and
servicing activities, procedures and materials with regard to all Vehicle Loans
or accounts made, created, acquired, assumed, collected or serviced by Omni or
the Company comply in all material respects with all applicable federal, state
and local laws, ordinances, rules and regulations, including but not limited to
those related to usury, truth-in-lending, consumer protection, equal credit
opportunity, fair debt collection, rescission rights and disclosures, except
where failure to comply would not have a Material Adverse Effect.
(b) SCHEDULE 5.32(B) hereto completely and accurately
describes the Company's Current Policies Regarding Purchase of Retail
Installment Vehicle Loans as in effect on the date hereof, and all existing
Vehicle Loans comply in all material respects with such policies.
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32
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and warrants
to, and covenants and agrees with, the Company as follows:
6.1 EXISTENCE AND POWER. Such Purchaser:
(a) is duly organized and validly existing under the laws of
the jurisdiction of its organization; and
(b) has the power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged and
to enter into this Agreement and the other Transaction Documents to which it is
a party and perform its obligations hereunder and thereunder.
6.2 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by such Purchaser of this Agreement and the Registration Rights
Agreement:
(a) is within such Purchaser's power and authority and has
been duly authorized by all necessary partnership or corporate action, as the
case may be;
(b) does not contravene the terms of such Purchaser's
partnership agreement or certificate of incorporation, as the case may be, or
other organizational documents, or any amendment thereof;
(c) will not violate, conflict with or result in any breach or
contravention of or the creation of any Lien under, any Contractual Obligation
of such Purchaser, or any order or decree directly relating to such Purchaser;
and
(d) does not require approval, consent, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person, other than those that have been obtained or made
on or prior to Closing.
6.3 BINDING EFFECT. Each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered by such Purchaser, and
constitutes the legal, valid and binding obligation of such Purchaser
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
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6.4 NO LEGAL BAR. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement will not violate any Requirement
of Law.
6.5 PURCHASE FOR OWN ACCOUNT. The Purchasers acknowledge that the
Company intends to rely on the provisions of Regulation D under the Securities
Act and file a notice on Form D with the Commission and similar notices with
applicable state securities authorities in connection with the initial issuance
and sale of the Senior Subordinated Notes, the Warrants, the Warrant Shares and
the Shares. The Senior Subordinated Notes, the Warrants (including, for purposes
of this Section 6.5, the Warrant Shares) and the Shares to be acquired, as
applicable, by each Purchaser pursuant to this Agreement are being acquired for
its own account and with no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Purchaser at all times to sell or
otherwise dispose of all or any part of the Senior Subordinated Notes, the
Warrants, the Warrant Shares and the Shares, as the case may be, under an
effective registration statement under the Securities Act, an exemption from
such registration available under the Securities Act, or registration or an
exemption from registration pursuant to any applicable state securities laws,
and subject, nevertheless, to the disposition of such Purchaser's property being
at all times within its control. If such Purchaser should in the future decide
to dispose of any of the Senior Subordinated Notes, the Warrants, the Warrant
Shares or the Shares such Purchaser understands and agrees that it may do so
only in compliance with the Securities Act and applicable state securities laws,
as then in effect, and that stop-transfer instructions to that effect, where
applicable, will be in effect with respect to such securities. If such Purchaser
should decide to dispose of such securities (other than pursuant to its
registration rights under the Registration Rights Agreement), the Purchaser, if
requested by the Company, will have the obligation in connection with such
disposition, at such Purchaser's expense, of delivering an opinion of counsel of
recognized standing in securities law, in connection with such disposition to
the effect that the proposed disposition of such securities would not be in
violation of the Secu rities Act or any applicable state securities laws and,
assuming such opinion is required and is otherwise appropriate in form and
substance under the circumstances, the Company will accept, and will recommend
to any applicable transfer agent or trustee for such securities that it accept,
such opinion. Such Purchaser agrees to the imprinting, so long as, in the
reasonable opinion of the Company and its counsel (but only in the event a legal
opinion of the type specified in the preceding sentence has not been delivered
to the Company by such Purchaser), required by law of a legend on certificates
representing the Senior Subordinated Notes, the Warrants, the Shares and the
Warrant Shares to the following effect: "THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND
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34
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES."
6.6 INVESTMENT COMPANY. Neither such Purchaser nor any Person
controlling such Purchaser is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
6.7 BROKER'S, FINDER'S OR SIMILAR FEES. Except as otherwise set
forth in this Agreement, there are no brokerage commissions, finder's fees or
similar fees or commissions payable in connection with the offer or sale of the
Senior Subordinated Notes, the Warrants and the Shares contemplated hereby based
on any agreement, arrangement or understanding with such Purchaser or any action
taken by such Purchaser.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY THE COMPANY. In addition to all other sums
due hereunder or provided for in this Agreement, the Company agrees to indemnify
and hold harmless the Purchasers and their respective Affiliates (including,
without limitation, BBH & Co.) and their respective officers, directors, agents,
employees and partners (each, an "INDEMNIFIED PARTY") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel) or other
liabilities ("LOSSES") resulting from any breach of any representation or
warranty, covenant or agreement of the Company in the Transaction Documents or
any legal, administrative or other actions (including actions brought by any
equity holders of the Company or derivative actions brought by any Person
claiming through the Company or in the Company's name), proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon, relating to or arising out of this Agreement, the Senior Subordinated
Notes, the Warrants, the Registration Rights Agreement, any other Transaction
Document, the transactions contemplated hereby, or any indemnified party's role
therein or in the transactions contemplated hereby; PROVIDED, HOWEVER, that the
Company shall not be liable under this Section 7.1: (a) for any amount paid in
settlement of claims without the Company's consent (which consent shall not be
unreasonably withheld), (b) with respect to Losses arising solely out of actions
brought by the partners of the Fund or Progressive against an indemnified party
or by one indemnified party against another or (c) to the extent that it is
finally judicially determined that such Losses resulted primarily from the
willful misconduct, bad faith or gross negligence of such indemnified party or a
breach of the indemnified party's
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35
representations in Article 6; PROVIDED, FURTHER, that if and to the extent that
such indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws. In connection with
the obligation of the Company to indemnify for expenses as set forth above, the
Company further agrees to reimburse each indemnified party for all such
documented expenses (including reasonable fees, disbursements and other charges
of counsel) as they are incurred by such indemnified party; PROVIDED, HOWEVER,
that if an indemnified party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct, bad faith or gross negligence of such indemnified party.
7.2 NOTIFICATION. Each indemnified party under this Article 7 will,
promptly after the receipt of notice of the commencement of any action or other
proceeding against such indemnified party in respect of which indemnity may be
sought from the Company under this Article 7, notify the Company in writing of
the commencement thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any liability
which it may have to such indemnified party other than pursuant to this Article
7 or, unless, and only to the extent that, such omission results in the
Company's forfeiture of substantive rights or defenses. In case any such action
or other proceeding shall be brought against any indemnified party and it shall
notify the Company of the commencement thereof, the Company shall be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
PROVIDED, HOWEVER, that any indemnified party may, at its own expense, retain
separate counsel to participate in such defense. Notwithstanding the foregoing,
in any action or proceeding in which both the Company and an indemnified party
is, or is reasonably likely to become, a party, such indemnified party shall
have the right to employ separate counsel at the Company's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such indemnified party, any conflict or potential conflict
exists between the Company and such indemnified party that would make such
separate representation advisable; PROVIDED, HOWEVER, that in no event shall the
Company be required to pay fees and expenses under this Section 7 for more than
one firm of attorneys in any jurisdiction in any one legal action or group of
related legal actions. The Company shall not, without the consent of the
indemnified party (which consent shall not be unreasonably withheld), consent to
the entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation or which requires action other than the payment of money by the
Company. The rights accorded to indemnified parties hereunder shall be in
addition to any rights that any indemnified party may have at common law, by
separate agreement or otherwise.
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36
7.3 REGISTRATION RIGHTS AGREEMENT. Notwithstanding anything to the
contrary in this Article 7, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or offers or sales made
thereunder.
ARTICLE 8
PRE-CLOSING AFFIRMATIVE COVENANTS
8.1 OPERATION OF COMPANY. From and after the date hereof through the
Closing, the Company shall not enter into any transaction or take any action
other than in the ordinary course of business, except that the Company may enter
into such transactions and take such other actions outside of the ordinary
course of business, in each case as may be specifically approved in writing by
the Purchasers.
8.2 EXCLUSIVITY. From the date hereof through the earlier of the
Closing Date or January 31, 1998, the Company shall not enter into discussions
or negotiations with any Persons other than the Purchasers in respect of any
transaction similar in nature to any transaction contemplated by this Agreement;
PROVIDED, HOWEVER, that the Company may have discussions or negotiations with a
potential "underwriter" (as defined in Section 2(11) of the Securities Act) in
connection with a Public Offering by the Company.
ARTICLE 9
AFFIRMATIVE COVENANTS
Until the payment of all principal of and interest on the Notes and
all other amounts due at the time of payment of such principal and interest
under this Agreement, including, without limitation, all expenses and amounts
due at such time in respect of indemnity obligations under Article 7 (except
with respect to Sections 9.1(c), 9.7, 9.8, 9.9(a), 9.9(b), 9.10, 9.11 and 9.14,
which shall survive in accordance with the terms thereof), the Company hereby
covenants and agrees (a) with the Purchasers, with respect to all of this
Article 9, and (b) with all other Holders, with respect to all of this Article 9
except Sections 9.1(c), 9.9, 9.10 and 9.14 that, unless the Purchasers or such
other Holders, as the case may be, waives compliance in writing:
9.1 FINANCIAL STATEMENTS. The Company shall deliver to the
Purchasers and any other Holder:
(a) as soon as available, but not later than ninety (90) days
after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such year and the
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37
related consolidated statements of income and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
year, all in reasonable detail and accompanied by a management summary and
analysis of the operations of the Company and its Subsidiaries for such fiscal
year and by the opinion of a nationally recognized independent public accounting
firm which report shall state that such consolidated financial statements
present fairly in all material respects the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior years
(except to the extent of any inconsistency resulting solely from the fact that
the Company's predecessor was a limited partnership);
(b) as soon as available and, in any event within 45 days of
each of the first three fiscal quarters of each year commencing with the fiscal
quarter ended March 31, 1998, the unaudited consolidated balance sheet of the
Company and its Subsidiaries, and the related consolidated statements of income
and cash flow for such quarter and for the period commencing on the first day of
the fiscal year and ending on the last day of such quarter, all certified by an
appropriate officer of the Company;
(c) budgets, documentation of material financial transactions,
projections, operating reports, acquisition analyses, presentations to banks,
financial institutions or potential investors, consultants' reports and such
other financial and operating data of the Company and its Subsidiaries as the
Fund or Progressive reasonably may request (any such information to be subject
to the provisions of Section 9.9(b)) (PROVIDED that this Section 9.1(c) shall
only require the Company to furnish the information specified herein to the
Purchasers and shall only be binding upon the Company with respect to each of
the Fund, the Progressive Entities and ML so long as the Fund, the Progressive
Entities or ML, as the case may be, holds (i) more than 33% of its or their
Purchaser Shares or (ii) any of the Notes);
(d) at any time when it is not subject to Section 13 or 15(d)
of the Exchange Act, upon request, to the Purchasers and any prospective
purchaser of Notes, Warrants, Warrant Shares or Shares, information of the type
that would satisfy the requirement of subsection (d)(4)(i) of Rule 144A (or any
similar successor provision) under the Securities Act; and
(e) except as otherwise provided in Section 9.1(a) and (b),
promptly after the same are filed, copies of all reports, statements and other
documents filed with the Commission.
9.2 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to
the Purchasers and to any other Holder:
(a) concurrently with the delivery of the financial statements
referred to in Section 9.1(a) and (b) above, a certificate of the Company's
Chief Financial Officer stating that, to the best of such officer's knowledge,
there exists no
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38
Default under or breach of Articles 9 and 10, except as specified in such
certificates; and
(b) concurrently with the delivery of the financial statements
referred to in Sections 9.1(a) and (b) above, a certificate of an officer of the
Company including calculations set forth in reasonable detail showing the
Company's compliance with the financial covenants contained in Sections 10.1,
10.2 and 10.6.
9.3 PRESERVATION OF CORPORATE EXISTENCE. The Company shall, and
shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its jurisdiction of
incorporation or organization (except (i) in the event that the Company merges
or consolidates into another Person in a transaction in compliance with Section
10.3 hereof, or (ii) in the event of a merger of wholly owned Subsidiaries of
the Company with or into each other; PROVIDED that in each case the surviving
Person shall preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its jurisdiction of incorporation
or organization); and
(b) preserve and maintain in full force and effect all
material rights, privileges, qualifications, licenses and franchises necessary
in the normal conduct of its business.
9.4 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each
of its Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective obligations and liabilities, including without
limitation:
(a) all Tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which the Company and each of its
Subsidiaries are obligated to pay, which are due and which, if unpaid, might by
law become a Lien (other than a Permitted Lien) upon its property unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company or such
Subsidiary; and
(c) all payments of principal and interest when due (giving
effect to any grace periods relating thereto) on Indebtedness.
9.5 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause
each of its Subsidiaries to comply, in all material respects with its articles
or certificate of incorporation and by-laws or other organizational or governing
documents and all Requirements of Law and with the directions of any
Governmental
<PAGE>
39
Authority having jurisdiction over it or its business, except such as to which
such failure to comply would not have a Material Adverse Effect.
9.6 NOTICES. Upon knowledge of the Chief Executive Officer, the
President, the Chairman, the Vice Chairman, any Executive Vice-President or the
Chief Financial Officer of the Company of the events described below, the
Company shall give prompt written notice (but in any event within 10 days) to
each holder of Notes:
(a) of the occurrence of any Default under, or breach of,
any of the provisions of Articles 9 or 10;
(b) of any (i) material default or event of default under any
Senior Indebtedness, Indebtedness pari passu in respect of payment with the
Notes or any other material Contractual Obligation of the Company or any of its
Subsidiaries, or (ii) material dispute, litigation, investigation, proceeding or
suspension which may exist at any time between the Company or any of its
Subsidiaries and any Governmental Authority; and
(c) Each notice pursuant to this Section 9.6 shall be
accompanied by a statement by the Chief Executive Officer, President or Chief
Financial Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the Company has taken or proposes to
take with respect thereto.
9.7 ISSUE TAXES. Until the earlier of (x) the exercise of all of the
Warrants and issuance of the Warrant Shares or (y) the expiration of the
Warrants in accordance with their terms, the Company shall pay, or cause to be
paid, all documentary and similar taxes (excluding income or capital gains
taxes) levied under the laws of any applicable jurisdiction in connection with
the initial issuance of the Senior Subordinated Notes, the Warrants, the Warrant
Shares and the Shares and the execution and delivery of the other agreements and
documents contemplated hereby and any modification of the Senior Subordinated
Notes, the Warrants or such other agreements and documents and will hold the
Purchasers harmless, without limitation as to time, against any and all
liabilities with respect to all such taxes.
9.8 RESERVATION OF SHARES. Until the earlier of (x) the exercise of
all of the Warrants and the issuance of the Warrant Shares or (y) the expiration
of the Warrants in accordance with their terms, the Company shall at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue or delivery upon exercise of all outstanding Warrants as
provided therein, such number of shares of Common Stock as shall then be
issuable or deliverable upon the exercise of all outstanding Warrants. Such
shares of Common Stock shall, when issued or delivered against payment therefor
in accordance with the terms of the Warrants, be duly and validly issued and
fully paid and non-assessable.
<PAGE>
40
9.9 INSPECTION; CONFIDENTIALITY.
(a) So long as any of the Fund, the Progressive Entities or
ML, as the case may be, holds (i) more than 33% of its or their Purchaser Shares
or (ii) any of the Notes, the Company will permit, and will cause each of its
Subsidiaries to permit, representatives of such Purchaser(s) to visit and
inspect any of its properties, to examine its corporate, financial and operating
records and make copies thereof or abstracts therefrom, and to discuss its
affairs, finances and accounts with their respective directors, officers and
independent public accountants, all at such reasonable times during normal
business hours without interfering with the normal conduct of the Company's
business or operations and as often as may be reasonably requested, upon
reasonable advance notice to the Company. All expenses incurred by each
Purchaser in connection with the foregoing shall be payable by such Purchaser;
PROVIDED, HOWEVER, that if any Default or Event of Default shall have occurred
and be continuing, all such expenses shall be payable by the Company.
(b) Each Purchaser will maintain as confidential any
confidential or proprietary information obtained from the Company pursuant to
Section 9.9(a) or 9.1(c) (other than information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of a disclosure directly or indirectly by any of the
Purchasers or any of their representa tives), (ii) is available to such
Purchaser on a non-confidential basis from a source other than the Company or
its Subsidiaries, provided that such source was not known by such Purchaser to
be bound by a confidentiality agreement with, or other duty of confidentiality
to, the Company or any of its Subsidiaries, (iii) has been independently
developed by such Purchaser or (iv) which was obtained more than one year prior
to such disclosure), and shall not disclose any information obtained from the
Company pursuant to Section 9.9(a) or 9.1(c) and required to be maintained as
confidential pursuant hereto, except (a) after advising them of the confidential
nature of such information and their responsibility to maintain such
confidentiality, by the Fund to BBH & Co. and its advisors, representatives,
agents, partners and employees who need to know such information to perform
their duties, (b) after advising them of the confidential nature of such
information and their responsibility to maintain such confidentiality, to the
respective advisors, representatives, agents, partners (and their
representatives and advisors) and employees of each Purchaser who need to know
such information to perform their duties, (c) to any prospective transferee of
the Senior Subordinated Notes, the Warrants, the Warrant Shares or the Shares or
of an interest in the Fund, the Progressive Entities or ML or in a successor to
the Fund sponsored by BBH & Co., upon the execution of a confidentiality
agreement in form and substance reasonably satisfactory to the Company, (d) as
may be required by law (including a court order, subpoena or other
administrative order or process) or applicable regulations to which such
Purchaser is or becomes subject, as, and only to the extent, determined by
outside legal counsel and only following, if practicable, prior notice to the
Company (but excluding any obligation of disclosure with respect to information
furnished pursuant to Section 9.1(c) hereof, to the extent arising solely from
the fact that a Purchaser desires to offer or sell all or any part of the Notes,
<PAGE>
41
Warrants, Warrant Shares or Shares), (e) in connection with any litigation
arising out of or related to this Agreement, (f) to the executive officers of
the Company or any of its Subsidiaries, or (g) with the consent of the Company.
In connection with clauses (a) and (b) of the preceding sentence, it is
understood and agreed that each Purchaser shall be responsible for any breach of
the provisions of this Section 9.9(b) by any of its advisors, representatives,
agents, partners and employees.
9.10 BOARD REPRESENTATION; VISITATION RIGHTS.
(a) The Company shall at or prior to the Closing Date cause
two vacancies to be created on its Board of Directors (by increasing the number
of members of the Board of Directors or otherwise) and at the Closing Date shall
cause the persons designated by the Fund and the Progressive Entities to be
elected to its Board of Directors. Such designees shall serve until the annual
meeting of stock holders of the Company immediately following the election of
such person to the Board of Directors.
(b) Commencing with the annual meeting of stockholders of the
Company immediately following the election of such persons to the Board of
Directors, and at each annual meeting of stockholders of the Company thereafter,
each of (i) the Fund and (ii) the Progressive Entities shall be entitled to
nominate (in addition to any rights granted to the holders of Common Stock as
set forth in the Company's articles or certificate of incorporation), from time
to time, one director to the Company's Board of Directors; PROVIDED, THAT each
of (i) the Fund and (ii) the Progressive Entities shall be entitled to nominate
a director to the Board of Directors only so long as the Fund or the Progressive
Entities, as the case may be, holds either (x) at least 50% of the aggregate
outstanding principal amount of the Notes initially issued to such Purchaser(s)
or (y) at least 50% of the Purchaser Shares initially issued to such
Purchaser(s). The Company shall cause such nominees of the Fund and the
Progressive Entities to be included in the slate of nominees recommended by the
Board to the Company's stockholders for election as directors, and the Company
shall use its reasonable best efforts to cause the election of such nominees,
including voting all shares for which the Company holds proxies (excluding any
proxy submitted by a stockholder with other directions) or is otherwise entitled
to vote, in favor of the election of such person.
(c) In the event any such nominee of either the Fund or the
Progressive Entities shall cease to serve as a director for any reason, other
than by reason of such Purchaser(s) not being entitled to nominate a nominee as
provided in Section 9.10(b), the Company shall use its reasonable best efforts
to cause the vacancy resulting thereby to be filled by a nominee of such
Purchaser(s).
(d) In the event that the Board of Directors of the Company
establishes committees from time to time, the nominee of the Fund shall have the
right, upon the Fund's request, to serve on each such committee. If the Fund (a)
is not entitled to nominate a nominee as provided in Section 9.10(b) or (b)
elects not to
<PAGE>
42
nominate its nominee to any such committee, but, in each case the Progressive
Entities are still entitled to nominate a nominee as provided in Section
9.10(b), the nominee of the Progressive Entities shall have the right, upon the
Progressive Entities' request, to serve on each such committee. If the Company
creates any Subsidiaries, each Subsidiary's Board of Directors (and each
committee thereof) shall consist of the same members as the Company's Board of
Directors (and each analogous committee thereof).
(e) So long as the Fund, the Progressive Entities or ML, as
the case may be, owns more than 25% of (i) the aggregate outstanding principal
amount of the Notes initially issued to such Purchaser(s) or (ii) the number of
Purchaser Shares initially issued to such Purchaser(s), in addition to the
rights granted pursuant to Sections 9.10(a) and (b) above, such Purchaser(s)
shall have the right to have a representative attend all regular and special
meetings of the Board of Directors of the Company and its Subsidiaries and any
committees thereof. The visitation rights set forth above shall include the
right to receive the same notice and materials provided to members of the Board
of Directors of the Company and each committee thereto.
9.11 REGISTRATION AND LISTING. If any Warrant Shares require
registration with or approval of any Governmental Authority under any federal or
state or other applicable law before such shares of Common Stock may be issued
or delivered upon exercise of the Warrants, the Company will in good faith and
as expeditiously as possible endeavor to cause such shares of Common Stock to be
duly registered or approved, as the case may be, unless such registration or
approval is required solely because of a breach of such Purchasers'
representation contained in Section 6.5. In the event that, and so long as, the
Common Stock (or any series or class of Capital Stock into which the Common
Stock is reorganized, reclassified, reconstituted or otherwise changed) is
listed on the NYSE or quoted or listed on any other national securities exchange
or Nasdaq, the Company will, if permitted by the rules of such system or
exchange, quote or list and keep quoted or listed on such exchange or Nasdaq,
upon official notice of issuance, the Shares and all Warrant Shares. In
addition, the Company will in good faith and as expeditiously as possible
endeavor to obtain private placement numbers for the Notes, the Purchaser Shares
and the Warrants (or any series or class of Capital Stock into which the
Purchaser Shares are, or may be, reorganized, reclassified, reconstituted or
otherwise changed), as assigned by the CUSIP Service Bureau of Standard & Poor's
Corporation. The covenant provided in this Section 9.11 shall survive until
there are no Holders.
9.12 USE OF PROCEEDS. The proceeds of the Senior Subordinated Notes,
the Warrants and the Shares shall be used by the Company only (a) to fund the
purchase of Vehicle Loans by the Company in the ordinary course of business and
in a manner consistent with past practice (including cash deposits in connection
therewith), (b) for working capital requirements, (c) for general corporate
purposes (including repayment of outstanding borrowings under the $8.0 million
principal amount working capital subfacility of the Credit Agreement), (d) cash
deposits in
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43
connection with Permitted Securitization Transactions, (e) for the repayment of
up to $12,170,958 of Indebtedness of the Company outstanding under the Morgan
Note Purchase Agreement and (f) for the payment of fees and expenses in
connection with the transactions contemplated in the Transaction Documents.
9.13 PAYMENT OF NOTES. The Company shall pay the principal of,
interest on and other amounts due in respect of, the Notes on the dates and in
the manner provided herein and in the Notes.
9.14 SALE OF COMPANY. Until the Purchasers do not hold any Warrants
(whether as a result of exercise or expiration), in the event of a contemplated
sale of all of the Capital Stock of the Company (by way of merger or otherwise),
the Company shall, if requested by the Purchasers, use its reasonable best
efforts to cause such sale transaction to be structured in a manner that
requires the purchaser(s) to purchase the Warrants from the Purchasers at a
price equal to the consideration the Purchasers would have received had it
exercised the Warrants immediately prior to the consummation of such sale
transaction less the exercise price of such Warrants.
9.15 ALLOCATION FOR TAX PURPOSES. For purposes of Treasury
Regulation section 1.1273-2(h), the Senior Subordinated Notes and the Warrants
shall be treated as an investment unit. The amount of the Unit Purchase Price
which is allocable to the Senior Subordinated Notes shall equal $36,883,228, and
the amount of the Unit Purchase Price which is allocable to the Warrants shall
equal $3,116,772. The parties hereto shall file all returns and statements in
respect of Taxes in a manner which is consistent with the foregoing allocation.
9.16 INFORMATION ON INTERNAL RATE OF RETURN. Upon the occurrence of
an event that (i) permits the holders of the Notes to require a Mandatory
Redemption and (ii) that would require the Company to consider the "internal
rate of return" of any of the Purchasers pursuant to the second paragraph of
Section 3.1 of the Notes, each of the Purchasers shall promptly deliver to the
Company, but in any event within 5 Business Days after receiving a written
request, a certificate setting forth in reasonable detail the calculation of its
"internal rate of return," including any documents reasonably supporting such
calculation. The determination of "internal rate of return" set forth in such
certificate, which shall be prepared in good faith, shall be conclusive and
binding on the Company in the absence of manifest error. The Company shall
maintain as confidential any information contained in such certificate or
obtained from the Purchasers in connection with the determination of the
Purchasers "internal rate of return" under terms and conditions substantially
identical to Section 9.9(b) hereof.
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44
ARTICLE 10
NEGATIVE AND FINANCIAL COVENANTS
Until the payment of all principal of and interest on the Notes and
all other amounts due at the time of payment of such principal and interest
under this Agreement, including, without limitation, all expenses and amounts
due at such time in respect of indemnity obligations under Article 7 (except
with respect to Sections 10.4, 10.13 and 10.14, which shall be binding upon the
Company until the sale by the Purchasers of more than 66% of the aggregate
amount of the Purchaser Shares), the Company covenants and agrees as follows:
10.1 MINIMUM CONSOLIDATED NET WORTH. The Company shall not permit
Consolidated Net Worth for any fiscal quarter to be less than (a) $25,890,000
PLUS (b) on a cumulative basis commencing with the fiscal quarter ending March
31, 1998, fifty percent (50%) of Net Income (if positive) for each fiscal
quarter of the Company and its Subsidiaries ending on and after March 31, 1998
PLUS (c) one hundred percent (100%) of the proceeds (after payment of the
Company's fees and expenses) received by the Company from any Public Offering or
private placement of Capital Stock after the Closing Date (including the
issuance and sale of the Shares).
10.2 ADJUSTED INTEREST EXPENSE. The Company's EBIT DIVIDED by
Consolidated Total Interest Expense for each period of four consecutive fiscal
quarters ending December 31, 1997 and thereafter shall be at least 1.4:1.0.
10.3 CONSOLIDATIONS AND MERGERS. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), except the Company may consolidate or
merge with or into, or sell all or substantially all of its assets to, any
Person if:
(a) The corporation or partnership formed by such
consolidation or surviving such merger or the Person which acquires all or
substantially all of the assets of the Company shall be (after giving effect to
such transaction) a Solvent corporation or partnership organized or formed, as
the case may be, and existing under, the laws of the United States, any state
thereof, or the District of Columbia and shall expressly assume in writing all
of the obligations of the Company under this Agreement, the Notes, the Warrants
and the Registration Rights Agreement;
(b) immediately after giving effect to such transaction, (i)
no default under the provisions of Articles 9 and 10 exists and (ii) the
corporation or partnership formed by such consolidation or surviving such merger
or the Person which acquires all or substantially all of the assets of the
Company shall not be prohibited from incurring at least $1.00 of additional
Indebtedness without violating any of the provisions of this Agreement;
<PAGE>
45
(c) the corporation or partnership formed by or surviving any
such transaction or the Person that acquires all or substantially all of the
assets of the Company shall have a Consolidated Net Worth at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction; and
(d) the Company shall have furnished to the Holders (i) an
opinion of outside counsel reasonably satisfactory to the holders of a majority
in interest of the Notes, addressing the matters (other than solvency) set forth
in clause (a) above and (ii) the certificate of the Chief Financial Officer of
the Company to the effect that such transaction has been consummated in
compliance with the foregoing requirements; PROVIDED that nothing in this
Section 10.3 shall affect the rights of any holder of the Notes, the Warrants or
the Common Stock under this Agreement, the Notes, the Warrants or the
Registration Rights Agreement.
10.4 TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE
10.4 and for payments permitted under Section 10.9, the Company shall not, and
shall not permit any of its Subsidiaries to, enter into any transaction with any
Affiliate of the Company (other than the Company's Subsidiaries) or of any such
Subsidiary (other than the Company), except (i) in the ordinary course of
business and pursuant to the reasonable requirements of the business of the
Company or such Subsidiary, (ii) on terms no less favorable to the Company or
such Subsidiary than those the Company or such Subsidiary would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company or such Subsidiary and (iii) following the prior approval of a majority
of the members of the Board of Directors of the Company.
10.5 NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its
Subsidiaries shall (a) enter into any loan or other agreement after the date
hereof or (b) amend or modify any currently existing loan or other agreement,
which in each case by its terms restricts or prohibits the ability of the
Company to pay the principal of or interest on the Notes or to issue the Warrant
Shares in accordance with the terms of this Agreement and the Warrants;
PROVIDED, HOWEVER, that the foregoing shall not prevent the Company from
entering into loan or other agreements that contain, or any amendment or other
modification to any currently existing credit agreement to provide, restrictions
on the ability of the Company to optionally redeem or prepay the Notes,
following the occurrence of a default or event of default under such agreements.
10.6 LIMITATION ON INDEBTEDNESS.
(a) Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, issue, assume or otherwise incur any Indebtedness, other
than: (i) Indebtedness under this Agreement and the Notes, (ii) Junior
Subordinated Indebtedness, (iii) Intercompany Indebtedness, (iv) Indebtedness
under the Credit Agreement or other similar facilities in an amount not
exceeding $100 million, which increases to an amount equal to the product of the
Consolidated Tangible Net Worth
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46
of the Company multiplied by five multiplied by 0.6, and (v) Senior Indebtedness
(to the extent not incurred under subsection (iv) of this Section 10.6) and
Indebtedness that is pari passu with the Indebtedness incurred under the Notes,
but only to the extent that, in the case of this clause (v), immediately after
giving effect thereto, the ratio of Total Indebtedness to Consolidated Tangible
Net Worth does not exceed 5.0:1.0).
(b) The Company shall not incur any Indebtedness if such
Indebtedness is subordinate or junior in right of payment to Senior Indebtedness
(as defined in Article 12) unless such Indebtedness is pari passu with the
Indebtedness incurred under the Notes or is Junior Subordinated Indebtedness.
10.7 LIMITATION ON LIENS. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, other than: (i) Liens in favor of
the Company or its Subsidiaries; (ii) Liens to secure Taxes, assessments and
other governmental charges in respect of obligations not overdue or being
contested in good faith by appropriate proceedings or Liens on properties to
secure claims for labor, material or supplies in respect of obligations not
overdue or being contested in good faith by appropriate proceedings; (iii)
deposits or pledges made in connection with, or to secure payment of, workmen's
compensation, unemployment insurance, old age pensions or other social security
obligations; (iv) Liens on properties in respect of judgments or awards, (a) the
Indebtedness with respect to which is in respect of judgments or awards that
have been in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which the Company
shall at the time in good faith be prosecuting an appeal or proceedings for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review or (b) that would not give rise to a Default under
Section 11.1(ix); (v) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens on properties in respect of obligations not
overdue or being contested in good faith by appropriate proceedings; (vi)
encumbrances consisting of easements, rights of way, zoning restrictions,
restrictions on the use of real property and defects and irregularities in the
title thereto, landlord's or lessor's liens under leases to which the Company or
a Subsidiary of the Company is a party, and other minor Liens or encumbrances
none of which in the opinion of the Company interferes materially with the use
of the property affected in the ordinary conduct of the business of the Company
and its Subsidiaries, which defects do not individually or in the aggregate have
a materially adverse effect on the business of the Company individually or of
the Company and its Subsidiaries on a consolidated basis; (vii) presently
outstanding Liens listed on SCHEDULE 10.7 hereto; (viii) any Lien on equipment,
software or real property securing Indebtedness incurred or assumed for the sole
purpose of financing all or part of the cost of acquiring such equipment or real
property, PROVIDED that such Lien attaches to such asset concurrently with or
within 10 days after the acquisition thereof; (ix) Liens in respect of Senior
Indebtedness permitted to be incurred under Section 10.6 of this Agreement; (x)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds, tenders, bids, leases
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47
or other obligations of a like nature incurred in the ordinary course of
business by the Company or its Subsidiaries; (xi) Liens on property of a Person
existing at the time such Person becomes a Subsidiary of the Company, its assets
are acquired by a Subsidiary of the Company, or such Person and the Company
merge or consolidate in a transaction in compliance with Section 10.3; PROVIDED
that such Liens were in existence prior to the contemplation of such merger,
acquisition or consolidation and do not extend to any assets other than those of
the Person merging or consolidating with the Company; (xii) Liens on property
existing at the time of acquisition thereof by the Company or any of its
Subsidiaries, PROVIDED that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any property other than
that being acquired; (xiii) Liens on cash deposits made for the purpose of
enhancing the credit of Special Purpose Subsidiaries; and (xiv) other Liens
arising in the ordinary course of and incidental to the conduct of the business
of the Company and its Subsidiaries, which in the aggregate do not materially
impair the use of such properties for the purposes for which such properties are
held by the Company or its Subsidiaries, PROVIDED that the aggregate amount of
the obligations secured by Liens permitted under this clause (xiv) shall not
exceed $100,000 at any one time outstanding (collectively, "PERMITTED LIENS").
10.8 INVESTMENTS. Neither the Company nor any of its Subsidiaries
shall make any Investment, except for (i) Investments in Temporary Cash
Investments; (ii) Investments existing as of the date hereof and listed on
SCHEDULE 10.8A; (iii) Investments by the Company in Subsidiaries of the Company
existing on the Closing Date; (iv) Investments consisting of non-cash
consideration received as proceeds of Dispositions permitted by Section 10.10;
(v) Investments consisting of loans and advances to employees for moving,
entertainment and travel (other than ordinary course business expenses) not to
exceed $250,000 in the aggregate at any time outstanding; (vi) Investments in
Special Purpose Subsidiaries formed for the purpose of effectuating Permitted
Securitization Transactions; (vii) purchases of Vehicle Loans consistent with
the Company's Current Policies Regarding Purchase of Retail Installment Vehicle
Loans as in effect from time to time that are made pursuant to good faith bona
fide transactions; (viii) Investments by the Company in Subsidiaries of the
Company engaging in the commercial or consumer finance and/or related service
businesses, all as approved in advance by a majority of the members of the Board
of Directors of the Company and in an amount in any Fiscal Year not in excess of
30% of the Consolidated Net Worth of the Company based on the most recent
audited financial statements of the Company; (ix) Investments by the Company or
its Subsidiaries as a result of the bankruptcy or reorganization of customers,
suppliers, auto dealers and referral salesmen and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business of the Company or its Subsidiaries; (x) Investments
consisting of advances to customers, suppliers, auto dealers and referral
salesmen, in each case if created, acquired or made in the ordinary course of
business, payable or dischargeable in accordance with customary trade terms, and
in accordance with past practice; and (xi) additional Investments not to exceed
$100,000 in the aggregate.
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48
10.9 LIMITATIONS ON RESTRICTED PAYMENTS. Neither the Company nor any
of its Subsidiaries will declare or make any Restricted Payment, except that the
Company may, so long as no Default or Event of Default shall have occurred and
be continuing or would occur as a result of any such Restricted Payment, (i)
purchase, redeem, retire or otherwise acquire or pay dividends in respect of
shares of the Company's Capital Stock in an amount not to exceed $250,000 in any
12-month period; (ii) pay dividends to the holders of the Company's or any
Subsidiary's Preferred Stock; (iii) purchase, redeem or retire Junior
Subordinated Indebtedness in exchange for Capital Stock of the Company, PROVIDED
that any shares of Common Stock or securities convertible into or exchangeable
or exercisable for Common Stock issued in exchange for (A) Existing Junior
Subordinated Indebtedness if issued (x) on or prior to March 31, 1998, shall
have an issue, exchange, exercise or conversion price, as the case may be, equal
to the greater of $5.25 per share (subject to appropriate adjustments for stock
splits, stock dividends and the like) or Current Market Price at the time a
definitive agreement to exchange is entered into or (y) after March 31, 1998,
shall have an issue, exchange, exercise or conversion price, as the case may be,
equal to no less than the Current Market Price at the time a definitive
agreement to exchange is entered into, and (B) Junior Subordinated Indebtedness
(other than the Existing Junior Subordinated Indebtedness) shall be issued at an
issue, exchange, exercise or conversion price, as the case may be, equal to no
less than the Current Market Price at the time a definitive agreement to
exchange is entered into; (iv) purchase, redeem or retire Existing Junior
Subordinated Indebtedness in exchange for cash to the extent that such Existing
Junior Subordinated Indebtedness is purchased, redeemed or retired only at its
stated and scheduled maturity and no sooner; and (v) purchase, redeem or retire
Preferred Stock of the Company (x) in exchange for shares of Common Stock of the
Company, but only so long as such shares of Common Stock are to be issued at a
price no less than the Current Market Price of the Common Stock at the time a
definitive agreement relating to such purchase, redemption or retirement is
executed or (y) with the proceeds of the issuance and sale of additional shares
of Preferred Stock, but only so long as such shares of Preferred Stock are
issued in a transaction approved by a majority of the non-employee directors of
the Company (EXCLUDING, HOWEVER, in all cases, Gary L.
Shapiro).
10.10 DISPOSITIONS OF ASSETS. The Company shall not, and shall not
permit any of its Subsidiaries to, make any Disposition (excluding any
transaction made in compliance with Section 10.3 hereof) unless (i) the Company
(or the Subsidiary, as the case may be) receives consideration at the time of
such disposition at least equal to the fair market value of the assets sold or
otherwise disposed of and, in the case of a lease of assets, a lease providing
for rent and other conditions which are no less favorable than the then
prevailing market conditions, (ii) the Company shall apply, or cause a
Subsidiary to apply, the Net Sale Proceeds from such disposition within 180 days
of receipt thereof (A) to make Investments in assets or properties that will be
used in the business of the Company and its Subsidiaries consistent with Section
10.13 hereto or (B) to repay any Indebtedness of the Company, and (iii) no
Default or Event of Default shall have occurred and be
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49
continuing or would occur as a result of any such Disposition. Notwithstanding
the foregoing sentence, the Company may sell or transfer its assets or
properties in the ordinary course of business consistent with past practice,
including transfers made in a Permitted Securitization Transaction and such
transactions shall not be subject to the conditions set forth in the previous
sentence.
10.11 FUTURE ISSUANCES OF PREFERRED STOCK. The Company shall not,
and shall not permit any of its Subsidiaries to, issue any shares of Preferred
Stock unless (i) no Default or Event of Default shall have occurred and be
continuing or would occur as a result of any such issuance; and (ii) if the
shares of Preferred Stock are convertible or exchangeable into shares of the
Company's Common Stock, the conversion or exchange price of such Preferred Stock
shall be no less than 120% of the Current Market Price on the date a definitive
purchase agreement with respect to the issuance of such Preferred Stock is
executed.
10.12 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE COMPANY AND
ITS SUBSIDIARIES. Except with the prior written consent of the Purchasers, no
amendments to the articles or certificate of incorporation or by-laws of the
Company or any of its Subsidiaries that would adversely affect the Company's
obligation to pay the principal of and interest on the Notes shall be effected.
10.13 LINE OF BUSINESS. The Company shall not, and shall not permit
any of its Subsidiaries to, engage in the conduct of any business other than the
business of the Company and its Subsidiaries in connection with the purchase and
securitization of Vehicle Loans as such businesses exist on the Closing Date or
in other commercial or consumer finance and/or related service businesses.
10.14 VEHICLE LOAN POLICY. Except with the prior approval of the
majority of the Board of Directors of the Company, the Company shall not
materially modify or amend its Current Policies Regarding Purchase of Retail
Installment Vehicle Loans.
ARTICLE 11
DEFAULTS AND REMEDIES
11.1 EVENTS OF DEFAULT. An "Event of Default" shall occur if:
(i) the Company shall default in the payment of any
installment of principal of any Note, when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on any Note according to the terms thereof, when and as
the
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50
same shall become due and payable and such default shall continue for a period
of five days; or
(iii) the Company or any of its Subsidiaries shall default in
the due observance or performance of any covenant to be observed or performed
pursuant to Sections 9.1(a), 9.1(b), 9.8, 9.10 or Article 10 (except for
Sections 10.4 and 10.5) hereof; or
(iv) the Company or any of its Subsidiaries, as the case may
be, shall default in the due observance or performance of any other covenant,
condition or agreement on the part of the Company or any of its Subsidiaries to
be observed or performed pursuant to the terms of this Agreement, and such
default shall continue for 5 days with respect to Sections 10.4 and 10.5 hereof,
or 30 days with respect to any such other covenant, in each case after the
earlier of (A) the date the Company obtains knowledge of such default, or (B)
the date written notice thereof shall have been given to the Company by the
holder of any of the Notes; or
(v) any representation, warranty, certification or statement
made by or on behalf of the Company in this Agreement or in any certificate or
other document delivered pursuant hereto shall have been incorrect in any
material respect when made; or
(vi) any (A) default in any payment of principal of or
interest of any Indebtedness (other than Indebtedness under the Credit
Agreement) of the Company or any of its Subsidiaries which Indebtedness has an
aggregate principal amount outstanding equal to or exceeding $1,000,000, and
such default shall continue beyond any applicable grace period or (B) default in
the observance or performance of any other agreement or condition relating to
any such Indebtedness or relating to Indebtedness under the Credit Agreement or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition actually results in the acceleration of such
Indebtedness (including Indebtedness under the Credit Agreement) prior to its
stated maturity; or
(vii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company or any of its Subsidiaries, or of a
substantial part of their property or assets, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Company or any of its Subsidiaries, or for a substantial part of their
property or assets, or (c) the winding up or liquidation of the Company or any
of its Subsidiaries; and such proceeding or petition shall continue undismissed
for 60 days, or an order or decree approving or ordering any of the foregoing
shall be entered; or
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(viii) the Company or any Subsidiary thereof shall (a)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or similar law,
(b) consent to the institution of or the entry of an order for relief against
it, or fail to contest in a timely and appropriate manner, any proceeding or the
filing of any petition described in paragraph (vii) of this Section 11.1, (c)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company or any of its
Subsidiaries, or for a substantial part of their property or assets, (d) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (e) make a general assignment for the benefit of creditors, or
(f) take any action for the purpose of effecting any of the foregoing; or
(ix) one or more final judgments for the payment of money in
an aggregate amount in excess of $750,000 (to the extent not covered by
insurance) shall be rendered against the Company or any of its Subsidiaries and
the same shall remain in force, undischarged, unstayed, unsatisfied, unvacated
or unbonded for more than 30 days, or any action, which is not quashed or
remains unstayed for a period in excess of fifteen days, shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company or any
of its Subsidiaries to enforce any such judgment; or
(x) the Company or any Subsidiary thereof shall become
unable, admit in writing its inability or fail generally to pay its debts as
they become due.
11.2 ACCELERATION. If an Event of Default occurs under clauses (vii)
or (viii) of Section 11.1, then the outstanding principal of and all accrued
interest on the Notes and all other amounts owing under this Agreement and the
Notes shall automatically become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are expressly
waived. If any other Event of Default occurs and is continuing, subject to
Section 12.3(d), the holders of 51% of the aggregate principal amount of the
Notes outstanding, by written notice to the Company, may declare the principal
of and accrued interest on the Notes and all other amounts owing under this
Agreement to be due and payable immediately. Upon such declaration, such
principal and interest and other amounts shall become immediately due and
payable. The holders of 51% of the aggregate principal amount of the Notes
outstanding may rescind an acceleration and its consequences if all existing
Events of Default have been cured or waived, except nonpayment of principal or
interest or other amounts that has become due solely because of the
acceleration, and if the rescission would not conflict with any judgment or
decree. Any notice or rescission shall be given in the manner specified in
Section 14.2 hereof.
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52
ARTICLE 12
SUBORDINATION
The Notes shall at all times be wholly subordinate and junior in
right of payment to all Senior Indebtedness to the extent and in the manner
provided in this Article 12.
12.1 DEFINITIONS. As used in this Article 12, the following terms
shall have the following meanings:
"JUNIOR SECURITIES" means any debt or equity securities distributed
to the holders of the Notes, but only if they are subordinated to at least the
same extent as the Subordinated Indebtedness is subordinated to the Senior
Indebtedness and any securities issued in exchange for Senior Indebtedness.
"SENIOR DEFAULT" shall mean a Senior Payment Default or a Senior
Event of Default.
"SENIOR EVENT OF DEFAULT" shall mean an event of default, other than
a Senior Payment Default, that occurs and is continuing with respect to Senior
Indebtedness that permits the holders thereof to accelerate the maturity of such
Senior Indebtedness.
"SENIOR INDEBTEDNESS" shall mean (i) the principal of and interest
on (including without limitation any interest that accrues after the
commencement of any case, proceeding or other legal action relating to the
bankruptcy, insolvency or reorganization of the Company to the extent such
interest constitutes an allowed claim) (a) all Indebtedness of the Company
(including Indebtedness of others guaranteed by the Company) which is (x) for
money borrowed or (y) evidenced by a note or similar instrument given in
connection with the acquisition of any businesses, properties or assets of any
kind and (b) amendments, renewals, extensions, modifications and refundings of
any such Indebtedness, whether such Indebtedness described in (a) or (b) is
outstanding on the date hereof or hereafter created, incurred or assumed, but
only if (a) such Indebtedness is permitted to be incurred under Section 10.6 and
(b) the instrument creating or evidencing any such Indebtedness pursuant to
which the same is outstanding expressly provides that such Indebtedness is
superior in right of payment to the Notes, and (ii) any other monetary
obligations of the Company arising out of or in connection with the Indebtedness
described in clause (i) above.
"SENIOR PAYMENT DEFAULT" shall mean an event of default in the
payment of any Senior Indebtedness that occurs and is continuing beyond any
applicable period of grace.
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53
"SUBORDINATED INDEBTEDNESS" shall mean (i) the principal of and
interest on the Notes; and (ii) any other monetary obligations of the Company
arising out of or in connection with this Agreement or the Notes.
12.2 GENERAL. Subject to the rights of the holders of the
Subordinated Indebtedness to receive Junior Securities and any distributions
provided in Section 12.4(c), upon the maturity of any Senior Indebtedness by
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid in full in cash, before
any payment is made or provided for on account of the Subordinated Indebtedness
then so due and payable or any Notes issued pursuant to this Agreement are
redeemed.
12.3 LIMITATION ON PAYMENT AND REMEDIES.
(a) Upon receipt by the Company and the holders of the Notes
of a Blockage Notice (as defined below), then unless and until (i) all Senior
Defaults that gave rise to the Blockage Notice shall have been remedied or
effectively waived in writing or shall have ceased to exist or (ii) the Senior
Indebtedness in respect of which such Senior Defaults shall have occurred shall
have been paid in full in cash, no direct or indirect payment (in cash,
property, securities or by set-off or otherwise) of or on account of any
regularly scheduled principal of or interest on the Notes (and specifically
excluding any Optional Redemption or repayment of the Notes), with the exception
of Junior Securities, shall be made during any period prior to the expiration of
the Blockage Period (as defined below).
(b) For purposes of this Agreement, a "BLOCKAGE NOTICE" is a
notice of a Senior Default that in fact has occurred and is continuing, given to
the Company and the holders of the Notes (or their authorized Agent) by the
holders of the requisite principal amount of the Senior Indebtedness under which
such Senior Default has occurred (or their authorized agent); PROVIDED, HOWEVER,
that (i) no such notice shall be effective as a Blockage Notice if an effective
Blockage Notice shall have been given within 360 days (measured as of the
commencement date of the prior notice) prior thereto and (ii) no such notice
shall be effective as a Blockage Notice if based upon a Senior Default that was
the basis of a prior effective Blockage Notice and such Senior Default has not
been cured or waived for a period of at least 90 days.
(c) For purposes of this Section 3, a "BLOCKAGE PERIOD" with
respect to a Blockage Notice is the period commencing upon the Company's receipt
of such Blockage Notice and having a duration as follows:
(1) 225 days if the Senior Default to which the Blockage
Notice refers is a Senior Payment Default; or
(2) 180 days if the Senior Default to which the Blockage
Notice refers is a Senior Covenant Default.
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54
Upon the expiration or termination of any Blockage Period, the
holders of the Notes shall be entitled to be paid accrued but unpaid interest
then due on the Notes.
(d) As long as any Senior Indebtedness remains outstanding,
upon the occurrence of an Event of Default under this Agreement, the holders of
the Subordinated Indebtedness shall not declare or join in any declaration of
the Notes to be due and payable by reason of such Event of Default or otherwise
take any action against the Company prior to the expiration of 45 days (a
"REMEDY STANDSTILL PERIOD") after the written notice of intention to accelerate
on account of the occurrence of such Event of Default, specifying same (the
"REMEDY NOTICE") shall have been given by the holders of the principal amount of
the Subordinated Indebtedness necessary to cause acceleration thereof to the
Company and the holders of the Senior Indebtedness (or their authorized agent)
unless the holders of any Senior Indebtedness shall have caused such Senior
Indebtedness to become due prior to its stated maturity or any Event of Default
pursuant to Section 11.1(vii) or 11.1(viii) of this Agreement shall have
occurred; PROVIDED, HOWEVER, that such Remedy Standstill Period shall be
extended to 150 days from the date of such Remedy Notice if, at the time the
Remedy Standstill Period would otherwise expire, there exists any Senior Default
and an effective Blockage Notice is given in accordance with, and subject to the
limitations of Agreement. Upon the expiration or termination of any Remedy
Standstill Period, the holders of the Notes shall be entitled to exercise any of
their rights with respect to the Notes other than any right to accelerate the
maturity date of the Notes based upon the occurrence of any Event of Default
which has been cured or otherwise remedied during the Remedy Standstill Period.
(e) Notwithstanding the foregoing, any Blockage Period or
Remedy Standstill Period shall be inapplicable or cease to be effective if an
Event of Default pursuant to Section 11.1(vii) or 11.1(viii) of this Agreement
shall have occurred. In addition, any Blockage Period or Remedy Standstill
Period shall cease to be effective if at any time during such period: (i) 37.5%
or more of the assets of the Company are sold or otherwise disposed of (in one
transaction or a series of related transactions) outside of the ordinary course
of business for less than fair value; (ii) payment or any distribution of any
character, whether in cash, securities or other property of the Company shall be
made to or received by any creditor on any Indebtedness which is on the same
level of priority with or junior and subordinate in right of payment to the
Notes or (iii) acceleration of the maturity of any Senior Indebtedness.
Notwithstanding any provision of any instrument evidencing any Subordinated
Indebtedness or any other provisions contained in this Agreement to the
contrary, no holder of Subordinated Indebtedness shall have any right to
accelerate or declare a default under any Subordinated Indebtedness, and no
purported default or acceleration of any Subordinated Indebtedness shall have
any effect, to the extent that such default or acceleration is premised upon the
existence of a default or event of default under the Senior Indebtedness.
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55
12.4 SUBORDINATION UPON CERTAIN EVENTS. Upon the occurrence of any
Event of Default under Sections 11.1(vii) or (viii) of this Agreement:
(a) Upon any payment or distribution of assets of the Company
to creditors of the Company, holders of Senior Indebtedness shall be entitled to
receive payment in full in cash before the holders of Subordinated Indebtedness
shall be entitled to receive any payment in respect of the Subordinated
Indebtedness, except that the holders of Subordinated Indebtedness may receive
Junior Securities.
(b) Until all Senior Indebtedness is paid in full in cash, any
distribution to which the holders of Subordinated Indebtedness would be entitled
but for this Agreement shall be made to holders of Senior Indebtedness, as their
interests may appear, except that the holders of Subordinated Indebtedness may
receive Junior Securities.
(c) Notwithstanding the foregoing provisions of this Section
12.4, if payment or delivery by the Company of Junior Securities to the holders
of Subordinated Indebtedness is authorized by an order or decree giving effect,
and stating in such order or decree that effect is given, to the subordination
of the Subordinated Indebtedness to the Senior Indebtedness, and made by a court
of competent jurisdiction in a proceeding under any applicable bankruptcy or
reorganization law, payment or delivery by the Company of such Junior Securities
shall be made to the holders of the Subordinated Indebtedness in accordance with
such order or decree.
12.5 PAYMENTS AND DISTRIBUTIONS RECEIVED. If the holders of the
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Article 12 before all Senior Indebtedness is
paid in full in cash, then and in such event such payment or distribution shall
be received and held in trust for and shall be promptly paid over or delivered
to the holders of Senior Indebtedness (or their authorized agent(s)) in the same
form of payment received, with appropriate endorsements, to the extent necessary
to pay all such Senior Indebtedness in full in cash, or any such assets as
collateral for the Senior Indebtedness.
12.6 SUBROGATION. After all amounts payable under or in respect of
Senior Indebtedness are paid in full in cash, the holders of the Subordinated
Indebtedness shall have the right to be subrogated to the rights of holders of
Senior Indebtedness to receive payments or distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to the holders
of the Subordinated Indebtedness have been applied to the payment of Senior
Indebtedness. A distribution made under this Agreement to a holder of Senior
Indebtedness which otherwise would have been made to the holders of the
Subordinated Indebtedness is not, as between the Company and the holders of the
Subordinated Indebtedness, a payment by the Company on Subordinated
Indebtedness.
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56
12.7 RELATIVE RIGHTS. This Agreement defines the relative rights of
the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the Company
and the holders of the Subordinated Indebtedness, the obligation of the Company,
which is absolute and unconditional, to pay principal of and interest (including
default interest) on Subordinated Indebtedness in accordance with its terms;
(ii) effect the relative rights of holders of Subordinated Indebtedness and
creditors of the Company other than holders of Senior Indebtedness; or (iii)
except as expressly provided herein, prevent the holders of Subordinated
Indebtedness from exercising their available remedies upon a Default or Event of
Default, subject to the rights, if any, under this Article 12 of holders of
Senior Indebtedness.
12.8 SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY. No right of
any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Agreement.
12.9 PAYMENTS. Subject to Section 12.3, a payment with respect to
principal of or interest on the Subordinated Indebtedness shall include, without
limitation, payment of principal of, and interest on the Subordinated
Indebtedness, any depositing of funds for the defeasance of the Subordinated
Indebtedness and any payment on account of mandatory prepayment or optional
prepayment provisions.
12.10 SECTION NOT TO PREVENT EVENTS OF DEFAULT. The failure to make
a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Agreement shall not be construed as preventing the occurrence of an Event of
Default under Article 11 of this Agreement.
12.11 DEFENSE TO ENFORCEMENT. If the Holder of any Note, in
contravention of the terms of this Article 12, shall commence, prosecute or
participate in any suit, action or proceeding against the Company, then the
Company may interpose as a defense or plea the making of the agreement contained
in this Article 12, and any holder of Senior Indebtedness may intervene and
interpose such defense or plea in its name or in the name of the Company. If the
Holder of any Note, in contravention of the terms of this Agreement, shall
attempt to collect any of the Subordinated Indebtedness or enforce any of its
rights under the Notes or Article 12 of this Agreement, then any holder of
Senior Indebtedness or the Company may, by virtue of this Article 12, restrain
the enforcement thereof in the name of such holders of Senior Indebtedness or in
the name of the Company. If the Holder of any Note, in contravention of the
terms of this Article 12, obtains any cash or other assets of the Company as a
result of any administrative, legal or equitable actions, or otherwise, such
holder agrees forthwith to pay, deliver and assign to the holders of Senior
Indebtedness, with appropriate endorsements, any such cash for application to
Senior Indebtedness and any such other assets as collateral for Senior
Indebtedness.
<PAGE>
57
12.12 FURTHER COVENANTS.
(a) Each Holder of Notes agrees, upon request of a holder of
Senior Indebtedness at any time and from time to time, to execute such other
documents or instruments as may reasonably be requested to evidence of public
record or otherwise the senior priority of the Senior Indebtedness as
contemplated hereby.
(b) Each Holder of Notes further agrees to maintain on its
books and records such notations as may reasonably be requested to reflect the
subordination contemplated hereby and to perfect or preserve the rights of the
holders of Senior Indebtedness hereunder.
12.13 FREEDOM OF DEALING. Each Holder of a Note agrees, with respect
to Senior Indebtedness and any and all collateral therefor or guaranties
thereof, that the Company and the holders of Senior Indebtedness may, subject to
the limitations contained in Section 10.6 of this Agreement, agree to increase
the amount of the Senior Indebtedness or otherwise modify the terms of the
Senior Indebtedness, and the holders of Senior Indebtedness may grant extensions
of the time of payment or performance to and make compromises, including
releases of collateral or guaranties, and settlements with the Company and all
other Persons, in each case without the consent of the Holders of the Notes or
the Company and without affecting the agreements of the Holders of the Notes or
the Company contained in this Article 12; PROVIDED, HOWEVER, that nothing
contained in this Section 12.13 shall constitute a waiver of the right of the
Company itself to agree or consent to a settlement or compromise of a claim
which holders of Senior Indebtedness may have against the Company.
12.14 SUBORDINATED INDEBTEDNESS VOTING RIGHTS. At any meeting of
creditors of the Company or in the event of any case or proceeding, voluntary or
involuntary, for the distribution, division or application of all or part of the
assets of the Company or the proceeds thereof, whether such case or proceeding
be for the liquidation, dissolution or winding up of the Company or its
business, a receivership, insolvency or bankruptcy case or proceeding, an
assignment for the benefit of creditors or a proceeding by or against the
Company for relief under any bankruptcy or reorganization law or any other law
relating to the relief of debtors, readjustment of indebtedness, reorganization,
arrangement, composition or extension or marshaling of assets or otherwise, the
holders of Subordinated Indebtedness shall retain the right to vote and
otherwise act with respect to the Subordinated Indebtedness (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension),
PROVIDED that, absent fraud or misrepresentation by the holders of Senior
Indebtedness with respect to the Senior Indebtedness or conduct on the part of
the holders of Senior Indebtedness which would be sufficient to support a claim
of equitable subordination with respect to Senior Indebtedness under
ss.510(c)(1) of the Bankruptcy Code (Title 11 U.S.C.), the holders of
Subordinated Indebtedness shall not vote with respect to
<PAGE>
58
any such plan or take any other action in any way so as to contest (i) the
validity of any Senior Indebtedness or any collateral therefor or guaranties
thereof, (ii) the relative rights and duties of any holders of any Senior
Indebtedness established in any instruments or agreements creating or evidencing
any of the Senior Indebtedness with respect to any of such collateral or
guaranties or (iii) the obligations and agreements of the holders of
Subordinated Indebtedness set forth in this Article 12.
12.15 SUBORDINATED INDEBTEDNESS UNSECURED. The holders of the
Subordinated Indebtedness hereby acknowledge and agree that the Subordinated
Indebtedness is unsecured.
12.16 MODIFICATION OR SALE OF THE SUBORDINATED INDEBTEDNESS. The
holders of Subordinated Indebtedness will not, at any time while this Agreement
is in effect, modify any of the terms of this Article 12, Sections 10.1, 10.2,
10.6, any of the definitions relevant to any of the foregoing, or any other
provision of this Agreement if such amendment, supplement or modification would
impose more restrictive terms on the Company and would have an adverse effect on
the rights and remedies of the holders of the Senior Indebtedness; nor will the
holders of Subordinated Indebtedness sell, transfer, pledge, assign, hypothecate
or otherwise dispose of any or all of the Subordinated Indebtedness to any
person other than a person who agrees in writing reasonably satisfactory in form
and substance to the holders of the Senior Indebtedness, to become a party
hereto and to succeed to the rights and to be bound by all of the obligations of
the holders of the Subordinated Indebtedness under this Article 12. In the case
of any such sale or other disposition by the holders of Subordinated
Indebtedness, the holders of Subordinated Indebtedness will notify the holders
of Subordinated Indebtedness at least five (5) Business Days prior to the date
of any of such intended sale or other disposition.
12.17 TERMINATION OF SUBORDINATION. This Article 12 shall continue
in full force and effect, and the obligations and agreements of the holders of
Subordinated Indebtedness and the Company hereunder shall continue to be fully
operative, until all of the Senior Indebtedness shall have been paid or provided
for in full in cash and such provision or payment shall be final and not
avoidable. To the extent that the Company or any guarantor of or provider of
collateral for the Senior Indebtedness makes any payment on the Senior
Indebtedness that is subsequently invalidated, declared to be fraudulent or
preferential or set aside or is required to be repaid to a trustee, receiver or
any other party under any bankruptcy, insolvency or reorganization act, state or
federal law, common law or equitable cause (such payment being hereinafter
referred to as a "VOIDED PAYMENT"), then to the extent of such Voided Payment,
that portion of the Senior Indebtedness that had been previously satisfied by
such Voided Payment shall be revived and continue in full force and effect as if
such Voided Payment had never been made. In the event that a Voided Payment is
recovered from any holder of Senior Indebtedness, an event of default shall be
deemed to have existed and to be continuing under the applicable Senior
Indebtedness from the date of such holder's initial receipt of such Voided
Payment until the full amount of such Voided Payment is restored to such holder
of
<PAGE>
59
Senior Indebtedness. During any continuance of any such event of default, this
Agreement shall be in full force and effect with respect to the Subordinated
Indebtedness. To the extent that any holder of Subordinated Indebtedness has
received any payments with respect to the Subordinated Indebtedness subsequent
to the date of any holder's Senior Indebtedness initial receipt of such Voided
Payment and such payments have not been invalidated, declared to be fraudulent
or preferential or set aside or are required to be repaid to a trustee,
receiver, or any other party under any bankruptcy act, state or federal law,
common law or equitable cause, such holder of Subordinated Indebtedness shall be
obligated and hereby agrees that any such payment so made or received shall be
deemed to have been received in trust for the benefit of the holders of Senior
Indebtedness, and the holders of Subordinated Indebtedness hereby agree to pay
to the holders of Senior Indebtedness upon demand, the full amount so received
by the Subordinated Indebtedness during such period of time to the extent
necessary fully to restore to the holders of Senior Indebtedness the amount of
such Voided Payment.
12.18 NOTICES TO HOLDERS OF SENIOR INDEBTEDNESS. The holders of
Subordinated Indebtedness shall provide notices required to be given under this
Article 12 to holders of Senior Indebtedness in the manner provided in Section
14.2 of this Agreement to the addresses of holders of Senior Indebtedness
specified in the Credit Agreement or other documents evidencing any such
Indebtedness.
ARTICLE 13
PREPAYMENT
The Company shall prepay outstanding principal (together with
accrued interest) on the Notes in accordance with the "Mandatory Prepayment"
provisions set forth in Section 3 of the Notes. The Company may prepay
outstanding principal (together with accrued interest) on the Notes only if the
Notes are prepaid in accordance with the "Optional Prepayment" provisions set
forth in Section 4 of the Notes.
ARTICLE 14
MISCELLANEOUS
14.1 SURVIVAL OF PROVISIONS. All of the representations and
warranties made herein shall survive the execution and delivery of this
Agreement, any investigation by or on behalf of the Purchasers or any Affiliate,
acceptance of the Senior Subordinated Notes, Warrants, Shares and Warrant Shares
and payment therefor, payment of the Senior Subordinated Note upon redemption or
otherwise, and exercise of the Warrants.
<PAGE>
60
14.2 NOTICES. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
services or personal delivery to the following addresses, or to such other
addresses as shall be designated from time to time by a party in accordance with
this Section 14.2:
(a) if to the Fund:
The 1818 Mezzanine Fund, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: Joseph P. Donlan
Telecopier No.: (212) 493-8429
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telecopier No.: (212) 757-3990
(b) if to PCI or Progressive:
401 Theodore Fremd Avenue
Rye, New York 10580
Attention: David W. Young
Telecopier No.: (914) 921-6716
with a copy to:
Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Attention: Gerardo C. Orlando, Esq.
Telecopier No.: (216) 696-0740
<PAGE>
61
(c) if to ML:
c/o ManuLife Financial
73 Tremont Street, Suite 1300
Boston, Massachusetts 02108-3915
Attention: Raymond L. Britt, Jr.
Telecopier No.: (617) 854-4403
with a copy to:
Manufacturers Life Insurance Company
Corporate Law Department
200 Bloor Street East
Toronto, Ontario M4W1ES, Canada
Attention: William Dawson, Esq.
Telecopier No: (416) 926-5657
(d) if to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street
Suite 200
Boca Raton, Florida 33487
Attention: Keith B. Stein
Telecopier No.: (360) 693-0552
with a copy to:
Weil Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attention: Jeremy W. Dickens, Esq.
Telecopier No.: (214) 746-7777
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered to a
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
confirmation of receipt is acknowledged, if telecopied.
14.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns and
permitted
<PAGE>
62
transferees of the parties hereto. Except as provided in Articles 7 and 12, no
Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of this Agreement, the Notes and the Warrants.
14.4 ASSIGNMENTS.
(a) The Company may not assign any of its rights or
obligations under this Agreement (other than in connection with a transaction
permitted pursuant to Section 10.3 hereof) without the written consent of the
Purchasers (prior to Closing) or the holders of a majority (x) in aggregate
principal amount of the Notes outstanding (following Closing) and (y) of the
aggregate number of Purchaser Shares then held by Holders.
(b) Subject to the other limitations contained in the Notes,
the Warrants and herein, including but not limited to Section 6.5, the
Purchasers and any subsequent Holder of Notes, Shares, Warrant Shares or
Warrants may, at any time or from time to time sell, agree to sell or assign to
one or more other Persons who agree to be bound by all of the terms of this
Agreement, all or any portion of the Notes, Warrants, Shares or Warrant Shares.
Subject to the other limitations contained in the Notes and this Agreement,
including but not limited to Section 6.5, in the event of any such sale or
assignment of a Note, upon surrender for exchange of any Note at the office of
the Company designated for notices in accordance with Section 14.2, the Company
shall execute and deliver in exchange therefor, without expense to the holder
(provided the Company shall not be responsible for any transfer taxes in
connection with any such sale or assignment), one or more new Notes in the same
aggregate principal amount as the then unpaid principal amount of the Note so
surrendered as such holder shall specify, dated as of the date to which interest
has been paid on the Note so surrendered (or, if no interest has been paid, the
date of such surrendered Note), in the name of such Person or Persons as may be
designated by such holder in writing, and otherwise of the same form and tenor
as the Note so surrendered for exchange. Subject to the limitation contained in
the Warrants (solely with respect to the Warrants), certificates representing
the Shares or Warrant Shares (solely with respect to the Shares or Warrant
Shares, as applicable) and this Agreement, including but not limited to Section
6.5 hereof, in the event of any sale or assignment of any Warrants, Shares or
Warrant Shares, upon surrender for exchange of any Warrant or certificate
representing any of the Shares or Warrant Shares at the office of the Company
designated for notices in accordance with Section 14.2, the Company shall
execute and deliver in exchange therefor, without expense to the holder
(provided the Company shall not be responsible for any transfer taxes in
connection with any such sale or assignment), one or more Warrants or
certificates representing Shares or Warrant Shares, as applicable, in the same
amount as surrendered as such holder shall specify in the name of such Person or
Persons as may be designated by such holder in writing, and otherwise of the
same form. Every Note, Warrant or certificate representing any Shares or Warrant
Shares surrendered for transfer shall be duly endorsed, or accompanied by a
written instrument of
<PAGE>
63
transfer duly executed by the holder of such Note, Warrant or certificate
representing any Shares or Warrant Shares or its attorney duly authorized in
writing.
14.5 AMENDMENT AND WAIVER.
(a) No failure or delay on the part of any Holder, in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement or the Notes, any waiver of any provision of this
Agreement or the Notes, and any consent to any departure by the Company from the
terms of any provision of this Agreement or the Notes, shall be effective (i)
only if it is made or given in writing and signed by the Company and the holders
of 66% of the aggregate principal amount of the Notes outstanding, and (ii) only
in the specific instance and for the specific purpose for which made or given.
Notwithstanding the foregoing, without the consent of each holder of a Note
affected, an amendment may not:
(1) reduce the rate of or extend the time for payment
of interest on any Note;
(2) reduce the principal of or extend the maturity of
any Note;
(3) change the time at which any Note shall or may be
prepaid in accordance with Sections 3 and 4 of the
Notes;
(4) make any Note payable in money other than that
stated in the Notes;
(5) make any change in Article 12 that adversely
affects the rights of any holder of a Note under
Article 12; or
(6) make any change in the first or second sentence of
this Section 14.5(b).
(c) Any amendment, supplement or modification of or to any of
the terms provided in Article 8, Sections 9.1(c), 9.7, 9.9, 9.10, 9.11, 9.15,
10.4, 10.13 and 10.14 and Article 14, and any definitions in Article 1 relating
to such provisions, and any consent to any departure by the Company from such
provisions, shall be effective (i) only if it is made or given in writing and
signed by the Company
<PAGE>
64
and the Holders of at least 51% of the Purchaser Shares held by Holders, and
(ii) only in the specific instance and for the specific purpose for which made
or given.
(d) In addition to the foregoing, any amendment, supplement or
modification of or to any of the terms provided in Sections 9.8, 9.11 or 9.14,
and any consent to any departure by the Company from any such provisions, shall
be effective (i) only if it is made or given in writing and signed by the
Company and the Holders of at least 51% of the Warrants (based on the number of
Warrant Shares issuable upon the exercise of unexercised Warrants) held by
Holders, and (ii) only in the specific instance and for the specific purpose for
which made or given.
(e) Except where notice is specifically required by this
Agreement, no notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
14.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
14.7 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
14.8 DETERMINATIONS. All determinations to be made by the Company,
the Purchasers or any Holder hereunder in its opinion or judgment or with its
approval or otherwise shall be made by it in its sole discretion, unless
otherwise specified herein.
14.9 GOVERNING LAW. This Agreement has been negotiated, executed and
delivered in the State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
14.10 JURISDICTION. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
in the courts of the State of New York located in New York City or of the United
States of America for the Southern District of New York and hereby expressly
submits to the personal jurisdiction and venue of such courts for the purposes
thereof and expressly waives any claim of improper venue and any claim that such
courts are an inconvenient forum. Each party hereby irrevocably consents to the
service of process of any of the aforementioned courts pursuant to a contractual
provision in any such suit, action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the address set
forth in Section 14.2, such service to become effective 10 days after such
mailing. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED,
EACH PARTY HEREBY
<PAGE>
65
WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT
OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR
OTHERWISE.
14.11 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
14.12 RULES OF CONSTRUCTION. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
14.13 REMEDIES. If a breach of this Agreement, the Notes or the
Warrants by the Company occurs and is continuing, the Purchasers or any Holder
may pursue any available remedy by proceeding at law or in equity to enforce the
performance (including, without limitation, the specific performance) of any
provision of the Notes, the Warrants or this Agreement. The Purchasers or any
Holder may maintain a proceeding even if it does not possess any of the Notes or
Warrants or does not produce any of them in the proceeding. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
14.14 ENTIRE AGREEMENT. This Agreement, together with the exhibits
and schedules hereto, the Senior Subordinated Notes, the Warrants and the Regis
tration Rights Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement, together with the exhibits and schedules hereto, the
Senior Subordinated Notes, the Warrants and the Registration Rights Agreement
supersede all prior agreements and under standings among the parties with
respect to such subject matter.
14.15 ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Agreement, the Notes, the Warrants and the
Registration Rights Agreement or any other document or instrument contemplated
hereby or thereby, or where any provision hereof or thereof is validly asserted
as a defense, the successful
<PAGE>
66
party shall be entitled to recover reasonable attorneys' fees, charges and
disbursements in addition to any other available remedy.
14.16 PUBLICITY. Except as may be required by applicable law or a
listing agreement with any securities exchange or Nasdaq, no party hereto shall
issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto. If any announcement is
required by law to be made by a party hereto, prior to making such announcement
such party will deliver a draft of such announcement to the other parties and
shall give the other parties an opportunity to comment thereon.
14.17 EXPENSES. The Company acknowledges and agrees that whether or
not the transactions contemplated hereby are consummated, the Company shall
reimburse the Purchasers for (a) all out-of-pocket expenses of the Purchasers in
connection with any preparation and filing of any notification and report forms
filed in compliance with the HSR Act in connection with the transactions
contemplated hereby and (b) all out-of-pocket expenses, and all legal fees and
expenses of the Purchasers incurred in connection with the negotiation,
execution and delivery of this Agreement and the other Transaction Documents.
<PAGE>
67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers or partners hereunto duly
authorized as of the date first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ Keith B. Stein
-------------------------------------
Name: Keith B. Stein
Title: Vice Chairman and Treasurer
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By: /s/ Joseph P. Donlan
---------------------------------
Name:
PROGRESSIVE INVESTMENT COMPANY, INC.
By: /s/ David W. Young
-------------------------------------
Name: David W. Young
Title: Chief Investment Officer
PC INVESTMENT COMPANY
By: /s/ David W. Young
-------------------------------------
Name: David W. Young
Title: Chief Investment Officer
<PAGE>
68
MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
By: /s/ Raymond Britt
-------------------------------------
Name: Raymond Britt
Title: V.P.
<PAGE>
SCHEDULE 2.1A
PRINCIPAL AMOUNT OF SENIOR SUBORDINATED NOTES
PRINCIPAL AMOUNT OF
NAME OF PURCHASER SENIOR SUBORDINATED NOTES
- ----------------------------- ---------------------------------------
The 1818 Mezzanine Fund, L.P. $16,000,000
PC Investment Company $14,000,000
Manufacturers Life Insurance $10,000,000
Company (U.S.A.)
---------------------------------------
Total: $40,000,000
=======================================
<PAGE>
SCHEDULE 2.1B
WARRANTS
NUMBER OF SHARES OF COMMON STOCK
NAME OF PURCHASER TO BE PURCHASED BY THE WARRANTS
- ----------------------------- ---------------------------------------
The 1818 Mezzanine Fund, L.P. 415,570
PC Investment Company* 363,623
Manufacturers Life Insurance 259,731
Company (U.S.A.)
---------------------------------------
Total: 1,038,924
=======================================
* Immediately following the Closing, PC Investment Company will assign the
Warrants to The Progressive Investment Company, Inc.
<PAGE>
SCHEDULE 2.1C
COMMON STOCK
NAME OF STOCK PURCHASER NUMBER OF SHARES OF COMMON STOCK
- ----------------------------- ---------------------------------------
The 1818 Mezzanine Fund, L.P. 761,905
Progressive Investment Company, 1,142,857
Inc.
---------------------------------------
Total: 1,904,762
=======================================
Exhibit 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
December 22, 1997, by and among National Auto Finance Company, Inc., a Delaware
corporation (the "Company"), and the Persons set forth on Schedule I attached
hereto (the "Investors"). Capitalized terms used herein not otherwise defined
shall have the meanings set forth in Section 9 of this Agreement.
WHEREAS, the Company (through its predecessor, National Auto Finance
Company, L.P.) and Morgan Guaranty Trust Company of New York, as trustee of the
Commingled Pension Trust Fund (Multi-Market Special Investment Fund II) and the
Multi-Market Special Investment Trust Fund, and as investment manager and agent
for The Alfred P. Sloan Foundation (Multi-Market Account) (collectively, the
"Morgan Trusts") are parties to that certain Registration Rights Agreement dated
August 6, 1996 (as amended to date, the "Morgan Registration Rights Agreement")
pursuant to which the Morgan Trusts have certain registration rights;
WHEREAS, FSA Portfolio Management, Inc. ("FSA") and the Company are
parties to that certain Registration Right Agreement (the "FSA Registration
Rights Agreement") entered into October 1, 1997 pursuant to which FSA has
certain registration rights;
WHEREAS, pursuant to the Second Amended and Restated Agreement of
Limited Partnership dated September 1, 1997 (as amended, the "NAFI Partnership
Agreement"), of National Auto Finance Company, L.P. (the "Partnership"),
IronBrand Capital LLC has certain registration rights;
WHEREAS, the Company has entered into a Securities Purchase Agreement
dated December 19, 1997 (the "Securities Purchase Agreement") with The 1818
Mezzanine Fund, L.P., PC Investment Company, Progressive Investment Company,
Inc., and Manufacturer's Life Insurance Company (U.S.A.) (together the
"1818/Progressive/ML Group") which contemplates that the Company will grant the
1818/Progressive/ML Group certain registration rights;
WHEREAS, the Company has also agreed to provide certain registration
rights to the Partnership (including its limited partners to whom Registrable
Securities are distributed) (the "Partners"); and
WHEREAS, the foregoing parties desire to set forth their agreement as
to the relative registration rights of such parties from this day forward and,
by so doing, to supersede and
1
<PAGE>
replace all prior registration rights agreements between the Company and the
other parties hereto;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. REGISTRATION STATEMENTS.
(a) DEMAND REGISTRATION. (i) Upon each notice to the Company by the
Morgan Holders, IronBrand or the 1818/Progressive/ML Holders requesting the
registration of a specified number of their Registrable Securities, the Company
shall, as promptly as practicable and in any event not later than 90 days after
the Company's receipt of such notice, prepare and file with the Commission under
the Securities Act a Registration Statement (including by means of a shelf
registration pursuant to Rule 415 under the Securities Act (a "Shelf
Registration Statement") if so requested in such notice (but, in the case of a
shelf registration, only if the Company is then eligible to use such a shelf
registration and if Form S-2 or Form S-3 (or any successor forms) is then
available to the Company) with respect to the Registrable Securities to which
such notice relates, and shall use its reasonable best efforts to cause such
Registration Statement to be declared effective at the earliest practicable date
and to prepare and make available a Prospectus meeting the requirements of
Section 10(a) of the Securities Act and providing for the method of disposition
determined pursuant to Section 1(a)(ii) for such period as may be required by
the Securities Act, but in no event beyond the period specified in Section
1(a)(iii); provided, that the Company will not be required to effect any such
registration within the period beginning on the effective date of a Registration
Statement filed by the Company on its behalf or for the account of any other
Person covering a firm commitment Underwritten Offering and ending on the later
of (A) 90 days after such effective date and (B) the expiration of any lock-up
period required by the underwriters, if any, in connection therewith. Subject to
Section 1(a)(iii) below, each of the Morgan Holders, the 1818/Progressive/ML
Holders and IronBrand may make two requests for registration pursuant to this
Section 1(a)(i); provided that the number of such permissible requests shall be
increased as set forth in Sections 1(c)(ii)(A) and 1(c)(iv) and provided no such
holders shall be entitled to make such a request while any other Registration
Statement (other than a Shelf Registration Statement) with the Commission is on
file prior to its becoming effective or within 90 days after such a Registration
Statement has been declared effective or in the case of a Shelf Registration
Statement while such registration is on file prior to being declared effective
until 90 days after such Registration Statement ceases to be effective.
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(ii) If a request for registration is made pursuant to
Section 1(a)(i), the Company shall promptly give written notice of such request
to all Demand Holders who did not participate in such request; and each Demand
Holders Group shall have the right, subject to Section 1(a)(iii), by giving
written notice to the Company promptly (and in any event within 30 days after
such notice is given by the Company), to join in such request and to have
included in the Registration Statement to be filed by the Company pursuant to
such request such number of Registrable Securities as such holders shall specify
in such notice; and the method of distribution of the Registrable Securities to
be included in such Registration Statement under Section 1(a)(i) shall be
selected by the holders of a majority of the Registrable Securities with respect
to which the request for registration was made under Section 1(a)(i);
(iii) any Demand Holder Group which shall have given the
Company a notice pursuant to Section 1(a)(i) above and all of whose shares
requested to be included shall have been included in the Registration Statement
at the time it is declared effective shall not be deemed to have used one of its
requests for registration (A) unless the Registration Statement with respect
thereto has become effective and remained effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement until such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such Registration Statement; PROVIDED, THAT, such period need not exceed 180
days, (B) if after it has become effective, such registration is interfered with
by any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason not attributable to the Demand
Holders and has not thereafter become effective, or (C) if the conditions to
closing specified in the underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived, other than by
reason of a failure on the part of the Demand Holders.
(iv) The Company may delay the filing of a Registration
Statement requested pursuant to this Section 1(a) if, in its reasonable
judgment, (A) the filing of such Registration Statement at such time would
adversely affect or require the Company to disclose in the Registration
Statement a proposed financing, reorganization or recapitalization, or pending
negotiations relating to a merger, consolidation, acquisition or similar
transaction, or otherwise adversely affect the Company; or (B) financial
statements meeting the requirements of Regulation S-X are not available at such
time because of any such pending proposal or negotiations; provided, however,
that the right of the Company pursuant to clauses (A) and (B) of this subsection
(iv) to delay the filing of a Registration
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Statement shall not extend for more than 90 days from the date that notice is
given pursuant to Section 1(a)(i) requesting registration. The Company shall
promptly give the holders of Registrable Securities requesting registration
thereof pursuant to Sections 1(a)(1) or 1(a)(ii) written notice of such
determination, containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay. If the Company shall
so postpone the filing of a Registration Statement, any Demand Holder Group
requesting registration thereof pursuant to Section 1(a)(i) shall have the right
to withdraw the request for registration by giving written notice to the Company
within 15 days after receipt of the notice of postponement and, in the event of
such withdrawal, such request shall not be counted for purposes of the requests
for registration to which holders of Registrable Securities are entitled
pursuant to Section 1(a) hereof.
(b) INCIDENTAL REGISTRATION. (i) In addition to, and independent of the
rights afforded by Section 1(a), prior to filing with the Commission any
Registration Statement (other than a Registration Statement on Form S-4 or S-8
or any successor forms to such Forms) with respect to (A) any public offering by
and for the account of the Company of its equity securities or any securities
convertible into or exchangeable or exercisable for such equity securities or
(B) any public offering by the Company for the account of any holders of equity
securities of the Company, of the Company's equity securities or any securities
convertible into or exchangeable or exercisable for such equity securities, the
Company shall notify each holder of the Registrable Securities of such proposed
filing, specifying whether such offering is to be an Underwritten Offering. Any
such holder wishing to have any of such holder's Registrable Securities included
in such Registration Statement shall promptly (and in any event within 30 days
after such notice is given by the Company) give written notice to the Company
requesting registration of such holder's Registrable Securities, specifying the
number of Registrable Securities requested to be registered and describing the
proposed method of disposition thereof, and if the proposed offering is to be an
Underwritten Offering and such holder wishes to participate therein, specifying
the number of Registrable Securities which such holder wishes to dispose of
pursuant to such Underwritten Offering.
(ii) If the proposed public offering as to which notice
is given by the Company pursuant to Section 1(b)(i) is other than an
Underwritten Offering, the Company shall use its reasonable best efforts to
register the Registrable Securities requested to be included in its Registration
Statement and, in connection therewith, to prepare and make available a
Prospectus meeting the requirements of Section 10(a) of the Securities Act for
such period as may be required by the Securities Act.
(iii) At any time prior to the time that a Registration
Statement as to which notice has been given by the Company pursuant to Section
1(b) has been filed by the
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Company or, if filed, has been declared effective, the Company may determine not
to file, or may withdraw, such Registration Statement, in either of which events
the Company shall have no obligation pursuant to this Section 1(b) to register
any Registrable Securities in connection with such proposed Registration
Statement.
(c) UNDERWRITTEN OFFERINGS. If the proposed method of disposition of
Registrable Securities as to which notice is given by the holders of Registrable
Securities under Sections 1(a)(i) and 1(a)(ii), collectively, or the proposed
public offering as to which notice is given by the Company pursuant to Section
1(b)(i) is to be an Underwritten Offering:
(i) the Company shall request the underwriter(s)
participating in such offering to purchase and sell all Registrable Securities
the disposition of which pursuant to such Underwritten Offering shall have been
requested by the holders thereof in notices given pursuant to Section 1(a)(i),
1(a)(ii) or 1(b)(i), as the case may be;
(ii) (A) each holder of Registrable Securities giving a
notice pursuant to Section 1(a)(i) or 1(a)(ii), as the case may be, agrees that,
by the giving of such notice, if the underwriter(s) desire(s) to purchase any of
the Registrable Securities requested by such holder to be purchased, such holder
shall sell such Registrable Securities to such underwriter(s) pursuant to an
underwriting agreement to be entered into by and among the Company, the
underwriter(s), such holder and any other holders of securities of the Company
participating in such Underwritten Offering, unless, upon written notice to the
Company and the managing underwriter given at least five Business Days prior to
the date that the Registration Statement with respect to such offering is
proposed to become effective (or any later proposed effective date), such holder
withdraws its Registrable Securities from such Underwritten Offering; provided,
that, if the Morgan Holders, IronBrand or the 1818/Progressive/ML Holders (with
respect to a registration requested under Section 1(a)(i)) withdraw the
Registrable Securities requested by such holders pursuant to Section 1(a)(i) to
be included in such Underwritten Offering because the underwriter(s) have
advised the Company in writing that the number of Registrable Securities
requested to be included in such registration exceeds the number of such
securities that can be sold in such offering within a price range acceptable to
such holders, then such request for registration shall be withdrawn as to all
holders of Registrable Securities of the type held by the holders requesting
such withdrawal and the number of requests for registration that may be made by
such Demand Holder Group pursuant to 1(a)(i) should be increased by one, and
notwithstanding anything to the contrary in this Agreement, all of the costs
incurred by such holders in connection with such registration shall be paid by
the Company; and, provided, further, if any holder of Registrable Securities
requesting registration of such securities pursuant to Section 1(a)(i) or
1(a)(ii) withdraws its request for registration for any reason that
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<PAGE>
is not based on such advice from the underwriter(s), then, notwithstanding
anything to the contrary in this Agreement, any expenses incident to the
Company's preparation in accordance with this Agreement for the registration of
such Registrable Securities so withdrawn shall be borne entirely by the holders
of such Registrable Securities, pro rata among such holders requesting such
withdrawal, in the proportion that the number of Registrable Securities
requested by each such holder to be included in such Underwritten Offering and
so withdrawn bears to the total number of Registrable Securities requested to be
included in such Underwritten Offering and so withdrawn.
(B) each holder of Registrable Securities giving a
notice pursuant to Section 1(b)(i) agrees that, by the giving of such notice, if
the underwriter(s) desire(s) to purchase any of the Registrable Securities
requested by such holder to be purchased, such holder shall sell such
Registrable Securities to such underwriter(s) pursuant to an underwriting
agreement to be entered into by and among the Company, the underwriter(s), such
holder and any other holders of securities of the Company participating in such
Underwritten Offering, unless, upon written notice to the Company and the
managing underwriter given at least five Business Days prior to the date that
the Registration Statement with respect to such offering is proposed to become
effective (or any later proposed effective date), such holder withdraws its
Registrable Securities from such Underwritten Offering.
(iii) if the underwriter(s) elect(s) to purchase less
than all securities (including Registrable Securities) which it is requested to
purchase in connection with such offering (or if, in the judgment of the
Company, on the written advice of such underwriter(s), the inclusion of all such
securities in such Underwritten Offering would adversely affect the proposed
public offering by and for the account of the Company), the Company shall use
its reasonable best efforts to cause purchases, if any, by such underwriter(s),
(A) if such Underwritten Offering is the result of a request for registration
pursuant to Section 1(a)(i) or 1(b)(i)(B), first, of securities to be offered
for the account of the Demand Holders requesting inclusion pursuant to Sections
1(a)(i) and 1(a)(ii), to be made pro rata according to the number of securities
requested by each such holder to be included in the Underwritten Offering,
second, of securities to be offered for the account of the Company, third, of
securities to be offered for the account of FSA and the Partners, to be made pro
rata according to the number of securities requested by each such holder to be
included in the Underwritten Offering, and fourth, of securities to be offered
for the account of Persons other than (1) the Company, (2) the Demand Holders
who requested inclusion pursuant to Sections 1(a)(i) and 1(a)(ii) and (3) FSA
and the Partners, to be made pro rata according to the number of securities
requested by such other Persons to be included in the Underwritten Offering, and
(B) if such Underwritten Offering is the result of a request for registration
pursuant to Section 1(b)(i)(A), first, of securities to be offered for the
account of
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the Company, second, of securities to be offered for the account of Demand
Holders to be made pro rata according to the number of securities requested by
each such holder to be included in the Underwritten Offering, third, of
securities to be offered for the account of FSA and the Partners to be made pro
rata according to the number of securities requested by such holders to be
included in the Underwritten Offering, and fourth, of securities to be offered
for the account of Persons other than (1) the Company (2) the Demand Holders and
(3) FSA and the Partners, to be made pro rata according to the number of
securities requested by such other Persons to be included in the Underwritten
Offering.
(iv) if (A) pursuant to Section 1(c)(iii), any of the
Registrable Securities requested by any Demand Holder Group to be disposed of
pursuant to any Underwritten Offering shall not have been purchased by the
underwriter(s) thereunder and (B) the Underwritten Offering is the result of a
request for registration pursuant to Section 1(a)(i), then the number of
permissible requests for registration that may be made pursuant to such Section
1(a)(i) by such Demand Holder Group shall be increased by one.
(d) RESTRICTIONS ON PUBLIC SALE BY HOLDER. Each holder whose
Registrable Securities are covered by a Registration Statement filed pursuant to
this Section 1 agrees, upon the request of the underwriter(s) in any
Underwritten Offering permitted pursuant to Section 8, not to effect any public
sale or distribution of securities of the Company of the same class as the
securities, or any security convertible into or exchangeable or exercisable for
such securities, included in such Registration Statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
registration), during the 10-day period prior to, and during the 90-day period
(or such longer period, not exceeding 180 days, as is required by the
underwriter(s)) beginning on, the closing date of any such Underwritten Offering
made pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such underwriter(s); provided, that all other Persons
selling securities in such Underwritten Offering and all officers and directors
of the Company shall enter into agreements providing for the same restriction on
a public sale as described herein.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute, regulation or
preexisting contractual or fiduciary duty from entering into any such agreement.
(e) RESTRICTIONS ON SALE OF SECURITIES BY THE COMPANY. The Company
agrees not to effect any public or private offer, sale or distribution of its
equity securities or any security convertible into or exchangeable or
exercisable for such equity security, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
90-day period (or such longer period, not exceeding 180 days, as is required
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<PAGE>
by the underwriter(s)) beginning on, the closing date of each Underwritten
Offering permitted pursuant to Section 8, to the extent timely and reasonably so
requested in writing by the underwriter(s) (except as part of such registration,
if permitted, or pursuant to registrations on Form S-4 or S-8 or any successor
forms to such Forms or pursuant to an issuance of equity securities of the
Company where such equity securities are exempted from the Securities Act
pursuant to Section 3(a)(10) thereof).
(f) AMENDMENTS. Upon the occurrence of any event that would cause any
Registration Statement (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for resale of Registrable Securities during
the period that such Registration Statement is required to be effective and
usable, the Company shall promptly file an amendment to the Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), using its reasonable
best efforts to cause such amendment to be declared effective and such
Registration Statement to become usable as soon as practicable thereafter.
2. REGISTRATION PROCEDURES.
In connection with any Registration Statement and subject to the
provisions of Section 1 the Company shall use its reasonable best efforts to
effect such registration to permit the sale of the Registrable Securities being
sold in accordance with the intended method or methods of distribution thereof,
and pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Registrable Securities being
sold in accordance with the intended method or methods of distribution thereof
and shall include all financial statements required by the Commission to be
filed therewith (including, if required by the Securities Act or any regulation
thereunder, financial statements of any Subsidiary of the Company which shall
have guaranteed any indebtedness of the Company), cooperate and assist in any
filings required to be made with the NASD and use its reasonable best efforts to
cause such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the selling
holders to consummate the disposition of such Registrable Securities; provided,
that before filing a Registration Statement or any Prospectus, or any amendments
or supplements thereto, the Company shall (i) furnish to the holders of the
Registrable Securities and the underwriter(s), if any, copies of all such
documents proposed to be filed, which documents shall be subject to the review
of such holders and (ii) make the Company's representative available for
discussion of such
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documents; and provided, further, that in connection with any registration of
Registrable Securities pursuant to Section 1(a), the Company shall not file any
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto to which the holders of a majority of Registrable Securities covered by
such Registration Statement or the underwriter(s), if any, shall reasonably
object within 10 Business Days after the receipt thereof, and provided, further,
that in connection with any registration pursuant to Section 1 (b)(i), if the
holders of a majority of Registrable Securities covered by a Registration
Statement in connection therewith reasonably object within 10 Business Days
after the receipt of such Registration Statement or amendment thereto or any
Prospectus or any supplement thereto, the Company shall provide written notice
not more than five Business Days after the end of the 10 Business-Day period
referred to above to such holders as to whether or not the Company plans on
filing such document, notwithstanding such objection (which such notice shall
bind the Company), and if the Company notifies such holders that it plans on
filing such document, any holder of Registrable Securities to be registered
under such Registration Statement may withdraw its Registrable Securities from
such Registration Statement and the offering in connection therewith and, if
such holder makes such a withdrawal, it shall have no further obligations in
connection with such Registration Statement or offering. For purposes of the
preceding provisos, an objection made by a holder of the Registrable Securities
or an underwriter, if any, shall be deemed to be reasonable if, including
without limitation, the Registration Statement, amendment, Prospectus or
supplement, as applicable, as filed or proposed to be filed, contains, in the
reasonable judgment of the holder of Registrable Securities or underwriter, a
material misstatement or omission;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 1, or such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold;
(c) if requested by the holders of a majority of the Registrable
Securities being sold in an Underwritten Offering permitted by Section 7 or the
underwriter(s) thereof, promptly incorporate in a Prospectus, Prospectus
supplement or post-effective amendment such information as such underwriter(s)
and the holders of a majority of the Registrable Securities being sold agree
should be included therein relating to the plan of distribution of the
Registrable Securities, including, without limitation, information with respect
to the number of Registrable Securities being sold to such underwriter(s), the
purchase price being paid therefor and with respect to any other terms of the
offering of the Registrable Securities to be sold in such offering; and make any
required filings of such Prospectus, Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified
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<PAGE>
of the matters to be incorporated in such Prospectus, Prospectus supplement or
post-effective amendment;
(d) advise the underwriter(s), if any, and holders of the Registrable
Securities promptly and, if requested by such Persons, confirm such advice in
writing:
(i) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment thereto, when the same has become
effective;
(ii) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the Prospectus or for
additional information relating thereto;
(iii) if at any time the representations and warranties
of the Company contemplated by clause (l)(i) below cease to be true and correct;
(iv) if the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and
(v) of the issuance by the Commission of any stop order
or other order suspending the effectiveness of the Registration Statement, or
any order issued by any state securities commission or other regulatory
authority suspending the qualification or exemption from qualification of such
Registrable Securities under state securities or "blue sky" laws. If at any time
the Company shall receive any such stop order suspending the effectiveness of
the Registration Statement, or any such order from a state securities commission
or other regulatory authority, the Company shall use its reasonable best efforts
to obtain the withdrawal or lifting of such order at the earliest possible time.
(e) furnish to each holder of the Registrable Securities and each of
the underwriter(s), if any, without charge, at least one complete conformed copy
of the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
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(f) deliver to each holder of the Registrable Securities and each of
the underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus and any amendment or supplement thereto by each of the holders of the
Registrable Securities and each of the underwriter(s), if any, in connection
with the offering and the sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, cooperate
with the holders of the Registrable Securities, the underwriter(s), if any, and
their respective counsel in connection with the registration and qualification
of the Registrable Securities under the securities or "blue sky" laws of such
jurisdictions as the holders of the Registrable Securities or underwriter(s) may
reasonably request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement, except that the Company shall
not for any such purpose be required to (i) qualify generally to do business as
a foreign corporation in any jurisdiction wherein it would not, but for the
requirements of this clause (g), be obligated to so qualify or to consent to any
general service of process in any such jurisdiction or (ii) subject itself to
taxation in respect of doing business in any jurisdiction in which it would not
otherwise be so subject;
(h) cooperate with the holders of the Registrable Securities and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold without bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as such holders or the
underwriter(s), if any, may request;
(i) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Registrable Securities;
(j) if any fact or event contemplated by clause (d)(iv) above shall
exist or have occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
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(k) provide a transfer agent and registrar (which may include the
Company) and CUSIP number for all Registrable Securities not later than the
effective date of the Registration Statement;
(l) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith as may be reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities pursuant to the Registration Statement, and in connection with any
such underwriting agreement entered into by the Company:
(i) make such representations and warranties to the
underwriter(s), in form, substance and scope as are customarily made by issuers
to underwriters in primary underwritten offerings;
(ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the underwriter(s)) and the holders of the
Registrable Securities, addressed to the underwriter(s) and the holders of the
Registrable Securities covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may reasonably be
requested by such holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants, addressed to the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by underwriters in connection
with primary underwritten offerings and, subject to the policies of the
Commission, the Company's certified public accountants and the U.S. accounting
profession, use its reasonable best efforts to have such letters and updates
addressed to FSA Portfolio Management;
(iv) set forth in full or incorporate by reference in
the underwriting agreement the indemnification provisions and procedures of
Section 4 with respect to all parties to be indemnified pursuant to said
Section; and
(v) deliver such documents and certificates as may be
reasonably requested by the holders of the Registrable Securities being sold or
the underwriter(s) of such Underwritten Offering to evidence compliance with
subclause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company pursuant
to this clause (1).
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The above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder;
(m) make available for inspection by a representative of the selling
holders of the Registrable Securities, any underwriter participating in any
disposition pursuant to the Registration Statement, and any attorney, accountant
or other professional retained by such holders or any of the underwriters,
subject to reasonable notice and during regular business hours, all financial
and other records, pertinent corporate documents and properties of the Company,
provided, that all expenses incurred by any party requesting such access shall
be paid by such party, and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such holder, underwriter,
attorney, accountant or other professional in connection with such Registration
Statement subsequent to the filing thereof and prior to its effectiveness,
except that the aforementioned advisors may be required to sign a reasonably
acceptable confidentiality agreement;
(n) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to the holders of the Registrable Securities, as soon as practicable, a
consolidated earnings statement (which need not be audited) for the 12-month
period (A) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts Underwritten
Offering or (B) if not sold to underwriters in such an offering, beginning with
the first month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement; provided, however, that such
reporting obligations shall be in addition to and not in place of the
obligations imposed on the Company by Section 5 of the Morgan Purchase
Agreements and Section 9.1 of the 1818/Progressive/ML Purchase Agreement;
(o) use its reasonable best efforts to cause all Registrable Securities
to be listed on each securities exchange, if any, on which equity securities
issued by the Company are then listed; and
(p) use its reasonable best efforts to take all other steps necessary
to effect the registration of the Registrable Securities contemplated hereby.
The Company may require each holder of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as is required by applicable
laws and regulations.
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Each holder of the Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company
pursuant to Section 2(d)(iv), or notice of a stop order or suspension described
in Section 2(d)(v), such holder shall forthwith discontinue disposition of
Registrable Securities and cease to use the Prospectus in use under such
Registration Statement. Each holder of Registrable Securities also agrees that
if in an Underwritten Offering effected pursuant to this Agreement it is
required to deliver a signed opinion of counsel to the underwriter(s) under the
underwriting agreement, it will cause its counsel to address and deliver a copy
of such opinion to the Company. The Company shall, as promptly as practicable,
provide each holder with copies of the supplemented or amended Prospectus
contemplated by Section 2(j), or advise the holders in writing that the use of
the Prospectus may be resumed, and provide each holder with copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus. If so directed by the Company, each such holder shall deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
3. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement shall be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation:
(i) all registration and filing fees and expenses
(including filings made with the NASD);
(ii) fees and expenses of compliance with federal
securities and state "blue sky" or securities laws;
(iii) expenses of printing (including printing
certificates for the Registrable Securities and Prospectuses), messenger and
delivery services and telephone;
(iv) fees and disbursements of counsel for the Company
and one counsel, and one local counsel for each local jurisdiction where it is
reasonably necessary, for the holders of the Registrable Securities selling such
securities pursuant to a Registration Statement (subject to the provisions of
Section 3(b));
(v) all application and filing fees in connection with
listing the Registrable Securities on a national securities exchange or
automated quotation system pursuant to the requirements hereof;
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(vi) all fees and disbursements of independent certified
public accountants of the Company (including the expenses of any special audit
and "cold comfort" letters required by or incident to such performance);
(vii) any reasonable out-of-pocket expenses of the
holders of the Registrable Securities (or the agents and fiduciaries who manage
their accounts); and
(viii) such other reasonable and customary expenses as
may be at such time (A) associated with underwritten offerings and (B)
customarily borne by the issuer, which such reasonable and customary expenses
shall not be deemed to include any underwriter discounts, commissions or
applicable transfer taxes attributable to the sale of Registrable Securities.
The Company shall, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, rating
agency fees and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement, the Company shall
reimburse the holders of the Registrable Securities for the reasonable fees and
disbursements of not more than one counsel chosen by the holders of a majority
of the Registrable Securities covered by such Registration Statement and of all
local counsel that is reasonably necessary. Notwithstanding the provisions of
this Section 3, each holder shall pay registration expenses if and to the extent
required by applicable law.
4. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each holder of
the Registrable Securities and each Person, if any, who controls such holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including, without limiting the foregoing but subject to Section
4(c), the reasonable legal and other expenses incurred in connection with any
action, suit or proceeding or any claim asserted) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except to the extent that such
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losses, claims, damages, liabilities or expenses are the result of an untrue
statement or omission contained in information relating to such holder,
furnished in writing to the Company by or on behalf of such holder expressly for
use therein. In connection with any Underwritten Offering permitted by Section
8, the Company shall also indemnify underwriters, if any, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the
holders, if requested in connection with any Registration Statement.
(b) As a condition to the inclusion of its Registrable Securities in
any Registration Statement pursuant to this Agreement, each holder thereof shall
furnish to the Company in writing, promptly after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Registration Statement, Prospectus or preliminary prospectus and each
such holder agrees to indemnify and hold harmless, severally and not jointly,
the Company and its directors, its officers who sign such Registration
Statement, and any Person controlling the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent as
the indemnity from the Company to each holder and Persons controlling such
holder, but only with reference to information relating specifically to such
holder furnished in writing by or on behalf of such holder expressly for use in
such Registration Statement or the Prospectus or any preliminary prospectus
included therein, and of which none of the Company, its directors or officers
has actual knowledge independent of such holder; provided, however, that such
holder of Registrable Securities shall not be liable in any such case to the
extent that the holder has furnished in writing to the Company, reasonably in
advance of the filing of any such Registration Statement, Prospectus or
preliminary prospectus with the Commission, information expressly for use in
such Registration Statement, Prospectus or preliminary prospectus which
corrected or made not misleading information previously furnished to the
Company, and the Company failed to include such information therein. In case any
action shall be brought against the Company, any of its directors, any such
officer, or any such controlling Person based on the Registration Statement, the
Prospectus or any preliminary prospectus and in respect of which indemnity may
be sought against one or more of the holders, such holders shall have the rights
and duties given to the Company by Section 4(c) (except that if the Company as
provided in Section 4(c) shall have assumed the defense thereof such holders
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but all the fees and expenses of such counsel
shall be at such holder's expense and not at the expense of the Company) and the
Company and its directors, any such officers, and any such controlling Person
shall have the rights and duties given to the holders by Section 4(c). In no
event shall the liability of any selling holder
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hereunder be greater than the net proceeds (i.e., proceeds net of underwriting
discounts, fees, commissions and any other expenses payable by such selling
holder) received by such holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought against any current or
former holder of the Registrable Securities or any Person controlling such
holder, with respect to which indemnity may be sought against the Company
pursuant to Section 4(a), such holder or such Person controlling such holder
shall promptly notify the Company in writing and the Company shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such holder and payment of all fees and expenses relating thereto. Such holder
and such Persons controlling such holder shall have the right to employ separate
counsel in any such action or proceeding and participate in the defense thereof,
but all the fees and expenses of such counsel shall be at such holder's expense
and not at the expense of the Company unless (i) the employment of such counsel
has been specifically authorized in writing by the Company, which authorization
shall not be unreasonably withheld, (ii) the Company has not assumed the defense
and employed counsel reasonably satisfactory to such holder within 15 days after
written notice of any such action or proceeding, or (iii) the named parties to
any such action or proceeding (including any impleaded parties) include both
such holder or any Person controlling such holder and the Company and such
holder or any Person controlling such holder shall have been advised by such
counsel that there may be one or more legal defenses available to such holder or
Person controlling such holder that are different from or additional to those
available to the Company and, in the reasonable opinion of such counsel, could
not be asserted by the Company's counsel without creating a conflict of interest
(in which case the Company shall not have the right to assume the defense of
such action or proceeding on behalf of such holder or controlling Person, it
being understood, however, that the Company shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to all local counsel which is necessary, in the good
faith opinion of both counsel for the indemnifying party and counsel for the
indemnified party in order to adequately represent the indemnified parties) for
all such holders and controlling Persons, which firm shall be designated in
writing by the holders of a majority of the Registrable Securities currently or
formerly held by such holders and that all such reasonable fees and expenses
shall be reimbursed as they are incurred upon written request and presentation
of invoices). The Company shall not be liable for any settlement of any such
action effected without the written consent of the Company (which consent shall
not be unreasonably withheld), but if settled with the written consent of the
Company or if there is a
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final judgment for the plaintiff, the Company agrees to indemnify and hold
harmless such holder and any Persons controlling such holder from and against
any loss or liability by reason of such settlement or judgment. The Company
shall not, without the prior written consent of the holder, effect any
settlement of any pending or threatened proceeding in respect of which any
holder or any Person controlling such holder is a party and indemnity has been
sought hereunder by such holder or any Person controlling such holder unless
such settlement includes an unconditional release of such holder or such
controlling Person from all liability on claims that are the subject matter of
such proceeding.
(d) If the indemnification provided for in this Section 4 is
unavailable to an indemnified party under paragraphs (a), (b) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the holders of the Registrable Securities on the
other hand from the original sale by the Company of the Registrable Securities,
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and such holders on the other hand in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and such holders on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company on the one hand or
by such holders on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
(e) The Company and the holders of the Registrable Securities agree
that it would not be just and equitable if contribution pursuant to this Section
4 were determined by a pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in
subsection (d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
subsection (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in
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connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding any other provision of this Agreement, no holder of
the Registrable Securities shall be required to contribute an amount greater
than the net proceeds received by such holder with respect to the sale of
Registrable Securities giving rise to any indemnification or contribution
obligation under this Section 4. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
5. RULE 144A. The Company hereby agrees with each holder of the
Registrable Securities for so long as any Registrable Securities remain
outstanding and during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, to make available to any Purchaser or
beneficial owner of Registrable Securities in connection with any sale thereof
and any prospective purchaser of Registrable Securities from such Purchaser or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act.
6. RULE 144. The Company agrees with each holder of Registrable
Securities to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time it has become subject to such
reporting requirements); and
(c) furnish to any holder of Registrable Securities upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c) and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
7. PARTICIPATION IN UNDERWRITTEN OFFERINGS. No holder of the
Registrable Securities may participate in any Underwritten Offering hereunder
unless such holder (a) agrees to sell such holder's Registrable Securities on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
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arrangements; provided, that no holder of Registrable Securities included in any
Underwritten Offering shall be required to make any representations or
warranties to the Company or the underwriter(s) other than representations and
warranties regarding such holder and such holder's intended method of
distribution.
8. SELECTION OF UNDERWRITERS.
(a) DEMAND REGISTRATION. In any Underwritten Offering of Registrable
Securities covered by a Registration Statement under Section 1(a)(i), the
investment banker(s) and manager(s) that will administer the offering shall be
selected by the holders of a majority of the Registrable Securities with respect
to which the request for registration was made under Sections 1(a)(i),
collectively; provided, that such investment banker(s) and manager(s) must be of
national stature and reasonably acceptable to the Company.
(b) INCIDENTAL REGISTRATION. In any Underwritten Offering of
Registrable Securities covered by a Registration Statement under Section 1(b),
the investment banker(s) and manager(s) that will administer the offering shall
be selected by the Company.
9. INTERPRETATION OF AGREEMENT; DEFINITIONS.
(a) DEFINITIONS. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined.
"Agreement" means this Registration Rights Agreement and all Schedules
hereto.
"Business Day" means a day other than a Saturday, a Sunday or other day
which commercial banks located in Florida or New York are authorized or
obligated to be closed.
"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Exchange Act, then the Person performing
such duties at such time.
"Company" has the meaning assigned in the first paragraph of this
Agreement.
"Demand Holder Group" means each of the Morgan Holders, IronBrand and
the 1818/Progressive/ML Holders, as the case may be.
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"Demand Holders" means the holders of the Morgan Registrable
Securities, the 1818/Progressive/ML Registrable Securities and the Registrable
Securities of IronBrand.
"1818/Progressive/ML Equity Interests" means (i) the shares of Common
Stock for which the warrants issued to the 1818/Progressive/ML Group pursuant to
the Securities Purchase Agreement are exercisable, plus (ii) the shares of
Common Stock purchased by the 1818/Progressive/ML Group pursuant to the
Securities Purchase Agreement and (iii) Related Registrable Securities.
"1818/Progressive/ML Holders" means the holders of the 1818/Registrable
Securities then constituting at least of a majority of the 1818/Progressive/ML
Registrable Securities.
"1818/Progressive/ML Registrable Securities" means the
1818/Progressive/ML Equity Interests that constitute Registrable Securities.
"Equity Interest" means any partnership interests, shares of stock,
limited liability company interests or membership interests or other equity
interests directly in the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FSA Equity Interest" means the 100,000 shares of the Common Stock
purchased by FSA pursuant to the Investment Agreement dated October 1, 1997
between the Company and FSA.
"FSA Registrable Securities" means the FSA Registrable Equity Interests
that constitute Registrable Securities.
"IronBrand" means IronBrand Capital, LLC, a North Carolina limited
liability company, and any successors or permitted assignees of any of its
rights under the Partnership Agreement and, at any time the Registrable
Securities of IronBrand are held by more than one Person, means the holders of
such securities then constituting at least a majority of such securities.
"Morgan Equity Interests" means units of Equity Interests issued in
exchange for the Deferred Additional Interest Notes (as defined in the Morgan
Note Purchase Agreement) in accordance with the terms of the Morgan Note
Purchase Agreement.
"Morgan Holders" means the holders of the Morgan Registrable Securities
then constituting at least a majority of the Morgan Registrable Securities.
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"Morgan Note Purchase Agreement" means the agreements, dated as of
August 9, 1996, between the Company and the Morgan Trusts.
"Morgan Registrable Securities" means the Morgan Equity Interests that
constitute Registrable Securities.
"NASD" means National Association of Securities Dealers, Inc.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Prospectus" means the prospectus included in a Registration Statement,
as amended or supplemented by any prospectus supplement and by all other
amendments thereto, including posteffective amendments, and all material
incorporated by reference into such Prospectus.
"Public Offering" means a public offering of the Company's equity
securities pursuant to an effective Registration Statement filed by the Company
with the Commission.
"Registrable Securities" means, collectively, each Morgan Equity
Interests, 1818/Progressive/ML Equity Interest, Equity Interest of IronBrand,
FSA Equity Interest and Equity Interests of the Partners until each such
security has been (i) transferred in a public offering registered under the
Securities Act or (ii) transferred in a sale made through a broker, dealer or
market-maker pursuant to Rule 144 or Rule 144A under the Securities Act.
"Registration Statement" means a registration statement of the Company,
filed with the Commission on an appropriate form, including any registration
statement filed pursuant to the provisions of this Agreement, including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
"Related Registrable Securities" means with respect to shares of Common
Stock issuable upon exercise of the Warrants issued to the 1818/Progressive/ML
Holders, any securities of the Company issued or issuable with respect to such
shares of Common Stock by way of a dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Securities Act" means the Securities Act of 1933, as amended.
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"Subsidiary" means any corporation, partnership, joint venture,
association, company, business trust or other entity in which the Company
directly or indirectly (i) beneficially owns or controls, directly or
indirectly, a majority of the outstanding voting securities having by the terms
thereof ordinary voting power to elect a majority of the board of directors (or
other body fulfilling a substantially similar function) of such entity (other
than by reason of the happening of any contingency) or (ii) in the case of an
entity which does not have a board of directors (or other body fulfilling a
substantially similar function) has the authority to control the policies of
such entity (including any partnership or joint venture of or in which the
Company or a Subsidiary is a general partner or joint venture participant or
owns or has the fight to obtain a majority of limited partnership interests).
"Underwritten Offering" means a Public Offering in which securities of
the Company are sold to an underwriter for reoffering to the public.
(b) ACCOUNTING PRINCIPLES. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with the
generally accepted accounting principles in effect from time to time, to the
extent applicable, except where such principles are inconsistent with the
express requirements of this Agreement including without limitation the
definitions set out in Section 9.
(c) DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
10. MISCELLANEOUS.
(a) REMEDIES. Each holder of the Registrable Securities, in addition to
being entitled to exercise all rights provided herein, and granted by law,
including recovery of damages, shall be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company shall not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent
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with the rights granted to such holders of the Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the holders hereunder do not in any way conflict with and are not
inconsistent with the fights granted to the holders of the Company's securities
under any other agreements.
(c) COMPARABLE AGREEMENTS. The Company hereby represents and warrants
that it has not entered into or agreed to any side letter or similar arrangement
or other agreement with any other holder or prospective holder of any securities
of the Company providing for registration rights with respect to the securities
of the Company that confers rights or benefits more favorable than the rights
and benefits conferred upon the holders of the Registrable Securities hereunder
(such a letter, arrangement or agreement, whether or not it confers such more
favorable fights or benefits, a "Side Arrangement"). The Company shall not enter
into or amend any Side Arrangement unless, in each case, each of the holders of
the Registrable Securities have been notified in writing and been provided with
a copy of such proposed Side Arrangement or amendment at least 20 Business Days
prior to the effective date of such Side Arrangement or amendment and have been
given the opportunity to receive the rights and benefits in such Side
Arrangement or amendment as of the date of such Side Arrangement or amendment.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of the Company and each of the other parties
hereto.
(e) NOTICES. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery. Such notices, demands and other communications will be sent to any
Investor at the address indicated on Schedule I hereto, to any other holder of
Registrable Securities at such holder's address of record appearing on the
Company's books and to the Company at the address indicated below:
National Auto Finance Company, Inc.
1325 Avenue of the Americas
Suite 1200
New York, New York 10019
Attention: Keith B. Stein
Telecopier: (212) 399-9199
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or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. All
such notices, demands and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; upon receipt, if
mailed postage prepaid; when answered back, if telexed; when receipt is
acknowledged, if telecopied; or at the time delivered, if delivered by an air
courier guaranteeing overnight delivery.
(f) SUCCESSORS AND ASSIGN. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties.
In addition, whether or not any express assignment has been made, the provisions
of this Agreement which are for the benefit of purchasers or holders of
Registrable Securities are also for the benefit of, and enforceable by, any
subsequent holder of Registrable Securities.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) GOVERNING LAW. THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL
ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND ITS SECURITY HOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF, EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.
(i) SEVERABILITY. Should any part of this Agreement for any reason be
declared invalid, such decision shaft not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
(j) SUBMISSION TO JURISDICTION. THE COMPANY HEREBY CONSENTS TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
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THE COUNTY OF NEW YORK, STATE OF NEW YORK WITH RESPECT TO ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS AGREEMENT, AND THE COMPANY WAIVES ANY OBJECTION
WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT
OF ANY PROCEEDING IN ANY SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL
OR MESSENGER DIRECTED TO IT AT THE ADDRESS OF THE COMPANY SET FORTH IN SECTION
10 ABOVE, AND THAT SERVICE SO MADE, SHALL BE DEEMED TO BE COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT AND FIVE BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN
POSTED TO THE COMPANY'S ADDRESS, AS THE CASE MAY BE, IN ACCORDANCE HEREWITH. THE
COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
(IF SUCH A PROCEDURE IS AVAILABLE UNDER APPLICABLE LAW) OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING CONTAINED IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY
INVESTOR TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING
ANY ACTION OR PROCEEDING IN THE COURTS OF ANY JURISDICTION AGAINST THE COMPANY
OR TO ENFORCE A JUDGMENT OBTAINED IN THE COURTS OF ANY OTHER JURISDICTION.
(k) CAPTIONS. The descriptive headings of the various Sections or parts
of this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
(l) WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE INVESTORS WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
(m) AMENDMENT OF EXISTING RIGHTS. Each of the Morgan Trusts, FSA and
IronBrand agrees with the Company that this agreement amends and restates the
Morgan Registration Rights Agreement, the FSA Registration Rights Agreement and
Article 6 of the
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Partnership Agreement, respectively, and that the Company shall have no further
obligations thereunder.
(n) NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
(o) CALCULATION OF PERCENTAGE INTERESTS IN REGISTRABLE SECURITIES. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares of Registrable
Securities outstanding at the time such calculation is made, assuming the
conversion of all Warrants issued to the 1818/Progressive/ML Holders into shares
of Common Stock.
(p) FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF.
27
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be duly executed on its behalf, as of the
date first written above.
NATIONAL AUTO FINANCE COMPANY,
INC.
By: /s/ Keith B. Stein
---------------------------------
Name: Keith B. Stein
Title: Vice Chairman and Treasurer
IRONBRAND CAPITAL LLC
By: /s/ Bill A. Shirley
---------------------------------
Name: Bill A. Shirley
Title: Vice President
FSA PORTFOLIO MANAGEMENT INC.
By: /s/ Bruce E. Stern
---------------------------------
Name: BRUCE E. STERN
Title: MANAGING DIRECTOR
28
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THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By: /s/ Joseph P. Donlan
---------------------------------
Name: Joseph P. Donlan
Title:
MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
By: /s/ Raymond Britt
---------------------------------
Name: Raymond Britt
Title: V.P.
PROGRESSIVE INVESTMENT COMPANY, INC.
By: /s/ David W. Young
---------------------------------
Name: David W. Young
Title: Chief Investment Officer
PC INVESTMENT COMPANY
By: /s/ David W. Young
---------------------------------
Name: David W. Young
Title: Chief Investment Officer
29
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Morgan Guaranty Trust Company of New York,
as trustee of the Commingled Pension Trust
Fund (Multi-Market Special Investment Fund
II) of Morgan Guaranty Trust Company of
New York
By: /s/ Kathleen N. Starrs
---------------------------------
Name: Kathleen N. Starrs
Title: Vice President
Morgan Guaranty Trust Company of New York,
as trustee of the Multi-Market Special
Investment Trust Fund, of Morgan Guaranty
Trust Company of New York
By: /s/ Kathleen N. Starrs
---------------------------------
Name: Kathleen N. Starrs
Title: Vice President
Morgan Guaranty Trust Company of New York,
as investment manager and agent for The
Alfred P. Sloan Foundation (Multi-Market
Account)
By: /s/ Kathleen N. Starrs
---------------------------------
Name: Kathleen N. Starrs
Title: Vice President
30
Exhibit 3
VOTING AGREEMENT
Voting Agreement, dated as of December 22, 1997, by and among The
1818 Mezzanine Fund, L.P., a Delaware limited partnership (the "FUND"), PC
Investment Company, a Delaware corporation ("PCI"), Progressive Investment
Company, Inc., a Delaware corporation ("PROGRESSIVE," and together with PCI, the
"PROGRESSIVE ENTITIES"), and National Auto Finance Company, L.P., a Delaware
limited partnership ("NAFC"). Capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in the Purchase Agreement (as
defined below).
WHEREAS, National Auto Finance Company, Inc., a Delaware corporation
(the "COMPANY"), has entered into that certain Securities Purchase Agreement,
dated as of the date hereof (the "PURCHASE AGREEMENT"), with the Fund, PCI,
Progressive and Manufacturers Life Insurance Company (U.S.A.), a Michigan
corporation;
WHEREAS, NAFC is a significant stockholder of the Company; and
WHEREAS, the Fund, the Progressive Entities and NAFC have agreed,
inter alia, to make certain provisions for the governance of the Company and to
take certain actions to effectuate the transactions contemplated in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
herein and the execution by the Fund and the Progressive Entities of the
Purchase Agreement, the parties hereto hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF NAFC. NAFC hereby represents
and warrants to the Fund and the Progressive Entities as follows:
(a) TITLE. As of the date hereof, NAFC beneficially owns
(exclusive of options) 4,230,000 shares (the "NAFC SHARES") of common stock, par
value $.01 per share (the "COMMON STOCK"), of the Company.
(b) RIGHT TO VOTE. NAFC has full legal power, authority and
right to vote all NAFC Shares for the election of persons nominated by the Fund
and the Progressive Entities to the Company's Board of Directors. Without
limiting the generality of the foregoing, except for this Agreement, NAFC is not
a party to any voting agreement with any person or entity with respect to any of
the NAFC Shares, has not granted any person or entity any proxy (revocable or
irrevocable) or power of attorney with respect to any of the NAFC Shares, has
not deposited any of the NAFC Shares in a voting trust and has not entered into
any arrangement or agreement with any person or entity limiting or affecting
NAFC's legal power, authority or right to vote the NAFC Shares for the election
of persons nominated by the Fund and the Progressive Entities to the Company's
Board of Directors. From
1
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and after the date hereof, NAFC will not commit any act that could restrict or
otherwise affect such legal power, authority and right to vote all NAFC Shares
for the election of persons nominated by the Fund and the Progressive Entities
to the Company's Board of Directors. Without limiting the generality of the
foregoing, from and after the date hereof NAFC will not enter into any voting
agreement with any person or entity with respect to any of the NAFC Shares,
grant any person or entity any proxy (revocable or irrevocable) or power of
attorney with respect to any of the NAFC Shares, deposit any of the NAFC Shares
into a voting trust or otherwise enter into any agreement or arrangement
limiting or affecting NAFC's legal power, authority or right to vote the NAFC
Shares for the election of persons nominated by the Fund and the Progressive
Entities to the Company's Board of Directors (other than this Agreement).
(c) AUTHORITY. NAFC has full legal power, authority and right
to execute and deliver, and to perform the obligations under, this Agreement.
This Agreement has been duly executed and delivered by NAFC and constitutes a
valid and binding agreement of NAFC enforceable against NAFC in accordance with
its terms, subject to (i) bankruptcy, insolvency, moratorium and other similar
laws now or hereinafter in effect relating to or affecting creditors, rights
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
(d) CONFLICTING INSTRUMENTS; NO TRANSFER. Neither the
execution and delivery of this Agreement nor the performance by NAFC of the
agreements and obligations hereunder will result in any breach, violation of,
conflict with, or default under any term of any agreement, judgment, injunction,
order, decree, law, regulation or arrangement to which NAFC is a party or by
which NAFC (or any assets of NAFC) is bound, except for any such breach,
violation, conflict or default which, individually or in the aggregate, would
not impair or affect NAFC's ability to cast all votes represented by the NAFC
Shares for the election of persons nominated by the Fund and the Progressive
Entities to the Company's Board of Directors.
2. AGREEMENT TO VOTE OF NAFC. NAFC hereby irrevocably and
unconditionally agrees to vote or to cause to be voted all NAFC Shares in favor
of the election of the nominees designated by each of the Fund and the
Progressive Entities pursuant to and in accordance with Section 9.10 of the
Purchase Agreement to the Board of Directors of the Company at each annual or
special meeting of stockholders where such nominee is included in the slate of
candidates for election as a director of the Company.
3. INVALID PROVISIONS. If any provision of this Agreement shall be
invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such invalidity or unenforceability only, without
it affecting the remaining provisions of this Agreement.
2
<PAGE>
4. EXECUTED IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original with the same effect as of the
signatures hereto and thereto were upon the same instrument.
5. SPECIFIC PERFORMANCE. The parties hereto agree that if for any
reason NAFC fails to perform any of its agreements or obligations under this
Agreement irreparable harm or injury to the Fund or the Progressive Entities
would be caused for which money damages would not be an adequate remedy.
Accordingly, NAFC agrees that in seeking to enforce this Agreement against NAFC,
the Fund and the Progressive Entities shall be entitled to specific performance
and injunctive and other equitable relief; PROVIDED that with respect to NAFC's
agreements and obligations under this Agreement, the provisions of this Section
5 are without prejudice to any other rights or remedies, whether at law or in
equity, that the Fund and the Progressive Entities may have against NAFC for any
failure to perform any of its agreements or obligations under this Agreement.
6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the principles of conflicts of laws thereof.
7. AMENDMENTS; TERMINATION. (a) This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto.
(b) The respective obligations of NAFC to the Fund and the
Progressive Entities under this Agreement shall terminate upon the termination
of the Fund's and the Progressive Entities' respective rights to nominate
persons to the Company's Board of Directors pursuant to Section 9.10 of the
Purchase Agreement.
8. ADDITIONAL SHARES. If, after the date hereof, NAFC acquires the
right to vote any additional shares of Common Stock (any such shares are called
"ADDITIONAL SHARES"), including, without limitation, upon exercise of any
option, warrant or right to acquire shares of Common Stock or through any stock
dividend or stock split, the provisions of this Agreement (other than those set
forth in Section 1) applicable to the NAFC Shares shall be applicable to such
Additional Shares as if such Additional Shares had been NAFC Shares as of the
date hereof. The provisions of the immediately preceding sentence shall be
effective with respect to Additional Shares without action by any person or
entity immediately upon the acquisition by NAFC of beneficial ownership of such
Additional Shares.
9. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal successors (including, in the case of any individual, any executors,
administra tors, estates, legal representatives and heirs of such individual)
and assigns (which,
3
<PAGE>
for purposes of this Agreement, shall include the partners of NAFC to the extent
such partners receive NAFC Shares upon any distribution by, or liquidation of,
NAFC).
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of this ____ day of December, 1997.
NATIONAL AUTO FINANCE
COMPANY, L.P.
By: National Auto Finance Corporation,
its General Partner
By: /s/ Keith B. Stein
---------------------------------
Name: Keith B. Stein
Title: Executive Vice President
THE 1818 MEZZANINE FUND, L.P.
By: Brown Bothers Harriman & Co.,
its General Partner
By: /s/ Joseph P. Donlan
---------------------------------
Name: Joseph P. Donlan
Title: Senior Manager
PC INVESTMENT COMPANY
By: /s/ David W. Young
---------------------------------
Name: David W. Young
Title: Chief Investment Officer
THE PROGRESSIVE INVESTMENT
COMPANY, INC.
By: /s/ David W. Young
---------------------------------
Name: David W. Young
Title: Chief Investment Officer
5
Exhibit 4
FORM OF SENIOR SUBORDINATED PROMISSORY NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITH "ORIGINAL
ISSUE DISCOUNT" FOR PURPOSES OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. FOR INFORMATION REGARDING THE "ISSUE PRICE," "ISSUE DATE,"
AMOUNT OF "ORIGINAL ISSUE DISCOUNT," AND "YIELD TO MATURITY" OF THE NOTE,
CONTACT THE CHIEF FINANCIAL OFFICER OF NATIONAL AUTO FINANCE COMPANY, INC. AT
621 N.W. 53RD STREET, SUITE 200, BOCA RATON, FLORIDA 33487, TELEPHONE: (800)
999-7535.
NATIONAL AUTO FINANCE COMPANY, INC.
SENIOR SUBORDINATED PROMISSORY NOTE
DUE DECEMBER , 2004
$_____________ New York, New York
December ___, 1997
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE COMPANY,
INC., a Delaware corporation (the "COMPANY"), promises to pay to the order of
[THE 1818 MEZZANINE FUND, L.P.] [PC INVESTMENT COMPANY] [GERLACH & CO., AS
NOMINEE FOR MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)] or permitted assigns
the principal sum of
1
<PAGE>
____________ dollars ($______________) on December , 2004, with interest thereon
from time to time as provided herein.
1. PURCHASE AGREEMENT. This Senior Subordinated Promissory Note
(this "NOTE") is issued pursuant to the Securities Purchase Agreement, dated as
of December , 1997, by and among the Company, The 1818 Mezzanine Fund, L.P., PC
Investment Company, The Progressive Investment Company, Inc. and Manufacturers
Life Insurance Company (U.S.A.) (the "PURCHASE AGREEMENT"), and the holder of
this Note is entitled to the benefits of this Note and the Purchase Agreement
and may enforce the agreements contained herein and therein and exercise the
remedies provided for hereby and thereby or otherwise available in respect
hereto and thereto.
The Purchase Agreement provides for the acceleration of the maturity
of this Note upon the occurrence of certain events.
2. INTEREST. The Company promises to pay interest on the outstanding
principal amount of this Note (i) at the rate of 11.875% per annum through the
third anniversary of the date hereof, (ii) at the rate of 12.875% per annum from
the third anniversary through the fourth anniversary of the date hereof, (iii)
at the rate of 13.875% per annum from the fourth anniversary through the fifth
anniversary of the date hereof, and (iv) at the rate of 14.875% per annum from
the fifth anniversary and thereafter (as applicable for each period, the "BASE
INTEREST RATE"). The Company shall pay interest on the Note quarterly in arrears
on each March 31, June 30, September 30 and December 31 of each year or, if any
such date shall not be a Business Day, on the next succeeding Business Day to
occur after such date (each date upon which interest shall be so payable, an
"INTEREST PAYMENT DATE"), beginning on December 31, 1997. Interest on this Note
shall be paid by wire transfer of immediately available funds to an account
designated by the holder of this Note. Interest on this Note shall accrue from
the date of issuance until repayment of the principal and payment of all accrued
interest in full. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months. Notwithstanding the foregoing provisions of this Section
2, but subject to applicable law, any overdue principal of and overdue interest
on this Note shall bear interest, payable on demand in immediately available
funds, for each day from the date payment of principal or interest was due to
the date of actual payment, at the rate of interest which is equal to the
applicable Base Interest Rate plus 2% per annum, and, upon and during the
continuance of an Event of Default, this Note shall bear interest, from the date
of the occurrence of such Event of Default until such Event of Default is cured
or waived, payable on demand in immediately available funds, at the rate of
interest which is equal to the applicable Base Interest Rate plus 2% per annum.
2
<PAGE>
3. MANDATORY REDEMPTION AT THE OPTION OF THE HOLDER.
3.1 CHANGE OF CONTROL. If one or more events constituting a
Prepayment Event shall occur, the holder of this Note shall have the right, on
the date specified in Section 3.2 (the "MANDATORY REDEMPTION DATE"), to require
the Company to redeem (a "MANDATORY REDEMPTION") all (but not less than all) of
the Notes then held by such holder at a price (the "MANDATORY REDEMPTION PRICE")
equal to (i) the following percentage of the outstanding principal amount of the
Note to be prepaid plus (ii) an amount equal to all accrued and unpaid interest
thereon to the Mandatory Redemption Date, in immediately available funds:
IF TO BE PREPAID DURING PERCENTAGE OF
THE PERIOD: PRINCIPAL AMOUNT
December , 1997 to 110.0%
December , 1998
December , 1998 to 107.5%
December , 1999
December , 1999 to 105.0%
December , 2000
December , 2000 100.0%
and thereafter
Notwithstanding anything to the contrary contained herein, in the
event the holder of this Note requires a Mandatory Redemption following a Change
of Control that is a Sale Transaction, the percentage of the Mandatory
Redemption Price that exceeds the aggregate principal amount of and accrued but
unpaid interest on the Notes to be repaid shall be waived or reduced to the
extent that [The 1818 Mezzanine Fund, L.P.'s] [PC Investment Company's]
[Manufacturers Life Insurance Company (U.S.A.)'s] "internal rate of return" on
the Notes and the Warrants issued pursuant to the Purchase Agreement (taking
into account the portion of the Mandatory Redemption Price that exceeds the
aggregate principal amount of and accrued but unpaid interest on the Notes held
by [The 1818 Mezzanine Fund, L.P.] [PC Investment Company] [Manufacturers Life
Insurance Company (U.S.A.)] that have been or are to be prepaid pursuant to this
Section 3 which is not waived) exceeds 25.0%. For purposes of this Note,
"internal rate of return" means, as of the Mandatory Redemption Date, an
internal rate of return calculated by determining the discount rate that equates
the present value of all cash flows of the investment in the Notes and the
Warrants to zero and which is derived by taking into account (i) the amount
invested in the Notes and the Warrants of the Company by [The 1818
3
<PAGE>
Mezzanine Fund, L.P.] [PC Investment Company] [Manufacturers Life Insurance
Company (U.S.A.)] (as of the date invested), (ii) the amount of any interest
payments on the Notes received by [The 1818 Mezzanine Fund, L.P.] [PC Investment
Company] [Manufacturers Life Insurance Company (U.S.A.)] (as of the date
received), (iii) the amount of any proceeds received by [The 1818 Mezzanine
Fund, L.P.] [PC Investment Company] [Manufacturers Life Insurance Company
(U.S.A.)] upon the sale or other disposition prior to the Mandatory Redemption
Date of all or any portion of the Notes and the Warrants or the Common Stock
issuable upon exercise of the Warrants (as of the date received), (iv) the
Market Price (as defined in the Warrants) of the Common Stock (assuming exercise
of any unexercised Warrants of the Company held by [The 1818 Mezzanine Fund,
L.P.] [PC Investment Company] [Manufacturers Life Insurance Company (U.S.A.)])
(as of the Mandatory Redemption Date) and (v) the facility fee received by [the
1818 Mezzanine Fund, L.P.] [PC Investment Company] [Manufacturers Life Insurance
Company (U.S.A.)] pursuant to Section 2.2 of the Purchase Agreement. For
purposes of this Section 3.1, all references to PC Investment Company shall be
deemed to include Progressive Investment Company, Inc.
3.2 NOTICE. Notice of a Prepayment Event (the "PREPAYMENT
EVENT NOTICE") shall be mailed no more than 10 Business Days after the
occurrence of a Prepayment Event to each holder of Notes, at such holder's
address as it appears on the transfer books of the Company. The date fixed for
each Mandatory Redemption shall be fixed by the Company and shall be no less
than 20 days or more than 40 days after the date of the Prepayment Event Notice.
Notwithstanding the foregoing and Section 3.1 hereof, in the event of the
occurrence of a Prepayment Event of the types set forth in any of clauses (iii)
or (iv) of the definition of "Change of Control," the Prepayment Event Notice
shall be mailed to each holder of Notes no later than 10 Business Days prior to
the consummation of the transaction contemplated by such clause (iii) or (iv),
as the case may be, and the Company shall not be required to purchase any Notes
unless such transaction shall be consummated, in which case the Company shall be
required to purchase such Notes immediately prior to the consummation of such
transaction.
3.3 PROVISIONS OF NOTICE. The right of the holders of Notes to
require the Company to effect a Mandatory Redemption shall remain in effect from
the time of the mailing of, until the redemption date set forth in, the
Prepayment Event Notice. The Prepayment Event Notice shall be accompanied by a
copy of the information most recently required to be supplied under Sections
9.1(a) and 9.1(b) of the Purchase Agreement. The Prepayment Event Notice shall
contain all instruments and materials necessary to enable the holder of this
Note to tender this Note pursuant to this Section 3. The Prepayment Event
Notice, which shall govern the terms of the Mandatory Redemption, shall state:
4
<PAGE>
(i) that a Prepayment Event has occurred, that each
holder of Notes has the right to require the Company to effect a
Mandatory Redemption pursuant to this Section 3 and that tendered
Notes will be redeemed;
(ii) the Mandatory Redemption Price and the date for
redemption;
(iii) that each holder of Notes may require the Company
to redeem all (but not less than all) Notes held thereby;
(iv) that the Notes redeemed pursuant to the Mandatory
Redemption shall cease to accrue interest after the designated date
for purchase (unless the Company shall default in the payment of the
Mandatory Redemption Price, in which case the Notes shall not cease
to accrue interest after such date);
(v) such other information respecting the procedures for
effecting the Mandatory Redemption as the Company shall include and
such other information as may be required by law; and
(vi) that (unless otherwise required by law) any holder
of Notes will be entitled to withdraw his or her election if the
Company receives, not later than the close of business on the third
Business Day next preceding the date scheduled for redemption,
facsimile transmission or letter setting forth the name of such
holder, the principal amount of Notes such holder delivered for
redemption and a statement that such holder is withdrawing his or
her election to have such Notes redeemed.
3.4 REDEMPTION PROCEDURE. The holder of this Note may elect to
require the Company to redeem all (but not less than all) of the Notes held by
such holder pursuant to a Mandatory Redemption by delivery of written notice
thereof to the Company prior to the date fixed for such Mandatory Redemption. If
the holder of this Note so elects, on the date fixed for any Mandatory
Redemption, such holder shall surrender all of the Notes held thereby to the
Company at the place designated in the Prepayment Event Notice. From and after
the Mandatory Redemption Date (i) such Notes shall no longer be deemed
outstanding, (ii) the right to receive interest thereon shall cease to accrue
and (iii) all rights of the holders of such Notes shall cease and terminate,
excepting only the right to receive the Mandatory Redemption Price therefor;
PROVIDED, HOWEVER, that if the Company shall default in the payment of the
Mandatory Redemption Price, the Notes shall thereafter be deemed to be
outstanding and the holders thereof shall have all of the rights of a holder of
Notes
5
<PAGE>
until such time as such default shall no longer be continuing or shall have been
waived by holders of at least 66% of the then outstanding principal amount of
the Notes.
4. OPTIONAL REDEMPTION.
4.1 REDEMPTION BY COMPANY. Except as otherwise provided
herein, the Company shall not have any right to prepay or redeem this Note. The
Company shall have the right, at any time and from time to time at its sole
option and election, to redeem (the "OPTIONAL REDEMPTION") the Notes, in whole
but not in part, on not less than 30 days notice of the date of redemption,
which must be a Business Day (any such date an "OPTIONAL REDEMPTION DATE") at a
price (the "OPTIONAL REDEMPTION PRICE") equal to (i) the following percentage of
the outstanding principal amount of the Notes to be redeemed plus (ii) an amount
equal to all accrued and unpaid interest thereon to the date fixed for
prepayment, whether or not currently payable, to the Optional Redemption Date,
in cash or other immediately available funds:
IF REDEEMED PERCENTAGE OF PRINCIPAL
DURING THE PERIOD: AMOUNT
December , 1997 to 110.0%
December , 1998
December , 1998 to 107.5%
December , 1999
December , 1999 to 105.0%
December , 2000
December , 2000 and 100.0%
thereafter
Notwithstanding anything to the contrary contained herein, in the
event of the occurrence of any Public Offering prior to December , 2000, the
Company shall have the right, at its sole option and election, to use the
proceeds from such Public Offering(s) to redeem, by delivery of a notice
pursuant to Section 4.2, concurrently with the consummation of such Public
Offering(s), up to an aggregate total amount (whether with the proceeds from one
or more than one Public Offering) of 33-1/3% of the principal amount of the
Notes outstanding on the Closing Date at a price equal to 100.0% of the
outstanding principal amount of the Notes to be prepaid plus an amount equal to
all accrued and unpaid interest thereon to the date fixed for
6
<PAGE>
prepayment, whether or not currently payable, in cash or other immediately
available funds.
Upon the occurrence of an Event of Default under Section 11.1(viii)
of the Purchase Agreement, the Company shall be deemed to have elected to redeem
the Notes as provided in this Section 4.1 and shall so redeem the Notes as
provided in this Section 4 (without giving effect to the immediately preceding
paragraph).
4.2 NOTICE. Notice of the Optional Redemption (the "OPTIONAL
REDEMPTION NOTICE") shall be mailed at least 30 days, but not more than 60 days,
prior to the date fixed for redemption to each holder of the Notes, at such
holder's address as it appears on the transfer books of the Company. In order to
facilitate the redemption of the Notes, the Board of Directors of the Company
may fix a record date for the determination of the Notes to be redeemed, or may
cause the transfer books of the Company for the Notes to be closed, not more
than 60 days or less than 30 days prior to the date fixed for such redemption.
4.3 DEPOSIT OF FUNDS. On the Optional Redemption Date, the
Company shall, and at any time after the Optional Redemption Notice shall have
been mailed and before the date of Optional Redemption the Company may, deposit
for the benefit of the holders of the Notes the funds necessary for the Optional
Redemption with a bank or trust company in the Borough of Manhattan, The City of
New York, having a capital and surplus of at least $150,000,000. Any moneys so
deposited by the Company and unclaimed at the end of two years from the date
designated for the Optional Redemption shall revert to the general funds of the
Company or as otherwise required by law. After such reversion, any such bank or
trust company shall, upon demand, pay over to the Company such unclaimed amounts
and thereupon such bank or trust company shall be relieved of all responsibility
in respect thereof and any holder of Notes shall look only to the Company for
the payment of the Optional Redemption Price. Any interest accrued on funds
deposited pursuant to this Section 4.3 shall be paid from time to time to the
Company for its own account.
4.4 TERMINATION OF RIGHTS. The Optional Redemption Notice
having been given as aforesaid, upon the deposit of funds pursuant to Section
4.3 in respect of the Notes to be redeemed pursuant to Section 4.1,
notwithstanding that any such Notes themselves shall not have been surrendered
for cancellation, from and after the Optional Redemption Date (i) the Notes
shall no longer be deemed outstanding, (ii) the rights to receive interest
thereon shall cease to accrue and (iii) all rights of the holders of the Notes
shall cease and terminate, excepting only the right to receive the Optional
Redemption Price therefor; PROVIDED, HOWEVER, that if the Company shall default
in the payment of the Optional Redemption Price, the Notes shall thereafter be
deemed to be outstanding and the
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<PAGE>
holders thereof shall have all of the rights of a holder of Notes until such
time as such default shall no longer be continuing or shall have been waived by
holders of at least 66% of the then outstanding principal amount of the Notes.
5. DEFINITIONS. Capitalized terms not otherwise defined in this Note
shall have the meanings ascribed to them in the Purchase Agreement. As used in
this Note, and unless the context requires a different meaning, the following
terms have the meanings indicated:
"BANKRUPTCY LAW" means Title 11, U.S. Code or any other federal,
state or foreign law for the relief of debtors, as any such laws may be amended
from time to time.
"CHANGE OF CONTROL" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) other than National Auto Finance Company,
L.P., Morgan Guaranty Trust Company, Gary L. Shapiro, Keith B. Stein,
First Union National Bank of North Carolina (or any of its Affiliates) or
the Purchasers (collectively, the "PRINCIPAL STOCKHOLDERS") is or becomes
the beneficial owner, directly or indirectly, of outstanding shares of
Capital Stock of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast for the election of
directors under ordinary circumstances at a regular or special meeting, or
by action by written consent, of (i) common stockholders of the Company if
at least a majority of the Company's Board of Directors are elected by
common stockholders, and (ii) voting stockholders of the Company in all
other circumstances (the term "beneficial owner" shall be determined in
accordance with Rule 13d-3, promulgated by the Commission under the
Exchange Act);
(ii) A majority of the Board of Directors of the Company shall
consist of Persons other than Continuing Directors. The term "CONTINUING
DIRECTOR" shall mean any member of the Board of Directors of the Company
on the Closing Date and any other member of the Board of Directors who
shall be recommended or elected to succeed or become a Continuing Director
by a majority of Continuing Directors who are then members of the Board of
Directors of the Company;
(iii) The stockholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation, sale or other
disposition of all or substantially all the assets of the Company (in one
transaction or in a series of related transactions) or similar
transaction, in each case, with respect to which all or substantially all
the Persons who were the respective beneficial
8
<PAGE>
owners of the outstanding shares of Capital Stock of the Company
immediately prior to such recapitalization, reorganization, merger or
consolidation, beneficially own, directly or indirectly, less than 50% of
the combined voting power of the then outstanding shares of Capital Stock
of the Company resulting from such recapitalization, reorganization,
merger, consolidation or similar transaction or obtaining the assets of
the Company; or
(iv) Upon the consummation of any transaction the result of
which is that the Common Stock is not required to be registered under
Section 12 of the Exchange Act and that the holders of Common Stock do not
receive common stock of the Person surviving such transaction which is
required to be registered under Section 12 of the Exchange Act.
"PREPAYMENT EVENT" means the occurrence of (i) a Change of Control
or (ii) a conveyance, transfer, lease or other disposition (whether in one
transaction or a series of transactions) of all or substantially all of the
assets (wherever acquired) of any division or Subsidiary of the Company (except
for sales in connection with Permitted Securitization Transactions) if such
assets accounted for at least 33% of the Company's Net Income determined by
reference to the most recent audited financial statements of the Company.
"PUBLIC OFFERING" shall mean the sale in any offering by the Company
of its Capital Stock for its own account pursuant to a registration statement on
Form S-1 or otherwise under the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.
"SALE TRANSACTION" shall mean a Change of Control pursuant to
subsection (iii) of the definition thereof, provided that the reference
contained therein to 50% shall instead be deemed to be 10%.
6. SUBORDINATION. This Note is subordinated to certain Senior
Indebtedness. To the extent provided in Article 12 of the Purchase Agreement,
Senior Indebtedness must be paid before this Note may be paid. The Company, and
the holder of this Note by accepting this Note, agree to the subordination
provisions contained in Article 12 of the Purchase Agreement.
7. EXCHANGE OF NOTES. At the option of the holder of this Note, this
Note may be exchanged for other Notes of like tenor and of a like aggregate
principal amount, upon surrender of this Note at the principal office of the
Company; PROVIDED, HOWEVER, that the minimum denomination of any Note to be
issued in exchange for this Note shall be at least $3,000,000 and in at least
$1,000 increments, unless the transferee of this Note (i) shall have purchased
this Note in a public offering or subsequent to a public offering thereof, (ii)
is a partner or member of the
9
<PAGE>
holder of this Note and shall have received this Note upon the dissolution or
liquidation of the holder of this Note or in connection with a distribution of
assets by the holder of this Note, or (iii) is a parent or subsidiary of the
holder of this Note, which in each case the minimum denomination of any note to
be issued in exchange for this Note shall be at least $1,000.
8. AMENDMENT. Amendments and modifications of this Note may be made
only in the manner provided in Section 14.5 of the Purchase Agreement.
9. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed, as of the date written below.
NATIONAL AUTO FINANCE COMPANY, INC.
By_____________________________
Name:
Title:
Date: December , 1997
10
Exhibit 5
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. [_]
WARRANT
TO PURCHASE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
NATIONAL AUTO FINANCE COMPANY, INC.
THIS IS TO CERTIFY THAT [THE 1818 MEZZANINE FUND, L.P.] [PC
INVESTMENT COMPANY] [GERLACH & CO., AS NOMINEE FOR MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)] or its registered assigns (the "PURCHASER"), is the owner of
______________________ ([______])
Warrants (the "WARRANTS"), each of which entitles the registered holder thereof
to purchase from NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation
(the "COMPANY"), one fully paid, duly authorized and nonassessable share of
Common Stock, par value $.01 per share, of the Company (the "COMMON STOCK"), at
any time or from time to time on or before 5:00 p.m., New York City time, on
December [__], 2007 (subject to earlier expiration in certain events), at an
exercise price of $.01 per share (the "EXERCISE PRICE"), all on the terms and
subject to the conditions hereinafter set forth.
The number of shares of Capital Stock issuable upon exercise of each
such Warrant (the "NUMBER ISSUABLE"), which is initially one (1) share of Common
<PAGE>
2
Stock, is subject to adjustment from time to time pursuant to the provisions of
Section 2 of this Warrant certificate.
Capitalized terms used herein but not otherwise defined shall have
the meanings given them in Section 11 hereof or, if not therein defined, in the
Purchase Agreement.
1. EXERCISE OF WARRANT. Subject to the last paragraph of this
Section 1, the Warrants evidenced hereby may be exercised, in whole or in part,
by the registered holder hereof at any time or from time to time on or before
5:00 p.m., New York City time, on December [__], 2007, but in any event no later
than the date of the consummation of a Sale Transaction, upon delivery to the
Company at the principal executive office of the Company in the United States of
America, of (a) this Warrant certificate, (b) a written notice stating that such
holder elects to exercise all or any portion of the Warrants evidenced hereby in
accordance with the provisions of this Section 1 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued in connection with such exercise and (c) payment of
the Exercise Price for the shares of Common Stock issuable upon exercise of such
Warrants, which shall be payable, subject to the immediately following
paragraph, (i) in cash, (ii) by a certified or official bank check payable to
the order of the Company or (iii) by the surrender (which surrender shall be
evidenced by cancellation of the number of Warrants represented by any Warrant
certificate presented in connection with a Cashless Exercise (as defined below))
of a Warrant or Warrants (represented by one or more relevant Warrant
certificates), and without the payment of the Exercise Price in cash, in return
for the delivery to the surrendering holder of such number of shares of Common
Stock equal to the product of (x) the number of shares of Common Stock for which
such Warrant is exercisable as of the date of exercise (if the Exercise Price
were being paid in cash) multiplied by (y) the Cashless Exercise Ratio. An
exercise of a Warrant in accordance with clause (iii) is herein called a
"CASHLESS EXERCISE." The "CASHLESS EXERCISE RATIO" shall equal a fraction, the
numerator of which is the excess of the Current Market Price per share of Common
Stock on the date of exercise over the Exercise Price per share as of the date
of exercise and the denominator of which is the Current Market Price per share
of the Common Stock on the date of exercise. Upon surrender of a Warrant
certificate representing more than one Warrant in connection with a Cashless
Exercise, the number of shares of Common Stock deliverable upon a Cashless
Exercise shall be equal to the number of Warrants that the holder specifies is
to be exercised pursuant to a Cashless Exercise multiplied by the Cashless
Exercise Ratio, (collectively, the "WARRANT EXERCISE DOCUMENTATION").
If any holder at the time of the exercise of any Warrants is not a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act or an accredited investor within the meaning of Rule 501 under
the Securities Act such holder of the Warrants will be required to effect the
exercise of the Warrants solely pursuant to the Cashless Exercise Option.
<PAGE>
3
As promptly as practicable, and in any event within five Business
Days after receipt of the Warrant Exercise Documentation, the Company shall
deliver or cause to be delivered (a) certificates representing the number of
validly issued, fully paid and nonassessable shares of Common Stock specified in
the Warrant Exercise Documentation, (b) if applicable, cash in lieu of any
fraction of a share, as hereinafter provided, and (c) if less than the full
number of Warrants evidenced hereby are being exercised, a new Warrant
certificate or certificates, of like tenor, for the number of Warrants evidenced
by this Warrant certificate, less the number of Warrants then being exercised.
Such exercise shall be deemed to have been made at the close of business on the
date of delivery of the Warrant Exercise Documentation so that the Person
entitled to receive shares of Common Stock upon such exercise shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time. No such surrender shall be effective to constitute the
person entitled to receive such shares as the record holder thereof while the
transfer books of the Company for the Common Stock are closed for any purpose
(but not for any period in excess of five days); but any such surrender of this
Warrant certificate for exercise during any period while such books are so
closed shall become effective for exercise immediately upon the reopening of
such books, as if the exercise had been made on the date this Warrant
certificate was surrendered and for the Number Issuable of Common Stock
specified in the Warrant Exercise Documentation and at the Exercise Price.
The Company shall pay all expenses in connection with, and all taxes
and other governmental charges (other than income taxes of the holder) that may
be imposed in respect of, the issue or delivery of any shares of Common Stock
issuable upon the exercise of the Warrants evidenced hereby. The Company shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for shares of Common
Stock in any name other than that of the registered holder of the Warrants
evidenced hereby.
In connection with the exercise of any Warrants evidenced hereby, no
fractions of shares of Common Stock shall be issued, but in lieu thereof the
Company shall pay a cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the Current Market Price
per share of Common Stock on the Business Day which next precedes the day of
exercise. If more than one such Warrant shall be exercised by the holder thereof
at the same time, the number of full shares of Common Stock issuable on such
exercise shall be computed on the basis of the total number of Warrants so
exercised.
2. ADJUSTMENTS.
(A) ADJUSTMENT OF NUMBER ISSUABLE. The Number Issuable shall be
subject to adjustment from time to time as follows:
<PAGE>
4
(i) In case the Company shall at any time or from time to time
after the Issue Date:
(A) pay a dividend or make a distribution on the
outstanding shares of Common Stock in Capital Stock of the Company;
(B) subdivide the outstanding shares of Common Stock
into a larger number of shares;
(C) combine the outstanding shares of Common Stock into
a smaller number of shares; or
(D) issue any shares of its Capital Stock in a
reclassification of the Common Stock;
then, and in each such case, the Number Issuable in effect immediately
prior to such event shall be adjusted (and any other appropriate actions
shall be taken by the Company) so that the holder of any Warrant evidenced
hereby thereafter exercised shall be entitled to receive the number of
shares of Capital Stock of the Company which such holder would have owned
or had been entitled to receive upon or by reason of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event. An adjustment made pursuant to this clause (i)
shall become effective retroactively (x) in the case of any such dividend
or distribution, to a date immediately following the close of business on
the record date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, or (y) in the case of
any such subdivision, combination or reclassification, to the close of
business on the date upon which such corporate action becomes effective.
(ii) If after the Issue Date, the Company shall at any time or
from time to time issue or sell (x) shares of Common Stock or (y)
securities convertible into or exchangeable for shares of Common Stock, or
any options, warrants or other rights to acquire shares of Common Stock
(other than (a) shares of Common Stock issued upon exercise of the
Warrants outstanding on the Issue Date and shares issued as a result of
adjustments made under the other provisions of this Section 2, (b) shares
of Common Stock issued pursuant to an underwritten Public Offering where
such shares of Common Stock are listed on the New York Stock Exchange,
Inc. or quoted or listed on any other national securities exchange or the
National Market System of the Nasdaq Stock Market or (c) equity securities
convertible into or exchangeable for shares of Common Stock, or any
options, warrants or other rights to acquire shares of Common Stock if
issued in connection with an issuance of debt securities as a unit
(collectively, a "UNIT ISSUANCE"), but only to the extent (A) the Company
retains a nationally recognized investment bank, which the
<PAGE>
5
Company and the holders of a majority of the outstanding Warrants mutually
approve, to underwrite or privately place such Unit Issuance, or (B) if
the Company and the holders of a majority of the outstanding Warrants do
not agree on an investment bank under clause (A) hereof, the Company
retains a nationally recognized investment bank to underwrite or privately
place such Unit Issuance, in which case the holders of a majority of the
outstanding Warrants may opt to retain (at the Company's expense) a
nationally recognized investment bank that delivers to the holders of the
outstanding Warrants, if such option is exercised, an opinion that the
Unit Issuance is fair, from a financial point of view, to the stockholders
of the Company) at a price per share that is less than the Current Market
Price per share of Common Stock then in effect as of the record date or
issue date, as the case may be, referred to in the following sentence (the
"RELEVANT DATE") (treating the price per share of Common Stock, in the
case of the issuance of any security convertible or exchangeable or
exercisable into Common Stock as equal to (x) the sum of the price for
such security convertible, exchangeable or exercisable into Common Stock
plus any additional consideration payable (without regard to any
anti-dilution adjustments) upon the conversion, exchange or exercise of
such security into Common Stock divided by (y) the number of shares of
Common Stock initially underlying such convertible, exchangeable or
exercisable security), in each case, other than issuances or sales for
which an adjustment is made pursuant to another paragraph of this Section
2, then, and in each such case, the Number Issuable then in effect shall
be adjusted by multiplying the Number Issuable in effect on the day
immediately prior to the Relevant Date by a fraction, (1) the numerator of
which shall be the sum of the number of shares of Common Stock, on a fully
diluted basis, outstanding on the Relevant Date, plus the number of
additional shares of Common Stock issued or to be issued (or the maximum
number into which such convertible or exchangeable securities initially
may convert or exchange or for which such options, warrants or other
rights initially may be exercised), and (2) the denominator of which shall
be the sum of the number of shares of Common Stock, on a fully diluted
basis, outstanding on the Relevant Date, plus the number of shares of
Common Stock which the aggregate consideration for the total number of
such additional shares of Common Stock so issued (or into which such
convertible or exchangeable securities may convert or exchange or for
which such options, warrants or other rights may be exercised plus the
aggregate amount of any additional consideration initially payable upon
conversion, exchange or exercise of such security) would purchase at the
Current Market Price per share of Common Stock on the Relevant Date. Such
adjustment shall be made whenever such shares, securities, options,
warrants or other rights are issued, and shall become effective
retroactively to a date immediately following the close of business (x) in
the case of an issuance to the stockholders of the Company, as such, on
the record date for the determination of stockholders entitled to receive
such shares, securities, options, warrants or other rights and (y) in all
other cases, on the date (the
<PAGE>
6
"ISSUE DATE") of such issuance; PROVIDED, that if any convertible or
exchangeable securities, options, warrants, or other rights (or any
portions thereof) which shall have given rise to an adjustment pursuant to
this Section 2(a)(ii) shall have expired or terminated without the
exercise thereof, then the Number Issuable hereunder shall be readjusted
(but to no greater extent than originally adjusted) on the basis of
eliminating from the computation any additional shares of Common Stock
corresponding to such convertible or exchangeable securities, options,
warrants or other rights as shall have expired or terminated. Solely for
purposes of this clause (ii), (I) Common Stock shall include the Common
Stock, par value $.01 per share, of the Company and each other class of
capital stock of the Company that does not have a preference over any
other class of capital stock of the Company as to dividends or upon
liquidation, dissolution or winding up of the Company and, in each case,
shall include any other class of capital stock of the Company into which
such stock is reclassified or reconstituted and (II) if the provisions of
any securities convertible into or exchangeable for shares of Common Stock
or options, warrants or other rights to acquire shares of Common Stock are
amended after the date of issuance so as to reduce the applicable
conversion price, exchange price or exercise price such amendment shall be
deemed to be a new issuance of such securities.
(iii) In case the Company shall at any time or from time to
time after the Issue Date distribute to any holder of shares of its Common
Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the resulting or surviving
corporation and the Common Stock is not changed or exchanged) cash,
evidences of indebtedness of the Company or another issuer, securities of
the Company or another issuer or other assets (excluding dividends or
other distributions of shares of Common Stock or other Capital Stock for
which adjustment is made under Section 2(a)(i) or dividends or other
distributions received by or set aside for the benefit of the holders of
Common Stock pursuant to Section 2(c) below) or rights or warrants to
subscribe for or purchase securities of the Company (excluding those in
respect of which adjustments in the Number Issuable is made pursuant to
Section 2(a)(i) or Section 2(a)(ii)), then, and in each such case, the
Number Issuable then in effect shall be adjusted by multiplying the Number
Issuable in effect immediately prior to the date of such distribution by a
fraction (x) the numerator of which shall be the Current Market Price per
share of Common Stock on the record date referred to below and (y) the
denominator of which shall be such Current Market Price per share of
Common Stock less the then Fair Market Value (as determined in good faith
by the Board of Directors of the Company, a certified resolution with
respect to which shall be mailed to the holder of the Warrants evidenced
hereby) of the portion of the cash, evidences of indebtedness, securities
or other assets so distributed or of such subscription rights or warrants
applicable to one share of Common Stock (but such denominator shall in no
event be zero). Such
<PAGE>
7
adjustment shall be made whenever any such distribution is made and shall
become effective retroactively to a date immediately following the close
of business on the record date for the determination of stockholders
entitled to receive such distribution.
(iv) In case the Company at any time or from time to time
shall take any action which could have a dilutive effect (it being
understood that this Section 2(a)(iv) shall not apply to percentage
dilution) on the number of shares of Common Stock that may be issued upon
exercise of the Warrants, other than an action described in any of Section
2(a)(i) through 2(a)(iii), inclusive, or Section 2(b), then, the Number
Issuable shall be adjusted in such manner and at such time as the Board of
Directors of the Company reasonably determines to be equitable under the
circumstances (such determination to be evidenced in a resolution, a
certified copy of which shall be mailed to the holder of the Warrants
evidenced hereby).
(v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 2(a) need be made to the Number Issuable
unless such adjustment would require an increase or decrease of at least
1% of the Number Issuable then in effect. Notwithstanding the foregoing,
any lesser adjustment shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment, which, together
with any adjustment or adjustments so carried forward, shall amount to an
increase or decrease of at least 1% of such Number Issuable. Any
adjustment to the Number Issuable carried forward and not theretofore made
shall be made immediately prior to the exercise of any Warrants pursuant
hereto.
(vi) The Company promptly shall deliver to each registered
holder of Warrants at least 20 days prior to effecting any transaction
which would result in an increase or decrease in the Number Issuable
pursuant to this Section 2 a notice thereof, together with a certificate,
signed by the Chief Executive Officer, the Chairman or the Vice Chairman
and by the Chief Financial Officer, Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, setting forth in
reasonable detail the event requiring the adjustment and the method by
which such adjustment was, or will be, calculated and specifying the
increased or decreased Number Issuable then in effect following such
adjustment.
(vii) Notwithstanding anything contrary contained in this
Section 2(a), the Company shall be entitled to make such upward
adjustments in the Number Issuable, in addition to those otherwise
required by this Section 2(a), as the Board of Directors of the Company in
their discretion shall determine to be advisable in order that any stock
dividend, subdivision or combination of shares, distribution of rights or
warrants to purchase stock or securities, or distribution of securities
convertible into or exchangeable for
<PAGE>
8
Common Stock, hereafter made by the Company to its shareholders shall not
be taxable; PROVIDED, HOWEVER, that any such adjustment shall be made, as
nearly as practicable, in a manner which treats all holders of Warrants
with similar protections on an equal basis.
(B) REORGANIZATION. In case of any capital reorganization or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) (any of the foregoing, a "TRANSACTION"),
the Company, or any successor, as the case may be, shall execute and deliver to
each holder of the Warrants evidenced hereby, at least 20 days prior to
effecting any of the foregoing Transactions, a certificate that the holder of
each such Warrant then outstanding shall have the right thereafter to exercise
such Warrant into the kind and amount of shares of stock or other securities (of
the Company or another issuer) or property or cash receivable upon such
Transaction by a holder of the number of shares of Common Stock into which such
Warrant could have been exercised immediately prior to such Transaction. Such
certificate shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 2 and shall
contain other terms identical to the terms hereof. If, in the case of any such
Transaction, the stock, other securities, cash or property receivable thereupon
by a holder of Common Stock includes shares of stock or other securities of a
Person other than (i) the successor and (ii) other than the Company, which
controls or is controlled by the successor or which, in connection with such
Transaction, issues stock, securities, other property or cash to holders of
Common Stock, then such certificate also shall be executed by such Person, and
such Person shall, in such certificate, specifically assume the obligations of
such successor or purchasing Person and acknowledge its obligations to issue
such stock, securities, other property or cash to holders of the Warrants upon
exercise thereof as provided above. The provisions of this Section 2(b)
similarly shall apply to successive Transactions.
(C) SPECIAL DISTRIBUTIONS. If the holder so elects (in lieu of an
adjustment to the Number Issuable pursuant to Section 2(a)(i) or 2(a)(iii)) by
sending a Special Notice to the Company, in the event that the Company shall
declare a dividend or make any other distribution (including, without
limitation, in cash, in capital stock (which shall include, without limitation,
any options, warrants or other rights to acquire capital stock) of the Company,
whether or not pursuant to a shareholder rights plan, "poison pill" or similar
arrangement) in other property or assets, to holders of Common Stock (a "SPECIAL
DISTRIBUTION"), then the Board of Directors shall set aside the amount of such
dividend or distribution that any holder of Warrants would have been entitled to
receive had it exercised such Warrants prior to the record date for such
dividend or distribution. Upon the exercise of a Warrant evidenced hereby, the
holder shall be entitled to receive, such dividend or distribution that such
holder would have received had such Warrant been exercised immediately prior to
the record date for such dividend or distribution. Prior to any Special
Distribution described in this section 2(c), the Company shall as provided in
Section 3
<PAGE>
9
hereof notify each holder (not less than 20 days prior to the occurrence of each
Special Distribution) of its intent to make such Special Distribution and the
holder, if it elects to have such distribution set aside the amount thereof
rather than have an adjustment to the Number Issuable as provided in Sections
2(a)(i) or 2(a)(iii), shall notify the Company by sending a Special Notice three
Business Days prior to the date of any such Special Distribution.
3. NOTICE OF CERTAIN EVENTS. In case at any time or from time to
time, the Company shall declare any dividend or any other distribution to the
holders of its Common Stock, or shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
additional shares of stock of any class or any other right, or shall authorize
the issuance or sale of any other shares or rights which would result in an
adjustment to the Number Issuable pursuant to Section 2(a)(i) or (ii) or would
result in a Special Distribution pursuant to Section 2(c) hereof, or there shall
be any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another Person,
or any sale or other disposition of all or substantially all the assets of the
Company, or any Transaction, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company, then, in any one or more
of such cases the Company shall mail to each holder of the Warrants evidenced
hereby at such holder's address as it appears on the transfer books of the
Company, as promptly as practicable but in any event at least 20 days prior to
the applicable date hereinafter specified, a notice stating (a) the date on
which a record is to be taken for the purpose of such dividend, distribution,
rights, warrants or Transaction or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants, or to participate in such Transaction, are to
be determined, (b) the issue date (as defined in Section 2(a)(ii) hereof) or (c)
the date on which such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation winding up or Transaction is expected to
become effective. Such notice also shall specify the date as of which it is
expected that the holders of Common Stock of record shall be entitled to
exchange their Common Stock for shares of stock or other securities or property
or cash deliverable upon such reorganization, reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up.
4. CERTAIN COVENANTS. The Company covenants and agrees that all
shares of capital stock of the Company which may be issued against payment
therefor upon the exercise of the Warrants evidenced hereby will be duly
authorized, validly issued and fully paid and nonassessable. The Company shall
at all times reserve and keep available for issuance upon the exercise of the
Warrants, such number of its authorized but unissued shares of Common Stock as
will from time to time be sufficient to permit the exercise of all outstanding
Warrants, and shall take all action required to increase the authorized number
of shares of Common Stock if at any time there shall be insufficient authorized
but unissued shares of Common Stock to permit such reservation or to permit the
exercise of all outstanding Warrants. The Company
<PAGE>
10
shall prepare and file, and cooperate with the holder of the Warrants so that it
may prepare and file, in each case within five Business Days of a request by
such holder, notification and report forms in compliance with the HSR Act, and
shall otherwise fully comply with the requirements of the HSR Act, to the extent
required in connection with the exercise of the Warrants. The Company shall bear
all of its own expenses and all of its own out-of-pocket expenses (including
reasonable attorneys' fees, charges and expenses) and filing fees of [The 1818
Mezzanine Fund, L.P.] [PC Investment Company (including any Permitted Transferee
thereof)] [Manufacturers Life Insurance Company (U.S.A.) (including any
Permitted Transferee thereof)] (but not any transferee thereof) in connection
with any such preparation and filing.
5. REGISTERED HOLDER. The person in whose name this Warrant
certificate is registered on the books and records of the Company shall be
deemed the owner hereof and of the Warrants evidenced hereby for all purposes.
The registered holder of this Warrant certificate, in its capacity as such,
shall not be entitled to any rights whatsoever as a stockholder of the Company,
except as herein provided.
6. TRANSFER OF WARRANTS. Any transfer of the rights represented by
this Warrant certificate shall be subject to the limitations provided herein,
and shall be effected by the surrender of this Warrant certificate, along with
the form of assignment attached hereto, properly completed and executed by the
registered holder hereof, at the principal executive office of the Company in
the United States of America, together with an appropriate opinion letter, if
deemed reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered holder hereof and, in the event of a partial
transfer, in the name of the registered holder hereof, a new Warrant certificate
or certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
Notwithstanding anything to the contrary contained herein, if any
holder of the Warrants desires to sell or otherwise transfer all or any portion
of his Warrants (other than to a Permitted Transferee), such holder shall first
send written notice (the "OFFERING NOTICE") to the Company which shall state (i)
the number of Warrants proposed to be sold or otherwise transferred (the
"OFFERED WARRANTS"), (ii) the proposed purchase price per Warrant which such
holder is willing to accept and (iii) the material terms and conditions of the
proposed sale or transfer. For a period of five Business Days after delivery of
the Offering Notice (the "NOTICE PERIOD"), the Company shall have the right (but
not the obligation) to purchase all but not less than all of the Offered
Warrants at a purchase price equal to the purchase price provided in the
Offering Notice and upon the terms and conditions set forth in the Offering
Notice. Upon delivery of the Offering Notice, such offer shall be irrevocable
unless and until the rights of first offer of the Company provided for herein
shall have been waived or shall have expired. Failure of the Company to respond
within Notice Period shall be deemed a rejection of such offer. If the
<PAGE>
11
Company elects to accept such offer, the Offered Warrants shall be sold or
transferred to the Company in accordance with the terms and conditions provided
in the Offering Notice on the date that is three Business Days following the
Company's acceptance of such offer.
7. DENOMINATIONS. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered holder hereof a new Warrant certificate or
certificates in such denominations specified by such holder for an aggregate
number of Warrants equal to the number of Warrants evidenced by this Warrant
certificate PROVIDED, HOWEVER, that the Company shall not be required to issue
any Warrants for fractional shares of Common Stock.
8. REPLACEMENT OF WARRANTS. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant
certificate and, in the case of loss, theft or destruction, upon delivery of an
indemnity reasonably satisfactory to the Company (in the case of an insurance
company or other institutional investor, its own unsecured indemnity agreement
shall be deemed to be reasonably satisfactory), or, in the case of mutilation,
upon surrender and cancellation thereof, the Company will issue a new Warrant
certificate of like tenor for a number of Warrants equal to the number of
Warrants evidenced by this Warrant certificate.
9. GOVERNING LAW. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
10. RIGHTS INURE TO REGISTERED HOLDER. The Warrants evidenced by
this Warrant certificate will inure to the benefit of and be binding upon the
registered holder hereof and the Company and their respective successors and
permitted assigns. Nothing in this Warrant certificate shall be construed to
give to any Person other than the Company and the registered holder hereof any
legal or equitable right, remedy or claim under this Warrant certificate, and
this Warrant certificate shall be for the sole and exclusive benefit of the
Company and such registered holder.
11. DEFINITIONS. For the purposes of this Warrant certificate, the
following terms shall have the meanings indicated below:
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York, are authorized or
required by law or executive order to close.
"CURRENT MARKET PRICE" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
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12
Common Stock for those days during the period of 15 days, ending on such date,
on which the national securities exchange or market system on which the Common
Stock is primarily traded was open for trading, and (b) if the Common Stock is
not then listed or quoted on any exchange or market system, the Market Price on
such date.
"EXERCISE PRICE" shall have the meaning given it in the first
paragraph of this Warrant certificate.
"FAIR MARKET VALUE" shall mean the amount which a willing buyer,
under no compulsion to buy, would pay a willing seller, under no compulsion to
sell, in an arm's-length transaction.
"HSR ACT" shall mean the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, as amended and the rules and regulations of the Federal Trade
Commission promulgated thereunder.
"ISSUE DATE" shall mean December [__], 1997.
"MARKET PRICE" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is then listed or admitted to trading
on any national securities exchange, the closing price of the Common Stock on
such date; (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national market system
security, the last sale price of the Common Stock on such date; or (c) if there
shall have been no trading of the Common Stock on such date or if the Common
Stock is not so designated, the average of the reported closing bid and asked
price of the Common Stock, on such date as shown by Nasdaq and reported by any
member firm of the NYSE selected by the Company; or (d) if neither (a), (b) nor
(c) is applicable, the Fair Market Value per share determined in good faith by
the Board of Directors of the Company which shall be deemed to be Fair Market
Value unless holders of at least 33% of Common Stock issued or issuable upon
exercise of the Warrants request that the Company obtain an opinion of a
nationally recognized investment banking firm chosen by the Company (who shall
bear the expense) and reasonably acceptable to such requesting holders of the
Warrants, in which event the Fair Market Value shall be as determined by such
investment banking firm.
"NASDAQ" shall mean the National Market System of the Nasdaq Stock
Market.
"NOTES" shall mean the Senior Subordinated Promissory Notes issued
by the Company pursuant to the Purchase Agreement.
"NUMBER ISSUABLE" shall have the meaning given it in the second
paragraph of this Warrant certificate.
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13
"NYSE" shall mean the New York Stock Exchange, Inc.
"PERMITTED TRANSFEREE" means (i) any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended[, and (ii) with respect to The 1818 Mezzanine
Fund, L.P., (x) the general partners and limited partners thereof (each a
"PARTNER"), (y) any "affiliate" (as defined in the preceding clause (i)) of a
Partner if such Partner is not an individual, and (z) if a Partner is an
individual, a member of such Partner's immediate family, which shall include his
parents, spouse, siblings, children or grand children ("FAMILY MEMBERS"), or a
trust, corporation or partnership, all of the beneficial interests in which
shall be held by such Partner or one or more Family Members of such Partner or
which would otherwise be an "affiliate" (as defined in the preceding clause (i))
of such individual; PROVIDED, HOWEVER, that during the period any such trust,
corporation, or partnership holds any right, title or interest in any Warrants,
no Person other than such Partner or one or more Family Members of such Partner
may be or become beneficiaries, stockholders or limited or general partners
thereof].1/
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PURCHASE AGREEMENT" shall mean that certain Securities Purchase
Agreement, dated as of December [__], 1997, by and among the Company, The 1818
Mezzanine Fund, L.P., PC Investment Company, The Progressive Investment Company,
Inc. and Manufacturers Life Insurance Company (U.S.A.), as the same may be
amended, supplemented or modified from time to time in accordance with its
terms.
"SALE TRANSACTION" means the merger or consolidation with or into
another Person by the Company (other than a merger or consolidation in which the
Company is the surviving or resulting person) or the completion of a tender
offer and/or acquisition for any and all shares of Common Stock of the Company;
PROVIDED that, when entering into such transaction, the Company shall comply
with Section 9.14 of the Purchase Agreement.
"SPECIAL NOTICE" shall mean the notice sent by a holder to the
Company indicating its preference to have any special distribution set aside for
its benefit upon exercise of the Warrant.
- --------
1/ This language shall be inserted on the Warrant issued to The 1818
Mezzanine Fund, L.P.
<PAGE>
14
"WARRANT EXERCISE DOCUMENTATION" shall have the meaning given it
in Section 1 hereof.
12. NOTICES. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, courier services or
personal delivery, (a) if to the holder of a Warrant, at such holder's last
known address appearing on the books of the Company; and (b) if to the Company,
at its principal executive office in the United States located at the address
designated for notices in the Purchase Agreement, or such other address as shall
have been furnished to the party given or making such notice, demand or other
communication. All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered to a
courier if delivered by commercial overnight courier service; and five Business
Days after being deposited in the mail, postage prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant certificate
to be duly executed as of the Issue Date.
NATIONAL AUTO FINANCE COMPANY, INC.
By:_______________________________________
Name:
Title:
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15
FORM OF ASSIGNMENT FORM
(TO BE EXECUTED UPON ASSIGNMENT OF THE WARRANTS)
The undersigned hereby assigns and transfers this Warrant
certificate to ____________________ whose Social Security Number or Tax ID
Number is _________________ and whose record address is
_________________________ ____________, and irrevocably appoints
________________ as agent to transfer this security on the books of the Company.
Such agent may substitute another to act for such agent.
Signature:
___________________________________
Signature Guarantee:
___________________________________
Date: ___________________________
