-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SnGwCZjdyjQLCAv+ilYMqWAxEIH2a0Qs7CeVDYvIbLuv5E9hagCnkiz3kTcecb2Y Dx5G7Dqx5W89QTgI32/V/g== 0000950115-96-000060.txt : 19960131 0000950115-96-000060.hdr.sgml : 19960131 ACCESSION NUMBER: 0000950115-96-000060 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19960130 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAL FINANCIAL GROUP INC CENTRAL INDEX KEY: 0000811644 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 232455294 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-97948 FILM NUMBER: 96508514 BUSINESS ADDRESS: STREET 1: 500 CYPRESS CREEK ROAD WEST STREET 2: STE 590 CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 BUSINESS PHONE: 3059388200 MAIL ADDRESS: STREET 1: 500 CYPRESS CREEK ROAD WEST STREET 2: SUITE 590 CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 FORMER COMPANY: FORMER CONFORMED NAME: CORPORATE FINANCIAL VENTURES INC DATE OF NAME CHANGE: 19920703 POS AM 1 POST-EFFECTIVE AMEND #1 TO FORM SB-2 As filed with the Securities and Exchange Commission on January 30, 1996 Registration No. 33-97948 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ POST-EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- NAL FINANCIAL GROUP INC. (Exact name of registrant as specified in its charter) Delaware 6141 23-2455294 (State or other jurisdiction of (Primary Standard Classification (I.R.S. Employer Identification incorporation or organization) Code Number) Number)
500 Cypress Creek Road West Suite 590 Fort Lauderdale, FL 33309 ------------------------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive office and principal place of business) Mr. Robert R. Bartolini 500 Cypress Creek Road West Suite 590 Fort Lauderdale, FL 33309 (305) 938-8200 ----------------------------------------------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) with copy to: Stephen M. Cohen, Esquire Clark, Ladner, Fortenbaugh & Young One Commerce Square 2005 Market Street, 22nd Floor Philadelphia, PA 19103 (215) 241-1868 -------------------- Approximate date of proposed sale to the public: As soon as practicable following the date on which this Registration Statement becomes effective. -------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [x] The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. NAL FINANCIAL GROUP INC. CROSS REFERENCE SHEET
Registration Statement Item Number and Caption Location in Prospectus or Page - ---------------------------------------------- ------------------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..........................Forepart of the Registration Statement; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus...................................................Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors............................Prospectus Summary; Summary Financial Information; Risk Factors 4. Use of Proceeds.................................................Use of Proceeds 5. Determination of Offering Price.................................Cover Page of Prospectus; Plan of Distribution 6. Dilution........................................................N/A 7. Selling Security Holders........................................Selling Security Holders 8. Plan of Distribution............................................Cover Page of Prospectus; Plan of Distribution 9. Legal Proceedings...............................................Business of the Company - Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons....Management; Certain Transactions 11. Security Ownership of Certain Beneficial Owners and Management..Principal Stockholders 12. Description of Securities.......................................Description of Securities 13. Interest of Named Experts and Counsel...........................N/A 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities......................................Statement on Indemnification; Part II; Item 24 - Indemnification of Directors and Officers 15. Organization within Last Five Years............................Business of the Company 16. Description of Business........................................Business of the Company 17. Management's Discussion and Analysis of Plan of Operation......Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property........................................Business of the Company 19. Certain Relationships and Related Transactions.................Certain Transactions 20. Market for Common Equity and Related Stockholder Matters.......Market for Common Equity and Related Stockholder Matters 21. Executive Compensation.........................................Management 22. Financial Statements...........................................Summary Financial Information; Capitalization; Financial Statements 23. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.......................................N/A
Subject to Completion January 30, 1996 PRELIMINARY PROSPECTUS NAL FINANCIAL GROUP INC. ------------------------- 79,849 Shares of Common Stock Offered by Certain Selling Security Holders as Offered by Prospectus dated December 15, 1995 613,581 shares of Common Stock Offered by Certain Selling Security Holders ------------------------ This Prospectus relates to the sale by certain "Selling Security Holders" identified in this Prospectus ("Selling Security Holders") of 79,849 shares of Common Stock, previously issued by NAL Financial Group Inc. (the "Company") in private placement transactions. Such shares of Common Stock were previously included within the Company's Prospectus dated December 15, 1995, which is superseded by this Prospectus. This Prospectus also relates to the sale by certain Selling Security Holders of 613,581 shares of Common Stock, which consist of: (i) 261,600 shares issuable, if at all, upon conversion of the principal and interest due under certain outstanding convertible debentures ("Debentures"); (ii) 120,000 shares issuable, if at all, upon the exercise of certain common stock purchase warrants ("Warrants") and (iii) 231,981 shares previously issued by the Company, all of which Debentures, Warrants and shares of Common Stock were issued by the Company in private placement transactions. See "SELLING SECURITY HOLDERS" and "DESCRIPTION OF SECURITIES." The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Security Holders. The Company will, however, bear all expenses in connection with the preparation and filing of a Registration Statement of which this Prospectus forms a part. Sales of shares of Common Stock may be made in negotiated transactions, or otherwise, at market prices prevailing at the time of sale or at negotiated prices. See "PLAN OF DISTRIBUTION." ------------------------ The Common Stock is traded on The NASDAQ National MarketSM under the symbol "NALF." On January 25, 1996, the closing price of the Common Stock on The NASDAQ National MarketSM was $13.38. ------------------------ THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS." --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================================================= Underwriting Discounts Proceeds to the Selling Class of Security Price to Public and Commissions Security Holders - ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock _____ -(1)- $9,278,093(2) =============================================================================================================================
(1) This does not take into account the costs of this Offering, including among others, printing, blue sky and professional fees, estimated at $100,000, which will be borne entirely by the Company. (2) Represents the anticipated sale by the Selling Security Holders at $13.38 per share, the last reported sales price reported on The NASDAQ National MarketSM on January 25, 1996. There can be no assurances, however, that the Selling Security Holders will be able to sell their shares at this price, or that a liquid market will exist for the Company's Common Stock. The Company will receive no proceeds upon the sale of shares of Common Stock by the Selling Security Holders. The date of this Prospectus is January __, 1996 AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Copies of these reports may be inspected and copied at the Public Reference Facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, and at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained upon written request addressed to the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates. The Company will provide a report to stockholders, at least annually, which will include audited financial statements of the Company. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus. THE COMPANY The Company NAL Financial Group Inc. (hereinafter, the "Company" or "NAL") commenced operations during June 1991 as a specialized finance company for the purpose of engaging in consumer finance transactions involving the origination, purchase, remarketing and servicing of consumer and mortgage loans and auto lease receivables. Because of the opportunities presented by the insolvency and reorganization of many financial institutions at the time, from inception through the second quarter of 1994, the Company's principal activities involved the bulk purchase and servicing of seasoned portfolios of consumer and mortgage loans and auto lease receivables that had been administered by the Resolution Trust Corporation ("RTC") or Federal Deposit Insurance Corporation ("FDIC"). In response to the decreasing availability of seasoned portfolios, since the second quarter of 1994 the Company's principal focus has shifted to other segments of the consumer finance industry, particularly auto finance. Although opportunistic purchases of seasoned auto related portfolios may still be considered by management, the principal focus of the Company's business since June 1994, has been the acquisition and servicing of automotive leases and loans originated by dealers in connection with sales or leases to persons with sub-prime credit. In addition, management expects to complete sales of receivables through securitization transactions from time to time. However, there can be no assurances to such effect. The Company services its own portfolio of receivables as well as portfolios sold through securitization transactions. The Company's principal revenue sources are interest income and fees earned on loans held in portfolio, realized gains and servicing fees from loans sold in securitization transactions, and remarketing efforts to consumers. The Company operates its business through six wholly-owned subsidiaries, NAL Acceptance Corporation ("NAC"), NAL Mortgage 3 Corporation ("NMC"), NAL Insurance Services, Inc. ("NIS"), Performance Cars of South Florida, Inc. ("PCSF"), Autorics, Inc. ("Autorics") and Autorics II, Inc. ("Autorics II"). (Unless otherwise specified, references to the Company shall include NAC, NMC, NIS, Autorics, Autorics II, and/or PCSF). The Company became publicly held by virtue of a merger with and into Corporate Financial Ventures, Inc. ("COFVI") on November 30, 1994 (the "Merger"). COFVI was incorporated in Delaware on November 14, 1986 and completed a small public offering on June 14, 1988. With the exception of a short-term venture that was discontinued during the fourth quarter of 1993, COFVI had remained principally an inactive company since inception. Pursuant to the Merger, NAL was merged with and into COFVI and the historic stockholders of NAL received 3,160,000 newly issued restricted securities, which constituted approximately 56% of the issued and outstanding COFVI stock. Effective upon completion of the Merger, the Company assumed the historic operations of NAL and changed its name to "NAL Financial Group Inc." The Company's principal executive office is located at 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309. THE OFFERING Securities Being Offered: This Prospectus relates to the - ------------------------- sale by certain "Selling Security Holders" identified in this Prospectus ("Selling Security Holders") of 79,849 shares of Common Stock, previously issued by NAL Financial Group Inc. (the "Company") in private placement transactions. Such shares of Common Stock were previously included within the Company's Prospectus dated December 15, 1995, which is superseded by this Prospectus. This Prospectus also relates to the sale by certain Selling Security Holders of 613,581 shares of Common Stock, which consist of: (i) 261,600 shares issuable, if at all, upon conversion of the 4 principal and interest due under certain outstanding convertible debentures ("Debentures"); (ii) 120,000 shares issuable, if at all, upon the exercise of certain common stock purchase warrants ("Warrants") and (iii) 231,981 shares, all of which Debentures, Warrants and Common Stock were issued by the Company in private placement transactions. See "SELLING SECURITY HOLDERS" and "DESCRIPTION OF SECURITIES." The shares of Common Stock offered by the Selling Security Holders may be offered for sale from time to time by the holders in regular brokerage transactions, either directly or through brokers or to dealers, in private sales or negotiated transactions, or otherwise, at prices related to then prevailing market prices. The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Security Holders. All expenses of the registration of such securities are, however, being borne by the Company. The Selling Security Holders, and not the Company, will pay or assume such brokerage commissions as may be incurred in the sale of their securities. See "SELLING SECURITY HOLDERS." The Company's Common Stock is listed on The NASDAQ National MarketSM under the symbol "NALF." On January 25, 1996, the closing price of the Commn Stock was $13.38. 5 Total number of shares of Common Stock outstanding..........................................6,700,041(1) Total number of shares of Common Stock being offered by Selling Security Holders ..........................................693,430 - --------------------------- (1) As of January 25, 1996. - --------------------------- Use of Proceeds: The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Security Holders. Risk Factors: The securities offered in this - ------------- Prospectus are speculative in nature and involve a high degree of risk. Prior to making an investment decision, prospective investors should carefully review the risk factors enumerated in this Prospectus, including, among others, the dependence of the Company on sources of financing, possible volatility of stock prices, risks associated with the sub-prime market, control by certain stockholders, reliance on key personnel and additional possible dilution. See "RISK FACTORS" and "BUSINESS OF THE COMPANY - Legal Proceedings." Trading Symbol: Common Stock "NALF." 6 SUMMARY FINANCIAL INFORMATION Set forth below is the historical summary financial information with respect to the Company for the three years ended December 31, 1994, 1993 and 1992 and the nine months ended September 30, 1995 and 1994.
Nine Months Ended September 30, Year Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Income Statement Information: Revenue $12,368,194 $6,197,710 $8,133,200 $9,287,091 $13,232,846 Income Before Provision for Taxes, 1,725,473 748,619 657,666 1,320,804 2,428,849 Extraordinary Loss and Minority Interest(1) Net Income 1,069,793 454,755 394,323 471,239 1,399,333 Net Income per Share:(2) Primary: Income Before Provision for Taxes, Extraordinary Loss and Minority Interest 0.29 0.14 0.13 0.25 0.47 Net Income 0.18 0.09 0.08 0.09 0.27 Fully Diluted: Income Before Provision for Taxes, Extraordinary Loss and Minority Interest 0.29 0.13 0.12 0.24 0.43 Net Income 0.18 0.08 0.07 0.08 0.25 Weighted Average Shares Outstanding Primary 5,875,228 5,192,968 5,192,968 5,192,968 5,192,968 Fully Diluted 6,013,263 5,592,968 5,592,968 5,592,968 5,592,968 Balance Sheet Information: (at end of period) Total assets 112,206,308 21,550,845 34,321,546 27,652,315 38,059,273 Borrowings 86,977,416 18,087,565 22,502,041 22,840,167 28,203,796 Stockholders' Equity 21,028,876 3,463,280 10,855,807 3,808,083 5,582,203 See Footnotes Next Page
7 - ------------------------ (1) Includes an extraordinary loss on extinguishment of debt of $326,949 (net of taxes) and a minority interest of $87,516 for the years ended December 31, 1993 and 1992, respectively. Also includes a non-cash charge of $80,000 for the nine months ended September 30, 1995 for common stock earned pursuant to a voting trust agreement established in connection with the Merger. (2) Primary and fully diluted net income per share for the years ended December 31, 1994 and 1993, and for the nine months ended September 30, 1994 has been calculated assuming 5,192,968 and 5,592,968 shares have been outstanding during the entire periods, respectively. 8 RISK FACTORS The securities offered hereby are speculative in nature, involve a high degree of risk and an investment in the Common Stock should not be made by any investor who cannot afford the loss of his entire investment. Prior to making an investment decision with respect to the Common Stock offered by this Prospectus, prospective investors should carefully consider, along with the other matters discussed in this Prospectus, the following risk factors: 1. Declining Historic Results of Operation. The Company experienced a trend toward decreasing results of operations during fiscal 1993 and 1994, which management believes was attributable to diminished gains on loan sales and rates of return, and increased competition incurred in connection with its more recent purchases of seasoned portfolios of consumer and mortgage loans and auto leases. During each quarter during the three quarters ended September 30, 1995, the Company reported a trend of increased profits compared to the prior quarter. Management believes that the yields to be derived from interest, rental income and fees generated by originated and acquired contracts will provide a profitable spread over the costs of its borrowings. In view of the early stage of the Company's auto finance business segment, however, management is uncertain these yields will compare with yields experienced in the past. In addition, management expects to complete sales of automotive contracts through securitization transactions from time to time which will generate realized gains and future servicing fee revenue to the Company. However, there can be no assurances to that effect. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 2. Dependence upon Adequate Sources of Financing. Historically, a substantial portion of the Company's working capital has been provided through the sale of debt participation interests and revolving lines of credit provided by the Company's principal lenders. During the period from April 1995 through December 1995 the Company secured additional funding through warehouse credit facilities and through the sale of Debentures and shares of Common Stock in private placement transactions. During the fourth quarter of 1995, the Company secured additional funding through the sale of approximately $40 million of automotive loans in a privately-placed securitization transaction. The proceeds from the transaction were used to pay down warehouse lines of credit, thereby making the warehouse facilities available to fund acquisitions of additional automotive contracts. The Company 9 expects to complete future securitizations from time to time. However, there can be no assurances to that effect. See "RISK FACTOR #3." The Company utilizes these sources of funding to finance the purchase of its consumer loans and lease receivables. Accordingly, the Company's ability to maintain and expand its portfolio of loan and lease receivables, while dependent upon a number of factors, relies predominantly upon the availability of adequate capital at rates and upon terms acceptable to the Company. There can be no assurances that such sources of financing will continue to remain available to the Company, or that the Company will be able to secure increased sources of financing or complete additional securitizations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Company remains in compliance with the terms of its existing lines of credit and debt participation interests. A default under any of these arrangements in the future could have a materially adverse effect on the Company's finances. The Company's ability to keep these financing sources in place depends upon its continued compliance with the terms thereof. The Company's ability to obtain successor facilities or similar financing will depend on, among other things, the willingness of financial institutions to participate in funding sub-prime credits and the Company's future financial condition and results of operations. 3. Continuing Ability To Securitize Loans. In the fourth quarter of 1995, the Company completed the sale of approximately $40 million of automobile loans in a privately-placed securitization transaction. Securitization enables the Company to sell automobile contracts on a regular basis, while continuing to receive servicing fees and excess cash flow, and to use the proceeds from such sales to acquire additional contracts. The Company intends to use the proceeds from securitization sales to pay down warehouse lines of credit. Under the terms of a $50 million warehouse repurchase facility established with a lending institution, the Company is obligated to securitize at least $250 million of loans to be financed under the facility over a two year period, with at least $100 million securitized in any 365 day period. Failure to complete a sufficient level of securitization transactions could result in termination of the line of credit. 10 4. Growth Dependent upon Expansion of Dealer Base. To a large extent, the Company's business depends on identifying dealers who meet certain qualifications, executing master dealer agreements with such dealers, training such dealers to utilize the Company's services effectively and monitoring such dealers' compliance with Company guidelines. There can be no assurance that the Company will be successful in increasing the number of participating dealers or maintaining its existing dealer base or that such dealers will continue to generate a volume of contracts comparable to the volume of contracts historically generated by such dealers. See "BUSINESS OF THE COMPANY - Dealer Program" and "Competition." 5. Substantial Additional Dilution. The Company is presently authorized to issue 50,000,000 shares of Common Stock of which 6,700,041 shares are outstanding as of the date of this Prospectus. During the period from April 1995 through December 31, 1995, the Company sold $21,325,000 principal amount of convertible debentures in private placement transactions. The Debentures were sold in Units together with common stock purchase warrants (the "Warrants"). At December 31, 1995, the Company's outstanding Common Stock included 930,523 shares previously issued upon the conversion of $8,260,000 principal amount of the Debentures. The Company may be caused to issue approximately 1,410,112 additional shares upon the conversion, if at all, of the principal and interest due under the remaining Debentures and 1,961,125 shares upon the exercise, if at all, of the Warrants; thus increasing the number of shares outstanding from 6,700,041 to 10,071,278. See "DESCRIPTION OF SECURITIES." Conversion of all of the remaining Debentures, if at all, would, however, have the effect of releasing the Company from its obligation to repay $13.0 million principal amount of the Debentures and recharacterizing such indebtedness to equity on the Company's financial books and records. In addition, exercise of all of the Warrants, if at all, would have the effect of securing for the Company additional working capital of up to $20,909,375. As its rate of growth continues, the Company must continue to secure increasing amounts of financing to fund the acquisition of additional automotive finance contracts. This may entail the sale of additional shares of Common Stock or Common Stock equivalents which would have the effect of further increasing the number of shares outstanding. In connection with other business matters deemed appropriate by the Company's management, there can be no assurances that the 11 Company will not, in fact, undertake the issuance of more shares of Common Stock without notice to then existing stockholders. This may be done in order to, among others, facilitate a business combination, acquire assets or stock of another business, compensate employees or consultants or for other valid business reasons in the discretion of the Company's Board of Directors. The Company has a Stock Option Plan which is presently authorized to grant options for the sale of up to 600,000 shares of Common Stock. In December 1994 and December 1995, the Company granted options to purchase an aggregate of 557,500 shares of Common Stock. See "MANAGEMENT - Executive Compensation." 6. Possible Volatility Associated with Anticipated Offering by Selling Security Holders. As of the date of this Prospectus, the Company had outstanding 6,700,041 shares of Common Stock of which approximately 2,453,009 were eligible for public trading. After giving effect to the resale of the shares covered by this Prospectus, and by virtue of certain registration rights granted to the holders of the Debentures and Warrants, an issuance of shares upon the conversion of the Debentures and/or exercise of the Warrants would have the effect of substantially increasing the number of shares eligible for public trading. See "DESCRIPTION OF SECURITIES - Registration Rights." Although it is impossible to predict market influences and prospective values for securities, it is possible that, in and of itself, the increase in the number of shares available for public trading could have a depressive effect upon the trading value of the Company's Common Stock. 7. Effect of Outstanding Debentures and Warrants. For the respective terms of the Debentures and Warrants, the holders thereof are given an opportunity to profit from a rise in the trading price of the Company's Common Stock, with a resulting dilution in the interest of the other stockholders. The holders of such Debentures may exercise their rights of conversion, and the holders of such Warrants may chose to exercise such Warrants, each at prices below the current trading price of the Company's Common Stock and at a time when the Company might be able to obtain additional capital through a new offering of securities at prevailing market prices. The terms on which the Company may obtain additional financing during this period may be adversely affected by the existence of such below market Debentures and Warrants. 12 8. Sensitivity to Interest Rates and General Economic Conditions. The Company's business is affected by a number of factors beyond its control, including sales activity in the new and used automobile retail market, which may be affected by the general condition of the economy and interest rate levels. The Company's profitability is determined largely by the difference, or "spread", between the rate of interest on the funds borrowed under its existing credit facilities, and the rate of interest (or effective yield in the case of bulk purchase portfolios) charged to and collected from its customers on their contracts. There can be no assurance that the Company's cost of funds will not rise to a level that adversely affects its ability to maintain profitability with respect to the contracts it originates and/or holds. In addition, high interest rate environments also adversely affect the financing capacity of the Company's sub-prime customers, particularly for new vehicles. Moreover, the Company has entered into a master repurchase facility with a lending institution which, under its terms, gives the institution the right to make margin calls in the event of a decrease in the market value in the contracts held for repurchase. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 9. Risks Associated with the Sub-Prime Market. The principal focus of the Company's business is upon automotive leases or loans that have been secured by persons with sub-prime credit. The sub-prime market is comprised of customers who are deemed to be relatively high credit risks due to various factors, including, among other things, the manner in which they have handled previous credit, the absence or limited extent of their prior credit history, or their limited financial resources. Consequently, the contracts acquired or loans originated by the Company may bear a higher rate of interest but also involve a higher probability of default, may involve higher delinquency rates and may involve greater servicing costs. The Company's profitability depends upon its ability to properly evaluate the credit worthiness of customers and efficiently service its contracts. There can be no assurance that the credit performance of its customers will be maintained, that the Company's systems and controls will continue to be adequate, or that the rate of future defaults and/or losses will be consistent with prior experience or at levels that will maintain the Company's profitability. 10. Reliance on Systems and Controls. The Company's operations rely upon non-proprietary processes and controls that are available generally, however, have been 13 specifically developed to meet the needs of the Company. These processes and controls support the evaluation, acquisition, servicing and administration of the Company's loan and lease portfolios, as well as its general corporate and management oversight functions. There can be no assurance that the Company's processes, controls or automated systems will continue to be adequate, or that they will be sufficient for the Company's expansion plans. A failure of the Company's automated systems could have a material adverse effect upon the Company's business and financial condition. 11. Control by Directors and Officers. The Company's officers and directors own approximately 41% of the Common Stock of the Company. See "PRINCIPAL STOCKHOLDERS." By virtue of the concentration of a substantial block of shares in the hands of the Company's directors and officers, and in view of the absence of cumulative voting rights, these stockholders will be in a position to elect all of the Company's directors and control the outcome of other corporate matters without the approval of the Company's other stockholders. In addition, applicable statutory provisions and the ability of the Board of Directors to issue one or more series of Preferred Stock without stockholder approval could deter or delay unsolicited changes in control of the Company by discouraging open market purchases of the Company's stock or a non-negotiated tender or exchange offer for such stock, which may be disadvantageous to a majority of the Company's stockholders who may otherwise desire to participate in such a transaction and receive a premium for their shares. See "DESCRIPTION OF SECURITIES." 12. Reliance on Key Personnel. The Company is dependent upon the services of its executive officers. Should one or more of these individuals cease to be affiliated with the Company before acceptable replacements are found, there could be a material adverse effect on the Company's business and prospects. Mr. Robert R. Bartolini, the Company's Chairman and Chief Executive Officer, is the only executive officer with whom the Company has an employment agreement. Should any of the Company's executive officers elect to terminate their employment, there can be no assurance that suitable replacements could be hired without the Company incurring substantial additional costs. The Company does not presently maintain key-man insurance on any of its executives, other than a life insurance policy on Mr. Bartolini in the amount of $2,000,000. This policy is maintained as a condition of the Company's credit facility with Congress Financial Corporation. The proceeds from the policy are primarily to be applied to reduce the Company's debt to Congress Financial 14 Corporation, and upon payment of that debt, the remaining proceeds shall be payable to the Company. The Company's continued success is also dependent upon its ability to attract and retain a sufficient number of qualified employees to support its growth strategy. There can be no assurance that the Company will be able to recruit and retain such personnel. See "MANAGEMENT." 13. Competition. In general, the automotive finance industry is characterized by intense competition. Existing and potential competitors include well-established financial institutions, such as banks, savings and loans, small loan companies, industrial thrifts, leasing companies and captive finance companies owned by automobile manufacturers and others. Many of these competitors have greater financial, technical and marketing resources than the Company. There can be no assurance that the Company will be able to compete successfully with such competitors in the future. Many of the larger banks, financial institutions and captive finance arms of automotive manufactures have not consistently sought to do business in the sub-prime market. These organizations have traditionally elected to limit their activities to the higher credit quality customers. As a result, the sub-prime credit market tends to be primarily serviced by smaller and independent finance organizations. The Company's business strategy is designed to capitalize on the absence of consistent institutional sources of financing in the sub-prime market. The competition in the sub-prime market would be significantly increased should the large finance organizations seek to compete consistently in the sub-prime market. 14. Regulation. The Company's business is subject to numerous federal and state consumer protection laws and regulations, which, among other things, require the Company to: (i) obtain and maintain certain licenses and qualifications; (ii) limit the interest rates, fees and other charges the Company is allowed to charge; (iii) limit or prescribe certain other terms of the Company's contracts; (iv) provide specified disclosures; and (v) define the Company's rights to repossess and sell collateral. An adverse change in existing laws or regulations, or in the interpretation thereof, or the promulgation of any additional laws or regulations could have an adverse effect on the Company's business. See "BUSINESS OF THE COMPANY - Government Regulation." 15 15. General Economic Conditions. The Company is subject to risks generally inherent in the operation of a business. These include, for example, inflation and increases or decreases in interest rates which may have an effect upon the overall volume of auto sales or leases. The Company believes, however, that because of its customer profile, and the need of its customers for basic transportation, such factors are not likely to have a material adverse impact on the Company's business. 16. Collections and Repossessions. The Company finances automobiles in a relatively high-risk market and anticipates that a portion of its automobile loans will become seriously delinquent and that in those circumstances the Company's only practical alternative will be repossession of the automobile. The Company monitors the rate of delinquent automobile loans and repossessions and maintains reserves to absorb anticipated losses from repossessions. The Company will use its best efforts to minimize its losses in that regard, although it believes its reserves are adequate to account for any such losses. The Company's loss reserves rely to a great extent, however, upon historical experience, which has been limited. Changes from the historical experience caused by changes in economic conditions or other factors could adversely affect the Company's operations. 17. Priority Liens in Financed Vehicles. Statutory liens for repairs or unpaid taxes may have priority even over a perfected security interest in financed automobiles, and certain state and federal laws permit the confiscation of motor vehicles used in unlawful activity which may result in the loss of a secured party's perfected security interest in a confiscated motor vehicle. Liens for repairs or taxes, or the confiscation of a financed automobile, could arise or occur at any time during the term. No notice may necessarily be given to the Company in the event such a lien arises or confiscation occurs. 18. Bankruptcies and Deficiency Judgments. Certain statutory provisions, including federal and state bankruptcy and insolvency laws, may limit or delay the ability of the Company to repossess and resell financed automobiles or enforce a deficiency judgment. In addition, the Company may determine in its discretion that a deficiency judgment is not an appropriate or economically viable remedy, or may settle at a significant discount any deficiency judgment that it does obtain. In the event that deficiency judgments are not obtained, are not satisfied, are 16 satisfied at a discount or are discharged, in whole or in part, in bankruptcy proceedings, the loss will be borne by the Company and may adversely affect the ability of the Company to repay its outstanding credit facilities. 19. Future Sales of Common Stock. A substantial influx of shares into the market may have a depressive effect upon the trading price of the Company's Common Stock. This may occur upon the public resale of the shares issuable upon the conversion of outstanding Debentures or upon the exercise of outstanding Warrants pursuant to existing registration rights granted by the Company (See "RISK FACTOR #6") or upon the public resale of outstanding shares that formerly constituted "restricted securities", as that term is defined under Rule 144 of the Securities Act of 1933, as amended (the "Act"). After taking into account resale of the shares covered by this Prospectus, and the anticipated registration of certain additional shares issued upon conversion of the Debentures, approximately 3,400,000 shares of the Company's outstanding Common Stock will continue to remain and in the future may be sold without registration upon compliance with Rule 144. A person (including a group of persons whose shares are aggregated) who has satisfied a two year holding period for restricted securities, including an affiliate of the Company, may sell an amount of restricted securities up to 1% of the Company's outstanding Common Stock in each three month period thereafter. Persons who are not affiliated with the Company and who have owned the restricted securities for at least three years are not subject to the 1% limitation. Of the 3,400,000 shares which constitute restricted securities, approximately 2,535,978 are presently held by persons who may be deemed "affiliates" of the Company. These individuals acquired their shares during November 1994. Accordingly, resales may occur as early as November 1996. Provided these individuals remain "affiliates", their resales would be limited to 1% of the Company's outstanding Common Stock in each three month period thereafter. Of the 3,400,000 shares which constitute restricted securities, 864,022 are presently held by non-affiliates. These shares were acquired during November 1994. Accordingly, resales can occur as early as November 1996 (limited to 1% of the Company's outstanding common stock per quarter) and unlimited resales can occur as early as November 1997. Any substantial sale of restricted securities under Rule 144 may in the future have a depressive effect upon the price of the Company's Common Stock in any market that may develop therefor. 17 20. Dividends. From inception through November 30, 1994, NAL as the predecessor to the Company paid dividends of $1,069,460. No dividends had been paid by COFVI, nor have there been any dividends paid by NAL following its Merger with COFVI. The payment of dividends is not contemplated in the foreseeable future. The payment of future dividends will be directly dependent upon the earnings of the Company, its financial needs and other similarly unpredictable factors. Earnings are expected to be retained to finance and develop the Company's business. USE OF PROCEEDS The Company will not realize any proceeds from the sale of shares of Common Stock by the Selling Security Holders. See "SELLING SECURITY HOLDERS." MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Prior to the Merger on November 30, 1994, virtually no trading of the Company's Common Stock had occurred since 1990. During December 1994, the Company's Common Stock began trading on the over-the-counter market through the OTC Bulletin Board under the symbol "NALF." In May 1995, the Company's Common Stock commenced trading on the NASDAQ National MarketSM under the same symbol. The following table sets forth the high and low market prices of the Common Stock for the period from December 1994 through December 1995. 1994 High Low - ---- ------ ------ Fourth Quarter $9.75 $7.50 December 1994 1995 High Low - ---- ------ ------ First Quarter $12.00 $10.30 Second Quarter $12.49 $10.50 Third Quarter $17.87 $11.97 Fourth Quarter $17.38 $ 9.75 The closing price on January 25, 1996 was $13.38. Records of the Company's stock transfer agent indicate that as of January 25, 1996, the Company had 160 holders of record of its Common Stock. Since a number of the shares of the Company are held by financial institutions in "street name," it is likely that the 18 Company has more stockholders than indicated above. To date, the Company has been unable to accurately ascertain this information. From inception through November 30, 1994, NAL as the predecessor to the Company paid dividends of $1,069,460. No dividends had been paid by COFVI, nor have there been any dividends paid by NAL following its Merger with COFVI. The payment of dividends is not contemplated in the foreseeable future. The payment of future dividends will be directly dependent upon the earnings of the Company, its financial needs and other similarly unpredictable factors. Earnings are expected to be retained to finance and develop the Company's business. 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1995. Borrowings $ 86,977,416 ------------ Stockholders' Equity: Preferred Stock, $1,000 par value 10,000,000 shares authorized; none issued and outstanding - 0 - Common Stock, $0.15 par value 50,000,000 shares authorized; 6,550,347 issued and outstanding 982,552 Paid in capital 17,443,384 Retained earnings 2,602,940 ------------ Total stockholders' equity 21,028,876 ------------ Total capitalization $108,006,292 ============ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the Consolidated Financial Statements and Notes thereto of the Company included in this Prospectus. Background NAL commenced operations during June 1991 as a specialized finance company for the purpose of engaging in consumer finance transactions involving the origination, purchase, remarketing and servicing of consumer and mortgage loans and auto lease receivables. Because of the opportunities presented by the insolvency and reorganization of many financial institutions at the time, from inception through the second quarter of 1994, the Company's principal activities involved the bulk purchase and servicing of seasoned auto related portfolios of consumer and mortgage loans and auto lease receivables that had been administered by the RTC or FDIC. 20 In response to the decreasing availability of seasoned portfolios, since the second quarter of 1994 the Company's principal focus has shifted to other segments of the consumer finance industry, particularly auto finance. Although opportunistic purchases of seasoned portfolios may still be considered by management, the principal focus of the Company's business since June 1994, has been the acquisition and servicing of automotive leases and loans originated by dealers in connection with sales or leases to persons with sub-prime credit. Management expects to complete sales of contracts through securitization transactions from time to time. However, there can be no assurances to that effect. See "RISK FACTORS." The Company became publicly held by virtue of the Merger with COFVI on November 30, 1994. COFVI had been an inactive public company at the time of the Merger. Since, as a result of the Merger, the stockholders of historic NAL acquired a controlling interest in COFVI, the Merger has been accounted for as a "reverse acquisition". Accordingly, for financial statement presentation purposes, NAL is viewed as the continuing entity and the related business combination is viewed as a recapitalization of NAL, rather than an acquisition by COFVI. In conjunction with the Merger, COFVI changed its name to "NAL Financial Group Inc." Results of Operations - Historical Overview The Company's results of operations from inception in 1991 through the second quarter of 1994 principally reflected the Company's investment earnings and gains realized from the sale of seasoned portfolios of consumer and mortgage loans acquired at significant discounts from their principal balances. The rate of return on these portfolios included both interest earned on loans and leases, as well as the purchase discount accretion which reflected the increase in the value of the portfolio as it approached maturity. Gains on sales of loan pools and loans sold to correspondents have historically constituted a significant element of the Company's results of operations. During 1992, 1993 and 1994, the Company realized gains on sales of loan pools of $1,127,000, $2,131,000 and $2,292,000, respectively. These sales consisted primarily of loan pools, principally longer-term, fixed rate loans, which had been purchased at discounts and sold within a short time period after purchase, or after a period during which the deficiencies of previous servicers were corrected. 21 Due to an increase in competition for, and a decrease in availability of, seasoned portfolios, the Company found it necessary to increase the prices it paid for newly acquired portfolios over the two and a half year period. The increase in prices paid for the portfolios decreased the Company's effective earnings yield, from 38.29% during the year ended December 31, 1992, to 27.06% during the year ended December 31, 1993, and further to 22.53% for the year ended December 31, 1994. Although the Company reduced its cost of borrowings during this period through refinancing and expansion of its borrowing base with less expensive financing, thereby reducing its cost of borrowings rate from 14.55% during 1992, to 11.62% during 1993, and further to 9.73% during 1994, the cost of funds reduction was less than the decrease in the earnings yield. Accordingly, the Company's net interest spread rate, or the difference between the effective yield earned on its interest-earning assets and the effective rate paid on its interest-bearing liabilities, decreased from 23.74% in 1992 to 15.44% in 1993, and further to 12.80% during 1994. In view of the shifting of the principal focus of the Company's business to other segments of the consumer finance industry, particularly, the acquisition and servicing of automotive leases and loans, management anticipates that substantially all of its earnings for the year ending December 31, 1995 and thereafter will be derived from interest, rental income and fees earned on sub-prime leases and loans. Management believes that the yields to be derived from interest, discount and fees to be charged on sub-prime credit automobile leases and loans will provide a profitable spread over the costs of its borrowings. In view of the early stage of the Company's auto finance business segment, however, management is uncertain these yields will compare with yields experienced in the past. Revenues generated from purchase discount accretion and gains on sales of loans which had historically constituted the principal component of the Company's earnings will likely decrease significantly after 1994. Management is, however, currently evaluating the feasibility of pooling its portfolio of originated automobile loans and leases for resale through securitization programs. To the extent that such programs are undertaken in the future, the composition of the Company's earnings may shift to some extent to include gains on sale of loan and lease pools. To a large extent, the Company's ability to generate profitable results of operations in the future will depend upon, among other things, its ability to: (i) continue the expansion of its program with dealers and other sources of auto loans and leases (see "BUSINESS OF THE COMPANY - Dealer Program"); (ii) maintain operations and extend credit in a manner which minimizes 22 delinquency experience and credit losses; and (iii) develop adequate sources of capital (on terms and at rates that provide an acceptable interest spread) from which to finance the growth of the Company's business. The Company's experience in this business segment since June 1994 has not yet presented sufficient historical information upon which reasonable trends can be identified by management. Nine Months Ended September 30, 1995 compared to Nine Months Ended September 30, 1994 The Company reported net income of $1,069,800 for the nine months ended September 30, 1995 on revenues of $12,368,000. This compares to net income of $455,000 on revenues of $6,198,000 for the nine months ended September 30, 1994. The Company's results of operations for the nine months ended September 30, 1995 principally reflected net interest and fees earned on its expanded portfolio of sub-prime automobile contracts receivable. The results of operations for the nine months ended September 30, 1994 principally reflected interest and discount earned on bulk purchased portfolios and gains from the sale of these portfolios. The Company's level of sub-prime automobile contracts acquired continues to increase when comparing the current interim period to the comparable interim period of the preceding year. Contracts acquired in the 1995 period totalled $108,427,000 compared to $10,372,000 for the 1994 period. The significant increase reflects the Company's success in the establishment and continual expansion of its network of automobile dealerships participating in the Company's financing programs. Net Interest Spread The following table presents net interest spread information for the nine months ended September 30, 1995 and 1994: Nine Months Ended September 30, 1995 1994 ----------- ----------- Net investment in loans and leases - average balance $64,589,000 $16,704,000 Interest income and purchase discount accretion 10,999,000 3,821,000 Annualized effective earnings rate 22.71% 30.50% Participations and notes payable - average balance $55,667,000 $14,776,000 Interest expense 4,636,000 1,410,000 Annualized effective cost rate 11.10% 12.72% Net interest spread rate 11.61% 17.78% 23 During the nine months ended September 30, 1995, the Company's net interest spread rate, or the difference between the effective rate earned on interest - earning assets and the effective rate paid on interest - bearing borrowings, decreased 6.17%, from 17.78% to 11.61%, when compared to the same period of the preceding year. This decrease was due primarily to a 7.79% decrease in the effective rate earned on interest earning assets, from 30.50% to 22.71%. The decrease in the earnings rate was offset by a decrease in the Company's effective cost rate from 12.72% to 11.10%, or 1.62%. During the nine months ended September 30, 1994, a greater portion of the Company's earnings was derived from purchase discount accretion than during the equivalent 1995 period. During the 1994 period, purchase discount accretion was $1,801,000 compared to $599,000 for the 1995 period. This resulted in a higher effective earnings rate for the 1994 period. The decrease in purchase discount accretion reflects the Company's shift in focus from acquiring bulk loan and lease portfolios at significant discounts to acquiring and servicing sub-prime automotive loan and lease contracts receivable. Although the automotive contracts do not provide as much earnings from purchase discount accretion as the bulk purchase portfolios, the coupon interest rate earned on the contracts is higher. Interest income increased from $2,020,000 for the nine months ended September 30, 1994 to $10,400,000 for the nine months ended September 30, 1995. This increase was due to higher contractual rates earned on sub-prime contracts and an increase in the average balance of loan and lease receivables from $16,704,000 in the 1994 period to $64,589,000 in the 1995 period. Substantially all of the increase in the balance of loan and lease receivables is attributable to acquired automotive contracts. The decrease in the Company's effective cost rate was attributable to an increase in borrowings to finance the expansion of the automotive contracts portfolio. For the most part, the Company has financed its acquisitions of automotive contracts with borrowings which have had interest rates which were established at the time of financing based on the prime rate or LIBOR rate in effect at the time. These borrowings had rates which were lower than the rates on borrowings utilized during the 1994 period to finance bulk-purchase portfolios. At September 30, 1995, the Company had borrowed approximately $67,195,000 under arrangements in which the interest rates were fixed at the time of financing, 24 and approximately $11,682,000 under lines of credit and warehouse arrangements which bear interest at variable rates tied to the prime rate or LIBOR. Management believes that the effective cost rate will decrease in future periods as an increasingly greater number of contracts are financed using the warehouse line established in September 1995, with a lower cost of funds than financing arrangements utilized previously. Gains on Sales of Loans Gains on sales of loans totalled $2,137,000 during the nine months ended September 30, 1994 compared to $128,000 for the nine months ended September 30, 1995. Prior to 1995, gains on sales of loans constituted a significant element of the Company's results of operations. The sales consisted primarily of loan pools which had been purchased at discounts and sold within a short period after purchase. Unless it elects to initiate a broad-based securitization program presently under consideration, it is the Company's current intention to hold principally all of its present portfolio until maturity. Given that intention, the Company may not experience gains on the sales of loan pools as it has in the past. Other Income Other income increased $1,001,000 from $240,000 during the nine months ended September 30, 1994 to $1,241,000 during the nine months ended September 30, 1995, due primarily to the commissions earned by the Company's insurance brokerage services from placing insurance policies and late fees charged on the automotive portfolio of loans and leases. Provision for Possible Credit Losses The provision for possible credit losses totalled $1,412,000 for the nine months ended September 30, 1995, or $1,056,000 more than the $356,000 reported for the equivalent 1994 period. This increase related primarily to provisions recorded for an estimate of possible losses which may be incurred for new automotive contracts acquired during the 1995 period. Beginning with the fourth quarter of 1995, management has decided to cease the amortization to earnings of the non-refundable acquisition discount on purchased automotive finance contracts and allocate this discount to the reserve available for credit losses. Management believes that this decision, although not totally 25 eliminating the need for future provisions, will ultimately result in lower provisions for credit losses on purchased contracts. Management periodically reviews the adequacy of the reserve for loan and lease losses and considers whether the level of reserve is sufficient to cover any losses of the carrying value of the collateral pledged for the loans and leases receivable, an analysis of the equity invested in the collateral by the borrowers, delinquency data and historical loss experience, and any recourse arrangements the Company has with dealers or other sellers of contracts and portfolios. Operating and Other Expenses Operating and other expenses increased $830,000 from $3,684,000 during the nine months ended September 30, 1994 period to $4,514,000 during the nine months ended September 30, 1995, due primarily to increased overhead and costs associated with the Company's automotive contract financing business. This increase was attributable to, among other things, an increase in compensation and employee benefits paid due to an expansion of the Company's work force. Additional personnel were hired to assist with underwriting, collecting and servicing of the Company's expanding portfolio of automotive contracts. Management expects that operating expenses will increase as the size of its automotive contract portfolio increases, but does not expect the growth of expenses to be disproportionate with the growth of revenues from the portfolio. Year ended December 31, 1994 compared to year ended December 31, 1993 The Company reported net income of $394,000 for the twelve months ended December 31, 1994 on revenues of $8,133,000. This compares to net income of $471,000 on revenues of $9,287,000 for the twelve months ended December 31, 1993. The results of operations for the twelve months ended December 31, 1994 and December 31, 1993 principally reflect net interest and discount accretion earned on its loan and lease portfolios purchased from the RTC or FDIC. 26 Net Interest Spread
Year Ended December 31, 1994 1993 ----------- ----------- Net investment in loans and leases - average balance $23,917,000 $27,093,000 Interest income and purchase discount accretion 5,387,000 7,331,000 Annualized effective earnings rate 22.53% 27.06% Participations and notes payable - average balance $20,109,000 $25,522,000 Interest expense 1,957,000 2,966,000 Annualized effective cost rate 9.73% 11.62% Net interest spread rate 12.80% 15.44%
During the twelve months ended December 31, 1994, the Company's net interest spread rate decreased 2.64%, from 15.44% to 12.80%, when compared to the same period of the preceding year. This decrease was primarily due to a 4.53% decrease in the effective rate earned on interest earning assets from 27.06% to 22.53%. The decrease in the earnings rate was offset by a decrease in the Company's effective cost rate from 11.62% to 9.73%, or 1.89%. The decrease in the effective earnings rate was attributable to a decrease in interest income and purchase discount accretion. Interest income from loans and direct finance leases decreased $1,049,000, or approximately 24%, from $4,371,000 in 1993 to $3,322,000 in 1994. Although total loans and leases outstanding at December 31, 1994 of $29,787,000 exceeded that outstanding at December 31, 1993 of $24,038,000, the average balance outstanding during 1994 was less than that for 1993. During 1994, the average balance of total loans and leases decreased approximately 12%, from $27,093,000 in 1993 to $23,917,000 in 1994. Although the Company acquired $41,027,000 of new leases and loans during 1994, these acquisitions occurred primarily in the last two quarters of the year. During 1994, the Company received principal payments on its portfolios totalling $23,640,000, and sold loans with a total book value of $11,963,000. Also, included in the average balance of loans and leases for 1994 were two underperforming portfolios purchased during the first 27 half of 1994 at deep discounts. The purchased principal balance and purchase price of these portfolios totalled $10,212,000 and $3,423,000, respectively. The Company's expectations for these portfolios is to realize income from collections in excess of the total purchase cost of the loans. Although the expectations are that some individual loans in the portfolios will be deemed fully uncollectible, and others will be only partially collectible, estimates are that the total of all collections will exceed the total cost of the portfolios, thereby yielding an overall gain from the investments. A portion of these two portfolios is being accounted for using the cost recovery method, under which earnings are recognized after the Company's investment has been recovered. Excluding the carrying value of these loans from the average balance of earning assets, the balance would have been $21,686,000 for 1994, which, when compared to the average balance for 1993, represented a 20% decrease. The decrease in purchase discount accretion, from $2,959,000 in 1993 to $2,065,000 in 1994, reflected the maturing during 1994 of discounted portfolios previously purchased by the Company, which were replaced in 1994 with acquisitions of bulk-purchase portfolios and loan and lease originations which did not have as large an amount of purchase discount as realized in the past, and with the purchase of the two under-performing portfolios which were partially accounted for using the cost recovery method. Interest expense decreased from $2,966,000 in 1993 to $1,957,000 in 1994. This decrease corresponded to a decrease in the average balance of participations and notes payable, from $25,522,000 in 1993 to $20,109,000 in 1994, consistent with the decrease in the average balance of loans and lease receivables outstanding during the year. In addition, during 1994, the Company realized a full year's benefit of the refinancing of its participations in 1993, together with benefits of obtaining less expensive financing for new loan purchases and originations. Gains on Sales of Loans Gains on sales of loans increased from $1,925,000 in 1993 to $2,292,000 in 1994. During 1994, the Company sold loan portfolios with a book value of $11,963,000, which compares to sales during 1993 of loans with a book value of $6,527,000. Gains on mortgage loan sales to correspondents decreased from $206,000 in 1993 to none in 1994, reflecting the decision by the Company to cease operations of its mortgage origination business in order to concentrate on the automobile finance business. 28 Other Income Other income increased $410,000, due primarily to an increase in late fee income of $177,000, due to fees collected primarily from the underperforming portfolios, and commission income of $47,000 from the Company's insurance brokerage activities. Provision for Possible Credit Losses During 1994, the Company recorded a provision for loan losses of $573,000. This provision was due primarily to two factors: the settlement during the year of several delinquent loans previously purchased as part of performing loan packages, and the determination during the year of the portion of the purchase price of the two underperforming portfolios acquired during 1994 which was deemed not collectible. Management periodically reviews the adequacy of the reserve for loan losses and considers whether the level of the reserve is sufficient to cover any losses of the carrying value of its existing portfolios. This review includes an evaluation of the value of the collateral pledged for the loans and leases receivable, an analysis of the equity invested in the collateral by borrowers, delinquency data and historical loss experience, and any recourse arrangements the Company has with the sellers of portfolios. Prior to 1994, the Company's portfolio acquisitions consisted primarily of performing loans and leases which were acquired at discounted prices. The Company's experience with these portfolios was that, in general, it recovered its discounted investment in the portfolios through diligent collection efforts. Accordingly, no additional provision for losses was considered necessary for 1993, based on management's review. During the last quarter of the year, management was able to fully evaluate the collectibility of the two underperforming portfolios acquired during the earlier part of the year. This evaluation determined that the purchase cost of several of the loans would not be fully collectible, and, under generally accepted accounting principles, the portion deemed uncollectible was charged off. However, management expects that the collections from each of the two portfolios taken as a whole will exceed their respective total purchase costs. Operating and Other Expenses Operating and other expenses decreased $55,000 from $5,000,000 during the twelve months ended December 31, 1993 to $4,945,000 29 during the twelve months ended December 31, 1994, due primarily to a decrease in servicing expense. Servicing expense decreased from $320,000 in 1993 to $80,000 in 1994, resulting from the Company's decision to transfer the data processing function for servicing its portfolios from an outside service bureau to an in-house system. This transfer was made to enhance the efficiency of the Company's operations and to reduce its operating expenses. This transfer did not have a material effect on the liquidity and capital resources of the Company, nor did it have a material effect on the results of operations. Other operating expense categories increased $297,000, due primarily to increased overhead and sales costs incurred in establishing the Company in its new business focus. 30 Delinquency Experience The following table summarizes the Company's delinquency experience on accounts over 30 days past due on both a number of contracts and dollar basis. The table excludes two underperforming portfolios which were purchased during the year ended December 31, 1994 at substantial discounts. The Company is accounting for a portion of these portfolios using the cost recovery method. Under this method, income is recognized only for the excess of collections received over the purchase price basis of the loans. At December 31, 1994 and September 30, 1995, the principal balance and book value of these two portfolios totalled $2,271,000 and $897,000, and $690,000 and $234,000, respectively, principally all of which was delinquent 30 days or more. It is management's estimate that the Company will collect at least its net book value of the portfolios.
=================================================================================================== 9/30/95 - --------------------------------------------------------------------------------------------------- Dollars Contracts - --------------------------------------------------------------------------------------------------- Principal Outstanding $104,148,000 9,322 Delinquencies: 30-59 Days 6,822,000 654 60-89 Days 2,410,000 251 90 Days or more 2,790,000 230 - --------------------------------------------------------------------------------------------------- Total Delinquencies over 30 Days as a % of Principal/Contracts 12,022,000 1,135 11.54% 12.18% - --------------------------------------------------------------------------------------------------- Total Delinquencies over 60 Days as a % of Principal/Contracts 5,200,000 481 4.99% 5.16% ===================================================================================================
============================================================================================================================ 12/31/94 12/31/93 - ---------------------------------------------------------------------------------------------------------------------------- Dollars #Contracts Dollars #Contracts - ---------------------------------------------------------------------------------------------------------------------------- Principal Outstanding $33,165,000 3,560 $29,834,000 1,557 Delinquencies: 30-59 days 2,549,000 311 1,181,000 76 60-89 days 215,000 19 296,000 15 90 days or more 423,000 27 882,000 36 - ---------------------------------------------------------------------------------------------------------------------------- Total Delinquencies over 30 Days 3,187,000 357 2,359,000 127 as a % of Principal/Contracts 9.61% 10.03% 7.91% 8.16% - ---------------------------------------------------------------------------------------------------------------------------- Total Delinquencies over 60 days 638,000 46 1,178,000 51 as a % of Principal/Contracts 1.92% 1.29% 3.95% 3.28% ============================================================================================================================
31
====================================================================================================== 12/31/92 - ------------------------------------------------------------------------------------------------------ Dollars # Contracts - ------------------------------------------------------------------------------------------------------ Principal Outstanding $38,847,000 4,168 Delinquencies: 30-59 days 1,931,000 160 60-89 days 664,000 58 90 days or more 545,000 43 - ------------------------------------------------------------------------------------------------------ Total Delinquencies over 30 Days 3,140,000 261 as a % of Principal/Contracts 8.08% 6.26% - ------------------------------------------------------------------------------------------------------ Total Delinquencies over 60 Days 1,209,000 101 as a % of Principal/Contracts 3.11% 2.42% ======================================================================================================
Total delinquencies over 60 days, expressed as a percentage of total principal balance, were 3.11%, 3.95%, 1.92% and 4.99% at December 31, 1992, 1993, 1994 and September 30, 1995, respectively. The totals for 1992 and 1993 reflect delinquency experience for bulk-purchased portfolios. The Company's delinquency percentage of over 60 days loan principal at December 31, 1995 did not represent a significant change from the percentage at September 30, 1995. In the past, the Company had purchased portfolios which, prior to their purchase, had received servicing of differing degrees of quality. Accordingly, the Company's historic delinquency experience was influenced to some extent by the portfolios it purchased, and the time required to correct any previous servicing deficiencies. Similarly, the Company's charge-off experience had been affected by charge-offs of loans which were included in purchased portfolios at discounts. The discounted prices paid for some of the portfolios reflected an evaluation of the potential problem loans. The historic delinquency experience of the Company identified in the chart provided above through December 31, 1994 was accumulated during periods in which the Company's business focused principally upon the bulk purchase and servicing of portfolios of mortgage, lease and consumer receivables. In view of its recent shift to the automotive finance business, the Company's past delinquency experience may not be indicative of future results. At December 31, 1994, the dollar amount of the Company's portfolios consisted of approximately 76% of new contracts originated through its sub-prime credit program and 24% of previously acquired bulk purchase portfolios. At September 30, 1995, the Company's portfolios consisted of 93% of new contracts originated and 7% of previously acquired bulk purchase portfolios. Management expects that future delinquency rates for sub-prime automobile leases and loans will differ from that experienced for purchased, bulk portfolios. 32 The Company has prepared analyses of its automotive finance contracts, based on its own credit experience and available industry data, to identify the relationship between loan delinquency and default rates at the various stages of a contract's repayment term. The results of these analyses, suggest that the probability of a contract becoming delinquent or going into default is highest during the "seasoning period" which begins 3-4 months, and ends 12-14 months, after the origination date. The Company believes that the increase in the over 60 days delinquency percentage of number of contracts from 1.29% at December 31, 1994 to 5.16% at September 30, 1995, is primarily the result of an increase in the percentage of automotive finance contracts in the "seasoning period," rather than any change in the underlying average credit characteristics of the Company's portfolio. If the rate of the Company's volume continues to escalate, an increasingly greater portion of the Company's portfolio is expected to fall into the "seasoning period" described above, causing a rise in the overall portfolio delinquency and default rates, without regard to underwriting performance. Assuming no changes in any other factors that may affect delinquency and default rates, the Company believes this trend should stabilize or reverse when the volume of mature contracts (with lower delinquency and default rates) is sufficient to offset the total portfolio delinquency and default rates. The Company's collections staff monitors the contracts and typically takes action within 24 hours of delinquency if the first payment on a contract is missed, and within 48 hours if the second or subsequent payment is missed, and generally repossesses the automobile within 20 days of any uncured delinquency. While average periods of delinquency may decrease, actual results of operations will only be enhanced provided the Company's net credit loss experience does not deteriorate. See "Net Credit Loss Experience." Net Credit Loss Experience An allowance for uncollectible interest has been provided for loans 90 days or more delinquent. A reserve for credit losses has been maintained at a level that management considers adequate to provide for potential losses based upon an evaluation of known and inherent risks in the portfolios. Management's periodic evaluation is based upon an analysis of the portfolios, historical loss experience, current economic conditions and other relevant factors. Future adjustments to the reserve may be necessary if economic 33 conditions differ substantially from the assumptions used in making the evaluation. The following table summarizes the Company's net credit loss and losses from lease termination experience for the nine month period ended September 30, 1995 and for the years ended December 31, 1994, 1993 and 1992.
- -------------------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, - -------------------------------------------------------------------------------------------------------------------------------- September 1995 1994 1993 1992 ---- ---- ---- ---- - -------------------------------------------------------------------------------------------------------------------------------- Principal Outstanding $105,498,280 $33,165,177 $29,834,483 $38,846,847 - -------------------------------------------------------------------------------------------------------------------------------- Average Principal O/S 69,331,729 29,069,075 34,340,665 42,335,373 - -------------------------------------------------------------------------------------------------------------------------------- Charge-offs and Lease Termination Losses Net 673,285 648,835 243,327 355,460 of Recoveries - -------------------------------------------------------------------------------------------------------------------------------- Net Losses % Principal O/S(1) 0.85% 1.96% 0.82% 0.92% - -------------------------------------------------------------------------------------------------------------------------------- Net Losses % Avg Principal(1) 1.29% 2.23% 0.71% 0.84% - --------------------------------------------------------------------------------------------------------------------------------
- ------------------------------- (1) The percentage set forth for the nine-months ended September 30, 1995 is annualized in order to present comparable data for a full twelve-month period. Net credit losses, representing charge-offs of loan and lease credit losses, either to previously established reserves or directly to loss expenses, net of recoveries, were 0.71% and 0.84% as a percentage of total average principal outstanding for the years ended December 31, 1993 and 1992, respectively. This percentage increased to 2.23% for the year ended December 31, 1994, due primarily to two factors: charge-offs of $456,792 representing the net purchase price allocated to loans included in the under performing portfolios which were determined to be non-collectible, and charge-offs of the portion of the carrying value of loans acquired in other bulk purchases which were settled during the year. The percentage decreased to 1.29% for the nine months ended September 30, 1995. For 1992, 1993 and 1994, the table reflects activity during a period in which the Company primarily purchased loan and lease portfolios on a bulk basis. In view of the shifting of the Company's business principally to the origination of automotive loan and lease contracts, management expects that the 34 Company's past net credit loss experience will not be indicative of future results. Due to the limited historical experience reflecting results of the Company's program of auto loan and lease acquisitions, management is continuously assessing the level or extent of future credit losses. Credit losses in the future will be dependent on the Company's credit criteria, advance rates in relation to the value of the secured automobiles, and the value received from the disposition of any repossessed automobiles in relation to the outstanding balance of the lease or loan. However, management believes that its policy of underwriting contracts on an individual basis, the effectiveness of its collection efforts, and its knowledge of collateral values and of the industry will contribute positively to the Company's charge-off experience. Management also anticipates that the opening of the Company's sales lot will improve charge-off experience by reducing the losses realized upon the disposition of repossessed automobiles. Liquidity and Capital Resources Current Operations The Company's business requires substantial cash to support its growth in the rate of acquisition and origination of automotive finance contracts. The following chart presents the growth in both the number and dollar amount of contracts acquired since June 1994.
=================================================================================================================================== Quarter Ended - ----------------------------------------------------------------------------------------------------------------------------------- June September December March June September December 1994 1994 1994 1995 1995 1995 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Contracts Acquired $3.26 $7.12 $14.76 $29.66 $34.79 $43.97 $50.61 ($ in millions) - ----------------------------------------------------------------------------------------------------------------------------------- Number 423 848 1,490 2,657 2,889 3,524 3,965 ===================================================================================================================================
As a general matter, the Company finances the acquisition of its automotive finance contracts by drawing against its available lines of credit and warehouse facilities. Under the terms of these facilities, funding is provided between 80-90% of the acquisition price of the contracts. Accordingly, the Company must secure the remainder of the acquisition price from equity or other funding sources. As the rate of growth of contract acquisition continues to increase, the Company must secure additional equity or other 35 sources to fund these requirements. The Company's growth, therefore, is governed by its ability to gain access to additional financing sources. The Company's growth during the year ended December 31, 1995 has been facilitated by its ability to successfully complete private placements of debt and equity securities and gain access to increasing sources of financing. During 1995, the Company had secured its principal sources of working capital through a series of debt participation interests, unsecured advances, revolving lines of credit and the proceeds from the sale of convertible subordinated debentures and shares of common stock in private placement transactions. As of December 31, 1995, the respective outstanding balances provided by these sources of working capital were as follows: Lines of Credit and Warehouse Facility................................................. $36,072,000 Debt Participation Interests................................$40,444,000 Private Placement of Convertible Subordinated Debentures Issued: $21,325,000 Less: Converted to Common Stock (8,260,000) $13,065,000 ----------- Private Placement of Common Stock............................$2,101,000 Unsecured Advances...........................................$3,137,000 Lines of Credit and Warehouse Facilities In March 1993, the Company entered into a $20,000,000 three-year revolving credit facility with Congress Financial Corporation (the "Congress Credit Facility"). The Congress Credit Facility bears interest at 2% over the prime rate of CoreStates Bank, N.A. (10.75% at December 31, 1995), payable monthly, is secured by certain lease contracts receivable and consumer and mortgage loans receivable. As of December 31, 1995, the Company had no advances outstanding and had an available borrowing base of $20,000,000 under the Congress Credit Facility for the financing of additional loan and lease portfolio purchases which meet certain credit guidelines established by Congress, in its sole discretion. During February 1994, the Company entered into a $5,000,000 one-year revolving credit facility with GECC (the "GECC Credit Facility"). In September 1994, the GECC Credit Facility was increased to $10,000,000. The GECC Credit Facility bears interest payable monthly at rates fixed at the time of financing and is secured by certain lease contracts receivable and consumer and 36 mortgage loans receivable. In March 1995, the GECC Credit Facility available line was increased to $25,000,000 and at December 31, 1995, the Company had drawn down approximately $22,010,000 under the facility. The GECC Credit Facility is automatically renewed annually unless GECC provides the Company with notice of termination 90 days prior to such renewal. The Company has recently entered into a $50 million repurchase facility (the "Repurchase Facility") with an additional lending institution (the "Lender"). Under the terms of the Repurchase Facility, the Lender purchases loan and lease contracts receivable from the Company at approximately ninety percent of the outstanding principal balance. The Company repurchases the receivables from the Lender at approximately ninety percent of the outstanding principal balance at the time of repurchase plus a premium for accrued interest at a rate of 2.25% over 30 day LIBOR. The Repurchase Facility also provides that if the market value of contracts sold to the Lender (market value being determined by an independent third party) is less than the Lender's margin amount (market value multiplied by the advance rate), the Lender may require the Company to transfer money or additional contracts to the Lender until the margin amount is satisfied. Market value may be affected by, among other things, sudden changes in interest rates, delinquency rates and credit losses. Although management believes that this is unlikely to occur to any significant degree, a margin call could require an allocation of certain of the Company's liquidity and capital resources. The term of the Repurchase Facility is for one year, automatically renewable for an additional year. The Company intends to use the Repurchase Facility to fund additional growth in loan and lease receivables with the intent to eventually pool and securitize these receivables. The advances pursuant to the Repurchase Facility will be accounted for as financing transactions characterized as borrowings. The Repurchase Facility includes certain financial and operational covenants including, among other things, the required maintenance of a minimum net worth of $30 million dollars, prohibition upon debt to equity ratio in excess of 8 to 1 and the maintenance of certain loan portfolio performance criteria. For the purpose of the Repurchase Facility, net worth has been defined as total stockholders' equity plus subordinated indebtedness not due within 90 days. Management continues to closely monitor the performance of its loan portfolios in order to insure compliance with all operational covenants. Based upon its present and anticipated financial position, management believes it will be able to maintain compliance with these covenants. At December 31, 1995, 37 the Company had $14,061,000 outstanding under the Repurchase Facility and was in compliance with the financial and operational covenants. During the fourth quarter of 1995, the Company completed the sale of approximately $40 million of automotive loans in a privately-placed securitization transaction. The proceeds from the transaction were used to pay down the Repurchase Facility, thereby making the Repurchase Facility available to fund acquisitions of additional automotive contracts. See "Securitization of Loans." Debt Participation Interests Since inception, the Company has secured a significant amount of its working capital through debt participation interests. As of December 31, 1995, the Company had an existing series of borrowings under participation arrangements outstanding with Fairfax Savings, a Federal Savings Bank ("Fairfax") in the approximate amount of $40,444,000. The participations bear interest at prime plus 2.5% fixed at the time of financing, with principal and interest due monthly. In general, under the terms of the participation agreements, payments on the agreements are tied to the payments received from the secured contracts and loans receivable. The participation with Fairfax specifies the distribution of cash flows from the loans receivable. The order of distributions of cash flows received is as follows: (1) Payment to Fairfax for principal and interest due on the participations. (2) Payment of any amounts payable to Fairfax which may have arisen due to the Company's failure to perform its obligation under the participation agreement, at which time Fairfax would have assumed and incurred expenses to perform these responsibilities. (3) An amount equal to 25% to 50% of the remaining cash balance, if any, will be deposited into segregated interest bearing accounts at Fairfax (the reserve accounts) until the balances in the reserve accounts equal 25% to 50% of the principal balances of the participation agreements. (4) Payment to the Company of the remaining cash in the operating account, if any, including all payments and reimbursements due under the servicing agreement. Under the Company's participation agreements, collections received from loans securing the participations are deposited into 38 restricted, trust bank accounts pending distributions to participation holders. Distributions generally are disbursed to participants once each month for the previous month's collections. Distributions under some participation agreements with Fairfax include deposits of a portion of the collections into segregated, interest-bearing reserve accounts held for the benefit of the Company at Fairfax. These reserve accounts are returned to the Company once their balances equal 25% to 50% of the principal balances of the participation agreements. The balances of the trust account pending settlement with participants and the balance of the reserve accounts on deposit with Fairfax are reflected on the Company's balance sheet as Restricted Cash. Private Placement of Convertible Subordinated Debentures, Warrants and Common Stock The Company has secured a significant component of its working capital through the private placement of debt and equity securities. During the fourth quarter of 1994, the Company raised approximately $8,298,000 (net proceeds of $7,723,000), in a private placement transaction of 1,549,667 shares of its Common Stock in conjunction with the Merger. Also during the period from April 1995 through December 31, 1995, the Company completed the offering and sale in private placement transactions of $21,325,000 of 9% Convertible Subordinated Debentures (the "Debentures") and 1,961,125 Common Stock Purchase Warrants (the "Warrants"), as well as 176,500 shares of its common stock which yielded net proceeds of $2,100,950. See "DESCRIPTION OF SECURITIES." The Debentures are convertible into shares of Common Stock at the option of the holders thereof. Once the stock achieves certain average trading prices, the Company has the right to serve notice of the redemption of the Debentures for the principal amount thereof (together with accrued interest). See "DESCRIPTION OF SECURITIES." A notice to redeem would likely yield conversion of the Debentures (since the average trading price of the stock necessary to redeem would yield a greater profit to the Debenture holders upon a conversion rather than a redemption). A conversion of the Debentures would obviate the requirement to pay further interest and repay the principal amount due thereunder. Any such conversions would have a positive effect upon the Company's liquidity and capital resources. Through December 31, 1995, an aggregate of $8,260,000 principal amount of Debentures was converted into 930,523 shares of Common Stock. Management is 39 optimistic that a substantial number of the remaining Debentures would be subject to conversion prior to their maturity. The Warrants entitle the holders thereof for a period of three (3) years to purchase shares of Common Stock at exercise prices that range from $9.00 through $15.00. The Warrants also contain features that permit redemption (at $.001 per Warrant) based upon average trading prices of the Company's Common Stock between $15.00 and $25.00. Any call for redemption would have the likely effect of causing the exercise of the Warrants. There can be no assurances that a material number of the Warrants will be exercised in the near term, if at all, or that the trading price of the Company's Common Stock will be sufficient to effectuate a redemption of the Warrants. A complete exercise of the Warrants, if at all, would provide gross proceeds of $20,909,375 to the Company. Securitization of Loans During the fourth quarter of 1995, the Company completed the sale of approximately $40 million of automotive loans in a privately-placed securitization transaction. The transaction resulted in the issuance of asset-backed securities which received a rating of "A", "BBB" and "BB" by Duff & Phelps Audit Rating Co. and Fitch Investors Services L.P. The proceeds from the transaction were used to pay down warehouse lines of credit, thereby making the warehouse facilities available to fund acquisition of additional automotive contracts. The Company expects to complete future securitizations from time to time. However, there can be no assurances to that effect. See "RISK FACTORS #3." In securitization transactions, the Company transfers automobile loans to a newly-formed securitization trust, which issues one or more classes of asset-backed securities. The asset-backed securities are simultaneously sold to investors. Each quarter, collections of principal and interest on the loans are paid to holders of the related asset-backed securities by the trustee. The Company continues to act as the servicer of the automobile loans held in the trust in return for a monthly fee. To further credit enhance the asset-backed securities and thereby to improve the level of profitability from the sale of securitized loans, the Company has set aside a portion of the proceeds from the sale in a reserve account to be held in the trust. Withdrawals may be made from the reserve account to the extent that collections from the loans held in the trust are not sufficient to cover periodic distributions to holders of the 40 trust's asset-backed securities. At periodic dates, amounts on deposit in the reserve account in excess of certain specified percentages of the principal balance of the loans held in the trust are returned to the Company. Other Potential Uses of Working Capital In the short term, the Company may be required to repay advances from its chief executive officer, the balance of which was $2,919,000 as of December 31, 1995. See "CERTAIN TRANSACTIONS." The Company may potentially be caused to allocate certain capital resources in the future towards the purchase of the business of Special Finance, Inc. ("SFI"). SFI is a Florida based auto finance broker that at December 31, 1995 accounted for approximately 35% of the Company's loan and lease receivables. Pursuant to an option agreement entered into on August 1, 1995 (the "SFI Purchase Option"), the Company has an option through August 1, 2000 to purchase the business of SFI for the purchase price of $1,000,000, plus 125,000 shares of the Company's Common Stock and options to purchase 65,000 shares of Common Stock at $6.00 per share. An option price of $250,000 paid to SFI on August 1, 1995 is to be credited against the purchase price. In the event the Company decides to exercise the SFI Purchase Option, the Company has agreed to register the shares of Common Stock to be distributed in the transaction, and pending such registration, the Company has agreed to lend up to $900,000 to the sole stockholder of SFI at then prevailing market rates of interest, with such loan being secured by a security interest in up to 120,000 shares until such time as the shares are registered. Management is currently evaluating the economic benefits of exercising the SFI Purchase Option and to date, has made no determination on the likelihood of whether or when such a purchase may occur, if at all. In the interim, the SFI Purchase Option provides the Company with a right of first refusal to purchase all of the finance contracts acquired or originated by SFI. Historic Operations Prior to 1995, working capital had principally been utilized to finance the bulk acquisition of portfolios of consumer and mortgage loans and auto lease receivables, repay borrowings and to make certain distributions to the Company's former principal stockholder, including the redemption of its stock in the Company in 1993 and 1994. See "CERTAIN TRANSACTIONS." 41 From June 1991 through June 1994, the Company acquired for $108.4 million a series of 27 portfolios of consumer and mortgage loans and auto lease receivables bearing an aggregate principal balance of $145.2 million. From July 1994 through March 1995, the Company acquired for $6.9 million an aggregate of 6 portfolios bearing an aggregate principal balance of $7.9 million. Payments to FTM Holdings, Inc. ("FTM"), the Company's former principal stockholder, consumed a significant amount of the Company's working capital from inception through 1994. By virtue of a combination of Company redemption and stockholder purchase of FTM's interest in the Company during 1993 and 1994, payments of this nature are not expected to recur in the future. In 1991, the Company entered into an agreement with FTM, a principal stockholder at the time, to provide the Company with consulting and other business related services. Under the agreement and subsequent extensions of the agreement, the Company agreed to pay FTM $50,000 per month through March 1995. The payments for consulting services continued through May 1994, whereupon the Company made a lump sum settlement with FTM through a final payment of $475,000 under the agreement. This final payment reflected a $75,000 discount from the cumulative payments required under the agreement. Payments to FTM under the agreement for each of the years 1991 through 1994 were as follows: 1991 $ 90,000 1992 600,000 1993 600,000 1994 675,000 During 1994, the Company paid FTM an additional sum of $428,000 as a commission on the sale of certain loan portfolios. On April 30, 1993, the Company redeemed 5,928 shares of Common Stock held by FTM for $2,400,000 which, in management's opinion, did not exceed the fair value of the shares. A portion of the proceeds of the redemption were applied to the cancellation of a $841,417 receivable from FTM to the Company, representing advances by the Company to FTM during 1992. As part of the redemption, FTM agreed to file a consolidated tax return with the Company through April 30, 1993. Through utilization of FTM's tax net operating loss carryforwards, the Company reduced its tax liability accrued through the date of redemption by $1,900,000. This utilization of FTM's tax net operating loss carryforwards was reflected as a capital contribution by FTM in 1993. In October 1993, the Company financed the purchase by Mr. Bartolini of the remaining shares held by FTM for a purchase price of $2,034,000. This transaction increased Mr. Bartolini's 42 ownership to 95%. In June 1994, the shares acquired by Mr. Bartolini from FTM were redeemed by the Company for $2,034,000 and the receivable in the form of a note from Mr. Bartolini was cancelled. See "CERTAIN TRANSACTIONS." Given the Company's dependence on its present sources of financing for current cash flow and continued growth, loss of such sources would have a material adverse impact on the Company's conduct of business and prospects. Management is presently evaluating additional sources of financing through a continuation and expansion of its existing practices; that is, through offering debt participation interests to institutional investors, traditional lines of credit, and through additional equity placements. In addition, the Company intends to continue utilizing alternative financing sources and structures, such as securitizations of loans in order to maximize profitability and make available sufficient funds to continue implementation of the Company's growth strategy over the long term. See "Securitization of Loans." However, there can be no assurances that the Company will secure additional sources of financing. By virtue of the Company's status as a public company, management will likely seek to gain access to equity or debt capital through a sale of securities either through the public market or to institutional investors. Management is currently engaged in negotiations with certain institutional brokerage firms for the purpose of obtaining additional working capital through an underwritten public sale of the Company's securities that is anticipated to occur during 1996. These negotiations remain preliminary in nature, accordingly, the precise terms of any such offering have not yet been established, nor can there be any assurances as to when or if such an offering will occur. Any funding provided by the sale of securities, if at all, would be used directly to acquire additional automobile finance contracts, or would enhance the Company's borrowing base so as to facilitate increased lines of credit or participation agreements. Management believes that the Company's current cash flow from operations, proceeds from private placement transactions, as well as advances on its credit facilities and debt participation interests, is adequate to meet the Company's liquidity requirements for its existing operations. The terms of the borrowings under the participation agreements and the credit facilities provide for repayments of principal and interest to the lenders in amounts which, in general, correspond with and are exceeded by the scheduled repayment of the secured loans and leases receivable. 43 Effects of Inflation Inflationary pressures may have an effect on the Company's internal operations and on its overall business. The Company's operating costs are subject to general economic and inflationary pressures. While operating costs have increased during the past years, the Company does not believe that its operations have been significantly affected by inflation. The Company's business is subject to risk of inflation. Significant increases in interest rates that are normally associated with strong periods of inflation may have an impact upon the number of individuals that are likely or able to afford the purchase of an automobile through consumer finance or lease transactions. The Company believes, however, that because of its customer profile, and the need of its customers for basic transportation, such factors are not likely to have a material adverse impact on the Company's business. BUSINESS OF THE COMPANY Background The Company commenced operations during June 1991 as a specialized finance company for the purpose of engaging in consumer finance transactions involving the origination, purchase, remarketing and servicing of consumer loan and mortgage loans and auto lease receivables. Because of the opportunities presented by the insolvency and reorganization of many financial institutions at the time, from inception through the second quarter of 1994, the principal activities of the Company involved the bulk purchase and servicing of seasoned portfolios of consumer and mortgage loans and lease receivables acquired principally from the FDIC and the RTC. Most of these portfolios were purchased at substantial discounts. In response to the decreasing availability of seasoned portfolios, since the second quarter of 1994 the Company's principal focus has shifted to other segments of the consumer finance industry, particularly auto finance. Although opportunistic purchases of seasoned auto related portfolios may still be considered by management, the principal focus of the Company's business since June 1994, has been the acquisition and servicing of automotive leases and loans originated by dealers in connection with sales or leases to persons with sub-prime credit. The Company became publicly held by virtue of the Merger with COFVI on November 30, 1994. COFVI was incorporated in Delaware on November 14, 1986 and completed a small public offering on June 14, 1988. With the exception of a short-term venture that was 44 discontinued during the fourth quarter of 1993, COFVI had remained principally inactive. Pursuant to the Merger, NAL was merged with and into COFVI and the historic stockholders of NAL received 3,160,000 newly issued restricted securities, which constituted approximately 56% of the issued and outstanding COFVI stock. Effective upon completion of the Merger, the Company assumed the historic operations of NAL and changed its name to "NAL Financial Group Inc." Current Plan of Operations The Company's auto finance business primarily consists of the evaluation, acceptance and purchase of finance contracts which are either originated by participating dealers in connection with the sale or lease of new and used vehicles to sub-prime consumers or purchased in bulk receivables portfolios. After a finance contract is evaluated and accepted by the Company, the purchase contract or lease is executed by the dealer and the customer. The vehicle is then delivered to the customer and the title to the vehicle is transferred into the name of the customer and held by the Company with a lien in its favor (in the case of a purchased vehicle), or to the Company (in the case of a lease). Under the standard master dealer agreement utilized by the Company, upon delivery of the title to the Company, the Company receives an assignment of the contract and pays the dealer a "dealer advance" which is calculated on the basis of a pre-determined formula and typically does not exceed a percentage of the wholesale value for a used vehicle or manufacturer's invoice for a new vehicle. The Company also occasionally enters into customized dealer agreements, which differ from the standard master dealer agreement utilized by the Company. Under these agreements, the Company purchases finance contracts from dealers from time to time at a stated percentage of the financed amount. Typically a portion of the purchase discount is placed in a reserve account which is used to offset any credit losses experienced by the Company. Periodically, the amounts in the reserve account in excess of an agreed upon minimum are paid over to the dealer. Pursuant to these agreements, the dealer typically retains many of the collection and servicing functions, including monthly billing, repossession and/or disposal of the vehicle. These agreements are typically with recourse to the dealer. At December 31, 1995, the Company as a percentage of principal had in place approximately 15% of these types of agreements. The Company's shifting focus to the auto finance segment can most readily be reflected by analysis of the increases in its 45 dealer base and origination of finance contracts from such dealers since September 1994.
- ----------------------------------------------------------------------------------------------------------------------- 12/94 3/95 6/95 9/95 12/95 - ----------------------------------------------------------------------------------------------------------------------- No. of Participating Dealers 196 296 406 787 909 - ----------------------------------------------------------------------------------------------------------------------- No. of Contracts Originated 1,490 1,731 1,998 2,002 3,965 (By Quarter) - -----------------------------------------------------------------------------------------------------------------------
Contract Origination Dealers The Company's auto finance segment involves the purchase of auto loan and lease finance contracts in connection with the purchase or lease of new and used vehicles. Dealer relationships generally begin with the Company's dealer development representative contacting a dealer to explain the Company's financing program. The Company's representative presents the dealer with a sales package, including promotional material containing current rates being offered by the Company to dealerships, copies of the Company's master dealer agreement, examples of monthly reports and samples of the Company's documentation requirements. A dealer desiring to utilize the Company's financing program must enter into a non-exclusive master dealer agreement with the Company. As a condition to entering into such an agreement, a dealer must provide satisfactory financial and other information. A dealer must also make representations and warranties to the Company with respect to the contracts to be assigned. Upon completion of this master agreement, the Company's representative provides the dealership with necessary documentation for origination of contracts and trains dealership personnel in the use of such documentation. The master dealer agreement may be terminated by the Company or the dealer (so long as there is no event of default) upon 10 days prior written notice. Events of default include, (i) the dealer's failure to perform or observe covenants in the master dealer agreement; (ii) the dealer's breach of representations or warranties in the master dealer agreement; (iii) a misrepresentation by the dealer relating to an installment contract 46 submitted to the Company or the related vehicle or purchaser; (iv) an assignment for the benefit of creditors or the appointment of a receiver for, or filing for, bankruptcy or insolvency of, the dealer; (v) liquidation or dissolution of a dealer; (vi) the death of a principal stockholder of a dealer; and (vii) a decrease in the shares of stock owned by the principal stockholder of a dealer. Under the master dealer agreement, the dealer is also obligated to repurchase any contracts identified by the Company in the event that dealer representations and warranties prove to have been untrue at the time the Company purchased the contract, or in the event that the purchase of the contract by the Company from the dealer was on a recourse basis and a lessee or borrower defaults under the contract. Examples of defaults which require a dealer to repurchase a finance contract include, (i) dealer promises to install optional equipment (represents that the price is included in the lease) at a later date, then reneges; (ii) dealer does not witness proper identification of a customer, which results in a husband signing his wife's name; and (iii) dealer misrepresents that adequate insurance is in force at the time of delivery of the vehicle. The majority of these occurrences are prevented when the contract is sent to the Company for funding by virtue of the Company's credit procedures which typically include telephoning each customer to confirm contract terms at the time of funding. Occasionally, however, the dealer is required to repurchase the contract upon discovery of the default by the Company. The dealer also indemnifies the Company for any liabilities and costs (including attorney's fees) arising from any act or omission by the dealer required to be performed under the master dealer agreement or any contract. Retail car buyers are customarily directed to a dealership's finance and insurance department to finalize their purchase or lease agreement and to review potential financing sources and rates available from the dealer. If the customer elects to pursue financing at the dealership, an application is taken for submission to the dealer's financing sources. Typically, a dealership will submit the purchaser's application to more than one financing source for review. Once the responses are received by the dealership, the dealer will decide which source will finance the purchase or lease. When presented with an application, the Company strives to notify the dealer of its decision within 2-4 hours. The buyer's purchase generally is not completed until the Company approves the contract. If approved, the buyer enters into a contract with the dealer on a form prepared and provided to the dealer by the Company, which is then assigned to the Company. 47 Dealer Program One of the critical elements for the growth of the Company's auto finance segment is to establish, maintain and expand its relationships with new and used automobile dealers. The Company has developed programs for dealers that are designed to meet the dealer's needs for customer financing. These programs offer four major advantages to the dealers: Flexibility. Unlike most traditional lending institutions and captive finance companies, the Company employs multi-tiered credit underwriting criteria offering a financing source not generally available for sub-prime auto loans and leases elsewhere to dealerships' sub-prime borrowers. The Company believes this flexibility facilitates access to prime borrowers as well and solidifies the dealer relationship. Responsiveness. The Company is responsive to the needs of auto dealers by providing rapid and complete service. When presented with an application, the Company attempts to notify the dealer within 2-4 hours whether it will approve the purchase of the contract from the dealer. Staff members are trained specialists in credit analysis, documentation, collection and administration. Service Orientation. In addition to offering a reliable source of financing for qualified buyers, the Company identifies particular service needs of dealers. Dealer development representatives maintain frequent contact to determine whether needs are being met, and will recommend service enhancements when appropriate. Examples of such enhancements may include courier delivery of documents or loan processing on dealer premises during peak promotions. Training. The Company provides training to dealers both at the dealership and on the Company's premises. This training covers, among other things, the Company's origination program, underwriting guidelines and the processing of loan and lease applications. The dealership receives a certificate evidencing completion of the training program. The Company's relationship with auto dealers has for the most part been established on a dealer-by-dealer basis as a result of the efforts of the Company's marketing personnel. One of the Company's sales and marketing goals is to develop and/or expand relationships with dealers and finance agencies that will provide 48 the Company more efficient access to greater numbers of dealer networks. See "Marketing." Towards that end, during September 1994, the Company entered into a test marketing arrangement with General Electric Capital Auto Lease, Inc. ("GECAL"). During the test period, the Company evaluated applications which did not meet GECAL's prime underwriting criteria for 74 of GECAL's 400+ dealers located in Florida. The Company, using its own underwriting model, then approved or declined these submissions resulting in over $7,000,000 of lease volume during the test phase. The results of the program led to a permanent two year agreement automatically renewable for successive one-year periods thereafter, which was executed on July 1, 1995. The program has been rolled-out to the balance of the GECAL's Florida dealers during a recent campaign completed on September 21, 1995. Early results indicate the volume of applications has significantly increased since the program has been made available to all Florida dealers. The Company and GECAL have also agreed to target North and South Carolina and Tennessee for the next roll-out phase. Planning began in October 1995, with the campaign to be completed by the second quarter of 1996. The long term plan is to roll-out the program in the entire southeast by December 1996. While not an exclusive arrangement, the Company believes it continues to be the only sub-prime company operating this program with GECAL in the southeast. There is no contractual agreement to this effect, however, and no assurance may be made that the Company would continue to be the only such arrangement with GECAL. Historically, GECC has not been active in the sub-prime market. The Company's arrangements with GECAL and GECC give GECAL the ability to offer customers of its dealerships a financing source through the Company which GECC does not generally offer directly to sub-prime borrowers. In addition, the arrangements give GECC access to the sub-prime market without GECC incurring the evaluation, credit and servicing risks generally associated with financing to sub-prime borrowers. This relationship with GECAL gives the Company access to GECAL's network of 1,500 dealerships in 11 southeastern states. As of December 31, 1995, the GECAL dealers with whom the Company has financed automotive loans and leases constituted approximately 8% of the Company's overall volume of loan and lease receivables. With the exception of one dealer and an auto finance broker that account for approximately 5% and 35%, respectively, of the Company's loan and lease receivables, no single dealer or brokerage source accounts for more than 3% of the Company's loan and lease receivables. 49 SFI, a Florida-based auto finance broker, utilizes the Company to finance automotive loans secured through its relationship with dealers. At December 31, 1995, the SFI referred dealers had provided the Company with approximately 35% of its loan and lease receivables. On August 1, 1995, the Company entered into a five (5) year option to purchase the business of SFI (the "SFI Purchase Option"), during which term the Company has secured a right of first refusal to purchase all of the finance contracts acquired or originated by SFI. The option to purchase remains subject to management's evaluation of the transaction. Management is currently evaluating the economic benefits of exercising the SFI Purchase Option and to date, has made no determination on the likelihood of whether or when such a purchase may occur, if at all. An election by the Company to purchase the business of SFI would require the Company to complete payment of the purchase price provided for in the SFI Purchase Option. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Company also intends to pursue arrangements with other organizations such as dealership networks and credit unions as a means of expanding its dealer and consumer bases. The marketing company has relationships with several Florida credit unions whereby they provide an automobile buying service. Through this agreement, the Company will be introduced to the credit unions for the purpose of providing sub-prime financing and servicing of prime contracts. The Company will earn interest and fee income as well as servicing fees. Bulk Purchase Portfolios From inception through June 1994, the Company's business focused on the purchase of seasoned portfolios of mortgage loans and consumer loans and leases, including auto loans and leases. From June 1991 through June 1994, the Company acquired for an aggregate price of $108.4 million, a series of 27 portfolios representing consumer loans and receivables bearing an aggregate principal amount of $145.2 million. From July 1994 through December 1995, the Company acquired for an aggregate price of $6.9 million 6 portfolios bearing an aggregate principal amount of $7.9 million. While its focus since July 1994 has been the origination of auto loan and lease receivables, the Company may continue to make opportunistic purchases of seasoned auto-related portfolios. 50 The following tables set forth the portfolio acquisitions of the Company from inception through December 1995, and the loan and lease receivables attributable to each type of portfolio. PORTFOLIO ACQUISITIONS JUNE 1991 THROUGH DECEMBER 1995 Principal Amount Date Portfolio Type (in Millions) - ---- -------------- ------------- JUNE 1991 AUTO LEASES $48.1 JULY 1991 AUTO LEASES 10.5 NOVEMBER 1991 MORTGAGES 4.9 JANUARY 1992 AUTO LEASES 2.1 FEBRUARY 1992 CONSUMER LOANS 4.4 FEBRUARY 1992 CONSUMER LOANS 9.5 FEBRUARY 1992 MORTGAGE LOANS 1.9 FEBRUARY 1992 CONSUMER LOANS 8.2 JULY 1992 CONSUMER LOANS 7.4 OCTOBER 1992 CONSUMER/MORTGAGE LOANS 6.1 DECEMBER 1992 MORTGAGE LOANS 8.2 JANUARY 1993 CONSUMER LOANS 2.6 FEBRUARY 1993 CONSUMER LOANS 5.5 MARCH 1993 CONSUMER LOANS 0.2 APRIL 1993 CONSUMER/MORTGAGE LOANS 0.4 APRIL 1993 CONSUMER LOANS 2.1 MAY 1993 MORTGAGE LOANS 2.1 JULY 1993 MORTGAGE LOANS 8.3 SEPTEMBER 1993 CONSUMER LOANS 0.4 SEPTEMBER 1993 MORTGAGE LOANS 1.3 NOVEMBER 1993 MORTGAGE LOANS 1.0 DECEMBER 1993 MORTGAGE LOANS 5.1 DECEMBER 1993 MORTGAGE LOANS 0.8 MARCH 1994(1) CONSUMER LOANS 0.2 JUNE 1994 CONSUMER LOANS 0.5 JUNE 1994 CONSUMER LOANS 2.4 JUNE 1994 CONSUMER LOANS 1.0 JULY 1994 CONSUMER LOANS .5 OCTOBER 1994 AUTO LEASES 1.6 NOVEMBER 1994 AUTO LEASES 2.0 NOVEMBER 1994 CONSUMER LOANS .5 JANUARY 1995 AUTO LOANS 1.8 MARCH 1995 CONSUMER LEASES 1.5 $153.1 ====== - -------------------- (1) In March and May 1994, the Company purchased for $3.4 million two portfolios of underperforming and matured auto, real estate and equipment loans. The principal balance of the two portfolios was $10.2 million in the aggregate. 51 Bulk purchase portfolios are subject to the same type of detailed evaluation process as finance contracts originated by dealers. During the evaluation of bulk purchase portfolios, the Company develops loss estimates which are based, in part, on the value of the underlying collateral and a review of the contract files. The Company's purchase price for the bulk purchase portfolios includes, among other valuation adjustments for credit and other risks, an initial loss allowance for the contracts. The bulk purchase receivables are generally subject to the same asset servicing and collection activities, policies and procedures as dealer originated finance contract receivables. See "Asset Servicing and Collections." The following table sets forth information regarding the Company's loan and lease receivables segmented by type of contract financed. LOAN, LEASE RECEIVABLES AND VEHICLES HELD UNDER OPERATING LEASES
9/30/95 12/31/94 ------------- ------------ Automotive finance contracts Gross contracts receivable $104,556,879 $26,795,132 Less: Unearned interest (6,277,920) (2,004,435) Deferred acquisition fees (105,485) --- Unamortized acquisition discount --- (815,768) ------------- ----------- 98,173,474 23,974,929 ------------- ----------- Net investment in automotive operating 3,318,035 1,230,647 leases ------------- ----------- Consumer contracts receivable Gross contracts receivable 3,087,354 2,333,016 Less: Unearned interest (435,030) --- Unearned acquisition discount (351,349) (841,322) ------------- ----------- 2,300,975 1,491,694 ------------- ----------- Mortgage loans receivable Gross loans receivable 2,545,423 6,041,464 Less: Unamortized acquisition discount (684,281) (1,218,797) ------------ ----------- 1,861,142 4,822,667 ------------- ----------- Net loan and lease receivables $105,653,626 $31,519,937 ============ ===========
Lease contracts receivable set forth above represents the total amount of minimum scheduled payments to be received under the contracts. Included in the payments receivable balance is the income portion of the payments, which is recognized into earnings 52 over the life of the contracts using the level yield method. The Company's net carrying value of its lease portfolio consists of the balance of lease contracts receivable less unearned income. Advances to dealers represent amounts funded by the Company to auto dealerships which are collateralized by loan and lease receivables of the dealer serviced for a fee by the Company. The Company advances to the dealer approximately 60% of the outstanding principal balance of the collateralized receivables. Several of the Company's loan and lease portfolios were purchased at prices which represented a discount from the contracts' par principal balance. The excess of the contracts' principal balance, in the case of loan contracts, or net investment balance, in the case of lease contracts, over the purchase price represents additional earnings to the Company. Prior to September 30, 1995, this discount was amortized to earnings using the level yield method over the estimated life of the contracts. However, beginning with the fourth quarter 1995, management has decided to cease the amortization to earnings of the discount on purchased automotive finance contracts and allocate this discount to the reserve available for credit losses. Management believes that this decision, although not totally eliminating the need for future provisions, will ultimately result in lower provisions for credit losses on purchased contracts. During December 1995, the Company completed the sale of approximately $40 million of automotive loans in a privately-placed securitization transaction. The Company expects to complete future securitizations from time to time. However, there can be no assurances to that effect. For a discussion of the Company's delinquency experience and credit loss experience for the bulk purchase portfolios, and the securitization of loans by the Company, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Underwriting The Company purchases each contract in accordance with its underwriting standards and procedures. These underwriting procedures are intended to assess the applicant's ability to repay the amounts due and the adequacy of the vehicle as collateral. Each candidate for credit is required to complete and sign an application which lists assets, liabilities, income, credit and employment history, and other pertinent information. The Company has a staff of 12 persons who provide underwriting services and conduct credit evaluations. Upon receipt of the credit 53 application, the Company orders a credit bureau report on the applicant to document his or her credit history. The credit report presents a history of the applicant's credit performance and, if applicable, contains information on such matters as past-due credit, previous repossessions, prior loans charged off by other lenders, real estate liens or wage attachments, and bankruptcy. The application and credit report are given to one of the Company's underwriters for evaluation and tier placement. Conventional credit ratings divide credit risk into four tiers: "A", "B", "C" and "D". "A" credit represents the highest quality risk and "D", the lowest. "A" credit risk is associated with certain essential elements: excellent job and residence stability; an unblemished credit record with equivalent, seasoned high credit experience; very low debt-to-income ratio (under 30%). "B" credit risk lacks one or more of these essentials, but still reflects a good credit history and a debt-to-income ratio under 40%. "C" credit lacks two or more essentials, however, current credit may indicate non-serious past due payments and a debt-to- income ratio under 50%. "D" credit lacks two or more essentials, includes recent slow payments, may contain judgments, collection agency activity, discharged bankruptcy or previous repossession, and debt-to-income ratio at or above 50%. While traditional auto financing sources limit their risk to "A" borrowers, the Company believes that extending sub-prime credit based upon strict underwriting standards is prudent, with proper precautions and careful management. To mitigate risk, the Company: o prices each category progressively higher. o requires progressively larger down-payments. o requires considerably more client information for lower grades, for purposes of skip-tracing, etc. o initiates collection and repossession activity more quickly for lower grades. Upon completion of the credit analysis, the Company will decide whether to approve the applicant as stated and at which tier, decline the applicant, or condition approval of the loan. A decision to decline an applicant may be based upon one or more of the following: failure to meet the Company's underwriting standards, debt-to-income ratios, payment-to-income ratios, loan-to-value ratios or the financing specialist's subjective judgment. Conditioning approval of the applicant involves amending the proposed terms of the contract in order to qualify the applicant according to the Company's guidelines. Typical areas that the 54 Company might require to be amended include, but are not limited to, proving additional income, requiring a co-applicant, amending the length of the proposed term, requiring additional down-payment, substantiation of credit information and requiring proof of resolution of certain credit deficiencies as noted on the customer's credit history. Approved, declined or conditioned applicant decisions are promptly communicated to the dealership by phone and facsimile. Additionally, the applicant is informed of any credit denial or other adverse action by mail, in compliance with statutory requirements. The Company regularly reviews the quality of loans which it purchases and conducts internal reviews on a monthly basis in an effort to ensure compliance with its established policies and procedures. See "Asset Servicing and Collections." Asset Servicing and Collections The Company has a staff of persons engaged in contract servicing and performing collection services. The Company has expanded its collection and servicing staff to a level which provides for approximately 1 collector for every 450 contracts serviced. Management believes that the ratio of its collectors to contracts serviced compares favorably to industry averages. The Company's management team has extensive experience in consumer financing services and utilizes a state-of-the-art PC network-based computer system. Whether part of the origination process or routine monthly servicing, data is immediately available for evaluation and processing, providing speedy turnaround as a valuable tool for marketing to the Company's dealership network and maximizing the Company's cash flow from collections. The Company's servicing and collection activities include, (i) conducting an initial telephone interview with customers; (ii) collection of payments; (iii) accounting for payments received; (iv) customer relations and inquiries; (v) perfection and maintenance of security interest in vehicles and other collateral; (vi) monitoring and investigation of delinquencies; (vii) tax reporting on accounts serviced; (viii) initiation and monitoring of repossession of vehicle; and (ix) disposition of vehicles upon lease termination. The Company's collections staff monitors all contracts and typically takes action within 24 hours of delinquency if the first payment is missed and within 48 hours if the payment missed is the second payment or thereafter, significantly earlier than is customary in the industry. The Company's policy permits contracts to be extended or revised payment schedules to be made on a case by 55 case basis as determined by its experienced collections staff. Accounts that have not complied with the initial or revised collection program are turned over to outside agencies for repossession, generally after five-ten days of non-compliance with the revised agreement. Repossessed vehicles may be re-marketed through the participating dealer who originated the contract, or sold by the Company through wholesale auctions or re-marketed through the Company's used vehicle facility. See "Used Vehicle Operation." The Company's experience indicates that historically many repossessions are redeemed and the majority of these customers do not become delinquent again. The Company charges off delinquent accounts between 30 and 90 days of delinquency, depending on the individual circumstances. Recovery of charge off balances begins with the Company's collection specialists. If results are not obtained within a reasonable time frame, the account is either turned over to a collection agency or an attorney for action, including wage garnishment, judgement and asset search. When a vehicle is repossessed and not redeemed by the customer in the prescribed time, the Company re-markets the vehicle and recognizes the loss, if any, at that time. Vehicles in inventory are reviewed by management and periodically written down to their actual value, if necessary. The Company applies for insurance and extended warranty rebates, which are applied to the customer balance. A net loss is the difference between the net customer balance, adjusted for rebates, etc., and the net proceeds of the sale or re-lease of the vehicle. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Net Credit Loss Experience." Contracts acquired as a result of a bulk purchase are subject to the same asset servicing and collection activities, policies and procedures. The Company's initial tolerance for delinquencies in excess of 60 days is based upon the condition of the portfolio at the time of purchase and the effectiveness of the seller's servicing activity. This tolerance level is reduced typically over a period of between three to twelve months as customers adjust to the Company's collection policies and procedures. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Delinquency Experience." As bulk purchased receivables are charged-off, the losses are charged to the related valuation loss reserve until such reserve is fully depleted. See "Bulk Purchase Portfolios." These valuation loss reserves have been sufficient to date to cover all losses incurred on bulk purchase portfolios. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Provision for Possible Credit Losses." 56 Used Vehicle Operation The Company incorporated a wholly-owned subsidiary, PCSF, in January 1995 for the purpose of conducting its used vehicle operation. The Company signed a lease for a used car lot located in Palm Beach County, Florida with a capacity for storing approximately 100 vehicles. Effective January 15, 1995, the Company entered into an agreement with J.D. Byrider Systems, Inc. to license the J.D. Byrider name, trademarks and business system. The Company intends to operate the car lot as a franchise of J.D. Byrider. The Company began retail sale of used cars in August 1995. It is expected that a majority of the Company's repossessed and returned vehicles will be sold at retail from this location. Vehicles which are not in retail condition will be sold at auction to the highest bidder. The Company has been registered with, and has routinely sold cars through, the major national auction companies since its inception. Management believes that the used car market is an expanding market and offers the Company an opportunity to enhance its vehicle financing opportunities, and to increase its recovery on vehicles. Insurance Services The Company's wholly-owned subsidiary, NIS, is a full service insurance agency selling its products to the public as well as to the Company's customers. The staff of NIS verifies insurance at the time leases and loans are funded, assures that the customer maintains adequate insurance during the term of the contract, solicits the sale of other insurance products, and sells a package of insurance services to the Company's dealers. The Company has the ability to add insurance and bill its customer at any time during the contract. Insurance policies are issued through unaffiliated, major insurers with whom the Company has established brokerage agreements, with the exception of GAP Protection. See "GAP Protection Plan." Insurance commissions are earned as received from the insurer. GAP Protection Plan The Company offers the debtor of a finance contract an opportunity to participate in the Company's guaranteed auto protection ("GAP") plan. In the event of an insurance loss, GAP Protection pays the Company the difference between the actual cash value protection afforded by the insurer and the customer balance due the Company, if any. The Company's risk in these situations is eliminated through reinsurance. The Company pays a flat premium per contract to unaffiliated major insurers to reinsure this risk. 57 Industry Overview - The Sub-Prime Credit Market The sub-prime credit market, upon which the Company's business currently focuses, is comprised primarily of individuals who are deemed by certain industry participants to be relatively high credit risks due to various factors, including, among other things, the manner in which they have handled previous credit, the absence or limited extent of their prior credit history, or their limited financial resources. The sub-prime credit market is highly fragmented and historically has been serviced by a variety of financial entities, including captive finance arms of major automotive manufacturers, banks, savings and loans, independent finance companies, small loan companies, industrial thrifts and leasing companies. Many of these financial organizations do not consistently solicit business in, or have withdrawn from, this credit market. The Company believes that increased regulatory oversight and capital requirements imposed by market conditions and governmental agencies have limited the activities of many banks and savings and loans in this credit market. In many cases those organizations electing to remain in the auto finance business have migrated toward higher credit quality customers to allow reductions in their overhead cost structures. The Company believes that as a result, the sub-prime credit market is primarily serviced by smaller finance organizations that solicit business when and as their capital resources permit. The Company's strategy is designed to capitalize on the market's lack of a major, consistent financing source. See "Business Strategy." The Company's business strategy capitalizes upon the overly-broad classification of a great number of individuals as "sub-prime" borrowers. Many of these individuals, in the view of management, actually may be "prime" borrowers who by clerical categorization have been given "sub-prime" designations. The Company's management has substantial experience in the consumer finance field and by virtue of that experience, has been successful in selecting and assessing the true credit categories of potential borrowers. Business Strategy The Company's growth relies on the following strategies: o Product Flexibility. The Company believes that its ability to offer sub-prime leases as well as sub- prime loans differentiates it from the competition. 58 o Multi-tiered Credit. The Company believes its policy of extending credit to sub-prime borrowers utilizing strict underwriting guidelines for protection differentiates the Company from other competitors in the industry and provides a significant impetus for growth. It is this philosophy which resulted in the Company's arrangements with GECAL and GECC. See "Contract Origination - Dealer Program" and "Marketing." o Expansion of Dealership Base in Existing Markets. The Company is aggressively pursuing additional dealer relationships within existing markets with dealers that meet the Company's criteria. Management believes existing markets can contribute to growth objectives without compromising credit underwriting standards. o Geographic Expansion. The Company intends to increase volume by hiring additional sales representatives in markets which meet its economic and demographic criteria, primarily in the southeastern United States, in the near term, with a view towards a national market in the long term. See "Marketing." o Affinity Marketing. The Company plans to expand its financing activities through development of special programs aimed at credit unions, trade associations and affinity groups, such as gasoline credit card companies and special interest organizations. o Emphasis on Dealer Service. The Company is committed to service as the cornerstone of its growth strategy. Responsiveness to dealer needs is paramount. o Operating Efficiency. The Company will continue to enhance its systems and operations to further improve operating efficiencies in contract processing, servicing and dealer communications. o Continued Acquisition of Seasoned Portfolios. The Company has experienced success in purchasing receivable portfolios. While the Company's focus is presently on the development and expansion of its auto finance contract segments, the Company will continue to make opportunistic purchases. 59 Marketing Dealers The Company's marketing efforts focus principally on dealer-related programs, dealership network arrangements and affinity marketing programs. These programs are directed at existing dealership networks, independent dealerships, credit unions and trade associations, among others. See "Contract Origination- Dealer Program" and "Business Strategy." The Company's marketing efforts are undertaken by a staff which includes sales representatives, a sales manager and a sales coordinator. The sales representatives operate in particular geographic areas within Florida, Tennessee, North Carolina and South Carolina for a combination of salary and commission. In addition, the Company augments its in-house staff through exclusive agreements with companies operating in Louisiana, Georgia and Texas which provide the Company with additional sales representatives on an independent contractor basis. These representatives market the Company's services primarily through personal contacts, and participating dealer referrals, which are augmented by the distribution of marketing materials and advertising in trade journals and industry-related publications. Pursuant to the Company's dealer arrangements, participating dealers engage in training sessions designed to increase the dealer's familiarity with the Company's evaluation and servicing procedures. See "Contract Origination - Dealer Program." The Company continues to increase its marketing efforts in conjunction with its focus on the indirect auto loan and lease market through the hiring of additional sales representatives. As part of its expanded marketing program, the Company has also entered into an arrangement with a company which originates and brokers finance contracts with markets in Georgia, whereby the Company has agreed to purchase loan receivables as originated by such company which meet Company credit and origination guidelines. Through such arrangements the Company is able to increase its access to such markets without significantly increasing its staff. The Company's marketing program with GECAL offers yet another, indirect, avenue for purchase of auto leases. Sub-prime contracts presented to GECAL from its 1,500 southeastern dealers may be offered to the Company for purchase and, if accepted by the Company's underwriting standards, will be funded by GECC. This arrangement effectively allows GECAL to maintain its relationship with its dealership network while giving the Company access to dealers outside the Company's established territory. The Company intends to seek similar relationships with other dealer networks 60 and affinity groups such as credit unions as a method of increasing its dealer and consumer bases. Geographic Expansion of Auto Finance Segment As of December 31, 1995, the Company had relationships with 909 dealers which have yielded finance contracts in the southeastern United States. Florida represents the Company's largest market for lease and loan receivables originated by participating dealers. Management estimates that there are approximately 1,100 dealers in Florida and approximately 5,600 dealers within the southeastern United States, which represents the Company's target market in the near term. Competition Competition in the retail automobile financing industry is intense. Competitors include well-established financial institutions, such as banks, savings and loans institutions, small loan companies and credit unions, industrial thrifts, leasing companies as well as the major automobile manufacturers' captive finance companies such as Ford Motor Credit Corporation, Chrysler Credit Corporation and General Motors Acceptance Corporation. Many of these competitors have greater financial, technical and marketing resources than the Company. Furthermore, many of these competitors offer other forms of financing to dealers, including, but not limited to, vehicle floor plan financing and leasing. All of these competitors offer some degree of service to dealerships. Many of the larger banks, financial institutions and captive finance arms of automotive manufacturers have not consistently sought to do business in the sub-prime market. These organizations have traditionally elected to limit their activities to the higher credit quality customers. As a result, the sub-prime credit market tends to be primarily serviced by smaller and independent finance organizations. The Company's business strategy is designed to capitalize on the absence of consistent institutional sources of financing in the sub-prime market. The competition in the sub-prime market would be significantly increased should the large finance organizations seek to compete consistently in the sub-prime market. Based on experience and expertise, the Company's competitive strategy is six-fold: o offer product variety in the form of sub-prime leases and loans; 61 o offer a multi-tiered underwriting program that recognizes credit of varying qualified levels; o provide rapid response to credit application submissions; o follow through with timely funding; o establish and maintain strong dealer relationships through on-site training programs and continued sales assistance and support; o offer a total insurance package, including life, accident and health, GAP, auto, boat, homeowners, etc. Employees The Company employs personnel experienced in all areas of loan origination, documentation, collection and administration. As of December 31, 1995, the Company had approximately 204 full-time employees. Facilities As of the date of this Prospectus, the Company's executive offices and operations occupy approximately 27,000 square feet of leased office space in The Uptown Office Park at 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309 for which the Company pays an aggregate of base rent and common area maintenance of $52,300 per month pursuant to three leases, with annual increases of 2% beginning on January 1 of each year. The leases expire in 2002. The Company subleases approximately 1,500 square feet of its space to FTM, a former principal stockholder, for rent of $4,500 per month. See "CERTAIN TRANSACTIONS." The Company's lease agreement offers rights of first refusal on available space adjacent to the original offices, which the Company has used to accommodate the staff required for continued growth. There can be no assurance that any additional space will be available on terms favorable to the Company. Management believes that the Company's facilities are appropriate for its needs. The Company through PCSF leases a used car lot in Palm Beach County at a base rent of $11,500 per month. The term of the lease is five years. See "Used Vehicle Operation." 62 Legal Proceedings NAL Acceptance Corporation v. Thousand Adventures, Inc., et al., Case No. 94-7858 (4), in the Circuit Court in and for Broward County, Florida. NAC has sued Thousand Adventures, Inc. ("TAI") for the payment of a $500,000 release fee due NAL under an agreement wherein NAL had obtained an exclusive option to purchase certain receivables from TAI. These receivables could be sold by TAI to third parties during this exclusivity period as long as TAI paid the Company this release fee. TAI sold the receivables, but did not pay the fee. NAL is also suing TAI for interference with its contractual rights to purchase certain receivables from TAI. NAL is seeking in excess of $1,000,000 in damages. TAI counterclaimed against the Company for fraud, negligent misrepresentation and fraud in the inducement in connection with the agreement referenced above on September 21, 1994. The Company is the plaintiff in numerous collection matters, all of which are considered to be in the ordinary course of business. Government Regulation The Company's operations are subject to federal and state laws and regulations, including the Federal Consumer Credit Protection Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, FTC Preservation of Consumer Claims and Defenses Rule, Truth in Lending Act, Truth in Leasing Act, Equal Credit Opportunity Act, FTC Credit Practices Rule, state insurance laws and state vehicle disposal laws. Consumer lending laws generally require licensing of the lender and adequate disclosure of loan terms and impose limitations on the terms of consumer loans and on collection policies and creditor remedies. Federal consumer credit statutes primarily require disclosures of credit terms in consumer finance transactions. In general, the Company's business is conducted under licenses issued by individual states, and the Company is subject to periodic examination by the individual states. State licenses are generally revocable for cause. The Company believes that it is in compliance with all applicable laws and regulations, and maintains an internal compliance staff to stay abreast of changes in applicable law and to act as liaison between the Company and the various attorneys it has retained in each of the states in which it conducts its business. See "RISK FACTORS." 63 MANAGEMENT Directors and Executive Officers The present members of the Board of Directors and executive officers, their respective ages and positions with the Company are set forth below:
Positions with Name Age the Company - ---- --- --------------- Robert R. Bartolini 51 Chairman of the Board, President and Chief Executive Officer of NAL; Chairman and Chief Executive Officer of NAC John T. Schaeffer 48 Director of NAL; Director, President and Chief Operating Officer of NAC Robert J. Carlson 40 Vice President-Finance and Principal Accounting Officer of NAL and NAC Dennis R. LaVigne 51 Vice President and Treasurer of NAL Andrew P. Panzo 31 Director Abraham Bernstein 63 Director
The following is a summary of the business experience of the Company's directors and executive officers during the past five years and their directorships, if any, with companies with a class of securities registered with the Securities and Exchange Commission: Robert R. Bartolini Mr. Bartolini has been Chairman and Chief Executive Officer of NAL since its inception in 1991 and has maintained those positions, with the addition of the office of the President, following the Merger with COFVI on November 30, 1994. Prior to founding NAL Financial Group Inc., he was President and Chief Operating Officer of Financial Federal Savings & Loan Association ("FinFed" - Miami, Florida), a $1.8 billion mutual savings and loan. From 1984 to 64 1987, Mr. Bartolini was Executive Vice President at CenTrust Savings Bank, an $11 billion institution based in Miami, Florida, with 60 branches. Prior to that, Mr. Bartolini was with First Pennsylvania Bank, NA (assets of $6 billion; 75 branches), where he served as Senior Vice President. John T. Schaeffer Mr. Schaeffer has been President and Chief Operating Officer of NAC since its inception and has maintained those positions, with the addition of the office of director of NAL following the Merger with COFVI. Prior to joining NAL, Mr. Schaeffer was President and Chief Operating Officer of FinancialFed Services, Inc. ("FFS"), the automobile lease origination and servicing unit of FinFed. From 1986 through 1989, Mr. Schaeffer was Executive Vice President and Chief Operating Officer of CenTrust Leasing Corporation, the leasing unit of CenTrust Savings Bank, where he was responsible for the overall activities of the leasing subsidiary. Robert J. Carlson Mr. Carlson has been Vice President-Finance and Principal Accounting Officer of NAL since April 1992. Prior to joining the Company in 1992, Mr. Carlson served 4 years as Senior Vice President-Controller of FinFed. Prior to that, he served as Senior Vice President and Chief Financial Officer at Miami Savings Bank, a $175 million asset savings institution in Miami, Florida. Mr. Carlson also served 3 years at CenTrust, where he held the position of Vice President-Accounting Operations and Reporting. Dennis R. LaVigne Mr. LaVigne has been Vice President and Treasurer of NAL since August 1995. Mr. LaVigne has substantial experience in the automotive finance industry, having served as Senior Vice-President of Union Acceptance Corporation (an automotive finance company) from December 1993 to September 1994; remaining an independent consultant to the industry from October 1994 to August 1995; and having previously served as Senior Vice-President Asset/Liability Manager of Union Federal Savings Bank of Indianapolis from 1989 to December 1993. Prior to joining Union Federal, Mr. LaVigne held positions with Columbia Savings, a federal savings and loan association, from 1981 to 1989, including Senior Vice President, Chief Investment Officer, Treasurer and Asset/Liability Committee Chairman. Mr. LaVigne holds a Ph.D. in Economics from the University of Illinois. 65 Andrew P. Panzo Mr. Panzo served as President and Chairman of the Board of COFVI since December 1993 and resigned from such positions in conjunction with the Merger in November 1994. He was subsequently reappointed as a director of the Company in August 1995. Mr. Panzo is the managing director of American Maple Leaf Financial Corporation ("AMLF") in Bala Cynwyd, Pennsylvania, an investment banking advisor to the Company which specializes in emerging growth companies. He is also a director of two public companies: Sector Associates, Ltd. and The Eastwind Group, Inc. Mr. Panzo was a director of Florida West Airlines, Inc. from July through December 1993. Mr. Panzo was formerly Executive Vice President of HMA Investments, Inc., an investment banking firm at which he managed certain diversified securities investments. He is formerly an associate with Venture Partners, Ltd. of Middletown, Connecticut, a venture capital firm. Mr. Panzo is a graduate of the University of Connecticut and has a masters degree in international business and finance from Temple University. Abraham Bernstein Mr. Bernstein has been a director of the Company since August 1995. He has been Managing Director of The Rittenhouse Group, Inc. a privately held consulting firm since January 1994. Mr. Bernstein, prior to forming The Rittenhouse Group, Inc., was Vice Chairman and CEO of Tokai Financial Services, Inc., an asset-based lender and equipment lessor from 1988 to 1993, and President and Director of Masterlease Corporation, an equipment lessor from 1982-1988. 66 Executive Compensation SUMMARY COMPENSATION TABLE
=================================================================================================================================== Long Term Annual Compensation(1) Compensation - ----------------------------------------------------------------------------------------------------------------------------------- Securities Salary Bonus Underlying Name and Position Year ($) ($) Options/SARs (#) - ----------------------------------------------------------------------------------------------------------------------------------- Robert R. Bartolini 1995 $300,000 $0 50,000(4) Chairman of the Board, President and Chief 1994 $281,916 $298,985 75,000(2) Executive Officer of NAL; 1993 $250,000 $1,248,100 0 Chairman and Chief Executive Officer of NAC - ----------------------------------------------------------------------------------------------------------------------------------- John T. Schaeffer 1995 $160,000 $0 25,000(4) Director of NAL; 1994 $160,000 $0 40,000(3) President and Chief Operating Officer of NAC 1993 $160,000 $161,302 0 - ----------------------------------------------------------------------------------------------------------------------------------- Robert J. Carlson 1995 $80,000 $0 15,000(4) Vice President-Finance and Principal Accounting 1994 $74,231 $86,015 15,000(3) Officer of NAL 1993 $72,500 $18,124 0 - ----------------------------------------------------------------------------------------------------------------------------------- Dennis R. LaVigne 1995 $48,461 $0 25,000(5) Vice President and Treasurer of NAL ===================================================================================================================================
(1) Based upon the fiscal years ended December 31, 1995, 1994, and 1993. (2) Stock Options granted as of December 15, 1994 pursuant to the Company's Stock Option Plan of which 66,666 Options vest pro-rata over four years commencing January 1, 1996 and 8,334 Options vest pro-rata over three years commencing January 1, 1996. (3) Stock Options granted as of December 15, 1994 pursuant to the Company's Stock Option Plan, which vest pro-rata over three years commencing January 1, 1996. (4) Stock Options granted as of December 6, 1995 pursuant to the Company's Stock Option Plan, which vest pro-rata over three years commencing January 1, 1997. (5) Stock Options granted as of December 6, 1995 pursuant to the Company's Stock Option Plan, which vest upon December 6, 1998. 67
=================================================================================================================================== OPTIONS/SAR GRANTS IN LAST FISCAL YEAR - ----------------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL GRANTS - ----------------------------------------------------------------------------------------------------------------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS/SARs EXERCISE EXPIRATION UNDERLYING GRANTED TO OR DATE OPTION/SARs EMPLOYEES IN BASE PRICE NAME GRANTED(#) FISCAL YEAR(1) ($/Share) - ----------------------------------------------------------------------------------------------------------------------------------- Robert R. Bartolini 50,000(2) 15.22% $16.50 December 6, 2005 Chairman of the Board, President and Chief Executive Officer of NAL; Chairman and Chief Executive Officer of NAC - ----------------------------------------------------------------------------------------------------------------------------------- John T. Schaeffer 25,000(2) 7.61% $15.00 December 6, 2005 Director of NAL; President and Chief Operating Officer of NAC - ----------------------------------------------------------------------------------------------------------------------------------- Robert J. Carlson 15,000(2) 4.57% $15.00 December 6, 2005 Vice President-Finance and Principal Accounting Officer of NAL - ----------------------------------------------------------------------------------------------------------------------------------- Dennis R. LaVigne 25,000(3) 7.61% $13.25 December 6, 2005 Vice President and Treasurer of NAL ===================================================================================================================================
(1) Based upon the grant during the last fiscal year of options to purchase an aggregate of 328,000 shares of Common Stock pursuant to the Company's Stock Option Plan. (2) Stock Options granted as of December 6, 1995 pursuant to the Company's Stock Option Plan, which vest pro-rata over three years commencing January 1, 1997. (3) Stock Options granted as of December 6, 1995 pursuant to the Company's Stock Option Plan, which vest upon December 6, 1998. 68
================================================================================================================================== AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES - ---------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================== Number of Securities Underlying Value Unexercised Options/SARs of Unexercised Shares Acquired at FY-End (#) In-the-Money Options/SARs Name on Exercise(#) Value Realized Exercisable/Unexercisable(1) at FY-End($) Exercisable/Unexercisable(1) ================================================================================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Robert R. Bartolini, -0- -0- 19,445(E)/105,555(U) $138,365(E)/$393,885(U) Chairman of the Board, President and Chief Executive Officer of NAL; Chairman and Chief Executive Officer of NAC - ---------------------------------------------------------------------------------------------------------------------------------- John T. Schaeffer -0- -0- 13,333(E)/51,667(U) $101,731(E)/$203,469(U) Director of NAL; President and Chief Operating Officer of NAC - ---------------------------------------------------------------------------------------------------------------------------------- Robert J. Carlson -0- -0- 5,000(E)/25,000(U) $38,150(E)/$76,300(U) Vice President-Finance and Principal Accounting Officer of NAL - ---------------------------------------------------------------------------------------------------------------------------------- Dennis R. LaVigne -0- -0- 0(E)/25,000(U) $0(E)/$9,500(U) Vice President and Treasurer of NAL ==================================================================================================================================
(1) Based upon the closing price of the Company's Common Stock ($13.63 per share) as of December 29, 1995 as traded on The NASDAQ National MarketSM. 69 Employment Arrangements Upon the closing of the Merger, the Company entered into an employment agreement with Mr. Robert Bartolini. Such agreement, as subsequently amended by resolution of the Company's Board of Directors, provides for a base salary of $300,000 per year together with discretionary bonuses, if any, to be declared by the Board of Directors. The agreement also provides for certain benefits including vacation, life insurance, certain expenses and stock option plan participation, as well as a restrictive covenant in favor of the Company. See "Summary Compensation Table." The agreement is annually renewable for successive three year periods, however, Mr. Bartolini may terminate the agreement upon written notice on the earlier of one year from the date of such notice or 90 days after his replacement is hired by the Company. Mr. Bartolini may not cause the agreement to terminate prior to three years from the date of the agreement. Directors' Fees The employee-directors of the Company receive no fees or other compensation in connection with their service as directors. Mr. Bernstein in conjunction with his appointment to the Board was granted Warrants to purchase 20,000 shares of Common Stock. Mr. Bernstein also receives $1,000 for each meeting of the Board of Directors and each meeting of the Audit Committee attended in person and $500 for each meeting attended telephonically. Stock Option Plan The Company has adopted a stock option plan (the "Plan") covering 600,000 shares of the Company's Common Stock, pursuant to which officers, directors, key employees and consultants of the Company are eligible to receive incentive as well as non-qualified stock options and stock appreciation rights ("SARs"). The Plan will be administered by the Board of Directors or a committee consisting of no less than three members designated by the Board of Directors. Incentive stock options granted under the Plan are exercisable for a period of up to 10 years from the date of grant and at an exercise price which is not less than the fair market value of the Common Stock on the date of the grant, except that the term of an incentive stock option granted under the Plan to a stockholder owning more than 10% of the outstanding Common Stock may not exceed five years and the exercise price of an incentive stock option granted to such stockholder may not be less than 110% of the fair market value of the Common Stock on the date of the grant. Non-qualified stock options may be granted on terms determined by the Board of Directors or a committee designated by the Board of Directors. SARs which give the holder the privilege 70 of surrendering such rights for the appreciation in the Company's Common Stock between the time of grant and the surrender, may be granted on any terms determined by the Board of Directors or committee designated by the Board of Directors. Incentive stock options granted under the Plan are non-transferable, except upon death, by will or by operation of the laws of descent and distribution, and may be exercised during the employee's lifetime only by the optionee. There is no limit on the number of shares with respect to which options may be granted under the Plan to any participating employee. However, under the terms of the Plan, the aggregate fair market value (determined as of the date of grant) of the shares of Common Stock with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under all such plans of the Company and any parent and subsidiary corporation of the Company) may not exceed $100,000. Options granted under the Plan may be exercised within 12 months after the date of an optionee's termination of employment by reason of his death or disability, or within three months after the date of termination by reason of retirement or voluntary termination approved by the Board of Directors, but only to the extent the option was otherwise exercisable at the date of termination. The Plan will expire on November 1, 2004, unless terminated earlier by the Board of Directors. The Plan may be amended by the Board of Directors without stockholder approval, except that no amendment which increases the maximum aggregate number of shares which may be issued under the Plan or changes the class of employees who are eligible to participate in the Plan, shall be made without the approval of a majority of the stockholders of the Company. Effective as of December 15, 1994, 229,000 options were granted under the Plan; 99,000 of which were granted to non-management employees and 130,000 of which were granted to management. Effective as of December 6, 1995, 328,500 additional options were granted under the Plan; 213,500 of which were granted to non-management employees and 115,000 of which were granted to management. See "Options/SAR Grants in Last Fiscal Year Table." 71 CERTAIN TRANSACTIONS Loan to the Company Robert R. Bartolini advanced $1,098,165 to the Company on June 30, 1995 in order to provide it with additional working capital. The Company's obligation to repay this loan was evidenced by a promissory note dated August 31, 1995. Under the terms of this promissory note, principal and interest are due on March 31, 1996, with interest accruing at 9%. In December, 1995, the principal balance of this loan was increased to $2,919,000 by an additional advance from Mr. Bartolini of $1,820,835 under the same terms and conditions. The indebtedness evidenced by the promissory note is subordinated to the prior payment, when due of the principal and interest on all senior indebtedness of the Company. Transactions with Affiliate of Director Following the Merger, AMLF, an affiliate of Mr. Panzo, rendered certain investment banking advisory services to the Company for which AMLF received 33,000 common stock purchase warrants. The Warrants permit the purchase of additional shares at an exercise price of $9.00 per share through May 1996. During October 1994, the Company sold 333,333 shares of Common Stock to AMLF in a private placement transaction for consideration of $19,999. During April 1995, AMLF purchased $1,200,000 Principal Amount of 9% Convertible Subordinated Debenture Units for an aggregate purchase price of $1,200,000. See "DESCRIPTION OF SECURITIES." Sale of Portfolio to Executive Officer As of November 30, 1994, the Company sold a portfolio of 14 unsecured installment loans with a total principal balance of $1,055,000 to Mr. Robert R. Bartolini, Chairman and Chief Executive Officer of the Company, in consideration for $590,965. The portfolio of which this portfolio was a part was purchased by the Company in March 1994 from the FDIC at a purchase price equal to 22.5% of principal balance. The purchase price paid by Mr. Bartolini was equal to 56% of principal balance, which in management's opinion, was the approximate fair market value of the loans determined from a review of the expected collectibility of the loans. This price was considered by the Company to be equal to their fair market value and was based on the estimated cash flows anticipated for the portfolio. The method used for estimating the cash flows was the same used by the Company in evaluating the fair value of all of its portfolio acquisitions. 72 Sale of Boat to Executive Officer In October 1994, the Company sold a repossessed boat to John T. Schaeffer, a director of NAL and President and Chief Operating Officer of NAC, in consideration for a note in the amount of $89,000 which bears interest at 10% per annum for a period of 1 year, and the offset by the Company of $21,000 payable to Mr. Schaeffer. The note was repaid prior to June 30, 1995. In management's opinion the sale was at the approximate fair market value of the boat. Transactions with Former Principal Stockholder In 1991, the Company entered into an agreement with FTM, a former principal stockholder, to provide the Company with consulting and other business related services. Under the agreement, the Company agreed to pay FTM $50,000 per month through March 1995. The payments for consulting services continued through May 1994, whereupon the Company made a lump sum settlement with FTM through a final payment of $475,000 under this agreement. This reflected a $75,000 discount from the cumulative payments required under the agreement. Including the lump sum settlement, payments of $675,000 were made to FTM in 1994. Payments of $600,000 were made to FTM in 1993. During 1994, the Company paid FTM $428,000 as a commission on the sale of certain loan portfolios. On April 30, 1993, the Company redeemed 5,928 shares of Common Stock held by FTM for $2,400,000. A portion of the proceeds was applied to the cancellation of the receivable of $841,417 due from FTM to the Company. In October 1993, Mr. Bartolini purchased the remaining shares of the Company's stock held by FTM for a purchase price of $2,034,000. This purchase was financed by the Company as described below. See "Purchase of Shares of Common Stock." After the purchase, Mr. Bartolini's ownership percentage of outstanding stock was increased to 95%. The financial statements at December 31, 1993 reflect the receivable from Mr. Bartolini as a reduction of stockholders' equity. The Company previously sub-leased a portion of the space occupied by its headquarters at 500 Cypress Creek Road West, Fort Lauderdale, Florida from FTM. However, in January 1995, the Company entered into a lease directly with the landlord for such space. Thereafter, the Company entered into a sublease with FTM by which FTM subleases from the Company certain space which it previously leased directly from the landlord. 73 Purchase of Shares of Common Stock In April 1993, the Company issued 214 shares to Mr. John Schaeffer, president of NAC, in exchange for his 10% ownership of the common stock of NAC. After the issuance, the Company owned 100% of the outstanding shares of NAC, and Mr. Schaeffer owned 5% of the Company's Common Stock. In October 1993, Mr. Bartolini, Chairman, Chief Executive Officer and principal stockholder of the Company, purchased 2,143 shares representing all outstanding shares not previously owned by Mr. Bartolini or Mr. Schaeffer to provide him with 95% ownership of the Company as of such date. Mr. Bartolini financed the entire purchase price of such shares through a loan from the Company represented by a note in the amount of $2,034,638 which bore interest at 5% per annum and was reflected as a "Note Receivable from a Stockholder" as a reduction of stockholders' equity on the Company's consolidated balance sheet as of December 31, 1993. In June 1994, the Company redeemed the 2,143 shares from Mr. Bartolini in consideration for cancelling the note. Employment Arrangement The Company has entered into an employment agreement with Robert R. Bartolini, its Chairman, Chief Executive Officer and principal stockholder. See "MANAGEMENT - Employment Arrangements." Grant of Options and Warrants In December 1994 and December 1995, the Company granted certain options to purchase shares of the Company's Common Stock to executive officers under the Company's Stock Option Plan. See "MANAGEMENT - Summary Compensation Table" and "Stock Option Plan." In conjunction with his appointment to the Board of Directors on August 7, 1995, the Company granted to Mr. Bernstein 20,000 common stock purchase warrants with an exercise price of $13.50 per share. See "PRINCIPAL STOCKHOLDERS." Travel Services IYS Travel, Inc. ("IYS"), a travel agency of which Mr. Robert Bartolini is a principal stockholder, provides business and personal travel services to the Company and its employees at prevailing market prices. IYS receives customary industry commission for services provided. During the nine months ended September 30, 1995 and the years ended December 31, 1994 and 1993, the Company paid IYS approximately $78,000, $84,000 and $84,000, respectively, for airline tickets booked by IYS for travel by the Company's employees at the prevailing prices charged by the airlines. 74 During 1994, the Company advanced to IYS approximately $66,000 for payroll, which IYS subsequently repaid. Mr. Bartolini receives only indirect benefits as a principal stockholder of IYS through profits of IYS, if any. PRINCIPAL STOCKHOLDERS The following table sets forth, as of January 25, 1996, information with respect to the securities holdings of all persons which the Company, pursuant to filings with the Securities and Exchange Commission, has reason to believe may be deemed the beneficial owners of more than 5% of the Company's outstanding Common Stock. Also set forth in the table is the beneficial ownership of all shares of the Company's outstanding stock, as of such date, of all officers and directors, individually and as a group.
========================================================================================================================== Shares Owned Beneficially and of Percentage of Name Record(1) Outstanding Shares(1) - -------------------------------------------------------------------------------------------------------------------------- Robert R. Bartolini 2,235,647(2) 33.18% 500 Cypress Creek Road West Suite 590 Ft. Lauderdale, FL 33309 - -------------------------------------------------------------------------------------------------------------------------- John T. Schaeffer 302,913(3) 4.50% 500 Cypress Creek Road West Suite 590 Ft. Lauderdale, FL 33309 - -------------------------------------------------------------------------------------------------------------------------- Robert J. Carlson 65,196(4) * 500 Cypress Creek Road West Suite 590 Ft. Lauderdale, FL 33309 - -------------------------------------------------------------------------------------------------------------------------- Dennis R. LaVigne ---(5) * 500 Cypress Creek Road West Suite 590 Ft. Lauderdale, FL 33309 - -------------------------------------------------------------------------------------------------------------------------- Andrew P. Panzo 276,368(6) 4.00% 401 City Avenue, Suite 725 Bala Cynwyd, PA 19004 - -------------------------------------------------------------------------------------------------------------------------- Abraham Bernstein ---(7) * 1830 Rittenhouse Square Philadelphia, PA 19103 - -------------------------------------------------------------------------------------------------------------------------- Florence Karp(8) 964,166(9) 12.58% 3418 Sansom Street Philadelphia, PA 19104 - -------------------------------------------------------------------------------------------------------------------------- Rozel International Holdings Limited 362,318(10) 5.13% P.O. Box 3151 Road Town Tortola, B.V.I. - -------------------------------------------------------------------------------------------------------------------------- All Directors and Officers 2,822,124(11) 40.67% as a group (6 persons) ==========================================================================================================================
75 - ------------------------ *Represents less than 1% (1) Except as otherwise indicated, includes total number of shares outstanding and the number of shares which each person has the right to acquire, within 60 days through the exercise of options, warrants or debentures, pursuant to Item 403 of Regulation S-B and Rule 13d-3(d)(1), promulgated under the 1934 Act. Also reflects 6,700,041 shares of the Company's Common Stock outstanding as of the date of this Prospectus. (2) Includes 1,647,004 shares held by Robert R. Bartolini and Marcia G. Bartolini, Co-Trustees of the Robert R. Bartolini Revocable Trust dated July 27, 1992, 210,000 shares of which are subject to options granted by Mr. Bartolini during May 1995. Also includes 305,176 shares presently held by English, McCaughan & O'Bryan, P.A. pursuant to the terms of the Voting Trust Agreement. See "Material Voting Arrangements." Includes 264,022 shares held by Marcia G. Bartolini and Robert R. Bartolini, Co-Trustees of the Marcia G. Bartolini Revocable Trust dated July 27, 1992. Does not include 50,000 shares owned beneficially by Edward M. Bartolini, the adult brother of Robert R. Bartolini. Also does not include 264,022 shares held by George Schnabel, Trustee of the Robert R. Bartolini and Marcia G. Bartolini Irrevocable Trust dated July 27, 1992. Includes Incentive Stock Options to purchase 19,445 shares of Common Stock granted December 1994 which vested as of January 1, 1996. Does not include Incentive Stock Options to purchase 105,555 shares of Common Stock granted December 1994 and December 1995, which have not vested. See "MANAGEMENT - Executive Compensation." (3) Includes 34,628 shares held by English McCaughan & O'Bryan, P.A. for the benefit of Mr. Schaeffer pursuant to the terms of the Voting Trust Agreement. See "Material Voting Arrangements." Includes 13,333 Incentive Stock Options granted to Mr. Shaeffer in December 1994 which vested as of January 1, 1996. Does not include 51,667 Incentive Stock Options granted to Mr. Schaeffer in December 1994 and December 76 1995 which remain subject to vesting. Includes 4,952 shares held by Mr. Schaeffer's spouse. See "MANAGEMENT - Executive Compensation" and "Stock Option Plan." (4) Includes 60,196 shares held by English, McCaughan & O'Bryan, P.A. for the benefit of Mr. Carlson pursuant to the terms of the Voting Trust Agreement. See "Material Voting Arrangements." Includes 5,000 Incentive Stock Options granted to Mr. Carlson in December 1994 which vested as of January 1, 1996. Does not include 25,000 Incentive Stock Options granted to Mr. Carlson in December 1994 and December 1995 which remain subject to vesting. See "MANAGEMENT - Executive Compensation" and "Stock Option Plan." (5) Does not include 25,000 Incentive Stock Options granted to Mr. LaVigne in December 1995 which remain subject to vesting. See "MANAGEMENT - Executive Compensation" and "Stock Option Plan." (6) Includes 12,110 shares of Common Stock held by Mr. Panzo. Also includes 47,233 shares of Common Stock (43,333 shares representing principal and 3,900 shares representing interest at maturity) issuable to AMLF upon conversion of certain Debentures, if at all. Also includes 153,333 shares issuable upon the exercise of the Warrants, if at all, and Options to purchase 33,000 shares granted by Robert Bartolini to AMLF. Also includes 5,692 shares of Common Stock held by AMLF. See "SELLING SECURITY HOLDERS." Also includes Options to purchase 25,000 shares granted by Mr. Bartolini to APP Investments, Inc., an affiliate of Mr. Panzo. See "CERTAIN TRANSACTIONS - Grant of Options and Warrants." (7) Does not include Warrants to purchase 20,000 shares of Common Stock at an exercise price of $13.50 per share granted in conjunction with appointment as a director on August 7, 1995, which have not vested. See "CERTAIN TRANSACTIONS - Grant of Options and Warrants." (8) As custodian for Ms. Karp's minor grandchildren. (9) Includes 450,000 shares of Common Stock issuable upon the exercise, if at all, of Warrants. Also includes 514,166 shares of Common Stock (416,666 shares representing principal and 97,500 shares representing interest at maturity) issuable upon the conversion, if at all, of Debentures. See "DESCRIPTION OF SECURITIES." (10) Includes 128,818 shares issuable, if at all, upon conversion of outstanding Debentures and 233,500 shares issuable, if at all, upon the exercise of outstanding Warrants. 77 (11) Does not include Options to purchase 33,000 shares granted by Robert Bartolini to AMLF and Options to purchase 25,000 shares granted by Mr. Bartolini to APP Investments, Inc., an affiliate of Mr. Panzo, as such 58,000 shares are included within the shares held by Mr. Bartolini for the purposes hereof. Material Voting Arrangements Concurrent with the completion of the Merger, as of November 30, 1994, Messrs. Bartolini, Schaeffer and Carlson entered into a Voting Trust Agreement (the "Voting Trust Agreement") pursuant to which 400,000 shares were placed in a voting trust. The Voting Trust Agreement provides that, on any matter requiring stockholder vote, the trustee will vote such shares in the same percentage as the other then issued and outstanding shares of Common Stock are voted. Such shares may be released from the Voting Trust Agreement pursuant to an earn-out formula whereby for the years ended June 30, 1995, 1996 and 1997, 10,000 trust shares will be released for each $150,000 of cumulative net income after taxes of the Company up to $3,000,000 and 5,000 shares will be released for each $150,000 of cumulative net income after taxes in excess of $3,000,000, less the number of trust shares previously transferred to the shareholders under this formula. The trust shares will be released pro rata in accordance with the number of trust shares beneficially owned by each shareholder. If the shares are not released pursuant to the earn-out formula within three years, such shares will be cancelled. The trustee under the Voting Trust Agreement is English, McCaughan & O'Bryan, P.A., counsel to the Company. Effect of Issuance of Common Stock Upon Conversion of Debentures and Exercise of Warrants. The Company may be caused to issue up to an additional 1,410,112 shares upon conversion of the outstanding principal and accrued interest due under the Debentures, and up to an additional 1,961,125 shares upon exercise of the Warrants. See "DESCRIPTION OF SECURITIES." A number of holders of such Debentures and Warrants may become principal stockholders of the Company should they elect to convert their Debentures and/or exercise their Warrants. Stock ownership, for the purpose of identifying the principal stockholders included within the foregoing table, has been calculated in accordance with Rule 13d-3(d)(1) promulgated under the Securities Exchange Act of 1934 and Item 403 of Regulation S-B, promulgated under the Securities Act of 1933, as amended. Accordingly, stock ownership has been calculated to 78 include all shares issuable upon conversion of the Debentures and exercise of the Warrants where the holder has the right to acquire such shares within 60 days. DESCRIPTION OF SECURITIES Common Stock The Company is authorized to issue 50,000,000 shares of Common Stock, $.15 par value per share, of which 6,700,041 are outstanding as of the date of this Prospectus. Holders of Common Stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of Common Stock have one vote for each share held of record and do not have cumulative voting rights. Holders of Common Stock are entitled upon liquidation of the Company to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of Common Stock are not redeemable and have no pre-emptive or similar rights. All outstanding shares of Common Stock are fully paid and non-assessable. Preferred Stock Within the limits and restrictions contained in the Certificate of Incorporation, the Board of Directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of Preferred Stock (the "Preferred Stock"), in one or more series, and to fix, as to any such series, the dividend rate, redemption prices, preferences on liquidation or dissolution, sinking fund terms, if any, conversion rights, voting rights, and any other preference or special rights and qualifications. There are presently no shares of Preferred Stock outstanding. Shares of Preferred Stock issued by the Board of Directors could be utilized, under certain circumstances, to make an attempt to gain control of the Company more difficult or time consuming. For example, shares of Preferred Stock could be issued with certain rights which might have the effect of diluting the percentage of Common Stock owned by a significant stockholder or issued to purchasers who might side with management in opposing a takeover bid which the Board of Directors determines is not in the best interest of the Company and its stockholders. This provision may be viewed as having possible anti-takeover effects. A takeover 79 transaction frequently affords stockholders the opportunity to sell their shares at a premium over current market prices. The Board of Directors has not authorized any series of Preferred Stock. Debentures From April 1995 through December 31, 1995, the Company issued and sold in private placement transactions to accredited investors an aggregate of $21,325,000 principal amount 9% Convertible Subordinated Debentures (the "Debentures"). The Debentures were offered and sold in conjunction with warrants to purchase 1,961,125 shares of the Company's Common Stock as "Debenture Units". The indebtedness evidenced by the Debentures is subordinated to the prior payment when due of the principal and interest on all senior indebtedness of the Company. Therefore, upon any distribution of its assets in a liquidation or dissolution of the Company, or in bankruptcy, reorganization, insolvency, receivership or similar proceedings relating to the Company, the holders of the Debentures will not be entitled to receive payment until the holders of the Company's senior indebtedness are paid in full. Furthermore, upon the occurrence of any event of default with respect to any senior indebtedness of the Company, no payments may be made thereafter to the holders of the Debentures until the Company has cured such event of default. As of December 31, 1995, Debentures with principal balances in the aggregate of $8,260,000 had been converted into 930,523 shares of the Company's Common Stock. Of the outstanding Debentures at December 31, 1995, $3,000,000 principal amount bear a maturity date three (3) years from the date of funding (July 1998). The remainder of the Debentures with aggregate principal balances of $10,065,000 bear maturity dates one (1) year from the date of funding (from April 1996 to December 1996). With the exception of $3,000,000 principal amount, which requires quarterly payments, interest on the Debentures is due on a semi-annual basis. Conversion Feature At the option of the holders, the principal and accrued interest due under the Debentures is convertible into shares of Common Stock. Prior to such conversion, the holders thereof are not entitled to voting rights or other rights provided by law to security holders. Of the Debentures, $11,850,000 principal amount sold during April through July 1995, are convertible into shares of the 80 Company's Common Stock at a conversion price equal to the lower of: (i) 75% of the average closing bid price of the Company's Common Stock as reported by The NASDAQ Stock MarketSM for the ten (10) consecutive trading days immediately preceding the date of conversion; or (ii) $9.00. Of the remaining Debentures, $250,000 principal amount sold during August 1995 are convertible into shares of the Company's Common Stock at a conversion price of $10.50 per share, and $3,300,000 principal amount sold during September 1995 are convertible into shares of the Company's Common Stock at a conversion price of $12.50 per share. Of the remaining Debentures, $5,925,000 sold during December 1995 are convertible into shares of Common Stock at a conversion price equal to the lower of: (i) 85% of the average closing bid price of the Company's Common Stock as reported by The NASDAQ Stock MarketSM for the ten (10) consecutive trading days immediately preceding the date of conversion; or (ii) $11.00 per share. As of December 31, 1995, $8,260,000 principal amount of these Debentures have been converted into 930,523 shares of the Company's Common Stock. Based upon present trading prices, 1,410,112 additional shares of Common Stock may be issuable upon conversion of the remaining principal and accrued interest due under $13,065,000 principal amount of Debentures. Redemption Feature Except for the $5,925,000 principal amount of Debentures sold in December, 1995, the Debentures are subject to redemption by the Company at the principal amount thereof, together with any accrued interest, on thirty (30) days written notice upon the following conditions: (i) if a registration statement covering the resale of the shares issuable upon conversion of the Debentures is effective as of that date; and (ii) if the average of the closing bid prices of the Company's Common Stock as reported by The NASDAQ Stock MarketSM exceeds a designated redemption price (the "Debenture Redemption Price") for ten (10) consecutive trading days ending within fifteen (15) days of the notice of redemption. Of the outstanding Debentures, $5,140,000 principal amount bear a Debenture Redemption Price of $15.00. The remaining $2,000,000 principal amount bear a Debenture Redemption Price of $18.00. 81 Of the Debentures subject to redemption, $3,000,000 principal amount of the Debentures provide the holder with the option to elect not to have the Debentures subject to redemption, however, from the point of such election and thereafter, the Debentures become non-interest bearing. $5,925,000 principal amount of Debentures sold during December 1995 are not redeemable by the Company. Warrants. From April 1995 through December 1995, the Company has granted 2,151,125 common stock purchase warrants (the "Warrants"). 1,961,125 of the Warrants were granted as part of the Debenture Units. 190,000 Warrants were issued by the Company to Board members and certain consultants and advisers in consideration for financial advisory services. See "CERTAIN TRANSACTIONS." Exercise Each of the Warrants permits the holder to purchase a share of the Company's Common Stock at a designated exercise price for a period of three (3) years from the date of grant. The respective exercise prices of the Warrants issued as part of the Debenture Units are identified in the following table. Number of Warrants Exercise Price ------------------ -------------- 1,360,000 $ 9.00 12,500 $12.00 50,000 $12.30 175,000 $14.00 363,625 $15.00 --------- 1,961,125 The 1,360,000 Warrants that contain a $9.00 exercise price may not be exercised by the holders thereof until the earlier of: (i) March 31, 1996; or (ii) consent of the Company. The remainder of the Warrants may be exercised at the option of their holders commencing no later than November 4, 1995. Prior to exercise, holders of the Warrants are not entitled to voting rights or other rights provided by law to securityholders of the Company. A complete exercise of the Warrants, if at all, would yield to the Company proceeds of $20,909,375. There can be no assurances 82 that all or a substantial percentage of the Warrants will be exercised. Redemption 1,580,145 of the Warrants are subject to redemption by the Company commencing with the date of issuance and 380,980 are subject to redemption by the Company commencing two (2) years from the date of issuance, all at a price of $.001 per Warrant on thirty (30) days written notice upon the following conditions: (i) if a registration statement covering the resale of the shares issuable upon exercise of the Warrants is effective as of that date; and (ii) if the average of the closing bid prices of the Company's Common Stock as reported by The NASDAQ Stock MarketSM exceeds a designated price (the "Warrant Redemption Price") for ten (10) consecutive trading days ending with fifteen (15) days of the notice of redemption. Number of Warrants Warrant Redemption Price ------------------ ------------------------ 1,462,500 $15.00 12,000 $18.00 486,625 $25.00 The present trading price of the Company's Common Stock (see "MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS") would not be sufficient to effectuate a redemption of any of the Warrants. There can be no assurances that the trading price of the Company's Common Stock will attain a level sufficiently high to effectuate a redemption. There also can be no assurances that even with a sufficiently high trading price the Company will elect to cause a redemption of the Warrants. Any call for redemption would have the likely effect of causing the exercise of these Warrants. Registration Rights The Company has granted certain registration rights to the holders of the Debentures and the Warrants pursuant to which the Company has agreed to register for resale the shares of Common Stock issued or issuable upon the conversion of the Debentures and the exercise of the Warrants. Certain of these shares have been included in the Registration Statement of which this Prospectus is a part. See "SELLING SECURITY HOLDERS." Inclusive of the shares whose resale is offered by this Prospectus, the Company has granted incidental ("piggy back") registration rights in connection with the resale of up to 83 2,948,341 shares issuable or issued upon conversion of the Debentures and upon exercise of the Warrants. Pursuant to such rights, the Company has agreed to include the resale of such shares in any subsequent registration statement relating to a public offering of the Company's securities to the extent that such inclusion is not deemed by the Company or an underwriter, if any, to adversely effect such offering or the market for the Company's securities. In the event that such shares are not otherwise included within a registration statement, the Company has agreed to use its best efforts to file with the Commission a registration statement covering such shares on or before May 15, 1996. In connection with such registration(s), generally the Company has no obligation: (i) to assist or cooperate in the offering or disposition of such shares of Common Stock; (ii) to indemnify or hold harmless any underwriter; (iii) to obtain a commitment from an underwriter relative to the sale of such shares; or (iv) to include such shares of Common Stock within an underwritten offering of the Company. Accordingly, the Company's only obligation is to include any such shares in such registration statements as described above. The Company will assume no obligation or responsibility whatsoever to determine a method of disposition for such shares or to otherwise include such shares within the confines of such registered offering(s). Options Granted by Stockholder During May 1995, Robert R. Bartolini, the Company's Chairman and Chief Executive Officer, granted options to purchase, in the aggregate, 210,000 shares of Common Stock held by him at exercise prices of $6.00 and $9.00 per share (the "Options"). The Options granted at $6.00 shall terminate on the later of: (i) December 31, 1995; or (ii) 60 days after the Company causes the registration of the shares issuable upon the exercise of such Options. The Options granted at $9.00 have a term of one (1) year. The Options may not be exercised until the earlier of: (i) November 4, 1995; or (ii) upon consent of the Company. Reservation of Shares. The Company has reserved a sufficient number of shares of Common Stock for issuance upon conversion of the Debentures and exercise of the Warrants and such shares when issued will be fully paid and non-assessable. 84 Transfer Agent The transfer agent for the Company's securities is StockTrans, Inc., 7 East Lancaster Avenue, Ardmore, Pennsylvania 19003, (610) 649-7300. Shares Eligible For Future Sale Taking into account resale of the shares covered by this Prospectus and the anticipated registration of certain additional shares issued upon conversion of the Debentures, approximately 3,400,000 shares of the Company's outstanding Common Stock are "restricted securities," as that term is defined under Rule 144 under the Act and in the future may be sold without registration upon compliance with Rule 144. A person (including a group of persons whose shares are aggregated) who has satisfied a two year holding period for restricted securities, including an affiliate of the Company, may sell an amount of restricted securities up to 1% of the Company's outstanding Common Stock in each three month period thereafter. Persons who are not affiliated with the Company and who have owned the restricted securities for at least three years are not subject to the 1% limitation. Of the 3,400,000 shares which constitute restricted securities, approximately 2,535,978 are presently held by persons who may be deemed "affiliates" of the Company. These individuals acquired their shares during November 1994. Accordingly, resales may occur as early as November 1996. Provided these individuals remain "affiliates", their resales would be limited to 1% of the Company's outstanding Common Stock in each three month period thereafter. Of the 3,400,000 Shares which constitute restricted securities approximately 864,022 are presently held by non-affiliates. These shares were acquired during November 1994. Accordingly, resales can occur as early as November 1996 (limited to 1% of the Company's outstanding common stock per quarter) and unlimited resales can occur as early as October 1997. Any substantial sale of restricted securities under Rule 144 may in the future have a depressive effect upon the price of the Company's Common Stock in any market that may develop therefor. Delaware Anti-Takeover Law The Company will be governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware (the "GCL"), an anti-takeover law. In general, the law prohibits a public Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is 85 approved in a prescribed manner. "Business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who, together with its affiliates and associates, owns (or within three years, did own) 15% or more of the corporation's voting stock. The provisions regarding certain business combinations under the GCL could have the effect of delaying, deferring or preventing a change in control of the Company or the removal of existing management. A takeover transaction frequently affords stockholders the opportunity to sell their shares at a premium over current market prices. SELLING SECURITY HOLDERS All of the shares of Common Stock of the Company offered by this Prospectus are being sold for the account of the selling security holders identified in the following table (the "Selling Security Holders"). The Selling Security Holders are offering for sale an aggregate of up to 693,430 shares of Common Stock which consist of: (i) 311,830 shares of Common Stock previously issued by the Company in private placement transactions; (ii) 261,600 shares issuable, if at all, upon conversion of certain outstanding Debentures; and (iii) 120,000 shares issuable, if at all, upon the exercise of certain outstanding Warrants, all of which shares of Common Stock, Debentures and Warrants were previously issued by the Company in private placement transactions. See "DESCRIPTION OF SECURITIES." 79,849 of the shares of Common Stock included in this Prospectus were previously included in the Company's Prospectus dated December 15, 1995, which is superseded by this Prospectus. The following table sets forth the number of Shares being held of record or beneficially (to the extent known by the Company) by such Selling Security Holders and provides (by footnote reference) any material relationship between the Company and such Selling Security Holder, all of which is based upon information currently available to the Company. The shares of Common Stock offered by the Selling Security Holders may be offered for sale from time to time at market prices prevailing at the time of sale or at negotiated prices, and without payment of any underwriting discounts or commissions except for usual and customary selling commissions paid to brokers or dealers. 86
Number of Number of Number of Shares of Shares of Shares of Common Common Common Stock to be Stock Percentage Percentage Stock Before Sold in After Before After Name Offering(2) Offering Offering Offering(1) Offering(1) - ---- ------------ ----------- --------- ----------- ----------- Anguili, Nick 50,200 50,200(3) 0 * 0% Centaur Financial Corp.(4) 112,242(5) 11,242(3) 101,000 1.65% 1.5% Diversified Securities Fund I, L.P. 14,636(6) 9,636(3) 5,000 * * Hance, Edward 1,000 1,000(3) 0 * 0% Lyons, Rachel 1,000 1,000(3) 0 * 0% Garnick, Michael 14,579 14,000(3) 579 * * Ginsburg, Bruce 55,210 27,778(3) 27,432 * * GRA Investments Corp. 251,181 178,781(3) 72,400 3.71% 1.07% Rosner, Steven B. Money Purchase 32,193 17,193(3) 15,000 * * Pension Plan Solomon, Martin 254,400 254,400(7) 0 3.66% 0% TGP Associates Limited Partnership 127,200 127,200(8) 0 1.86% 0% Yazzie, Susan Reeser 1,000 1,000(3) 0 * 0% Total 693,430 ========
- ---------------------- (*) Less than 1% (1) Based upon 6,700,041 shares of Common Stock outstanding as of the date of this Prospectus. (2) The number of shares calculated below includes all shares presently owned, as well as all shares which may be acquired, if at all, upon the conversion of outstanding principal and interest due under the Debentures and/or exercise of outstanding Warrants. (3) Represents shares of outstanding Common Stock. (4) An affiliate of the Steven B. Rosner Money Purchase Pension Plan. (5) Includes 11,242 shares of outstanding Common Stock; 43,000 shares issuable, if at all, upon the exercise of certain Warrants; and 58,000 shares issuable, if at all, upon the exercise of Options granted by Mr. Robert R. Bartolini. (6) Includes 9,636 shares of outstanding Common Stock and 5,000 shares issuable, if at all, upon conversion of Warrants. (7) Represents 174,400 shares issuable, if at all, upon conversion of outstanding Debentures and 80,000 shares issuable, if at all, upon the exercise of outstanding Warrants. (8) Represents 87,200 shares issuable, if at all, upon the conversion of outstanding Debentures and 40,000 shares issuable, if at all, upon the exercise of outstanding Warrants. 87 PLAN OF DISTRIBUTION The Selling Security Holder is offering for sale, exchange or transfer shares of Common Stock that have previously been issued to such holders in private placement transactions, and shares of Common Stock issuable, if at all, upon the conversion of the Debentures. Such shares are being offered for his own account, and not for the account of the Company. The Company will not receive any proceeds from the sale of the shares of Common Stock by the Selling Security Holder. Selling Security Holder will, prior to any sales, agree (a) not to effect any offers or sales of the Common Stock in any manner other than as specified in this Prospectus, (b) to inform the Company of any sale of Common Stock at least one business day prior to such sale and (c) not to purchase or induce others to purchase Common Stock in violation of Rule 10b-6 under the Exchange Act. The shares of Common Stock may be sold from time to time to purchasers directly by the Selling Security Holder acting as principal for their own account in one or more transactions in the over-the-counter market or in negotiated transactions at market prices prevailing at the time of sale or at prices otherwise negotiated. Alternatively, the shares of Common Stock may be offered from time to time through agents, brokers, dealers or underwriters designated from time to time, and such agents, brokers, dealers or underwriters may receive compensation in the form of commissions or concessions from the Selling Security Holder or the purchasers of the Common Stock. Under the Exchange Act and the regulations thereunder, any person engaged in a distribution of the shares of Common Stock of the Company offered by this Prospectus may not simultaneously engage in market making activities with respect to the Common Stock of the Company during the applicable "cooling off" periods prior to the commencement of such distribution. In addition, and without limiting the foregoing, Selling Security Holder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder including, without limitation, and Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of Common Stock by the Selling Security Holder. 88 The Company will use its best efforts to file, during any period in which offers or sales are being made, one or more post-effective amendments to the Registration Statement of which this Prospectus is a part to describe any material information with respect to the plan of distribution not previously disclosed in this Prospectus or any material change to such information in this Prospectus. LEGAL MATTERS The validity of the Common Stock offered hereby has been passed upon for the Company by Clark, Ladner, Fortenbaugh & Young, One Commerce Square, 2005 Market Street, 22nd Floor, Philadelphia, Pennsylvania, 19103. STATEMENT OF INDEMNIFICATION The Company has adopted the provisions of Section 102(b)(7) of the GCL which eliminate or limit the personal liability of a director to the Company or its stockholders for monetary damages for breach of fiduciary duty under certain circumstances. Furthermore, under Section 145 of the GCL, the Company may indemnify each of its directors and officers against his expenses (including reasonable costs, disbursements and counsel fees) in connection with any proceeding involving such person by reason of his having been an officer or director to the extent he acted in good faith and in a manner reasonably believed to be in, or not opposed to the best interest of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The determination of whether indemnification is proper under the circumstances, unless made by a court, shall be determined by the Board of Directors. Insofar as indemnification for liabilities under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in a successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issuer. 89 EXPERTS The financial statements as of December 31, 1994 and for each of the two years in the period ended December 31, 1994 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission, a Registration Statement on Form SB-2 with respect to the Common Stock being registered hereby. This Prospectus does not contain all the information contained in such Registration Statement, as permitted by the Rules and Regulations of the Securities and Exchange Commission. The Registration Statement, including exhibits thereto, may be inspected without charge, and copies of all or any part thereof may be obtained from the Commission's principal office in Washington, D.C. at Room 1024, 450 Fifth Street N.W., Washington, DC. 20549, and at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained upon written request addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates. For further information with respect to the Company, the Common Stock being registered hereby and the contents of any contract or document referred to herein, reference is made to the Registration Statement and the exhibits filed as a part thereof. 90 INDEX TO FINANCIAL STATEMENTS Page Reference Report of Independent Certified Public Accountants..........................F-1 Consolidated Balance Sheet as of December 31, 1994.....................................................F-2 Consolidated Statements of Operations for the Years Ended December 31, 1994 and 1993..............................F-3 Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1994 and 1993..................................................F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1993..............................F-5 Notes to Consolidated Financial Statements for the Year Ended December 31, 1994........................................F-7 Consolidated Balance Sheet (Unaudited) as of September 30, 1995 and December 31, 1994.............................F-24 Consolidated Condensed Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 1995 and 1994................................................F-25 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1995 and 1994......................F-26 Notes to Consolidated Financial Statements for the (Unaudited) Interim Nine Month Period Ended September 30, 1995 ..................................................F-27 91 Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of NAL Financial Group Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of NAL Financial Group Inc. and its subsidiaries at December 31, 1994, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP - ------------------------- PRICE WATERHOUSE LLP Fort Lauderdale, Florida March 29, 1995 F-1 NAL Financial Group Inc. Consolidated Balance Sheet December 31, 1994 - -------------------------------------------------------------------------------- Assets Loan and lease receivables: Automotive finance contracts, net $23,974,929 Consumer loans receivable, net 1,491,694 Mortgage loans receivable, net 4,822,667 Less: Allowance for possible losses (305,000) ----------- Net loan and lease receivables 29,984,290 Cash and cash equivalents 664,848 Restricted cash 1,061,041 Net investment in operating leases 1,230,647 Returned vehicle inventory, net 150,779 Real estate owned 44,250 Debt issue costs, net 214,112 Property and equipment, net 510,885 Accrued interest receivable 167,692 Other assets, net 489,809 ----------- Total assets $34,518,353 =========== Liabilities and Stockholders' Equity Pa$ticipations and notes payable $22,502,041 Accounts payable and accrued expenses 400,057 Security deposits 344,834 Other liabilities 242,660 Deferred income taxes 110,460 Due to stockholder 62,494 ----------- Total liabilities 23,662,546 ----------- Commitments and contingencies (Notes 8 and 14) -- ----------- Stockholders' equity: Preferred stock, $1,000 par value, 10,000,000 shares authorized, no shares issued -- Common stock, $.15 par value, 50,000,000 shares authorized, 5,592,968 shares issued and outstanding 838,945 Paid in capital 8,483,714 Retained earnings 1,533,148 ----------- Total stockholders' equity 10,855,807 ----------- $34,518,353 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-2 NAL Financial Group Inc. Consolidated Statements of Operations For the Years Ended December 31, 1994 and 1993 - --------------------------------------------------------------------------------
1994 1993 -------- ------ Revenue: Interest income $ 3,322,577 $ 4,371,156 Purchase discount accretion 2,064,714 2,959,355 Gain on sale of loan pools 2,292,249 1,925,230 Gain on loan sales to correspondents -- 206,255 Rental 79,390 -- Other income 478,153 68,422 Lease termination losses, net (103,883) (243,327) ----------- ----------- 8,133,200 9,287,091 ----------- ----------- Expenses: Interest 1,957,420 2,965,941 Salaries, wages, and employee benefits 2,337,557 2,270,771 Commissions 69,482 48,468 Professional services 364,927 532,287 Consulting fees 537,793 600,000 Provision for credit losses 572,636 -- Servicing fees 79,503 320,242 Depreciation and amortization 320,294 289,835 Other operating expenses 1,235,922 938,743 ----------- ----------- 7,475,534 7,966,287 ----------- ----------- Income before provision for income taxes and extraordinary losses 657,666 1,320,804 Provision for income taxes 263,343 522,616 ----------- ----------- 394,323 798,188 Extraordinary loss on early extinguishment of debt (net of taxes of $188,745) -- 326,949 ----------- ----------- Net income $ 394,323 $ 471,239 =========== =========== Per share data: Primary: Income before extraordinary item $ 0.08 $ 0.15 Extraordinary item -- (0.16) ----------- ----------- Net income $ 0.08 $ 0.09 =========== =========== Fully diluted: Income before extraordinary item $ 0.07 $ 0.14 Extraordinary item -- (0.06) ----------- ----------- Net income $ 0.07 $ 0.08 =========== ===========
F-3 The accompanying notes are an integral part of these consolidated financial statements. NAL Financial Group Inc. Consolidated Statement of Changes in Stockholders' Equity For the Years Ended December 31, 1994 and 1993 - --------------------------------------------------------------------------------
Preferred Stock Common Stock Less: Total Par Par Paid in Note Retained Stockholders' Shares Value Shares Value Capital Receivable Earnings Equity ------ ----- ------ ----- ------- ---------- -------- ----------- Balance, December 31, 1992 -- $ -- 10,000 $ 10,000 $ 2,471,169 $ -- $ 3,101,034 $ 5,582,203 Redemption of stock -- -- (5,928) (5,928) (1,464,909) -- (929,163) (2,400,000) Capital contribution -- -- -- -- 1,900,000 -- -- 1,900,000 Issuance of stock -- -- 214 214 289,065 -- -- 289,279 Note receivable from stockholder -- -- -- -- -- (2,034,638) -- (2,034,638) Net income -- -- -- -- -- -- 471,239 471,239 ------ ------ --------- -------- ---------- ---------- ---------- ----------- Balance, December 31, 1993 -- -- 4,286 4,286 3,195,325 (2,034,638) 2,643,110 3,808,083 Dividends -- -- -- -- -- -- (1,069,460) (1,069,460) Redemption of stock -- -- (2,143) (2,143) (1,597,670) 2,034,638 (434,825) -- Redemption of predecessor stock in connection with the merger -- -- (2,143) (2,143) (1,597,655) -- -- (1,599,798) Issuance of stock in connection with the merger -- -- 5,592,968 838,945 8,483,714 -- -- 9,322,659 Net income -- -- -- -- -- -- 394,323 394,323 ------ ------ --------- -------- ---------- ---------- ---------- ----------- Balance, December 31, 1994 -- $ -- 5,592,968 $838,945 $8,483,714 $ -- $1,533,148 $10,855,807 ====== ====== ========= ======== ========== ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 NAL Financial Group Inc. Consolidated Statements of Cash Flows For the Years Ended December 31, 1994 and 1993 - --------------------------------------------------------------------------------
1994 1993 -------- ------ Cash flows from operating activities: Net income 394,323 $ 471,239 Adjustments to reconcile net income to net cash provided by operating activities: Accretion of purchase discount (2,064,714) (2,959,356) Provision for credit losses 572,636 -- Depreciation and amortization 320,294 289,835 Gain on sales of loan pools (2,292,249) (1,925,230) Gain on loan sales to correspondents -- (206,255) Non-cash portion of extraordinary loss -- 278,841 Changes in assets and liabilities: Payments received on automotive finance contracts, net 7,417,861 11,226,692 Payments received on consumer loans receivable, net 8,421,534 6,483,220 Payments received on mortgage loans receivable, net 5,083,106 13,055,970 Decrease in due from regulatory agencies -- 326,652 Decrease in restricted cash 921,492 3,188,547 Increase in real estate owned (44,250) -- Decrease (increase) in returned lease inventory 94,427 (44,839) (Increase) decrease in other assets and accrued interest receivable (125,605) 274,526 Decrease (increase) in due from affiliates 43,667 (998,817) Increase (decrease) in security deposits 101,759 (463,189) Increase (decrease) in other liabilities 88,271 (668,026) (Decrease) increase in accrued income taxes (33,590) 51,285 ------------ ------------ Net cash provided by operating activities 18,898,962 28,381,095 ------------ ------------ Cash flows from investing activities: Proceeds from sale of loan pools 14,614,031 8,658,496 Purchase of automotive finance contracts (22,681,679) (1,045,276) Purchase of vehicles under operating leases (1,283,300) -- Purchase of consumer loans receivable (14,795,381) (7,848,436) Purchase and origination of mortgage loans receivable (221,713) (19,884,294) Purchase of property and equipment (253,004) (36,237) ------------ ------------ Net cash used in investing activities (24,621,046) (20,155,747) ------------ ------------
(Continued) F-5 NAL Financial Group Inc. Consolidated Statements of Cash Flows For the Years Ended December 31, 1994 and 1993 (continued) - --------------------------------------------------------------------------------
1994 1993 ------- ------ Cash flows from financing activities: Proceeds from issuance of common stock $ 7,722,861 $ -- Stock redemption -- (1,558,583) Loan to stockholder -- (703,588) Proceeds to participations and notes payable 33,911,781 54,955,306 Repayment of participations and notes payable (34,249,908) (60,694,835) Payment of debt issue costs (24,352) (497,454) Dividends (1,069,459) -- ------------ ------------ Net cash provided by (used in) financing activities 6,290,923 (8,499,154) ------------ ------------ Net increase (decrease) in cash and cash equivalents 568,839 (273,806) Cash and cash equivalents, beginning of year 96,009 369,815 ------------ ------------ Cash and cash equivalents, end of year $ 664,848 $ 96,009 ============ ============ Supplemental disclosures of cash flow information Cash paid during the year for interest $ 1,859,353 $ 3,635,737 ============ ============ Cash paid during the year for taxes $ 320,501 244,031 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-6 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- 1. Organization and Nature of Operations NAL Financial Group Inc. (the "Company") commenced operations in June 1991 as a specialized finance company for the purpose of engaging in consumer finance transactions involving the origination, purchase, remarketing and servicing of consumer loan and lease receivables. Since June 1994, the Company's principal business has been the acquisition and servicing of automotive loans and leases originated by dealers in connection with sales or leases to individuals with sub-prime credit. On November 30, 1994, the Company merged with Corporate Financial Ventures, Inc. ("CFVI"), a public company (the "Merger"). Under the terms of the Merger, the Company's stockholders received 3,160,000 shares of CFVI in exchange for all outstanding shares of stock of the Company. Stockholders of the Company received approximately 56% of the outstanding common stock of CFVI. Additionally, the Company raised net proceeds of approximately $7,700,000 in a private placement of 1,549,667 shares of its common stock in connection with the merger. The Merger has been accounted for as a reverse acquisition by the Company. Upon completion of the Merger, CFVI assumed the historic operations of the Company and changed its name to NAL Financial Group Inc. As the Merger is not considered a business combination as defined in Accounting Principles Board Opinion No. 16, "Business Combinations", pro forma information is not presented. The operations of CFVI prior to the Merger were not significant. The Company operates its business through four wholly-owned subsidiaries. The principal operations of the Company are conducted through NAL Acceptance Corporation ("NAC"). NAL Insurance Services, Inc. ("NIS") provides automobile and other forms of insurance services. NAL Mortgage Corporation ("NMC") presently is inactive. Performance Cars of South Florida, Inc. ("PCSF") was incorporated in January 1995 to conduct the Company's used vehicle operations. Unless otherwise specified, references to the Company includes NAC, NIS, NMC, and PCSF. 2. Accounting Policies A summary of the significant accounting policies followed in the preparation of the accompanying financial statements is presented below: Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. F-7 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- Revenue Recognition Interest income is recognized using the interest method over the contractual term of the loans and leases and is recognized in full upon early termination of individual lease contracts. Certain loan and lease origination costs are deferred and amortized to interest income over the life of the related loans and leases using the interest method. Purchase discount is recognized using the interest method after considering actual and estimated prepayment rates. Revenue from operating leases is recognized as rental revenue on a straight-line basis over the lease term. Interest on acquired non-performing loans is fully reserved and is recognized as income when collected. Lease termination gains (losses) are recorded when earned and represent the difference between the sales price of the returned vehicle and the net book value. Customer termination penalties are recognized when earned and are included in lease termination gains. Late charges and other miscellaneous fees are credited to income as earned. Loans and Leases Mortgage loans, consumer loans, and automotive finance contracts purchased or originated for investment are stated at cost, net of purchase discount and unearned interest income, since the Company has the ability and presently intends to hold the portfolios to maturity. An allowance for uncollectible interest is provided for loans 90 days or more delinquent. Purchase discounts are deferred and recognized over the lives of the related loans and leases using the interest method. Unamortized purchase discount is included in interest income upon full repayment. An allowance for credit losses is maintained at a level that management considers adequate to provide for potential losses based upon an evaluation of known and inherent risks in the portfolios. Management's periodic evaluation is based upon an analysis of the portfolios, historical loss experience, current economic conditions, collateral value and other relevant factors. Future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114") in May 1993 which was amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" F-8 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- ("SFAS 118") in October 1994. SFAS 114 requires a creditor to evaluate the collectibility of both contractual interest and principal of certain impaired receivables when assessing the need for a loss accrual and to measure loans that are restructured in a troubled debt restructuring to reflect the time value of money. SFAS 114 is not applicable to leases and large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment. SFAS 118 amends SFAS 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. SFAS 118 also amends the disclosure requirements in SFAS 114 to require information about the recorded investment in certain impaired loans and about how a creditor recognizes interest income related to those impaired loans. SFAS 114, as amended by SFAS 118, applies to financial statements for fiscal years beginning after December 15, 1994. The Company plans to adopt SFAS 114, as amended by SFAS 118, in the first interim period of fiscal year 1995. The impact of adoption on the financial position or results of operations is not expected to be material. At December 31, 1994, the Company had approximately $236,000 in non-accrual loans. Had these loans been on full-accrual, interest income of $26,000 would have been recognized for the year then ended. Cash and Cash Equivalents For the purpose of the statements of cash flows, the Company has defined cash and cash equivalents as those highly liquid investments purchased with an original maturity of three months or less. Restricted Cash Restricted cash represents deposit accounts established pursuant to servicing agreements between the Company and various participants which represents collections from customers, and cash reserve accounts established under certain participation agreements. The collection accounts are settled monthly by the Company with the participants. Net Investment in Operating Leases Operating automotive leases to third parties are originated by dealers and acquired by the Company, which assumes ownership of the vehicle. Vehicles held under operating lease agreements are recorded at cost and depreciated on a straight-line basis over the lease term to the estimated residual value. Returned Vehicle Inventory Vehicles acquired through repossession or termination of a lease or loan are valued at the lower of the unpaid principal balance or market value at the date of repossession. Real Estate Owned Real estate acquired in settlement of loans is carried at the lower of cost or fair value of the asset minus estimated costs to sell. F-9 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- Debt Issue Costs Debt issue costs are capitalized and amortized to operations over the life of the related debt, which currently approximates three years. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation. Depreciation is computed using the straight line method over the estimated useful lives of the related assets. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This method requires an asset and liability approach to accounting for income taxes on a current and deferred basis using current income tax rates. Deferred income tax assets are recognized for temporary differences that will result in deductible amounts in future years. Deferred income tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Concentration of Credit Risk The Company considers its primary market area for loan and lease origination activities to be the state of Florida. However, the properties collateralizing the purchased loan receivable portfolios are located primarily throughout the eastern United States, Texas and California. Although the Company has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their obligations to the Company is dependant upon the economic stability of these areas. Interest Rate Risk Loan portfolio purchases are funded by participations which bear interest at fixed rates, or at variable rates subject to certain minimum percentages. The durations of the participations are determined by the durations of the related loan portfolios since the proceeds of obligor payments are applied to repayment of participations. This also minimizes fluctuations in the difference between the interest rate earned on loans and the interest rate incurred on participations. Earnings Per Share Earnings per common share are computed based on the weighted average number of common and common equivalent shares outstanding during the period. The weighted average number of shares of common and common equivalent shares outstanding used to compute primary and fully diluted earnings per share was 5,192,968 and 5,592,968, respectively. F-10 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- Reclassification Certain 1993 amounts have been reclassified to conform with current year presentation. 3. Automotive Finance Contracts
December 31, 1994 ------------ Direct finance leases: Minimum lease payments $ 4,936,889 Estimated residual values (at maturity) 2,985,254 ----------- Total direct finance leases 7,922,143 Loan contracts 8,175,202 Advances to dealers 10,697,787 ----------- 26,795,132 Less: Unearned income (2,004,435) Purchase discount (815,768) ----------- Automotive finance contracts, net $23,974,929 ===========
Automotive finance contracts are collateralized primarily by the related automobiles and the related security deposits on leases. These contracts are pledged as security for the participations and notes payable. Advances to dealers represent amounts funded by the Company to automobile dealerships which are collateralized by loan and lease receivables of the dealer serviced for a fee by the Company. At December 31, 1994, approximately $15,463,000 in loan and lease receivables are being serviced by the Company relating to these advances. These advances bear interest at fixed rates, or at variable rates subject to certain minimum percentages. The duration of these advances are determined by the duration of the related collateralized loan and lease receivables. At December 31, 1994, contractual maturities of automotive finance contracts are as follows:
1995 1996 1997 1998 1999 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Direct finance leases $ 2,387,916 $ 1,650,962 $ 1,570,283 $ 1,648,085 $ 633,899 $ 30,998 $ 7,922,143 Loan contracts 2,589,119 1,871,737 1,717,011 1,234,329 528,315 234,691 8,175,202 Advances to dealers 3,875,233 3,462,894 2,278,480 751,143 330,037 -- 10,697,787 ----------- ----------- ----------- ----------- ----------- ---------- ------------- $ 8,852,268 $ 6,985,593 $ 5,565,774 $ 3,633,557 $ 1,492,251 $ 265,689 $ 26,795,132 =========== =========== =========== =========== =========== ========== =============
F-11 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- It is the Company's experience that generally a portion of the portfolios are repaid before the contractual maturity dates. Accordingly, the above tabulation is not to be regarded as a forecast of the timing of future cash collections. Additionally, this tabulation assumes liquidation of the residual values upon expiration of the leases. 4. Consumer Loans Receivable
December 31, 1994 ------------ Loans receivable secured by: Boats $ 442,856 Mobile homes 524,274 Other 1,365,886 ---------- 2,333,016 Less: Unearned purchase discount (841,322) ---------- Consumer loans receivable, net $1,491,694 ==========
The consumer loans receivable portfolio is diversified with a customer base located primarily throughout the eastern United States. The portfolio is pledged as security for the participations. At December 31, 1994, contractual maturities of consumer loans receivable are as follows: Fully matured $ 800,067 1995 647,253 1996 263,736 1997 137,113 1998 93,741 1999 88,312 Thereafter 302,794 ---------- $2,333,016 ==========
The fully matured loans totaling $800,067 were purchased by the Company at a substantial discount and are considered non-performing at December 31, 1994. The Company has a net investment of approximately $174,000 in these loans at December 31, 1994. It is the Company's experience that a portion of the portfolio is repaid before the contractual maturity date. Accordingly, the above tabulation is not to be regarded as a forecast of the timing of future cash collections. F-12 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- 5. Mortgage Loans Receivable
December 31, 1994 ------------ Residential first mortgages $3,486,751 Residential second mortgages 2,554,713 ---------- 6,041,464 Less: Unearned purchase discount (1,218,797) ---------- Mortgage loans receivable, net $4,822,667 ==========
At December 31, 1994, contractual maturities of mortgage loans receivable are as follows: Fully matured $ 394,063 1995 651,789 1996 199,662 1997 266,894 1998 757,749 1999 148,542 Thereafter 3,622,765 ---------- $6,041,464 ==========
The fully matured loans totaling $394,063 were purchased by the Company at a substantial discount and are considered non-performing at December 31, 1994. The Company has a net investment of approximately $93,000 in these loans at December 31, 1994. It is the Company's experience that generally a portion of the portfolio is repaid before the contractual maturity dates. Accordingly, the above tabulation is not to be regarded as a forecast of the timing of future cash collections. At December 31, 1994, the loans had stated rates ranging from 6% to 18%, and consisted of 58% and 42% of fixed-rate and adjustable-rate instruments, respectively. The adjustable rate loans have interest rate adjustment limitations and are generally indexed to average one-year U.S. Treasury Bill rates. These loans are pledged as security for the participations. F-13 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- 6. Allowance for Possible Losses Changes in allowance for loan losses for the years ended December 31, 1994 and 1993 are as follows:
1994 1993 ---- ---- Balance at beginning of period $ 277,316 $ 277,316 Provision charged to operations 572,636 -- Loans charged off, net of recoveries (544,952) -- --------- --------- Balance at end of period $ 305,000 $ 277,316 ========= =========
During March and May 1994, the Company purchased two loan portfolios for approximately $3,400,000 at significant discounts. A substantial portion of these portfolios was comprised of non-performing loans. An analysis performed subsequent to these acquisitions regarding future collections on loans within these portfolios which had fully-matured resulted in the net charge-off of a portion of the purchase price ($457,000 in 1994). At December 31, 1994, the Company has a net investment remaining of approximately $897,000 in these portfolios. 7. Net Investment in Operating Leases
December 31, 1994 ------------- Vehicles held under operating leases, at cost $1,283,300 Less: Accumulated depreciation (52,653) ------------ $1,230,647 ============
At December 31, 1994, future minimum rental revenue on operating leases are as follows: 1995 $322,897 1996 307,326 1997 216,253 --------- $846,476 =========
F-14 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- 8. Property and Equipment Property and equipment at December 31, 1994 consists of the following:
Estimated useful Amount life -------- ------------ Furniture, fixtures, and office equipment $ 646,899 5-7 years Less: Accumulated depreciation (136,014) ------------ $ 510,885 ============
The Company leases office space under agreements which expire December 31, 2001. The future minimum non-cancelable lease payments are as follows: 1995 $ 243,591 1996 253,300 1997 267,000 1998 280,876 1999 295,178 Thereafter 659,377 ----------- $ 1,999,322 ===========
F-15 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- 9. Participations and Notes Payable Participations and notes payable at December 31, 1994 consists of the following: Note payable under a $10 million (increased to $25 million in January 1995) automobile loan and lease financing facility, interest due monthly at 5.5% over LIBOR established and fixed at time of funding, (weighted average rate of 9.3% at December 31, 1994) with General Electric Capital Corporation, secured by certain automotive finance contracts. $ 11,019,914 Borrowing under participation arrangements with Fairfax Savings, a Federal Savings Bank ("Fairfax"), interest at fixed rates ranging from 10% to 12% (weighted average rate of 11.74% at December 31, 1994), principal and interest due monthly, secured by undivided interests in automotive finance contracts, consumer loans receivable, and mortgage loans receivable ranging from 80% to 95%. 9,321,395 Note payable under a $20 million restricted financing facility with Congress Financial Corporation, interest due monthly at 2% over prime rate (10.5% at December 31, 1994), secured by automotive finance contracts, consumer loans receivable, and mortgage loans receivable. 977,123 Borrowing under participation arrangements with investors, secured by undivided interests in automotive finance contracts, consumer loans receivable, and mortgage loans receivable; interest at fixed rates ranging from 9% to 18% (weighted average rate of 16% at December 31, 1994). 911,311 Unsecured note, interest at 25%, principal and interest payable monthly through December 1995. 126,347 Unsecured note, non-interest bearing, payable in monthly installments of $6,529 through February 1995, $100,000 balloon payment due March 1995. 105,012 Borrowing under participation arrangement with a stockholder, secured by undivided interests in certain mortgage loans receivable, interest at a fixed rate of 18%. 40,939 ------------ $ 22,502,041 ============
F-16 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- The participation arrangements with Fairfax are accounted for as collateralized borrowings. The agreements under the participation arrangements specify the distribution of cash collections from the lease and loan receivables. The order of distributions of cash flows received is as follows: (1) Payment to Fairfax for principal and interest due on the participations. (2) Payment of any amounts payable to Fairfax which may have arisen due to the Company's failure to perform its obligation under the participation agreement, at which time Fairfax would have assumed and incurred expenses to perform these responsibilities. (3) An amount equal to 25% to 50% of the remaining cash balance, if any, will be deposited into segregated interest bearing accounts at Fairfax (the reserve accounts) until the balances in the reserve accounts equal 25% to 50% of the principal balances of the participation agreements. The reserve accounts at December 31, 1994 are included in the consolidated balance sheet as restricted cash. (4) Payment to the Company of the remaining cash in the operating account, if any, including all payments and reimbursements due under the servicing agreement. The reserve accounts are pledged as additional collateral under the agreements. Should the cash collections from the loan and lease receivables be insufficient to pay Fairfax principal and interest due on the participation arrangements, or to pay Fairfax for the cost of servicing obligations it may assume under the agreements, any shortfall may be withdrawn from the reserve accounts. Accordingly, any loss of Fairfax's participation principal and interest is paid from the reserve account and is not absorbed by Fairfax. Restricted cash pledged as additional collateral to Fairfax at December 31, 1994 amounted to $886,000. The Company services the loan and lease receivables collateralizing the participation arrangements, including payment collection and posting, contact with customers, and repossession and disposal of collateral on defaulted contracts. The December 31, 1994 principal balance of automotive finance contracts, mortgage loans receivable and consumer loans receivable subject to the participation arrangements with Fairfax are as follows: Automotive finance contracts $ 9,491,924 Mortgage loans receivable 3,971,526 Consumer loans receivable 760,624 ------------- $ 14,224,074 =============
The weighted average coupon rate of the above was 15.23% at December 31, 1994. F-17 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- Scheduled maturities of participations and notes payable at December 31, 1994 are as follows: 1995 $ 5,509,824 1996 4,379,141 1997 3,796,593 1998 3,495,428 1999 2,437,409 Thereafter 2,883,646 ------------- $ 22,502,041 =============
Since the repayment of the above debt is directly related to the timing of the future cash collections of the loan and lease receivables, the above schedule of maturities may not be representative of the actual repayments. The above schedule of maturities excludes the balances held in the reserve accounts. The Company must maintain certain net worth ratios based on covenants within one of its debt agreements. 10. Stockholders' Equity On April 30, 1993, the Company redeemed 5,928 shares of common stock held by First Trustmark ("FTM") for $2,400,000 which, in management's opinion, did not exceed the fair value of the shares. A portion of the proceeds was applied to the cancellation of the receivable due from FTM to the Company. In addition, FTM agreed that the Company will file a consolidated tax return with FTM through April 30, 1993. Due to FTM's tax net operating loss carryforwards, $1,900,000 of the accrued income taxes recorded by the Company through date of redemption was treated as a capital contribution in 1993. On April 30, 1993, the Company exchanged 214 shares of its stock for 10% minority interest in NAC. In October 1993, the president and chief executive officer of the Company, who is also a stockholder, purchased all outstanding shares not previously owned by him to give him 95% ownership in the Company. The president of NAC owned the remaining 5%. In connection with this transaction, the stockholder executed a note in favor of the Company; the note bore interest at 5% and was due September 30, 1995. In June 1994, the Company redeemed 2,143 shares of its common stock from this stockholder by cancelling the note. Merger In accordance with the terms of the Merger, of the 3,160,000 shares of common stock issued to the Company's stockholders, 400,000 shares issued to certain directors and officers were F-18 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- placed in a Voting Trust under the terms of a Voting Trust Agreement. The Voting Trust provides that, on any matter requiring stockholder vote, the trustee will vote the shares in the same percentage as the other then issued and outstanding shares of common stock are voted. Such shares may be released from the Voting Trust pursuant to the following earn-out formula. Based upon the Company's audited financial statements for the years ending December 31, 1995, 1996, and 1997, 10,000 shares will be released for each $150,000 of cumulative net income after taxes the Company earns up to $3,000,000, and 5,000 shares will be released for each $150,000 of cumulative net income after taxes in excess of $3,000,000, less the number of shares previously released under this formula. Any shares not released within three years will be cancelled. Originally, the Company intended to account for the release of all shares held in the Voting Trust as compensation expense. The Company has reassessed the accounting for shares after further consideration of the relevant facts and circumstances and has determined that the release of 340,000 of the 400,000 shares placed into the Voting Trust will be considered additional consideration and not result in compensation expense. The remaining 60,000 shares will still be considered compensatory in nature resulting in a charge for the fair market value at the date of release. Certain shares held in the Voting Trust have been excluded from the computation of primary earnings per share, but have been included in the calculation of fully diluted earnings per share. Concurrent with the completion of the Merger, certain stockholders entered into a Shareholders' Agreement whereby the stockholders agreed, among other provisions, for the election of eight directors, two of which will be independent directors. The Shareholders' Agreement also provides certain limitations on transactions involving the stockholders' shares. Stock Option Plan The Company has adopted a stock option plan (the "Plan") which covers 600,000 shares of the Company's common stock. Under the terms of the Plan, officers, directors, key employees and consultants of the Company are eligible to receive incentive as well as non-qualified stock options and stock appreciation rights. Incentive stock options granted under the Plan are exercisable for a period of up to 10 years from the date of grant at an exercise price which is not less than the fair market value of the Company's common stock on the date of the grant. For any stockholder owning more than 10% of the outstanding common stock, incentive stock options are exercisable for a period of up to five years from the date of grant at an exercise price which is not less than 110% of the fair market value of the Company's common stock on the date of the grant. Non-qualified stock options and stock appreciation rights may be granted on terms determined by the Company's Board of Directors. Stock appreciation rights give the holder the privilege of surrendering such rights for the appreciation in the Company's common stock between the time of grant and surrender. Effective December 15, 1994, the Company granted 280,000 options under the Plan, 150,000 to non-management employees and 130,000 to members of management of the Company. The options granted to non-management employees carry an exercise price of F-19 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- $6.00 with an expiration date of December 15, 2004. These options vest after three years. The options granted to management carry exercise prices ranging from $6.00 to $6.60 with expiration dates of December 15, 1999 - December 15, 2004. These options vest on a pro-rata basis over periods of three to four years, and may be exercised only if the employee is employed by the Company at the time of exercise, and the Company has achieved specific earnings goals for the applicable year. 11. Income Taxes The components of the provision for income taxes for the years ended December 31, 1994 and 1993, consist of the following:
1994 1993 ------ ------ Current tax expense: Federal $ 231,591 $ 649,115 State 43,981 103,287 --------- --------- 275,572 752,402 --------- --------- Deferred tax benefit: Federal (10,390) (375,605) State (1,839) (42,926) --------- --------- (12,229) (418,531) --------- --------- Total provision for income taxes including extraordinary item 263,343 333,871 Benefit from extraordinary item -- 188,745 --------- --------- Total provision for income taxes excluding extraordinary item $ 263,343 $ 522,616 ========= =========
The income tax provision differs from the amount determined by multiplying pre-tax income by the statutory federal income tax rate. The reconciliation between the expected tax provision and the actual tax provision is as follows: Income taxes at statutory rate 223,606 $462,281 State taxes 27,814 47,219 Other 11,923 13,116 -------- -------- Provsion for income taxes $263,343 $522,616 ======== ========
F-20 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- The net deferred income tax liability as of December 31, 1994, is comprised of the following temporary differences: Deductible Temporary Differences Deferred gain on sale of loan portfolio $ 89,392 Depreciation 2,400,978 Bad debt reserves 114,772 Other 7,189 ---------- Deferred income tax asset 2,612,331 ---------- Taxable Temporary Differences Direct financing leases (2,709,132) Capitalized loan costs (13,659) ---------- Deferred income tax liability (2,722,791) ---------- Net Deferred income tax liability $ (110,460) ==========
12. Related Party Transactions An affiliate provided executive and financial services to the Company during 1994 and 1993. The Company reimbursed the affiliate $675,000 and $600,000 for the years ended December 31, 1994 and 1993, respectively, for these services under a consulting agreement. The consulting agreement includes providing advice on the purchase and sale of consumer loan and lease portfolios and financing arrangements. Under the terms of the agreement, the Company pays the affiliate a fee of $50,000 per month through March 1995. During 1994, the Company prepaid the remaining amounts due under the contract at a $75,000 discount. The unamortized portion of the payment in the amount of $131,000 is included in prepaid expenses at December 31, 1994. In October 1994, the Company sold a repossessed boat to an officer of the Company in consideration for a note in the amount of $89,000 and the offset by the Company of a $21,000 payable to the officer. The note bears interest at an annual rate of 10% and is payable in October 1995. On November 30, 1994, the Company sold a portfolio of 14 loans with a total principal balance of $1.1 million to the president and chief executive officer of the Company for a price of $591,000. These loans were included in a portfolio purchased during 1994 at a significant discount. The portion of the purchase price allocated to the loans sold approximated the sales price to the officer; therefore, no gain or loss was recognized on the sale. The Company sold these loans at a purchase price based on the estimated discounted cash flows F-21 NAL Financial Group Inc. Notes to Consolidated Financial Statements December 31, 1994 - -------------------------------------------------------------------------------- anticipated on the specific loans purchased. This is the same method the Company uses to value all its bulk portfolio acquisitions. The sales price of the loans of $591,000 offset $591,000 of a previously established liability owed by the Company to the officer for bonuses and dividends. The Company continues to service the loans for the officer. Upon completion of the Merger, the Company entered into an employment agreement (the "Agreement") with the president and chief executive officer of the Company. The Agreement provides for a base salary of $275,000 per year plus discretionary bonuses, as approved by the Board of Directors, in addition to certain benefits. The Agreement is renewable annually for successive three year periods; however, the president may terminate the Agreement upon written notice the earlier of one year from the date of such notice or 90 days after his replacement has been hired by the Company. The president may not terminate the Agreement prior to three years from the date of the Agreement. The Company provided payroll services to an affiliated company during 1994 under an agreement by which the affiliate reimburses the Company for payroll advances. During 1994 the Company advanced the affiliate approximately $66,000 for payroll. At December 31, 1994, the Company had a receivable of $24,000 due from this affiliate for advances. The consolidated balance sheet at December 31, 1994 includes $715,965 of related party receivables less $778,459 of related party payables. 13. Employee Benefits The Company sponsors a 401(k) savings plan covering most employees. Contributions made by the Company to the 401(k) plan are based on a specified percentage of employee contributions. Total Company contributions were $22,787 and $38,117 for the years ended December 31, 1994 and 1993, respectively. 14. Litigation The Company is involved in various litigation matters arising in the normal course of business. Legal counsel's and management's assessment are that none of these matters are anticipated to have a material adverse impact on the financial position or results of operations of the Company. 15. Subsequent Events In January 1995, the Company purchased a $1,800,000 automobile loan portfolio at a purchase price of approximately $1,500,000, funded partially by the facility with Congress Financial Corporation. In March 1995, the Company commenced the private placement of $3,000,000 of convertible subordinated debentures offered in debenture units. Each debenture unit consists of $500,000 principal amount 9% convertible subordinated debenture and 50,000 F-22 warrants. The debentures mature the earlier of one year or the completion of a "financing transaction", as that term is defined in the Confidential Private Offering Memorandum. Each warrant entitles the warrant holder to purchase one share of the Company's common stock for a three-year period at an exercise price of $9.00 per share. Through March 29, 1995, the Company has received $1,485,000 in connection with the offering. F-23 NAL FINANCIAL GROUP INC. Consolidated Balance Sheets
September 30, December 31, 1995 1994 ASSETS Net loan and lease receivables $102,335,591 $30,289,290 Reserve for credit losses (3,057,193) (501,806) ------------ ------------ Net receivables 99,278,398 29,787,484 Cash and cash equivalents 473,348 664,848 Restricted cash 862,406 1,061,041 Net investment in operating leases 3,318,035 1,230,647 Returned automobile inventory, net 2,483,616 150,779 Debt issue costs, net 887,682 214,112 Property and equipment, net 1,096,538 510,885 Accrued interest receivable 1,370,390 167,692 Other assets, net 2,435,895 534,058 ------------- ------------ Total assets $112,206,308 $34,321,546 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Borrowings: Lines of credit and warehouse facilities $31,732,937 $11,997,037 Debt participation interests 47,143,939 10,273,644 Convertible subordinated debentures 8,065,965 --- Other 34,575 231,359 ------------- ------------ Total borrowings 86,977,416 22,502,040 Accounts payable and accrued expenses 251,513 400,057 Security deposits 698,814 344,834 Accrued income taxes 432,950 110,460 Other liabilities 1,963,225 45,854 Due to shareholder 853,514 62,494 ----------- ------------ Total liabilities 91,177,432 23,465,739 ----------- ------------ Stockholders' equity Preferred stock, S1,000 par value, 10,000,000 shares authorized, no shares issued --- --- Common stock, $.15 par value, 50,000,000 shares authorized, 6,550,347 and 5,592,968 shares issued and outstanding at September 30, 1995 and December 31, 1994, respectively 982,552 838,945 Paid in capital 17,443,384 8,483,714 Retained earnings 2,602,940 1,533,148 ----------- ----------- Total stockholders' equity 21,028,876 10,855,807 ----------- ----------- Total liabilities and stockholders' equity $112,206,308 $34,321,546 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-24 NAL FINANCIAL GROUP,INC. Consolidated Condensed Statements of Operations
For the Nine Months For the Three Months Ended September 30, Ended September 30, 1995 1994 1995 1994 REVENUES Interest income $ 10,400,092 $ 2,020,177 $ 4,696,974 $ 583,928 Purchase discount accretion 599,289 1,800,676 178,892 629,982 Gain on sale of loan pools 127,673 2,137,024 127,673 697,262 Other income 1,241,140 239,833 876,510 118,302 ------------ ------------ ------------ ------------ 12,368,194 6,197,710 5,880,049 2,029,474 ============ ============ ============ ============ EXPENSES Interest expense 4,636,356 1,409,926 2,132,943 536,733 Operating expenses 4,514,227 3,683,617 2,056,174 1,445,123 Provision for credit loss 1,412,138 355,548 709,362 221,026 Compensation expense related to a Voting Trust Arrangement (Note 4) 80,000 -- -- -- ------------ ------------ ------------ ------------ 10,642,721 5,449,091 4,898,479 2,202,882 ------------ ------------ ------------ ------------ Income (loss) before provision for taxes 1,725,473 748,619 981,570 (173,408) Provision (credit) for taxes 655,680 293,864 372,998 (65,727) ------------ ------------ ------------ ------------ Net Income (Loss) $ 1,069,793 $ 454,755 $ 608,572 ($ 107,681) ============ ============ ============ ============ PER SHARE DATA Earnings per share: Primary $ .18 $ .09 $ .10 S(.02) Fully diluted .18 .08 .10 (.02) Weighted average number of shares outstanding: Primary 5,875,228 5,192,968 6,144,997 5,192,968 Fully diluted 6,013,263 5,592,968 6,340,921 5,592,968
F-25 The accompanying notes are an integral part of these consolidated financial statements. NAL FINANCIAL GROUP INC. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1995 and 1994
1995 1994 Cash flows from operating activities: Net income $ 1,069,793 $ 4S4,755 Adjustments to reconcile net income to cash provided by operating activities: Accretion of purchase discount (599,289) (1,800,676) Provision for credit losses 1,412,138 355,548 Depreciation and amortization 690,901 223,607 Gain on sale of loan pools (127,673) (2,137,024) Non-cash charge related to Voting Trust Arrangement 80,OOO -- Changes in assets and liabilities: Payments received on receivables 31,788,300 15,412,737 Other, net 112,469 824,256 ----------- ----------- Net cash provided by operating activities 34,426,639 13,333,203 ----------- ----------- Cash flows from investing activities: Proceeds from sale of loan pools 1,622,723 15,173,690 Purchase of receivables (108,875,869) (21,732,535) Purchase of property and equipment (688,907) (162,054) ----------- ----------- Net cash used in investing activities (107,942,053) (6,720,899) ----------- ----------- Cash flows from financing activities: Net proceeds from financings 111,093,651 19,969,537 Repayments of financings (40,661,708) (25,768,637) Issuance of common stock 2,100,950 -- Note payable from shareholder 791,021 -- Payment of dividends -- (618,000) ----------- ----------- Net cash provided by (used in) financing activities 73,323,914 (6,417,100) ----------- ------------ Net (decrease) increase in cash and cash equivalents (191,500) 195,204 Cash and cash equivalents, beginning of year 664,848 96,009 ----------- ----------- Cash and cash equivalents,end of year $ 473,348 $ 291,213 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period for interest $3,964,533 $1,204,499 ========== ========== Cash paid during period for taxes $ 345,648 $ 302,660 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-26 NAL Financial Group Inc. Notes To Consolidated Financial Statements September 30, 1995 1. BASIS OF PRESENTATION The interim financial information of NAL Financial Group Inc. (the "Company"), which is included herein, is unaudited and has been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. In the opinion of management, these interim financial statements include all the adjustments necessary to fairly present the results of the interim periods and all such adjustments are of a normal recurring nature. The interim financial statements presented herein include the accounts of the Company and its wholly-owned subsidiaries and should be read in conjunction with the audited financial statements, and the footnotes thereto, for the year ended December 31, 1994. Certain 1994 amounts have been reclassified to conform with the current year presentation. Operating results for the nine and three month periods ended September 30, 1995 are not necessarily indicative of the results which may be expected for the year ended December 31, 1995. 2. ORGANIZATION AND NATURE OF OPERATIONS The Company commenced operations in June 1991 as a specialized finance company for the purpose of engaging in consumer finance transactions involving the origination, purchase, remarketing and servicing of consumer loan and lease receivables. Since June 1994, the Company's principal business has been the acquisition and servicing of automotive loans and leases originated by dealers in connection with sales or leases to individuals with sub-prime credit. On November 30, 1994, the Company merged with Corporate Financial Ventures, Inc. ("CFVI"), a public company (the "Merger"). Under the terms of the Merger, the Company's stockholders received 3,160,000 shares of CFVI in exchange for all outstanding shares of stock of the Company. Stockholders of the Company received approximately 56% of the outstanding common stock of CFVI. The Merger has been accounted for as a reverse acquisition of the Company. Upon completion of the Merger, CFVI assumed the historic operations of the Company and changed its name to NAL Financial Group Inc. The operations of CFVI prior to the Merger were not significant. F-27 3. LOAN AND LEASE RECEIVABLES Loan and lease receivables as of September 30, 1995 and December 31, 1994 consist of the following:
1995 1994 Automotive finance contracts Gross contracts receivable $ 104,556,879 $ 26,795,132 Less: Unearned interest (6,277,920) (2,004,435) Deferred acquisition fees (105,485) -- Unamortized acquisition discount -- (815,768) ------------- ------------- 98,173,474 23,974,929 Consumer contracts receivable Gross contracts receivable 3,087,354 2,333,016 Less: Unearned interest (435,030) -- Unamortized acquisition discount (351,349) (841,322) ------------- ------------- 2,300,975 1,491,694 Mortgage loans receivable Gross loans receivable 2,545,423 6,041,464 Less: Unamortized acquisition discount (684,281) (1,218,797) ------------- ------------- 1,861,142 4,822,667 ------------- ------------- Net loan and lease receivables $102,335,591 $30,289,290 ============= =============
The reserve available for credit losses consists of an allowance for losses established through a provision from earnings, non-refundable contract acquisition discounts on automotive finance contracts purchased from dealers, and refundable reserves such as dealer holdback. Prior to the end of the third quarter of 1995, the Company amortized the non-refundable acquisition discount to income over the life of the related receivables as an enhancement of yield. However, beginning with the fourth quarter of 1995, management has decided to cease amortization and allocate the entire non-refundable acquisition discount to the reserve available for credit losses. The following table sets forth the components of the total reserve available for credit losses as of September 30, 1995 and December 31, 1994:
1995 1994 Non-refundable acquisition discount, net $1,890,234 --- Allowance for credit losses 572,955 $ 305,000 Dealer holdback 594,004 196,806 ---------- ---------- Total reserve available for credit losses $3,057,193 $ 501,806 ========== ==========
F-28 4. VOTING TRUST ARRANGEMENT Of the 3,160,000 shares of the Company's common stock received by certain stockholders in conjunction with the merger of the Company in November 1994, 400,000 shares were placed into a voting trust arrangement by which shares may be released on an annual basis pursuant to a formula tied to net income earned by the Company. Any shares not released from the arrangement at the end of three years will be canceled. Management has evaluated the accounting treatment relating to the potential release of the shares under the arrangement using recent accounting guidance and the relevant facts and circumstances, and has determined that the potential release of approximatly 340,000 shares of the total amount of shares held under the arrangement is not compensatory. The potential release of the remaining 60,000 shares is considered compensatory based on the relevant facts and circumstances, and accordingly, an expense will be reflected for financial reporting purposes as these shares become eligible for release. This expense will be a non-cash charge and will not affect working capital or total stockholders' equity. Accordingly, compensation expense of $80,000 has been recorded for the nine months ended September 30, 1995 for the portion of the 60,000 shares that have become eligible for release under the agreement. 5. Subsequent Events From October 1995 to December 1995, the Company issued and sold, in private placement transactions to accredited investors, an aggregate of $5,925,000 principal amount of 9.00% Convertible Subordinated Debentures (the "Debentures"). The Debentures were offered and sold in conjunction with warrants to purchase shares of the Company's common stock as "Debenture Units". The Debentures are subordinated to senior indebtedness and bear maturities of one year. At September 30, 1995, the Company had $8,500,000 principal amount of previously issued Debentures outstanding, of which Debentures with an aggregate principal amount $1,360,000 converted to shares of the Company's Common Stock during the period October 1995 to December 1995. In December 1995, the Company completed the sale of approximately $40 million of automobile loans in a privately-placed securitization transaction. F-29 No dealer, salesperson or other person has been authorized in connection with this offering to give any information or to make any representations other than those contained in this Prospectus. This Prospectus does not constitute an offer or a solicitation in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the circumstances of the Company or the facts herein set forth since the date hereof. ----------------------
TABLE OF CONTENTS Page ---- Prospectus Summary.........................................................3 The Company................................................................3 The Offering...............................................................4 Summary Financial Information..............................................................8 Risk Factors..............................................................10 Use of Proceeds...........................................................19 Market for Common Equity and Related Stockholder Matters.................................................................19 Capitalization............................................................21 Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................................21 Business of the Company...................................................45 Management................................................................65 Certain Transactions......................................................73 Principal Stockholders....................................................76 Description of Securities.................................................80 Selling Security Holders..................................................87 Plan of Distribution......................................................89 Legal Matters.............................................................90 Statement of Indemnification..............................................90 Experts...................................................................91 Additional Information....................................................91 Financial Statements.....................................................F-1
79,849 Shares of Common Stock Offered by Certain Selling Security Holders as Offered by Prospectus dated December 15, 1995 613,581 Shares of Common Stock offered by certain Selling Security Holders NAL FINANCIAL GROUP INC. ------------------- P R O S P E C T U S ------------------- ----------------- January _____ , 1995 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers The Company has adopted the provisions of Section 102(b)(7) of the Delaware General Corporation Law (the "Delaware Act") which eliminate or limit the personal liability of a director to the Company or its stockholders for monetary damages for breach of fiduciary duty under certain circumstances. Furthermore, under Section 145 of the Delaware Act, the Company may indemnify each of its directors and officers against his expenses (including reasonable costs, disbursements and counsel fees) in connection with any proceeding involving such person by reason of his having been an officer or director to the extent he acted in good faith and in a manner reasonably believed to be in, or not opposed to the best interest of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The determination of whether indemnification is proper under the circumstances, unless made by a court, shall be determined by the Board of Directors. Reference is made to Item 28 for the undertakings of the Registrant with respect to indemnification of liabilities arising under the Securities Act of 1933, as amended (the "Act"). Item 25. Other Expenses of Issuance and Distribution The following is a list of the estimated expenses to be incurred by the Registrant in connection with the preparation and filing of this Registration Statement. S.E.C. Registration Fee.......................................$22,583* Printing and Engraving.........................................25,000 Accountants' Fees and Expenses.................................25,000 Blue Sky Filing Fees and Expenses................................ N/A Legal Fees and Expenses........................................50,000 ======= TOTAL:...............................................$100,000 *Filed with Registration Statement File No. 33-97948, as originally submitted on October 9, 1995 Item 26. Recent Sales of Unregistered Securities 1. In December 1993, the Company sold 143,333 post-split shares of Common Stock, to Discretionary Investment Trust dated July 7, 1993 in consideration for the purchase price of $100,000 plus certain valuable services rendered. This sale was undertaken as a private placement transaction exempt under Section 4(2) of the Act, as a transaction by an issuer not involving a public offering. II-1 2. During October 1994, the Company sold 714,999 shares of Common Stock, $.15 par value, in private placement transactions exempt under Section 4(2) of the Act, as a transaction by an issuer not involving a public offering, as set forth below.
Number of Shares Name of Common Stock Consideration - ---- ---------------- ------------- Audley International Investments Limited 300,000 $48,600 American Maple Leaf Financial Corporation 333,333 $19,999 Ernest and Kathy Bartlett 19,166 $ 3,105 Kenneth A. Rosen 43,334 $ 7,020 SPH Investments P/S Plan f/b/o Stephen P. Harrington 19,166 $ 3,105
3. During November and December 1994, the Company sold 1,549,667 shares of Common Stock, $.15 par value, to accredited and sophisticated investors in a private placement transaction exempt from registration pursuant to Rule 506 of Regulation D. In connection with this transaction, brokerage commissions of $539,370 (6.5%) were paid. The following individuals purchased shares at $6.00: Number of Shares Name of Common Stock - ---- ---------------- Allen, Alvin 10,000 Alperin, David 3,375 Alperin, Judith 2,500 Alu, James M 9,000 Angiuli, Nick 154,696 Apothaker, Jonathan 875 Beckerman, Sam 3,500 Bellino, Michael/Supnick, Richard 2,500 Steven R. Blecker TTEE for Athanacia Bell Trust 4,000 Steven R. Blecker TTEE for Elizabeth Bell Trust 4,000 Block, Charles 2,500 Borenstein, Howard 2,500 Brennan, Quinn 3,375 The Bridge Fund 8,500 Brown Valet, Inc. 5,250 Button, Richard 7,000 Buck, Paul 5,000 Cantor, Michael 30,000 Chaiken, Carl 875 Cohen, Bernard 6,000 Cohen, Susan 2,500 Colon, Jose F. 13,000 Costa, Neil and Ahrens, Lynne JTWROS 14,500 II-2 Number of Shares Name of Common Stock - ---- ---------------- Cox, J. Douglas 3,500 Cox, Kathryn Retirement Trust 3,500 Diamond Import Group 3,500 Diversified Securities Fund I, L.P. 3,500 Eugene M. Eisner MD PA Pension Trust 5,000 Fabrikant, Martin 2,500 Feldman, Joel & Shirley, JTWROS 1,750 Flam, Robert M 5,000 Foreman, Michael 3,000 Frankel, Richard 10,000 Garnick, Michael 100,000 Garnick, Richard 1,250 Gates, Andrew and Gloria 1,750 Genack, Menachem 875 GiroCredit Bank (Switzerland) A.G. 17,500 Goldberg, Paul 3,500 Goldberg, Robert Theodore 3,500 Goldberg, Sheldon E. & Toni A 2,500 GOP Partners 17,000 Henderson, Marilyn 7,000 Hess, Julie 5,000 Hollander, Bernard 3,500 Interbanc Mortgage Services, Inc. 33,000 Jackenthal, Herb 875 Jeddi Limited 25,000 Joseph, Gerson 5,000 Josephart, Herbert Employee Defined Benefit Pension Plan dtd 1/1/91 Herbert and Marcia Josephart TTEES 5,000 JRJ, Inc. 13,000 Kaplan, Charles 875 Kaplan, Susan 2,500 Karp, Florence c/f Penelope Karp and Athena Karp 12,500 Kaufman, Richard and Adrienne JTWROS 1,500 Lambert, Terrence 2,500 Lilly, Richard M 2,000 Linsker, Rita 3,500 Love, Douglas 5,000 Lucas, Russell 2,500 Luongo, Michael 875 Manheimer, Marvin 2,500 Marks, Mitchell 12,500 Masucci, Robert N., II 875 McCabe, William Dennis III 2,500 Miller, Alan I. 50,000 Miller, Marc 5,000 Moorman, Jeffrey 3,500 Moriuchi, Takashi B 875 Morgenstern, Richard 4,000 Mousaieff, Yoram 7,000 MRS Investments 37,500 Najmy, Joseph 3,500 II-3 Nedwick, Robert & Barbara JTWROS 6,000 Pacht, Harvey & Joan 3,500 Prevor Marketing International Inc. 4,000 Rabin, Jeffrey 50,000 Rachenbach, Jack L 3,500 Rauseo, Mark 2,500 Rehcam Investments, LP 4,500 Rehcam Investments, NV 4,500 Reiff, Geraldine ttee, Carol Reiff Gottlieb Co-ttee f/b/o Geraldine Reiff UAD 1/2/91 5,000 Rice, Howard T. Revocable Trust 3/10/76 Howard T. Rice TTEE 3,500 Rice, Irving & Elaine, JTWROS 3,500 Rogoff, Ellen 1,750 Rogoff, Les 7,000 Rosen, Joseph 3,334 Rosen, Kenneth A. 16,666 Rosen, Kenneth A. Pension Plan 20,000 Rosner, Anita 2,500 Sato, Ken 4,500 Schoenbaum, Jeff 10,000 Schnell, David 5,000 Schraub, Howard 10,658 Scinicariello, M 3,500 Serota, Marvin & Marsha 3,500 SGA Trading Corp. 4,000 Shapiro, Allan 10,000 Shotz, Steven & Barbara 3,500 Shrem, Bella 7,000 Sibco Partners 3,500 Silverman, Eugene 7,000 Slovin, Gilbert 438 Slovin, Joel 875 Smolen, Eric 6,000 Sorrentino, Andrew 5,250 Staller, Jerome 15,000 Stanley, Michael 5,000 Strassberg, David 5,000 Tupper, Ronald W. 25,000 Van Brunt, Dwight S 5,000 Ward, Dean 4,250 Wray, Paul & Herron, Diane JTWROS 16,000 Yanni, Louis 2,500 II-4 The following individuals purchased shares at $4.00: Jeffrey I. Binder & Rosalie Binder 250,000 George A. Levin & Gayla Sue Levin 250,000 4. As of November 30, 1994, the Company issued a total of 3,160,000 shares of Common Stock, $.15 par value, to the stockholders set forth in the table below in consideration for the exchange of 100% of the stock of NAL Financial Group Inc., a Florida corporation. Shares of Name Common Stock - ---- ------------ Edward M. Bartolini 50,000 Marcia G. Bartolini and Robert R Bartolini as co-trustees of the Marcia G. Bartolini Revocable Trust dated July 27, 1992 264,022 Robert R. Bartolini and Marcia G Bartolini as co-trustees of the Robert R. Bartolini Revocable Trust dated July 27, 1992 2,212,180 Robert J. Carlson 60,196 George Schnabel as trustee of the Robert R. Bartolini and Marcia G. Bartolini Irrevocable Trust dated July 27, 1992 264,022 John T. Schaeffer 309,580 The issuance of such shares was exempt from registration pursuant to Section 4(2) of the Act, as a transaction by an issuer not involving a public offering. 5. During the period from April 1995 through December 1995, the Company sold $21,325,000 of 9% Convertible Subordinated Debenture Units in a private placement transaction exempt under Section 506 of Regulation D and Section 4(2) of the Act, as a transaction by an issuer not involving a public offering, as set forth below. Each Unit consists of a 9% Convertible Subordinated Debenture and common stock purchase warrants as set forth below. In connection with this transaction, brokerage commissions of $1,229,000 were paid. II-5 Amount of Number of Name Debenture Warrants - ---- --------- --------- American Maple Leaf $1,200,000 120,000 Financial Corporation Gerald Appel $25,000 1,250 Myles Bass $925,000 64,750 $575,000 40,250 S. Beckerman $100,000 4,500 R. Button $100,000 4,500 Capital Growth Investment $50,000 5,000 Trust Centaur Financial Corp. $100,000 10,000 Doug Cox $125,000 5,625 K. Cox $100,000 4,500 Discretionary Investment $900,000 90,000 Trust dated July 7, 1993 Diversified Securities Fund I, L.P. $100,000 5,000 Equity Associates Corp. $50,000 5,000 FAC Enterprises $750,000 75,000 Bruce Ginsburg $250,000 25,000 GRA Investments, Corp. $1,550,000 155,000 Michael Garnick $300,000 12,000 Norton Herrick $1,250,000 87,500 HMA Investments, Inc. $600,000 60,000 Profit Sharing f/b/o Howard Appel Interbanc Mortgage $200,000 9,000 Florence Karp as c/f $750,000 75,000 Penelope Karp, Athena Karp, Justine Karp, and Ulysses Karp Florence Karp $3,000,000 375,000 as c/f Penelope and Athena Karp Provence Holdings $625,000 56,250 Steven B. Rosner $250,000 25,000 Steven B. Rosner $150,000 15,000 Money Purchase Pension Plan Rozel International $1,750,000 175,000 Holdings Limited $1,300,000 58,500 II-6 Martin Solomon $2,000,000 80,000 TGP Associates Limited Partnership $1,000,000 40,000 Westminster Capital, Inc. $1,250,000 87,500 6. During May 1995 and September 1995, the Company issued 190,000 Common Stock purchase Warrants in connection with certain financial advisory services provided, as follows: Name Number of Warrants Date of Grant - ---- ------------------ ------------- American Maple Leaf 33,000 May 4, 1995 Financial Corporation Ernest & Kathy 15,000 May 4, 1995 Bartlett Centaur Financial 33,000 May 4, 1995 Corporation FAC Enterprises, Inc. 50,000 August 28, 1995 25,000 September 14, 1995 34,000 May 4, 1995 7. During August 1995, the Company sold 176,500 shares of Common Stock in an offshore offering at a purchase price of $12.30 per share, for an aggregate purchase price of $2,160,000 as set forth below. In connection with this transaction, brokerage commissions of $70,000 were paid. Name Shares of - ---- Common Stock ------------ Everest Capital Investment, Ltd. 79,295 Everest Capital International, Ltd. 98,205 The issuance of such shares was exempt from registration pursuant to Regulation S promulgated under the Act. II-7 Item 27. Exhibits The following Exhibits are filed as part of this Report: Exhibit No. Description Method of Filing - --- ----------- ---------------- 2.1 Merger Agreement between Incorporated by the shareholders of NAL reference to Exhibit Financial Group Inc., NAL 2.1 to the Registrant's Financial Group Inc., and Form 8-K filed under the Registrant dated the Securities Exchange October 4, 1994 and as Act of 1934 on December 8, amended, November 30, 1994 1994 (the "Form 8- K") 3.1 Certificate of Incorporated by Incorporation of reference to Exhibit Registrant, as amended 3.1 to the Registrant's December 1, 1994 Registration Statement on Form SB-2 filed under the Securities Act of 1933 on January 31, 1995, Registration No. 33-88966 (the "Registration Statement") 3.2 By-laws of the Registrant Incorporated by as amended as of November reference to Exhibit 30, 1994 3.2 to the Registration Statement 4.1 Copy of Specimen Common Incorporated by Stock Certificate reference to Exhibit 4.1 to the Registration Statement 4.2 Form of 9% Subordinated Incorporated by Convertible Debenture reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form SB-2, Registration No. 33- 97948, filed on October 25, 1995 ("Amendment No. 1 to the October 1995 Registration Statement") II-8 4.3 Form of Common Stock Incorporated by Purchase Warrant reference to Exhibit 4.3 to Amendment No. 1 to the October 1995 Registration Statement. 4.4 Form of Registration Rights Incorporated by Agreement reference to Exhibit 4.4 of Amendment No. 1 to the October 1995 Registration Statement. 5.1 Opinion of Clark, Ladner, Incorporated by Fortenbaugh & Young reference to Exhibit 5.1 to Amendment No. 2 to the Registration Statement on Form SB-2, Registration No. 33- 97948, filed on December 4, 1995 9.1 Voting Trust Agreement by Incorporated by and among English, reference to Exhibit McCaughan & O'Bryan, P.A., 2.2 to the Form 8-K John T. Schaeffer, Robert J. Carlson and The Robert R. Bartolini Trust, dated November 30, 1994 10.1 Shareholders' Agreement by Incorporated by and among Robert J. reference to Exhibit Carlson, John T. Schaeffer, 2.3 to the Form 8-K The Robert R. Bartolini Trust, The Marcia G. Barto- lini Trust, The Schnabel Trust, Jeffrey Binder and George Levin 10.2 Loan and Security Agreement Incorporated by between Congress Financial reference to Exhibit Corporation and the 10.2 to the Registrant dated March 16, Registration Statement 1993 10.3 Program Agreement between Incorporated by NAL Acceptance Corporation reference to Exhibit and General Electric 10.3 to the Capital Auto Lease, Inc. Registrant's dated July 1, 1995 Registration Statement on Form SB-2 filed under the Securities Act of 1933 on October 10, 1995, Registration No. 33-97948 (the "October 1995 Registration Statement") II-9 10.4 Amended and Restated Loan Incorporated by and Security Agreement reference to Exhibit between General Electric 10.4 to the Capital Corporation and NAL Registration Statement Acceptance Corporation dated September 28, 1994 10.5 Loan Purchase Agreement Incorporated by between Fairfax Savings reference to Exhibit Bank and the Registrant 10.5 to the dated October 6, 1994 Registration Statement 10.6 Participation Agreement Incorporated by between Fairfax Savings, reference to Exhibit FSB and NAL Acceptance 10.6 to the Corporation dated December Registration Statement 14, 1993 10.7 Employment Agreement by and Incorporated by between the Registrant and reference to Exhibit Robert R. Bartolini dated 10.7 to Amendment No. 1 November 30, 1994 to the Registration Statement filed April 12, 1995 ("Amendment No. 1") 10.8 Lease Agreement by and Incorporated by between NAL Acceptance reference to Exhibit Corporation and The 10.8 to Amendment No. 1 Northwestern Mutual Life Insurance Company dated October 2, 1991, as modified by Lease Modification Agreement #1 dated February 18, 1994 and Lease Modification Agreement #2 dated January 20, 1995 10.9 Lease Agreement by and Incorporated by between NAL Acceptance reference to Exhibit Corporation and The 10.9 to Amendment No. 1 Northwestern Mutual Life Insurance Company dated June 7, 1994 as modified by Lease Modification Agreement #1 dated June 28, 1994, Lease Modification Agreement #2 dated December 1, 1994 and Lease Modification Agreement #3 dated January 20, 1995 II-10 10.10 Modification Agreement # 4 Incorporated by dated July 1, 1995 to Lease reference to Exhibit Agreement by and between 10.10 to the October NAL Acceptance Corporation 1995 Registration and the Northwestern Mutual Statement Life Insurance Company dated June 7, 1994. 10.11 Sublease Agreement by and Incorporated by between NAL Acceptance reference to Exhibit Corporation and FTM 10.10 to Amendment No. 1 Holdings, Inc. dated March 30, 1994 10.12 Sublease Agreement by and Incorporated by between the Registrant and reference to Exhibit FTM Holdings, Inc. dated 10.11 to Amendment February 1, 1995 No. 1 10.13 Master Repurchase Agreement Incorporated by between Greenwich Capital reference to Exhibit Financial Products, Inc. 10.13 to the October and Autorics, Inc. dated 1995 Registration September 5, 1995 Statement 10.14 Option to Purchase Assets Incorporated by of Special Finance, Inc. reference to Exhibit dated August 1, 1995 10.14 to the October 1995 Registration Statement 10.15 Receivables Purchase Filed herewith Agreement among NAL Acceptance Corporation, Autorics II, Inc. and Autorics, Inc. dated December 1, 1995 II-11 10.16 Sale and Servicing Filed herewith Agreement among NAL Auto Trust 1995-1 and Autorics II, Inc., NAL Acceptance Corporation and Bankers Trust Company dated December 1, 1995 10.17 Indenture between NAL Auto Filed herewith Trust 1995-1 and Bankers Trust Company dated December 1, 1995 10.18 Administration Agreement Filed herewith among NAL Auto Trust 1995- 1, NAL Acceptance Corporation, and Bankers Trust Company dated December 1, 1995 10.19 Trust Agreement between Filed herewith Autorics II, Inc. and Wilmington Trust dated December 1, 1995 10.20 Certificate Purchase Filed herewith Agreement between Autorics II, Inc. and NAL Acceptance Corporation dated December 20, 1995 10.21 Note Purchase Agreement Filed herewith between Autorics II, Inc. and NAL Acceptance Corporation dated December 20, 1995 21 Subsidiaries of the Filed herewith Registrant 23.1 Consent of Clark, Ladner, Filed under Exhibit 5.1 Fortenbaugh & Young 23.2 Consent of Price Waterhouse Filed herewith LLP Item 28. Undertakings The undersigned registrant hereby undertakes: II-12 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to: (i) include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended; (ii) reflect in the prospectus any facts or events arising after the effective date of the registration statement; and (iii) include any additional or changed material information on the plan of distribution. 2. For the purpose of determining liability under the Securities Act of 1933, as amended, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To file a post-effective amendment to remove from registration any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in a successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-13 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Post-Effective Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, in the City of Fort Lauderdale, State of Florida on January 28, 1996. NAL FINANCIAL GROUP INC. BY: /s/ Robert R. Bartolini _____________________________ Robert R. Bartolini Chairman of the Board, President and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 1 to the Registration Statement was signed by the following persons in the capacities and on the dates stated. Signature Title Date --------- ----- ---- s/ Robert R. Bartolini Chairman, President January 28,1996 ------------------- Robert R. Bartolini and Chief Executive Officer (*) ___________________ John T. Schaeffer Director January 28,1996 (*) ___________________ Robert J. Carlson Vice-President- January 28,1996 Finance, Principal Accounting Officer (*) ___________________ Andrew P. Panzo Director January 28,1996 (*) ___________________ Abraham Bernstein Director January 28,1996 /s/Robert R. Bartolini, Attorney-in-Fact ----------------------------------------- Robert R. Bartolini, Attorney-in-Fact =============================================================================== Registration No. 33-97948 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- EXHIBITS Filed with Post-Effective Amendment No. 1 To Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------------- NAL FINANCIAL GROUP INC. (Exact name of registrant as specified in its charter) =============================================================================== EXHIBIT INDEX Exhibit No. Description Page 10.15 Receivables Purchase Agreement among NAL Acceptance Corporation, Autorics II, Inc. and Autorics, Inc. dated December 1, 1995 10.16 Sale and Servicing Agreement among NAL Auto Trust 1995-1 and Autorics II, Inc., NAL Acceptance Corporation and Bankers Trust Company dated December 1, 1995 10.17 Indenture between NAL Auto Trust 1995-1 and Bankers Trust Company dated December 1, 1995 10.18 Administration Agreement among NAL Auto Trust 1995-1, NAL Acceptance Corporation, and Bankers Trust Company dated December 1, 1995 10.19 Trust Agreement between Autorics II, Inc. and Wilmington Trust dated December 1, 1995 10.20 Certificate Purchase Agreement between Autorics II, Inc. and NAL Acceptance Corporation dated December 20, 1995 10.21 Note Purchase Agreement between Autorics II, Inc. and NAL Acceptance Corporation dated December 20, 1995 21 Subsidiaries of the Registrant 23.2 Consent of Price Waterhouse LLP EX-10.15 2 PURCHASE AGREEMENT EXECUTION COPY RECEIVABLES PURCHASE AGREEMENT dated as of December 1, 1995, among NAL ACCEPTANCE CORPORATION, a Florida corporation ("NAL"), AUTORICS, INC., a Delaware Corporation (the "Seller"), and AUTORICS II, INC., a Delaware corporation (the "Purchaser"). WHEREAS in the regular course of its business, the Seller has purchased certain motor vehicle retail installment sale contracts secured by new and used automobiles, light-duty trucks and vans from NAL which, in turn purchased such contracts from motor vehicle dealers and 3 others; and WHEREAS the Purchaser wishes to purchase the Receivables (as hereinafter defined) and to transfer the Receivables to NAL Auto Trust 1995-1 (the "Trust"), which will issue the 6.65% Asset Backed Notes, Class A-1 and 7.70% Asset Backed Notes, Class A-2 (collectively, the "Notes"), payment of which will be secured by the Receivables, and the 14.25% Asset Backed Certificates representing fractional undivided interests in the property of the Trust including the Receivables, subject to the rights of the Indenture Trustee on behalf of the Noteholders; WHEREAS the Seller and Purchaser are wholly owned subsidiaries of NAL and NAL wishes to facilitate the transfer of the Receivables and, to that end, has agreed to make certain representations and warranties relating to the Receivables and to pay certain expenses and amounts with respect hereto; and WHEREAS NAL, the Seller and the Purchaser wish to set forth the terms pursuant to which the Seller will sell the Receivables to the Purchaser; NOW, THEREFORE, in consideration of the foregoing, other good and valuable consideration and the mutual terms and covenants contained herein, the parties hereto agree as follows: ARTICLE I Certain Definitions Terms not defined in this Agreement shall have the meaning set forth in the Sale and Servicing Agreement or the Indenture, as applicable. As used in this Agreement, the following terms shall, unless the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms of the terms defined): "Agreement" shall mean this Receivables Purchase Agreement, as the same may be amended and supplemented from time to time. "Assignment" shall mean the document of assignment substantially in the form of Exhibit A. "Certificates" shall mean the Trust Certificates (as defined in the Trust Agreement). "Certificateholders" shall mean the holders of Certificates. "Closing Date" shall mean December 21, 1995. "Collections" shall mean all amounts collected by the Servicer (from whatever source) on or with respect to the Receivables. "Cutoff Date" means December 1, 1995. "Indenture" shall mean the Indenture dated as of December 1, 1995 between the Trust and Bankers Trust Company, as trustee (the "Indenture Trustee"), as the same may be amended and supplemented from time to time. "NAL" shall mean NAL Acceptance Corporation, a Florida corporation, its successors and assigns. "Noteholders" shall mean the holders of the Notes. "Private Placement Memorandum" shall mean the Private Placement Memorandum dated December 21, 1995, relating to the Notes and the Certificates. "Purchaser" shall mean AUTORICS II, Inc., a Delaware corporation, its successors and assigns. "Receivable" shall mean any Contract listed on Schedule I hereto (which Schedule may be in the form of microfiche). "Repurchase Event" shall have the meaning specified in Section 6.02. "Sale and Servicing Agreement" shall mean the Sale and Servicing Agreement dated as of December 1, 1995, among the Trust, the Purchaser, Bankers Trust Company, as Back- up Servicer, and the Seller, as the same may be amended and supplemented from time to time. "Schedule of Receivables" shall mean the list of Receivables annexed hereto as Schedule I. "Seller" shall mean Autorics, Inc., a Delaware corporation, its successors and assigns. "Trust Agreement" shall mean the Trust Agreement dated as of December 1, 1995, between the Purchaser and Wilmington Trust Company, as the owner trustee (the "Owner Trustee"), as the same may be amended and supplemented from time to time. ARTICLE II Conveyance of Receivables SECTION 2.01. Conveyance of Receivables. In consideration of the Purchaser's delivery to or upon the order of the Seller of $39,677,272.41, the Seller does hereby sell, transfer, assign, set over and otherwise convey to the Purchaser, without recourse (subject to the obligations of the Seller and NAL herein), all right, title and interest of the Seller in and to (but none of the obligations of the Seller with respect to): 2 (a) the Receivables, and all moneys received thereon on and after the Cutoff Date plus all Payaheads as of the Cutoff Date; (b) the security interests in the Financed Vehicles granted by Obligors pursuant to the Receivables, any other right to realize upon property securing a Receivable and any other interest of the Seller in such Financed Vehicles including the Seller's right, title and interest in the lien on the Financed Vehicles in the name of Autorics, Inc. or the Seller's agent, NAL or SFI; (c) any proceeds with respect to the Receivables from claims on any Insurance Policies relating to the Financed Vehicles or Obligors; (d) proceeds of any recourse (but none of the obligations) to Dealers on Receivables; (e) any Financed Vehicle that shall have secured a Receivable and shall have been acquired by or on behalf of the Seller, the Purchaser, or, upon the assignment contemplated by the Sale and Servicing Agreement, the Servicer or the Trust; (f) the Receivables Files; and (g) the proceeds of any and all of the foregoing. SECTION 2.02. The Closing. The sale and purchase of the Receivables shall take place at a closing (the "Closing") at the offices of Brown & Wood, One World Trade Center, New York, New York 10048 on the Closing Date, simultaneously with the closings under (a) the Sale and Servicing Agreement and (b) the Indenture. ARTICLE III Representations and Warranties SECTION 3.01. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Seller as of the Closing Date: (a) Organization and Good Standing. The Purchaser has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with the power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted, and had at all relevant times, and has, the power, authority and legal right to acquire and own the Receivables. (b) Due Qualification. The Purchaser is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of its property or the conduct of its business shall require such qualifications. (c) Power and Authority. The Purchaser has the power and authority to execute and deliver this Agreement and to carry out its terms, and the execution, delivery and 3 performance of this Agreement has been duly authorized by the Purchaser by all necessary corporate action. (d) No Violation. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the certificate of incorporation or bylaws of the Purchaser, or any indenture, agreement or other instrument to which the Purchaser is a party or by which it is bound; or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than the Sale and Servicing Agreement, the Indenture and the Trust Agreement); or violate any law or, to the best of the Purchaser's knowledge, any order, rule or regulation applicable to the Purchaser of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Purchaser or its properties. (e) No Proceedings. There are no proceedings or investigations pending or, to the Purchaser's best knowledge, threatened, before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Purchaser or its properties: (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that might materially and adversely affect the performance by the Purchaser of its obligations under, or the validity or enforceability of, this Agreement. SECTION 3.02. Representations and Warranties of the Seller and NAL. (a) The Seller hereby represents and warrants to the Purchaser as of the Closing Date: (i) Organization and Good Standing. The Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with the power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted, and had at all relevant times, and has, the power, authority and legal right to acquire and own the Receivables. (ii) Due Qualification. The Seller is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of its property or the conduct of its business shall require such qualifications. (iii) Power and Authority. The Seller has the power and authority to execute and deliver this Agreement and to carry out its terms; the Seller has full power and authority to sell and assign the property sold and assigned to the Purchaser hereby and has duly authorized such sale and assignment to the Purchaser by all necessary corporate action; and the execution, delivery and performance of this Agreement has been duly authorized by the Seller by all necessary corporate action. (iv) No Violation. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof shall not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or bylaws of the Seller, or any indenture, agreement or other instrument to which the Seller is a party or by which it is bound; or result in the creation or imposition of any Lien upon any of its 4 properties pursuant to the terms of any such indenture, agreement or other instrument (other than this Agreement); or violate any law or, to the best of the Seller's knowledge, any order, rule or regulation applicable to the Seller of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or its properties. (v) No Proceedings. There are no proceedings or investigations pending or, to the Seller's best knowledge, threatened before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or its properties: (A) asserting the invalidity of this Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (C) seeking any determination or ruling that might materially and adversely affect the performance by the Seller of its obligations under or the validity or enforceability of, this Agreement. (vi) Principal Place of Business. The principal place of business and chief executive office of the Seller are located at the place set forth in Section 6.08(a) and such location has not changed since the date the Seller was incorporated. (vii) Use of Names. The legal name of the Seller is the name used by it in this Agreement and the Seller has not changed its name since the date of its incorporation and does not have trade names, fictitious names, assumed names or "doing business" names. (viii) Solvency. The Seller is solvent and will not become insolvent after giving effect to the transactions contemplated in this Agreement; the Seller is paying its debts, if any, as they become due; the Seller, after giving effect to the transactions contemplated in this Agreement, will have adequate capital to conduct its business. (b) NAL hereby represents and warrants to the Purchaser as of the Closing Date: (i) Organization and Good Standing. NAL has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Florida, with the power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted, and had at all relevant times, and has, the power, authority and legal right to acquire and own the Receivables. (ii) Due Qualification. NAL is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of its property or the conduct of its business shall require such qualifications. (iii) Power and Authority. NAL has the power and authority to execute and deliver this Agreement and to carry out its terms; NAL has full power and authority to perform its obligations under this Agreement; and the execution, delivery and performance of this Agreement has been duly authorized by NAL by all necessary corporate action. (iv) No Violation. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof shall not conflict with, result in 5 any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or bylaws of NAL, or any indenture, agreement or other instrument to which NAL is a party or by which it is bound; or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than this Agreement); or violate any law or, to the best of NAL's knowledge, any order, rule or regulation applicable to NAL of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over NAL or its properties. (v) No Proceedings. There are no proceedings or investigations pending or, to NAL's best knowledge, threatened before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over NAL or its properties: (A) asserting the invalidity of this Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (C) seeking any determination or ruling that might materially and adversely affect the performance by NAL of its obligations under or the validity or enforceability of, this Agreement. (c) NAL makes the following representations and warranties in respect of the Receivables, on which the Purchaser relies in accepting the Receivables. Such representations and warranties speak as of the execution and delivery of this Agreement, but shall survive the sale, transfer and assignment of the Receivables to the Purchaser and the subsequent sale, assignment and transfer of the Receivables pursuant to the Sale and Servicing Agreement and the Grant thereof pursuant to the Indenture: (i) Characteristics of Receivables. Each Receivable (A) was originated in the United States of America by a Dealer for the retail sale of a Financed Vehicle in the ordinary course of such Dealer's business, was fully and properly executed by the parties thereto, was purchased by NAL from such Dealer under an existing dealer agreement, and was validly assigned by such Dealer to NAL in accordance with the terms of such dealer agreement and from NAL to the Seller pursuant to the Contract Purchase Agreement dated September 5, 1995 between NAL and the Seller, (B) has created a valid, subsisting and enforceable first priority security interest in favor of the Seller in the Financed Vehicle, which security interest is assignable by the Seller to the Purchaser, by the Purchaser to the Trust and by the Trust to the Indenture Trustee, (C) contains customary and enforceable provisions such that the rights and remedies of the holder thereof are adequate for realization against the collateral of the benefits of the security, (D) provides for level monthly payments (provided that the payment in the first or last month in the life of the Receivable may be different from the level payments) that fully amortize the Amount Financed by maturity and yield interest at the Annual Percentage Rate, and (E) provides, in the event that such contract is prepaid, for a prepayment that fully pays the Principal Balance of the Receivable and includes a full month's interest in the month of prepayment at the Annual Percentage Rate. (ii) Schedule of Receivables. The information set forth in Schedule I to this Agreement is true and correct in all material respects as of the opening of business on the Cutoff Date, and no selection procedures believed to be adverse to the Noteholders or the Certificateholders were utilized in selecting the Receivables. The computer tape 6 regarding the Receivables made available to the Purchaser and its assigns is true and correct in all respects. (iii) Compliance with Law. Each Receivable and the sale of the related Financed Vehicle complied at the time it was originated or made, and at the execution of this Agreement complies, in all material respects with all requirements of applicable federal, state and local laws and regulations thereunder, including usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and S and state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code, and other consumer credit laws and equal credit opportunity and disclosure laws. (iv) Binding Obligation. Each Receivable represents the genuine, legal, valid and binding payment obligation in writing of the Obligor, enforceable by the holder thereof in accordance with its terms. (v) No Government Obligor. None of the Receivables is due from the United States of America or any state or from any agency, department or instrumentality of the United States of America or any state. (vi) Security Interest in Financed Vehicle. Immediately prior to the sale, assignment and transfer thereof, each Receivable shall be secured by a validly perfected first security interest in the Financed Vehicle in favor of the Seller as secured party or all necessary and appropriate actions have been commenced that would result in the perfection of a first security interest in the Financed Vehicle in favor of the Seller as secured party. (vii) Receivables in Force. No Receivable has been satisfied, subordinated or rescinded, nor has any Financed Vehicle been released from the lien granted by the related Receivable in whole or in part. (viii) No Waiver. No provision of a Receivable has been waived except by a writing constituting an amendment to the applicable Contract. (ix) No Amendments. No Receivable has been amended such that the amount of the Obligor's scheduled payments has been increased. (x) No Defenses. No right of rescission, setoff, counterclaim or defense has been asserted or threatened with respect to any Receivable. (xi) No Liens. To the best of the Seller's knowledge, no liens or claims have been filed for work, labor or materials relating to a Financed Vehicle that are liens prior to, or equal or coordinate with, the security interest in the Financed Vehicle created by any Receivable. (xii) No Default. No Receivable has a payment that is more than 59 days overdue as of the Cutoff Date and no default, breach, violation or event permitting acceleration under the terms of any Receivable has occurred; no continuing condition that with notice or the lapse of time would constitute a default, breach, violation or 7 event permitting acceleration under the terms of any Receivable has arisen; and the Seller has not waived any of its rights regarding the occurrence of any of the foregoing. (xiii) Insurance. The Seller, in accordance with its customary procedures, has determined that each Obligor has obtained physical damage insurance covering the Financed Vehicle and under the terms of the Receivable the Obligor is required to maintain such insurance. (xiv) Title. It is the intention of the parties hereto that the transfer and assignment herein contemplated constitute a sale of the Receivables from the Seller to the Purchaser, and that the beneficial interest in and title to the Receivables not be part of the debtor's estate in the event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy law. Immediately prior to the transfer and assignment herein contemplated, the Seller had good and marketable title to each Receivable free and clear of all Liens and, immediately upon the transfer thereof, the Purchaser shall have good and marketable title to each Receivable, free and clear of all Liens; and the transfer has been perfected under the UCC. (xv) Lawful Assignment. No Receivable was originated in, or is subject to the laws of, any jurisdiction under which the sale, transfer and assignment of such Receivable or any Receivable under this Agreement, the Sale and Servicing Agreement or the Indenture is unlawful, void or voidable. (xvi) All Filings Made. All filings (including UCC filings) necessary in any jurisdiction to give the Purchaser a first perfected ownership interest in the Receivables have been made. (xvii) One Original. There is only one executed original of each Receivable. (xviii) Maturity of Receivables. Each Receivable has an original maturity of not more than 60 months; the weighted average remaining term of the Receivables is 50.98 months as of the Cutoff Date. (xix) Scheduled Payments. (A) Each Receivable has a first Scheduled Payment due, in the case of Precomputed Receivables, or a scheduled due date, in the case of Simple Interest Receivables, on or prior to January 6, 1996, and (B) no Receivable has a final scheduled payment date later than the Final Scheduled Maturity Date. (xx) Location of Receivable Files. The Receivable Files are kept at one or more of the locations listed in Schedule II hereto. (xxi) Outstanding Principal Balance. The Amount Financed pursuant to each Receivable is at least $1,000. (xxii) Financing. Approximately 56.18% of the aggregate principal balance of the Receivables, constituting 64.42% of the number of Receivables as of the Cutoff Date, represent financing of used vehicles; the remainder of the Receivables represent financing of new vehicles; approximately 75.14% of the aggregate principal balance of the Receivables as of the Cut-off Date represent Precomputed Receivables; and the 8 remainder of the Receivables represent Simple Interest Receivables. The aggregate Principal Balance of the Receivables as of the Cutoff Date is $40,135,897.86. (xxiii) No Bankruptcies. As of the Cutoff Date, no Obligor on any Receivable was noted in the related Receivable File as having filed for bankruptcy. (xxiv) No Repossessions. No Financed Vehicle securing any Receivable is in repossession status. (xxv) Chattel Paper. Each Receivable constitutes "chattel paper" as defined in the UCC. (xxvi) Underwriting Guidelines. Each Receivable was originated by the Dealer and purchased by NAL in accordance with the underwriting guidelines described in the Private Placement Memorandum. (xxvii) Servicing. As of the Cutoff Date each Receivable was being serviced by the Servicer and no other person had a right to service such Receivable. (xxviii) Full Amount Advanced. The full principal amount of each Receivable has been advanced to each Obligor, and there is no requirement for future advances thereunder. The Obligor with respect to the Receivable does not have any option under the Receivables to borrow from any person additional funds secured by the Financed Vehicle. (xxix) Obligation to Dealers or Others. The Purchaser and its assignees will assume no obligations to Dealers or other originators of prior holders of the Receivables (including, but not limited to obligations under dealer reserves) as a result of its purchase of the Receivables. (xxx) Collection Practices. The Collection practices utilized by any person servicing a Receivable in seeking payment under the documentation evidencing such Receivable have been in all respects legal, proper and customary in the automobile loan servicing business. (xxxi) First Payment. The first payment on each Receivable with respect to which the first payment was not yet due as of the Cutoff Date will be made in full no later than the 45th day after its due date. (xxxii) Private Placement Memorandum. The Private Placement Memorandum does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. (xxxiii) Subsequent Transfer. The representations and warranties of the Depositor in Section 3.01 of the Sale and Servicing Agreement are true and correct. 9 ARTICLE IV Conditions SECTION 4.01. Conditions to Obligation of the Purchaser. The obligation of the Purchaser to purchase the Receivables is subject to the satisfaction of the following conditions: (a) Representations and Warranties True. The representations and warranties of the Seller and NAL hereunder shall be true and correct on the Closing Date with the same effect as if then made, and each of the Seller and NAL shall have performed all obligations to be performed by it hereunder on or prior to the Closing Date. (b) Computer Files Marked. The Seller shall, at its own expense, on or prior to the Closing Date indicate in its computer files that the Receivables have been sold to the Purchaser pursuant to this Agreement, and deliver to the Purchaser the Schedule of Receivables certified by the Chairman, the President, a Vice President or the Treasurer to be true, correct and complete. (c) Documents To Be Delivered by the Seller at the Closing. (i) The Assignment. At the Closing, the Seller will execute and deliver an Assignment substantially in the form of Exhibit A hereto. (ii) Evidence of UCC Filing. On or prior to the Closing Date, the Seller shall record and file, at its own expense, a UCC-1 financing statement in each jurisdiction in which required by applicable law, executed by the Seller, as seller or debtor, and naming the Purchaser as purchaser or secured party, describing the Receivables and the other property included in the Owner Trust Estate, meeting the requirements of the laws of each such jurisdiction and in such manner as is necessary to perfect the sale, transfer, assignment and conveyance of such Receivables to the Purchaser. The Seller shall deliver a file-stamped copy or other evidence satisfactory to the Purchaser of such filing to the Purchaser on or prior to the Closing Date. (iii) Other Documents. Such other documents as the Purchaser may reasonably request. (d) Other Transactions. The transactions contemplated by the Sale and Servicing Agreement, the Indenture and the Trust Agreement to be consummated on the Closing Date shall be consummated on such date. SECTION 4.02. Conditions to Obligation of the Seller. The obligation of the Seller to sell the Receivables to the Purchaser is subject to the satisfaction of the following conditions: (a) Representations and Warranties True. The representations and warranties of the Purchaser hereunder shall be true and correct on the Closing Date with the same effect as if then made, and the Seller shall have performed all obligations to be performed by it hereunder on or prior to the Closing Date. 10 (b) Receivables Purchase Price. On the Closing Date, the Purchaser shall have delivered to the Seller the purchase price specified in Section 2.01. ARTICLE V Covenants of the Seller and NAL The Seller and NAL agree with the Purchaser as follows: SECTION 5.01. Protection of Right, Title and Interest. (a) Filings. NAL and the Seller shall cause all financing statements and continuation statements and any other necessary documents covering the right, title and interest of the Seller and the Purchaser, respectively, in and to the Receivables and the other property included in the Owner Trust Estate to be promptly filed and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Purchaser hereunder in and to the Receivables and the other property included in the Owner Trust Estate. NAL and the Seller shall deliver to the Purchaser file stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recordation, registration or filing. The Purchaser shall cooperate fully with NAL and the Seller (and the Seller will cooperate with NAL) in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this paragraph. (b) Name Change. Within 15 days after the Seller makes any change in its name, identity or corporate structure that would make any financing statement or continuation statement filed in accordance with paragraph (a) above seriously misleading within the applicable provisions of the UCC or any title statute, the Seller shall give the Purchaser notice of any such change and, no later than 5 days after the effective date thereof, shall file such financing statements or amendments as may be necessary to continue the perfection of the Purchaser's interest in the property included in the Owner Trust Estate. (c) Resolution. The Seller shall have an obligation to give the Purchaser at least 60 days' prior written notice of any relocation of its principal executive office if, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall promptly file any such amendment or new financing statement. The Servicer shall at all times maintain each office from which it shall service Receivables, and its principal executive office, within the United States of America. (d) Notice. If at any time the Seller shall propose to sell, grant a security interest in, or otherwise transfer any interest in automotive receivables to any prospective purchaser, lender or other transferee, the Seller shall give to such prospective purchaser, lender or other transferee computer tapes, records or printouts (including any restored from backup archives) that, if they shall refer in any manner whatsoever to any Receivable, shall indicate clearly that such Receivable has been sold and is owned by the Purchaser. Should any third party inquire of the Seller as to the Receivables, the Seller will promptly indicate to such party that the Receivables have been sold to the Purchaser pursuant to this Agreement. SECTION 5.02. Other Liens or Interests. Except for the conveyances hereunder and under the Sale and Servicing Agreement, the Indenture, the Trust Agreement and the 11 other Basic Documents, the Seller will not sell, pledge, assign or transfer to any Person, or grant, create, incur, assume or suffer to exist any Lien on, or any interest in, to or under the Receivables, and the Seller shall defend the right, title and interest of the Purchaser in, to and under the Receivables against all claims of third parties claiming through or under the Seller; provided, however, that the Seller's obligations under this Section shall terminate upon the termination of the Trust pursuant to the Trust Agreement. SECTION 5.03. Costs and Expenses. NAL agrees to pay all reasonable costs and disbursements in connection with the perfection, as against all third parties, of the Purchaser's right, title and interest in and to the Receivables. SECTION 5.04. Indemnification. NAL shall indemnify the Purchaser for any liability resulting from the failure of a Receivable to be originated in compliance with all requirements of law and for any breach of any of its or the Seller's representations and warranties contained herein and for any failure by the Seller to comply with its obligations under Sections 5.01 and 5.02 hereof. These indemnity obligations shall be in addition to any obligation that NAL or the Seller may otherwise have. ARTICLE VI Miscellaneous Provisions SECTION 6.01. Obligations of Seller and NAL. The obligations of the Seller and NAL under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable. SECTION 6.02. Repurchase Events. NAL hereby covenants and agrees with the Purchaser for the benefit of the Purchaser, the Trust, the Indenture Trustee, the Noteholders, the Owner Trustee, and the Certificateholders that the occurrence of a breach of any of the NAL's representations and warranties contained in Section 3.02(c), unless any such breach shall have been cured by the last day of the Collection Period following the discovery thereof by NAL, or receipt by NAL of written notice from the Owner Trustee, the Indenture Trustee, the Depositor, the Servicer, or the Back-up Servicer, shall constitute an event obligating NAL to purchase as of such last day any Receivable hereunder with respect to which such breach occurred if such breach has had a material and adverse effect on the interests of the Purchaser or the Trust in and to such Receivable (each, a "Repurchase Event"), at the Purchase Amount from the Purchaser or, upon the assignment contemplated by the Sale and Servicing Agreement, from the Trust. The repurchase obligation of NAL shall constitute the sole remedy (other than that provided by Section 5.04) of the Purchaser, the Trust, the Indenture Trustee, the Noteholders, the Owner Trustee or the Certificateholders against NAL with respect to any Repurchase Event. SECTION 6.03. Purchaser Assignment of Repurchased Receivables. With respect to all Receivables purchased by NAL pursuant to this Agreement, the Purchaser shall assign, without recourse, representation or warranty, to NAL all the Purchaser's right, title and interest in and to such Receivables and all security and documents relating thereto. SECTION 6.04. The Trust. The Seller and NAL acknowledge and agree that (a) the Purchaser will, pursuant to the Sale and Servicing Agreement, sell the Receivables to the Trust and assign its rights under this Agreement to the Trust, (b) the Trust will, pursuant 12 to the Indenture, Grant the Receivables and its rights under this Agreement and the Sale and Servicing Agreement to the Indenture Trustee on behalf of the Noteholders and (c) the representations and warranties contained in this Agreement and the rights of the Purchaser under this Agreement, including under Section 6.02 are intended to benefit the Trust, the Certificateholders and the Noteholders. The Seller and NAL hereby consent to all such sales and assignments and agree that the Owner Trustee or, if pursuant to the Indenture, the Indenture Trustee may exercise the rights of the Purchaser and enforce the obligations of the Seller and NAL hereunder directly and without the consent of the Purchaser. SECTION 6.05. Amendment. This Agreement may be amended from time to time, with prior written notice to each Rating Agency, by a written amendment duly executed and delivered by NAL, the Seller and the Purchaser, to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to add any other provision with respect to matters or questions arising under this Agreement which shall not be inconsistent with the provisions of this Agreement or the Sale and Servicing Agreement, the Trust Agreement or the Indenture; provided that such amendment shall not, in the Opinion of Counsel satisfactory to the Owner Trustee and the Indenture Trustee, materially and adversely affect the interest of any Noteholder or Certificateholder in the Trust or the Receivables. This Agreement may also be amended by NAL, the Seller and the Purchaser, with prior written notice to each Rating Agency, with the consent of the holders of Notes evidencing at least a majority of the Outstanding Amount of the Notes and the holders of Certificates evidencing at least a majority of the Certificate Balance for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders or the Certificateholders in the Trust or Receivables; provided, however, that no such amendment may (i) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on Receivables or distributions that are required to be made for the benefit of Noteholders or Certificateholders or (ii) reduce the aforesaid percentage of the Notes and Certificates that is required to consent to any such amendment, without the consent of the holders of all the outstanding Notes and Certificates. SECTION 6.06. Accountants' Letters. (a) Price Waterhouse LLP will review the characteristics of the Receivables and will compare those characteristics to the information with respect to the Receivables contained in the Private Placement Memorandum; (b) the Seller will cooperate with the Purchaser and Price Waterhouse LLP in making available all information and taking all steps reasonably necessary to permit such accountants to complete the review set forth in clause (a) above and to deliver the letters required of them under the Private Placement Memorandum; (c) Price Waterhouse LLP will deliver to the Purchaser a letter, dated the date of the Private Placement Memorandum, in the form previously agreed to by the Seller and the Purchaser, with respect to the financial and statistical information contained in the Private Placement Memorandum and with respect to such other information as may be agreed in the form of letter. SECTION 6.07. Waivers. No failure or delay on the part of the Purchaser, or any assignee of the Purchaser, in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy. SECTION 6.08. Notices. All demands, notices and communications under this Agreement shall be in writing, personally delivered or mailed by certified mail, return receipt 13 requested, or recognized overnight courier or by facsimile confirmed by delivery or mail as described above, and shall be deemed to have been duly given upon receipt (a) in the case of the Seller, to AUTORICS, 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309, Telephone: 305-938-8200; Fax: 305-938-8209, Attention: Dennis LaVigne; (b) in the case of the Purchaser, to AUTORICS II, Inc., 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309, Telephone: 305-938-8200; Fax: 305-938-8209, Attention: Dennis LaVigne; (c) in the case of NAL, to NAL ACCEPTANCE CORPORATION, 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309, Telephone: 305-938-8200; Fax: 305- 938-8209, Attention: Dennis LaVigne; and (d) in the case of each Rating Agency, to Duff & Phelps Credit Rating Co., 55 East Monroe Street, Chicago, Ill. 60603; Tel: 312-263-2610; Fax: 312-263-2852; Attn: Asset-Backed Research and Monitoring and to Fitch Investors Service, Inc., One State Street Plaza, 32nd Floor, New York, N.Y. 10004 Tel: (212) 908- 0637; Fax: (212) 480-4438; Attn: Michael N. Babick; or as to each of the foregoing, at such other address as shall be designated by written notice to the other parties. SECTION 6.09. Costs and Expenses. The Seller shall pay all expenses incident to the performance of its obligations under this Agreement and NAL agrees to pay all reasonable out-of-pocket costs and expenses of the Purchaser, excluding fees and expenses of counsel, in connection with the perfection as against third parties of the Purchaser's right, title and interest in and to the Receivables and the enforcement of any obligation of the Seller hereunder. SECTION 6.10. Representations of the Seller and the Purchaser. The respective agreements, representations, warranties and other statements by NAL, the Seller and the Purchaser set forth in or made pursuant to this Agreement shall remain in full force and effect and will survive the sales and assignments referred to in Section 6.04. SECTION 6.11. Confidential Information. The Purchaser agrees that it will neither use nor disclose to any Person the names and addresses of the Obligors, except in connection with the enforcement of the Purchaser's rights hereunder, under the Receivables, under the Sale and Servicing Agreement, the Indenture, the Trust Agreement or any other Basic Document or as required by any of the foregoing or by law. SECTION 6.12. Headings and Cross-References. The various headings in this Agreement are included for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. References in this Agreement to Section names or numbers are to such Sections of this Agreement. SECTION 6.13. GOVERNING LAW. THIS AGREEMENT AND THE ASSIGNMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER OR THEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 6.14. Counterparts. This Agreement may be executed in two or more counterparts and by different parties on separate counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers duly authorized as of the date and year first above written. AUTORICS, INC., by _______________________ Name: Title: NAL ACCEPTANCE CORPORATION, by _______________________ Name: Title: AUTORICS II, INC., by _______________________ Name: Title: 15 EXHIBIT A ASSIGNMENT For value received, in accordance with the Receivables Purchase Agreement dated as of December 1, 1995, among AUTORICS, INC. (the "Seller"), NAL ACCEPTANCE CORPORATION and AUTORICS II, INC. (the "Purchaser"), the Seller does hereby sell, assign, transfer and otherwise convey unto the Purchaser, without recourse (subject to the obligations of the Seller and NAL in the Receivables Purchase Agreement), all right, title and interest of the Seller in and to (but none of the obligations of the Seller with respect to) (i) the Receivables and all moneys received thereon on and after the Cutoff Date plus all Payaheads as of the Cutoff Date; (ii) the security interests in the Financed Vehicles granted by the Obligors pursuant to the Receivables, any other right to realize upon property securing a Receivable and any other interest of the Seller in such Financed Vehicles including the Seller's right, title and interest in the lien on the Financed Vehicles in the name of Autorics, Inc. or the Seller's agents NAL or SFI; (iii) any proceeds with respect to Receivables from claims on any Insurance Policies relating to the Financed Vehicles or Obligors; (iv) the proceeds of any recourse (but none of the obligations) to Dealers on Receivables; (v) any Financed Vehicle that shall have secured a Receivable and shall have been acquired by or on behalf of the Purchaser, or, upon the assignment contemplated by the Sale and Servicing Agreement, the Servicer or the Trust; (vi) the Receivables Files; and (vii) the proceeds of any and all of the foregoing. The foregoing sale does not constitute and is not intended to result in any assumption by the Purchaser of any obligation of the undersigned to the Obligors, insurers, Dealers or any other person in connection with the Receivables, Receivable Files, any insurance policies or any agreement or instrument relating to any of them. This Assignment is made pursuant to and upon the representations, warranties and agreements on the part of the undersigned contained in the Receivables Purchase Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Receivables Purchase Agreement. IN WITNESS WHEREOF, the undersigned has caused this Assignment to be duly executed as of December 1, 1995. AUTORICS, INC. by ________________________ Name: Title: A-1 SCHEDULE I Schedule of Receivables [To Be Delivered at Closing] I-1 SCHEDULE I Location of Receivable Files Bankers Trust Company Four Albany Street New York, NY 10006 I-2 EX-10.16 3 SALE AND SERVICING AGREEMENT EXECUTION COPY SALE AND SERVICING AGREEMENT among NAL AUTO TRUST 1995-1, Issuer, and AUTORICS II, INC. Depositor, and NAL ACCEPTANCE CORPORATION, Servicer and BANKERS TRUST COMPANY, Backup Servicer Dated as of December 1, 1995 TABLE OF CONTENTS
Page ARTICLE I Definitions SECTION 1.01. Definitions................................................................................... 1 SECTION 1.02. Other Definitional Provisions................................................................. 12 ARTICLE II Conveyance of Receivables SECTION 2.01. Conveyance of Receivables..................................................................... 12 ARTICLE III The Receivables SECTION 3.01. Representations and Warranties of the Depositor with Respect to the Receivables................................................................................ 13 SECTION 3.02. Repurchase upon Breach........................................................................ 13 SECTION 3.03. Custody of Receivable Files................................................................... 14 ARTICLE IV Administration and Servicing of Receivables SECTION 4.01. Duties of Servicer............................................................................ 15 SECTION 4.02. Collection and Allocation of Receivable Payments.............................................. 15 SECTION 4.03. Realization upon Receivables.................................................................. 15 SECTION 4.04. Insurance..................................................................................... 16 SECTION 4.05. Maintenance of Security Interests in Financed Vehicles........................................ 16 SECTION 4.06. Covenants of Servicer......................................................................... 16 SECTION 4.07. Purchase of Receivables upon Breach........................................................... 16 SECTION 4.08. Servicing Fee................................................................................. 17 SECTION 4.09. Servicer's Certificate........................................................................ 17 SECTION 4.10. Annual Statement as to Compliance; Notice of Default.......................................... 17 SECTION 4.11. Annual Independent Certified Public Accountants' Report....................................... 17 SECTION 4.12. Servicer Expenses............................................................................. 18 SECTION 4.13. Appointment of Subservicer.................................................................... 18 SECTION 4.14. Oversight of Servicing........................................................................ 18 SECTION 4.15. Duties of Backup Servicer..................................................................... 19 ARTICLE V Trust Accounts; Distributions; Reserve Account; Statements to Certificateholders and Noteholders SECTION 5.01. Establishment of Trust Accounts............................................................... 19 SECTION 5.02. Collections................................................................................... 21 SECTION 5.03. Application of Collections.................................................................... 21 SECTION 5.04. Additional Deposits........................................................................... 21 SECTION 5.05. Distributions................................................................................. 21 SECTION 5.06. Reserve Account............................................................................... 22 i SECTION 5.07. Statements to Certificateholders and Noteholders.............................................. 23 SECTION 5.08. Transfer of the Notes......................................................................... 24 SECTION 5.09. Dealer Reserve Account........................................................................ 24 ARTICLE VI The Depositor SECTION 6.01. Representations of Depositor.................................................................. 25 SECTION 6.02. Corporate Existence........................................................................... 26 SECTION 6.03. Liability of Depositor; Indemnities........................................................... 27 SECTION 6.04. Merger or Consolidation of, or Assumption of the Obligations of, Depositor.................................................................................. 27 SECTION 6.05. Limitation on Liability of Depositor and Others............................................... 27 SECTION 6.06. Depositor May Own Certificates or Notes....................................................... 27 SECTION 6.07. Sale of Receivables........................................................................... 28 ARTICLE VII The Servicer; Backup Servicer SECTION 7.01. Representations of Servicer................................................................... 28 SECTION 7.02. Indemnities of Servicer....................................................................... 29 SECTION 7.03. Merger or Consolidation of, or Assumption of the Obligations of, Servicer..................... 30 SECTION 7.04. Limitation on Liability of Servicer and Others................................................ 30 SECTION 7.05. NAL Not To Resign as Servicer................................................................. 31 SECTION 7.06. Representations of Backup Servicer............................................................ 31 SECTION 7.07. Merger or Consolidation of, or Assumption of the Obligations of, Backup Servicer................................................................................... 31 SECTION 7.08. Bankers Trust Not To Resign as Backup Servicer................................................ 32 ARTICLE VIII Default SECTION 8.01. Servicer Default.............................................................................. 32 SECTION 8.02. Appointment of Successor...................................................................... 33 SECTION 8.03. Notification to Noteholders and Certificateholders............................................ 34 SECTION 8.04. Waiver of Past Defaults....................................................................... 34 ARTICLE IX Termination SECTION 9.01. Optional Purchase of All Receivables.......................................................... 34 ARTICLE X Miscellaneous SECTION 10.01. Amendment..................................................................................... 35 SECTION 10.02. Protection of Title to Trust.................................................................. 36 SECTION 10.03. Notices....................................................................................... 37 SECTION 10.04. Assignment by the Depositor or the Servicer................................................... 38 SECTION 10.05. Limitations on Rights of Others............................................................... 38 ii SECTION 10.06. Severability.................................................................................. 38 SECTION 10.07. Separate Counterparts......................................................................... 38 SECTION 10.08. Headings...................................................................................... 38 SECTION 10.09. Governing Law................................................................................. 38 SECTION 10.10. Assignment by Issuer.......................................................................... 38 SECTION 10.11. Nonpetition Covenants......................................................................... 38 SECTION 10.12. Limitation of Liability of Owner Trustee and Indenture Trustee................................ 38 SCHEDULE A Schedule of Receivables EXHIBIT A Form of Distribution Date Statement to Noteholders EXHIBIT B Form of Distribution Date Statement to Certificateholders EXHIBIT C Form of Servicer's Certificate EXHIBIT D Form of Receivables Checklist EXHIBIT E Form of Receivables Assignment
iii SALE AND SERVICING AGREEMENT dated as of December 1, 1995, among NAL AUTO TRUST 1995-1, a Delaware business trust (the "Issuer"), AUTORICS II, INC., a Delaware corporation (the "Depositor"), NAL ACCEPTANCE CORPORATION, a Florida corporation (the "Servicer") and BANKERS TRUST COMPANY, a New York banking corporation (the "Backup Servicer"). WHEREAS the Issuer desires to purchase a portfolio of receivables arising in connection with automobile retail installment sale contracts generated by NAL Acceptance Corporation in the ordinary course of business which were sold by NAL Acceptance Corporation to the Seller and by the Seller to the Depositor; WHEREAS the Depositor is willing to sell such receivables to the Issuer; and WHEREAS NAL Acceptance Corporation is willing to service such receivables; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: "AA" means Auto Analyst, Inc., a Georgia corporation, and any successor in interest. "Amount Financed" means, with respect to any Receivable, the amount advanced under the Receivable toward the purchase price of the Financed Vehicle and any related costs, exclusive of any amount allocable to the premium of "dual interest" insurance covering the Financed Vehicle. "Annual Percentage Rate" or "APR" of a Receivable means the annual rate of finance charges stated in the related Contract. "Backup Servicer" means, Bankers Trust Company, a New York banking corporation, and its successors or assigns, when acting in its capacity as Backup Servicer under this Agreement. "Certificate Balance" equals, as of the Closing Date, the Initial Certificate Balance and, thereafter, will equal the Initial Certificate Balance reduced by all amounts allocable to principal previously distributed to Certificateholders. "Certificate Distribution Account" has the meaning assigned to such term in the Trust Agreement. "Certificate Pool Factor" means, as of the close of business on the last day of a Collection Period, a seven-digit decimal figure equal to the Certificate Balance (after giving effect to any reductions therein to be made on the immediately following Distribution Date) divided by the Initial Certificate Balance. The Certificate Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the Certificate Pool Factor will decline to reflect reductions in the Certificate Balance. "Certificateholders" or "Holders" (when used in the context of the Holders of Certificates) has the meaning assigned to such term in the Trust Agreement. "Certificateholders' Distributable Amount" means, with respect to any Distribution Date, the sum of the Certificateholders' Principal Distributable Amount and the Certificateholders' Interest Distributable Amount for such date. "Certificateholders' Interest Carryover Shortfall" means, with respect to any Distribution Date, (i) the excess of the Certificateholders' Interest Distributable Amount for the preceding Distribution Date, over the amount in respect of interest that is actually deposited in the Certificate Distribution Account on such preceding Distribution Date, plus (ii) 90 days of interest on the amount of such excess for such preceding Distribution Date, to the extent permitted by law, at the Pass-Through Rate. "Certificateholders' Interest Distributable Amount" means, with respect to any Distribution Date, the sum of the Certificateholders' Quarterly Interest Distributable Amount for such Distribution Date and the Certificateholders' Interest Carryover Shortfall for such Distribution Date. Interest with respect to the Certificates shall be computed on the basis of a 360-day year consisting of twelve 30-day months for all purposes of this Agreement and the Basic Documents. "Certificateholders' Quarterly Interest Distributable Amount" means, with respect to any Distribution Date, 90 days of interest at the Pass-Through Rate on the Certificate Balance on the immediately preceding Distribution Date (or, in the case of the first Distribution Date, on the Closing Date) after giving effect to all payments of principal to Certificateholders on such immediately preceding Distribution Date. "Certificateholders' Quarterly Principal Distributable Amount" means, with respect to any Distribution Date prior to the Distribution Date on which the Notes are paid in full, zero; and with respect to any Distribution Date on or after the Distribution Date on which the Notes are paid in full, 100% of the Principal Distribution Amount for such Distribution Date (less, on the Distribution Date on which the Notes are paid in full, the portion thereof payable as principal of the Notes). "Certificateholders' Principal Carryover Shortfall" means, as of the close of a particular Distribution Date, the excess of the Certificateholders' Quarterly Principal Distributable Amount and any outstanding Certificateholders' Principal Carryover Shortfall from the preceding Distribution Date, over the amount in respect of principal that is actually deposited in the Certificate Distribution Account on such particular Distribution Date. "Certificateholders' Principal Distributable Amount" means, with respect to any Distribution Date, the sum of the Certificateholders' Quarterly Principal Distributable Amount for such Distribution Date and the Certificateholders' Principal Carryover Shortfall as of the close of the preceding Distribution Date; provided, however, that the Certificateholders' Principal Distributable Amount shall not exceed the Certificate Balance. In addition, on the Final Scheduled Distribution Date, the principal required to be included in the Certificateholders' Principal Distributable Amount will include the lesser of (a) (i) any Scheduled Payments of principal due and remaining unpaid on each Precomputed Receivable and (ii) any principal due and remaining unpaid on each Simple Interest Receivable, in each case, in the Trust as of the Final Scheduled Distribution Date or (b) the amount that is necessary (after giving effect to the other amounts to be deposited in the Certificate Distribution Account on such Distribution Date and allocable to principal) to reduce the Certificate Balance to zero. "Certificates" means the Trust Certificates (as defined in the Trust Agreement). "Class" means any one of the classes of Notes. "Class A-1 Final Scheduled Distribution Date" means the September 15, 2000 Distribution Date. "Class A-1 Noteholder" means the Person in whose name a Class A-1 Note is registered in the Note Register. 2 "Class A-2 Final Scheduled Distribution Date" means the December 15, 2000 Distribution Date. "Class A-2 Noteholder" means the Person in whose name a Class A-2 Note is registered in the Note Register. "Closing Date" means December 21, 1995. "Collection Account" means the account designated as such, established and maintained pursuant to Section 5.01(a)(i). "Collection Period" means the three calendar-month period ending on the last day of the month preceding the month of each Distribution Date. Any amount or balance stated as of the last day of a Collection Period shall give effect to the following calculations as determined as of the close of business on such last day: (1) all applications of collections, (2) all current and previous Payaheads, (3) all applications of Payahead Balances and (4) all distributions to be made on the following Distribution Date. "Computer Tape" means a computer tape generated by the Servicer which provides information relating to the Receivables. "Contract" means a motor vehicle retail installment sale contract. "Corporate Trust Office" means the principal office of the Indenture Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at Four Albany Street, New York, New York, Corporate Trust and Agency Group, Structured Finance Team; or at such other address as the Indenture Trustee may designate from time to time by notice to the Noteholders and the Depositor, or the principal corporate trust office of any successor Indenture Trustee (of which address such successor Indenture Trustee will notify the Noteholders and the Depositor). "Custodial Agreement" means the Custodial Agreement dated as of December 21, 1995, among the Issuer, Bankers Trust Company, as Indenture Trustee and Custodian, and the Servicer. "Custodian" means Bankers Trust Company, as Custodian under the Custodial Agreement and any successor Custodian pursuant to the Custodial Agreement. "Cutoff Date" means December 1, 1995. "Dealer" means the dealer, SFI, AA or other entity who sold a Financed Vehicle and who originated the related Contract or who acquired a Contract and in either case assigned the related Receivable to NAL under an existing agreement between it and NAL. "Dealer Reserve Account" means the account designated as such, established and maintained pursuant to Section 5.01. "Delinquency Trigger Event" means, as to any Collection Period, that the Average Three Month Delinquency Ratio as of the last day of such Collection Period is greater than 6%. "Average Three Month Delinquency Ratio" means, as of any date, the ratio of the average aggregate Principal Balances of Receivables that are 60 days or more delinquent for each of the three prior calendar months prior to such date to the average of the Pool Balances as of the end of such periods. "Delivery" when used with respect to Trust Account Property means: (a) with respect to bankers' acceptances, commercial paper, negotiable certificates of deposit and other obligations that constitute "instruments" within the meaning of 3 Section 9-105(1)(i) of the UCC and are susceptible of physical delivery, transfer thereof to the Indenture Trustee or its nominee or custodian by physical delivery to the Indenture Trustee or its nominee or custodian endorsed to, or registered in the name of, the Indenture Trustee or its nominee or custodian or endorsed in blank, and, with respect to a "certificated security" (as defined in Section 8-102(1)(a) of the UCC) transfer thereof (i) by delivery of such certificated security endorsed to, or registered in the name of, the Indenture Trustee or its nominee or custodian or endorsed in blank to a financial intermediary (as defined in Section 8-313 of the UCC) and the making by such financial intermediary of entries on its books and records identifying such certificated securities as belonging to the Indenture Trustee or its nominee or custodian and the sending by such financial intermediary of a confirmation of the purchase of such certificated security by the Indenture Trustee or its nominee or custodian, or (ii) by delivery thereof to a "clearing corporation" (as defined in Section 8-102(3) of the UCC) and the making by such clearing corporation of appropriate entries on its books reducing the appropriate securities account of the transferor and increasing the appropriate securities account of a financial intermediary by the amount of such certificated security, the identification by the clearing corporation of the certificated securities for the sole and exclusive account of the financial intermediary, the maintenance of such certificated securities by such clearing corporation or a "custodian bank" (as defined in Section 8-102(4) of the UCC) or the nominee of either subject to the clearing corporation's exclusive control, the sending of a confirmation by the financial intermediary of the purchase by the Indenture Trustee or its nominee or custodian of such securities and the making by such financial intermediary of entries on its books and records identifying such certificated securities as belonging to the Indenture Trustee or its nominee or custodian (all of the foregoing, "Physical Property"), and, in any event, any such Physical Property in registered form shall be in the name of the Indenture Trustee or its nominee or custodian; and such additional or alternative procedures as may hereafter become appropriate to effect the complete transfer of ownership of any such Trust Account Property (as defined herein) to the Indenture Trustee or its nominee or custodian, consistent with changes in applicable law or regulations or the interpretation thereof; (b) with respect to any security issued by the U.S. Treasury, the Federal Home Loan Mortgage Corporation or by the Federal National Mortgage Association that is a book-entry security held through the Federal Reserve System pursuant to Federal book-entry regulations, the following procedures, all in accordance with applicable law, including applicable Federal regulations and Articles 8 and 9 of the UCC: book-entry registration of such Trust Account Property to an appropriate book-entry account maintained with a Federal Reserve Bank by a financial intermediary which is also a "depository" pursuant to applicable Federal regulations and issuance by such financial intermediary of a deposit advice or other written confirmation of such book-entry registration to the Indenture Trustee or its nominee or custodian of the purchase by the Indenture Trustee or its nominee or custodian of such book-entry security; the making by such financial intermediary of entries in its books and records identifying such book-entry security held through the Federal Reserve System pursuant to Federal book-entry regulations as belonging to the Indenture Trustee or its nominee or custodian and indicating that such custodian holds such Trust Account Property solely as agent for the Indenture Trustee or its nominee or custodian; and such additional or alternative procedures as may hereafter become appropriate to effect complete transfer of ownership of any such Trust Account Property to the Indenture Trustee or its nominee or custodian, consistent with changes in applicable law or regulations or the interpretation thereof; and (c) with respect to any item of Trust Account Property that is an uncertificated security under Article 8 of the UCC and that is not governed by clause (b) above, registration on the books and records of the issuer thereof in the name of the financial intermediary, the sending of a confirmation by the financial intermediary of the purchase by the Indenture Trustee or its nominee or custodian of such uncertificated security, and the making by such financial intermediary of entries on its books and records identifying such uncertificated certificates as belonging to the Indenture Trustee or its nominee or custodian. 4 "Depositor" means AUTORICS II, Inc., a Delaware corporation and any successor in interest. "Distribution Date" means March 15, June 15, September 15 and December 15 of each year or, if such day is not a Business Day, the immediately following Business Day, commencing on March 15, 1996. "Eligible Deposit Account" means either (a) a segregated account with an Eligible Institution or (b) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), having corporate trust powers and acting as trustee for funds deposited in such account, so long as any of the securities of such depository institution shall have a credit rating from each Rating Agency in one of its generic rating categories that signifies investment grade. "Eligible Institution" means (a) the corporate trust department of the Indenture Trustee or the Owner Trustee or (b) a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), which (i) has either (A) a long-term unsecured debt rating of A or better by each Rating Agency, or if not rated by each Rating Agency, of A or better by Standard & Poor's, A1 or better by Moody's and, if rated by one of the Rating Agencies, A or better by such agency and (ii) whose deposits are insured by the FDIC. If so qualified, the Indenture Trustee or the Owner Trustee may be considered an Eligible Institution for the purposes of clause (b) of this definition. "Eligible Investments" means book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: (a) direct obligations of, and obligations fully guaranteed as to the full and timely payment by, the United States of America; (b) demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depository institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations thereof (other than such obligations the rating of which is based on the credit of a Person other than such depository institution or trust company) shall have a short-term credit rating from each Rating Agency in the highest investment category granted thereby; (c) commercial paper having, at the time of the investment or contractual commitment to invest therein, a rating from each Rating Agency in the highest investment category granted thereby; (d) investments in money market mutual funds having a rating from Standard & Poor's and Moody's and, if any Rating Agency rates such fund, from such agency in the highest investment category granted by each Rating Agency so rating such fund (including funds for which the Indenture Trustee or the Owner Trustee or any of their respective Affiliates is investment manager or advisor); (e) bankers' acceptances issued by any depository institution or trust company referred to in clause (b) above; (f) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in 5 either case entered into with a depository institution or trust company (acting as principal) described in clause (b); and (g) any other investment with respect to which the Issuer or the Servicer has received written notification from each Rating Agency that the acquisition of such investment as an Eligible Investment will not result in a withdrawal or downgrading of the ratings on the Notes or Certificates. "Excess Spread" shall have the meaning set forth in Section 5.06(a)(ii). "FDIC" means the Federal Deposit Insurance Corporation. "Final Scheduled Distribution Date" means the December 15, 2000 Distribution Date. "Final Scheduled Maturity Date" means November 30, 2000. "Financed Vehicle" means an automobile, light-duty truck or van, together with all accessions thereto, securing an Obligor's indebtedness under the related Receivable. "Indenture" means the Indenture dated as of December 1, 1995, between the Issuer and the Indenture Trustee. "Indenture Trustee" means the Person acting as Indenture Trustee under the Indenture, its successors in interest and any successor trustee under the Indenture. "Initial Certificate Balance" shall have the meaning set forth in the Trust Agreement. "Insolvency Event" means, with respect to a specified Person, (a) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of such Person or any substantial part of its property in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official for such Person or for any substantial part of its property, or ordering the winding-up or liquidation of such Person's affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing. "Insolvency Proceeds" shall have the meaning set forth in Section 9.01. "Insurance Policies" means any physical damage, credit life, disability, theft, mechanical breakdown, dual interest or guaranteed auto-protection insurance policies or coverage relating to the Financed Vehicles or Obligors. "Investment Earnings" means, with respect to any Payment Determination Date, the investment earnings (net of losses and investment expenses) on amounts on deposit in the Trust Accounts (other than the Dealer Reserve Account) to be deposited into the Collection Account and to be deemed to constitute a portion of the Total Distribution Amount for the related Distribution Date pursuant to Section 5.01(b). "Issuer" means NAL Auto Trust 1995-1. 6 "Lien" means a security interest, lien, charge, pledge, equity or encumbrance of any kind, other than tax liens, mechanics' liens and any liens that attach to a Receivable by operation of law as a result of any act or omission by the related Obligor. "Liquidated Receivable" means any defaulted Receivable as to which the Servicer has determined that all amounts which it expects to recover from or on account of such Receivables have been recovered or with respect to which the related Financed Vehicle has been realized upon and disposed of and the proceeds of such disposition have been received; provided that any Receivable which is 120 days or more past due shall be deemed to be a Liquidated Receivable. "Liquidation Proceeds" means, with respect to any Liquidated Receivable, the moneys collected in respect thereof, from whatever source, including Insurance Policy proceeds, net of the sum of any amounts expended by the Servicer in connection with such liquidation and any amounts required by law to be remitted to the Obligor on such Liquidated Receivable. "Loss Trigger Event" means, as to any Collection Period, that the Average Six Month Realized Loss Ratio as of the last day of such Collection Period is greater than 5%. The "Average Six Month Realized Loss Ratio" as of any date is the ratio, expressed on an annualized basis, of the average of the aggregate Realized Losses in respect of Liquidated Receivables for each of the six calendar month periods (or lesser number of calendar months from the Cutoff Date) prior to such date to the average of the Pool Balance as of the beginning of such periods. "Moody's" means Moody's Investors Service, Inc., and any successors in interest. "NAL" means NAL Acceptance Corporation, a Florida corporation and any successor in interest. "Note Distribution Account" means the account designated as such, established and maintained pursuant to Section 5.01. "Note Pool Factor" means, with respect to each Class of Notes as of the close of business on the last day of a Collection Period, a seven-digit decimal figure equal to the Outstanding Amount of such Class of Notes divided by the original Outstanding Amount of such Class of Notes. The Note Pool Factor for each Class of Notes will be 1.0000000 as of the Closing Date; thereafter, the Note Pool Factor will decline to reflect reductions in the Outstanding Amount of the applicable Class of Notes. "Noteholders' Distributable Amount" means, with respect to any Distribution Date, the sum of the Noteholders' Principal Distributable Amount and the Noteholders' Interest Distributable Amount for such Distribution Date. "Noteholders' Interest Carryover Shortfall" means, with respect to any Distribution Date, (i) the excess of the Noteholders' Interest Distributable Amount for the preceding Distribution Date, over the amount in respect of interest that is actually deposited in the Note Distribution Account on such preceding Distribution Date, plus (ii) 90 days of interest on the amount of such excess for such preceding Distribution Date, to the extent permitted by law, at the respective Interest Rates borne by each Class of the Notes. "Noteholders' Interest Distributable Amount" means, with respect to any Distribution Date, the sum of the Noteholders' Quarterly Interest Distributable Amount for such Distribution Date and the Noteholders' Interest Carryover Shortfall for such Distribution Date. For all purposes of this Agreement and the Basic Documents, interest with respect to each Class of Notes shall be computed on the basis of a 360-day year consisting of twelve 30-day months. "Noteholders' Quarterly Interest Distributable Amount" means, with respect to any Distribution Date, 90 days of interest on the Class A-1 Notes and the Class A-2 Notes at the Class A-1 Interest Rate and the Class A-2 Interest Rate, respectively, on the Outstanding Amount of the Notes of such Class 7 on the immediately preceding Distribution Date (or, in the case of the first Distribution Date, the Closing Date) after giving effect to all payments of principal to the Noteholders on such immediately preceding Distribution Date. "Noteholders' Quarterly Principal Distributable Amount" means, with respect to any Distribution Date, for so long as the Class A-1 Notes or Class A-2 Notes are outstanding, 100% of the Principal Distribution Amount; provided, however, that on the Distribution Date on which the Outstanding Amount of the Class A-2 Notes is reduced to zero, the portion, if any, of the Principal Distribution Amount that is not applied to the Class A-2 Notes will be applied to the principal of the Certificates. "Noteholders' Principal Carryover Shortfall" means, as of the close of business on a particular Distribution Date, the excess of the Noteholders' Quarterly Principal Distributable Amount and any outstanding Noteholders' Principal Carryover Shortfall from the preceding Distribution Date, over the amount in respect of principal that is actually deposited in the Note Distribution Account on such particular Distribution Date. "Noteholders' Principal Distributable Amount" means, with respect to any Distribution Date, the sum of the Noteholders' Quarterly Principal Distributable Amount for such Distribution Date and the Noteholders' Principal Carryover Shortfall as of the close of the preceding Distribution Date; provided, however, that the Noteholders' Principal Distributable Amount shall not exceed the Outstanding Amount of the Notes. In addition, (i) on the Class A-1 Final Scheduled Distribution Date, the Noteholder's Principal Distributable Amount will not be less than the amount that is necessary (after giving effect to all other amounts to be deposited in the Note Distribution Account on such Distribution Date and allocable to principal) to reduce the Outstanding Amount of the Class A-1 Notes to zero; and (ii) on the Class A-2 Final Scheduled Distribution Date the Noteholders' Principal Distributable Amount will not be less than the amount that is necessary (after giving effect to all other amounts to be deposited in the Note Distribution Account on such Distribution Date and allocable to principal) to reduce the Outstanding Amount of the Class A-2 Notes to zero. "Obligor" on a Receivable means the purchaser or co-purchasers of the Financed Vehicle and any other Person who owes payments under the Receivable. "Officers' Certificate" means a certificate signed by (a) the chairman of the board, the president or any vice president and (b) a treasurer, assistant treasurer, the controller or any assistant controller, secretary or assistant secretary of the Seller, the Depositor, the Servicer or the Backup Servicer, as appropriate. "Opinion of Counsel" means one or more written opinions of counsel, who may be an employee of or counsel to the Seller, the Depositor, Servicer or the Backup Servicer, which counsel shall be acceptable to the Indenture Trustee, the Owner Trustee or each Rating Agency, as applicable. "Original Pool Balance" means the Pool Balance as of the Cutoff Date. "Owner Trust Estate" has the meaning assigned to such term in the Trust Agreement. "Owner Trustee" means the Person acting as Owner Trustee under the Trust Agreement, its successors in interest and any successor owner trustee under the Trust Agreement. "Pass-Through Rate" means 14.25% per annum. "Payahead" on a Receivable that is a Precomputed Receivable means the amount, as of the close of business on the last day of a Collection Period, computed in accordance with Section 5.03 with respect to such Receivable. 8 "Payahead Account" means the account designated as such, established and maintained pursuant to Section 5.01. "Payahead Balance" on a Receivable that is a Precomputed Receivable means the sum, as of the close of business on the last day of a Collection Period, of all Payaheads made by or on behalf of the Obligor with respect to such Precomputed Receivable, as reduced by applications of previous Payaheads with respect to such Precomputed Receivable pursuant to Section 5.03. "Payment Determination Date" means, with respect to any Distribution Date, the 10th day of the month (or if such day is not a Business Day, the next succeeding Business Day) of such Distribution Date. "Physical Property" has the meaning assigned to such term in the definition of "Delivery" above. "Pool Balance" means, as of the close of business on the last day of a Collection Period or any other date of determination, the aggregate Principal Balance of the Receivables as of such day (excluding Purchased Receivables and Liquidated Receivables). "Precomputed Receivable" means any Receivable under which the portion of a payment allocable to earned interest (which may be referred to in the related Contract as an add-on finance charge) and the portion allocable to the Amount Financed is determined according to the sum of periodic balances or the sum of monthly balances or any equivalent method or are monthly actuarial receivables. "Principal Balance" means (a) with respect to any Precomputed Receivable as of the close of business on the last day of a Collection Period, the Amount Financed minus the sum of (i) that portion of all Scheduled Payments due on or prior to such day allocable to principal using the actuarial or constant yield method, (ii) any payment of the Purchase Amount with respect to the Precomputed Receivable allocable to principal and (iii) any prepayment in full applied to reduce the Principal Balance of the Precomputed Receivable and (b) with respect to any Simple Interest Receivable as of the close of business on the last day of a Collection Period, the Amount Financed minus the sum of (i) the portion of all payments made by or on behalf of the related Obligor on or prior to such day and allocable to principal using the Simple Interest Method and (ii) any payment of the Purchase Amount with respect to the Simple Interest Receivable allocable to principal. "Principal Distribution Amount" means, with respect to any Distribution Date, an amount equal to the sum of the following amounts with respect to the related Collection Period (i) with respect to Precomputed Receivables, the principal component of all monthly payments scheduled to be received with respect to such Receivables and all prepayments in full of such Receivables (including amounts with respect thereto withdrawn from the Payahead Account); (ii) with respect to Simple Interest Receivables, that portion of all collections on such Receivables allocable to principal; (iii) the Principal Balance of all Precomputed Receivables that became Liquidated Receivables during such Collection Period; (iv) all Liquidation Proceeds attributable to the principal amount of Simple Interest Receivables that became Liquidated Receivables during such Collection Period, plus all Realized Losses with respect to such Liquidated Receivables; and (v) to the extent attributable to principal, the Purchase Amount of each Receivable that was purchased by NAL or by the Servicer during the related Collection Period. "Purchase Amount" means the amount, as of the close of business on the last day of a Collection Period, required to prepay in full a Receivable under the terms thereof including interest to the end of the month of purchase. "Purchased Receivable" means a Receivable purchased as of the close of business on the last day of a Collection Period by the Servicer pursuant to Section 4.07 or by NAL pursuant to Section 3.02. "Rating Agency" means each of Fitch Investors Service, L.P. and Duff & Phelps Credit Rating Co. and their successors in interest. 9 "Rating Agency Condition" means, with respect to any action, that each Rating Agency shall have been given 10 days' (or such shorter period as shall be acceptable to such Rating Agency) prior notice thereof and that each Rating Agency shall have notified the Depositor, the Servicer, the Owner Trustee and the Indenture Trustee in writing that such action will not result in a reduction or withdrawal of the then current rating of the Notes or the Certificates. "Realized Losses" means, with respect to any Receivable that becomes a Liquidated Receivable, the excess of the Principal Balance of such Liquidated Receivable over Liquidation Proceeds to the extent allocable to principal. "Receivable" means any Contract listed on Schedule A (which Schedule may be in the form of microfiche). "Receivable Files" means the documents specified in Section 3.03. "Receivables Purchase Agreement" means the Receivables Purchase Agreement dated as of December 1, 1995, among NAL, Autorics, Inc., as seller, and the Depositor, as purchaser. "Recoveries" means, with respect to any Receivable that becomes a Liquidated Receivable, monies collected in respect thereof, from whatever source, during any Collection Period following the Collection Period in which such Receivable became a Liquidated Receivable, net of the sum of any amounts expended by the Servicer for the account of the Obligor and any amounts required by law to be remitted to the Obligor. "Repossession Trigger Event" means, as to any Collection Period, that the Average Six Month Repossession Ratio as of the last day of such Collection Period is greater than 12%. "Average Six Month Repossession Ratio" as of any date is the ratio (expressed on an annualized basis) of the average of the aggregate Principal Balances of Receivables with respect to which the related Financed Vehicle has been repossessed by the Servicer for each of the six calendar months (or lesser number of calendar months since the Cutoff Date) prior to such date to the average Pool Balances as of the beginning of such periods. "Reserve Account" means the account designated as such, established and maintained pursuant to Section 5.01. "Reserve Account Initial Deposit" means $1,705,776. "Scheduled Payment" on a Precomputed Receivable means that portion of the payment required to be made by the Obligor during a calendar month sufficient to amortize the Principal Balance under the actuarial method over the term of the Receivable and to provide interest at the APR. "Seller" means AUTORICS, Inc., a Delaware corporation, and any successor in interest. "Servicer" means NAL, in its capacity as the servicer of the Receivables, and each successor to NAL (in the same capacity) pursuant to Section 7.03 or 8.02. "Servicer Default" means an event specified in Section 8.01. "Servicer's Certificate" means an Officers' Certificate of the Servicer delivered pursuant to Section 4.09, substantially in the form of Exhibit C. "Servicing Fee" means the fee payable to the Servicer for services rendered during a Collection Period, determined pursuant to Section 4.08. "Servicing Fee Rate" means 3.00% per annum. 10 "SFI" means Special Finance, Inc., a Florida corporation, and any successor in interest. "Simple Interest Method" means the method of allocating a fixed level payment to principal and interest, pursuant to which the portion of such payment that is allocated to interest is equal to the product of the fixed rate of interest multiplied by the unpaid principal balance multiplied by the period of time elapsed since the preceding payment of interest was made, and the remainder of such payment is allocable to principal. "Simple Interest Receivable" means any Receivable under which the portion of a payment allocable to interest and the portion allocable to principal is determined in accordance with the Simple Interest Method. "Specified Reserve Account Balance" means, with respect to any Distribution Date, $1,705,776 until the first Distribution Date on which the Pool Balance on the close of business on the last day of the Collection Period preceding such date is less than or equal to $20,067,948.93 (one-half of the Initial Pool Balance). On such Distribution Date and thereafter the Specified Reserve Account Balance shall equal the greater of 8.50% of the Pool Balance on the close of business on the last day of the related Collection Period and $802,717.95 until the first Distribution Date on which the Pool Balance on the close of business on the last day of the preceding Collection Period is less than or equal to $802,717.95. On such Distribution Date and thereafter the Specified Reserve Account Balance shall equal 100% of the Pool Balance on the close of business on the last day of the related Collection Period. In no event, however, shall the Specified Reserve Account Balance exceed the aggregate outstanding principal balance of the Notes and the Certificates. "Standard & Poor's" means Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc. and any successor in interest. "Total Distribution Amount" means, with respect to a Distribution Date, the sum of the following amounts with respect to the related Collection Period: (i) that portion of all collections on the Receivables (including amounts withdrawn from the Payahead Account but excluding amounts deposited into the Payahead Account) allocable to principal and interest; (ii) all Liquidation Proceeds, and all Recoveries in respect of Liquidated Receivables that were written off in prior Collection Periods; (iii) the Purchase Amount of each Receivable that was purchased by NAL or by the Servicer during the related Collection Period; and (iv) Investment Earnings. "Trigger Event" means any Distribution Date on which one or more of a Delinquency Trigger Event, a Repossession Trigger Event or a Loss Trigger Event has occurred with respect to the previously ended Collection Period. A Trigger Event will be deemed to have terminated as to any Distribution Date (subject to the reoccurrence of such event) if neither a Delinquency Trigger Event, a Loss Trigger Event or a Repossession Trigger Event shall have occurred during the related Collection Period. "Trust" means the Issuer. "Trust Account Property" means the Trust Accounts, all amounts and investments held from time to time in any Trust Account (whether in the form of deposit accounts, Physical Property, book-entry securities, uncertificated securities or otherwise), including the Reserve Account Initial Deposit, and all proceeds of the foregoing. "Trust Accounts" has the meaning assigned thereto in Section 5.01. "Trust Agreement" means the Trust Agreement dated as of December 1, 1995, between the Depositor and the Owner Trustee. "Trust Officer" means, in the case of the Indenture Trustee, any Officer within the Corporate Trust Office of the Indenture Trustee, including any Vice President, Assistant Vice President, Secretary, 11 Assistant Secretary or any other officer of the Indenture Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject and, with respect to the Owner Trustee, any officer in the Corporate Trust Administration Department of the Owner Trustee with direct responsibility for the administration of the Trust Agreement and the Basic Documents on behalf of the Owner Trustee. SECTION 1.02. Other Definitional Provisions. (a) Capitalized terms used and not otherwise defined herein have the meanings assigned to them in the Indenture. (b) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (c) As used in this Agreement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under generally accepted accounting principles, the definitions contained in this Agreement or in any such certificate or other document shall control. (d) The words "hereof," "herein," "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Article, Section, Schedule and Exhibit references contained in this Agreement are references to Articles, Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified; and the term "including" shall mean "including without limitation". (e) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. (f) Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. ARTICLE II Conveyance of Receivables SECTION 2.01. Conveyance of Receivables. (a) In consideration of the Issuer's delivery on the Closing Date to or upon the order of the Depositor of $39,677,271.41, the Depositor does hereby sell, transfer, assign, set over and otherwise convey to the Issuer, without recourse (subject to the obligations herein), all right, title and interest of the Depositor in and to (but none of the Depositor's obligations with respect to): (1) the Receivables and all moneys received thereon on and after the Cutoff Date plus all Payaheads as of the Cutoff Date; (2) the security interests in the Financed Vehicles granted by Obligors pursuant to such Receivables, any other right to realize upon property securing a Receivable and any other interest 12 of the Depositor in such Financed Vehicles including the Depositor's right, title and interest in the lien on the Financed Vehicles in the name of the Depositor's agent, Autorics, Inc., NAL or SFI; (3) any proceeds with respect to the Receivables from claims on any Insurance Policies relating to Financed Vehicles or Obligors; (4) proceeds of any recourse (but none of the obligations) to Dealers on Receivables; (5) any Financed Vehicle that shall have secured a Receivable and shall have been acquired by or on behalf of the Seller, the Depositor, the Servicer, or the Trust; (6) the Receivables Files; (7) the Receivables Purchase Agreement, including the right of the Depositor to cause NAL to purchase Receivables under certain circumstances; (8) the Trust Accounts; and (9) the proceeds of any and all of the foregoing. ARTICLE III The Receivables SECTION 3.01. Representations and Warranties of the Depositor with Respect to the Receivables. The Depositor makes the following representations and warranties with respect to the Receivables on which the Issuer relies in acquiring the Receivables and issuing the Notes and Certificates. Such representations and warranties speak as of the execution and delivery of this Agreement and as of the Closing Date, but shall survive the sale, transfer and assignment of the Receivables to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. (a) Title. It is the intention of the Depositor that the transfer and assignment herein contemplated constitute a sale of the Receivables from the Depositor to the Issuer and that the beneficial interest in and title to the Receivables not be part of the debtor's estate in the event of the filing of a bankruptcy petition by or against the Depositor under any bankruptcy law. No Receivable has been sold, transferred, assigned or pledged by the Depositor to any Person other than the Issuer. Immediately prior to the transfer and assignment herein contemplated, the Depositor had good and marketable title to each Receivable, free and clear of all Liens and rights of others and, immediately upon the transfer thereof, the Issuer shall have good and marketable title to each Receivable, free and clear of all Liens and rights of others; and the transfer has been perfected under the UCC. (b) All Filings Made. All filings (including UCC filings) necessary in any jurisdiction to give (i) the Issuer a first perfected ownership interest in the Receivables and (ii) the Indenture Trustee a first perfected security interest in the Receivables shall have been made. SECTION 3.02. Repurchase upon Breach. The Depositor, the Servicer, the Backup Servicer and the Issuer, as the case may be, shall inform the other parties to this Agreement, NAL and the Indenture Trustee promptly, in writing, upon the discovery of any breach of the Depositor's representations and warranties made pursuant to Section 3.01 or of NAL's representations and warranties made pursuant to Section 3.02(c) of the Receivables Purchase Agreement. Unless any such breach shall have been cured by the last day of the Collection Period following the discovery thereof by NAL or the receipt by NAL of written notice thereof from the Owner Trustee, the Indenture Trustee, the Depositor, the Servicer or the Backup Servicer, the Depositor, the Issuer or the Owner Trustee shall enforce the 13 obligation of NAL under the Receivables Purchase Agreement, to purchase as of such last day any Receivable with respect to which such a breach had occurred if such breach has a material and adverse effect on the interests of the Depositor or the Trust in and to such Receivable. In consideration for the purchased Receivable, NAL shall remit the Purchase Amount in the manner specified in Section 6.02 of the Receivables Purchase Agreement. Subject to the provisions of Section 6.03, the sole remedy of the Issuer, the Owner Trustee, the Indenture Trustee, the Noteholders or the Certificateholders with respect to a breach of representations and warranties pursuant to Section 3.01 and the agreement contained in this Section shall be to require NAL to purchase Receivables pursuant to this Section and the Receivables Purchase Agreement. SECTION 3.03. Custody of Receivable Files. (a) In connection with the sale and transfer of the Receivables pursuant to this Agreement, the Issuer, simultaneously with the execution and delivery of this Agreement, is entering into the Custodial Agreement with the Custodian pursuant to which the Issuer appoints the Custodian, and the Custodian accepts such appointment, to act as the agent and bailee of the Issuer and the Indenture Trustee, for all purposes of Article 9 of the UCC, as Custodian of the following documents or instruments, which are hereby constructively delivered to the Indenture Trustee, as pledgee of the Issuer, with respect to each Receivable: (i) a list of Receivables in the form of Schedule A hereto, identifying such Receivable together with the Computer Tape identifying such Receivable and a completed checklist in the form of Exhibit D hereto (it being expressly understood and agreed that the Custodian and Indenture Trustee have no duties or responsibilities for checking or verifying the accuracy or completeness of such checklist); (ii) the fully executed original Receivable with manual signatures and Dealer endorsements, together with executed assignments thereof by NAL, the Seller and the Depositor in blank, which assignments shall be substantially in the form of Exhibit E hereto; (iii) a written confirmation from the Servicer certifying as to the Insurance Policies covering the Receivable and stating that they are in full force and effect; (iv) the original certificate of title relating to the Financed Vehicle or (a) a copy of the application for a certificate of title and (b) a copy of the existing title, lien entry form or receipt of registration or (c) a copy of the related letter guarantee, in each case noting the lien of NAL, the Seller or SFI; provided, however, that at any time during the term hereof the Owner Trustee may request and require that the Depositor cause the party in whose name the lien is noted to transfer such lien to the Depositor; (v) an original or copy of the credit application of the Obligor; and (vi) financing statements on Form UCC-1 listing the Owner Trustee as the secured party with respect to each Receivable and the other items conveyed pursuant to Section 2.01 and stamped to indicate filing with the Office of the Secretary of State of the State of Florida and with the Office of the Secretary of State of Delaware. (b) Access to Records. The Servicer or the Custodian, as the case may be, shall provide to (or in the case of the Custodian shall be required pursuant to the Custodial Agreement to provide to) the Indenture Trustee, the Issuer, the Backup Servicer, Noteholders and Certificateholders and their duly authorized representatives, attorneys or auditors access to the Receivable Files in such cases where the Indenture Trustee, the Issuer, a Noteholder or a Certificateholder is required by applicable statutes or regulations to review the related accounts, records and computer systems maintained by the Servicer or the Custodian, as the case may be, such access being afforded without charge but only upon reasonable request and during normal business hours at offices of the Servicer or the Custodian, as the case may be, designated by the Servicer or the Custodian. Nothing in this Section shall derogate from the obligation of the Servicer or the Custodian to observe any applicable law prohibiting disclosure of 14 information regarding the Obligors, and the failure of the Servicer or the Custodian to provide access as provided in this Section as the result of such obligation shall not constitute a breach of this Section. ARTICLE IV Administration and Servicing of Receivables SECTION 4.01. Duties of Servicer. The Servicer, for the benefit of the Issuer (to the extent provided herein), shall manage, service, administer and make collections on the Receivables (other than Purchased Receivables) with reasonable care, acting prudently and in accordance with customary and usual servicing procedures for other institutional servicers of receivables of the type subject to this Agreement and applicable law, and to the degree not inconsistent with the foregoing, using that degree of skill and attention that the Servicer exercises with respect to all comparable automotive receivables that it services for itself or others. The Servicer's duties shall include collection and posting of all payments, responding to inquiries of Obligors on such Receivables, investigating delinquencies, sending billing statements to Obligors, reporting tax information to Obligors, accounting for collections, and furnishing monthly, and annual statements to the Owner Trustee and the Indenture Trustee with respect to distributions. Subject to the provisions of Section 4.02, the Servicer shall follow its customary standards, policies and procedures in performing its duties as Servicer. Without limiting the generality of the foregoing, the Servicer is authorized and empowered to execute and deliver, on behalf of itself, the Issuer, the Owner Trustee, the Indenture Trustee, the Certificateholders and the Noteholders or any of them, any and all instruments of satisfaction or cancellation, or partial or full release or discharge, and all other comparable instruments, with respect to such Receivables or to the Financed Vehicles securing such Receivables. If the Servicer shall commence a legal proceeding to enforce a Receivable, the Issuer (in the case of a Receivable other than a Purchased Receivable) shall thereupon be deemed to have automatically assigned, solely for the purpose of collection, such Receivable to the Servicer. If in any enforcement suit or legal proceeding it shall be held that the Servicer may not enforce a Receivable on the ground that it shall not be a real party in interest or a holder entitled to enforce such Receivable, the Owner Trustee shall, at the Servicer's expense and direction, take steps to enforce such Receivable, including bringing suit in its name or the name of the Owner Trustee, the Indenture Trustee, the Certificateholders or the Noteholders. The Owner Trustee shall (and the Custodian pursuant to the Custodial Agreement shall be required) upon the written request of the Servicer furnish the Servicer with any powers of attorney and other documents reasonably necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. SECTION 4.02. Collection and Allocation of Receivable Payments. The Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Receivables as and when the same shall become due and shall follow such collection procedures as it follows with respect to all comparable automotive receivables that it services for itself or others. The Servicer may grant extensions, rebates or adjustments on a Receivable or arrange with the Obligor to extend or modify the payment schedule, which actions shall not, for the purposes of this Agreement, modify the original due dates or amounts of the Scheduled Payments on a Precomputed Receivable or the original due dates or amounts of the originally scheduled payments of interest on Simple Interest Receivables; provided, however, that if the Servicer extends the date for final payment by the Obligor of any Receivable beyond the Final Scheduled Maturity Date, it shall promptly repurchase the Receivable from the Issuer in accordance with the terms of Section 4.07. The Servicer may in its discretion waive any late payment charge or any other fees that may be collected in the ordinary course of servicing a Receivable. The Servicer shall not agree to any alteration of the interest rate on any Receivable or of the amount of any Scheduled Payment on Precomputed Receivables or the originally scheduled payments on Simple Interest Receivables. SECTION 4.03. Realization upon Receivables. On behalf of the Issuer, the Servicer shall use its best efforts, consistent with its customary servicing procedures, to repossess or otherwise convert the ownership of and liquidate the Financed Vehicle securing any Receivable as to which the Servicer shall 15 have determined eventual payment in full is unlikely. The Servicer shall follow such customary and usual practices and procedures as it shall deem necessary or advisable in its servicing of automotive receivables, which may include reasonable efforts to realize upon any recourse to Dealers and selling the Financed Vehicle at public or private sale. The foregoing shall be subject to the provision that, in any case in which the Financed Vehicle shall have suffered damage, the Servicer shall not expend funds in connection with the repair or the repossession of such Financed Vehicle unless it shall determine in its discretion that such repair and/or repossession will increase the Liquidation Proceeds by an amount greater than the amount of such expenses. The Servicer may not sell any Financed Vehicles to J.D. Byrider Systems, Inc. for less than 100% of such Financed Vehicles' wholesale value, determined from the "Black Book". SECTION 4.04. Insurance. The Servicer shall, in accordance with its customary servicing procedures, require that each Obligor shall have obtained physical damage and theft insurance covering the Financed Vehicle as of the execution of the Receivable. The Servicer shall notify each insurer providing a "guaranteed auto protection" insurance policy with respect to the Receivables to include the Indenture Trustee as an additional insured and its payee on each such policy. Upon receipt of notification that the insurance required pursuant to the terms of any Receivable is not in place, the Servicer shall obtain "dual interest" insurance chargeable to the Obligor in accordance with its customary servicing procedures. SECTION 4.05. Maintenance of Security Interests in Financed Vehicles. The Servicer shall, in accordance with its customary servicing procedures, take such steps as are necessary to maintain perfection of the security interest created by each Receivable in the related Financed Vehicle. The Servicer is hereby authorized to take such steps as are necessary to re-perfect such security interest on behalf of the Issuer and the Indenture Trustee in the event of the relocation of a Financed Vehicle or for any other reason. SECTION 4.06. Covenants of Servicer. The Servicer shall not release the Financed Vehicle securing any Receivable from the security interest granted by such Receivable in whole or in part except in the event of payment in full by the Obligor thereunder or repossession, nor shall the Servicer impair the rights of the Issuer, the Indenture Trustee, the Certificateholders or the Noteholders in such Receivable, nor shall the Servicer (except in the case of an extension permitted pursuant to Section 4.02) increase the number of scheduled payments due under a Receivable. Neither NAL nor any Affiliate thereof shall incur liabilities of any kind to SunTrust Bank, South Florida, National Association ("SunTrust"), if the total amount of such liabilities outstanding at any time exceeds $10,000 except for liabilities with respect to which SunTrust has expressly agreed to irrevocably and unconditionally waive all right of set-off or other claims that it may have under contract, applicable law or otherwise with respect to any funds or monies SunTrust may hold from time to time pursuant to the Lock-box Agreement dated November 27, 1995 between NAL, SunTrust and General Electric Capital Corporation, or any other agreement related to the holding of any proceeds of the Receivables or the other property conveyed pursuant to Section 2.01. SECTION 4.07. Purchase of Receivables upon Breach. The Servicer or the Owner Trustee shall inform the other party and the Indenture Trustee and the Depositor promptly, in writing, upon the discovery of any breach pursuant to Section 4.02, 4.05 or 4.06. Unless the breach shall have been cured by the last day of the Collection Period following such discovery, the Servicer shall purchase as of such last day any Receivable with respect to which such breach had occurred if such breach has a material and adverse effect on the interests of the Depositor or the Trust in and to such Receivable. If the Servicer takes any action during any Collection Period pursuant to Section 4.02 that impairs the rights of the Issuer, the Indenture Trustee, the Certificateholders or the Noteholders in any Receivable or as otherwise provided in Section 4.02, the Servicer shall purchase such Receivable as of the last day of such Collection Period. In consideration of the purchase of any such Receivable pursuant to either of the two preceding sentences, the Servicer shall remit the Purchase Amount in the manner specified in Section 5.04. Subject to Section 7.02, the sole remedy of the Issuer, the Owner Trustee, the 16 Indenture Trustee, the Certificateholders or the Noteholders with respect to a breach pursuant to Section 4.02, 4.05 or 4.06 shall be to require the Servicer to purchase Receivables pursuant to this Section. The Owner Trustee shall have no duty to conduct any affirmative investigation as to the occurrence of any condition requiring the repurchase of any Receivable pursuant to this Section. SECTION 4.08. Servicing Fee. The Servicing Fee for a Distribution Date shall equal the product of (a) one-fourth, (b) the Servicing Fee Rate and (c) the Pool Balance as of the first day of the preceding Collection Period. The Servicer shall also be entitled to all late fees, prepayment charges (including, in the case of a Receivable that provides for payments according to the "Rule of 78s" and that is prepaid in full, the difference between the Principal Balance of such Receivable (plus accrued interest to the date of prepayment) and the principal balance of such Receivable computed according to the "Rule of 78s"), and other administrative fees or similar charges allowed by applicable law with respect to the Receivables, collected (from whatever source) on the Receivables, plus any reimbursement pursuant to the last paragraph of Section 7.02. SECTION 4.09. Servicer's Certificate. Not later than 11:00 a.m. (New York time) on the 10th day of each month, or if such 10th day is not a Business Day, the next succeeding Business Day, the Servicer shall deliver to the Owner Trustee, each Paying Agent, the Indenture Trustee, the Backup Servicer (in electronic media form acceptable to the Backup Servicer) and the Depositor, with a copy to the Rating Agencies, a Servicer's Certificate substantially in the form attached hereto as Exhibit C setting forth the applicable information for each of the items set forth therein. Receivables to be purchased by the Servicer or by NAL shall be identified by the Servicer by account number with respect to such Receivable (as specified in Schedule A). SECTION 4.10. Annual Statement as to Compliance; Notice of Default. (a) The Servicer shall deliver to the Owner Trustee and the Indenture Trustee, on or before February 28 of each year beginning February 28, 1997, an Officers' Certificate, dated as of December 31 of the preceding year, stating that (i) a review of the activities of the Servicer during the preceding 12-month period (or such shorter period as shall have elapsed since the Closing Date) and of its performance under this Agreement has been made under such officers' supervision and (ii) to the best of such officers' knowledge, based on such review, the Servicer has fulfilled all its obligations under this Agreement throughout such year or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officers and the nature and status thereof. The Indenture Trustee shall send a copy of such certificate and the report referred to in Section 4.11 to each Rating Agency. A copy of such certificate and the report referred to in Section 4.11 may be obtained by any Certificateholder or Noteholder by a request in writing to the Owner Trustee addressed to the Corporate Trust Office. Upon the telephone request of the Owner Trustee, the Indenture Trustee will promptly furnish the Owner Trustee with a list of Noteholders as of the date specified by the Owner Trustee. (b) The Servicer shall deliver to the Owner Trustee, the Indenture Trustee, the Backup Servicer and each Rating Agency, promptly after having obtained knowledge thereof, but in no event later than five (5) Business Days thereafter, written notice in an Officers' Certificate of any event which with the giving of notice or lapse of time, or both, would become a Servicer Default under Section 8.01. SECTION 4.11. Annual Independent Certified Public Accountants' Report. The Servicer shall cause a firm of independent certified public accountants, which may also render other services to the Servicer, the Depositor or their Affiliates, to deliver to the Owner Trustee and the Indenture Trustee on or before February 28 of each year beginning February 28, 1997, a report addressed to the Board of Directors of the Servicer, to the effect that such firm has examined the financial statements of the Servicer for the preceding twelve months for, in the case of the first such report, during such longer period that shall have elapsed since the Closing Date) and issued its report thereon and that such examination (a) was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as such firm considered necessary in the circumstances; (b) included tests relating to automotive loans serviced for others in accordance with the requirements of the Uniform Single Audit Program for Mortgage Bankers 17 (the "Program"), to the extent the procedures in such Program are applicable to the servicing obligations set forth in this Agreement; and (c) except as described in the report, disclosed no exceptions or errors in the records relating to automobile, light-duty truck and van loans serviced for others that, in the firm's opinion, paragraph four of such Program requires such firm to report. Such report will also indicate that the firm is independent of the Servicer within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants. SECTION 4.12. Servicer Expenses. The Servicer shall be required to pay all expenses incurred by it in connection with its activities hereunder, including fees and disbursements of independent accountants, taxes imposed on the Servicer and expenses incurred in connection with distributions and reports to Certificateholders and Noteholders. SECTION 4.13. Appointment of Subservicer. The Servicer may at any time appoint a subservicer to perform all or any portion of its obligations as Servicer hereunder; provided, however, that the Rating Agency Condition shall have been satisfied in connection therewith; and provided, further, that the Servicer shall remain obligated and be liable to the Issuer, the Owner Trustee, the Indenture Trustee, the Certificateholders and the Noteholders for the servicing and administering of the Receivables in accordance with the provisions hereof without diminution of such obligation and liability by virtue of the appointment of such subservicer and to the same extent and under the same terms and conditions as if the Servicer alone were servicing and administering the Receivables. The fees and expenses of the subservicer shall be as agreed between the Servicer and its subservicer from time to time, and none of the Issuer, the Owner Trustee, the Indenture Trustee, the Certificateholders or the Noteholders shall have any responsibility therefor. SECTION 4.14. Oversight of Servicing. (a) Commencing on the date of execution of this Agreement and continuing until the earlier of (i) the termination of the Trust created by the Trust Agreement and (ii) the appointment of the Backup Servicer as Servicer under this Agreement, the Servicer shall, on the last day of each calendar month, deliver to the Backup Servicer in the Computer Tape format acceptable to the Back-up Servicer, such information as is necessary to permit the Backup Servicer to service the Receivables in accordance with the provisions of this Agreement. The Backup Servicer shall accept and store, but shall not be required to examine, such information. Upon notice that the Servicer has resigned or upon the removal of the Servicer under this Agreement, the Backup Servicer shall assume all responsibilities of the Servicer (or of Indenture Trustee or any other Person then acting as successor to such Servicer in accordance with Sections 8.01 and 8.02) under this Agreement within thirty days of such notice or removal. The Backup Servicer shall service the Receivables in accordance with provisions of this Agreement. (b) On the date that each Servicer's Certificate is delivered by the Servicer to the Owner Trustee and Indenture Trustee, the Servicer shall also deliver a Computer Tape containing detailed information with respect to the Receivables for the related Collection Period. The Backup Servicer shall determine that (i) the Servicer's Certificate appears on its face to be complete and (ii) that amounts credited to and withdrawn from the Trust Accounts and the balance of such Trust Accounts are the same as the amount set forth in such Servicer's Certificate. To the extent verifiable using the information contained in the Servicer's Certificate, the Backup Servicer shall calculate and check that the calculations made by the Servicer in the Servicer's Certificate are mathematically accurate. (c) In the event of any discrepancies or exceptions noted by the Backup Servicer in the Servicer's Certificate, the Backup Servicer shall, within three Business Days of its receipt of the Servicer's Certificate, notify the Servicer of such discrepancies or exceptions. The Servicer shall consult with the Backup Servicer and use its best efforts to ensure that such Servicer's Certificate is corrected, and that subsequent Servicer's Certificates are accurate. If such discrepancies or exceptions 18 cannot be reconciled within 30 days, the Backup Servicer's interpretation shall prevail for all subsequent Distribution Dates. (d) The Backup Servicer will not be responsible for delays attributable to the Servicer's failure to deliver information, defects in the information supplied by Servicer or other circumstances beyond the control of the Backup Servicer. SECTION 4.15. Duties of Backup Servicer. (a) The Backup Servicer shall perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Backup Servicer. (b) In the absence of bad faith or negligence on its part, the Backup Servicer may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Backup Servicer and conforming to the requirements of this Agreement. (c) The Backup Servicer shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if the repayment of such funds or adequate written indemnity against such risk or liability is not reasonably assured to it in writing prior to the expenditure or risk of such funds or incurrence of financial liability. (d) The Servicer shall indemnify, defend and hold harmless the Backup Servicer, its agents, officers, directors or employees from and against any claim, action, loss, damage, penalty, fine, cost, expense, or other liability, including court costs and reasonable attorney's fees and expenses, incurred as a result of its acts or omissions or its breach of its own representations made in this Agreement or the Backup Servicer's performance of its duties under this Agreement. The right of indemnification provided hereby shall survive the termination of this Agreement. The Servicer shall not be liable to the Backup Servicer, under this Section 4.15 or otherwise, for the improper acts, negligence or bad faith of the Backup Servicer. ARTICLE V Trust Accounts; Distributions; Reserve Account; Statements to Certificateholders and Noteholders SECTION 5.01. Establishment of Trust Accounts. (a) (i) The Servicer, for the benefit of the Noteholders and the Certificateholders, shall establish and maintain in the name of the Indenture Trustee an Eligible Deposit Account (the "Collection Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders and the Certificateholders. (ii) The Servicer, for the benefit of the Noteholders, shall establish and maintain in the name of the Indenture Trustee an Eligible Deposit Account (the "Note Distribution Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders. (iii) The Servicer, for the benefit of the Noteholders and the Certificateholders, shall establish and maintain in the name of the Indenture Trustee an Eligible Deposit Account (the "Reserve Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders and the Certificateholders. 19 (iv) The Servicer, for the benefit of the Noteholders and the Certificateholders, shall establish and maintain in the name of the Indenture Trustee an Eligible Deposit Account (the "Payahead Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders and the Certificateholders. (v) The Servicer, for the benefit of the Noteholders, the Certificateholders and NAL, shall establish and maintain in the name of the Indenture Trustee an Eligible Deposit Account (the "Dealer Reserve Account") bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders, the Certificateholders, the Depositor and NAL. (b) With respect to the Collection Account, the Note Distribution Account, the Reserve Account, the Payahead Account and the Dealer Reserve Amount (collectively the "Trust Accounts") funds on deposit in such Trust Accounts (other than the Note Distribution Account) shall be invested by the Indenture Trustee in Eligible Investments. All such Eligible Investments of the Trust Fund shall be held by the Indenture Trustee for the benefit of the beneficiaries of such accounts; provided, that on each Payment Determination Date all interest and other investment income (net of losses and investment expenses) on funds on deposit in the Trust Accounts (other than the Dealer Reserve Account) shall be deposited into the Collection Account and shall be deemed to constitute a portion of the Total Distribution Amount for the related Distribution Date. Investment income (net of losses and investment expenses) on the Dealer Reserve Account will be payable on each Distribution Date to the Depositor. Other than as permitted by each Rating Agency, funds on deposit in the Trust Accounts shall be invested in Eligible Investments that will mature not later than the Business Day immediately preceding the next Distribution Date. Funds deposited in a Trust Account on a day which immediately precedes a Distribution Date are not required to be invested overnight. (c) (i) The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Trust Accounts and in all proceeds thereof (including all income thereon) and all such funds, investments, proceeds and income shall be part of the Trust Estate. The Trust Accounts shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Noteholders and the Certificateholders (and in the case of the Dealer Reserve Account, NAL), as the case may be. If, at any time, any of the Trust Accounts ceases to be an Eligible Deposit Account, the Indenture Trustee (or the Servicer on its behalf) shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which each Rating Agency may consent) establish a new Trust Account as an Eligible Deposit Account and shall transfer any cash and/or any investments to such new Trust Account. (ii) With respect to the Trust Account Property, the Indenture Trustee agrees, by its acceptance hereof, that: (A) any Trust Account Property that is held in deposit accounts shall be held solely in the Eligible Deposit Accounts, subject to the last sentence of Section 5.01(c)(i); and each such Eligible Deposit Account shall be subject to the exclusive custody and control of the Indenture Trustee, and the Indenture Trustee shall have sole signature authority with respect thereto; (B) any Trust Account Property that constitutes Physical Property shall be delivered to the Indenture Trustee in accordance with paragraph (a) of the definition of "Delivery" and shall be held, pending maturity or disposition, solely by the Indenture Trustee or a financial intermediary (as such term is defined in Section 8-313(4) of the UCC) acting solely for the Indenture Trustee; (C) any Trust Account Property that is a book-entry security held through the Federal Reserve System pursuant to federal book-entry regulations shall be delivered in 20 accordance with paragraph (b) of the definition of "Delivery" and shall be maintained by the Indenture Trustee, pending maturity or disposition, through continued book-entry registration of such Trust Account Property as described in such paragraph; and (D) any Trust Account Property that is an "uncertificated security" under Article VIII of the UCC and that is not governed by clause (C) above shall be delivered to the Indenture Trustee in accordance with paragraph (c) of the definition of "Delivery" and shall be maintained by the Indenture Trustee, pending maturity or disposition, through continued registration of the Indenture Trustee's (or its nominee's) ownership of such security. (iii) The Servicer shall have the power, revocable by the Indenture Trustee or by the Owner Trustee with the consent of the Indenture Trustee, to instruct the Indenture Trustee to make withdrawals and payments from the Trust Accounts for the purpose of permitting the Servicer or the Owner Trustee to carry out its respective duties hereunder or permitting the Indenture Trustee to carry out its duties under the Indenture. (d) The Servicer shall on or prior to each Distribution Date (and prior to deposits to the Note Distribution Account or the Certificate Distribution Account) transfer from the Collection Account to the Payahead Account an amount equal to the increase in the Payahead Balance as described in Section 5.03 received by the Servicer during the related Collection Period or, if the Payahead Balance decreased during such Collection Period, shall transfer an amount equal to the amount of such decrease from the Payahead Account to the Collection Account. SECTION 5.02. Collections. The Servicer shall remit within two Business Days of receipt thereof to the Collection Account all payments by or on behalf of the Obligors with respect to the Receivables (other than Purchased Receivables) and all Liquidation Proceeds and Recoveries, both as collected during the Collection Period. SECTION 5.03. Application of Collections. All collections for the Collection Period shall be applied by the Servicer as follows: With respect to each Receivable (other than a Purchased Receivable), payments by or on behalf of the Obligor shall be applied first, in the case of Precomputed Receivables, to the Scheduled Payment and, in the case of Simple Interest Receivables, to interest and principal in accordance with the Simple Interest Method. With respect to Precomputed Receivables, any remaining excess shall be added to the Payahead Balance, and shall be applied to prepay the Precomputed Receivable (in reduction of the Payahead Balance as evidenced by a transfer of the net amount of such reduction from the Payahead Account to the Collection Account), but only if the sum of such excess and the previous Payahead Balance shall be sufficient to prepay the Receivable in full. Otherwise, any such remaining excess payments shall constitute a Payahead (as shall the accumulated amount of such excess on the Receivables as of the Cut-off Date) and shall increase the Payahead Balance. SECTION 5.04. Additional Deposits. The Servicer and the Depositor shall deposit or cause to be deposited in the Collection Account the aggregate Purchase Amount with respect to Purchased Receivables, and the Servicer shall deposit therein all amounts to be paid under Section 9.01. The Servicer will deposit the aggregate Purchase Amount with respect to Purchased Receivables in the Collection Account when such obligations are due. SECTION 5.05. Distributions. (a) On each Payment Determination Date, the Servicer shall calculate all amounts required to be deposited in the Note Distribution Account and the Certificate Distribution Account. 21 (b) On each Distribution Date, the Servicer shall instruct the Indenture Trustee (based on the information contained in the Servicer's Certificate delivered on the related Payment Determination Date pursuant to Section 4.09) to make the following deposits and distributions for receipt by the Servicer or deposit in the applicable account by 1:00 p.m. (New York time), to the extent of the Total Distribution Amount, in the following order of priority: (i) only in the event NAL is not the Servicer, to the Servicer, the Servicing Fee (and all unpaid Servicing Fees from prior Collection Periods); (ii) to the Note Distribution Account, from the Total Distribution Amount remaining after the application of clause (i), the Noteholders' Interest Distributable Amount; (iii) to the Note Distribution Account, from the Total Distribution Amount remaining after the application of clauses (i) and (ii), the Noteholders' Principal Distributable Amount; (iv) to the Certificate Distribution Account, from the Total Distribution Amount remaining after the application of clauses (i) through (iii), the Certificateholders' Interest Distributable Amount; (v) to the Certificate Distribution Account, from the Total Distribution Amount remaining after the application of clauses (i) through (iv), the Certificateholders' Principal Distributable Amount; (vi) to the Reserve Account, the Total Distribution Amount remaining after application of clauses (i) through (v), as and to the extent provided in Section 5.06; (vii) for so long as NAL is the Servicer, to the Servicer, from the Total Distribution Amount remaining after the application of clauses (i) through (vi), the Servicing Fee and all unpaid Servicing Fees from prior Collection Periods; and (viii) to the Depositor, any remaining amount. Notwithstanding that the Notes have been paid in full, the Indenture Trustee shall continue to maintain the Collection Account hereunder until the Certificate Balance is reduced to zero. SECTION 5.06. Reserve Account. (a) (i) On the Closing Date, the Owner Trustee will deposit, on behalf of the Depositor, the Reserve Account Initial Deposit into the Reserve Account from the net proceeds of the sale of the Notes and the Certificates. (ii) If on a Distribution Date (i) the amount on deposit in the Reserve Account, after any withdrawals therefrom on or prior to such Distribution Date, is less than the Specified Reserve Account Balance, there shall be deposited into the Reserve Account on such Distribution Date pursuant Section 5.05(b)(vi) the portion of the Total Distribution Amount on such Distribution Date remaining after payment of the Servicing Fee (but only in the event NAL is not the Servicer), the Noteholders' Distributable Amount and the Certificateholders' Distributable Amount (such amount, the "Excess Spread") until the amount on deposit in the Reserve Account equals the Specified Reserve Account Balance for such Distribution Date and (ii) a Trigger Event has occurred and not terminated, there shall be deposited into the Reserve Account on such Distribution Date pursuant to Section 5.05(vi) all of the Excess Spread, if any, for such Distribution Date. (b) Unless a Trigger Event has occurred and has not terminated, if the amount on deposit in the Reserve Account on any Distribution Date (after giving effect to all deposits thereto or withdrawals 22 therefrom on such Distribution Date) is greater than the Specified Reserve Account Balance for such Distribution Date, the Servicer shall instruct the Indenture Trustee to distribute the amount of such excess to the Depositor. During the pendency of a Trigger Event no amounts will be released to the Depositor from the Reserve Account (other than pursuant to clause (e) of this Section 5.06, if applicable). (c) In the event that the Noteholders' Distributable Amount for a Distribution Date exceeds the sum of the amounts deposited into the Note Distribution Account pursuant to Section 5.05(b)(ii) and (iii) on such Distribution Date, the Servicer shall instruct the Indenture Trustee to withdraw from the Reserve Account on such Distribution Date an amount equal to such excess, to the extent of funds available therein, and deposit such amount into the Note Distribution Account on such Distribution Date. (d) In the event that the Certificateholders' Distributable Amount for a Distribution Date exceeds the sum of the amounts deposited into the Certificate Distribution Account pursuant to Section 5.05(b)(iv) and (v) on such Distribution Date, the Servicer shall instruct the Indenture Trustee to withdraw from the Reserve Account on such Distribution Date an amount equal to such excess, to the extent of funds available therein after giving effect to paragraph (c) above, and deposit such amount into the Certificate Distribution Account on such Distribution Date. (e) Following the payment in full of the aggregate Outstanding Amount of the Notes and the Certificate Balance and of all other amounts owing or to be distributed hereunder or under the Indenture or the Trust Agreement to Noteholders and Certificateholders and the termination of the Trust, any amount remaining on deposit in the Reserve Account shall be distributed to the Depositor. (f) Upon any distribution to the depositor of amounts from the Reserve Fund in accordance with the terms hereof, neither the Noteholders nor the Certificateholders will have any rights in, or claims to, such amounts. SECTION 5.07. Statements to Certificateholders and Noteholders. (a) On or prior to each Distribution Date, the Servicer shall provide to the Indenture Trustee (with a copy to each Rating Agency and each Paying Agent) for the Indenture Trustee to forward to each Noteholder of record as of the most recent Record Date and to the Owner Trustee (with a copy to each Paying Agent) for the Owner Trustee to forward to each Certificateholder of record as of the most recent Record Date a statement substantially in the form of Exhibits A and B, respectively, setting forth at least the following information as to the Notes and the Certificates to the extent applicable: (i) the amount of such distribution allocable to principal allocable to each Class of Notes and to the Certificates; (ii) the amount of such distribution allocable to interest allocable to each Class of Notes and to the Certificates; (iii) the Pool Balance as of the close of business on the last day of the preceding Collection Period; (iv) the Outstanding Amount of each Class of Notes, the Note Pool Factor for each such Class, the Certificate Balance and the Certificate Pool Factor as of the close of business on the last day of the preceding Collection Period, after giving effect to payments allocated to principal reported under clause (i) above; (v) the amount of the Servicing Fee paid to the Servicer with respect to the related Collection Period; 23 (vi) the amount of aggregate Realized Losses, if any, with respect to the related Collection Period; (vii) the aggregate Principal Balance of Receivables that are 30 to 59 days, 60 to 89 days and 90 days or more delinquent; (viii) the Average Three Delinquency Ratio, the Average Six Month Repossession Ratio and the Average Six Month Realized Loss Ratio as of the last day of the related Collection Period. (ix) the Noteholders' Interest Carryover Shortfall, the Noteholders' Principal Carryover Shortfall, the Certificateholders' Interest Carryover Shortfall and the Certificateholders' Principal Carryover Shortfall, if any, in each case as applicable to each Class of Securities, after giving effect to payments on such Distribution Date, and the changes in such amounts from the preceding statement; (x) the aggregate Purchase Amounts for Receivables, if any, that were purchased by NAL or the Servicer during the related Collection Period; (xi) the balance, if any, of the Reserve Account after giving effect to deposits and withdrawals to be made on such Distribution Date, and the change in such balance from the preceding Statement; and (xii) the aggregate Payahead Balance. Each amount set forth under clauses (i), (ii), (v) and (ix) above shall be expressed as a dollar amount per $1,000 of original principal balance of a Certificate or Note, as applicable. (b) On or prior to the 15th day of each month that is not a month in which a Distribution Date occurs and on or prior to each Distribution Date, the Indenture Trustee shall forward to each Noteholder of record and the Owner Trustee shall forward to each Certificateholder of record the Servicer's Certificate provided to it pursuant to Section 4.09 (except that on any Distribution Date information otherwise provided to such holder pursuant to clause (a) of this Section 5.08 need not have been included in such certificate). SECTION 5.08. Transfer of the Notes. In the event any Holder of the Notes shall wish to transfer such Note, the Depositor shall provide to such Holder and any prospective transferee designated by such Holder information regarding the Notes and the Receivables and such other information as shall be necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4) for transfer of any such Note without registration thereof under the Securities Act of 1933, as amended, pursuant to the exemption from registration provided by Rule 144A. SECTION 5.09. Dealer Reserve Account. (a) On the Closing Date, the Owner Trustee will deposit, on behalf of the Depositor, an amount equal to $127,734.45 into the Dealer Reserve Account. (b) On each Distribution Date, the Servicer shall be entitled to withdraw from the Dealer Reserve Account for payment to NAL, an amount equal to the amount payable or paid by NAL to Dealers (other than SFI and AA) during the related Collection Period in respect of dealer reserves on the Receivables and amounts to which NAL may be entitled from such dealer reserves under NAL's agreements with such Dealers. After payment in full, or the provision for such payment, of all amounts payable to Dealers (other than SFI and AA) in respect of dealer reserves on the Receivables, any funds remaining on deposit in the Dealer Reserve Account will be paid to the Depositor. Amounts on deposit in the Dealer Reserve Account will not be available to make payments on the Securities or for any other purpose other than that set forth above in this clause (b). 24 ARTICLE VI The Depositor SECTION 6.01. Representations of Depositor. The Depositor makes the following representations on which the Issuer relies in acquiring the Receivables and issuing the Notes and the Certificates. The representations speak as of the execution and delivery of this Agreement and as of the Closing Date and shall survive the sale of the Receivables to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. (a) Organization and Good Standing. The Depositor is duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware, with the corporate power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted, and had at all relevant times, and has, the corporate power, authority and legal right to acquire and own the Receivables. (b) Due Qualification. The Depositor is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of its property or the conduct of its business shall require such qualifications. (c) Power and Authority. The Depositor has the corporate power and authority to execute and deliver this Agreement and to carry out its terms; the Depositor has full power and authority to sell and assign the property to be sold and assigned to and deposited with the Issuer, and the Depositor shall have duly authorized such sale and assignment to the Issuer by all necessary corporate action; and the execution, delivery and performance of this Agreement has been duly authorized by the Depositor by all necessary corporate action. (d) Binding Obligation. This Agreement constitutes a legal, valid and binding obligation of the Depositor enforceable in accordance with its terms. (e) No Violation. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the certificate of incorporation or bylaws of the Depositor, or any indenture, agreement or other instrument to which the Depositor is a party or by which it is bound; or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than pursuant to the Basic Documents); or violate any law or, to the best of the Depositor's knowledge, any order, rule or regulation applicable to the Depositor of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties. (f) No Proceedings. There are no proceedings or investigations pending, or to the Depositor's best knowledge, threatened, before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties: (i) asserting the invalidity of this Agreement, the Receivables Purchase Agreement, the Indenture or any of the other Basic Documents, the Notes or the Certificates, (ii) seeking to prevent the issuance of the Notes or the Certificates or the consummation of any of the transactions contemplated by this Agreement, the Receivables Purchase Agreement, the Indenture or any of the other Basic Documents, (iii) seeking any determination or ruling that might materially and adversely affect the performance by the Depositor of its obligations under, or the validity or enforceability of, this Agreement, the Receivables Purchase Agreement, the Indenture, 25 any of the other Basic Documents, the Notes or the Certificates or (iv) which might adversely affect the federal or state income tax attributes of the Notes or the Certificates. (g) Principal Place of Business. The principal place of business and chief executive office of the Depositor are located at the place set forth in Section 10.03(a) and such location has not changed since the date the Depositor was incorporated. (h) Use of Names. The legal name of Depositor is the name used by it in this Agreement and Depositor has not changed its name since the date of its incorporation and does not have trade names, fictitious names, assumed names or "doing business" names. (i) Solvency. Depositor is solvent and will not become insolvent after giving effect to the transactions contemplated in this Agreement; Depositor is paying its debts, if any, as they become due; Depositor, after giving effect to the transactions contemplated in this Agreement, will have adequate capital to conduct its business. SECTION 6.02. Corporate Existence. (a) During the term of this Agreement, the Depositor will keep in full force and effect its existence, rights and franchises as a corporation under the laws of the jurisdiction of its incorporation and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement, the Basic Documents and each other instrument or agreement necessary or appropriate to the proper administration of this Agreement and the transactions contemplated hereby. (b) During the term of this Agreement, the Depositor shall observe the applicable legal requirements for the recognition of the Depositor as a legal entity separate and apart from its Affiliates, including the following: (i) the Depositor shall maintain corporate records and books of account separate from those of its Affiliates; (ii) except as otherwise provided in this Agreement, the Depositor shall not commingle its assets and funds with those of its Affiliates; (iii) the Depositor shall hold such appropriate meetings of its board of directors as are necessary to authorize all the Depositor's corporate actions required by law to be authorized by the board of directors, shall keep minutes of such meetings and of meetings of its stockholder(s) and observe all other customary corporate formalities (and any successor Depositor not a corporation shall observe similar procedures in accordance with its governing documents and applicable law); (iv) the Depositor shall at all times hold itself out to the public under the Depositor's own name as a legal entity separate and distinct from its Affiliates; (v) all transactions and dealings between the Depositor and its Affiliates will be conducted on an arm's-length basis; (vi) except as provided for by the Basic Documents, the Depositor shall not utilize NAL as its agent and shall not agree to act as the agent of any other Person; and (vii) the Depositor shall at all times have at least one director that is an "Independent Director" as such term is defined in the certificate of incorporation. 26 SECTION 6.03. Liability of Depositor; Indemnities. (a) The Depositor shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Depositor under this Agreement. (b) The Depositor shall indemnify, defend and hold harmless the Issuer, the Owner Trustee, the Indenture Trustee, the Certificateholders and the Noteholders and any of the officers, directors, employees and agents of the Issuer, the Owner Trustee and the Indenture Trustee from and against any loss, liability or expense incurred by reason of (i) the Depositor's willful misfeasance, bad faith or negligence in the performance of its duties under this Agreement or by reason of reckless disregard of its obligations and duties under this Agreement and (ii) the Depositor's or the Issuer's violation of federal or state securities laws in connection with the offering and sale of the Notes and the Certificates. Indemnification under this Section shall survive the resignation or removal of the Owner Trustee or the Indenture Trustee and the termination of this Agreement and shall include reasonable fees and expenses of counsel and expenses of litigation. If the Depositor shall have made any indemnity payments pursuant to this Section and the Person to or on behalf of whom such payments are made thereafter shall collect any of such amounts from others, such Person shall promptly repay such amounts to the Depositor, without interest. SECTION 6.04. Merger or Consolidation of, or Assumption of the Obligations of, Depositor. Any Person (a) into which the Depositor may be merged or consolidated, (b) which may result from any merger or consolidation to which the Depositor shall be a party or (c) which may succeed to the properties and assets of the Depositor substantially as a whole, which Person in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Depositor under this Agreement, shall be the successor to the Depositor hereunder without the execution or filing of any document or any further act by any of the parties to this Agreement; provided, however, that (i) immediately after giving effect to such transaction, no representation or warranty made pursuant to Section 3.01 shall have been breached and no Servicer Default, and no event that, after notice or lapse of time, or both, would become a Servicer Default shall have occurred and be continuing, (ii) the Depositor shall have delivered to the Owner Trustee and the Indenture Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger or succession and such agreement of assumption comply with this Section and that all conditions precedent, if any, provided for in this Agreement relating to such transaction have been complied with, (iii) the Rating Agency Condition shall have been satisfied with respect to such transaction and (iv) the Depositor shall have delivered to the Owner Trustee and the Indenture Trustee an Opinion of Counsel stating that, in the opinion of such counsel, either (A) all financing statements and continuation statements and amendments thereto have been executed and filed that are necessary fully to preserve and protect the interest of the Owner Trustee and Indenture Trustee, respectively, in the Receivables and reciting the details of such filings, or (B) no such action shall be necessary to preserve and protect such interests. Notwithstanding anything herein to the contrary, the execution of the foregoing agreement of assumption and compliance with clauses (i), (ii), (iii) and (iv) above shall be conditions to the consummation of the transactions referred to in clauses (a), (b) or (c) above. SECTION 6.05. Limitation on Liability of Depositor and Others. The Depositor and any director, officer, employee or agent of the Depositor may rely in good faith on the advice of counsel or on any document of any kind, prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor shall not be under any obligation to appear in, prosecute or defend any legal action that shall not be incidental to its obligations under this Agreement and that in its opinion may involve it in any expense or liability. SECTION 6.06. Depositor May Own Certificates or Notes. The Depositor and any Affiliate thereof may in its individual or any other capacity become the owner or pledgee of Certificates or Notes 27 with the same rights as it would have if it were not the Depositor or an Affiliate thereof, except as expressly provided herein or in any Basic Document. SECTION 6.07. Sale of Receivables. Depositor shall take no actions inconsistent with the Trust's ownership of the Receivables. Depositor shall promptly respond to any third-party inquiries regarding the Receivables by indicating that ownership thereof has been transferred to the Trust. ARTICLE VII The Servicer; Backup Servicer SECTION 7.01. Representations of Servicer. The Servicer makes the following representations on which the Issuer relies in acquiring the Receivables and issuing the Notes and the Certificates. The representations speak as of the execution and delivery of this Agreement and as of the Closing Date and shall survive the sale of the Receivables to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. (a) Organization and Good Standing. The Servicer is duly organized and validly existing as a corporation in good standing under the laws of the state of its incorporation, with the corporate power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted, and had at all relevant times, and has, the corporate power, authority and legal right to acquire, own, sell and service the Receivables. (b) Due Qualification. The Servicer is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business (including the servicing of the Receivables as required by this Agreement) shall require such qualifications. (c) Power and Authority. The Servicer has the corporate power and authority to execute and deliver this Agreement and to carry out its terms; and the execution, delivery and performance of this Agreement have been duly authorized by the Servicer by all necessary corporate action. (d) Binding Obligation. This Agreement constitutes a legal, valid and binding obligation of the Servicer enforceable in accordance with its terms. (e) No Violation. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof shall not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or bylaws of the Servicer, or any indenture, agreement or other instrument to which the Servicer is a party or by which it is bound; or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than this Agreement); or violate any law or any order, rule or regulation applicable to the Servicer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Servicer or its properties. (f) No Proceedings. There are no proceedings or investigations pending or, to the Servicer's best knowledge, threatened, before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Servicer or its properties: (i) asserting the invalidity of this Agreement, the Receivables Purchase Agreement, the Indenture, 28 any of the other Basic Documents, the Notes or the Certificates, (ii) seeking to prevent the issuance of the Notes or the Certificates or the consummation of any of the transactions contemplated by this Agreement, the Receivables Purchase Agreement, the Indenture or any of the other Basic Documents, (iii) seeking any determination or ruling that might materially and adversely affect the performance by the Servicer of its obligations under, or the validity or enforceability of, this Agreement, the Receivables Purchase Agreement, the Indenture, any of the other Basic Documents, the Notes or the Certificates or (iv) relating to the Servicer and which might adversely affect the federal or state income tax attributes of the Notes or the Certificates. (g) No Insolvent Obligors. As of the Cutoff Date, no Obligor on a Receivable is shown on the Receivable Files as the subject of a bankruptcy proceeding. SECTION 7.02. Indemnities of Servicer. The Servicer shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Servicer under this Agreement: (a) The Servicer shall indemnify, defend and hold harmless the Issuer, the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Noteholders, the Certificateholders, and the Depositor, their respective officers, directors, employees and agents from and against any and all costs, expenses, losses, damages, claims and liabilities, arising out of or resulting from the use, ownership or operation by the Servicer or any Affiliate thereof of a Financed Vehicle. (b) The Servicer shall indemnify, defend and hold harmless the Issuer, the Owner Trustee, the Indenture Trustee, the Backup Servicer and the Depositor and their respective officers, directors, employees and agents from and against any taxes that may at any time be asserted against any such Person with respect to the transactions contemplated herein and in the Basic Documents, including any sales, gross receipts, general corporation, tangible personal property, privilege or license taxes (but, in the case of the Issuer, not including any taxes asserted with respect to, and as of the date of, the sale of the Receivables to the Issuer or the issuance and original sale of the Certificates and the Notes, or asserted with respect to ownership of the Receivables, or federal or other income taxes arising out of distributions on or transfers of the Certificates or the Notes) and costs and expenses in defending against the same. (c) The Servicer shall indemnify, defend and hold harmless the Issuer, the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Depositor, the Certificateholders and the Noteholders and their respective officers, directors, employees and agents from and against any and all costs, expenses, losses, claims, damages and liabilities to the extent that such cost, expense, loss, claim, damage or liability arose out of, or was imposed upon any such Person through, the negligence, willful misfeasance or bad faith of the Servicer in the performance of its duties under this Agreement or by reason of reckless disregard of its obligations and duties under this Agreement. (d) The Servicer shall indemnify, defend and hold harmless the Owner Trustee and the Indenture Trustee and their respective officers, directors, employees and agents from and against all costs, expenses, losses, claims, damages and liabilities arising out of or incurred in connection with the acceptance or performance of the trusts and duties herein and in the Trust Agreement contained, in the case of the Owner Trustee, and in the Indenture contained, in the case of the Indenture Trustee, except to the extent that such cost, expense, loss, claim, damage or liability: (i) in the case of the Owner Trustee, shall be due to the willful misfeasance, bad faith or negligence (except for errors in judgment) of the Owner Trustee or, in the case of the Indenture Trustee, shall be due to the willful misfeasance, bad faith or negligence (except for errors in judgment) of the Indenture Trustee; or (ii) in the case of the Owner Trustee, shall arise from the breach by the Owner Trustee of any of its representations or warranties set forth in Section 7.03 of the Trust Agreement. 29 (e) The Servicer shall pay any and all taxes levied or assessed upon all or any part of the Owner Trust Estate. For purposes of this Section, in the event of the termination of the rights and obligations of NAL (or any successor thereto pursuant to Section 7.03) as Servicer pursuant to Section 8.01, or a resignation by such Servicer pursuant to this Agreement, such Servicer shall be deemed to be the Servicer pending appointment of a successor Servicer (other than the Indenture Trustee) pursuant to Section 8.02. Indemnification under this Section shall survive the resignation or removal of the Owner Trustee or the Indenture Trustee or the termination of this Agreement and shall include reasonable fees and expenses of counsel and expenses of litigation. If the Servicer shall have made any indemnity payments pursuant to this Section and the Person to or on behalf of whom such payments are made thereafter collects any of such amounts from others, such Person shall promptly repay such amounts to the Servicer, without interest. SECTION 7.03. Merger or Consolidation of, or Assumption of the Obligations of, Servicer. Any Person (a) into which the Servicer may be merged or consolidated, (b) which may result from any merger or consolidation to which the Servicer shall be a party, (c) which may succeed to the properties and assets of the Servicer substantially as a whole or (d) with respect to the Servicer's obligations hereunder, which is a corporation 50% or more of the voting stock of which is owned, directly or indirectly, by NAL, which Person executed an agreement of assumption to perform every obligation of the Servicer hereunder, shall be the successor to the Servicer under this Agreement without further act on the part of any of the parties to this Agreement; provided, however, that (i) immediately after giving effect to such transaction, no Servicer Default and no event which, after notice or lapse of time, or both, would become a Servicer Default shall have occurred and be continuing, (ii) the Servicer shall have delivered to the Owner Trustee and the Indenture Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger or succession and such agreement of assumption comply with this Section and that all conditions precedent provided for in this Agreement relating to such transaction have been complied with, (iii) the Rating Agency Condition shall have been satisfied with respect to such transaction, (iv) immediately after giving effect to such transaction, the successor to the Servicer shall become the Administrator under the Administration Agreement in accordance with Section 8 of such Agreement and (v) the Servicer shall have delivered to the Owner Trustee and the Indenture Trustee an Opinion of Counsel stating that, in the opinion of such counsel, either (A) all financing statements and continuation statements and amendments thereto have been executed and filed that are necessary fully to preserve and protect the interest of the Owner Trustee and the Indenture Trustee, respectively, in the Receivables and reciting the details of such filings or (B) no such action shall be necessary to preserve and protect such interests. Notwithstanding anything herein to the contrary, the execution of the foregoing agreement of assumption and compliance with clauses (i), (ii), (iii), (iv) and (v) above shall be conditions to the consummation of the transactions referred to in clause (a), (b) or (c) above. SECTION 7.04. Limitation on Liability of Servicer and Others. Neither the Servicer nor any of the directors, officers, employees or agents of the Servicer shall be under any liability to the Issuer, the Noteholders or the Certificateholders, except as provided under this Agreement, for any action taken or for refraining from the taking of any action pursuant to this Agreement or for errors in judgment; provided, however, that this provision shall not protect the Servicer or any such person against any liability that would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of duties or by reason of reckless disregard of obligations and duties under this Agreement. The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any person respecting any matters arising under this Agreement. 30 Except as provided in this Agreement, the Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that shall not be incidental to its duties to service the Receivables in accordance with this Agreement and that in its opinion may involve it in any expense or liability; provided, however, that the Servicer may undertake any reasonable action that it may deem necessary or desirable in respect of this Agreement and the Basic Documents and the rights and duties of the parties to this Agreement and the Basic Documents and the interests of the Certificateholders under the Trust Agreement and the Noteholders under the Indenture. SECTION 7.05. NAL Not To Resign as Servicer. Subject to the provisions of Section 7.03, NAL shall not resign from the obligations and duties hereby imposed on it as Servicer under this Agreement except upon a determination that the performance of its duties under this Agreement shall no longer be permissible under applicable law. Notice of any such determination permitting the resignation of NAL shall be communicated to the Owner Trustee and the Indenture Trustee at the earliest practicable time (and, if such communication is not in writing, shall be confirmed in writing at the earliest practicable time) and any such determination shall be evidenced by an Opinion of Counsel to such effect delivered to the Owner Trustee and the Indenture Trustee concurrently with or promptly after such notice. No such resignation shall become effective until the Indenture Trustee or a successor Servicer shall (i) have assumed the responsibilities and obligations of NAL in accordance with Section 8.02 and (ii) have become the Administrator under the Administration Agreement in accordance with Section 8 of such Agreement. SECTION 7.06. Representations of Backup Servicer. The Backup Servicer makes the following representations on which the Issuer relies in acquiring the Receivables and issuing the Notes and the Certificates. The representations speak as of the execution and delivery of this Agreement and as of the Closing Date and shall survive the sale of the Receivables to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. (a) Organization and Good Standing. The Backup Servicer is duly organized and validly existing as a New York banking corporation in good standing under the laws of the state of its incorporation, with the corporate power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted, and had at all relevant times, and has, the corporate power, authority and legal right to acquire, own, sell and service the Receivables. (b) Due Qualification. The Backup Servicer is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business (including the servicing of the Receivables as required by this Agreement) shall require such qualifications. (c) Power and Authority. The Backup Servicer has the corporate power and authority to execute and deliver this Agreement and to carry out its terms; and the execution, delivery and performance of this Agreement have been duly authorized by the Backup Servicer by all necessary corporate action. (d) Binding Obligation. This Agreement constitutes a legal, valid and binding obligation of the Backup Servicer enforceable in accordance with its terms. SECTION 7.07. Merger or Consolidation of, or Assumption of the Obligations of, Backup Servicer. Any Person (a) into which the Backup Servicer may be merged or consolidated, (b) which may result from any merger or consolidation to which the Backup Servicer shall be a party, (c) which may succeed to the properties and assets of the Backup Servicer substantially as a whole or (d) with respect to the Backup Servicer's obligations hereunder, shall be the successor to the Backup Servicer under this Agreement without further act on the part of any of the parties to this Agreement. 31 SECTION 7.08. Resignation as Backup Servicer. Subject to the provisions of Section 7.07, the Backup Servicer may resign upon 30 days' written notice to the Indenture Trustee and the Owner Trustee; provided, however, that no such resignation shall become effective unless and until a successor reasonably acceptable to the Indenture Trustee and the Owner Trustee shall have assumed the responsibilities and obligations of the Backup Servicer and the Rating Agency Condition shall have been satisfied in connection therewith; provided, further, that if the Backup Servicer shall have resigned after its determination that the performance of its duties under this Agreement shall no longer be permissible under applicable law as evidenced by an Opinion of Counsel to such effect delivered to the Owner Trustee and the Indenture Trustee, then, in the event a successor Backup Servicer is not appointed within 30 days after such a resignation, the Backup Servicer may petition a court for its removal. ARTICLE VIII Default SECTION 8.01. Servicer Default. If any one of the following events (a "Servicer Default") shall occur and be continuing: (a) any failure by the Servicer to deliver or cause to be delivered to the Owner Trustee or the Indenture Trustee, as applicable, for deposit in any of the Trust Accounts or the Certificate Distribution Account any required payment or to direct the Owner Trustee or the Indenture Trustee, as applicable, to make any required distributions therefrom, which failure continues unremedied for a period of five Business Days after discovery of such failure by an officer of the Servicer, or after the date on which written notice of such failure shall have been given (A) to the Servicer by the Owner Trustee or the Indenture Trustee, as applicable, or (B) to the Servicer, and to the Owner Trustee and the Indenture Trustee, as applicable, by the Holders of Notes, evidencing not less than 25% of the Outstanding Amount of the Notes or, if the Notes have been paid in full, by Holders of Certificates evidencing not less than 25% of the outstanding Certificate Balance; or (b) failure by the Servicer duly to observe or to perform in any material respect any other covenants or agreements of the Servicer set forth in this Agreement or any other Basic Document, which failure shall (i) materially and adversely affect the rights of Certificateholders or Noteholders and (ii) continue unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given (A) to the Servicer by the Owner Trustee or the Indenture Trustee or (B) to the Servicer, and to the Owner Trustee and the Indenture Trustee by the Holders of Notes or Certificates, as applicable, evidencing not less than 25% of the Outstanding Amount of the Notes or 25% of the outstanding Certificate Balance; or (c) the occurrence of an Insolvency Event with respect to the Servicer; then, and in each and every case, so long as the Servicer Default shall not have been remedied, either the Indenture Trustee or the Holders of Notes evidencing not less than 25% of the Outstanding Amount of the Notes, by notice then given in writing to the Servicer (and to the Indenture Trustee and the Owner Trustee if given by the Noteholders) may terminate all the rights and obligations (other than the obligations set forth in Section 7.02 hereof) of the Servicer under this Agreement. On or after the receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Notes, the Certificates or the Receivables or otherwise, shall, without further action, pass to and be vested in the Indenture Trustee or such successor Servicer as may be appointed under Section 8.02; and, without limitation, the Indenture Trustee and the Owner 32 Trustee are hereby authorized and empowered to execute and deliver, for the benefit of the predecessor Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement of the Receivables and related documents, or otherwise. The predecessor Servicer shall cooperate with the successor Servicer, the Indenture Trustee and the Owner Trustee in effecting the termination of the responsibilities and rights of the predecessor Servicer under this Agreement, including the transfer to the successor Servicer for administration by it of all cash amounts that shall at the time be held by the predecessor Servicer for deposit, or shall thereafter be received by it with respect to any Receivable. All reasonable costs and expenses (including attorneys' fees) incurred in connection with transferring the Receivable Files to the successor Servicer and amending this Agreement to reflect such succession as Servicer pursuant to this Section shall be paid by the predecessor Servicer upon presentation of reasonable documentation of such costs and expenses. Upon receipt of notice of the occurrence of a Servicer Default, the Owner Trustee shall give notice thereof to each Rating Agency. SECTION 8.02. Appointment of Successor. (a) Upon the Servicer's receipt of notice of termination pursuant to Section 8.01 or the Servicer's resignation in accordance with the terms of this Agreement, the predecessor Servicer shall continue to perform its functions as Servicer under this Agreement, in the case of termination, only until the date specified in such termination notice or, if no such date is specified in a notice of termination, until receipt of such notice and, in the case of resignation, until the later of (i) the date 45 days from the delivery to the Owner Trustee, the Indenture Trustee and the Backup Servicer of written notice of such resignation (or written confirmation of such notice) in accordance with the terms of this Agreement and (ii) the date upon which the predecessor Servicer shall become unable to act as Servicer, as specified in the notice of resignation and accompanying Opinion of Counsel. In the event of the Servicer's termination hereunder, the Indenture Trustee shall appoint a successor Servicer, and the successor Servicer shall accept its appointment (including its appointment as Administrator under the Administration Agreement as set forth in Section 8.02(b)) by a written assumption in form acceptable to the Owner Trustee and the Indenture Trustee. If the Indenture Trustee appoints the Backup Servicer as successor Servicer in accordance with Sections 7.03 or 8.01 (after confirmation from each Rating Agency that such appointment will not result in the withdrawal or downgrade of the then current ratings of the Class A-1 Notes, the Class A-2 Notes and the Certificates), the Backup Servicer shall be the successor in all respects to the Servicer in its capacity as Servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof; provided, however, that the Backup Servicer shall not be liable for any acts or omissions of the Servicer occurring prior to such succession or for any breach by the Servicer of any of its representations and warranties contained herein or in any related document or agreement. Notwithstanding the above, if the Backup Servicer is legally unable or unwilling to act as Servicer, the Indenture Trustee will appoint a successor Servicer to act as Servicer. As compensation for acting as successor Servicer, the Backup Servicer shall be entitled to receive the Servicing Fee. In the event that a successor Servicer has not been appointed at the time when the predecessor Servicer has ceased to act as Servicer in accordance with this Section, the Indenture Trustee without further action shall automatically be appointed the successor Servicer and the Indenture Trustee shall be entitled to the Servicing Fee. Notwithstanding the above, the Indenture Trustee shall, if it shall be legally unable so to act, appoint or petition a court of competent jurisdiction to appoint any established institution, having a net worth of not less than $50,000,000 and whose regular business shall include the servicing of automotive receivables, as the successor to the Servicer under this Agreement. (b) Upon appointment, the successor Servicer (including the Indenture Trustee acting as successor Servicer) shall (i) be the successor in all respects to the predecessor Servicer and shall be subject to all the responsibilities, duties and liabilities arising thereafter relating thereto placed on the predecessor Servicer and shall be entitled to the Servicing Fee and all the rights granted to the 33 predecessor Servicer by the terms and provisions of this Agreement and (ii) become the Administrator under the Administration Agreement in accordance with Section 8 of such Agreement. (c) The Servicer may not resign unless it is prohibited from serving as such by law. SECTION 8.03. Notification to Noteholders and Certificateholders. Upon any termination of, or appointment of a successor to the Servicer pursuant to this Article VIII, the Owner Trustee shall give prompt written notice thereof to Certificateholders, and the Indenture Trustee shall give prompt written notice thereof to Noteholders and each Rating Agency. SECTION 8.04. Waiver of Past Defaults. The Holders of Notes evidencing not less than a majority of the Outstanding Amount of the Notes or the Holders of Certificates evidencing not less than a majority of the outstanding Certificate Balance (in the case of any default which does not adversely affect the Indenture Trustee or the Noteholders) may, on behalf of all Noteholders and Certificateholders, waive in writing any default by the Servicer in the performance of its obligations hereunder and its consequences, except a default in making any required deposits to or payments from any of the Trust Accounts in accordance with this Agreement or in respect of a covenant or the Servicer or provision herein that cannot be waived without the consent of each Securityholder (which event the related waiver will require the approval of the Holders of all Securities). Upon any such waiver of a past default, such default shall cease to exist, and any Servicer Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto. ARTICLE IX Termination SECTION 9.01. Optional Purchase of All Receivables. (a) As of the last day of any Collection Period immediately preceding a Distribution Date as of which the then outstanding Pool Balance is 5% or less of the Original Pool Balance, the Servicer shall have the option to purchase the Owner Trust Estate, other than the Trust Accounts and the Certificate Distribution Account. To exercise such option, the Servicer shall deposit pursuant to Section 5.04 in the Collection Account an amount equal to the aggregate Purchase Amount for the Receivables (including defaulted Receivables), plus the appraised value of any such other property held by the Trust other than the Trust Accounts and the Certificate Distribution Account, such value to be determined by an appraiser mutually agreed upon by the Servicer, the Owner Trustee and the Indenture Trustee, and shall succeed to all interests in and to the Trust. Notwithstanding the foregoing, the Servicer shall not be permitted to exercise such option unless the amount to be deposited in the Collection Account pursuant to the preceding sentence is greater than or equal to the sum of the Outstanding Amount of the Notes and the Certificate Balance and all accrued but unpaid interest (including any overdue interest) thereon to and including the last day of the Collection Period immediately preceding the redemption date. (b) Upon any sale of the assets of the Trust pursuant to Section 9.02 of the Trust Agreement, the Servicer shall instruct the Indenture Trustee to deposit the proceeds from such sale after all payments and reserves therefrom have been made (the "Insolvency Proceeds") in the Collection Account. On the Distribution Date on which the Insolvency Proceeds are deposited in the Collection Account (or, if such proceeds are not so deposited on a Distribution Date, on the Distribution Date immediately following such deposit), the Servicer shall instruct the Indenture Trustee to make the following deposits (after the application on such Distribution Date of the Total Distribution Amount and funds on deposit in the Reserve Account pursuant to Sections 5.05 and 5.06) from the Insolvency 34 Proceeds and any funds remaining on deposit in the Reserve Account (including the proceeds of any sale of investments therein as described in the following sentence): (i) to the Note Distribution Account, any portion of the Noteholders' Interest Distributable Amount not otherwise deposited into the Note Distribution Account on such Distribution Date; (ii) to the Note Distribution Account, the Outstanding Amount of the Notes (after giving effect to the reduction in the Outstanding Amount of the Notes to result from the deposits made in the Note Distribution Account on such Distribution Date and on prior Distribution Dates); (iii) to the Certificate Distribution Account, any portion of the Certificateholders' Interest Distributable Amount not otherwise deposited into the Certificate Distribution Account on such Distribution Date; and (iv) to the Certificate Distribution Account, the Certificate Balance (after giving effect to the reduction in the Certificate Balance to result from the deposits made in the Certificate Distribution Account on such Distribution Date under prior Distribution Dates). Any investments on deposit in the Reserve Account or Note Distribution Account which will not mature on or before such Distribution Date shall be sold by the Indenture Trustee at such time as will result in the Indenture Trustee receiving the proceeds from such sale not later than the Payment Determination Date preceding such Distribution Date. Any Insolvency Proceeds remaining after the deposits described above shall be paid to the Depositor. (c) As described in Article 9 of the Trust Agreement, notice of any termination of the Trust shall be given by the Servicer to the Owner Trustee and the Indenture Trustee as soon as practicable after the Servicer has received notice thereof. (d) Following the satisfaction and discharge of the Indenture and the payment in full of the principal of and interest on the Notes, the Certificateholders will succeed to the rights of the Noteholders hereunder and the Owner Trustee will succeed to the rights of, and assume the obligations of, the Indenture Trustee pursuant to this Agreement. ARTICLE X Miscellaneous SECTION 10.01. Amendment. This Agreement may be amended by the Depositor, the Servicer and the Issuer, with the consent of the Indenture Trustee, but without the consent of any of the Noteholders or the Certificateholders, to cure any ambiguity, to correct or supplement any provisions in this Agreement or for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions in this Agreement or of modifying in any manner the rights of the Noteholders or the Certificateholders; provided, however, that such action shall not, as evidenced by an Opinion of Counsel delivered to the Owner Trustee and the Indenture Trustee, adversely affect in any material respect the interests of any Noteholder or Certificateholder. This Agreement may also be amended from time to time by the Depositor, the Servicer and the Issuer, with the consent of the Indenture Trustee, the consent of the Holders of Notes evidencing not less than a majority of the Outstanding Amount of the Notes and the consent of the Holders (as defined in the Trust Agreement) of outstanding Certificates evidencing not less than a majority of the outstanding Certificate Balance, for the purpose of adding any provisions to or changing in any manner 35 or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders or the Certificateholders; provided, however, that no such amendment shall (a) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on Receivables or distributions that shall be required to be made for the benefit of the Noteholders or the Certificateholders or (b) reduce the aforesaid percentage of the Outstanding Amount of the Notes and the Certificate Balance, the Holders of which are required to consent to any such amendment, without the consent of the Holders of all the outstanding Notes and the Holders (as defined in the Trust Agreement) of all the outstanding Certificates. Promptly after the execution of any such amendment or consent, the Owner Trustee shall furnish written notification of the substance of such amendment or consent to each Certificateholder, the Indenture Trustee and each Rating Agency. It shall not be necessary for the consent of Certificateholders or Noteholders pursuant to this Section to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. Prior to the execution of any amendment to this Agreement, the Owner Trustee and the Indenture Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement and the Opinion of Counsel referred to in Section 10.02(i)(1). The Owner Trustee and the Indenture Trustee may, but shall not be obligated to, enter into any such amendment which affects the Owner Trustee's or the Indenture Trustee's, as applicable, own rights, duties or immunities under this Agreement or otherwise. No amendment to this Agreement will have any effect on the rights and obligations of the Backup Servicer hereunder unless the Backup Servicer shall consent thereto in writing. SECTION 10.02. Protection of Title to Trust. (a) The Depositor shall execute and file such financing statements and cause to be executed and filed such continuation statements, all in such manner and in such places as may be required by law fully to preserve, maintain and protect the interest of the Issuer and of the Indenture Trustee in the Receivables and in the proceeds thereof. The Depositor shall deliver (or cause to be delivered) to the Owner Trustee and the Indenture Trustee file- stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. (b) Neither the Depositor nor the Servicer shall change its name, identity or corporate structure in any manner that would, could or might make any financing statement or continuation statement filed in accordance with paragraph (a) above seriously misleading within the meaning of ss. 9-402(7) of the UCC, unless it shall have given the Owner Trustee and the Indenture Trustee at least five days' prior written notice thereof and shall have promptly filed appropriate amendments to all previously filed financing statements or continuation statements. (c) Each of the Depositor and the Servicer shall have an obligation to give the Owner Trustee and the Indenture Trustee at least 60 days' prior written notice of any relocation of its principal executive office if, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall promptly file any such amendment or new financing statement. The Servicer shall at all times maintain each office from which it shall service Receivables, and its principal executive office, within the United States of America. (d) The Servicer shall maintain accounts and records as to each Receivable accurately and in sufficient detail to permit (i) the reader thereof to know at any time the status of such Receivable, including payments and recoveries made and payments owing (and the nature of each) and (ii) reconciliation between payments or recoveries on (or with respect to) each Receivable and the 36 amounts from time to time deposited in the Collection Account and the Payahead Account in respect of such Receivable. (e) The Servicer shall maintain its computer systems so that, from and after the time of sale under this Agreement of the Receivables, the Servicer's master computer records (including any backup archives) that refer to a Receivable shall indicate clearly the interest of the Issuer and the Indenture Trustee in such Receivable and that such Receivable is owned by the Issuer and has been pledged to the Indenture Trustee. Indication of the Issuer's and the Indenture Trustee's interest in a Receivable shall be deleted from or modified on the Servicer's computer systems when, and only when, the related Receivable shall have been paid in full or repurchased. (f) If at any time the Depositor or the Servicer shall propose to sell, grant a security interest in, or otherwise transfer any interest in automotive receivables to any prospective purchaser, lender or other transferee, the Servicer shall give to such prospective purchaser, lender or other transferee computer tapes, records or printouts (including any restored from backup archives) that, if they shall refer in any manner whatsoever to any Receivable, shall indicate clearly that such Receivable has been sold and is owned by the Issuer and has been pledged to the Indenture Trustee. (g) The Servicer shall permit the Indenture Trustee, the Backup Servicer and their agents at any time during normal business hours to inspect, audit and make copies of and abstracts from the Servicer's records regarding any Receivable. (h) Upon request, the Servicer shall furnish to the Owner Trustee or to the Indenture Trustee, within five Business Days, a list of all Receivables (by contract number and name of Obligor) then held as part of the Trust, together with a reconciliation of such list to the Schedule of Receivables and to each of the Servicer's Certificates furnished before such request indicating removal of Receivables from the Trust. (i) The Servicer shall deliver to the Owner Trustee and the Indenture Trustee: (1) promptly after the execution and delivery of this Agreement and of each amendment hereto, an Opinion of Counsel stating that, in the opinion of such counsel, either (A) all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the interest of the Owner Trustee and the Indenture Trustee in the Receivables, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (B) no such action shall be necessary to preserve and protect such interest; and (2) within 90 days after the beginning of each calendar year beginning with the first calendar year beginning more than three months after the Closing Date, an Opinion of Counsel, dated as of a date during such 90-day period, stating that, in the opinion of such counsel, either (A) all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the interest of the Owner Trustee and the Indenture Trustee in the Receivables, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (B) no such action shall be necessary to preserve and protect such interest. Each Opinion of Counsel referred to in clause (1) or (2) above shall specify any action necessary (as of the date of such opinion) to be taken in the following year to preserve and protect such interest. SECTION 10.03. Notices. All demands, notices, communications and instructions upon or to the Depositor, the Servicer, the Owner Trustee, the Indenture Trustee or each Rating Agency under this Agreement shall be in writing, personally delivered or mailed by certified mail, return receipt requested, 37 and shall be deemed to have been duly given upon receipt (a) in the case of the Depositor, to NAL Acceptance Corporation, 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309, Telephone: 305-938-8200; Fax: 305-938-8209, Attention: Dennis La Vigne, (b) in the case of the Servicer, to NAL Acceptance Corporation, 500 Cypress Road West, Suite 590, Fort Lauderdale, Florida 33309, (c) in the case of the Issuer or the Owner Trustee, at the Corporate Trust Office (as defined in the Trust Agreement), (d) in the case of the Indenture Trustee or Backup Servicer, at the Corporate Trust Office, (e) in the case of the Rating Agencies, to Fitch Investors Service, Inc., One State Street Plaza, New York, New York 10004 and Duff & Phelps Credit Rating Co., 55 E. Monroe Street, Chicago, Illinois 60603, Telephone: 312-263-2610, Fax: 312-263-2852, Attention: Asset-Backed Research and Monitoring; or, as to each of the foregoing, at such other address as shall be designated by written notice to the other parties. SECTION 10.04. Assignment by the Depositor or the Servicer. Notwithstanding anything to the contrary contained herein, except as provided in the remainder of this Section, as provided in Sections 6.04 and 7.03 herein and as provided in the provisions of this Agreement concerning the resignation of the Servicer, this Agreement may not be assigned by the Depositor or the Servicer. SECTION 10.05. Limitations on Rights of Others. The provisions of this Agreement are solely for the benefit of the Depositor, the Servicer, the Issuer, the Owner Trustee, the Certificateholders, the Indenture Trustee and the Noteholders, and nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Owner Trust Estate or under or in respect of this Agreement or any covenants, conditions or provisions contained herein. SECTION 10.06. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 10.07. Separate Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 10.08. Headings. The headings of the various Articles and Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 10.09. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. SECTION 10.10. Assignment by Issuer. The Depositor and the Servicer hereby acknowledge and consent to any mortgage, pledge, assignment and grant of a security interest by the Issuer to the Indenture Trustee pursuant to the Indenture for the benefit of the Noteholders of all right, title and interest of the Issuer in, to and under the Receivables and the assignment of any or all of the Issuer's rights and obligations hereunder to the Indenture Trustee. SECTION 10.11. Nonpetition Covenants. (a) Notwithstanding any prior termination of this Agreement, the Servicer, the Backup Servicer and the Depositor shall not, prior to the date which is one year and one day after the termination of this Agreement with respect to the Issuer or the Depositor, acquiesce, petition or otherwise invoke or cause the Issuer or the Depositor to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Issuer or the Depositor under any federal or state bankruptcy, insolvency or similar law, or 38 appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or the Depositor or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Issuer or the Depositor. SECTION 10.12. Limitation of Liability of Owner Trustee and Indenture Trustee. (a) Notwithstanding anything contained herein to the contrary, this Agreement has been countersigned by Wilmington Trust Company not in its individual capacity but solely in its capacity as Owner Trustee of the Issuer and in no event shall Wilmington Trust Company in its individual capacity or, except as expressly provided in the Trust Agreement, as beneficial owner of the Issuer have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. For all purposes of this Agreement, in the performance of its duties or obligations hereunder or in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust Agreement. (b) Notwithstanding anything contained herein to the contrary, this Agreement has been accepted by Bankers Trust Company, not in its individual capacity but solely as Indenture Trustee and in no event shall Bankers Trust Company have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. NAL AUTO TRUST 1995-1 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee on behalf of the Trust By: ________________________________________ Name: Title: AUTORICS II, Inc., Depositor By: ________________________________________ Name: Title: NAL ACCEPTANCE CORPORATION, Servicer By: ________________________________________ Name: Title: BANKERS TRUST COMPANY, Backup Servicer By: ________________________________________ Name: Title: Acknowledged and accepted as of the day and year first above written: BANKERS TRUST COMPANY, not in its individual capacity but solely as Indenture Trustee By: __________________________ Name: Title: SCHEDULE A Schedule of Receivables EXHIBIT A NAL Acceptance Corporation NAL Auto Trust 1995-1 Distribution Date Statement to Noteholders - ------------------------------------------------------------------------------ Principal Distribution Amount Class A-1 Notes: ($ per $1,000 original principal amount) Class A-2 Notes: ($ per $1,000 original principal amount) Interest Distribution Amount Class A-1 Notes: ($ per $1,000 original principal amount) Class A-2 Notes: ($ per $1,000 original principal amount) Pool Balance Note Balance Class A-1 Notes Class A-2 Notes Note Pool Factor Class A-1 Notes Class A-2 Notes Certificate Balance Servicing Fee Servicing Fee Per $1,000 original principal amount Realized Losses Noteholders' Interest Carryover Shortfall per $1,000 original principal amount Noteholders' Principal Carryover Shortfall per $1,000 original principal amount Purchase Amounts Reserve Account Balance Payahead Balance Average Three Month Delinquency Ratio Average Six Month Realized Loss Ratio Average Six Month Repossession Ratio Delinquency Trigger Event [YES] [NO] Repossession Trigger Event [YES] [NO] Loss Trigger Event [YES] [NO] Delinquent Receivables 30 days 60 days 90 days
EXHIBIT B NAL Acceptance Corporation NAL Auto Trust 1995-1 Distribution Date Statement to Certificateholders - ------------------------------------------------------------------------------ Principal Distribution Amount Principal Per $1,000 Initial Certificate Balance Interest Distribution Amount Interest Per $1,000 Initial Certificate Balance Pool Balance Note Balance: Class A-1 Notes: Class A-2 Notes: Note Pool Factor: Class A-1 Notes: Class A-2 Notes: Certificate Balance Certificate Pool Factor Servicing Fee Servicing Fee Per $1,000 Initial Certificate Balance Realized Losses Noteholders' Interest Carryover Shortfall per $1,000 original Note principal amount Noteholders' Principal Carryover Shortfall per $1,000 original Note principal amount Certificateholders' Interest Carryover Shortfall per $1,000 Initial Certificate Balance Certificateholders' Principal Carryover Shortfall per $1,000 Initial Certificate Balance Purchase Amounts Reserve Account Balance Payahead Balance Average Three Month Delinquency Ratio Average Six Month Realized Loss Ratio Average Six Month Repossession Ratio Delinquency Trigger Event [YES] [NO] Repossession Trigger Event [YES] [NO] Loss Trigger Event [YES] [NO] B-1 Delinquent Receivables 30 days 60 days 90 days - -------------------------------------------------------------------------- B-2 EXHIBIT C Form of Servicer's Certificate NAL Acceptance Corporation NAL Auto Trust 1995-1 Monthly Servicer's Certificate(1) [___________, 199__] Dates Covered: From & Incl. _____ To & Incl. I. Collections Principal Payments Received................................................$ Interest Payments Received.................................................$ Liquidation Proceeds.......................................................$ Recoveries on Previously Liquidated Receivables............................$ Aggregate Purchase Amount for Purchased Receivables........................$ Amount Attributable to Interest...................................$ Amount Attributable to Principal .................................$ Investment Earnings .......................................................$ Total Collections $ II. Distributions* Total Required Principal Reduction of the Securities..............$ Principal Distribution Amount Class A-1 Notes ($_________ per $1,000 original principal amount) Class A-2 Notes ($_________ per $1,000 original principal amount) Certificates ($_________ per $1,000 original principal amount) Interest Distribution Amount Class A-1 Notes ($_________ per $1,000 original principal amount) Class A-2 Notes ($_________ per $1,000 original principal amount) Certificates ($_________ per $1,000 original principal amount) Total Distributable Amount Class A-1 Notes ($_________ per $1,000 original principal amount) Class A-2 Notes ($_________ per $1,000 original principal amount) Certificates ($_________ per $1,000 original principal amount) Additional Required Distributions Servicing Fee.....................................................$ Deposit to the Reserve Account....................................$ Reserve Account Withdrawals for this Distribution Date............................$ Cumulative Withdrawals............................................$ III. Payahead Account Information Beginning Period Balance..........................................$ Amounts Deposited into Payahead Account...........................$ Amounts Withdrawn from Payahead Account...........................$ Ending Balance....................................................$
- ------------------- (1) Items that are marked with an * will be delivered quarterly. IV. Pool Balance and Portfolio Information
Beginning of Period End of Period Pool Balance................................... $ $ Note Balances* Class A-1 Notes........................ $ $ Class A-2 Notes........................ Note Pool Factor* Class A-1 Notes........................ Class A-2 Notes........................ Certificate Balance*........................... $ $ Certificate Pool Factor*....................... Remaining Number of Receivables................ Weighted Average A/R........................... Weighted Average Remaining Term................ V. Reconciliation of the Reserve Account* Beginning Balance..........................................$ Withdrawals from Reserve Account...........................$ Amounts Available for Deposit to Reserve Account......................................$ Specified Reserve Account Balance..........................$ Amounts Deposited to Reserve Account.......................$ Ending Balance.............................................$ VI. Loss and Delinquency Report Activity Realized Losses for Collection Period......................$ Liquidated Receivables Aggregate Principal Balance........................$ Liquidation Proceeds...............................$ Recoveries on Previously Liquidated Receivables...........................$ Cumulative Realized Losses.........................$ Delinquency 30-59 days Principal Amount...................................$ Number of Receivables.............................. 60-89 days Principal Amount...................................$ Number of Receivables.............................. 90 days or more Principal Amount...................................$ Number of Receivables.............................. - -------- * Items that are marked with an * will be delivered quarterly.
C-2 Total Amount Principal Amount...................................$ Number of Receivables.............................. VII. Original Deal Parameter Inputs Aggregate Principal Balance of the Receivables as of the Cutoff Date.................................$40,135,897.86 Weighted Average APR of the Receivables as of the Cutoff Date.............................................19.5795% Weighted Average Remaining Term of the Receivables as of the Cutoff Date.................................50.48 months Number of Receivables...............................................3,305 Initial Reserve Account Balance.....................................$1,705,776
C-3 EXHIBIT D NAL ACCEPTANCE CORPORATION CREDIT FILE CONTENTS LOAN AND LEASE (RIGHT SIDE OF FILE)
RISK NAME:______________________ CODE:_______________________ ACCOUNT #:______________________ =================================================================================================================================== (X) (X) UNDER EXCEPTIONS INT DOCUMENTATION AUDIT COMMENTS - ----------------------------------------------------------------------------------------------------------------------------------- Application - ----------------------------------------------------------------------------------------------------------------------------------- Credit Report - ----------------------------------------------------------------------------------------------------------------------------------- Explanation Derogatory Credit - ---------------------------------------------------------------------------------------------------------------------------------- Credit Decision Notification - ---------------------------------------------------------------------------------------------------------------------------------- Investigation Work A) Home Address Verified B) Employment Verified - ---------------------------------------------------------------------------------------------------------------------------------- 1040's/W-2/Paystubs - ----------------------------------------------------------------------------------------------------------------------------------- Current Telephone Bill in Applicant's Name and Address - ----------------------------------------------------------------------------------------------------------------------------------- Reference Sheet (5 included) - ----------------------------------------------------------------------------------------------------------------------------------- Other Stips - Specify - ----------------------------------------------------------------------------------------------------------------------------------- Insurance Confirmation by NAL Insurance Dept. - ----------------------------------------------------------------------------------------------------------------------------------- Loan/Lease Worksheet - ----------------------------------------------------------------------------------------------------------------------------------- Copy of Funding Check - ----------------------------------------------------------------------------------------------------------------------------------- Collections/Other Correspondence - ----------------------------------------------------------------------------------------------------------------------------------- Approved Dealer - ----------------------------------------------------------------------------------------------------------------------------------- GE Approval =================================================================================================================================== - ---------------------------------------- ------------------------------ Signature - Funder Date - ---------------------------------------- ------------------------------ Signature - Auditor Date
D-1 NAL ACCEPTANCE CORPORATION CREDIT FILE CONTENTS LOAN AND LEASE (LEFT SIDE OF FILE)
NAME:______________________ CODE:_______________________ ACCOUNT #:______________________ =================================================================================================================================== (X) (X) UNDER EXCEPTIONS INT DOCUMENTATION AUDIT COMMENTS - ----------------------------------------------------------------------------------------------------------------------------------- Contract: A) Trade-In/Down Payment B) Interest Rate C) Term D) Monthly Payment E) Add's Approved F) Dealer Advance Per Approval - ----------------------------------------------------------------------------------------------------------------------------------- Original Assignment - ----------------------------------------------------------------------------------------------------------------------------------- Copy of Application for Certificate of Title - ---------------------------------------------------------------------------------------------------------------------------------- Certificate of Origin (MSO)(New) Copy of Title (Used) - ---------------------------------------------------------------------------------------------------------------------------------- Lien Guarantee/ Lien Registration - ---------------------------------------------------------------------------------------------------------------------------------- Bill of Sale / Buyer's Order Signed - ---------------------------------------------------------------------------------------------------------------------------------- Manufacturers Invoice (New) - ---------------------------------------------------------------------------------------------------------------------------------- Copy Black Book / NADA Valuation - ---------------------------------------------------------------------------------------------------------------------------------- Odometer Statement (Used) - ---------------------------------------------------------------------------------------------------------------------------------- Photocopy of Driver's License - ---------------------------------------------------------------------------------------------------------------------------------- Add's Documentation - ---------------------------------------------------------------------------------------------------------------------------------- Notice to Cosigner - ---------------------------------------------------------------------------------------------------------------------------------- Signed Disclosure Form for A & H Insurance (if applicable) - ---------------------------------------------------------------------------------------------------------------------------------- Customer Phone Interview Correspondence ================================================================================================================================== - ---------------------------------------- ------------------------------ Signature - Funder Date - ---------------------------------------- ------------------------------ Signature - Auditor Date
D-2 EXHIBIT E Form of Assignment Reference is made to the Sale and Servicing Agreement dated as of December 1, 1995 (the "Sale and Servicing Agreement") among NAL Auto Trust 1995-1, Autorics II, Inc. ("Autorics II"), NAL Acceptance Corporation ("NAL") and Bankers Trust Company. All capitalized terms used herein without definition shall have the respective meanings specified in the Sale and Servicing Agreement. [NAL] [Autorics, Inc.] [Autorics II] hereby assigns to ____________, for which the Custodian is acting as custodian and bailee under the terms of the Custodial Agreement all right, title and interest of [NAL] [Autorics, Inc.] [Autorics II] in and to (but none of [NAL] [Autorics, Inc.] [Autorics II]'s obligations with respect to): (1) the Receivables and all moneys received thereon on and after the Cutoff Date plus all Payaheads as of the Cutoff Date; (2) the security interests in the Financed Vehicles granted by Obligors pursuant to such Receivables, any other right to realize upon property securing a Receivable and any other interest of [NAL] [Autorics, Inc.] [Autorics II] in such Financed Vehicles including [NAL] [Autorics, Inc.] [Autorics II]'s right, title and interest in the lien on the Financed Vehicles in the name of the Depositor's agent, Autorics, Inc., NAL or SFI; (3) any proceeds with respect to the Receivables from claims on any Insurance Policies relating to Financed Vehicles or Obligors; (4) proceeds of any recourse (but none of the obligations) to Dealers on Receivables; (5) any Financed Vehicle that shall have secured a Receivable and shall have been acquired by or on behalf of the Seller, the Depositor, the Servicer, or the Trust; (6) the Receivables Files; and (7) the proceeds of any and all of the foregoing. [NAL] [AUTORICS, INC.] [AUTORICS II, INC.] By:__________________________ Name: Title: E-1 EX-10.17 4 INDENTURE EXECUTION COPY INDENTURE between NAL AUTO TRUST 1995-1, as Issuer and BANKERS TRUST COMPANY, as Indenture Trustee Dated as of December 1, 1995 1 TABLE OF CONTENTS Page ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions.............................................. 1 SECTION 1.02. Rules of Construction.................................... 6 ARTICLE II The Notes SECTION 2.01. Form.................................................... 7 SECTION 2.02. Execution, Authentication and Delivery.................. 7 SECTION 2.03. Temporary Notes......................................... 7 SECTION 2.04. Limitations on Transfer of the Notes.................... 7 SECTION 2.05. Registration; Registration of Transfer and Exchange..... 8 SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes.............. 9 SECTION 2.07. Persons Deemed Owner.................................... 10 SECTION 2.08. Payment of Principal and Interest; Defaulted Interest... 10 SECTION 2.09. Cancellation............................................ 10 SECTION 2.10. Tax Treatment........................................... 11 ARTICLE III Covenants SECTION 3.01. Payment of Principal and Interest....................... 11 SECTION 3.02. Maintenance of Office or Agency......................... 11 SECTION 3.03. Money for Payments To Be Held in Trust.................. 11 SECTION 3.04. Existence............................................... 12 SECTION 3.05. Protection of Trust Estate.............................. 13 SECTION 3.06. Opinions as to Trust Estate............................. 13 SECTION 3.07. Performance of Obligations; Servicing of Receivables.... 13 SECTION 3.08. Negative Covenants...................................... 15 SECTION 3.09. Annual Statement as to Compliance....................... 15 SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms..... 16 SECTION 3.11. Successor or Transferee................................. 17 SECTION 3.12. No Other Business....................................... 17 SECTION 3.13. No Borrowing............................................ 17 SECTION 3.14. Servicer's Obligations.................................. 17 SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities....... 17 SECTION 3.16. Capital Expenditures.................................... 17 SECTION 3.17. Removal of Administrator................................ 17 SECTION 3.18. Restricted Payments..................................... 17 SECTION 3.19. Notice of Events of Default............................. 18 SECTION 3.20. Further Instruments and Acts............................ 18 i ARTICLE IV Satisfaction and Discharge SECTION 4.01. Satisfaction and Discharge of Indenture................. 18 SECTION 4.02. Application of Trust Money.............................. 19 SECTION 4.03. Repayment of Moneys Held by Paying Agent................ 19 ARTICLE V Remedies SECTION 5.01. Events of Default....................................... 19 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment...... 20 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.................................... 20 SECTION 5.04. Remedies; Priorities.................................... 22 SECTION 5.05. Optional Preservation of the Receivables................ 23 SECTION 5.06. Limitation of Suits..................................... 23 SECTION 5.07. Unconditional Rights of Noteholders To Receive Principal and Interest.................................. 24 SECTION 5.08. Restoration of Rights and Remedies...................... 24 SECTION 5.09. Rights and Remedies Cumulative.......................... 24 SECTION 5.10. Delay or Omission Not a Waiver.......................... 24 SECTION 5.11. Control by Noteholders.................................. 24 SECTION 5.12. Waiver of Past Defaults................................. 25 SECTION 5.13. Undertaking for Costs................................... 25 SECTION 5.14. Waiver of Stay or Extension Laws........................ 25 SECTION 5.15. Action on Notes......................................... 25 SECTION 5.16. Performance and Enforcement of Certain Obligations...... 26 ARTICLE VI The Indenture Trustee SECTION 6.01. Duties of Indenture Trustee............................. 26 SECTION 6.02. Rights of Indenture Trustee............................. 27 SECTION 6.03. Individual Rights of Indenture Trustee.................. 27 SECTION 6.04. Indenture Trustee's Disclaimer.......................... 28 SECTION 6.05. Notice of Defaults...................................... 28 SECTION 6.06. Reports by Indenture Trustee to Holders................. 28 SECTION 6.07. Compensation and Indemnity.............................. 28 SECTION 6.08. Replacement of Indenture Trustee........................ 28 SECTION 6.09. Successor Indenture Trustee by Merger................... 29 SECTION 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee....................................... 29 SECTION 6.11. Eligibility; Disqualification........................... 30 ARTICLE VII Noteholders' Lists and Reports SECTION 7.01. Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders................................ 31 SECTION 7.02. Preservation of Information; Communications to Noteholders............................................. 31 ii ARTICLE VIII Accounts, Disbursements and Releases SECTION 8.01. Collection of Money..................................... 31 SECTION 8.02. Trust Accounts.......................................... 31 SECTION 8.03. General Provisions Regarding Accounts................... 32 SECTION 8.04. Release of Trust Estate................................. 32 SECTION 8.05. Opinion of Counsel...................................... 33 ARTICLE IX Supplemental Indentures SECTION 9.01. Supplemental Indentures Without Consent of Noteholders.. 33 SECTION 9.02. Supplemental Indentures with Consent of Noteholders..... 34 SECTION 9.03. Execution of Supplemental Indentures.................... 35 SECTION 9.04. Effect of Supplemental Indenture........................ 35 SECTION 9.05. Reference in Notes to Supplemental Indentures........... 35 ARTICLE X Redemption of Notes SECTION 10.01. Redemption............................................. 36 SECTION 10.02. Form of Redemption Notice.............................. 36 SECTION 10.03. Notes Payable on Redemption Date....................... 36 ARTICLE XI Miscellaneous SECTION 11.01. Compliance Certificates and Opinions, etc.............. 37 SECTION 11.02. Form of Documents Delivered to Indenture Trustee....... 37 SECTION 11.03. Acts of Noteholders.................................... 38 SECTION 11.04. Notices, etc., to Indenture Trustee, Issuer and Rating Agencies........................................ 38 SECTION 11.05. Notices to Noteholders; Waiver......................... 39 SECTION 11.06. Alternate Payment and Notice Provisions................ 39 SECTION 11.07. [Reserved]............................................. 39 SECTION 11.08. Effect of Headings and Table of Contents............... 39 SECTION 11.09. Successors and Assigns................................. 39 SECTION 11.10. Separability........................................... 39 SECTION 11.11. Benefits of Indenture.................................. 39 SECTION 11.12. Legal Holidays......................................... 39 SECTION 11.13. GOVERNING LAW.......................................... 40 SECTION 11.14. Counterparts........................................... 40 SECTION 11.15. Recording of Indenture................................. 40 SECTION 11.16. Trust Obligation....................................... 40 SECTION 11.17. No Petition............................................ 40 SECTION 11.18. Inspection............................................. 40 iii SCHEDULE I Schedule of Receivables EXHIBIT A - 1 Form of Class A-1 Note EXHIBIT A - 2 Form of Class A-2 Note EXHIBIT B [Reserved] EXHIBIT C Transferor Certificate EXHIBIT D Investment Letter iv INDENTURE dated as of December 1, 1995, between NAL AUTO TRUST 1995-1, a Delaware business trust (the "Issuer"), and BANKERS TRUST COMPANY, a New York banking corporation, solely as trustee and not in its individual capacity (the "Indenture Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Issuer's Class A-1 6.65% Asset Backed Notes (the "Class A-1 Notes") and Class A-2 7.70% Asset Backed Notes (the "Class A-2 Notes" and, together with the Class A-1 Notes, the "Notes"): GRANTING CLAUSE The Issuer hereby Grants to the Indenture Trustee at the Closing Date, as Indenture Trustee for the benefit of the Holders of the Notes, all of the Issuer's right, title and interest in and to (but none of the obligations with respect to) (a) the Receivables and all moneys received thereon on or after the Cutoff Date plus all Payaheads as of the Cutoff Date; (b) the security interests in the Financed Vehicles granted by Obligors pursuant to such Receivables, any other right to realize upon property securing a Receivable, and any other interest of the Issuer in such Financed Vehicles including the Issuer's right, title and interest in the lien on the Financed Vehicles held in the name of the Depositor's agents, Autorics, Inc., NAL or SFI; (c) any proceeds with respect to the Receivables from claims on any Insurance Policies relating to the Financed Vehicles or Obligors; (d) proceeds of any recourse (but none of the obligations) to Dealers on Receivables; (e) any Financed Vehicle that shall have secured a Receivable and that shall have been acquired by or on behalf of the Seller, the Depositor, the Servicer, or the Issuer; (f) the Receivables Files; (g) the Trust Accounts; (h) the Sale and Servicing Agreement and the Receivables Purchase Agreement, including the right of the Issuer to cause NAL to purchase Receivables under certain circumstances; and (i) all present and future claims, demands, causes of action and chooses in action in respect of any or all of the foregoing, and all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds of the conversion thereof, voluntary or involuntary, into cash or other liquid property, all cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights to payment of any and every kind, and other forms of obligations, and receivables, instruments and other property that at any time constitute all or part of, or are included in the proceeds of, any of the foregoing (collectively, the "Collateral"). The foregoing Grant is made in trust to secure the payment of principal of and interest on, and any other amounts owing in respect of, the Notes, equally and ratably without prejudice, priority or distinction, and to secure compliance with the provisions of this Indenture, all as provided in this Indenture. The Indenture Trustee, as Indenture Trustee on behalf of the Holders of the Notes, acknowledges such Grant, accepts the trusts under this Indenture in accordance with the provisions of this Indenture and agrees to perform its duties required in this Indenture to the best of its ability to the end that the interests of the Holders of the Notes may be adequately and effectively protected. ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions. (a) Except as otherwise specified herein or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Indenture. "Act" has the meaning specified in Section 11.03(a). "Administration Agreement" means the Administration Agreement dated as of December 1, 1995, among the Administrator, the Issuer and the Indenture Trustee. "Administrator" means NAL Acceptance Corporation, a Florida corporation, or any successor Administrator under the Administration Agreement. "Affiliate" means, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authorized Officer" means, with respect to the Issuer, any officer of the Owner Trustee who is authorized to act for the Owner Trustee in matters relating to the Issuer and who is identified on the list of Authorized Officers delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter) and, so long as the Administration Agreement is in effect, any Vice President or more senior officer of the Administrator who is authorized to act for the Administrator in matters relating to the Issuer and to be acted upon by the Administrator pursuant to the Administration Agreement and who is identified on the list of Authorized Officers delivered by the Administrator to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter). "AUTORICS II" means AUTORICS II, Inc., a Delaware corporation, and any successor in interest. "Basic Documents" means the Certificate of Trust, the Trust Agreement, the Sale and Servicing Agreement, the Receivables Purchase Agreement, the Administration Agreement, and other documents and certificates delivered in connection therewith. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions or trust companies in the cities of New York, New York, Wilmington, Delaware or Ft. Lauderdale, Florida are authorized or obligated by law, regulation or executive order to remain closed. "Certificate of Trust" means the certificate of trust of the Issuer substantially in the form of Exhibit B to the Trust Agreement. "Class A-1 Interest Rate" means 6.65% per annum (computed on the basis of a 360-day year consisting of twelve 30-day months). "Class A-1 Notes" means the Class A-1 6.65% Asset Backed Notes, substantially in the form of Exhibit A-1. "Class A-2 Interest Rate" means 7.70% per annum (computed on the basis of a 360 day year consisting of twelve 30-day months). "Class A-2 Notes" means the Class A-2 7.70% Asset Backed Notes, substantially in the form of Exhibit A-2. "Closing Date" means December 21, 1995. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and Treasury Regulations promulgated thereunder. "Collateral" has the meaning specified in the Granting Clause of this Indenture. 2 "Corporate Trust Office" means the principal office of the Indenture Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Agreement is located at Four Albany Street, New York, New York 10006; Attention: Corporate Trust and Agency Group, Structured Finance Team, or at such other address as the Indenture Trustee may designate from time to time by notice to the Noteholders and the Issuer, or the principal corporate trust office of any successor Indenture Trustee at the address designated by such successor Indenture Trustee by notice to the Noteholders and the Issuer. "Default" means any occurrence that is, or with notice or the lapse of time or both would become, an Event of Default. "Depositor" means AUTORICS II, Inc., a Delaware corporation, and any successor in interest. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive Officer" means, with respect to any corporation, the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, President, Executive Vice President, any Vice President, the Secretary, or the Treasurer of such corporation; and with respect to any partnership, any general partner thereof. "Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest in and a right of set-off against, deposit, set over, and confirm pursuant to this Indenture. A Grant of the Collateral or of any other agreement or instrument shall include all rights, powers and options (but none of the obligations) of the granting party thereunder, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of the Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring Proceedings in the name of the granting party or otherwise, and generally to do and receive anything that the granting party is or may be entitled to do or receive thereunder or with respect thereto. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Note Register. "Indenture Trustee" means Bankers Trust Company, a New York banking corporation, solely as trustee under this Indenture and not in its individual capacity, or any successor Indenture Trustee under this Indenture. "Independent" means, when used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor on the Notes, the Depositor and any Affiliate of any of the foregoing Persons, (b) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, the Depositor or any Affiliate of any of the foregoing Persons and (c) is not connected with the Issuer, any such other obligor, the Depositor or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director, or person performing similar functions. "Independent Certificate" means a certificate or opinion to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the Indenture Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this Indenture and that the signer is Independent within the meaning thereof. 3 "Interest Rate" means the Class A-1 Interest Rate and the Class A-2 Interest Rate. "Issuer" means NAL Auto Trust 1995-1 until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the Notes. "Issuer Order" or "Issuer Request" means a written order or request signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Indenture Trustee. "NAL" means NAL Acceptance Corporation, a Florida corporation, and any successor in interest. "Note" means a Class A-1 Note or a Class A-2 Note. "Note Register" and "Note Registrar" have the respective meanings specified in Section 2.05. "Officer's Certificate" means a certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.01, and delivered to the Indenture Trustee. Unless otherwise specified, any reference in this Indenture to an Officer's Certificate shall be to an Officer's Certificate of any Authorized Officer of the Issuer. "Opinion of Counsel" means one or more written opinions of counsel who may, except as otherwise expressly provided in this Indenture, be an employee of or counsel to the Issuer and who shall be satisfactory to the Indenture Trustee, which opinion or opinions shall be addressed to the Indenture Trustee as Indenture Trustee, shall comply with any applicable requirements of Section 11.01 and shall be in form and substance satisfactory to the Indenture Trustee. "Outstanding" means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture except: (i) Notes theretofore cancelled by the Note Registrar or delivered to the Note Registrar for cancellation; (ii) Notes or portions thereof the payment for which money in the necessary amount has been theretofore deposited with the Indenture Trustee or any Paying Agent in trust for the Holders of such Notes (provided, however, that if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision for such notice has been made, satisfactory to the Indenture Trustee); and (iii) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a bona fide purchaser; provided, that in determining whether the Holders of the requisite Outstanding Amount of the Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder or under any Basic Document, Notes owned by the Issuer, any other obligor upon the Notes, the Depositor or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Notes that a Responsible Officer of the Indenture Trustee actually knows to be so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer, any other obligor upon the Notes, the Depositor or any Affiliate of any of the foregoing Persons. 4 "Outstanding Amount" means the aggregate principal amount of all Notes, or Class of Notes, as applicable, Outstanding at the date of determination. "Owner Trustee" means Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee under the Trust Agreement, or any successor Owner Trustee under the Trust Agreement. "Paying Agent" means the Indenture Trustee or any other Person that meets the eligibility standards for the Indenture Trustee specified in Section 6.11 and is authorized by the Issuer to make payments to and distributions from the Collection Account and the Note Distribution Account, including payments of principal of or interest on the Notes on behalf of the Issuer. "Payment Date" means a Distribution Date. "Person" means any individual, corporation, estate, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization, or government or any agency or political subdivision thereof. "Predecessor Note" means, with respect to any particular Note, every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purpose of this definition, any Note authenticated and delivered under Section 2.06 in lieu of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "Proceeding" means any suit in equity, action at law or other judicial or administrative proceeding. "Rating Agency Condition" means, with respect to any action, that the Rating Agency shall have been given 10 days (or such shorter period as is acceptable to the Rating Agency) prior notice thereof and that the Rating Agency shall have notified the Depositor, the Servicer and the Issuer in writing that such action will not result in a reduction or withdrawal of the then current rating of the Notes. "Receivables Purchase Agreement" means the Receivables Purchase Agreement dated as of December 1, 1995, among Autorics, Inc., as seller, NAL, and Autorics II, as purchaser. "Record Date" means, with respect to a Distribution Date or Redemption Date, the close of business on the last day of the preceding month. "Redemption Date" means in the case of a redemption of the Notes pursuant to Section 10.01(a) or a payment to Noteholders pursuant to Section 10.01(b), the Distribution Date specified by the Servicer or the Issuer pursuant to Section 10.01(a) or (b), as applicable. "Redemption Price" means in the case of a redemption of the Notes pursuant to Section 10.01(a), an amount equal to the unpaid principal amount of the Notes redeemed plus accrued and unpaid interest thereon to and including the last day of the month preceding the month of such Redemption Date at the weighted average of the Interest Rates for each Class of Notes being so redeemed or (b) in the case of a payment made to Noteholders pursuant to Section 10.01(b), the amount on deposit in the Note Distribution Account, but not in excess of the amount specified in clause (a) above. "Registered Holder" means the Person in whose name a Note is registered on the Note Register on the applicable Record Date. "Responsible Officer" means, with respect to the Indenture Trustee, any officer within the Corporate Trust Office of the Indenture Trustee, including any Vice President, Assistant Vice President, Assistant Treasurer, Assistant Secretary, Managing Director or any other officer of the Indenture Trustee customarily performing functions similar to those performed by any of the above designated 5 officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Sale and Servicing Agreement" means the Sale and Servicing Agreement dated as of December 1, 1995, among the Issuer, AUTORICS II, the Back-up Servicer and NAL. "Schedule of Receivables" means the list of the Receivables set forth in Schedule I (which Schedule may be in the form of microfiche). "Securities Act" means the Securities Act of 1933, as amended. "Seller" means AUTORICS, Inc., in its capacity as seller under the Receivables Purchase Agreement, and its successor in interest. "Servicer" means NAL in its capacity as servicer under the Sale and Servicing Agreement, and any Successor Servicer thereunder. "State" means any one of the 50 States of the United States of America or the District of Columbia. "Successor Servicer" has the meaning specified in Section 3.07(e). "TIA" means the Trust Indenture Act of 1939, as amended. "Trust Estate" means all money, instruments, chattel paper, general intangibles, rights and other property that are subject or intended to be subject to the lien and security interest of this Indenture for the benefit of the Noteholders (including, without limitation, all property and interests Granted to the Indenture Trustee), including all proceeds thereof. "UCC" means, unless the context otherwise requires, the Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended from time to time. (b) Except as otherwise specified herein or as the context may otherwise require, capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Sale and Servicing Agreement for all purposes of this Indenture. SECTION 1.02. Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including without limitation; (v) words in the singular include the plural and words in the plural include the singular; and (vi) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. 6 ARTICLE II The Notes SECTION 2.01. Form. The Class A-1 Notes and the Class A-2 Notes, in each case together with the Indenture Trustee's certificate of authentication, shall be in substantially the form set forth in Exhibit A-1 and Exhibit A-2, respectively, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution of the Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. Each Note shall be dated the date of its authentication. The terms of the Notes set forth in Exhibit A-1 and Exhibit A-2 are part of the terms of this Indenture. SECTION 2.02. Execution, Authentication and Delivery. The Notes shall be executed on behalf of the Issuer by any of its Authorized Officers. The signature of any such Authorized Officer on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signature of individuals who were at any time Authorized Officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes. The Indenture Trustee shall upon its receipt of an Issuer Order authenticate and deliver Class A-1 Notes for original issue in an aggregate principal amount of $36,524,000 and Class A-2 Notes for original issue in an aggregate principal amount of $1,605,000. Each Note shall be dated the date of its authentication. The Notes shall be issuable as registered Notes in the minimum denomination of $100,000 and in integral multiples of $1,000 in excess thereof. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Indenture Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. SECTION 2.03. Temporary Notes. Pending the preparation of definitive Notes, the Issuer may execute, and upon receipt of an Issuer Order the Indenture Trustee shall authenticate and deliver, temporary Notes that are printed, lithographed, typewritten, mimeographed, or otherwise produced, of the tenor of the definitive Notes in lieu of which they are issued and with such variations not inconsistent with the terms of this Indenture as the officers executing such Notes may determine, as evidenced by their execution of such Notes. If temporary Notes are issued, the Issuer shall cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Issuer to be maintained as provided in Section 3.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Issuer shall execute, and the Indenture Trustee shall authenticate and deliver in exchange therefor, a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 2.04. Limitations on Transfer of the Notes. The Notes have not been and will not be registered under the Securities Act and will not be listed on any exchange. No transfer of a Note 7 shall be made unless such transfer is made pursuant to an effective registration statement under the Securities Act and any applicable state securities laws or is exempt from the registration requirements under said Act and such state securities laws. In the event that a transfer is to be made in reliance upon an exemption from the Securities Act and state securities laws, in order to assure compliance with the Securities Act and such laws, the Holder desiring to effect such transfer and such Holder's prospective transferee shall each certify to the Indenture Trustee and the Issuer in writing the facts surrounding the transfer in substantially the forms set forth in Exhibit C (the "Transferor Certificate") and Exhibit D (the "Investment Letter"). Except in the case of a transfer as to which the proposed transferee has confirmed that it is a "qualified institutional buyer" as provided in Section 2(b) of the Investment Letter, there shall also be delivered to the Indenture Trustee an opinion of counsel that such transfer may be made pursuant to an exemption from the Securities Act and state securities laws, which opinion of counsel shall not be an expense of the Trust, the Owner Trustee or the Indenture Trustee (unless it is the transferee from whom such opinion is to be obtained) or of the Depositor or NAL; provided that such opinion of counsel in respect of the applicable state securities laws may be a memorandum of law rather than an opinion if such counsel is not licensed in the applicable jurisdiction. The Depositor shall provide to any Holder of a Note and any prospective transferee designated by any such Holder information regarding the Notes and the Receivables and such other information as shall be necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4) for transfer of any such Note without registration thereof under the Securities Act pursuant to the registration exemption provided by Rule 144A. Each Holder of a Note desiring to effect such a transfer shall, and does hereby agree to, indemnify the Issuer, the Owner Trustee, the Indenture Trustee and the Depositor against any liability that may result if the transfer is not so exempt or is not made in accordance with federal and state securities laws. SECTION 2.05. Registration; Registration of Transfer and Exchange. The Issuer shall cause to be kept a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe and the restrictions on transfers of the Notes set forth herein, the Issuer shall provide for the registration of Notes and the registration of transfers of Notes. The Indenture Trustee initially shall be the "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. Upon any resignation of any Note Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Note Registrar. If a Person other than the Indenture Trustee is appointed by the Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt written notice of the appointment of such Note Registrar and of the location, and any change in the location, of the Note Register, and the Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee shall have the right to rely upon a certificate executed on behalf of the Note Registrar by an Executive Officer thereof as to the names and addresses of the Holders of the Notes and the principal amounts and number of such Notes. Subject to the limitations on transfer set forth herein, upon surrender for registration of transfer of any Note at the office or agency of the Issuer to be maintained as provided in Section 3.02, if the requirements of Section 8-401(1) of the UCC are met, the Issuer shall execute, and the Indenture Trustee shall authenticate and the Noteholder shall obtain from the Indenture Trustee, in the name of the designated transferee or transferees, one or more new Notes of the same Class in any authorized denominations, of a like aggregate principal amount. Notes may be exchanged for other Notes of the same Class in any authorized denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, if the requirements of Section 8-401(1) of the UCC are met, the Issuer shall execute, and the Indenture Trustee shall authenticate and the Noteholder shall obtain from the Indenture Trustee, the Notes which the Noteholder making the exchange is entitled to receive. 8 All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing, with such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act. No service charge shall be made to a Holder for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 2.03 or 9.05 not involving any transfer. The preceding provisions of this Section notwithstanding, the Issuer shall not be required to make, and the Note Registrar need not register, transfers or exchanges of Notes selected for redemption or of any Note for a period of 15 days preceding the due date for any payment with respect to the Note. SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer and the Indenture Trustee harmless, then, in the absence of written notice to the Issuer, the Note Registrar or the Indenture Trustee that such Note has been acquired by a bona fide purchaser, and provided that the requirements of Section 8-405 of the UCC are met, the Issuer shall execute, and upon its written request the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note of the same Class; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become or within seven days shall be due and payable, or shall have been called for redemption, instead of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so due or payable or upon the Redemption Date without surrender thereof. If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer and the Indenture Trustee shall be entitled to recover such replacement Note (or such payment) from the Person to whom it was delivered or any Person taking such replacement Note from such Person to whom such replacement Note was delivered or any assignee of such Person, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in connection therewith. Upon the issuance of any replacement Note under this Section, the Issuer may require the payment by the Holder of such Note of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Indenture Trustee) connected therewith. Every replacement Note issued pursuant to this Section in replacement of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. 9 The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 2.07. Persons Deemed Owner. Prior to due presentment for registration of transfer of any Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name any Note is registered (as of the day of determination) as the owner of such Note for the purpose of receiving payments of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Issuer, the Indenture Trustee or any agent of the Issuer or the Indenture Trustee shall be affected by notice to the contrary. SECTION 2.08. Payment of Principal and Interest; Defaulted Interest. (a) The Class A-1 Notes and the Class A-2 Notes shall accrue interest at the Class A-1 Interest Rate and the Class A-2 Interest Rate respectively, as set forth in Exhibits A-1 and A-2, respectively, and such interest shall be payable on each Distribution Date as specified therein, subject to Section 3.01. Any installment of interest or principal payable on a Note that is punctually paid or duly provided for by the Issuer on the applicable Distribution Date shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered on the Record Date by check mailed first-class postage prepaid to such Person's address as it appears on the Note Register on such Record Date, except that, upon written request of a Noteholder to the Paying Agent not later than the Record Date prior to the related Distribution Date, payment will be made by wire transfer in immediately available funds to the account designated by such Holder and except for the final installment of principal payable with respect to such Note on a Distribution Date or on the Class A-1 Final Scheduled Distribution Date or Class A-2 Final Scheduled Distribution Date, as applicable, which shall be payable as provided below. The funds represented by any such checks returned undelivered shall be held in accordance with Section 3.03. (b) The principal of each Note shall be payable in installments on each Distribution Date as provided in the forms of the Notes set forth in Exhibit A-1 and Exhibit A-2. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable, if not previously paid, on the date on which an Event of Default shall have occurred and be continuing, if the Indenture Trustee or Holders of the Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 5.02. All principal payments on each Class of Notes shall be made pro rata to the Noteholders of such Class entitled thereto. The Indenture Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Distribution Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment. Notices in connection with redemptions of Notes shall be mailed to Noteholders as provided in Section 10.02. (c) If the Issuer defaults in a payment of interest on the Notes, the Issuer shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) at the applicable Interest Rate in any lawful manner. The Issuer may pay such defaulted interest to the persons who are Noteholders on a subsequent special record date, which date shall be at least five Business Days prior to the payment date. The Issuer shall fix or cause to be fixed any such special record date and payment date and, at least 15 days before any such special record date, the Issuer shall mail to each Noteholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.09. Cancellation. All Notes surrendered for payment, registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Notes previously authenticated 10 and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Notes may be held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal policy as in effect at the time unless the Issuer shall direct by an Issuer Order that they be destroyed or returned to it and such Issuer Order is timely and the Notes have not been previously disposed of by the Indenture Trustee. SECTION 2.10. Tax Treatment. The Issuer has entered into this Indenture, and the Notes will be issued, with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer secured by the Trust Estate. The Issuer, by entering into this Indenture, and each Noteholder, by its acceptance of a Note, agree to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness of the Issuer. ARTICLE III Covenants SECTION 3.01. Payment of Principal and Interest. The Issuer will duly and punctually pay the principal of and interest, if any, on the Notes in accordance with the terms of the Notes and this Indenture. Without limiting the foregoing, subject to Section 8.02(c), the Issuer will cause to be distributed all amounts on deposit in the Note Distribution Account on a Distribution Date deposited therein pursuant to the Sale and Servicing Agreement (i) for the benefit of the Class A-1 Notes, to the Class A-1 Noteholders and (ii) for the benefit of the Class A-2 Notes, to the Class A-2 Noteholders. Amounts properly withheld under the Code by any Person from a payment to any Noteholder of interest and/or principal shall be considered as having been paid by the Issuer to such Noteholder for all purposes of this Indenture. SECTION 3.02. Maintenance of Office or Agency. The Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer hereby initially appoints the Indenture Trustee to serve as its agent for the foregoing purposes. The Issuer will give prompt written notice to the Indenture Trustee of the location, and of any change in the location, of any such office or agency. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as its agent to receive all such surrenders, notices and demands. SECTION 3.03. Money for Payments To Be Held in Trust. As provided in Section 8.02(a) and (b), all payments of amounts due and payable with respect to any Notes that are to be made from amounts withdrawn from the Collection Account and the Note Distribution Account pursuant to Section 8.02(c) shall be made on behalf of the Issuer by the Indenture Trustee or by another Paying Agent, and no amounts so withdrawn from the Collection Account and the Note Distribution Account for payments of Notes shall be paid over to the Issuer except as provided in this Section. On or before the Business Day preceding each Distribution Date and Redemption Date, the Issuer shall deposit or cause to be deposited in the Note Distribution Account an aggregate sum sufficient to pay the amounts then becoming due under the Notes, such sum to be held in trust for the benefit of the Persons entitled thereto, and (unless the Paying Agent is the Indenture Trustee) shall promptly notify the Indenture Trustee of its action or failure so to act. The Issuer will cause each Paying Agent other than the Indenture Trustee to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture 11 Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section, that such Paying Agent will: (i) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided; (ii) give the Indenture Trustee written notice of any default by the Issuer (or any other obligor upon the Notes) of which it has actual knowledge in the making of any payment required to be made with respect to the Notes; (iii) at any time during the continuance of any such default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent; (iv) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Notes if at any time it ceases to meet the standards required to be met by a Paying Agent at the time of its appointment; and (v) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money. Subject to applicable laws with respect to escheat of funds, any money held by the Indenture Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Note and remaining unclaimed for two years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer on Issuer Request; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer), and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Indenture Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense and written direction of the Issuer cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ, at the expense and written direction of the Issuer, any other reasonable means of notification of such repayment (including, but not limited to, mailing notice of such repayment to Holders whose Notes have been called but have not been surrendered for redemption or whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Holder). SECTION 3.04. Existence. The Issuer will keep in full effect its existence, rights and franchises as a business trust under the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and will obtain and preserve its qualification to do business in each 12 jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the Notes, the Collateral and each other instrument or agreement included in the Trust Estate. SECTION 3.05. Protection of Trust Estate. The Issuer will from time to time execute and deliver all such supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and will take such other action necessary or advisable to: (i) maintain or preserve the lien and security interest (and the priority thereof) of this Indenture or carry out more effectively the purposes hereof; (ii) perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture; (iii) enforce any of the Collateral; or (iv) preserve and defend title to the Trust Estate and the rights of the Indenture Trustee and the Noteholders in such Trust Estate against the claims of all persons and parties. The Issuer hereby designates the Indenture Trustee its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument required to be executed pursuant to this Section 3.05. SECTION 3.06. Opinions as to Trust Estate. (a) On the Closing Date, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the recording and filing of this Indenture, any indentures supplemental hereto, and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements, as are necessary to perfect and make effective the lien and security interest of this Indenture and reciting the details of such action, or stating that, in the opinion of such counsel, no such action is necessary to make such lien and security interest effective. (b) On or before July 31, in each calendar year, beginning in 1996, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the lien and security interest created by this Indenture and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such lien and security interest. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the lien and security interest of this Indenture until July 31 in the following calendar year. SECTION 3.07. Performance of Obligations; Servicing of Receivables. (a) The Issuer will not take any action and will use its best efforts not to permit any action to be taken by others that would release any Person from any of such Person's material covenants or obligations under any instrument or agreement included in the Trust Estate or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as expressly provided in this Indenture, the Sale and Servicing Agreement or such other instrument or agreement. 13 (b) The Issuer may contract with other Persons to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee in an Officer's Certificate of the Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted with the Servicer and the Administrator to assist the Issuer in performing its duties under this Indenture. (c) The Issuer will punctually perform and observe all of its obligations and agreements contained in this Indenture, the Basic Documents and in the instruments and agreements included in the Trust Estate, including but not limited to filing or causing to be filed all UCC financing statements and continuation statements required to be filed by the terms of this Indenture and the Sale and Servicing Agreement in accordance with and within the time periods provided for herein and therein. Except as otherwise expressly provided therein, the Issuer shall not waive, amend, modify, supplement or terminate any Basic Document or any provision thereof without the consent of the Indenture Trustee or the Holders of at least a majority of the Outstanding Amount of the Notes. (d) If the Issuer shall have knowledge of the occurrence of a Servicer Default under the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee and the Rating Agencies thereof, and shall specify in such notice the action, if any, the Issuer is taking with respect to such default. If a Servicer Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement with respect to the Receivables, the Issuer shall take all reasonable steps available to it to remedy such failure. (e) As promptly as possible after the giving of notice of termination to the Servicer of the Servicer's rights and powers pursuant to Section 8.01 of the Sale and Servicing Agreement, the Issuer shall appoint a successor servicer (the "Successor Servicer"), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Indenture Trustee. In the event that a Successor Servicer has not been appointed and accepted its appointment at the time when the Servicer ceases to act as Servicer, the Indenture Trustee without further action shall automatically be appointed the Successor Servicer. The Indenture Trustee may resign as the Servicer by giving written notice of such resignation to the Issuer and in such event will be released from such duties and obligations, such release not to be effective until the date a new servicer enters into a servicing agreement with the Issuer as provided below. Upon delivery of any such notice to the Issuer, the Issuer shall obtain a new servicer as the Successor Servicer under the Sale and Servicing Agreement. Any Successor Servicer other than the Indenture Trustee shall (i) be an established financial institution having a net worth of not less than $50,000,000 and whose regular business includes the servicing of Contracts and (ii) enter into a servicing agreement with the Issuer having substantially the same provisions as the provisions of the Sale and Servicing Agreement applicable to the Servicer. If within 30 days after the delivery of the notice referred to above, the Issuer shall not have obtained such a new servicer, the Indenture Trustee may appoint, or may petition a court of competent jurisdiction to appoint, a Successor Servicer. In connection with any such appointment, the Indenture Trustee may make such arrangements for the compensation of such successor as it and such successor shall agree, subject to the limitations set forth below and in the Sale and Servicing Agreement, and in accordance with Section 8.02 of the Sale and Servicing Agreement, the Issuer shall enter into an agreement with such successor for the servicing of the Receivables (such agreement to be in form and substance satisfactory to the Indenture Trustee). If the Indenture Trustee shall succeed to the Servicer's duties as servicer of the Receivables as provided herein, it shall do so in its individual capacity and not in its capacity as Indenture Trustee and, accordingly, the provisions of Article VI hereof shall be inapplicable to the Indenture Trustee in its duties as the successor to the Servicer and the servicing of the Receivables. (f) Upon any termination of the Servicer's rights and powers pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee in writing. As soon as a Successor Servicer is appointed, the Issuer shall notify the Indenture Trustee of such appointment, specifying in such notice the name and address of such Successor Servicer. 14 (g) Without derogating from the absolute nature of the assignment granted to the Indenture Trustee under this Indenture or the rights of the Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the prior written consent of the Indenture Trustee or the Holders of at least a majority in Outstanding Amount of the Notes, amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, the terms of any Collateral (except to the extent otherwise provided in the Sale and Servicing Agreement) or the Basic Documents, or waive timely performance or observance by the Servicer or the Depositor under the Sale and Servicing Agreement; and (ii) that any such amendment shall not (A) increase or reduce in any manner the amount of, or accelerate or delay the timing of, distributions that are required to be made for the benefit of the Noteholders or (B) reduce the aforesaid percentage of the Notes that is required to consent to any such amendment, without the consent of the Holders of all the Outstanding Notes. If any such amendment, modification, supplement or waiver shall be so consented to by the Indenture Trustee or such Holders, the Issuer agrees, promptly following a request by the Indenture Trustee to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Indenture Trustee may deem necessary or appropriate in the circumstances. SECTION 3.08. Negative Covenants. So long as any Notes are Outstanding, the Issuer shall not: (i) except as expressly permitted by this Indenture or the Sale and Servicing Agreement, sell, transfer, exchange or otherwise dispose of any of the properties or assets of the Issuer, including those included in the Trust Estate, unless directed to do so by the Indenture Trustee; (ii) claim any credit on, or make any deduction from the principal or interest payable in respect of, the Notes (other than amounts properly withheld from such payments under the Code) or assert any claim against any present or former Noteholder by reason of the payment of the taxes levied or assessed upon any part of the Trust Estate; or (iii) (A) permit the validity or effectiveness of this Indenture to be impaired, or permit the lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Notes under this Indenture except as may be expressly permitted hereby, (B) permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than the lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Trust Estate or any part thereof or any interest therein or the proceeds thereof (other than tax liens, mechanics' liens and other liens that arise by operation of law, in each case on any of the Financed Vehicles and arising solely as a result of an action or omission of the related Obligor) or (C) permit the lien of this Indenture not to constitute a valid first priority (other than with respect to any such tax, mechanics' or other lien) security interest in the Trust Estate. SECTION 3.09. Annual Statement as to Compliance. The Issuer will deliver to the Indenture Trustee, within 120 days after the end of each fiscal year of the Issuer (commencing with the fiscal year 1995), an Officer's Certificate stating, as to the Authorized Officer signing such Officer's Certificate, that: (i) a review of the activities of the Issuer during such year and of its performance under this Indenture has been made under such Authorized Officer's supervision; and (ii) to the best of such Authorized Officer's knowledge, based on such review, the Issuer has complied with all conditions and covenants under this Indenture throughout such year, or, if there has been a default in its compliance with any such condition or covenant, specifying each such default known to such Authorized Officer and the nature and status thereof. 15 SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms. (a) The Issuer shall not consolidate or merge with or into any other Person, unless: (i) the Person (if other than the Issuer) formed by or surviving such consolidation or merger shall be a Person organized and existing under the laws of the United States of America or any State and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in form satisfactory to the Indenture Trustee, the due and punctual payment of the principal of and interest on all Notes and the performance or observance of every agreement and covenant of this Indenture on the part of the Issuer to be performed or observed, all as provided herein; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) the Rating Agency Condition shall have been satisfied with respect to such transaction; (iv) the Issuer shall have received an Opinion of Counsel (and shall have delivered copies thereof to the Indenture Trustee) to the effect that such transaction will not have any material adverse tax consequence to the Issuer, any Noteholder or any Certificateholder; (v) any action that is necessary to maintain the lien and security interest created by this Indenture shall have been taken; and (vi) the Issuer shall have delivered to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that such consolidation or merger and such supplemental indenture comply with this Article III and that all conditions precedent herein provided for relating to such transaction have been complied with (including any filing required by the Exchange Act). (b) The Issuer shall not convey or transfer any of its properties or assets, including those included in the Trust Estate, to any Person, unless: (i) the Person that acquires by conveyance or transfer the properties and assets of the Issuer the conveyance or transfer of which is hereby restricted (A) shall be a United States citizen or a Person organized and existing under the laws of the United States of America or any State, (B) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in form satisfactory to the Indenture Trustee, the due and punctual payment of the principal of and interest on all Notes and the performance or observance of every agreement and covenant of this Indenture on the part of the Issuer to be performed or observed, all as provided herein, (C) expressly agrees by means of such supplemental indenture that all right, title and interest so conveyed or transferred shall be subject and subordinate to the rights of Holders of the Notes, and (D) unless otherwise provided in such supplemental indenture, expressly agrees to indemnify, defend and hold harmless the Issuer against and from any loss, liability or expense arising under or related to this Indenture and the Notes; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) the Rating Agency Condition shall have been satisfied with respect to such transaction; (iv) the Issuer shall have received an Opinion of Counsel (and shall have delivered copies thereof to the Indenture Trustee) to the effect that such transaction will not have any material adverse tax consequence to the Issuer, any Noteholder or any Certificateholder; (v) any action that is necessary to maintain the lien and security interest created by this Indenture shall have been taken; and 16 (vi) the Issuer shall have delivered to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that such conveyance or transfer and such supplemental indenture comply with this Article III and that all conditions precedent herein provided for relating to such transaction have been complied with (including any filing required by the Exchange Act). SECTION 3.11. Successor or Transferee. (a) Upon any consolidation or merger of the Issuer in accordance with Section 3.10(a), the Person formed by or surviving such consolidation or merger (if other than the Issuer) shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such Person had been named as the Issuer herein. (b) Upon a conveyance or transfer of all the assets and properties of the Issuer pursuant to Section 3.10(b), NAL Auto Trust 1995-1 will be released from every covenant and agreement of this Indenture to be observed or performed on the part of the Issuer with respect to the Notes immediately upon the delivery of written notice to the Indenture Trustee stating that NAL Auto Trust 1995-1 is to be so released. SECTION 3.12. No Other Business. The Issuer shall not engage in any business other than financing, purchasing, owning, selling and managing the Receivables in the manner contemplated by this Indenture and the Basic Documents and activities incidental thereto. SECTION 3.13. No Borrowing. The Issuer shall not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness except for the Notes. SECTION 3.14. Servicer's Obligations. The Issuer shall cause the Servicer to comply with Sections 4.09, 4.10, 4.11 and Article IX of the Sale and Servicing Agreement. SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities. Except as contemplated by the Sale and Servicing Agreement or this Indenture, the Issuer shall not make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person. SECTION 3.16. Capital Expenditures. The Issuer shall not make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty). SECTION 3.17. Removal of Administrator. So long as any Notes are Outstanding, the Issuer shall not remove the Administrator without cause unless the Rating Agency Condition shall have been satisfied in connection with such removal. SECTION 3.18. Restricted Payments. The Issuer shall not, directly or indirectly, (i) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to the Owner Trustee or any owner of a beneficial interest in the Issuer or otherwise with respect to any ownership or equity interest or security in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or security or (iii) set aside or otherwise segregate any amounts for any such purpose; provided, however, that the Issuer may make, or cause to be made, (x) distributions to the Servicer, the Owner Trustee and the Certificateholders as contemplated by, and to the extent funds are available for such purpose under, the Sale and Servicing Agreement or the Trust Agreement and (y) payments to the Indenture Trustee pursuant to Section 1(a)(ii) of the Administration Agreement. The Issuer will not, directly or indirectly, make payments to or distributions from the Collection Account except in accordance with this Indenture and the Basic Documents. 17 SECTION 3.19. Notice of Events of Default. The Issuer shall give the Indenture Trustee and the Rating Agencies prompt written notice of each Event of Default hereunder and each default on the part of the Servicer of its obligations under the Sale and Servicing Agreement. SECTION 3.20. Further Instruments and Acts. Upon request of the Indenture Trustee, the Issuer will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE IV Satisfaction and Discharge SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to the Notes except as to (i) rights of registration of transfer and exchange, (ii) substitution of mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.05, 3.08, 3.10, 3.12 and 3.13, (v) the rights, obligations and immunities of the Indenture Trustee hereunder (including the rights of the Indenture Trustee under Section 6.07 and the obligations of the Indenture Trustee under Section 4.02) and (vi) the rights of Noteholders as beneficiaries hereof with respect to the property so deposited with the Indenture Trustee payable to all or any of them, and the Indenture Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes, when (A) either (1) all Notes theretofore authenticated and delivered (other than (i) Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.06 and (ii) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 3.03) have been delivered to the Indenture Trustee for cancellation; or (2) all Notes not theretofore delivered to the Indenture Trustee for cancellation a. have become due and payable, b. are to be called for redemption within one year under arrangements satisfactory to the Indenture Trustee for the giving of notice of redemption by the Indenture Trustee in the name, and at the expense, of the Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited or caused to be irrevocably deposited with the Indenture Trustee cash or direct obligations of or obligations guaranteed by the United States of America (which will mature prior to the date such amounts are payable), in trust for such purpose, in an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Indenture Trustee for cancellation when due to the applicable final scheduled Distribution Date or Redemption Date, as the case may be; (B) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer; and (C) the Issuer has delivered to the Indenture Trustee an Officer's Certificate, an Opinion of Counsel and (if required by the Indenture Trustee) an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section 11.01(a) and, subject to Section 11.02, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. 18 SECTION 4.02. Application of Trust Money. All moneys deposited with the Indenture Trustee pursuant to Section 4.01 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent, as the Indenture Trustee may determine, to the Holders of the particular Notes for the payment or redemption of which such moneys have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest; but such moneys need not be segregated from other funds except to the extent required herein or in the Sale and Servicing Agreement or required by law. SECTION 4.03. Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to the Notes, all moneys then held by any Paying Agent other than the Indenture Trustee under the provisions of this Indenture with respect to such Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held and applied according to Section 3.03 and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. ARTICLE V Remedies SECTION 5.01. Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) default in the payment of any interest on any Note when the same becomes due and payable, and such default shall continue for a period of five days; or (ii) default in the payment of the principal of or any installment of the principal of any Note when the same becomes due and payable; or (iii) default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section specifically dealt with), or any representation or warranty of the Issuer made in this Indenture or in any certificate or other writing delivered pursuant hereto or in connection herewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and such default shall continue or not be cured, or the circumstance or condition in respect of which such misrepresentation or warranty was incorrect shall not have been eliminated or otherwise cured, for a period of 30 days after there shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Holders of at least 25% of the Outstanding Amount of the Notes, a written notice specifying such default or incorrect representation or warranty and requiring it to be remedied and stating that such notice is a notice of Default hereunder; or (iv) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer or any substantial part of the Trust Estate in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Trust Estate, or ordering the winding-up or liquidation of the Issuer's affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (v) the commencement by the Issuer of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the 19 Issuer to the entry of an order for relief in an involuntary case under any such law, or the consent by the Issuer to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Trust Estate, or the making by the Issuer of any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay its debts as such debts become due, or the taking of any action by the Issuer in furtherance of any of the foregoing. The Issuer shall deliver to the Indenture Trustee, within five days after the occurrence thereof, written notice in the form of an Officer's Certificate of any event which with the giving of notice and the lapse of time would become an Event of Default under clause (iii), its status and what action the Issuer is taking or proposes to take with respect thereto. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default should occur and be continuing, then and in every such case the Indenture Trustee or the Holders of Notes representing not less than a majority of the Outstanding Amount of the Notes may declare all the Notes to be immediately due and payable, by a notice in writing to the Issuer (and to the Indenture Trustee if given by Noteholders), and upon any such declaration the unpaid principal amount of such Notes, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable. At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as hereinafter in this Article V provided, the Holders of Notes representing a majority of the Outstanding Amount of the Notes, by written notice to the Issuer and the Indenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay: (A) all payments of principal of and interest on all Notes and all other amounts that would then be due hereunder or upon such Notes if the Event of Default giving rise to such acceleration had not occurred; and (B) all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel; and (ii) all Events of Default, other than the nonpayment of the principal of the Notes that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12. No such rescission shall affect any subsequent default or impair any right consequent thereto. SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the payment of any interest on any Note when the same becomes due and payable, and such default continues for a period of five days, or (ii) default is made in the payment of the principal of or any installment of the principal of any Note when the same becomes due and payable, the Issuer will, upon demand of the Indenture Trustee, pay to it, for the benefit of the Holders of the Notes, the whole amount then due and payable on such Notes for principal and interest, with interest on the overdue principal, and, to the extent payment at such rate of interest shall be legally enforceable, on overdue installments of interest, at the rate borne by the Notes and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel. (b) In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee, in its own name and as trustee of an express trust, may institute a Proceeding for the 20 collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer or other obligor upon such Notes and collect in the manner provided by law out of the property of the Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be payable. (c) If an Event of Default occurs and is continuing, the Indenture Trustee may, as more particularly provided in Section 5.04, in its discretion, proceed to protect and enforce its rights and the rights of the Noteholders, by such appropriate Proceedings as the Indenture Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture or by law. (d) In case there shall be pending, relative to the Issuer or any other obligor upon the Notes or any Person having or claiming an ownership interest in the Trust Estate, Proceedings under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, or liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in case of any other comparable judicial Proceedings relative to the Issuer or other obligor upon the Notes, or to the creditors or property of the Issuer or such other obligor, the Indenture Trustee, irrespective of whether the principal of any Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to the provisions of this Section, shall be entitled and empowered, by intervention in such Proceedings or otherwise: (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee and each predecessor Indenture Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee, except as a result of negligence or bad faith) and of the Noteholders allowed in such Proceedings; (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Holders of Notes in any election of a trustee, a standby trustee or Person performing similar functions in any such Proceedings; (iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Noteholders and of the Indenture Trustee on their behalf; and (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Holders of Notes allowed in any Proceedings relative to the Issuer, its creditors and its property; and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by each of such Noteholders to make payments to the Indenture Trustee and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Noteholders, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or bad faith. (e) Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Noteholder any plan of reorganization, 21 arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Indenture Trustee to vote in respect of the claim of any Noteholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. (f) All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any trial or other Proceedings relative thereto, and any such action or Proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Notes. (g) In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all the Holders of the Notes, and it shall not be necessary to make any Noteholder a party to any such Proceedings. SECTION 5.04. Remedies; Priorities. (a) If an Event of Default shall have occurred and be continuing, the Indenture Trustee may do one or more of the following (subject to Section 5.05): (i) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Notes or under this Indenture with respect thereto, whether by declaration or otherwise, enforce any judgment obtained and collect from the Issuer and any other obligor upon such Notes moneys adjudged due; (ii) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Trust Estate; (iii) exercise any remedies of a secured party under the UCC and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee and the Holders of the Notes; and (iv) sell the Trust Estate or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law; provided, however, that the Indenture Trustee may not sell or otherwise liquidate the Trust Estate following an Event of Default, other than an Event of Default described in Section 5.01(i) or (ii), unless (A) the Holders of 100% of the Outstanding Amount of the Notes consent thereto, (B) the proceeds of such sale or liquidation distributable to the Noteholders are sufficient to discharge in full all amounts then due and unpaid upon such Notes for principal and interest or (C) the Indenture Trustee determines that the Trust Estate will not continue to provide sufficient funds for the payment of principal of and interest on the Notes as they would have become due if the Notes had not been declared due and payable, and the Indenture Trustee obtains the consent of Holders of 66-2/3% of the Outstanding Amount of the Notes. In determining such sufficiency or insufficiency with respect to clause (B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Trust Estate for such purpose, which opinion shall be conclusive evidence as to such feasibility or sufficiency. (b) If the Indenture Trustee collects any money or property pursuant to this Article V, it shall pay out the money or property in the following order: FIRST: to the Indenture Trustee for amounts due under Section 6.07; 22 SECOND: to Holders of the Class A-1 Notes for amounts due and unpaid on the Class A-1 Notes for interest (including any premium), ratably, without preference or priority of any kind, according to the amounts due and payable on the Class A-1 Notes for interest (including any premium); THIRD: to Holders of the Class A-2 Notes for amounts due and unpaid on the Class A-2 Notes for interest (including any premium), notably, without preference of priority of any kind, according to the amounts due and payable on the Class A-2 Notes for interest (including any premium); FOURTH: to Holders of the Class A-1 Notes for amounts due and unpaid on the Class A-1 Notes for principal, ratably, without preference or priority of any kind, according to the amounts due and payable on the Class A-1 Notes for principal, until the Outstanding Amount of the Class A- 1 Notes is reduced to zero; FIFTH: to Holders of the Class A-2 Notes for amounts due and unpaid on the Class A-2 Notes for principal, ratably, without preference or priority of any kind, according to the amounts due and payable on the Class A-2 Notes for principal, until the Outstanding Amount of the Class A-2 Notes is reduced to zero; SIXTH: to the Issuer for amounts required to be distributed to the Certificateholders pursuant to the Trust Agreement. The Indenture Trustee may fix a record date and payment date for any payment to Noteholders pursuant to this Section. At least 15 days before such record date, the Issuer shall mail to each Noteholder and the Indenture Trustee a notice that states the record date, the payment date and the amount to be paid. SECTION 5.05. Optional Preservation of the Receivables. If the Notes have been declared to be due and payable under Section 5.02 following an Event of Default and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee may, but need not, elect to maintain possession of the Trust Estate. It is the desire of the parties hereto and the Noteholders that there be at all times sufficient funds for the payment of principal of and interest on the Notes, and the Indenture Trustee shall take such desire into account when determining whether or not to maintain possession of the Trust Estate. In determining whether to maintain possession of the Trust Estate, the Indenture Trustee may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Trust Estate for such purpose, which opinion shall be conclusive evidence as to such sufficiency. SECTION 5.06. Limitation of Suits. No Holder of any Note shall have any right to institute any Proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (i) such Holder has previously given written notice to the Indenture Trustee of a continuing Event of Default; (ii) the Holders of not less than 25% of the Outstanding Amount of the Notes have made written request to the Indenture Trustee to institute such Proceeding in respect of such Event of Default in its own name as Indenture Trustee hereunder; (iii) such Holder or Holders have offered to the Indenture Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in complying with such request; 23 (iv) the Indenture Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such Proceedings; and (v) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Holders of a majority of the Outstanding Amount of the Notes. It is understood and intended that no one or more Holders of Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Notes or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided. In the event the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Holders of Notes, each representing less than a majority of the Outstanding Amount of the Notes, the Indenture Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture. SECTION 5.07. Unconditional Rights of Noteholders To Receive Principal and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest, if any, on such Note on or after the respective due dates thereof expressed in such Note or in this Indenture (or, in the case of redemption, on or after the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 5.08. Restoration of Rights and Remedies. If the Indenture Trustee or any Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee or to such Noteholder, then and in every such case the Issuer, the Indenture Trustee and the Noteholders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Noteholders shall continue as though no such Proceeding had been instituted. SECTION 5.09. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Indenture Trustee or to the Noteholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.10. Delay or Omission Not a Waiver. No delay or omission of the Indenture Trustee or any Holder of any Note to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee or to the Noteholders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as the case may be. SECTION 5.11. Control by Noteholders. The Holders of a majority of the Outstanding Amount of the Notes shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Notes or exercising any trust or power conferred on the Indenture Trustee; provided that: (i) such direction shall not be in conflict with any rule of law or with this Indenture; (ii) subject to the express terms of Section 5.04, any direction to the Indenture Trustee to sell or liquidate the Trust Estate shall be by Holders of Notes representing not less than 100% of the Outstanding Amount of the Notes; 24 (iii) if the conditions set forth in Section 5.05 have been satisfied and the Indenture Trustee elects to retain the Trust Estate pursuant to such Section, then any direction to the Indenture Trustee by Holders of Notes representing less than 100% of the Outstanding Amount of the Notes to sell or liquidate the Trust Estate shall be of no force and effect; and (iv) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction. Notwithstanding the rights of Noteholders set forth in this Section, subject to Section 6.01, the Indenture Trustee need not take any action that it determines might involve it in liability or might materially adversely affect the rights of any Noteholders not consenting to such action. SECTION 5.12. Waiver of Past Defaults. Prior to the declaration of the acceleration of the maturity of the Notes as provided in Section 5.02, the Holders of Notes of not less than a majority of the Outstanding Amount of the Notes may waive any past Default or Event of Default and its consequences except a Default (a) in payment of principal of or interest on any of the Notes or (b) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Note. In the case of any such waiver, the Issuer, the Indenture Trustee and the Holders of the Notes shall be restored to their former positions and rights hereunder, respectively, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 5.13. Undertaking for Costs. All parties to this Indenture agree, and each Holder of a Note by such Holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to (a) any suit instituted by the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of Noteholders, in each case holding in the aggregate more than 10% of the Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for the enforcement of the payment of principal of or interest on any Note on or after the respective due dates expressed in such Note and in this Indenture (or, in the case of redemption, on or after the Redemption Date). SECTION 5.14. Waiver of Stay or Extension Laws. The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.15. Action on Notes. The Indenture Trustee's right to seek and recover judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. Neither the lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such 25 judgment upon any portion of the Trust Estate or upon any of the assets of the Issuer. Any money or property collected by the Indenture Trustee shall be applied in accordance with Section 5.04(b). SECTION 5.16. Performance and Enforcement of Certain Obligations. (a) Promptly following a request from the Indenture Trustee to do so and at the Administrator's expense, the Issuer shall take all such lawful action as the Indenture Trustee may request to compel or secure the performance and observance by the Depositor, the Servicer or NAL, as applicable, of each of their obligations to the Issuer under or in connection with the Sale and Servicing Agreement and the Receivable Purchase Agreement and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with the Sale and Servicing Agreement or the Receivables Purchase Agreement to the extent and in the manner directed by the Indenture Trustee, including the transmission of notices of default on the part of the Depositor, the Servicer, or NAL thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by the Depositor or the Servicer of each of their obligations under the Sale and Servicing Agreement or the Receivables Purchase Agreement. (b) If an Event of Default has occurred and is continuing, the Indenture Trustee may, and at the direction (which direction shall be in writing or by telephone (confirmed in writing promptly thereafter)) of the Holders of 66-2/3% of the Outstanding Amount of the Notes shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Depositor or the Servicer under or in connection with the Sale and Servicing Agreement and the Receivables Purchase Agreement including the right or power to take any action to compel or secure performance or observance by the Depositor, the Servicer or NAL, as the case may be, of each of their obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Sale and Servicing Agreement and the Receivables Purchase Agreement, as the case may be, and any right of the Issuer to take such action shall be suspended. ARTICLE VI The Indenture Trustee SECTION 6.01. Duties of Indenture Trustee. (a) If an Event of Default has occurred and is continuing of which a Responsible Officer of the Indenture Trustee shall have actual knowledge, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and (ii) in the absence of bad faith on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; however, the Indenture Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Indenture Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; 26 (ii) the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and (iii) the Indenture Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.11. (d) Every provision of this Indenture that in any way relates to the Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section. (e) The Indenture Trustee shall not be liable for interest on any money received by it except as the Indenture Trustee may agree in writing with the Issuer. (f) Money held in trust by the Indenture Trustee need not be segregated from other funds except to the extent required by law or the terms of this Indenture or the Sale and Servicing Agreement. (g) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or indemnity reasonably satisfactory to it against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section. SECTION 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee may conclusively rely, as to the truth of the statements or the correctness of the opinions expressed therein, on any document believed by it to be genuine and to have been signed or presented by the proper person. The Indenture Trustee need not investigate any fact or matter stated in the document. (b) Before the Indenture Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Officer's Certificate or Opinion of Counsel. (c) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder. (d) The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Indenture Trustee's conduct does not constitute willful misconduct, negligence or bad faith. (e) The Indenture Trustee may consult with counsel, including Issuer's counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. SECTION 6.03. Individual Rights of Indenture Trustee. The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Indenture Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Indenture Trustee must comply with Section 6.11. 27 SECTION 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuer's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Issuer in the Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Indenture Trustee's certificate of authentication. SECTION 6.05. Notice of Defaults. If a Default occurs and is continuing and if it is either actually known or written notice of the existence thereof has been delivered to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall promptly mail to each Noteholder and each Rating Agency notice of the Default. Except in the case of a Default in payment of principal of or interest on any Note (including payments pursuant to the mandatory redemption provisions of such Note), the Indenture Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Noteholders. To the extent that a Responsible Officer has actual knowledge thereof or receives written notice thereof, the Indenture Trustee shall provide each Rating Agency promptly with notice in the event that any Event of Default is cured or waived, including a description of the nature and extent of such Event of Default and the actions taken to cure or waive it. SECTION 6.06. Reports by Indenture Trustee to Holders. The Indenture Trustee shall deliver to each Noteholder such information as may be required to enable such holder to prepare its federal and state income tax returns. SECTION 6.07. Compensation and Indemnity. The Issuer shall, or shall cause the Administrator to, pay to the Indenture Trustee from time to time reasonable compensation for its services. The Indenture Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall, or shall cause the Administrator to, reimburse the Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Indenture Trustee's agents, counsel, accountants and experts. The Issuer shall, or shall cause the Administrator to, indemnify the Indenture Trustee against any and all loss, liability or expense (including attorneys' fees and expenses) incurred by it in connection with the administration of this trust and the performance of its duties hereunder. The Indenture Trustee shall notify the Issuer and the Administrator promptly of any claim for which it may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and the Administrator shall not relieve the Issuer or the Administrator of its obligations hereunder. The Issuer shall, or shall cause the Administrator to, defend any such claim, and the Indenture Trustee may have separate counsel and the Issuer shall, or shall cause the Administrator to, pay the fees and expenses of such counsel. Neither the Issuer nor the Administrator need reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee's own willful misconduct, negligence or bad faith. The Issuer's obligations to the Indenture Trustee pursuant to this Section shall survive the discharge of this Indenture, the maturity of the Notes and the resignation or removal of the Indenture Trustee. When the Indenture Trustee incurs expenses after the occurrence of a Default specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses are intended to constitute expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. SECTION 6.08. Replacement of Indenture Trustee. No resignation or removal of the Indenture Trustee and no appointment of a successor Indenture Trustee shall become effective until the acceptance of appointment by the successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee may resign at any time by so notifying the Issuer. The Holders of a majority in Outstanding Amount of the Notes may remove the Indenture Trustee by so notifying the Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer shall remove the Indenture Trustee if: 28 (i) the Indenture Trustee fails to comply with Section 6.11; (ii) the Indenture Trustee is adjudged a bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Indenture Trustee or its property; or (iv) the Indenture Trustee otherwise becomes incapable of acting. If the Indenture Trustee resigns or is removed or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Issuer shall promptly appoint a successor Indenture Trustee. A successor Indenture Trustee shall deliver a written acceptance of its appointment to the retiring Indenture Trustee and to the Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee under this Indenture. The successor Indenture Trustee shall mail a notice of its succession to Noteholders. The retiring Indenture Trustee shall promptly transfer all property of the Issuer, including all property in the Trust Estate, held by it as Indenture Trustee to the successor Indenture Trustee. If a successor Indenture Trustee does not take office within 60 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Holders of a majority in Outstanding Amount of the Notes may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee. If the Indenture Trustee fails to comply with Section 6.11, any Noteholder may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee. Notwithstanding the replacement of the Indenture Trustee pursuant to this Section, the Issuer's and the Administrator's obligations under Section 6.07 shall continue for the benefit of the retiring Indenture Trustee. The Indenture Trustee shall not be liable for the acts or omissions of any successor Indenture Trustee. SECTION 6.09. Successor Indenture Trustee by Merger. If the Indenture Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Indenture Trustee; provided, that such corporation or banking association shall be otherwise qualified and eligible under Section 6.11. The Indenture Trustee shall provide the Rating Agencies prior written notice of any such transaction. In case at the time such successor or successors by merger, conversion or consolidation to the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Indenture Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Indenture Trustee shall have. SECTION 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee. (a) Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Trust Estate may at the time be located, the Indenture Trustee shall have the power and may execute and deliver all instruments to appoint one 29 or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders, such title to the Trust Estate, or any part hereof, and, subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 and no notice to Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 6.08 hereof. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Estate or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee. (d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. SECTION 6.11. Eligibility; Disqualification. The Indenture Trustee shall at all times be a financial institution organized and doing business under the laws of the United States of America or any state, be authorized under such laws to exercise corporate trust powers, be subject to supervision and examination by Federal or state authority, and have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. 30 ARTICLE VII Noteholders' Lists and Reports SECTION 7.01. Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders. The Issuer will furnish or cause to be furnished to the Indenture Trustee (a) not more than five days after the earlier of (i) each Record Date and (ii) three months after the last Record Date, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Holders of Notes as of such Record Date, and (b) at such other times as the Indenture Trustee may request in writing, within 30 days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished; provided, however, that so long as the Indenture Trustee is the Note Registrar, no such list shall be required to be furnished. SECTION 7.02. Preservation of Information; Communications to Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Holders of Notes contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.01 and the names and addresses of Holders of Notes received by the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in such Section 7.01 upon receipt of a new list so furnished. (b) Noteholders may communicate pursuant to TIA ss. 312(b) with other Noteholders with respect to their rights under this Indenture or under the Notes. (c) The Issuer, the Indenture Trustee and the Note Registrar shall have the protection of TIA ss. 312(c). ARTICLE VIII Accounts, Disbursements and Releases SECTION 8.01. Collection of Money. Except as otherwise expressly provided herein, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply all such money received by it as provided in this Indenture. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Trust Estate, the Indenture Trustee may take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Default or Event of Default under this Indenture and any right to proceed thereafter as provided in Article V. SECTION 8.02. Trust Accounts. (a) On or prior to the Closing Date, the Issuer shall cause the Servicer to establish and maintain, in the name of the Indenture Trustee, for the benefit of the Noteholders and the Certificateholders, the Trust Accounts as provided in Section 5.01 of the Sale and Servicing Agreement. (b) On or before each Distribution Date, all amounts required to be deposited in the Note Distribution Account with respect to the preceding Collection Period pursuant to Sections 5.05 and 5.06 of the Sale and Servicing Agreement will be transferred from the Collection Account and/or the Reserve Account to the Note Distribution Account. (c) On each Distribution Date and Redemption Date, the Indenture Trustee shall distribute all amounts on deposit in the Note Distribution Account to Noteholders in respect of the Notes to the 31 extent of amounts due and unpaid on the Notes for principal and interest (including any premium) in the following amounts and in the following order of priority (except as otherwise provided in Section 5.04(b)): (i) to the Holders of the Class A-1 Notes, accrued and unpaid interest on the Class A-1 Notes. (ii) to the Holders of the Class A-2 Notes, accrued and unpaid interest on the Class A-2 Notes; (iii) to the Holders of the Class A-1 Notes on account of principal until the Outstanding Amount of the Class A-1 Notes is reduced to zero; (iv) to the Holders of the Class A-2 Notes on account of principal until the Outstanding Amount of the Class A-2 Notes is reduced to zero. SECTION 8.03. General Provisions Regarding Accounts. (a) So long as no Default or Event of Default shall have occurred and be continuing, all or a portion of the funds in the Trust Accounts (other than the Note Distribution Account) shall be invested in Eligible Investments and reinvested by the Indenture Trustee upon Issuer Order, subject to the provisions of Section 5.01(b) of the Sale and Servicing Agreement. All income or other gain from investments of moneys deposited in the Trust Accounts (other than the Dealer Reserve Account) shall be deposited by the Indenture Trustee in the Collection Account, and any loss resulting from such investments shall be charged to such account. All income and other gain from investment of monies in the Dealer Reserve Account (net of any losses and investment expenses) will be payable on each Distribution Date to the Depositor. The Issuer will not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any of the Trust Accounts unless the security interest Granted and perfected in such account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any direction to the Indenture Trustee to make any such investment or sale, if requested by the Indenture Trustee, the Issuer shall deliver to the Indenture Trustee an Opinion of Counsel, acceptable to the Indenture Trustee, to such effect. (b) Subject to Section 6.01(c), the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in any of the Trust Accounts resulting from any loss on any Eligible Investment included therein except for losses attributable to the Indenture Trustee's failure to make payments on such Eligible Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms. (c) If (i) the Issuer (or the Servicer) shall have failed to give investment directions for any funds on deposit in the Trust Accounts to the Indenture Trustee by 10:00 a.m. Eastern Time (or such other time as may be agreed by the Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event of Default shall have occurred and be continuing with respect to the Notes but the Notes shall not have been declared due and payable pursuant to Section 5.02 or (iii) if such Notes shall have been declared due and payable following an Event of Default and amounts collected or receivable from the Trust Estate are being applied in accordance with Section 5.05 as if there had not been such a declaration, then the Indenture Trustee shall, to the fullest extent practicable, invest and reinvest funds in the Trust Accounts in one or more Eligible Investments. SECTION 8.04. Release of Trust Estate. (a) Subject to the payment of its fees and expenses pursuant to Section 6.07, the Indenture Trustee may, and when required by the provisions of this Indenture shall, execute instruments to release property from the lien of this Indenture, or convey the Indenture Trustee's interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys. 32 (b) The Indenture Trustee shall, at such time as there are no Notes Outstanding and all sums due the Indenture Trustee pursuant to Section 6.07 have been paid, release any remaining portion of the Trust Estate that secured the Notes from the lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds then on deposit in the Trust Accounts. The Indenture Trustee shall release property from the lien of this Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer Request accompanied by an Officer's Certificate and an Opinion of Counsel meeting the applicable requirements of Section 11.01. SECTION 8.05. Opinion of Counsel. The Indenture Trustee shall receive at least seven days notice when requested by the Issuer to take any action pursuant to Section 8.04(a), accompanied by copies of any instruments involved, and the Indenture Trustee shall also require, as a condition to such action, an Opinion of Counsel, in form and substance satisfactory to the Indenture Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Notes or the rights of the Noteholders in contravention of the provisions of this Indenture; provided, however, that such Opinion of Counsel shall not be required to express an opinion as to the fair value of the Trust Estate. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action. ARTICLE IX Supplemental Indentures SECTION 9.01. Supplemental Indentures Without Consent of Noteholders. (a) Without the consent of the Holders of any Notes but with prior notice to the Rating Agencies, the Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Indenture Trustee, for any of the following purposes: (i) to correct or amplify the description of any property at any time subject to the lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property; (ii) to evidence the succession, in compliance with the applicable provisions hereof, of another person to the Issuer, and the assumption by any such successor of the covenants of the Issuer herein and in the Notes contained; (iii) to add to the covenants of the Issuer, for the benefit of the Holders of the Notes, or to surrender any right or power herein conferred upon the Issuer; (iv) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture that may be inconsistent with any other provision herein or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; provided, that such action shall not adversely affect the interests of the Holders of the Notes; (vi) to evidence and provide for the acceptance of the appointment hereunder by a successor trustee with respect to the Notes and to add to or change any of the provisions of this Indenture 33 as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Article VI; or (vii) if required by law, to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the TIA or under any similar federal statute hereafter enacted and to add to this Indenture such other provisions as may be expressly required by the TIA. The Indenture Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. (b) The Issuer and the Indenture Trustee, when authorized by an Issuer Order, may, also without the consent of any of the Holders of the Notes but with prior notice to the Rating Agencies, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Notes under this Indenture; provided, however, that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Noteholder. SECTION 9.02. Supplemental Indentures with Consent of Noteholders. The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may, with prior notice to the Rating Agencies and with the consent of the Holders of not less than a majority of the Outstanding Amount of the Notes, by Act of such Holders delivered to the Issuer and the Indenture Trustee, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Notes under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) change the date of payment of any installment of principal of or interest on any Note, or reduce the principal amount thereof, the interest rate thereon or the Redemption Price with respect thereto, change the provisions of this Indenture relating to the application of collections on, or the proceeds of the sale of, the Trust Estate to payment of principal of or interest on the Notes, or change any place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article V, to the payment of any such amount due on the Notes on or after the respective due dates thereof (or, in the case of redemption, on or after the Redemption Date); (ii) reduce the percentage of the Outstanding Amount of the Notes, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; (iii) modify or alter the provisions of the proviso to the definition of the term "Outstanding"; (iv) reduce the percentage of the Outstanding Amount of the Notes required to direct the Indenture Trustee to direct the Issuer to sell or liquidate the Trust Estate pursuant to Section 5.04; (v) modify any provision of this Section except to increase any percentage specified herein or to provide that certain additional provisions of this Indenture or the Basic Documents cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby; (vi) modify any of the provisions of this Indenture in such manner as to affect the calculation of the amount of any payment of interest or principal due on any Note on any Distribution Date (including the calculation of any of the individual components of such calculation) or to affect the 34 rights of the Holders of Notes to the benefit of any provisions for the mandatory redemption of the Notes contained herein; or (vii) permit the creation of any lien ranking prior to or on a parity with the lien of this Indenture with respect to any part of the Trust Estate or, except as otherwise permitted or contemplated herein, terminate the lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Note of the security provided by the lien of this Indenture. The Indenture Trustee may, but shall in no way be obligated to, in its sole discretion determine whether or not any Notes would be affected by any supplemental indenture and any such determination shall be conclusive upon the Holders of all Notes, whether theretofore or thereafter authenticated and delivered hereunder. The Indenture Trustee shall not be liable for any such determination made in good faith. It shall not be necessary for any Act of Noteholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Promptly after the execution by the Issuer and the Indenture Trustee of any supplemental indenture pursuant to this Section, the Indenture Trustee shall mail to the Holders of the Notes to which such amendment or supplemental indenture relates a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Indenture Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03. Execution of Supplemental Indentures. In executing, or permitting the additional trusts created by, any supplemental indenture permitted by this Article IX or the modification thereby of the trusts created by this Indenture, the Indenture Trustee shall be entitled to receive, and subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, which opinion shall be conclusive evidence as to such authorization or permission. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and shall be deemed to be modified and amended in accordance therewith with respect to the Notes affected thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.05. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and if required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such supplemental indenture. If the Issuer or the Indenture Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Notes. 35 ARTICLE X Redemption of Notes SECTION 10.01. Redemption. (a) The Notes are subject to redemption in whole, but not in part, at the direction of the Servicer pursuant to Section 9.01(a) of the Sale and Servicing Agreement, on any Distribution Date on which the Servicer exercises its option to purchase the Trust Estate pursuant to said Section 9.01(a), for a purchase price equal to the Redemption Price; provided, that the Issuer has available funds sufficient to pay the Redemption Price. The Servicer or the Issuer shall furnish the Rating Agencies notice of such redemption. If the Notes are to be redeemed pursuant to this Section 10.01(a), the Servicer or the Issuer shall furnish notice of such election to the Indenture Trustee not later than 20 days prior to the Redemption Date, and the Issuer shall deposit by 10:00 A.M. New York City time on the Redemption Date with the Indenture Trustee in the Note Distribution Account the Redemption Price of the Notes to be redeemed, whereupon all such Notes shall be due and payable on the Redemption Date upon the furnishing of a notice complying with Section 10.02 to each Holder of the Notes. (b) In the event that the assets of the Trust are sold pursuant to Section 9.02 of the Trust Agreement, all amounts on deposit in the Note Distribution Account shall be paid to the Noteholders up to the Outstanding Amount of the Notes and all accrued and unpaid interest thereon. If amounts are to be paid to Noteholders pursuant to this Section 10.01(b), the Servicer or the Issuer shall, to the extent practicable, furnish notice of such event to the Indenture Trustee not later than 20 days prior to the Redemption Date, whereupon all such amounts shall be payable on the Redemption Date. SECTION 10.02. Form of Redemption Notice. (a) Notice of redemption under Section 10.01(a) shall be given by the Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed or transmitted not later than 10 days prior to the applicable Redemption Date to each Holder of Notes as of the close of business on the Record Date preceding the applicable Redemption Date, at such Holder's address or facsimile number appearing in the Note Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; and (iii) the place where such Notes are to be surrendered for payment of the Redemption Price. Notice of redemption of the Notes shall be given by the Indenture Trustee in the name and at the expense of the Issuer. Failure to give notice of redemption, or any defect therein, to any Holder of any Note shall not impair or affect the validity of the redemption of any other Note. (b) Prior notice of redemption under Section 10.01(b) is not required to be given to Noteholders. SECTION 10.03. Notes Payable on Redemption Date. The Notes or portions thereof to be redeemed shall, following notice of redemption as required by Section 10.02 (in the case of redemption pursuant to Section 10.01(a)), become due and payable at the Redemption Price on the Redemption Date and (unless the Issuer shall default in the payment of the Redemption Price) no interest shall accrue on the Redemption Price for any period after the date to which accrued interest is calculated for purposes of calculating the Redemption Price. 36 ARTICLE XI Miscellaneous SECTION 11.01. Compliance Certificates and Opinions, etc. Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. SECTION 11.02. Form of Documents Delivered to Indenture Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Authorized Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer, the Depositor, the Issuer or the Administrator, stating that the information with respect to such factual matters is in the possession of the Servicer, the Depositor, the Issuer or the Administrator, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective 37 date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee's right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI. SECTION 11.03. Acts of Noteholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by agents duly appointed in writing; and except as herein otherwise expressly provided such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Noteholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section. (b) The fact and date of the execution by any person of any such instrument or writing may be proved in any manner that the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Notes shall bind the Holder of every Note issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 11.04. Notices, etc., to Indenture Trustee, Issuer and Rating Agencies. Any request, demand, authorization, direction, notice, consent, waiver or Act of Noteholders or other documents provided or permitted by this Indenture shall be in writing and if such request, demand, authorization, direction, notice, consent, waiver or act of Noteholders is to be made upon, given or furnished to or filed with: (i) the Indenture Trustee by any Noteholder or by the Issuer shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Indenture Trustee at its Corporate Trust Office, or (ii) the Issuer by the Indenture Trustee or by any Noteholder shall be sufficient for every purpose hereunder if in writing and personally delivered or mailed postage prepaid or by recognized overnight courier or by facsimile confirmed by delivery or mail as described above to the Issuer addressed to: NAL Auto Trust 1995-1, in care of Wilmington Trust Company, as Owner Trustee, 100 N. Market Street, Rodney Square North, Wilmington, Delaware 19801; facsimile: 305- 651 8882; Attention of Corporate Trust Administrator, or at any other address previously furnished in writing to the Indenture Trustee by the Issuer or the Administrator. The Issuer shall promptly transmit any notice received by it from the Noteholders to the Indenture Trustee. Notices required to be given to the Rating Agencies by the Issuer, the Indenture Trustee or the Owner Trustee shall be in writing, personally delivered or mailed by certified mail, return receipt requested, to (i) in the case of Fitch's Investors Service, L.P., at the following address: One State Street Plaza, New York, N.Y. 10004, and (ii) in the case of Duff & Phelps Inc. at the following address: 55 E. Monroe Street (35th Floor), Chicago, Illinois 60603; or as to each of the foregoing, at such other address as shall be designated by written notice to the other parties. 38 SECTION 11.05. Notices to Noteholders; Waiver. Where this Indenture provides for notice to Noteholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid to each Noteholder affected by such event, at such Holder's address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Noteholders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Indenture Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver. In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice. Where this Indenture provides for notice to the Rating Agencies, failure to give such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute a Default or Event of Default. SECTION 11.06. Alternate Payment and Notice Provisions. Notwithstanding any provision of this Indenture or any of the Notes to the contrary, the Issuer may enter into any agreement with any Holder of a Note providing for a method of payment, or notice by the Indenture Trustee or any Paying Agent to such Holder, that is different from the methods provided for in this Indenture for such payments or notices. The Issuer will furnish to the Indenture Trustee a copy of each such agreement and the Indenture Trustee will cause payments to be made and notices to be given in accordance with such agreements. SECTION 11.07. [Reserved] SECTION 11.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 11.09. Successors and Assigns. All covenants and agreements in this Indenture and the Notes by the Issuer shall bind its successors and assigns, whether so expressed or not. All agreements of the Indenture Trustee in this Indenture shall bind its successors, co-trustees and agents. SECTION 11.10. Separability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.11. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Noteholders, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Trust Estate, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 11.12. Legal Holidays. In any case where the date on which any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Indenture) 39 payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date. SECTION 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 11.14. Counterparts. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 11.15. Recording of Indenture. If this Indenture is subject to recording in any appropriate public recording offices, such recording is to be effected by the Issuer and at its expense accompanied by an Opinion of Counsel (which may be counsel to the Indenture Trustee or any other counsel reasonably acceptable to the Indenture Trustee) to the effect that such recording is necessary either for the protection of the Noteholders or any other Person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture. SECTION 11.16. Trust Obligation. No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such Person may have expressly agreed in writing (it being understood that the Indenture Trustee and the Owner Trustee have no such obligations in their individual capacity) and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. For all purposes of this Indenture, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement. SECTION 11.17. No Petition. The Indenture Trustee, by entering into this Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Depositor or the Issuer, or join in any institution against the Depositor or the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, this Indenture or any of the Basic Documents. SECTION 11.18. Inspection. The Issuer agrees that, on reasonable prior notice, it will permit any representative of the Indenture Trustee, during the Issuer's normal business hours, to examine all the books of account, records, reports and other papers of the Issuer, to make copies and extracts therefrom, to cause such books to be audited by Independent certified public accountants, and to discuss the Issuer's affairs, finances and accounts with the Issuer's officers, employees and Independent certified public accountants, all at such reasonable times and as often as may be reasonably requested. The Indenture Trustee shall, and shall cause its representatives to, hold in confidence all such information provided, however, that the foregoing shall not be construed to prohibit (i) disclosure of any and all information that is or becomes publicly known, or information obtained by the Indenture Trustee from sources other than the Issuer, Administrator, Seller or Servicer, (ii) disclosure of any and all information (A) if required to do so by any applicable statute, law, rule or regulation, (B) to any government agency or regulatory or self-regulatory body having or claiming 40 authority to regulate or oversee any aspects of the Indenture Trustee's business or that of its Affiliates, (C) pursuant to any subpoena, civil investigative demand or similar demand or request of any court, regulatory authority, arbitrator or arbitration to which the Indenture Trustee or an Affiliate or an officer, director, employer or shareholder thereof is a party, (D) in any preliminary or final offering circular, registration statement or contract or other document pertaining to the transactions contemplated by this Agreement approved in advance by the Issuer or (E) to any Affiliate, independent or internal auditor, agent, employee or attorney of the Indenture Trustee having a need to know the same, provided that the Indenture Trustee advises such recipient of the confidential nature of the information being disclosed, (iii) any other disclosure authorized by the Seller, Administrator, Issuer or Servicer or (iv) disclosure to the other parties to the transactions contemplated by this Agreement. IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers, thereunto duly authorized and duly attested, all as of the day and year first above written. NAL AUTO TRUST 1995-1, by: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee, by: _______________________________ Name: Title: BANKERS TRUST COMPANY, not in its individual capacity but solely as Indenture Trustee, by: _______________________________ Name: Title: STATE OF NEW YORK } } ss.: COUNTY OF NEW YORK } BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on this day personally appeared Patricia A. Evans, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said NAL AUTO TRUST 1995-1, a Delaware business trust, and that he executed the same as the act of said business trust for the purpose and consideration therein expressed, and in the capacities therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 21st day of December, 1995. ______________________________________________ Notary Public in and for the State of New York. My commission expires: ______________________ 42 STATE OF NEW YORK } } ss.: COUNTY OF NEW YORK } BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on this day personally appeared Melissa Kaye Adelson, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of BANKERS TRUST COMPANY, a New York banking corporation, and that she executed the same as the act of said corporation for the purpose and consideration therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 21st day of December, 1995. _______________________________________________ Notary Public in and for the State of New York. My commission expires: ______________________ SCHEDULE 1 44 EXHIBIT A-1 [FORM OF CLASS A-1 NOTE] THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. BY ITS ACCEPTANCE OF THIS NOTE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE DEPOSITOR AND THE INDENTURE TRUSTEE (i) THAT IT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE 1933 ACT (AN "ACCREDITED INVESTOR") AND THAT IT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS FIDUCIARY CAPACITY) FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, THE PUBLIC DISTRIBUTION HEREOF OR (ii) THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE 1933 ACT AND IS ACQUIRING SUCH NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL BUYERS). NO SALE, PLEDGE OR OTHER TRANSFER OF THIS NOTE MAY BE MADE BY ANY PERSON UNLESS EITHER (i) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO THE DEPOSITOR, (ii) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO AN ACCREDITED INVESTOR THAT EXECUTES A CERTIFICATE, SUBSTANTIALLY IN THE FORM SPECIFIED IN THE INDENTURE, TO THE EFFECT THAT IT IS AN ACCREDITED INVESTOR ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS FIDUCIARY CAPACITY), (iii) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO A PERSON WHOM THE PROSPECTIVE TRANSFEROR REASONABLY BELIEVES AFTER DUE INQUIRY IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A), ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL BUYERS) TO WHOM NOTICE IS GIVEN THAT THE SALE, PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR (iv) SUCH SALE, PLEDGE OR OTHER TRANSFER IS OTHERWISE MADE IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT, IN WHICH CASE THE INDENTURE TRUSTEE SHALL REQUIRE THAT BOTH THE PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE INDENTURE TRUSTEE AND THE DEPOSITOR IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE DEPOSITOR. EXCEPT IN THE CASE OF A TRANSFER DESCRIBED IN CLAUSES (i) OR (iii) ABOVE, THE INDENTURE TRUSTEE SHALL REQUIRE A WRITTEN OPINION OF COUNSEL (WHICH SHALL NOT BE AT THE EXPENSE OF THE DEPOSITOR, ANY AFFILIATE OF THE DEPOSITOR OR THE INDENTURE TRUSTEE) SATISFACTORY TO THE DEPOSITOR AND THE INDENTURE TRUSTEE TO THE EFFECT THAT SUCH TRANSFER WILL NOT VIOLATE THE 1933 ACT. NO SALE, PLEDGE OR OTHER TRANSFER MAY BE MADE TO ANY ONE PERSON FOR SECURITIES WITH A FACE AMOUNT OF LESS THAN $100,000 AND, IN THE CASE OF ANY PERSON ACTING ON BEHALF OF ONE OR MORE THIRD PARTIES (OTHER THAN A BANK (AS DEFINED IN SECTION 3(a)(2) OF THE 1933 ACT) ACTING IN ITS FIDUCIARY CAPACITY), FOR SECURITIES WITH A FACE AMOUNT OF LESS THAN $100,000 FOR EACH SUCH THIRD PARTY. EACH SECURITYHOLDER, BY ITS ACCEPTANCE OF THIS SECURITY, COVENANTS AND AGREES THAT SUCH SECURITYHOLDER SHALL NOT, PRIOR TO THE DATE THAT IS ONE YEAR AND ONE DAY AFTER THE TERMINATION OF THE TRUST AGREEMENT, ACQUIESCE, PETITION OR OTHERWISE INVOKE OR CAUSE THE TRUST, THE DEPOSITOR OR THE SELLER TO INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF COMMENCING OR SUSTAINING A A-1-1 CASE AGAINST THE TRUST, THE DEPOSITOR OR THE SELLER UNDER ANY FEDERAL OR STATE BANKRUPTCY, INSOLVENCY, REORGANIZATION OR SIMILAR LAW, OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE TRUST, THE DEPOSITOR OR THE SELLER OR ANY SUBSTANTIAL PART OF ITS PROPERTY, OR ORDERING THE WINDING UP OR LIQUIDATION OF THE AFFAIRS OF THE TRUST, THE DEPOSITOR OR THE SELLER. THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. REGISTERED $________________ No. R- CUSIP NO. 62872EAA2 NAL AUTO TRUST 1995-1 CLASS A-1 6.65% ASSET BACKED NOTES NAL Auto Trust 1995-1, a business trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to _______________________________, or registered assigns, the principal sum of _______________________ DOLLARS payable on each Distribution Date in an amount equal to the result obtained by multiplying (i) a fraction the numerator of which is $__________ and the denominator of which is $__________ by (ii) the aggregate amount, if any, payable from the Note Distribution Account in respect of principal on the Class A-1 Notes pursuant to Section 3.01 of the Indenture dated as of December 1, 1995 (the "Indenture"), between the Issuer and Bankers Trust Company, a New York banking corporation, as Indenture Trustee (the "Indenture Trustee"); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the earlier of the September 2000 Distribution Date (the "Class A-1 Final Scheduled Distribution Date") and the Redemption Date, if any, pursuant to Section 10.01 of the Indenture. Capitalized terms used but not defined herein are defined in Article I of the Indenture, which also contains rules as to construction that shall be applicable herein. The Issuer will pay interest on this Note at the rate per annum shown above on each Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Distribution Date (or, in the case of the first Distribution Date, the Closing Date) after giving effect to all payments of principal made on the preceding Distribution Date, subject to certain limitations contained in Section 3.01 of the Indenture. Interest on this Note for each Distribution Date will accrue from and including the first day of the preceding Collection Period (or, in the case of the first Distribution Date, from and including the Cutoff Date). Interest will be computed on the basis of a 360-day year of twelve 30-day months. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. A-1-2 IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer, as of the date set forth below. Date: _________________ NAL AUTO TRUST 1995-1, by: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee under the Trust Agreement, by: _______________________________ Authorized Signatory TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes designated above and referred to in the within-mentioned Indenture. Date: _________________ BANKERS TRUST COMPANY, not in its individual capacity but solely as Indenture Trustee, by: ___________________________________ Authorized Signatory A-1-3 Reverse This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Class A-1 6.65% Asset Backed Notes (herein called the "Class A-1 Notes"), all issued under the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Holders of the Notes. The Class A-1 Notes are subject to all terms of the Indenture. The Class A-1 Notes and the Class A-2 Notes (collectively, the "Notes") are and will be equally and ratably secured by the collateral pledged as security therefor as provided in the Indenture but subject, as between the Class A-1 and Class A-2 Notes, to the distribution priorities set forth in Sections 5.04 and 8.02 of the Indenture. Principal of the Class A-1 Notes will be payable on each Distribution Date in an amount described on the face hereof. "Distribution Date" means the 15th day of each March, June, September and December or, if any such date is not a Business Day, the next succeeding Business Day, commencing March, 1996. As described above, the entire unpaid principal amount of this Note shall be due and payable on the earlier of the Class A-1 Final Scheduled Distribution Date and the Redemption Date, if any, pursuant to Section 10.01 of the Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Holders of Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 5.02 of the Indenture. All principal payments on the Class A-1 Notes shall be made pro rata to the Class A-1 Noteholders entitled thereto. Payments of interest on this Note due and payable on each Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be made by check mailed to the Person whose name appears as the Registered Holder of this Note (or one or more Predecessor Notes) on the Note Register as of the close of business on each Record Date, unless such Person notifies the Paying Agent in writing not later than the Record Date prior to a Distribution Date that payments are to be made by wire transfer in immediately available funds to the account designated by such Person. Payments by check shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Note Register as of the applicable Record Date without requiring that this Note be submitted for notation of payment. Any reduction in the principal amount of this Note (or any one or more Predecessor Notes) effected by any payments made on any Distribution Date shall be binding upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Distribution Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Registered Holder hereof as of the Record Date preceding such Distribution Date by notice mailed or transmitted by facsimile prior to such Distribution Date, and the amount then due and payable shall be payable only upon presentation and surrender of this Note at the Indenture Trustee's principal Corporate Trust Office or at the office of the Indenture Trustee's agent appointed for such purposes located in The City of New York. The Issuer shall pay interest on overdue installments of interest at the Class A-1 Interest Rate to the extent lawful. As provided in the Indenture and subject to the limitations set forth therein and on the face hereof, the transfer of this Note may be registered on the Note Register upon surrender of this Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, with A-1-4 such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended, and thereupon one or more new Notes of authorized denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. Each Noteholder, by acceptance of a Note, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or employee of the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such Person may have expressly agreed and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. Each Noteholder, by acceptance of a Note covenants and agrees by accepting the benefits of the Indenture that such Noteholder will not at any time institute against the Depositor, the Seller or the Issuer, or join in any institution against the Depositor, the Seller or the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, the Indenture or the Basic Documents. The Issuer has entered into the Indenture and this Note is issued with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer secured by the Trust Estate. Each Noteholder, by acceptance of a Note, agrees to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness of the Issuer. Prior to the due presentment for registration of transfer of this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name this Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Indenture Trustee or any such agent shall be affected by notice to the contrary. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Notes under the Indenture at any time by the Issuer with the consent of the Holders of Notes representing a majority of the Outstanding Amount of all Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of Notes representing specified percentages of the Outstanding Amount of the Notes, on behalf of the Holders of all the Notes, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note (or any one or more Predecessor Notes) shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Notes issued thereunder. A-1-5 The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture. The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Indenture Trustee and the Holders of Notes under the Indenture. The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth. This Note and the Indenture shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency herein prescribed. Anything herein to the contrary notwithstanding, except as expressly provided in the Basic Documents, none of Wilmington Trust Company in its individual capacity, Bankers Trust Company in its individual capacity, any owner of a beneficial interest in the Issuer, or any of their respective partners, beneficiaries, agents, officers, directors, employees or successors or assigns shall be personally liable for, nor shall recourse be had to any of them for, the payment of principal of or interest on this Note or performance of, or failure to perform, any of the covenants, obligations or indemnifications contained in the Indenture. The Holder of this Note by its acceptance hereof agrees that, except as expressly provided in the Basic Documents, in the case of an Event of Default under the Indenture, the Holder shall have no claim against any of the foregoing for any deficiency, loss or claim therefrom; provided, however, that nothing contained herein shall be taken to prevent recourse to, and enforcement against, the assets of the Issuer for any and all liabilities, obligations and undertakings contained in the Indenture or in this Note. A-1-6 ASSIGNMENT Social Security or taxpayer I.D. or other identifying number of assignee: _________________________________ FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: _____________________________________________________________________________ (name and address of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints _______________________, attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises. Dated: ________________ ______________________________________*/ Signature Guaranteed: _____________________________*/ - ------------------------ */ NOTICE: The signature to this assignment must correspond with the name of the registered - owner as it appears on the face of the within Note in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-1-7 EXHIBIT A-2 [FORM OF CLASS A-2 NOTE] THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. BY ITS ACCEPTANCE OF THIS NOTE THE HOLDER HEREOF (A) IS DEEMED TO REPRESENT TO THE DEPOSITOR AND THE INDENTURE TRUSTEE (i) THAT IT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE 1933 ACT (AN "ACCREDITED INVESTOR") AND THAT IT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS FIDUCIARY CAPACITY) FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, THE PUBLIC DISTRIBUTION HEREOF OR (ii) THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE 1933 ACT AND IS ACQUIRING SUCH NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL BUYERS). NO SALE, PLEDGE OR OTHER TRANSFER OF THIS NOTE MAY BE MADE BY ANY PERSON UNLESS EITHER (i) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO THE DEPOSITOR, (ii) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO AN ACCREDITED INVESTOR THAT EXECUTES A CERTIFICATE, SUBSTANTIALLY IN THE FORM SPECIFIED IN THE INDENTURE, TO THE EFFECT THAT IT IS AN ACCREDITED INVESTOR ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS FIDUCIARY CAPACITY), (iii) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO A PERSON WHOM THE PROSPECTIVE TRANSFEROR REASONABLY BELIEVES AFTER DUE INQUIRY IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A), ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL BUYERS) TO WHOM NOTICE IS GIVEN THAT THE SALE, PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR (iv) SUCH SALE, PLEDGE OR OTHER TRANSFER IS OTHERWISE MADE IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT, IN WHICH CASE THE INDENTURE TRUSTEE SHALL REQUIRE THAT BOTH THE PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE INDENTURE TRUSTEE AND THE DEPOSITOR IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE DEPOSITOR EXCEPT IN THE CASE OF A TRANSFER DESCRIBED IN CLAUSES (i) OR (iii) ABOVE, THE INDENTURE TRUSTEE SHALL REQUIRE A WRITTEN OPINION OF COUNSEL (WHICH SHALL NOT BE AT THE EXPENSE OF THE DEPOSITOR, ANY AFFILIATE OF THE DEPOSITOR OR THE INDENTURE TRUSTEE) SATISFACTORY TO THE DEPOSITOR AND THE INDENTURE TRUSTEE TO THE EFFECT THAT SUCH TRANSFER WILL NOT VIOLATE THE 1933 ACT. NO SALE, PLEDGE OR OTHER TRANSFER MAY BE MADE TO ANY ONE PERSON FOR SECURITIES WITH A FACE AMOUNT OF LESS THAN $100,000 AND, IN THE CASE OF ANY PERSON ACTING ON BEHALF OF ONE OR MORE THIRD PARTIES (OTHER THAN A BANK (AS DEFINED IN SECTION 3(a)(2) OF THE 1933 ACT) ACTING IN ITS FIDUCIARY CAPACITY), FOR SECURITIES WITH A FACE AMOUNT OF LESS THAN $100,000 FOR EACH SUCH THIRD PARTY. EACH SECURITYHOLDER, BY ITS ACCEPTANCE OF THIS SECURITY, COVENANTS AND AGREES THAT SUCH SECURITYHOLDER SHALL NOT, PRIOR TO THE DATE THAT IS ONE YEAR AND ONE DAY AFTER THE TERMINATION OF THE TRUST AGREEMENT, ACQUIESCE, PETITION OR OTHERWISE INVOKE OR CAUSE THE TRUST, THE DEPOSITOR OR THE SELLER TO INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF COMMENCING OR SUSTAINING A A-2-1 CASE AGAINST THE TRUST, THE DEPOSITOR OR THE SELLER UNDER ANY FEDERAL OR STATE BANKRUPTCY, INSOLVENCY, REORGANIZATION OR SIMILAR LAW, OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE TRUST, THE DEPOSITOR OR THE SELLER OR ANY SUBSTANTIAL PART OF ITS PROPERTY, OR ORDERING THE WINDING UP OR LIQUIDATION OF THE AFFAIRS OF THE TRUST, THE DEPOSITOR OR THE SELLER. THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. REGISTERED $______________ No. R- CUSIP NO. 62872EAB0 NAL AUTO TRUST 1995-1 CLASS A-2 7.70% ASSET BACKED NOTES NAL Auto Trust 1995-1, a business trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to _______________________________, or registered assigns, the principal sum of _______________ DOLLARS payable on each Distribution Date in an amount equal to the result obtained by multiplying (i) a fraction the numerator of which is $_________ and the denominator of which is $_________ by (ii) the aggregate amount, if any, payable from the Note Distribution Account in respect of principal on the Class A-2 Notes pursuant to Section 3.01 of the Indenture dated as of December 1, 1995 (the "Indenture"), between the Issuer and Bankers Trust Company, a New York banking corporation, as Indenture Trustee (the "Indenture Trustee"); provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the earlier of the December 2000 Distribution Date (the "Class A-2 Final Scheduled Distribution Date") and the Redemption Date, if any, pursuant to Section 10.01 of the Indenture. Capitalized terms used but not defined herein are defined in Article I of the Indenture, which also contains rules as to construction that shall be applicable herein. The Issuer will pay interest on this Note at the rate per annum shown above on each Distribution Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Distribution Date (or, in the case of the first Distribution Date, the Closing Date) after giving effect to all payments of principal made on the preceding Distribution Date, subject to certain limitations contained in Section 3.01 of the Indenture. Interest on this Note for each Distribution Date will accrue from and including the first day of the preceding Collection Period (or, in the case of the first Distribution Date, from and including the Cutoff Date). Interest will be computed on the basis of a 360-day year of twelve 30-day months. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. A-2-2 IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer, as of the date set forth below. Date: _________________ NAL AUTO TRUST 1995-1, by: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee under the Trust Agreement, by: ______________________________ Authorized Signatory TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes designated above and referred to in the within-mentioned Indenture. Date: _________________ BANKERS TRUST COMPANY, not in its individual capacity but solely as Indenture Trustee, by: ___________________________________ Authorized Signatory A-2-3 Reverse This Note is one of a duly authorized issue of Notes of the Issuer, designated as its Class A-2 7.70% Asset Backed Notes (herein called the "Class A-2 Notes"), all issued under the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Holders of the Notes. The Class A-2 Notes are subject to all terms of the Indenture. The Class A-1 Notes and the Class A-2 Notes (collectively, the "Notes") are and will be equally and ratably secured by the collateral pledged as security therefor as provided in the Indenture but subject, as between the Class A-1 and Class A-2 Notes, to the distribution priorities set forth in Sections 5.04 and 8.02 of the Indenture. Principal of the Class A-2 Notes will be payable on each Distribution Date in an amount described on the face hereof. "Distribution Date" means the 15th day of each March, June, September and December or, if any such date is not a Business Day, the next succeeding Business Day, commencing March, 1996. As described above, the entire unpaid principal amount of this Note shall be due and payable on the earlier of the Class A-2 Final Scheduled Distribution Date and the Redemption Date, if any, pursuant to Section 10.01 of the Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Holders of Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 5.02 of the Indenture. All principal payments on the Class A-2 Notes shall be made pro rata to the Class A-2 Noteholders entitled thereto. Payments of interest on this Note due and payable on each Distribution Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be made by check mailed to the Person whose name appears as the Registered Holder of this Note (or one or more Predecessor Notes) on the Note Register as of the close of business on each Record Date, unless such Person notifies the Paying Agent in writing not later than the Record Date prior to a Distribution Date that payments are to be made by wire transfer in immediately available funds to the account designated by such Person. Payments by check shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Note Register as of the applicable Record Date without requiring that this Note be submitted for notation of payment. Any reduction in the principal amount of this Note (or any one or more Predecessor Notes) effected by any payments made on any Distribution Date shall be binding upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Distribution Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Registered Holder hereof as of the Record Date preceding such Distribution Date by notice mailed or transmitted by facsimile prior to such Distribution Date, and the amount then due and payable shall be payable only upon presentation and surrender of this Note at the Indenture Trustee's principal Corporate Trust Office or at the office of the Indenture Trustee's agent appointed for such purposes located in The City of New York. The Issuer shall pay interest on overdue installments of interest at the Class A-2 Interest Rate to the extent lawful. As provided in the Indenture and subject to the limitations set forth therein and on the face hereof, the transfer of this Note may be registered on the Note Register upon surrender of this Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, with A-2-4 such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended, and thereupon one or more new Notes of authorized denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. Each Noteholder, by acceptance of a Note, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or employee of the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such Person may have expressly agreed and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. Each Noteholder covenants and agrees by accepting the benefits of the Indenture that such Noteholder will not at any time institute against the Depositor, the Seller or the Issuer, or join in any institution against the Depositor, the Seller or the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, the Indenture or the Basic Documents. The Issuer has entered into the Indenture and this Note is issued with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer secured by the Trust Estate. Each Noteholder, by acceptance of a Note, agrees to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness of the Issuer. Prior to the due presentment for registration of transfer of this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name this Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Indenture Trustee or any such agent shall be affected by notice to the contrary. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Notes under the Indenture at any time by the Issuer with the consent of the Holders of Notes representing a majority of the Outstanding Amount of all Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of Notes representing specified percentages of the Outstanding Amount of the Notes, on behalf of the Holders of all the Notes, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note (or any one or more Predecessor Notes) shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Notes issued thereunder. A-2-5 The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture. The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Indenture Trustee and the Holders of Notes under the Indenture. The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth. This Note and the Indenture shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency herein prescribed. Anything herein to the contrary notwithstanding, except as expressly provided in the Basic Documents, none of Wilmington Trust Company in its individual capacity, Bankers Trust Company in its individual capacity, any owner of a beneficial interest in the Issuer, or any of their respective partners, beneficiaries, agents, officers, directors, employees or successors or assigns shall be personally liable for, nor shall recourse be had to any of them for, the payment of principal of or interest on this Note or performance of, or failure to perform, any of the covenants, obligations or indemnifications contained in the Indenture. The Holder of this Note by its acceptance hereof agrees that, except as expressly provided in the Basic Documents, in the case of an Event of Default under the Indenture, the Holder shall have no claim against any of the foregoing for any deficiency, loss or claim therefrom; provided, however, that nothing contained herein shall be taken to prevent recourse to, and enforcement against, the assets of the Issuer for any and all liabilities, obligations and undertakings contained in the Indenture or in this Note. A-2-6 ASSIGNMENT Social Security or taxpayer I.D. or other identifying number of assignee: ______________________________ FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: ______________________________________________________________________________ (name and address of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints ______________________, attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises. Dated: _________________ ___________________________________*/ Signature Guaranteed: ________________________________*/ - ------------------------ */ NOTICE: The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Note in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-2-7 EXHIBIT C FORM OF TRANSFEROR CERTIFICATE [DATE] [Depositor] [Depositor Address] [Owner Trustee] [Owner Trustee Address] [Indenture Trustee] [Indenture Trustee Address] Re: NAL Auto Trust 1995-1 Class A-[ ] [ ]% Asset Backed Notes ------------------------------------- Ladies and Gentlemen: In connection with our disposition of the above-referenced Class A-[ ] [ ]% Asset Backed Notes (the "Notes") we certify that (a) we understand that the Notes have not been registered under the Securities Act of 1933, as amended (the "Act"), and are being transferred by us in a transaction that is exempt from the registration requirements of the Act and (b) we have not offered or sold any Notes to, or solicited offers to buy any Notes from, any person, or otherwise approached or negotiated with any person with respect thereto, in a manner that would be deemed, or taken any other action which would result in, a violation of Section 5 of the Act. Very truly yours, [NAME OF TRANSFEROR] By: __________________________ Authorized Officer C-1 EXHIBIT D FORM OF INVESTMENT LETTER Depositor [Address] Owner Trustee [Address] [Indenture Trustee] [Address] Ladies and Gentlemen: In connection with our proposed purchase of $ aggregate principal amount of % Asset Backed Notes (the "Securities") of NAL Auto Trust 1995-1 (the "Issuer"), we confirm that: 1. We understand that the Securities have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), and may not be sold except as permitted in the following sentence. We understand and agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, (x) that such Securities are being offered only in a transaction not involving any public offering within the meaning of the 1933 Act and (y) that such Securities may be resold, pledged or transferred only (i) to the Depositor, (ii) to an "accredited investor" as defined in Rule 501(a)(1),(2),(3) or (7) (an "Accredited Investor") under the 1933 Act acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others also are Accredited Investors unless the holder is a bank acting in its fiduciary capacity) that executes a certificate substantially in the form hereof, (iii) so long as such Security is eligible for resale pursuant to Rule 144A under the 1933 Act ("Rule 144A"), to a person whom we reasonably believe after due inquiry is a "qualified institutional buyer" as defined in Rule 144A, acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others also are "qualified institutional buyers") to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A or (iv) in a sale, pledge or other transfer made in a transaction otherwise exempt from the registration requirements of the 1933 Act, in which case (A) the Indenture Trustee shall require that both the prospective transferor and the prospective transferee certify to the Indenture Trustee and the Depositor in writing the facts surrounding such transfer, which certification shall be in form and substance satisfactory to the Indenture Trustee and the Depositor and (B) the Indenture Trustee shall require a written opinion of counsel (which will not be at the expense of the Depositor, any affiliate of the Depositor or the Indenture Trustee) satisfactory to the Depositor and the Indenture Trustee to the effect that such transfer will not violate the 1933 Act, in each case in accordance with any applicable securities laws of any state of the United States. We will notify any purchaser of the Security from us of the above resale restrictions, if then applicable. We further understand that in connection with any transfer of the Security by us that the Depositor and the Indenture Trustee may request, and if so requested we will furnish such certificates and other information as they may reasonably require to confirm that any such transfer complies with the foregoing restrictions. We understand that no sale, pledge or other transfer may be made to any one person of Securities with a face amount of less than $100,000 and, in the case of any person acting on behalf of one or more third parties (other than a bank (as defined in Section 3(a)((2) of the 1933 Act) acting in its fiduciary capacity), of Securities with a face amount of less than $100,000 for each such third party. D-1 2. [CHECK ONE] / / (a) We are an "accredited investor" (as defined in Rule 501(a)(1),(2),(3) or (7) of Regulation D under the Securities Act) acting for our own account (and not for the account of others) or as a fiduciary or agent for others (which others also are Accredited Investors unless we are a bank acting in its fiduciary capacity). We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Security, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment for an indefinite period of time. We are acquiring the Security for investment and not with a view to, or for offer and sale in connection with, a public distribution. / / (b) We are a "qualified institutional buyer" as defined under Rule 144A under the 1933 Act and are acquiring the Security for our own account (and not for the account of others) or as a fiduciary or agent for others (which others also are "qualified institutional buyers"). We are familiar with Rule 144A under the 1933 Act and are aware that the seller of the Security and other parties intend to rely on the statements made herein and the exemption from the registration requirements of the 1933 Act provided by Rule 144A. 3. We understand that the Depositor, the Trust, Greenwich Capital Markets, Inc. ("Greenwich") and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements, and we agree that if any of the acknowledgments, representations and warranties deemed to have been made by us by our purchase of the Securities, for our own account or for one or more accounts as to each of which we exercise sole investment discretion, are no longer accurate, we shall promptly notify the Depositor and Greenwich. 4. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, --------------------------------------- (Name of Purchaser) By: ____________________________________ Date: ___________________________________ D-2 EX-10.18 5 ADMINISTRATION AGREEMENT EXECUTION COPY This ADMINISTRATION AGREEMENT dated as of December 1, 1995, among NAL AUTO TRUST 1995-1, a Delaware business trust (the "Issuer"), NAL ACCEPTANCE CORPORATION, a Delaware corporation, as administrator (the "Administrator"), and BANKERS TRUST COMPANY, a New York banking corporation, not in its individual capacity but solely as Indenture Trustee (the "Indenture Trustee"), W I T N E S S E T H : WHEREAS, the Issuer is issuing the Class A-1 6.65% Asset Backed Notes and the Class A-2 7.70% Asset Backed Notes (collectively, the "Notes") pursuant to the Indenture dated as of December 1, 1995 (as amended and supplemented from time to time, the "Indenture"), between the Issuer and the Indenture Trustee (capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Indenture); WHEREAS, the Issuer has entered into certain agreements in connection with the issuance of the Notes and of certain beneficial ownership interests in the Issuer, including (i) a Sale and Servicing Agreement dated as of December 1, 1995 (as amended and supplemented from time to time, the "Sale and Servicing Agreement"), among the Issuer, NAL Acceptance Corporation, as servicer, Bankers Trust Company, as back-up servicer, and Autorics II, Inc., as depositor (the "Depositor"), and (ii) the Indenture (the Sale and Servicing Agreement and the Indenture being referred to hereinafter collectively as the "Related Agreements"); WHEREAS, pursuant to the Related Agreements, the Issuer and the Owner Trustee are required to perform certain duties in connection with (a) the Notes and the collateral therefor pledged pursuant to the Indenture (the "Collateral") and (b) the beneficial ownership interests in the Issuer (the registered holders of such interests being referred to herein as the "Owners"); WHEREAS, the Issuer and the Owner Trustee desire to have the Administrator perform certain of the duties of the Issuer and the Owner Trustee referred to in the preceding clause and to provide such additional services consistent with the terms of this Agreement and the Related Agreements as the Issuer and the Owner Trustee may from time to time request; and WHEREAS, the Administrator has the capacity to provide the services required hereby and is willing to perform such services for the Issuer and the Owner Trustee on the terms set forth herein; NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Duties of the Administrator. (a) Duties with Respect to the Indenture. (i) The Administrator agrees to perform all its duties as Administrator . In addition, the Administrator shall consult with the Owner Trustee regarding the duties of the Issuer or the Owner Trustee under the Indenture. The Administrator shall monitor the performance of the Issuer and shall advise the Owner Trustee when action is necessary to comply with the Issuer's or the Owner Trustee's duties under the Indenture. The Administrator shall prepare for execution by the Issuer, or shall cause the preparation by other appropriate persons of, all such documents, reports, filings, instruments, certificates and opinions that it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Indenture. In furtherance of the foregoing, the Administrator shall take all appropriate action that is the duty of the Issuer or the Owner Trustee to take pursuant to the Indenture including, without limitation, such of the foregoing as are required with respect to the following matters under the Indenture (references are to sections of the Indenture): (A) the duty to cause the Note Register to be kept and to give the Indenture Trustee notice of any appointment of a new Note Registrar and the location, or change in location, of the Note Register (Section 2.05); (B) the notification of Noteholders of the final principal payment on their Notes (Section 2.08(b)); (C) the fixing or causing to be fixed of any specified record date and the notification of the Noteholders with respect to special payment dates, if any (Section 2.08(c)); (D) the preparation of or obtaining of the documents and instruments required for authentication of the Notes and delivery of the same to the Indenture Trustee (Section 2.02); (E) the maintenance of an office in the Borough of Manhattan, City of New York, for registration of transfer or exchange of Notes (Section 3.02); (F) the duty to cause newly appointed Paying Agents, if any, to deliver to the Indenture Trustee the instrument specified in the Indenture regarding funds held in trust (Section 3.03); (G) the direction to the Indenture Trustee to deposit moneys with Paying Agents, if any, other than the Indenture Trustee (Section 3.03); (H) the obtaining and preservation of the Issuer's qualification to do business in each jurisdiction in which such 2 qualification is or shall be necessary to protect the validity and enforceability of the Indenture, the Notes, the Collateral and each other instrument and agreement included in the Trust Estate (Section 3.04); (I) the preparation of all supplements and amendments to the Indenture and all financing statements, continuation statements, instruments of further assurance and other instruments and the taking of such other action as is necessary or advisable to protect the Trust Estate (Section 3.05); (J) the delivery of the Opinion of Counsel on the Closing Date and the annual delivery of Opinions of Counsel as to the Trust Estate, and the annual delivery of the Officer's Certificate and certain other statements as to compliance with the Indenture (Sections 3.06 and 3.09); (K) the identification to the Indenture Trustee in an Officer's Certificate of a Person with whom the Issuer has contracted to perform its duties under the Indenture (Section 3.07(b)); (L) the notification of the Indenture Trustee and the Rating Agencies of a Servicer Default under the Sale and Servicing Agreement and, if such Servicer Default arises from the failure of the Servicer to perform any of its duties under the Sale and Servicing Agreement with respect to the Receivables, the taking of all reasonable steps available to remedy such failure (Section 3.07(d)); (M) the duty to cause the Servicer to comply with Sections 4.09, 4.10, 4.11 and Article IX of the Sale and Servicing Agreement (Section 3.14); (N) the preparation and obtaining of documents and instruments required for the release of the Issuer from its obligations under the Indenture (Section 3.11(b)); (O) the delivery of written notice to the Indenture Trustee and the Rating Agencies of each Event of Default under the Indenture and each default by the Servicer or the Depositor under the Sale and Servicing Agreement (Section 3.19); (P) the monitoring of the Issuer's obligations as to the satisfaction and discharge of the Indenture and the preparation of an Officer's Certificate and the obtaining of the Opinion of Counsel and the Independent Certificate relating thereto (Section 4.01); (Q) the compliance with any written directive of the Indenture Trustee with respect to the sale of the Trust Estate in a commercially reasonable manner if an Event of Default shall have occurred and be continuing (Section 5.04); 3 (R) the preparation and delivery of notice to Noteholders of the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee (Section 6.08); (S) the preparation of any written instruments required to confirm more fully the authority of any co-trustee or separate trustee and any written instruments necessary in connection with the resignation or removal of any co-trustee or separate trustee (Sections 6.08 and 6.10); (T) the furnishing of the Indenture Trustee with the names and addresses of Noteholders during any period when the Indenture Trustee is not the Note Registrar (Section 7.01); (U) the opening of one or more accounts in the Issuer's name, the preparation and delivery of Issuer Orders, Officer's Certificates and Opinions of Counsel and all other actions necessary with respect to investment and reinvestment of funds in the Trust Accounts (Sections 8.02 and 8.03); (V) the preparation of an Issuer Request and Officer's Certificate and the obtaining of an Opinion of Counsel and Independent Certificates, if necessary, for the release of the Trust Estate (Sections 8.04 and 8.05); (W) the preparation of Issuer Orders and the obtaining of Opinions of Counsel with respect to the execution of supplemental indentures and the mailing to the Noteholders of notices with respect to such supplemental indentures (Sections 9.01, 9.02 and 9.03); (X) the execution and delivery of new Notes conforming to any supplemental indenture (Section 9.05); (Y) the duty to notify Noteholders of redemption of the Notes or to cause the Indenture Trustee to provide such notification (Section 10.02); (Z) the preparation and delivery of all Officer's Certificates and Opinions of Counsel with respect to any requests by the Issuer to the Indenture Trustee to take any action under the Indenture (Section 11.01); (AA) the notification of the Rating Agencies, upon the failure of the Indenture Trustee to give such notification, of the information required pursuant to Section 11.04 of the Indenture (Section 11.04); (BB) the preparation and delivery to Noteholders and the Indenture Trustee of any agreements with respect to alternate payment and notice provisions (Section 11.06); (CC) the recording of the Indenture, if applicable (Section 11.15); and 4 (DD) the delivery to each Noteholder of such information as may be required to enable such holder to prepare its federal and state tax returns. (ii) The Administrator will: (A) pay the Indenture Trustee (and any separate trustee or co-trustee appointed pursuant to Section 6.10 of the Indenture (a "Separate Trustee")) from time to time reasonable compensation for all services rendered by the Indenture Trustee or Separate Trustee, as the case may be, under the Indenture (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (B) except as otherwise expressly provided in the Indenture, reimburse the Indenture Trustee or any Separate Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Indenture Trustee or Separate Trustee, as the case may be, in accordance with any provision of the Indenture (including the reasonable compensation, expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; (C) indemnify the Indenture Trustee and its officers, directors, agents and employees and any Separate Trustee and their respective agents for, and hold them harmless against, any losses, liability or expense (including attorney's fees and expenses) incurred by it in connection with the administration of the trust created by the Indenture and the performance of its duties under the Indenture; provided, that, the Administrator need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee's own willful misconduct, negligence or bad faith; and (D) pay the Owner Trustee (and any Indemnified Party, as defined in Section 8.02 of the Trust Agreement) any amounts owed to it under Section 8.01 or 8.02 of the Trust Agreement. (b) Additional Duties. (i) In addition to the duties of the Administrator set forth above, the Administrator shall perform such calculations and shall prepare or shall cause the preparation by other appropriate persons of, and shall execute on behalf of the Issuer or the Owner Trustee, all such documents, reports, filings, instruments, certificates and opinions that it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Related Agreements or Section 5.05(a), (b), (c) or (d) of the Trust Agreement, and at the request of the Owner Trustee shall take all appropriate action that it is the duty of the Issuer or the Owner Trustee to take pursuant to the Related Agreements. In furtherance thereof, the Owner Trustee shall, on behalf of itself and of the Issuer, execute and deliver to the Administrator and to each successor Administrator appointed pursuant to the terms hereof, one or more 5 powers of attorney substantially in the form of Exhibit A hereto, appointing the Administrator the attorney-in-fact of the Owner Trustee and the Issuer for the purpose of executing on behalf of the Owner Trustee and the Issuer all such documents, reports, filings, instruments, certificates and opinions. Subject to Section 5 of this Agreement, and in accordance with the directions of the Owner Trustee, the Administrator shall administer, perform or supervise the performance of such other activities in connection with the Collateral (including the Related Agreements) as are not covered by any of the foregoing provisions and as are expressly requested by the Owner Trustee and are reasonably within the capability of the Administrator. (ii) Notwithstanding anything in this Agreement or the Related Agreements to the contrary, the Administrator shall be responsible for promptly notifying the Owner Trustee in the event that any withholding tax is imposed on the Trust's payments (or allocations of income) to an Owner as contemplated in Section 5.02(c) of the Trust Agreement. Any such notice shall specify the amount of any withholding tax required to be withheld by the Owner Trustee pursuant to such provision. (iii) Notwithstanding anything in this Agreement or the Related Agreements to the contrary, the Administrator shall be responsible for performance of the duties of the Owner Trustee set forth in Section 5.05(a), (b), (c) and (d), the penultimate sentence of Section 5.05 and Section 5.06(a) of the Trust Agreement with respect to, among other things, accounting and reports to Owners; provided, however, that the Owner Trustee shall retain responsibility for the distribution of the Schedule K-1s necessary to enable each Owner to prepare its federal and state income tax returns. (iv) The Administrator shall satisfy its obligations with respect to clauses (ii) and (iii) above by retaining, at the expense of the Trust payable by the Administrator, a firm of independent public accountants (the "Accountants") acceptable to the Owner Trustee, which shall perform the obligations of the Administrator thereunder. In connection with paragraph (ii) above, the Accountants will provide prior to December 31, 1995, a letter in form and substance satisfactory to the Owner Trustee as to whether any tax withholding is then required and, if required, the procedures to be followed with respect thereto to comply with the requirements of the Code. The Accountants shall be required to update the letter in each instance that any additional tax withholding is subsequently required or any previously required tax withholding shall no longer be required. (v) The Administrator shall perform the duties of the Administrator specified in Section 10.02 of the Trust Agreement required to be performed in connection with the resignation or removal of the Owner Trustee, and any other duties expressly required to be performed by the Administrator under the Trust Agreement. 6 (vi) In carrying out the foregoing duties or any of its other obligations under this Agreement, the Administrator may enter into transactions or otherwise deal with any of its affiliates; provided, however, that the terms of any such transactions or dealings shall be in accordance with any directions received from the Issuer and shall be, in the Administrator's opinion, no less favorable to the Issuer than would be available from unaffiliated parties. (c) Non-Ministerial Matters. (i) With respect to matters that in the reasonable judgment of the Administrator are non-ministerial, the Administrator shall not take any action unless within a reasonable time before the taking of such action, the Administrator shall have notified the Owner Trustee of the proposed action and the Owner Trustee shall not have withheld consent or provided an alternative direction. For the purpose of the preceding sentence, "non-ministerial matters" shall include, without limitation: (A) the amendment of or any supplement to the Indenture; (B) the initiation of any claim or lawsuit by the Issuer and the compromise of any action, claim or lawsuit brought by or against the Issuer (other than in connection with the collection of the Receivables); (C) the amendment, change or modification of the Related Agreements; (D) the appointment of successor Note Registrars, successor Paying Agents and successor Indenture Trustees pursuant to the Indenture or the appointment of successor Administrators or Successor Servicers, or the consent to the assignment by the Note Registrar, Paying Agent or Indenture Trustee of its obligations under the Indenture; and (E) the removal of the Indenture Trustee. (ii) Notwithstanding anything to the contrary in this Agreement, the Administrator shall not be obligated to, and shall not, (x) make any payments to the Noteholders under the Related Agreements, (y) sell the Trust Estate pursuant to Section 5.04 of the Indenture or (z) take any other action that the Issuer directs the Administrator not to take on its behalf. 2. Records. The Administrator shall maintain appropriate books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Issuer at any time during normal business hours. 3. Compensation. As compensation for the performance of the Administrator's obligations under this Agreement and as reimbursement for its expenses related thereto, the Administrator 7 shall be entitled to $1,000 per annum which shall be solely an obligation of the Servicer. 4. Additional Information To Be Furnished to the Issuer. The Administrator shall furnish to the Issuer from time to time such additional information regarding the Collateral as the Issuer shall reasonably request. 5. Independence of the Administrator. For all purposes of this Agreement, the Administrator shall be an independent contractor and shall not be subject to the supervision of the Issuer or the Owner Trustee with respect to the manner in which it accomplishes the performance of its obligations hereunder. Unless expressly authorized by the Issuer, the Administrator shall have no authority to act for or represent the Issuer or the Owner Trustee in any way and shall not otherwise be deemed an agent of the Issuer or the Owner Trustee. 6. No Joint Venture. Nothing contained in this Agreement (i) shall constitute the Administrator and either of the Issuer or the Owner Trustee as members of any partnership, joint venture, association, syndicate, unincorporated business or other separate entity, (ii) shall be construed to impose any liability as such on any of them or (iii) shall be deemed to confer on any of them any express, implied or apparent authority to incur any obligation or liability on behalf of the others. 7. Other Activities of Administrator. Nothing herein shall prevent the Administrator or its Affiliates from engaging in other businesses or, in its sole discretion, from acting in a similar capacity as an administrator for any other person or entity even though such person or entity may engage in business activities similar to those of the Issuer, the Owner Trustee or the Indenture Trustee. 8. Term of Agreement; Resignation and Removal of Administrator. (a) This Agreement shall continue in force until the dissolution of the Issuer, upon which event this Agreement shall automatically terminate. (b) Subject to Section 8(e), the Administrator may resign its duties hereunder by providing the Issuer with at least 60 days' prior written notice. (c) Subject to Section 8(e), the Issuer may remove the Administrator without cause by providing the Administrator with at least 60 days' prior written notice. (d) Subject to Section 8(e), at the sole option of the Issuer, the Administrator may be removed immediately upon written notice of termination from the Issuer to the Administrator if any of the following events shall occur: (i) the Administrator shall default in the performance of any of its duties under this Agreement and, after notice of such 8 default, shall not cure such default within ten days (or, if such default cannot be cured in such time, shall not give within ten days such assurance of cure as shall be reasonably satisfactory to the Issuer); (ii) a court having jurisdiction in the premises shall enter a decree or order for relief, and such decree or order shall not have been vacated within 60 days, in respect of the Administrator in any involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Administrator or any substantial part of its property or order the winding-up or liquidation of its affairs; or (iii) the Administrator shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, shall consent to the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official for the Administrator or any substantial part of its property, shall consent to the taking of possession by any such official of any substantial part of its property, shall make any general assignment for the benefit of creditors or shall fail generally to pay its debts as they become due. The Administrator agrees that if any of the events specified in clauses (ii) or (iii) of this Section shall occur, it shall give written notice thereof to the Issuer and the Indenture Trustee within seven days after the happening of such event. (e) No resignation or removal of the Administrator pursuant to this Section shall be effective until (i) a successor Administrator shall have been appointed by the Issuer and (ii) such successor Administrator shall have agreed in writing to be bound by the terms of this Agreement in the same manner as the Administrator is bound hereunder. (f) The appointment of any successor Administrator shall be effective only after satisfaction of the Rating Agency Condition with respect to the proposed appointment. (g) Subject to Section 8(e) and 8(f), the Administrator acknowledges that upon the appointment of a Successor Servicer pursuant to the Sale and Servicing Agreement, the Administrator shall immediately resign and such Successor Servicer shall automatically become the Administrator under this Agreement. 9. Action upon Termination, Resignation or Removal. Promptly upon the effective date of termination of this Agreement pursuant to Section 8(a) or the resignation or removal of the Administrator pursuant to Section 8(b) or (c), respectively, the Administrator shall be entitled to be paid all fees and reimbursable expenses accruing to it to the date of such 9 termination, resignation or removal. The Administrator shall forthwith upon such termination pursuant to Section 8(a) deliver to the Issuer all property and documents of or relating to the Collateral then in the custody of the Administrator. In the event of the resignation or removal of the Administrator pursuant to Section 8(b) or (c), respectively, the Administrator shall cooperate with the Issuer and take all reasonable steps requested to assist the Issuer in making an orderly transfer of the duties of the Administrator. 10. Notices. Any notice, report or other communication given hereunder shall be in writing and addressed as follows: (a) if to the Issuer or the Owner Trustee, to: NAL Auto Trust 1995-1 In care of Wilmington Trust Company Rodney Square North 1100 Market Street Wilmington, Delaware 19890 Attention: Corporate Trustee Department (b) if to the Administrator, to: NAL Acceptance Corporation 500 Cypress Creek Road West Suite 590 Fort Lauderdale, FL 33309 Attention: Dennis LaVigne (c) if to the Indenture Trustee, to: Bankers Trust Company Four Albany Street New York, New York 10006 Attention: Corporate Trust Administration -- Structured Finance or to such other address as any party shall have provided to the other parties in writing. Any notice required to be in writing hereunder shall be deemed given if such notice is mailed by certified mail, postage prepaid, or hand-delivered to the address of such party as provided above. 11. Amendments. This Agreement may be amended from time to time by a written amendment duly executed and delivered by the Issuer, the Administrator and the Indenture Trustee, with the written consent of the Owner Trustee, without the consent of the Noteholders and the Certificateholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders or Certificateholders; provided that such amendment will not, in the Opinion of Counsel satisfactory to the Indenture Trustee and each Rating Agency, 10 materially and adversely affect the interest of any Noteholder or Certificateholder. This Agreement may also be amended by the Issuer, the Administrator and the Indenture Trustee with the written consent of the Owner Trustee and the holders of Notes evidencing at least a majority of the Outstanding Amount of the Notes and the holders of Certificates evidencing at least a majority of the Certificate Balance for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of Noteholders or the Certificateholders; provided, however, that no such amendment may (i) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on Receivables or distributions that are required to be made for the benefit of the Noteholders or Certificateholders or (ii) reduce the aforesaid percentage of the holders of Notes and Certificates which are required to consent to any such amendment, without the consent of the holders of all the outstanding Notes and Certificates. Notwithstanding the foregoing, the Administrator may not amend this Agreement without the permission of the Depositor, which permission shall not be unreasonably withheld. 12. Successors and Assigns. This Agreement may not be assigned by the Administrator unless such assignment is previously consented to in writing by the Issuer and the Owner Trustee and subject to the satisfaction of the Rating Agency Condition in respect thereof. An assignment with such consent and satisfaction, if accepted by the assignee, shall bind the assignee hereunder in the same manner as the Administrator is bound hereunder. Notwithstanding the foregoing, this Agreement may be assigned by the Administrator without the consent of the Issuer or the Owner Trustee to a corporation or other organization that is a successor (by merger, consolidation or purchase of assets) to the Administrator; provided that such successor organization executes and delivers to the Issuer, the Owner Trustee and the Indenture Trustee an agreement in which such corporation or other organization agrees to be bound hereunder by the terms of said assignment in the same manner as the Administrator is bound hereunder. Subject to the foregoing, this Agreement shall bind any successors or assigns of the parties hereto. 13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 14. Headings. The section headings hereof have been inserted for convenience of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement. 15. Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be an 11 original, but all of which together shall constitute but one and the same agreement. 16. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 17. Not Applicable to NAL Acceptance Corporation in Other Capacities. Nothing in this Agreement shall affect any obligation NAL Acceptance Corporation may have in any other capacity. 18. Limitation of Liability of Owner Trustee and Indenture Trustee. (a) Notwithstanding anything contained herein to the contrary, this instrument has been countersigned by Wilmington Trust Company in its individual capacity but solely in its capacity as Owner Trustee of the Issuer and in no event shall Wilmington Trust Company in its individual capacity or any beneficial owner of the Issuer have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder, as to all of which recourse shall be had solely to the assets of the Issuer. For all purposes of this Agreement, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust Agreement. (b) Notwithstanding anything contained herein to the contrary, this Agreement has been countersigned by Bankers Trust Company not in its individual capacity but solely as Indenture Trustee and in no event shall Bankers Trust Company have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. 19. Third-Party Beneficiary. The Owner Trustee is a third-party beneficiary to this Agreement and is entitled to the rights and benefits hereunder and may enforce the provisions hereof as if it were a party hereto. * * * * * * * * * * * * * * * * * * * * * * 12 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written. NAL AUTO TRUST 1995-1 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: --------------------------------------- Name: Title: BANKERS TRUST COMPANY, not in its individual capacity but solely as Indenture Trustee By: --------------------------------------------- Name: Title: NAL ACCEPTANCE CORPORATION, as Administrator By: --------------------------------------------- Name: Title: EXHIBIT A POWER OF ATTORNEY STATE OF NEW YORK } } COUNTY OF NEW YORK } KNOW ALL MEN BY THESE PRESENTS, that Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as owner trustee (the "Owner Trustee") for NAL Auto Trust 1995-1 (the "Trust"), does hereby make, constitute and appoint NAL Corporation, as administrator under the Administration Agreement dated as of December 1, 1995 (the "Administration Agreement"), among the Trust, NAL Acceptance Corporation and Bankers Trust Company, as Indenture Trustee, as the same may be amended from time to time, and its agents and attorneys, as Attorneys-in-Fact to execute on behalf of the Owner Trustee or the Trust all such documents, reports, filings, instruments, certificates and opinions as it should be the duty of the Owner Trustee or the Trust to prepare, file or deliver pursuant to the Related Agreements, or pursuant to Section 5.05(a), (b), (c) or (d) of the Trust Agreement, including, without limitation, to appear for and represent the Owner Trustee and the Trust in connection with the preparation, filing and audit of federal, state and local tax returns pertaining to the Trust, and with full power to perform any and all acts associated with such returns and audits that the Owner Trustee could perform, including without limitation, the right to distribute and receive confidential information, defend and assert positions in response to audits, initiate and defend litigation, and to execute waivers of restrictions on assessments of deficiencies, consents to the extension of any statutory or regulatory time limit, and settlements. All powers of attorney for this purpose heretofore filed or executed by the Owner Trustee are hereby revoked. Capitalized terms that are used and not otherwise defined herein shall have the meanings ascribed thereto in the Administration Agreement. EXECUTED this ___ of December, 1995. WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee -------------------------------- Name: Title: A-1 STATE OF ___________ } } COUNTY OF _________ } Before me, the undersigned authority, on this day personally appeared _______________________, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he/she signed the same for the purposes and considerations therein expressed. Sworn to before me this ___ day of _______, 199_. - -------------------------------------------------------------------------------- Notary Public - State of ____________ A-2 EX-10.19 6 TRUST AGREEMENT EXECUTION COPY ================================================================================ TRUST AGREEMENT between AUTORICS II, INC., as Depositor, and WILMINGTON TRUST COMPANY, as Owner Trustee Dated as of December 1, 1995 ================================================================================ TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.01. Capitalized Terms.................................... 1 SECTION 1.02. Other Definitional Provisions........................ 3 ARTICLE II Organization SECTION 2.01. Name................................................. 4 SECTION 2.02. Office............................................... 4 SECTION 2.03. Purposes and Powers.................................. 4 SECTION 2.04. Appointment of Owner Trustee......................... 5 SECTION 2.05. Initial Capital Contribution of Owner Trust Estate............................................ 5 SECTION 2.06. Declaration of Trust................................. 5 SECTION 2.07. Liability of the Owners.............................. 6 SECTION 2.08. Title to Trust Property.............................. 6 SECTION 2.09. Situs of Trust....................................... 6 SECTION 2.10. Representations and Warranties of the Depositor......................................... 7 SECTION 2.11. Maintenance of the Demand Note....................... 8 SECTION 2.12. Federal Income Tax Allocations....................... 8 ARTICLE III Trust Certificates and Transfer of Interes SECTION 3.01. Initial Ownership..................................... 9 SECTION 3.02. The Trust Certificates................................ 9 SECTION 3.03. Authentication of Trust Certificates.................. 9 SECTION 3.04. Registration of Transfer and Exchange of Trust Certificates................................ 10 SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates...................................... 12 SECTION 3.06. Persons Deemed Owners................................. 12 SECTION 3.07. Access to List of Certificateholders' Names and Addresses..................................... 12 SECTION 3.08. Maintenance of Office or Agency....................... 13 SECTION 3.09. Appointment of Paying Agent........................... 13 SECTION 3.10. Ownership by Depositor of Trust Certificates...................................... 14 i ARTICLE IV Actions by Owner Trustee SECTION 4.01. Prior Notice to Owners with Respect to Certain Matters.................................... 14 SECTION 4.02. Action by Owners with Respect to Certain Matters............................................... 15 SECTION 4.03. Action by Owners with Respect to Bankruptcy........... 15 SECTION 4.04. Restrictions on Owners' Power......................... 15 SECTION 4.05. Majority Control...................................... 15 ARTICLE V Application of Trust Funds; Certain Duties SECTION 5.01. Establishment of Trust Account........................ 16 SECTION 5.02. Application of Trust Funds............................ 16 SECTION 5.03. Method of Payment..................................... 17 SECTION 5.04. No Segregation of Moneys; No Interest................. 17 SECTION 5.05. Accounting and Reports to the Noteholders, Owners, the Internal Revenue Service and Others............................................. 17 SECTION 5.06. Signature on Returns; Tax Matters Partner............. 18 ARTICLE VI Authority and Duties of Owner Trustee SECTION 6.01. General Authority..................................... 18 SECTION 6.02. General Duties........................................ 18 SECTION 6.03. Action upon Instruction............................... 18 SECTION 6.04. No Duties Except as Specified in this Agreement or in Instructions....................... 19 SECTION 6.05. No Action Except Under Specified Documents or Instructions.................................... 20 SECTION 6.06. Restrictions.......................................... 20 ARTICLE VII Concerning the Owner Trustee SECTION 7.01. Acceptance of Trusts and Duties....................... 20 SECTION 7.02. Furnishing of Documents............................... 22 SECTION 7.03. Representations and Warranties........................ 22 SECTION 7.04. Reliance; Advice of Counsel........................... 22 SECTION 7.05. Not Acting in Individual Capacity..................... 23 SECTION 7.06. Owner Trustee Not Liable for Trust Certificates or Receivables........................ 23 SECTION 7.07. Owner Trustee May Own Trust Certificates and Notes.............................................. 23 ii ARTICLE VIII Compensation of Owner Trustee SECTION 8.01. Owner Trustee's Fees and Expenses..................... 24 SECTION 8.02. Indemnification....................................... 24 SECTION 8.03. Payments to the Owner Trustee......................... 24 ARTICLE IX Termination of Trust Agreement SECTION 9.01. Termination of Trust Agreement........................ 25 SECTION 9.02. Dissolution upon Bankruptcy of the Depositor.......................................... 26 ARTICLE X Successor Owner Trustees and Additional Owner Trustees SECTION 10.01. Eligibility Requirements for Owner Trust.............. 27 SECTION 10.02. Resignation or Removal of Owner Trustee............... 27 SECTION 10.03. Successor Owner Trustee............................... 28 SECTION 10.04. Merger or Consolidation of Owner Trustee.............. 28 SECTION 10.05. Appointment of Co-Trustee or Separate Trustee............................................ 29 ARTICLE XI Miscellaneous SECTION 11.01. Supplements and Amendments............................ 30 SECTION 11.02. No Legal Title to Owner Trust Estate in Owners............................................. 31 SECTION 11.03. Limitations on Rights of Others....................... 32 SECTION 11.04. Notices............................................... 32 SECTION 11.05. Severability.......................................... 32 SECTION 11.06. Separate Counterparts................................. 32 SECTION 11.07. Successors and Assigns................................ 32 SECTION 11.08. Covenants of the Depositor............................ 33 SECTION 11.09. No Petition........................................... 33 SECTION 11.10. No Recourse........................................... 33 SECTION 11.11. Headings.............................................. 34 SECTION 11.12. GOVERNING LAW......................................... 34 SECTION 11.13. [Reserved]............................................ 34 SECTION 11.14. Depositor Payment Obligation.......................... 34 EXHIBIT A Form of Trust Certificate EXHIBIT B Form of Certificate of Trust EXHIBIT C Form of Certificate Depository Agreement iii TRUST AGREEMENT dated as of December 1, 1995, between AUTORICS II, INC., a Delaware corporation, as depositor (the "Depositor") and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as owner trustee (the "Owner Trustee"). ARTICLE I Definitions SECTION 1.01. Capitalized Terms. For all purposes of this Agreement, the following terms shall have the meanings set forth below: "Administration Agreement" shall mean the Administration Agreement dated as of December 1, 1995, among the Trust, the Indenture Trustee and NAL Acceptance Corporation, as Administrator. "Agreement" shall mean this Trust Agreement, as the same may be amended and supplemented from time to time. "Basic Documents" shall mean the Sale and Servicing Agreement, the Indenture, the Administration Agreement, the Custodial Agreement and the other documents, instruments and certificates delivered in connection therewith. "Benefit Plan" shall have the meaning assigned to such term in Section 3.04. "Business Trust Statute" shall mean Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from time to time. "Certificate Distribution Account" shall have the meaning assigned to such term in Section 5.01. "Certificate of Trust" shall mean the Certificate of Trust in the form of Exhibit B filed for the Trust pursuant to Section 3810(a) of the Business Trust Statute. "Certificate Register" and "Certificate Registrar" shall mean the register mentioned in and the registrar appointed pursuant to Section 3.04. "Certificateholder" or "Holder" shall mean a Person in whose name a Trust Certificate is registered. "Code" shall mean the Internal Revenue Code of 1986, as amended, and Treasury Regulations promulgated thereunder. "Corporate Trust Office" shall mean, with respect to the Owner Trustee, the principal corporate trust office of the Owner Trustee located at 1100 N. Market Street, Rodney Square North, Wilmington, DE 19890, Attn: Corporate Trust Administration, or at such other 1 address as the Owner Trustee may designate by notice to the Owners and the Depositor, or the principal corporate trust office of any successor Owner Trustee at the address designated by such successor Owner Trustee by notice to the Owners and the Depositor. "Custodial Agreement" shall mean the Custodial Agreement dated as of December 21, 1995, between the Trust and Bankers Trust Company, as Custodian. "Demand Note" shall mean, in the case of the Depositor, the Demand Note dated December 20, 1995, from NAL to the Depositor. "Depositor" shall mean AUTORICS II, Inc. in its capacity as depositor hereunder. "ERISA" shall have the meaning assigned thereto in Section 3.04. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Expenses" shall have the meaning assigned to such term in Section 8.02. "Indemnified Parties" shall have the meaning assigned to such term in Section 8.02. "Indenture" shall mean the Indenture dated as of December 1, 1995 between the Trust and Bankers Trust Company, as Indenture Trustee. "Initial Certificate Balance" shall mean $2,006,897.86. "NAL" shall mean NAL Acceptance Corporation, a Florida Corporation, and any successor in interest. "Owner" shall mean each Holder of a Trust Certificate. "Owner Trust Estate" shall mean all right, title and interest of the Trust in and to the property and rights assigned to the Trust pursuant to Article II of the Sale and Servicing Agreement, all funds on deposit from time to time in the Trust Accounts and the Certificate Distribution Account and all other property of the Trust from time to time, including any rights of the Owner Trustee and the Trust pursuant to the Sale and Servicing Agreement and the Administration Agreement. "Owner Trustee" shall mean Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as owner trustee under this Agreement, and any successor Owner Trustee hereunder. 2 "Paying Agent" shall mean any paying agent or co-paying agent appointed pursuant to Section 3.09 and shall initially be Wilmington Trust Company. "Record Date" shall mean, with respect to any Distribution Date, the close of business on the last day of the month immediately preceding such Distribution Date. "Sale and Servicing Agreement" shall mean the Sale and Servicing Agreement dated as of December 1, 1995, among the Trust, as issuer, the Depositor, as seller, NAL Acceptance Corporation, as servicer and Bankers Trust Company, as Backup Servicer as the same may be amended or supplemented from time to time. "Secretary of State" shall mean the Secretary of State of the State of Delaware. "Treasury Regulations" shall mean regulations, including proposed or temporary Regulations, promulgated under the Code. References herein to specific provisions of proposed or temporary regulations shall include analogous provisions of final Treasury Regulations or other successor Treasury Regulations. "Trust" shall mean the trust established by this Agreement. "Trust Certificate" shall mean a certificate evidencing the beneficial interest of an Owner in the Trust, substantially in the form attached hereto as Exhibit A. SECTION 1.02. Other Definitional Provisions. (a) Capitalized terms used and not otherwise defined herein have the meanings assigned to them in the Sale and Servicing Agreement or, if not defined therein, in the Indenture. (b) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (c) As used in this Agreement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under generally accepted accounting principles, the definitions contained in this Agreement or in any such certificate or other document shall control. (d) The words "hereof," "herein," "hereunder" and words of similar import when used in this Agreement shall refer to this 3 Agreement as a whole and not to any particular provision of this Agreement; Section and Exhibit references contained in this Agreement are references to Sections and Exhibits in or to this Agreement unless otherwise specified; and the term "including" shall mean "including without limitation". (e) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. (f) Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. ARTICLE II Organization SECTION 2.01. Name. The Trust created hereby shall be known as "NAL Auto Trust 1995-1," in which name the Owner Trustee may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. SECTION 2.02. Office. The office of the Trust shall be in care of the Owner Trustee at the Corporate Trust Office or at such other address in Delaware as the Owner Trustee may designate by written notice to the Owners and the Depositor. SECTION 2.03. Purposes and Powers. (a) The purpose of the Trust is to engage in the following activities: (i) to issue the Notes pursuant to the Indenture and the Trust Certificates pursuant to this Agreement and to sell the Notes and the Trust Certificates; (ii) with the proceeds of the sale of the Notes and the Trust Certificates, to purchase the Receivables, to fund the Reserve Account and to pay the organizational, start-up and transactional expenses of the Trust; (iii) to assign, grant, transfer, pledge, mortgage and convey the Trust Estate pursuant to the Indenture and to hold, manage and distribute to the Owners pursuant to the terms of the Sale and Servicing Agreement any portion of the Trust Estate released from the Lien of, and remitted to the Trust pursuant to, the Indenture; 4 (iv) to enter into and perform its obligations under the Basic Documents to which it is to be a party; (v) to engage in those activities, including entering into agreements, that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and (vi) subject to compliance with the Basic Documents, to engage in such other activities as may be required in connection with conservation of the Owner Trust Estate and the making of distributions to the Owners and the Noteholders. The Trust is hereby authorized to engage in the foregoing activities. The Trust shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement or the Basic Documents. SECTION 2.04. Appointment of Owner Trustee. The Depositor hereby appoints the Owner Trustee as trustee of the Trust effective as of the date hereof, to have all the rights, powers and duties set forth herein. SECTION 2.05. Initial Capital Contribution of Owner Trust Estate. The Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges receipt in trust from the Depositor, as of the date hereof, of the foregoing contribution, which shall constitute the initial Owner Trust Estate and shall be deposited in the Certificate Distribution Account. The Depositor shall pay organizational expenses of the Trust as they may arise or shall, upon the request of the Owner Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the Owner Trustee. SECTION 2.06. Declaration of Trust. The Owner Trustee hereby declares that it will hold the Owner Trust Estate in trust upon and subject to the conditions set forth herein for the use and benefit of the Owners, subject to the obligations of the Trust under the Basic Documents. It is the intention of the parties hereto that the Trust constitute a business trust under the Business Trust Statute and that this Agreement constitute the governing instrument of such business trust. It is the intention of the parties hereto that, solely for income and franchise tax purposes, the Trust shall be treated as a partnership, with the assets of the partnership being the Receivables and other assets held by the Trust, the partners of the partnership being the Certificateholders (including the Depositor, in its capacity as recipient of distributions from the Reserve Account), and the Notes being debt of the partnership. The parties agree that, unless otherwise required by appropriate tax authorities, the Trust will file or cause to be filed annual or other necessary returns, reports and other forms consistent with the characterization of the Trust as a partnership for such tax 5 purposes. Effective as of the date hereof, the Owner Trustee shall have all rights, powers and duties set forth herein and in the Business Trust Statute with respect to accomplishing the purposes of the Trust. The Responsible Officers of the Owner Trustee shall constitute a board of trustees of the Trust to the extent any applicable jurisdiction may require the establishment of such a board. The Division Vice President of the Corporate Trust Administration Department shall hold the title and position of Chairman of the Board of Trustees for all such purposes and shall be vested with the power and authority to execute as Chairman of the Board of Trustees such instruments, certificates, agreements and other writings as shall be deemed necessary or beneficial by the Trustee. SECTION 2.07. Liability of the Owners. (a) The Depositor shall be liable directly to and will indemnify any injured party for all losses, claims, damages, liabilities and expenses of the Trust (including Expenses, to the extent not paid out of the Owner Trust Estate) to the extent that the Depositor would be liable if the Trust were a partnership under the Delaware Revised Uniform Limited Partnership Act in which the Depositor were a general partner; provided, however, that the Depositor shall not be liable for any losses incurred by a Certificateholder in the capacity of an investor in the Trust Certificates, or by a Noteholder in the capacity of an investor in the Notes. In addition, any third party creditors of the Trust (other than in connection with the obligations described in the preceding sentence for which the Depositor shall not be liable) shall be deemed third party beneficiaries of this paragraph and paragraph (c) below. The obligations of the Depositor under this paragraph and paragraph (c) below shall be evidenced by the Trust Certificates described in Section 3.10, which for purposes of the Business Trust Statute shall be deemed to be a separate class of Trust Certificates from all other Trust Certificates issued by the Trust; provided that the rights and obligations evidenced by all Trust Certificates, regardless of class, shall, except as provided in this Section, be identical. (b) No Owner, other than to the extent set forth in paragraphs (a) and (c), shall have any personal liability for any liability or obligation of the Trust. (c) The Depositor agrees to be liable directly to and will indemnify any injured party for all losses, claims, damages, liabilities and expenses (other than those incurred by a Certificateholder in the capacity of an investor in the Trust Certificates and a Noteholder in the capacity of an investor in the Notes) as though such arrangements were a partnership under the Delaware Revised Uniform Limited Partnership Act in which the Depositor were a general partner. 6 SECTION 2.08. Title to Trust Property. Legal title to all the Owner Trust Estate shall be vested at all times in the Trust as a separate legal entity except where applicable law in any jurisdiction requires title to any part of the Owner Trust Estate to be vested in a trustee or trustees, in which case title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a separate trustee, as the case may be. SECTION 2.09. Situs of Trust. The Trust will be located and administered in the State of Delaware. All bank accounts maintained by the Owner Trustee on behalf of the Trust shall be located in the State of Delaware or the State of New York. The Trust shall not have any employees in any state other than Delaware; provided, however, that nothing herein shall restrict or prohibit the Owner Trustee from having employees within or without the State of Delaware. Payments will be received by the Trust only in Delaware or New York, and payments will be made by the Trust only from Delaware or New York. The only office of the Trust will be at the Corporate Trust Office in Delaware. SECTION 2.10. Representations and Warranties of the Depositor. The Depositor hereby represents and warrants to the Owner Trustee that: (a) The Depositor is duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted. (b) The Depositor is duly qualified to do business as a foreign corporation in good standing and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its property or the conduct of its business shall require such qualifications. (c) The Depositor has the power and authority to execute and deliver this Agreement and to carry out its terms; the Depositor has full power and authority to sell and assign the property to be sold and assigned to and deposited with the Trust and the Depositor has duly authorized such sale and assignment and deposit to the Trust by all necessary corporate action; and the execution, delivery and performance of this Agreement have been duly authorized by the Depositor by all necessary corporate action. (d) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the certificate of incorporation or bylaws of the Depositor, or any indenture, agreement or other instrument to which the Depositor is a party or by which it is 7 bound; nor result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than pursuant to the Basic Documents); nor violate any law or, to the best of the Depositor's knowledge, any order, rule or regulation applicable to the Depositor of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties. (e) There are no proceedings or investigations pending or, to the Depositor's best knowledge, threatened before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties: (A) asserting the invalidity of this Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (C) seeking any determination or ruling that might materially and adversely affect the performance by the Depositor of its obligations under, or the validity or enforceability of, this Agreement. SECTION 2.11. Maintenance of the Demand Note. To the fullest extent permitted by applicable law, the Depositor agrees that it shall not sell, convey, pledge, transfer or otherwise dispose of the Demand Note. SECTION 2.12. Federal Income Tax Allocations. Net income of the Trust for any quarter as determined for federal income tax purposes (and each item of income, gain, loss and deduction entering into the computation thereof) shall be allocated: (a) among the Certificateholders as of the first day following the end of such month, in proportion to their ownership of principal amount of Trust Certificates on such date, net income in an amount up to the sum of (i) the Certificateholders' Quarterly Interest Distributable Amount for such quarter, (ii) interest on the excess, if any, of the Certificateholders' Interest Distributable Amount for the preceding Distribution Date over the amount in respect of interest that is actually deposited in the Certificate Distribution Account on such preceding Distribution Date, to the extent permitted by law, at the Pass-Through Rate from such preceding Distribution Date through the current Distribution Date, (iii) the portion of the market discount on the Receivables accrued during such quarter that is allocable to the excess, if any, of the initial aggregate principal amount of the Trust Certificates over their initial aggregate issue price and (iv) any other amounts of income payable to the Certificateholders for such quarter; such sum to be reduced by any amortization by the Trust of premium on Receivables that corresponds to any excess of the issue price of Certificates over their principal amount; and 8 (b) to the Depositor, to the extent of any remaining net income. If the net income of the Trust for any quarter is insufficient for the allocations described in clause (a) above, subsequent net income shall first be allocated to make up such shortfall before being allocated as provided in the preceding sentence. Net losses of the Trust, if any, for any quarter as determined for federal income tax purposes (and each item of income, gain, loss and deduction entering into the computation thereof) shall be allocated to the Depositor to the extent the Depositor is reasonably expected to bear the economic burden of such net losses, and any remaining net losses shall be allocated among the Certificateholders as of the first Record Date following the end of such quarter in proportion to their ownership of principal amount of Trust Certificates on such Record Date. The Depositor is authorized to modify the allocations in this paragraph if necessary or appropriate, in its sole discretion, for the allocations to fairly reflect the economic income, gain or loss to the Depositor or to the Certificateholders, or as otherwise required by the Code. ARTICLE III Trust Certificates and Transfer of Interests SECTION 3.01. Initial Ownership. Upon the formation of the Trust by the contribution by the Depositor pursuant to Section 2.05 and until the issuance of the Trust Certificates, the Depositor shall be the sole beneficiary of the Trust. SECTION 3.02. The Trust Certificates. The Trust Certificates shall be issued in minimum denominations of $100,000 and in integral multiples of $1,000 in excess thereof; provided, however, that the Trust Certificates issued to the Depositor pursuant to Section 3.10 may be issued in such denomination as required to include any residual amount. The Trust Certificates shall be executed on behalf of the Trust by manual or facsimile signature of an authorized officer of the Owner Trustee. Trust Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefit of this Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the authentication and delivery of such Trust Certificates or did not hold such offices at the date of authentication and delivery of such Trust Certificates. A transferee of a Trust Certificate shall become a Certificateholder and shall be entitled to the rights and subject to the obligations of a Certificateholder hereunder upon such transferee's acceptance of a Trust Certificate duly registered in such transferee's name pursuant to Section 3.04. 9 SECTION 3.03. Authentication of Trust Certificates. On the Closing Date, the Owner Trustee shall cause the Trust Certificates in an aggregate principal amount equal to the Initial Certificate Balance to be executed on behalf of the Trust, authenticated and delivered to or upon the written order of the Depositor, signed by its chairman of the board, its president, any vice president, secretary or any assistant treasurer, without further corporate action by the Depositor, in authorized denominations. No Trust Certificate shall entitle its Holder to any benefit under this Agreement or be valid for any purpose unless there shall appear on such Trust Certificate a certificate of authentication substantially in the form set forth in Exhibit A, executed by the Owner Trustee, by manual signature; such authentication shall constitute conclusive evidence that such Trust Certificate shall have been duly authenticated and delivered hereunder. All Trust Certificates shall be dated the date of their authentication. SECTION 3.04. Registration of Transfer and Exchange of Trust Certificates. The Certificate Registrar shall keep or cause to be kept, at the office or agency maintained pursuant to Section 3.08, a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Owner Trustee shall provide for the registration of Trust Certificates and of transfers and exchanges of Trust Certificates as herein provided. Wilmington Trust Company shall be the initial Certificate Registrar. The Certificates have not been and will not be registered under the Securities Act and will not be listed on any exchange. No transfer of a Certificate shall be made unless such transfer is made pursuant to an effective registration statement under the Securities Act and any applicable state securities laws or is exempt from the registration requirements under said Act and such state securities laws. In the event that a transfer is to be made in reliance upon an exemption from the Securities Act and state securities laws, in order to assure compliance with the Securities Act and such laws, the Holder desiring to effect such transfer and such Holder's prospective transferee shall each certify to the Owner Trustee and the Depositor in writing the facts surrounding the transfer in substantially the forms set forth in Exhibit C (the "Transferor Certificate") and Exhibit D (the "Investment Letter"). Except in the case of a transfer as to which the proposed transferee has provided an Investment Letter with respect to a Rule 144A transaction, there shall also be delivered to the Owner Trustee an opinion of counsel that such transfer may be made pursuant to an exemption from the Securities Act and state securities laws, which opinion of counsel shall not be an expense of the Trust, the Owner Trustee or the Indenture Trustee (unless it is the transferee from whom such opinion is to be obtained) or of the Depositor or NAL; provided that such opinion of counsel in respect of the applicable state securities laws may be a memorandum of law rather than an opinion if such counsel is not licensed in the applicable jurisdiction. The Depositor shall provide to any Holder of a Certificate and any prospective transferee designated 10 by any such Holder information regarding the Certificates and the Receivables and such other information as shall be necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4) for transfer of any such Certificate without registration thereof under the Securities Act pursuant to the registration exemption provided by Rule 144A. Each Holder of a Certificate desiring to effect such a transfer shall, and does hereby agree to, indemnify the Issuer, the Owner Trustee, the Indenture Trustee and the Depositor against any liability that may result if the transfer is not so exempt or is not made in accordance with federal and state securities laws. No transfer of a Trust Certificate shall be made to any Person unless the Owner Trustee has received (A) a certificate in the form of paragraph 3 to the Investment Letter from such Person to the effect that such Person is not (i) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Code or (iii) any entity whose underlying assets include plan assets by reason of a plan's investment in the entity (each, a "Benefit Plan") or (B) an opinion of counsel satisfactory to the Owner Trustee and the Depositor to the effect that the purchase and holding of such Trust Certificate will not constitute or result in the assets of the Issuer being deemed to be "plan assets" subject to the prohibited transactions provisions of ERISA or Section 4975 of the Code and will not subject the Owner Trustee, the Indenture Trustee or the Depositor to any obligation in addition to those undertaken in the Basic Documents; provided, however, that the Owner Trustee will not require such certificate or opinion in the event that, as a result of a change of law or otherwise, counsel satisfactory to the Owner Trustee has rendered an opinion to the effect that the purchase and holding of a Trust Certificate by a Benefit Plan or a Person that is purchasing or holding such a Trust Certificate with the assets of a Benefit Plan will not constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code. The preparation and delivery of the certificate and opinions referred to above shall not be an expense of the Issuer, the Owner Trustee, the Indenture Trustee, the Servicer or the Depositor. The Owner Trustee shall cause each Certificate to contain a legend stating that transfer of the Certificates is subject to certain restrictions and referring prospective purchasers of the Certificates to the terms of this Agreement with respect to such restrictions. Upon surrender for registration of transfer of any Trust Certificate at the office or agency maintained pursuant to Section 3.08, the Owner Trustee shall execute, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Trust Certificates in authorized denominations of a like aggregate amount dated the date of authentication by the 11 Owner Trustee or any authenticating agent. At the option of a Holder, Trust Certificates may be exchanged for other Trust Certificates of authorized denominations of a like aggregate amount upon surrender of the Trust Certificates to be exchanged at the office or agency maintained pursuant to Section 3.08. Every Trust Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Owner Trustee and the Certificate Registrar duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Trust Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by the Owner Trustee in accordance with its customary practice. No service charge shall be made for any registration of transfer or exchange of Trust Certificates, but the Owner Trustee or the Certificate Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Trust Certificates. The preceding provisions of this Section notwithstanding, the Owner Trustee shall not make, and the Certificate Registrar shall not register transfers or exchanges of, Trust Certificates for a period of 15 days preceding the due date for any payment with respect to the Trust Certificates. SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates. If (a) any mutilated Trust Certificate shall be surrendered to the Certificate Registrar, or if the Certificate Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Certificate and (b) there shall be delivered to the Certificate Registrar and the Owner Trustee such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Certificate has been acquired by a bona fide purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Certificate, a new Trust Certificate of like tenor and denomination. In connection with the issuance of any new Trust Certificate under this Section, the Owner Trustee or the Certificate Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Certificate issued pursuant to this Section shall constitute conclusive evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Certificate shall be found at any time. SECTION 3.06. Persons Deemed Owners. Prior to due presentation of a Trust Certificate for registration of transfer, the Owner Trustee, the Certificate Registrar or any Paying Agent 12 may treat the Person in whose name any Trust Certificate is registered in the Certificate Register as the owner of such Trust Certificate for the purpose of receiving distributions pursuant to Section 5.02 and for all other purposes whatsoever, and none of the Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by any notice to the contrary. SECTION 3.07. Access to List of Certificateholders' Names and Addresses. The Owner Trustee shall furnish or cause to be furnished to the Servicer and the Depositor, within 15 days after receipt by the Owner Trustee of a written request therefor from the Servicer or the Depositor, a list, in such form as the Servicer or the Depositor may reasonably require, of the names and addresses of the Certificateholders as of the most recent Record Date. If three or more Certificateholders or one or more Holders of Trust Certificates evidencing not less than 25% of the Certificate Balance apply in writing to the Owner Trustee, and such application states that the applicants desire to communicate with other Certificateholders with respect to their rights under this Agreement or under the Trust Certificates and such application is accompanied by a copy of the communication that such applicants propose to transmit, then the Owner Trustee shall, within five Business Days after the receipt of such application, afford such applicants access during normal business hours to the current list of Certificateholders. Each Holder, by receiving and holding a Trust Certificate, shall be deemed to have agreed not to hold any of the Depositor, the Certificate Registrar or the Owner Trustee accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION 3.08. Maintenance of Office or Agency. The Owner Trustee shall maintain in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where Trust Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Owner Trustee in respect of the Trust Certificates and the Basic Documents may be served. The Owner Trustee initially designates Harris Trust Company of New York, 77 Water Street, 4th Floor, New York, New York 10005, Attention: Wilbert Myles, as its office for such purposes. The Owner Trustee shall give prompt written notice to the Depositor and to the Certificateholders of any change in the location of the Certificate Register or any such office or agency. SECTION 3.09. Appointment of Paying Agent. The Paying Agent shall make distributions to Certificateholders from the Certificate Distribution Account pursuant to Section 5.02 and shall report the amounts of such distributions to the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw funds from the Certificate Distribution Account for the purpose of making the distributions referred to above. The Owner Trustee may revoke such power and remove the Paying Agent if the Owner Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material 13 respect. The Owner Trustee will be the initial Paying Agent. In the event that the Owner Trustee shall no longer be the Paying Agent, the Owner Trustee shall appoint a successor to act as Paying Agent (which shall be a bank or trust company). The Owner Trustee shall cause such successor Paying Agent or any additional Paying Agent appointed by the Owner Trustee to execute and deliver to the Owner Trustee an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Owner Trustee that, as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. The Paying Agent shall return all unclaimed funds to the Owner Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Owner Trustee. The provisions of Sections 7.01, 7.03, 7.04 and 8.01 shall apply to the Owner Trustee also in its role as Paying Agent, for so long as the Owner Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION 3.10. Ownership by Depositor of Trust Certificates. The Depositor shall on the Closing Date retain Trust Certificates representing at least 1% of the Initial Certificate Balance and shall thereafter retain beneficial and record ownership of Trust Certificates representing at least 1% of the Certificate Balance. Any attempted transfer of any Trust Certificate that would reduce such interest of the Depositor below 1% of the Certificate Balance shall be void. The Owner Trustee shall cause any Trust Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NON-TRANSFERABLE". ARTICLE IV Actions by Owner Trustee SECTION 4.01. Prior Notice to Owners with Respect to Certain Matters. With respect to the following matters, the Owner Trustee shall not take action unless at least 30 days before the taking of such action, the Owner Trustee shall have notified the Certificateholders in writing of the proposed action and the Owners shall not have notified the Owner Trustee in writing prior to the 30th day after such notice is given that such Owners have withheld consent or provided alternative direction: (a) the initiation of any claim or lawsuit by the Trust (except claims or lawsuits brought in connection with the collection of the Receivables) and the compromise of any action, claim or lawsuit brought by or against the Trust (except with 14 respect to the aforementioned claims or lawsuits for collection of the Receivables); (b) the election by the Trust to file an amendment to the Certificate of Trust (unless such amendment is required to be filed under the Business Trust Statute); (c) the amendment of the Indenture by a supplemental indenture in circumstances where the consent of any Noteholder is required; (d) the amendment of the Indenture by a supplemental indenture in circumstances where the consent of any Noteholder is not required and such amendment would materially adversely affect the interests of the Owners; (e) the amendment, change or modification of the Administration Agreement, except to cure any ambiguity or to amend or supplement any provision in a manner or add any provision that would not materially adversely affect the interests of the Owners; or (f) the appointment pursuant to the Indenture of a successor Note Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a successor Certificate Registrar, or the consent to the assignment by the Note Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its obligations under the Indenture or this Agreement, as applicable. SECTION 4.02. Action by Owners with Respect to Certain Matters. The Owner Trustee shall not have the power, except upon the written direction of the Owners, to (a) remove the Administrator under the Administration Agreement pursuant to Section 8 thereof, (b) appoint a successor Administrator under the Administration Agreement pursuant to Section 8 thereof, (c) remove the Servicer under the Sale and Servicing Agreement pursuant to Section 8.01 thereof or (d) except as expressly provided in the Basic Documents, sell the Receivables after the termination of the Indenture. The Owner Trustee shall take the actions referred to in the preceding sentence only upon written instructions signed by the Owners. SECTION 4.03. Action by Owners with Respect to Bankruptcy. The Owner Trustee shall not have the power to commence a voluntary proceeding in bankruptcy relating to the Trust without the unanimous prior approval of all Owners and the delivery to the Owner Trustee by each such Owner of a certificate certifying that such Owner reasonably believes that the Trust is insolvent. SECTION 4.04. Restrictions on Owners' Power. The Owners shall not direct the Owner Trustee to take or to refrain from taking any action if such action or inaction would be contrary to any obligation of the Trust or the Owner Trustee under this 15 Agreement or any of the Basic Documents or would be contrary to Section 2.03 or contrary to applicable law, nor shall the Owner Trustee be obligated to follow any such direction, if given. SECTION 4.05. Majority Control. Except as expressly provided herein, any action that may be taken by the Owners under this Agreement may be taken by the Holders of Trust Certificates evidencing not less than a majority of the Certificate Balance. Except as expressly provided herein, any written notice of the Owners delivered pursuant to this Agreement shall be effective if signed by Holders of Trust Certificates evidencing not less than a majority of the Certificate Balance at the time of the delivery of such notice. ARTICLE V Application of Trust Funds; Certain Duties SECTION 5.01. Establishment of Trust Account. The Owner Trustee, for the benefit of the Certificateholders, shall establish and maintain in the name of the Trust an Eligible Deposit Account (the "Certificate Distribution Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders. The Owner Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Certificate Distribution Account and in all proceeds thereof. Except as otherwise expressly provided herein, the Certificate Distribution Account shall be under the sole dominion and control of the Owner Trustee for the benefit of the Certificateholders. If, at any time, the Certificate Distribution Account ceases to be an Eligible Deposit Account, the Owner Trustee (or the Depositor on behalf of the Owner Trustee, if the Certificate Distribution Account is not then held by the Owner Trustee or an affiliate thereof) shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which each Rating Agency may consent) establish a new Certificate Distribution Account as an Eligible Deposit Account and shall transfer any cash and/or any investments to such new Certificate Distribution Account. SECTION 5.02. Application of Trust Funds. (a) On each Distribution Date, the Owner Trustee will distribute to Certificateholders, on a pro rata basis, amounts deposited in the Certificate Distribution Account pursuant to Sections 5.05 and 5.06 of the Sale and Servicing Agreement with respect to such Distribution Date. (b) On each Distribution Date, the Owner Trustee shall send to each Certificateholder the statement or statements provided to the Owner Trustee by the Servicer pursuant to Section 5.07 of the 16 Sale and Servicing Agreement with respect to such Distribution Date. (c) In the event that any withholding tax is imposed on the Trust's payment (or allocations of income) to an Owner, such tax shall reduce the amount otherwise distributable to the Owner in accordance with this Section. The Owner Trustee is hereby authorized and directed to retain from amounts otherwise distributable to the Owners sufficient funds for the payment of any tax that is legally owed by the Trust (but such authorization shall not prevent the Owner Trustee from contesting any such tax in appropriate proceedings, and withholding payment of such tax, if permitted by law, pending the outcome of such proceedings). The amount of any withholding tax imposed with respect to an Owner shall be treated as cash distributed to such Owner at the time it is withheld by the Trust and remitted to the appropriate taxing authority. If there is a possibility that withholding tax is payable with respect to a distribution (such as a distribution to a non-U.S. Owner), the Owner Trustee may in its sole discretion withhold such amounts in accordance with this paragraph (c). SECTION 5.03. Method of Payment. Subject to Section 9.01(c), distributions required to be made to Certificateholders on any Distribution Date shall be made to each Certificateholder of record on the preceding Record Date either (x) by wire transfer, in immediately available funds, to the account of such Holder at a bank or other entity having appropriate facilities therefor, if such Certificateholder shall have provided to the Certificate Registrar appropriate written instructions no later than the Record Date prior to such Distribution Date, or (y) if such Holder does not qualify under clause (x), by check mailed to such Certificateholder at the address of such holder appearing in the Certificate Register. SECTION 5.04. No Segregation of Moneys; No Interest. Subject to Sections 5.01 and 5.02, moneys received by the Owner Trustee hereunder need not be segregated in any manner except to the extent required by law or the Sale and Servicing Agreement and may be deposited under such general conditions as may be prescribed by law, and the Owner Trustee shall not be liable for any interest thereon. SECTION 5.05. Accounting and Reports to the Noteholders, Owners, the Internal Revenue Service and Others. The Owner Trustee shall (a) maintain (or cause to be maintained) the books of the Trust on a calendar year basis and the accrual method of accounting, (b) deliver to each Owner, as may be required by the Code and applicable Treasury Regulations, such information as may be required (including Schedule K-1) to enable each Owner to prepare its federal and state income tax returns, (c) file such tax returns relating to the Trust (including a partnership information return, IRS Form 1065) and make such elections as from time to time may be required or appropriate under any applicable state or 17 federal statute or any rule or regulation thereunder so as to maintain the Trust's characterization as a partnership for federal income tax purposes, (d) cause such tax returns to be signed in the manner required by law and (e) collect or cause to be collected any withholding tax as described in and in accordance with Section 5.02(c) with respect to income or distributions to Owners. The Owner Trustee shall elect under Section 1278 of the Code to include in income currently any market discount that accrues with respect to the Receivables. The Owner Trustee shall not make the election provided under Section 754 of the Code. SECTION 5.06. Signature on Returns; Tax Matters Partner. (a) The Owner Trustee shall sign on behalf of the Trust the tax returns of the Trust, unless applicable law requires an Owner to sign such documents, in which case such documents shall be signed by the Depositor. (b) The Depositor shall be designated the "tax matters partner" of the Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable Treasury Regulations. ARTICLE VI Authority and Duties of Owner Trustee SECTION 6.01. General Authority. The Owner Trustee is authorized and directed to execute and deliver the Basic Documents to which the Trust is to be a party and each certificate or other document attached as an exhibit to or contemplated by the Basic Documents to which the Trust is to be a party and, in each case, in such form as the Depositor shall approve, as evidenced conclusively by the Owner Trustee's execution thereof. In addition to the foregoing, the Owner Trustee is authorized, but shall not be obligated, to take all actions required of the Trust pursuant to the Basic Documents. The Owner Trustee is further authorized from time to time to take such action as the Administrator recommends with respect to the Basic Documents. SECTION 6.02. General Duties. It shall be the duty of the Owner Trustee to discharge (or cause to be discharged) all of its responsibilities pursuant to the terms of this Agreement and the Basic Documents to which the Trust is a party and to administer the Trust in the interest of the Owners, subject to the Basic Documents and in accordance with the provisions of this Agreement. Notwithstanding the foregoing, the Owner Trustee shall be deemed to have discharged its duties and responsibilities hereunder and under the Basic Documents to the extent the Administrator has agreed in the Administration Agreement to perform any act or to discharge any duty of the Owner Trustee hereunder or under any Basic Document, and the Owner Trustee shall not be held liable for the default or failure of the Administrator to carry out its obligations under the Administration Agreement. 18 SECTION 6.03. Action upon Instruction. (a) Subject to Article IV and in accordance with the terms of the Basic Documents, the Owners may by written instruction direct the Owner Trustee in the management of the Trust. Such direction may be exercised at any time by written instruction of the Owners pursuant to Article IV. (b) The Owner Trustee shall not be required to take any action hereunder or under any Basic Document if the Owner Trustee shall have reasonably determined, or shall have been advised by counsel, that such action is likely to result in liability on the part of the Owner Trustee or is contrary to the terms hereof or of any Basic Document or is otherwise contrary to law. (c) Whenever the Owner Trustee is unable to decide between alternative courses of action permitted or required by the terms of this Agreement or under any Basic Document, the Owner Trustee shall promptly give notice (in such form as shall be appropriate under the circumstances) to the Owners requesting instruction as to the course of action to be adopted, and to the extent the Owner Trustee acts in good faith in accordance with any written instruction of the Owners received, the Owner Trustee shall not be liable on account of such action to any Person. If the Owner Trustee shall not have received appropriate instruction within 10 days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Agreement or the Basic Documents, as it shall deem to be in the best interests of the Owners, and shall have no liability to any Person for such action or inaction. (d) In the event that the Owner Trustee is unsure as to the application of any provision of this Agreement or any Basic Document or any such provision is ambiguous as to its application, or is, or appears to be, in conflict with any other applicable provision, or in the event that this Agreement permits any determination by the Owner Trustee or is silent or is incomplete as to the course of action that the Owner Trustee is required to take with respect to a particular set of facts, the Owner Trustee may give notice (in such form as shall be appropriate under the circumstances) to the Owners requesting instruction and, to the extent that the Owner Trustee acts or refrains from acting in good faith in accordance with any such instruction received, the Owner Trustee shall not be liable, on account of such action or inaction, to any Person. If the Owner Trustee shall not have received appropriate instruction within 10 days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Agreement or the Basic Documents, as it shall deem to be in the best interests of the Owners, and shall have no liability to any Person for such action or inaction. 19 SECTION 6.04. No Duties Except as Specified in this Agreement or in Instructions. The Owner Trustee shall not have any duty or obligation to manage, make any payment with respect to, register, record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from taking any action under, or in connection with, any document contemplated hereby to which the Owner Trustee is a party, except as expressly provided by the terms of this Agreement or in any document or written instruction received by the Owner Trustee pursuant to Section 6.03; and no implied duties or obligations shall be read into this Agreement or any Basic Document against the Owner Trustee. The Owner Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder or to prepare or file any Securities and Exchange Commission filing for the Trust or to record this Agreement or any Basic Document. The Owner Trustee nevertheless agrees that it will, at its own cost and expense, promptly take all action as may be necessary to discharge any liens on any part of the Owner Trust Estate that result from actions by, or claims against, the Owner Trustee that are not related to the ownership or the administration of the Owner Trust Estate. SECTION 6.05. No Action Except Under Specified Documents or Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise deal with any part of the Owner Trust Estate except (i) in accordance with the powers granted to and the authority conferred upon the Owner Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents and (iii) in accordance with any document or instruction delivered to the Owner Trustee pursuant to Section 6.03. SECTION 6.06. Restrictions. The Owner Trustee shall not take any action (a) that is inconsistent with the purposes of the Trust set forth in Section 2.03 or (b) that, to the actual knowledge of the Owner Trustee, would result in the Trust's becoming taxable as a corporation for federal income tax purposes. The Owners shall not direct the Owner Trustee to take action that would violate the provisions of this Section. ARTICLE VII Concerning the Owner Trustee SECTION 7.01. Acceptance of Trusts and Duties. The Owner Trustee accepts the trusts hereby created and agrees to perform its duties hereunder with respect to such trusts, but only upon the terms of this Agreement. The Owner Trustee also agrees to disburse all moneys actually received by it constituting part of the Owner Trust Estate upon the terms of the Basic Documents and this Agreement. The Owner Trustee shall not be answerable or accountable hereunder or under any Basic Document under any 20 circumstances, except (i) for its own willful misconduct or gross negligence (or negligence in the case of handling funds), (ii) for liabilities arising from the failure by the Owner Trustee to perform obligations expressly undertaken by it in the last sentence of Section 6.04 hereof, (iii) for any investments made by the Owner Trustee with Wilmington Trust Company (in its individual capacity) in its commercial capacity, (iv) in the case of the inaccuracy of any representation or warranty contained in Section 7.03 expressly made by the Owner Trustee or (v) for federal or Delaware taxes, fees or other charges, based on or measured by any fees, commissions or compensation received by the Owner Trustee in connection with any of the transactions contemplated by this Agreement or any of the Basic Documents. In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence): (a) The Owner Trustee shall not be liable for any error of judgment made by a Trust Officer of the Owner Trustee; (b) The Owner Trustee shall not be liable with respect to any action taken or omitted to be taken by it in accordance with the instructions of the Administrator or any Owner; (c) No provision of this Agreement or any Basic Document shall require the Owner Trustee to expend or risk funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder or under any Basic Document if the Owner Trustee shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it; (d) Under no circumstances shall the Owner Trustee be liable for indebtedness evidenced by or arising under any of the Basic Documents, including the principal of and interest on the Notes; (e) The Owner Trustee shall not be responsible for or in respect of the validity or sufficiency of this Agreement or for the due execution hereof by the Depositor or for the form, character, genuineness, sufficiency, value or validity of any of the Owner Trust Estate, or for or in respect of the validity or sufficiency of the Basic Documents, other than the certificate of authentication on the Trust Certificates, and the Owner Trustee shall in no event assume or incur any liability, duty or obligation to any Noteholder or to any Owner, other than as expressly provided for herein or expressly agreed to in the Basic Documents; (f) The Owner Trustee shall not be liable for the default or misconduct of the Administrator, the Depositor, the Indenture Trustee, the Servicer or the Backup Servicer under any of the Basic Documents or otherwise, and the Owner Trustee shall have no obligation or liability to perform the obligations of the Trust under this Agreement or the Basic Documents that are required to be performed by the Administrator under the Administration Agreement, 21 the Indenture Trustee under the Indenture or the Servicer or AUTORICS II, Inc., as Depositor under the Sale and Servicing Agreement; and (g) The Owner Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation under this Agreement or otherwise or in relation to this Agreement or any Basic Document, at the request, order or direction of any of the Owners, unless such Owners have offered to the Owner Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee to perform any discretionary act enumerated in this Agreement or in any Basic Document shall not be construed as a duty, and the Owner Trustee shall not be answerable for other than its negligence or willful misconduct in the performance of any such act. SECTION 7.02. Furnishing of Documents. The Owner Trustee shall furnish to the Owners promptly upon receipt of a written request therefor, duplicates or copies of all reports, notices, requests, demands, certificates, financial statements and any other instruments furnished to the Owner Trustee under the Basic Documents. SECTION 7.03. Representations and Warranties. The Owner Trustee hereby represents and warrants to the Depositor, for the benefit of the Owners, that: (a) It is a banking corporation duly organized and validly existing in good standing under the laws of the State of Delaware. It has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement. (b) It has taken all corporate action necessary to authorize the execution and delivery by it of this Agreement, and this Agreement will be executed and delivered by one of its officers who is duly authorized to execute and deliver this Agreement on its behalf. (c) Neither the execution or the delivery by it of this Agreement, nor the consummation by it of the transactions contemplated hereby, nor compliance by it with any of the terms or provisions hereof will contravene any federal or Delaware law, governmental rule or regulation governing the banking or trust powers of the Owner Trustee or any judgment or order binding on it, or constitute any default under its charter documents or bylaws or any indenture, mortgage, contract, agreement or instrument to which it is a party or by which any of its properties may be bound. SECTION 7.04. Reliance; Advice of Counsel. (a) The Owner Trustee shall incur no liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, 22 certificate, report, opinion, bond, or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties. The Owner Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the method of determination of which is not specifically prescribed herein, the Owner Trustee may for all purposes hereof rely on a certificate, signed by the president or any vice president or by the treasurer or other authorized officers of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. (b) In the exercise or administration of the trusts hereunder and in the performance of its duties and obligations under this Agreement or the Basic Documents, the Owner Trustee (i) may act directly or through its agents or attorneys pursuant to agreements entered into with any of them, and the Owner Trustee shall not be liable for the conduct or misconduct of such agents or attorneys if such agents or attorneys shall have been selected by the Owner Trustee with reasonable care, and (ii) may consult with counsel, accountants and other skilled Persons to be selected with reasonable care and employed by it. The Owner Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the written opinion or advice of any such counsel, accountants or other such Persons and not contrary to this Agreement or any Basic Document. SECTION 7.05. Not Acting in Individual Capacity. Except as provided in this Article VII, in accepting the trusts hereby created Wilmington Trust Company acts solely as Owner Trustee hereunder and not in its individual capacity, and all Persons having any claim against the Owner Trustee by reason of the transactions contemplated by this Agreement or any Basic Document shall look only to the Owner Trust Estate for payment or satisfaction thereof. SECTION 7.06. Owner Trustee Not Liable for Trust Certificates or Receivables. The Owner Trustee makes no representations as to the validity or sufficiency of this Agreement, of any Basic Document or of the Trust Certificates (other than the signature and countersignature of the Owner Trustee on the Trust Certificates) or the Notes, or of any Receivable or related documents. The Owner Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any Receivable, or the perfection and priority of any security interest created by any Receivable in any Financed Vehicle or the maintenance of any such perfection and priority, or for or with respect to the sufficiency of the Owner Trust Estate or its ability to generate the payments to be distributed to Certificateholders under this Agreement or the Noteholders under the Indenture, 23 including, without limitation: the existence, condition and ownership of any Financed Vehicle; the existence and enforceability of any insurance thereon; the existence and contents of any Receivable on any computer or other record thereof; the validity of the assignment of any Receivable to the Trust or of any intervening assignment; the completeness of any Receivable; the performance or enforcement of any Receivable; the compliance by the Depositor or the Servicer with any warranty or representation made under any Basic Document or in any related document or the accuracy of any such warranty or representation, or any action of the Administrator, the Indenture Trustee or the Servicer or any subservicer taken in the name of the Owner Trustee. SECTION 7.07. Owner Trustee May Own Trust Certificates and Notes. The Owner Trustee in its individual or any other capacity may become the owner or pledgee of Trust Certificates or Notes and may deal with the Depositor, the Administrator, the Indenture Trustee and the Servicer in banking transactions with the same rights as it would have if it were not Owner Trustee. ARTICLE VIII Compensation of Owner Trustee SECTION 8.01. Owner Trustee's Fees and Expenses. The Owner Trustee shall receive as compensation for its services hereunder such fees as have been separately agreed upon before the date hereof between the Depositor and the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Administrator pursuant to the Administration Agreement for its other reasonable expenses hereunder, including the reasonable compensation, expenses and disbursements of such agents, representatives, experts and counsel as the Owner Trustee may employ in connection with the exercise and performance of its rights and its duties hereunder. SECTION 8.02. Indemnification. Pursuant to the Administration Agreement, the Administrator shall be liable as primary obligor for, and shall indemnify the Owner Trustee and its successors, assigns, agents and servants (collectively, the "Indemnified Parties") from and against, any and all liabilities, obligations, losses, damages, taxes, claims, actions and suits, and any and all reasonable costs, expenses and disbursements (including reasonable legal fees and expenses) of any kind and nature whatsoever (collectively, "Expenses") which may at any time be imposed on, incurred by, or asserted against the Owner Trustee or any Indemnified Party in any way relating to or arising out of this Agreement, the Basic Documents, the Owner Trust Estate, the administration of the Owner Trust Estate or the action or inaction of the Owner Trustee hereunder, except only that the Administrator shall not be liable for or required to indemnify an Indemnified Party from and against Expenses arising or resulting from any of the matters described in the third sentence of Section 7.01. The 24 indemnities contained in this Section shall survive the resignation or termination of the Owner Trustee or the termination of this Agreement. In any event of any claim, action or proceeding for which indemnity will be sought pursuant to this Section, the Owner Trustee's choice of legal counsel shall be subject to the approval of the Administrator, which approval shall not be unreasonably withheld. SECTION 8.03. Payments to the Owner Trustee. Any amounts paid to the Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of the Owner Trust Estate immediately after such payment. ARTICLE IX Termination of Trust Agreement SECTION 9.01. Termination of Trust Agreement. (a) This Agreement (other than Article VIII) and the Trust shall terminate and be of no further force or effect (i) upon the final distri- bution by the Owner Trustee of all moneys or other property or proceeds of the Owner Trust Estate in accordance with the terms of the Indenture, the Sale and Servicing Agreement and Article V or (ii) at the time provided in Section 9.02. The bankruptcy, liquidation, dissolution, death or incapacity of any Owner, other than the Depositor as described in Section 9.02, shall not (x) operate to terminate this Agreement or the Trust or (y) entitle such Owner's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of all or any part of the Trust or Owner Trust Estate or (z) otherwise affect the rights, obligations and liabilities of the parties hereto. (b) Except as provided in Section 9.01(a), neither the Depositor nor any Owner shall be entitled to revoke or terminate the Trust. (c) Notice of any termination of the Trust, specifying the Distribution Date upon which Certificateholders shall surrender their Trust Certificates to the Paying Agent for payment of the final distribution and cancellation, shall be given by the Owner Trustee by letter to Certificateholders mailed within five Business Days of receipt of notice of such termination from the Servicer given pursuant to Section 9.01(c) of the Sale and Servicing Agreement, stating (i) the Distribution Date upon or with respect to which final payment of the Trust Certificates shall be made upon presentation and surrender of the Trust Certificates at the office of the Paying Agent therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Trust Certificates at the office of the Paying Agent therein specified. The Owner 25 Trustee shall give such notice to the Certificate Registrar (if other than the Owner Trustee) and the Paying Agent at the time such notice is given to Certificateholders. Upon presentation and surrender of the Trust Certificates, the Paying Agent shall cause to be distributed to Certificateholders amounts distributable on such Distribution Date pursuant to Section 5.02. In the event that all of the Certificateholders shall not surrender their Trust Certificates for cancellation within six months after the date specified in the above mentioned written notice, the Owner Trustee shall give a second written notice to the remaining Certificateholders to surrender their Trust Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Trust Certificates shall not have been surrendered for cancellation, the Owner Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Certificateholders concerning surrender of their Trust Certificates, and the cost thereof shall be paid out of the funds and other assets that shall remain subject to this Agreement. Any funds remaining in the Trust after exhaustion of such remedies shall be distributed by the Owner Trustee to the Depositor. (d) Upon the winding up of the Trust and its termination, the Owner Trustee shall cause the Certificate of Trust to be cancelled by filing a certificate of cancellation with the Secretary of State in accordance with the provisions of Section 3810 of the Business Trust Statute. SECTION 9.02. Dissolution upon Bankruptcy of the Depositor. In the event that an Insolvency Event shall occur with respect to the Depositor, this Agreement shall be terminated in accordance with Section 9.01 90 days after the date of such Insolvency Event, unless, before the end of such 90-day period, the Owner Trustee shall have received written instructions from (a) Holders of Certificates (other than the Depositor) representing more than 50% of the Certificate Balance (not including the Certificate Balance of the Trust Certificates held by the Depositor) and (b) each of the (i) Holders (as defined in the Indenture) of Class A-1 Notes representing more than 50% of the Outstanding Amount of the Class A-1 Notes and (ii) Holders (as defined in the Indenture) of Class A-2 Notes representing more than 50% of the Outstanding Amount of the Class A-2 Notes, to the effect that each such party disapproves of the liquidation of the Receivables and termination of the Trust. Promptly after the occurrence of any Insolvency Event with respect to the Depositor, (A) the Depositor shall give the Indenture Trustee and the Owner Trustee written notice of such Insolvency Event, (B) the Owner Trustee shall, upon the receipt of such written notice from the Depositor, give prompt written notice to the Certificateholders and the Indenture Trustee, of the occurrence of such event and (C) the Indenture Trustee shall, upon receipt of written notice of such Insolvency Event from the Owner Trustee or the Depositor, give prompt written notice to the 26 Noteholders of the occurrence of such event; provided, however, that any failure to give a notice required by this sentence shall not prevent or delay, in any manner, a termination of the Trust pursuant to the first sentence of this Section 9.02. Upon a termination pursuant to this Section, the Owner Trustee shall direct the Indenture Trustee promptly to sell the assets of the Trust (other than the Trust Accounts and the Certificate Distribution Account), in a commercially reasonable manner and on commercially reasonable terms. The proceeds of such a sale of the assets of the Trust shall be treated as collections under the Sale and Servicing Agreement. ARTICLE X Successor Owner Trustees and Additional Owner Trustees SECTION 10.01. Eligibility Requirements for Owner Trustee. The Owner Trustee shall at all times be a corporation satisfying the provisions of Section 3807(a) of the Business Trust Statute; authorized to exercise corporate trust powers; having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authorities. If such corporation shall publish reports of condition at least annually pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Owner Trustee shall cease to be eligible in accordance with the provisions of this Section, the Owner Trustee shall resign immediately in the manner and with the effect specified in Section 10.02. SECTION 10.02. Resignation or Removal of Owner Trustee. The Owner Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Administrator. Upon receiving such notice of resignation, the Administrator shall promptly appoint a successor Owner Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Owner Trustee and one copy to the successor Owner Trustee. If no successor Owner Trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Owner Trustee may petition any court of competent jurisdiction for the appointment of a successor Owner Trustee. If at any time the Owner Trustee shall cease to be eligible in accordance with the provisions of Section 10.01 and shall fail to resign after written request therefor by the Administrator, or if at any time the Owner Trustee shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or of its property shall be appointed, or any public 27 officer shall take charge or control of the Owner Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Administrator may remove the Owner Trustee. If the Administrator shall remove the Owner Trustee under the authority of the immediately preceding sentence, the Administrator shall promptly appoint a successor Owner Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the outgoing Owner Trustee so removed and one copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing Owner Trustee. Any resignation or removal of the Owner Trustee and appointment of a successor Owner Trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor Owner Trustee pursuant to Section 10.03 and payment of all fees and expenses owed to the outgoing Owner Trustee. The Administrator shall provide notice of such resignation or removal of the Owner Trustee to each Rating Agency. SECTION 10.03. Successor Owner Trustee. Any successor Owner Trustee appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to the Administrator and to its predecessor Owner Trustee an instrument accepting such appointment under this Agreement, and thereupon the resignation or removal of the predecessor Owner Trustee shall become effective, and such successor Owner Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with like effect as if originally named as Owner Trustee. The predecessor Owner Trustee shall upon payment of its fees and expenses deliver to the successor Owner Trustee all documents and statements and monies held by it under this Agreement; and the Administrator and the predecessor Owner Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Owner Trustee all such rights, powers, duties and obligations. No successor Owner Trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor Owner Trustee shall be eligible pursuant to Section 10.01. Upon acceptance of appointment by a successor Owner Trustee pursuant to this Section, the Administrator shall mail notice thereof to all Certificateholders, the Indenture Trustee, the Noteholders and the Rating Agencies. If the Administrator shall fail to mail such notice within 10 days after acceptance of such appointment by the successor Owner Trustee, the successor Owner Trustee shall cause such notice to be mailed at the expense of the Administrator. 28 SECTION 10.04. Merger or Consolidation of Owner Trustee. Any corporation into which the Owner Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Owner Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Owner Trustee, shall be the successor of the Owner Trustee hereunder, without the execution or filing of any instrument or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, that such corporation shall be eligible pursuant to Section 10.01 and, provided, further, that the Owner Trustee shall mail notice of such merger or consolidation to each Rating Agency. SECTION 10.05. Appointment of Co-Trustee or Separate Trustee. Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Owner Trust Estate or any Financed Vehicle may at the time be located, the Administrator and the Owner Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Administrator and Owner Trustee to act as co-trustee, jointly with the Owner Trustee, or as separate trustee or separate trustees, of all or any part of the Owner Trust Estate, and to vest in such Person, in such capacity, such title to the Trust or any part thereof and, subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the Administrator and the Owner Trustee may consider necessary or desirable. If the Administrator shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, the Owner Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee under this Agreement shall be required to meet the terms of eligibility as a successor Owner Trustee pursuant to Section 10.01 and no notice of the appointment of any co-trustee or separate trustee shall be required pursuant to Section 10.03. Each separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (a) All rights, powers, duties and obligations conferred or imposed upon the Owner Trustee shall be conferred upon and exercised or performed by the Owner Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Owner Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Owner Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Owner Trust Estate or any portion thereof in any such jurisdiction) shall be exercised and performed singly 29 by such separate trustee or co-trustee, but solely at the direction of the Owner Trustee; (b) No trustee under this Agreement shall be personally liable by reason of any act or omission of any other trustee under this Agreement; and (c) The Administrator and the Owner Trustee acting jointly may at any time accept the resignation of or remove any separate trustee or co-trustee. Any notice, request or other writing given to the Owner Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Owner Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Owner Trustee. Each such instrument shall be filed with the Owner Trustee and a copy thereof given to the Administrator. Any separate trustee or co-trustee may at any time appoint the Owner Trustee as its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Owner Trustee, to the extent permitted by law, without the appointment of a new or successor co-trustee or separate trustee. ARTICLE XI Miscellaneous SECTION 11.01. Supplements and Amendments. This Agreement may be amended by the Depositor and the Owner Trustee, with prior written notice to each Rating Agency, without the consent of any of the Noteholders or the Certificateholders, to cure any ambiguity, to correct or supplement any provisions in this Agreement or for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions in this Agreement or of modifying in any manner the rights of the Noteholders or the Certificateholders; provided, however, that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any 30 material respect the interests of any Noteholder or Certificateholder. This Agreement may also be amended from time to time by the Depositor and the Owner Trustee, with prior written notice to each Rating Agency, with the consent of the Holders (as defined in the Indenture) of Notes evidencing not less than a majority of the Outstanding Amount of the Notes and the consent of the Holders of Certificates evidencing not less than a majority of the Certificate Balance, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders or the Certificateholders; provided, however, that no such amendment shall (a) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on Receivables or distributions that shall be required to be made for the benefit of the Noteholders or the Certificateholders or (b) reduce the aforesaid percentage of the Outstanding Amount of the Notes and the Certificate Balance required to consent to any such amendment, without the consent of the holders of all the outstanding Notes and Certificates. Promptly after the execution of any such amendment or consent, the Owner Trustee shall furnish written notification of the substance of such amendment or consent to each Certificateholder, the Indenture Trustee and each Rating Agency. It shall not be necessary for the consent of Certificateholders, Noteholders or the Indenture Trustee pursuant to this Section to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents (and any other consents of Certificateholders provided for in this Agreement or in any other Basic Document) and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable requirements as the Owner Trustee may prescribe. Promptly after the execution of any amendment to the Certificate of Trust, the Owner Trustee shall cause the filing of such amendment with the Secretary of State. Prior to the execution of any amendment to this Agreement or the Certificate of Trust, the Owner Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement. The Owner Trustee may, but shall not be obligated to, enter into any such amendment that affects the Owner Trustee's own rights, duties or immunities under this Agreement or otherwise. In connection with the execution of any amendment to this Trust Agreement or any amendment of any other agreement to which the Issuer is a party, the Owner Trustee shall be entitled to 31 receive and conclusively rely upon an Opinion of Counsel to the effect that such amendment is authorized or permitted by the Basic Documents and that all conditions precedent in the Basic Documents for the execution and delivery thereof by the Issuer or the Owner Trustee, as the case may be, have been satisfied. SECTION 11.02. No Legal Title to Owner Trust Estate in Owners. The Owners shall not have legal title to any part of the Owner Trust Estate. The Owners shall be entitled to receive distributions with respect to their undivided ownership interest therein only in accordance with Articles V and IX. No transfer, by operation of law or otherwise, of any right, title or interest of the Owners to and in their ownership interest in the Owner Trust Estate shall operate to terminate this Agreement or the trusts hereunder or entitle any transferee to an accounting or to the transfer to it of legal title to any part of the Owner Trust Estate. SECTION 11.03. Limitations on Rights of Others. Except for Section 2.07, the provisions of this Agreement are solely for the benefit of the Owner Trustee, the Depositor, the Owners, the Administrator and, to the extent expressly provided herein, the Indenture Trustee and the Noteholders, and nothing in this Agreement (other than Section 2.07 hereof), whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Owner Trust Estate or under or in respect of this Agreement or any covenants, conditions or provisions contained herein. SECTION 11.04. Notices. (a) Unless otherwise expressly specified or permitted by the terms hereof, all notices shall be in writing and shall be deemed given upon receipt by the intended recipient or three Business Days after mailing if personally delivered or mailed by certified mail, return receipt requested and postage prepaid or by recognized overnight courier or by facsimile confirmed by delivery or mail as described above (except that notice to the Owner Trustee shall be deemed given only upon actual receipt by the Owner Trustee), if to the Owner Trustee, addressed to the Corporate Trust Office; if to the Depositor, addressed to AUTORICS II, Inc., 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, FL 33309; tel.: 305-938-8200; facsimile: 305-938-8209, Attention: Dennis LaVigne; or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. (b) Any notice required or permitted to be given to a Certificateholder shall be given by first-class mail, postage prepaid, at the address of such Holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. 32 SECTION 11.05. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 11.06. Separate Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 11.07. Successors and Assigns. All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, each of the Depositor and its permitted assignees, the Owner Trustee and its successors and each Owner and its successors and permitted assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by an Owner shall bind the successors and assigns of such Owner. SECTION 11.08. Covenants of the Depositor. In the event that (a) Certificateholders' Principal Carryover Shortfalls shall occur or (b) any litigation with claims in excess of $1,000,000 to which the Depositor is a party which shall be reasonably likely to result in a material judgment against the Depositor that the Depositor will not be able to satisfy shall be commenced by an Owner, during the period beginning nine months following the commencement of such litigation and continuing until such litigation is dismissed or otherwise terminated (and, if such litigation has resulted in a final judgment against the Depositor, such judgment has been satisfied), the Depositor shall not pay any dividend to NAL, or make any distribution on or in respect of its capital stock to NAL, or repay the principal amount of any indebtedness of the Depositor held by NAL, unless (i) after giving effect to such payment, distribution or repayment, the Depositor's liquid assets shall not be less than the amount of actual damages claimed in such litigation or (ii) the Rating Agency Condition shall have been satisfied with respect to any such payment, distribution or repayment. The Depositor will not at any time institute against the Trust any bankruptcy proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Trust Certificates, the Notes, the Trust Agreement or any of the Basic Documents. SECTION 11.09. No Petition. The Owner Trustee, by entering into this Agreement, each Certificateholder, by accepting a Trust Certificate, and the Indenture Trustee and each Noteholder, by accepting the benefits of this Agreement, hereby covenant and agree that they will not at any time institute against the Depositor or the Trust, or join in any institution against the Depositor or the Trust of, any bankruptcy proceedings under any United States 33 federal or state bankruptcy or similar law in connection with any obligations relating to the Trust Certificates, the Notes, this Agreement or any of the Basic Documents. SECTION 11.10. No Recourse. Each Certificateholder by accepting a Trust Certificate acknowledges that such Certificateholder's Trust Certificates represent beneficial interests in the Trust only and do not represent interests in or obligations of the Depositor, the Servicer, the Administrator, the Owner Trustee, the Indenture Trustee or any Affiliate thereof and no recourse may be had against such parties or their assets, except as may be expressly set forth or contemplated in this Agreement, the Trust Certificates or the Basic Documents. SECTION 11.11. Headings. The headings of the various Articles and Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 11.13. [Reserved.] SECTION 11.14. Depositor Payment Obligation. The Depositor shall be responsible for payment of the Administrator's fees under the Administration Agreement and shall reimburse the Administrator for all expenses and liabilities of the Administrator incurred thereunder. In addition, the Depositor shall be responsible for the payment of all fees and expenses of the Trust, the Owner Trustee and the Indenture Trustee paid by any of them in connection with any of their obligations under the Basic Documents to obtain or maintain any required license under the Motor Vehicle Sales Finance Act. * * * * * * 34 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed by their respective officers hereunto duly authorized, as of the day and year first above written. AUTORICS II, INC., as Depositor, by: --------------------------------- Name: Title: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee, by: --------------------------------- Name: Title: EXHIBIT A FORM OF TRUST CERTIFICATE THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. BY ITS ACCEPTANCE OF THIS CERTIFICATE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE DEPOSITOR AND THE OWNER TRUSTEE (i) THAT IT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE 1933 ACT (AN "ACCREDITED INVESTOR") AND THAT IT IS ACQUIRING THIS CERTIFICATE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS FIDUCIARY CAPACITY) FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, THE PUBLIC DISTRIBUTION HEREOF OR (ii) THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE 1933 ACT AND IS ACQUIRING SUCH CERTIFICATE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL BUYERS). NO SALE, PLEDGE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE BY ANY PERSON UNLESS EITHER (i) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO THE DEPOSITOR, (ii) SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO AN ACCREDITED INVESTOR THAT EXECUTES A CERTIFICATE, SUBSTANTIALLY IN THE FORM SPECIFIED IN THE TRUST AGREEMENT, TO THE EFFECT THAT IT IS AN ACCREDITED INVESTOR ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE ACCREDITED INVESTORS UNLESS THE HOLDER IS A BANK ACTING IN ITS FIDUCIARY CAPACITY), (iii) SO LONG AS THIS CERTIFICATE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE TO A PERSON WHOM THE PROSPECTIVE TRANSFEROR REASONABLY BELIEVES AFTER DUE INQUIRY IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A), ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QUALIFIED INSTITUTIONAL BUYERS) TO WHOM NOTICE IS GIVEN THAT THE SALE, PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR (iv) SUCH SALE, PLEDGE OR OTHER TRANSFER IS OTHERWISE MADE IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT, IN WHICH CASE THE OWNER TRUSTEE SHALL REQUIRE THAT BOTH THE PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE OWNER TRUSTEE AND THE DEPOSITOR IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE OWNER TRUSTEE AND THE DEPOSITOR. EXCEPT IN THE CASE OF A TRANSFER DESCRIBED IN CLAUSES (i) OR (ii) ABOVE, THE OWNER TRUSTEE SHALL REQUIRE A WRITTEN OPINION OF COUNSEL (WHICH SHALL NOT BE AT THE EXPENSE OF THE DEPOSITOR, ANY AFFILIATE OF THE DEPOSITOR OR THE OWNER TRUSTEE) 36 SATISFACTORY TO THE DEPOSITOR AND THE OWNER TRUSTEE TO THE EFFECT THAT SUCH TRANSFER WILL NOT VIOLATE THE 1933 ACT. NO SALE, PLEDGE OR OTHER TRANSFER MAY BE MADE TO ANY ONE PERSON FOR SECURITIES WITH A FACE AMOUNT OF LESS THAN $100,000 AND, IN THE CASE OF ANY PERSON ACTING ON BEHALF OF ONE OR MORE THIRD PARTIES (OTHER THAN A BANK (AS DEFINED IN SECTION 3(a)(2) OF THE 1933 ACT) ACTING IN ITS FIDUCIARY CAPACITY), FOR SECURITIES WITH A FACE AMOUNT OF LESS THAN $100,000 FOR EACH SUCH THIRD PARTY." EACH SECURITYHOLDER, BY ITS ACCEPTANCE OF THIS SECURITY, COVENANTS AND AGREES THAT SUCH SECURITYHOLDER, SHALL NOT, PRIOR TO THE DATE THAT IS ONE YEAR AND ONE DAY AFTER THE TERMINATION OF THE TRUST AGREEMENT, ACQUIESCE, PETITION OR OTHERWISE INVOKE OR CAUSE THE TRUST, THE DEPOSITOR OR THE SELLER TO INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF COMMENCING OR SUSTAINING A CASE AGAINST THE TRUST, THE DEPOSITOR OR THE SELLER UNDER ANY FEDERAL OR STATE BANKRUPTCY, INSOLVENCY, REORGANIZATION OR SIMILAR LAW, OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE TRUST, THE DEPOSITOR OR THE SELLER OR ANY SUBSTANTIAL PART OF ITS PROPERTY, OR ORDERING THE WINDING UP OR LIQUIDATION OF THE AFFAIRS OF THE TRUST, THE DEPOSITOR OR THE SELLER. THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF (i) AN "EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")), THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (ii) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") OR (iii) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY, UNLESS THE BENEFIT PLAN ACQUIRING THIS CERTIFICATE HAS AVAILABLE TO IT AN EXEMPTION FROM THE PROHIBITED TRANSACTION RULES UNDER SECTION 406(a) OF ERISA AND SECTION 4975 OF THE CODE AND SUCH EXEMPTION IS APPLICABLE TO THE PURCHASE AND HOLDING OF THIS CERTIFICATE. [THIS CERTIFICATE IS NONTRANSFERABLE.]1 - -------- 1To be included only on the Certificates representing the 1% minimum required to be retained by the Depositor and any Certificates issued in exchange therefor. 37 NUMBER $_________ R- CUSIP NO. 62872EAC8 NAL AUTO TRUST 1995-1 14.25% ASSET BACKED CERTIFICATE evidencing a fractional undivided interest in the Trust, as defined below, the property of which consists of retail installment sale contracts for new and used automobiles and light duty trucks (collectively, the "Receivables"), all monies received on or after the related Cutoff Date, security interests in the vehicles financed thereby, certain bank accounts and the proceeds thereof, proceeds from claims on certain insurance policies and certain other rights under the Trust Agreement and the Sale and Servicing Agreement and all proceeds of the foregoing. THIS TRUST CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF AUTORICS II, INC., NAL ACCEPTANCE CORPORATION OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS CERTIFIES THAT ________________ is the registered owner of ____________________________________________ DOLLARS nonassessable, fully-paid, fractional undivided interest in NAL Auto Trust 1995-1 (the "Trust"), formed by AUTORICS II, Inc., a Delaware corporation (the "Depositor"). OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Trust Certificates referred to in the within-mentioned Trust Agreement. WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee by: ________________________ Authorized Signatory A-1 The Trust was created pursuant to a Trust Agreement dated as of December 1, 1995, (as so amended and restated and further amended or supplemented from time to time, the "Trust Agreement"), among the Depositor and Wilmington Trust Company, as owner trustee (the "Owner Trustee"), a summary of certain of the pertinent provisions of which is set forth below. To the extent not otherwise defined herein, the capitalized terms used herein have the meanings assigned to them in the Trust Agreement or the Sale and Servicing Agreement dated as of December 1, 1995 (as amended and supplemented from time to time, the "Sale and Servicing Agreement"), among the Trust, the Depositor, NAL Acceptance Corporation, as servicer (the "Servicer"), and Bankers Trust Company, as backup servicer, as applicable. This Certificate is one of the duly authorized Certificates designated as "14.25% Asset Backed Certificates" (herein called the "Trust Certificates"). Also issued under an Indenture dated as of December 1, 1995 (the "Indenture"), between the Trust and Bankers Trust Company, as indenture trustee, are the two classes of Notes designated as "Class A-1 6.65% Asset Backed Notes," and "Class A-2 7.70% Asset Backed Notes" (collectively, the "Notes"). This Trust Certificate is issued under and is subject to the terms, provisions and conditions of the Trust Agreement, to which Trust Agreement the Holder of this Trust Certificate by virtue of its acceptance hereof assents and by which such Holder is bound. The property of the Trust consists of retail installment sale contracts for new and used automobiles, light duty trucks and vans (collectively, the "Receivables"), all monies received on or after the Cutoff Date plus all Payaheads as of the Cutoff Date; any proceeds with respect to the Receivables from claims on any physical damage, credit life or disability, theft, mechanical breakdown or "guaranteed auto protection" insurance policies relating to Financed Vehicles or Obligors; proceeds of any recourse (but none of the obligations) to Dealers on Receivables; any Financed Vehicle that shall have secured a Receivable and shall have been acquired by or on behalf of the Depositor, the Servicer, or the Trust; the Receivables Files; the Receivables Purchase Agreement, including the right of the Depositor to cause NAL to purchase Receivables under certain circumstances; the Trust Accounts; and certain other rights under the Trust Agreement and the Sale and Servicing Agreement and all proceeds of the foregoing. The rights of the Holders of the Trust Certificates are subordinated to the rights of the Holders of the Notes, as set forth in the Sale and Servicing Agreement. Under the Trust Agreement, there will be distributed March 15, June 15, September 15 and December 15 of each year or, if such day is not a Business Day, the immediately following Business Day (each, a "Distribution Date"), commencing on March 15, 1996, to the Person in whose name this Trust Certificate is registered at the close of business on the last day of the month immediately preceding such Distribution Date (the "Record Date"), such Certificateholder's fractional undivided interest in the A-2 amount to be distributed to Certificateholders on such Distribution Date. No distributions of principal will be made on any Certificate until all of the Notes have been paid in full. The Holder of this Trust Certificate acknowledges and agrees that its rights to receive distributions in respect of this Trust Certificate are subordinated to the rights of the Noteholders as described in the Sale and Servicing Agreement and the Indenture. It is the intent of the Depositor, the Servicer and the Certificateholders that, for purposes of federal income, state and local income and single business tax and any other income taxes, the Trust will be treated as a partnership and the Certificateholders (including the Depositor) will be treated as partners in that partnership. The Depositor and the other Certificateholders, by acceptance of a Trust Certificate, agree to treat, and to take no action inconsistent with the treatment of, the Trust Certificates for such tax purposes as partnership interests in the Trust. Each Certificateholder, by its acceptance of a Trust Certificate, covenants and agrees that such Certificateholder will not at any time institute against the Depositor, or join in any institution against the Depositor of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Trust Certificates, the Notes, the Trust Agreement or any of the Basic Documents. Distributions on this Trust Certificate will be made as provided in the Trust Agreement by the Owner Trustee by wire transfer or check mailed to the Certificateholder of record in the Certificate Register without the presentation or surrender of this Trust Certificate or the making of any notation hereon. Except as otherwise provided in the Trust Agreement and notwithstanding the above, the final distribution on this Trust Certificate will be made after due notice by the Owner Trustee of the pendency of such distribution and only upon presentation and surrender of this Trust Certificate at the office or agency maintained for that purpose by the Owner Trustee in the Borough of Manhattan, The City of New York. Reference is hereby made to the further provisions of this Trust Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon shall have been executed by an authorized officer of the Owner Trustee, by manual signature, this Trust Certificate shall not entitle the Holder hereof to any benefit under the Trust Agreement or the Sale and Servicing Agreement or be valid for any purpose. A-3 THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in its individual capacity, has caused this Trust Certificate to be duly executed. NAL AUTO TRUST 1995-1 by: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee Dated: _____________ by: ________________________ Authorized Signatory A-4 [REVERSE OF TRUST CERTIFICATE] The Trust Certificates do not represent an obligation of, or an interest in, the Depositor, the Servicer, the Seller, the Owner Trustee or any affiliates of any of them and no recourse may be had against such parties or their assets, except as expressly set forth or contemplated herein or in the Trust Agreement or the Basic Documents. In addition, this Trust Certificate is not guaranteed by any governmental agency or instrumentality and is limited in right of payment to certain collections and recoveries with respect to the Receivables (and certain other amounts), all as more specifically set forth herein and in the Sale and Servicing Agreement. A copy of each of the Sale and Servicing Agreement and the Trust Agreement may be examined by any Certificateholder upon written request during normal business hours at the principal office of the Depositor and at such other places, if any, designated by the Depositor. The Trust Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor and the rights of the Certificateholders under the Trust Agreement at any time by the Depositor and the Owner Trustee with the consent of the Holders of the Trust Certificates and the Notes, each voting as a class, evidencing not less than a majority of the Certificate Balance and the outstanding principal balance of the Notes of each such class. Any such consent by the Holder of this Trust Certificate shall be conclusive and binding on such Holder and on all future Holders of this Trust Certificate and of any Trust Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent is made upon this Trust Certificate. The Trust Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the Trust Certificates. As provided in the Trust Agreement and subject to certain limitations therein set forth, the transfer of this Trust Certificate is registerable in the Certificate Register upon surrender of this Trust Certificate for registration of transfer at the offices or agencies of the Certificate Registrar maintained by the Owner Trustee in the Borough of Manhattan, The City of New York, accompanied by a written instrument of transfer in form satisfactory to the Owner Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Trust Certificates of authorized denominations evidencing the same aggregate interest in the Trust will be issued to the designated transferee. The initial Certificate Registrar appointed under the Trust Agreement is the Owner Trustee. Except as provided in the Trust Agreement, the Trust Certificates are issuable only as registered Trust Certificates A-5 without coupons in denominations of $100,000 and in integral multiples of $1,000 in excess thereof. As provided in the Trust Agreement and subject to certain limitations therein set forth, Trust Certificates are exchangeable for new Trust Certificates of authorized denominations evidencing the same aggregate denomination, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Owner Trustee or the Certificate Registrar may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. The Owner Trustee, the Certificate Registrar and any agent of the Owner Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Owner Trustee, the Certificate Registrar or any such agent shall be affected by any notice to the contrary. The obligations and responsibilities created by the Trust Agreement and the Trust created thereby shall terminate upon the payment to Certificateholders of all amounts required to be paid to them pursuant to the Trust Agreement and the Sale and Servicing Agreement and the disposition of all property held as part of the Owner Trust Estate. The Servicer of the Receivables may at its option purchase the Owner Trust Estate at a price specified in the Sale and Servicing Agreement, and such purchase of the Receivables and other property of the Trust will effect early retirement of the Trust Certificates; however, such right of purchase is exercisable only as of the last day of any Collection Period as of which the Pool Balance is less than or equal to 5% of the Original Pool Balance. A-6 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- (Please print or type name and address, including postal zip code, of assignee) the within Trust Certificate, and all rights thereunder, and hereby irrevocably constitutes and appoints attorney, to ----------------------------------- , transfer said Trust Certificate on the books of the Certificate Registrar, with full power of substitution in the premises. Dated: ________________________________________*/ Signature Guaranteed: ____________________________*/ - ----------------- */ NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Trust Certificate in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. A-7 EXHIBIT B CERTIFICATE OF TRUST OF NAL AUTO TRUST 1995-1 THIS Certificate of Trust of NAL AUTO TRUST 1995-1 (the "Trust"), dated December [ ], 1995, is being duly executed and filed by Wilmington Trust Company, a Delaware banking corporation, as trustee, to form a business trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 et seq.). 1. Name. The name of the business trust formed hereby is NAL AUTO TRUST 1995-1. 2. Delaware Trustee. The name and business address of the trustee of the Trust in the State of Delaware is NAL Auto Trust 1995-1, c/o Wilmington Trust Company, 1100 N. Market St., Rodney Square North, Wilmington, Delaware 19890, Attention: Corporate Trust Administration. IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has executed this Certificate of Trust as of the date first above written. Wilmington Trust Company, not in its individual capacity but solely as owner trustee under a Trust Agreement dated as of December 1, 1995 By: ------------------------------------------- Name: Title: B-1 EXHIBIT C FORM OF TRANSFEROR CERTIFICATE [DATE] Autorics II, Inc. 500 Cypress Creek Road West Suite 590 Fort Lauderdale, FL 33309 Wilmington Trust Company, as Owner Trustee Rodney Square North 1100 N. Market Street Wilmington, DE 19890 Re: NAL Auto Trust 1995-1 14.25% Asset Backed Certificates Ladies and Gentlemen: In connection with our disposition of the above-referenced 14.25% Asset Backed Certificates (the "Certificates") we certify that (a) we understand that the Certificates have not been registered under the Securities Act of 1933, as amended (the "Act"), and are being transferred by us in a transaction that is exempt from the registration requirements of the Act and (b) we have not offered or sold any Certificates to, or solicited offers to buy any Certificates from, any person, or otherwise approached or negotiated with any person with respect thereto, in a manner that would be deemed, or taken any other action which would result in, a violation of Section 5 of the Act. Very truly yours, [NAME OF TRANSFEROR] By: --------------------------------- Authorized Officer C-1 EXHIBIT D Form of Investment Letter Autorics II, Inc. 500 Cypress Creek Road West Suite 590 Fort Lauderdale, FL 33309 Wilmington Trust Company, as Owner Trustee Rodney Square North 1100 N. Market Street Wilmington, DE 19890 Ladies and Gentlemen: In connection with our proposed purchase of $ aggregate principal amount of 14.25% Asset Backed Certificates (the "Certificates") of NAL Auto Trust 1995-1 (the "Issuer"), we confirm that: 1. We understand that the Certificates have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), and may not be sold except as permitted in the following sentence. We understand and agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, (x) that such Certificates are being offered only in a transaction not involving any public offering within the meaning of the 1933 Act and (y) that such Certificates may be resold, pledged or transferred only (i) to the Depositor, (ii) to an "accredited investor" as defined in Rule 501(a)(1),(2),(3) or (7) (an "Accredited Investor") under the 1933 Act acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others also are Accredited Investors unless the holder is a bank acting in its fiduciary capacity) that executes a certificate substantially in the form hereof, (iii) so long as such Certificate is eligible for resale pursuant to Rule 144A under the 1933 Act ("Rule 144A"), to a person whom we reasonably believe after due inquiry is a "qualified institutional buyer" as defined in Rule 144A, acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others also are "qualified institutional buyers") to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A or (iv) in a sale, pledge or other transfer made in a transaction otherwise exempt from the registration requirements of the 1933 Act, in which case (A) the Owner Trustee shall require that both the prospective transferor and the prospective transferee certify to the Owner Trustee and the Depositor in writing the facts surrounding such transfer, which certification shall be in form and substance D-1 satisfactory to the Owner Trustee and the Depositor and (B) the Owner Trustee shall require a written opinion of counsel (which will not be at the expense of the Depositor, any affiliate of the Depositor or the Owner Trustee) satisfactory to the Depositor and the Owner Trustee to the effect that such transfer will not violate the 1933 Act, in each case in accordance with any applicable securities laws of any state of the United States. We will notify any purchaser of the Certificates from us of the above resale restrictions, if then applicable. We further understand that in connection with any transfer of the Certificates by us that the Depositor and the Owner Trustee may request, and if so requested we will furnish such certificates and other information as they may reasonably require to confirm that any such transfer complies with the foregoing restrictions. We understand that no sale, pledge or other transfer may be made to any one person of Certificates with a face amount of less than $100,000 and, in the case of any person acting on behalf of one or more third parties (other than a bank (as defined in Section 3(a)((2) of the 1933 Act) acting in its fiduciary capacity), of Certificates with a face amount of less than $100,000 for each such third party. 2. [CHECK ONE] |_| (a) We are an "accredited investor" (as defined in Rule 501(a)(1),(2),(3) or (7) of Regulation D under the Certificates Act) acting for our own account (and not for the account of others) or as a fiduciary or agent for others (which others also are Accredited Investors unless we are a bank acting in its fiduciary capacity). We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Certificates, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment for an indefinite period of time. We are acquiring the Certificates for investment and not with a view to, or for offer and sale in connection with, a public distribution. |_| (b) We are a "qualified institutional buyer" as defined under Rule 144A under the 1933 Act and are acquiring the Certificates for our own account (and not for the account of others) or as a fiduciary or agent for others (which others also are "qualified institutional buyers"). We are familiar with Rule 144A under the 1933 Act and are aware that the seller of the Certificates and other parties intend to rely on the statements made herein and the exemption from the registration requirements of the 1933 Act provided by Rule 144A. 3. We are not (i) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act D-2 of 1974, as amended ("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Code or (iii) any entity whose underlying assets include plan assets by reason of a plan's investment in the entity (each, a "Benefit Plan"). We hereby acknowledge that no transfer of any Certificate shall be permitted to be made to any person unless the Trustee has received (i) a certificate from such transferee to the effect of the preceding sentence or an opinion of counsel satisfactory to the Trustee to the effect that the purchase and holding of any such Certificate will not constitute or result in the assets of the Issuer being deemed to be "plan assets" and subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code and will not subject the Owner Trustee, the Indenture Trustee or the Depositor to any obligation in addition to those undertaken in the Basic Documents with respect to the Certificates (provided, however, that the Owner Trustee will not require such certificate or opinion in the event that, as a result of change of law or otherwise, counsel satisfactory to the Owner Trustee has rendered an opinion to the effect that the purchase and holding of any such Certificate by a Benefit Plan or a Person that is purchasing or holding any such Certificate with the assets of a Benefit Plan will not constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code). 4. We understand that the Depositor, the Trust, Greenwich Capital Markets, Inc. ("Greenwich") and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements, and we agree that if any of the acknowledgments, representations and warranties deemed to have been made by us by our purchase of the Certificates, for our own account or for one or more accounts as to each of which we exercise sole investment discretion, are no longer accurate, we shall promptly notify the Depositor and Greenwich. D-3 5. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, --------------------------------------- (Name of Purchaser) By: ____________________________________ Date: ___________________________________ D-4 EX-10.20 7 SALE AND SERVICING AGREEMENT EXECUTION COPY AUTORICS II, INC. Depositor NAL ACCEPTANCE CORPORATION Servicer $1,986,000 14.25% Asset Backed Certificates CERTIFICATE PURCHASE AGREEMENT New York, New York December 20, 1995 Greenwich Capital Financial Products, Inc. 600 Steamboat Road Greenwich, Connecticut 06830 Dear Sirs: Autorics II, Inc., a Delaware corporation (the "Depositor") and a wholly owned subsidiary of NAL Acceptance Corporation, a Florida corporation ("NAL"), proposes to cause NAL Auto Trust 1995-1 (the "Trust") to issue and sell to you (you are referred to from time to time herein as the "Purchaser") $1,986,000 principal amount of its 14.25% Asset Backed Certificates (the "Certificates"). The assets of the Trust will include a pool of sub-prime precomputed and simple interest motor vehicle retail installment sale contracts (the "Receivables"), certain monies received thereon on and after December 1, 1995 (the "Cutoff Date"), Payaheads received thereon prior to the Cutoff Date but due thereafter, all liquidation proceeds with respect thereto (including certain insurance proceeds), security interests in the used and new automobiles, light duty trucks and vans financed thereby, the related Receivables files, the Trust Accounts and proceeds of the foregoing. The Receivables will be serviced for the Trust by NAL. The Certificates will be issued pursuant to the Trust Agreement to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Trust Agreement"), between the Depositor and Wilmington Trust Company, as owner trustee (the "Owner Trustee"). The Certificates will represent fractional undivided interests in the Trust. Simultaneously with the issuance and sale of the Certificates, the Trust will also issue $36,524,000 principal amount of its 6.65% Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), $1,605,000 principal amount of its 7.70% Asset Backed Notes Class A-2 (the "Class A-2 Notes" and, collectively with the Class A-1 Notes, the "Notes"). The Notes will be sold pursuant to a purchase agreement dated the date hereof (the "Note Purchase Agreement") between the Depositor and Greenwich Capital Markets, Inc. ("GCM"). The Certificates and the Notes are referred to herein collectively as the "Securities". The Notes will be issued pursuant to the Indenture to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Indenture") between the Trust and Bankers Trust Company, as indenture trustee (the "Indenture Trustee"). The Notes will be secured by the assets of the Trust pursuant to the Indenture. The sale of the Certificates to the Purchaser will be made without registration of the Certificates under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon exemptions from the registration requirements of the Securities Act. The Trust will acquire the Receivables from the Depositor pursuant to a Sale and Servicing Agreement to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Sale and Servicing Agreement"), among the Trust, the Depositor, NAL, as servicer and Bankers Trust Company, as backup servicer. NAL will also agree to perform certain administrative functions on behalf of the Trust pursuant to the Administration Agreement, dated as of December 1, 1995 (as amended and supplemented from time to time, the "Administration Agreement") among NAL, as administrator, the Trust and the Indenture Trustee. The Depositor will acquire the Receivables from Autorics, Inc., a Delaware corporation and a wholly owned subsidiary of NAL ("Autorics"), on the Closing Date (as defined herein) pursuant to a Receivables Purchase Agreement to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Receivables Purchase Agreement") among the Depositor, as purchaser, Autorics, as seller and NAL for the purpose of making certain representations and warranties as to the Receivables and for certain other matters. Payments on the Receivables will be made into a Lockbox Account which will be established and maintained pursuant to a Lockbox Account Agreement, dated as of November 27, 1995 (as amended from time to time, the "Lockbox Account Agreement") among NAL, General Electric Capital Corporation ("GECC"), and SunTrust Bank, South Florida, National Association ("SunTrust"). In connection with the sale of the Securities by the Depositor, the Depositor and NAL have prepared a preliminary private placement memorandum, dated December 19, 1995 (including any and all exhibits thereto, the "Preliminary Memorandum"), and a private placement memorandum, dated the date hereof (including any and all exhibits thereto, the "Final Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Depositor, NAL, Autorics and 2 the Securities. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Final Memorandum. 1. Representations and Warranties. NAL and the Depositor jointly and severally (and with respect to each representation and warranty made as to Autorics in this Section 1, Autorics, NAL and the Depositor jointly and severally) represent and warrant to, and agree with, you, and each purchaser of a Certificate directly from you or one of your affiliates, that: (a) The Preliminary Memorandum, at the date thereof, did 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 under which they were made, not misleading and the Final Memorandum, at the date hereof, does not, and at the Closing Date will not (and any amendment or supplement thereto, at the date thereof and at the Closing Date, 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 under which they were made, not misleading; provided, however, that the Depositor and NAL make no representation or warranty as to the information contained in or omitted from the Preliminary Memorandum or the Final Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Depositor or NAL by GCM specifically for inclusion therein. The Depositor and NAL acknowledge that the statements set forth in the Preliminary Memorandum and in the Final Memorandum in the second and third sentences of the first paragraph under the heading "Plan of Distribution" constitute the only information furnished by GCM for inclusion in the Preliminary Memorandum or the Final Memorandum. (b) The Depositor has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, has full power and authority (corporate and other) necessary to own or hold its properties and to conduct its business as now conducted by it and to enter into and perform its obligations under this Agreement, the Trust Agreement, the Sale and Servicing Agreement and the Receivables Purchase Agreement and to cause the Trust to authorize, issue and sell the Notes and Certificates as contemplated by the Note Purchase Agreement and this Agreement, respectively. (c) NAL has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Florida, has full power and authority (corporate and other) necessary to own or hold its 3 properties and to conduct its business as now conducted by it and to enter into and perform its obligations under this Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, that certain demand note dated December 20, 1995 from NAL to the Depositor (the "Demand Note") and the Receivables Purchase Agreement. (d) Autorics has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, has full power and authority (corporate and other) necessary to own or hold its properties and to conduct its business as now conducted by it and to enter into and perform its obligations under this Agreement and the Receivables Purchase Agreement. (e) This Agreement has been duly authorized, executed and delivered by the Depositor, NAL and Autorics I. (f) Each of the Trust Agreement, the Sale and Servicing Agreement and the Receivables Purchase Agreement, when executed and delivered as contemplated hereby and thereby, will have been duly authorized, executed and delivered by the Depositor, and when so executed and delivered, will constitute a legal, valid, binding and enforceable agreement of the Depositor, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law. (g) Each of the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note and the Receivables Purchase Agreement, when executed and delivered as contemplated hereby and thereby, will have been duly authorized, executed and delivered by NAL, and when so executed and delivered, will constitute a legal, valid, binding and enforceable agreement of NAL, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law. (h) The Receivables Purchase Agreement, when executed and delivered as contemplated hereby and thereby, will have been duly authorized, executed and delivered by Autorics, and when so executed and delivered, will constitute a legal, valid, binding and enforceable agreement of Autorics, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting 4 creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law. (i) The execution, delivery and performance of this Agreement, the Note Purchase Agreement, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note and the Receivables Purchase Agreement and the issuance and sale of the Securities and compliance with the terms and provisions hereof and of the Indenture and the Trust Agreement will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any agreement or instrument to which the Depositor, NAL or Autorics, as the case may be, is a party or by which the Depositor, NAL or Autorics is bound or to which any of the properties of the Depositor, NAL or Autorics is subject or of any statute, order or regulation applicable to the Depositor, NAL or Autorics of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Depositor, NAL or Autorics or any of their respective properties, in each case which could reasonably be expected to have a material adverse effect on the transactions contemplated herein. (j) As of the Closing Date, the Securities and the Indenture, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement and the Receivables Purchase Agreement will conform in all material respects to the respective descriptions thereof contained in the Final Memorandum. As of the Closing Date, the Securities will be duly and validly authorized and, when duly and validly executed, authenticated and delivered in accordance with the Indenture and Trust Agreement, as the case may be, and delivered to you or GCM, as the case may be, against payment therefor as provided herein or in the Note Purchase Agreement, as applicable, will be duly and validly issued and outstanding and entitled to the benefits of the Indenture and the Trust Agreement, as the case may be. (k) The Depositor's representations and warranties in the Trust Agreement and in the Sale and Servicing Agreement, NAL's representations and warranties in the Receivables Purchase Agreement, the Administration Agreement and the Sale and Servicing Agreement and Autorics I's representations and warranties in the Receivables Purchase Agreement will be true and correct in all material respects as of the Closing Date and each such representation and warranty will be true and correct in all material respects on each date thereafter if and to the extent that on such date such representation and warranty is made again by the 5 Depositor, NAL or Autorics, as the case may be, pursuant to the terms of the related agreement. (l) None of the Depositor, NAL and Autorics is in violation of its certificate of incorporation or by-laws or in default under any agreement, indenture or instrument the effect of which violation or default would be material to the Depositor, NAL or Autorics I. None of the Depositor, NAL and Autorics is a party to, bound by or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it that materially and adversely affects, or may in the future materially and adversely affect, (i) the ability of the Depositor, NAL or Autorics to perform its obligations under this Agreement, and, to the extent that it is a party thereto, the Trust Agreement, the Sale and Servicing Agreement, the Lockbox Account Agreement, the Demand Note, the Administration Agreement or the Receivables Purchase Agreement or (ii) the business, operations, financial condition, properties, assets or prospects of the Depositor, NAL or Autorics I. (m) There are no actions or proceedings against, or investigations of, the Depositor, NAL or Autorics pending, or, to the knowledge of the Depositor, NAL or Autorics, threatened, before any court, arbitrator, administrative agency or other tribunal (i) asserting the invalidity of this Agreement, the Indenture, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note or the Receivables Purchase Agreement or the Securities, (ii) seeking to prevent the issuance of the Securities or the consummation of any of the transactions contemplated by this Agreement, the Indenture, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note or the Receivables Purchase Agreement, (iii) that, if adversely determined, could adversely affect the business, operations, financial condition, properties, assets or prospects of the Depositor, NAL or Autorics or the validity or enforceability of, or (to the extent each is a party thereto) the performance by the Depositor, NAL or Autorics of their respective obligations under, this Agreement, the Indenture, the Trust Agreement, the Sale Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note or the Receivables Purchase Agreement or the Securities or (iv) seeking to affect adversely the federal 6 or Florida income tax attributes of the Certificates as described in the Final Memorandum. (n) Immediately prior to the assignment of the Receivables to the Trust as contemplated by the Sale and Servicing Agreement, the Depositor (i) had good title to, and was the sole owner of, each Receivable and the other property purported to be transferred by it to the Trust pursuant to the Sale and Servicing Agreement free and clear of any pledge, mortgage, lien, security interest or other encumbrance (collectively, "Liens"), (ii) had not assigned to any person any of its right, title or interest in such Receivables or property or in the Receivables Purchase Agreement and (iii) will have the power and authority to sell such Receivables and property to the Trust, and upon the execution and delivery of the Sale and Servicing Agreement by the Owner Trustee on behalf of the Trust, the Trust will have acquired all of the Depositor's right, title and interest in and to such Receivables and property free and clear of any Lien (except for the Lien of the Indenture). (o) There are no contracts, agreements or understandings between the Depositor or NAL and any person granting such person the right to require the Depositor or NAL to file a registration statement under the Securities Act with respect to any Securities owned or to be owned by such person. (p) The sale of the Certificates pursuant to this Agreement and of the Notes pursuant to the Note Purchase Agreement is exempt from the registration and prospectus delivery requirements of the Securities Act. In the case of each offer or sale of the Securities, no form of general solicitation or general advertising was used by the Depositor, any affiliates of the Depositor or any person acting on its or their behalf, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Neither the Depositor, any affiliates of the Depositor nor any person acting on its or their behalf has offered or sold, nor will the Depositor or any person acting on its behalf offer or sell directly or indirectly, any Security or any other security in any manner that, assuming the accuracy of the representations and warranties and the performance of the covenants given by you, would render the issuance and sale of any of the Certificates as contemplated hereby a 7 violation of Section 5 of the Securities Act or the registration or qualification requirements of any state securities laws, nor has any such person authorized, nor will it authorize, any person to act in such manner. (q) Neither the Depositor nor the Trust is, and neither the issuance and sale of the Securities nor the activities of the Trust pursuant to the Indenture or the Trust Agreement will cause the Depositor or the Trust to be, an "investment company" or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). (r) It is not necessary to qualify the Indenture or the Trust Agreement under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (s) Neither the Depositor nor any affiliate thereof has paid or agreed to pay to any person any compensation for soliciting another to purchase any Securities (except as contemplated by the Note Purchase Agreement). (t) The information provided by the Depositor and NAL pursuant to Section 5(k) hereof will not, at the date thereof, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2. Representations, Warranties and Covenants of the Pur- chaser. You represent and warrant to, and agree with, the Depositor that: (a) You are purchasing the Certificates solely for your own account as principal and not as nominee or agent for any other person, and not with a view to, or for offer or sale in connection with, any distribution (within the meaning of the Securities Act) or fractionalization thereof, subject, nevertheless, to the understanding that the disposition of your property shall at all times be and remain within your control. (b) You are an "accredited investor" as defined in Rule 501(a)(1), (2) or (3) of Regulation D and a "qualified institutional buyer" as defined in Rule 144A under the Securities Act. (c) Neither you nor any person acting on your behalf has made or will make offers or sales of the Certificates by 8 means of any form of general solicitation or general advertising (within the meaning of Regulation D). 3. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties set forth herein, the Depositor agrees to sell the Certificates to you in the original principal balance with respect thereto set forth on cover page hereof, and you agree to purchase such Certificates from the Depositor, for the purchase price equal to .9365625% of such original principal balance plus accrued interest thereon at the interest rate with respect thereto from and including the Cutoff Date to, but not including, the Closing Date. If, on or prior to January 21, 1996, you resell any Certificates at a yield-to-maturity of less than 16% per annum, you shall remit to the Depositor, in immediately available funds no later than two Business Days after the date of settlement of such resale, as an adjustment to the purchase price for such Certificates paid by you hereunder, the dollar price equivalent of such lower yield (but no more than the dollar price equivalent of a yield-to- maturity 100 basis points lower than the yield-to-maturity referred to above). Nothing herein shall be deemed to create any obligation on your part, express or implied, to sell or to make any attempt to sell Certificates at any time. 4. Delivery and Payment. Delivery of and payment for the Certificates shall be made at the office of Brown & Wood, One World Trade Center, New York, New York 10048, at 10:00 a.m., New York time, on the date specified in Schedule I hereto (or such later date not later than seven business days after such specified date as you shall designate), which date and time may be changed by agreement between you and the Depositor (such date and time of delivery and payment for the Certificates being herein called the "Closing Date"). Delivery of the Certificates shall be made to you against payment by you of the purchase price therefor in immediately available funds. Any amount required to be remitted by you in connection with a Resale Adjustment shall be made by you on the day upon which settlement occurs with respect to the applicable sale of Certificates, by check mailed to the address of Depositor set forth in Section 9 hereof, or, if the Depositor shall have provided you, not less than five business days prior to such settlement date, with written instructions for wiring any such remittance, by wire transfer to a U.S. depository institution reasonably acceptable to you. The Depositor agrees to have the Certificates available for inspection, checking and packaging by you in New York, New York, not later than 10:00 a.m. on the business day prior to the Closing Date. 5. Covenants of the Depositor and NAL. The Depositor and NAL jointly and severally covenant and agree with you that: 9 (a) During the period referred to in Section 5(c), the Depositor or NAL will furnish to you, without charge, copies of the Final Memorandum (including all documents incorporated by reference therein and all amendments or supplements to such documents) in such reasonable quantities as you request. (b) At any closing occurring during the period referred to in Section 5(c) as to which any of the Certificates are resold by you to any subsequent purchaser, the Depositor and NAL will furnish or cause to be furnished to such subsequent purchaser, if you so request, a letter from each person furnishing a certificate or opinion on the Closing Date as described in Sections 6(a), (b) and (c) hereof, in which such person shall state that such subsequent purchaser may rely upon such original certificate or opinion as though delivered and addressed to such subsequent purchaser and made on and as of the closing of the resale to such subsequent purchaser, except for such exceptions set forth in such letter as are attributable to events occurring after the Closing Date. (c) If, at any time prior to 90 days after the date hereof or such earlier date as you shall have resold all of the Certificates, any event occurs as a result of which the Final Memorandum (as then amended or supplemented) would include an 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 under which they were made, not misleading, or if it should be necessary to amend or supplement the Final Memorandum to comply with applicable law, the Depositor and NAL will promptly prepare and furnish to you an amendment or supplement to the Final Memorandum satisfactory to you that will correct such statement or omission. (d) Neither the Depositor nor NAL will amend or supplement the Final Memorandum without your prior written consent. (e) During the period referred to in Section 5(c), the Depositor or NAL will, at your request, furnish through you to any prospective purchaser of Certificates from you such information as is reasonably requested and is reasonably available concerning matters reasonably relevant to such prospective purchaser's decision to purchase the Certificates and the Depositor and NAL jointly and severally represent and warrant that such information will be accurate and not misleading. 10 (f) The Depositor and NAL authorize you to deliver to investors copies of the Final Memorandum, as then amended or supplemented, as contemplated by Section 5(c) hereof and any information provided under Section 5(e) hereof in connection with any reoffer or resale of the Certificates by you in accordance herewith. (g) The Depositor and NAL jointly and severally agree to pay all costs and expenses in connection with the transactions herein contemplated, including, but not limited to, (i) the printing and delivery to you of the Preliminary Memorandum, the Final Memorandum, and each amendment thereto, (ii) the fees of the Owner Trustee, and its counsel, (iii) the fee of the Indenture Trustee and its counsel, (iv) the preparation, issuance and delivery of the Securities to you, (v) the fees and disbursements of the Depositor's accountants, Price Waterhouse LLP (including but not limited to the letters furnished by it pursuant to Section 6(m) hereof), (vi) the fees and disbursements of your counsel, and (vii) any fees charged by Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors Service, Inc. ("Fitch") for the rating of the Certificates. (h) Each of the Depositor and NAL will not, and will not permit any of the affiliates (as such term is defined in Rule 501(b) of Regulation D) of the Depositor (such affiliates (including NAL) being herein after referred to as the "Affiliates") to, resell any Certificates that have been acquired by it or by any of them. (i) Neither the Depositor, nor any of its Affiliates, nor any person acting on its or their behalf will, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of the Certificates under the Securities Act. (j) Neither the Depositor, nor any of its Affiliates, nor any person acting on its or their behalf will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Securities. (k) So long as any of the Certificates are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Depositor and NAL will, unless the Depositor becomes subject to and complies with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), provide to each holder of such restricted securities and to each prospective purchaser (as 11 designated by such holder) of such restricted securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. This covenant is intended to be for the benefit of the holders, and the prospective purchasers designated by such holders, from time to time of such restricted securities. (l) To the extent, if any, that the rating provided with respect to the Certificates by Duff & Phelps or Fitch is conditional upon the furnishing of documents or the taking of any actions by the Depositor or NAL, the Depositor or NAL, as the case may be, shall furnish such documents and take any such other actions. 6. Conditions to the Purchase of the Certificates. Your obligation hereunder to purchase the Certificates shall be subject to the accuracy of the representations and warranties on the part of the Depositor, NAL and Autorics contained herein as of the date hereof and as of the Closing Date, to the accuracy of the statements of the Depositor, NAL and Autorics made in any certificates delivered pursuant to the provisions hereof, to the performance by each of the Depositor, NAL and Autorics of its obligations hereunder and to the following additional conditions: (a) Each of the Depositor, NAL and Autorics shall have delivered to you an officers' certificate, signed by its President or vice president and dated the Closing Date, to the effect that the signer of such certificate has carefully examined this Agreement and, in the case of NAL and the Depositor, the Final Memorandum and that: (i) the representations and warranties of the Depositor, NAL or Autorics, as the case may be, in this Agreement are true and correct in all material respects at and as of the Closing Date with the same effect as if made on the Closing Date and (ii) it has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date. (b) You shall have received an opinion, addressed to you, of English, McCaughan & O'Bryan, P.A., counsel for the Depositor, NAL and Autorics, dated the Closing Date, in form and substance satisfactory to you and your counsel, substantially in the form attached as Exhibit A hereto. (c) With respect to each state in which Financed Vehicles are registered, you shall have received an opinion, addressed to you, of special counsel to the Depositor admitted to practice in such state and otherwise acceptable to you, dated the Closing Date, in form and substance 12 satisfactory to you and your counsel, substantially in the form attached as Exhibit B hereto. (d) You shall have received an opinion addressed to you of Brown & Wood, in its capacity as federal tax counsel for the Trust, dated the Closing Date, to the effect that the statements in the Final Memorandum under the heading "Certain Federal Income Tax Consequences" and under the heading "Summary of Terms -- Tax Status" (to the extent relating to federal income tax consequences) accurately describe the material federal income tax consequences to holders of the Certificates. (e) You shall have received an opinion addressed to you of Brown & Wood, in its capacity as special counsel to the Purchaser, dated the Closing Date, with respect to the validity of the Certificates and such other related matters as you shall require, and the Depositor shall have furnished or caused to be furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. Brown & Wood, in its capacity as special ERISA counsel to the Trust, shall have delivered an opinion, addressed to you and dated the Closing Date, to the effect that the statements in the Final Memorandum under the heading "ERISA Considerations," to the extent that they constitute statements of matters of law or legal conclusions with respect thereto, have been prepared or reviewed by such counsel and accurately describe the material consequences to holders of the Certificates under ERISA. (f) You shall have received an opinion addressed to you, the Depositor and NAL of Richard, Layton & Finger, counsel to the Owner Trustee, dated the Closing Date and satisfactory in form and substance to you and your counsel, substantially in the form attached as Exhibit C hereto. (g) Counsel to the Depositor, NAL and Autorics shall have furnished and addressed to you any opinions addressed to Duff & Phelps or Fitch and not otherwise furnished pursuant to this Section 6. (h) You shall have received evidence satisfactory to you that, on or before the Closing Date, UCC-1 financing statements have been or are being filed in the office of the Secretary of State of the States of Florida and Delaware reflecting the transfer of the interest of Autorics, NAL and the Depositor in the Receivables and the proceeds thereof to NAL, the Depositor and the Trust, respectively, and the grant of the security interest by the Trust in the 13 Receivables and the proceeds thereof to the Indenture Trustee. (i) On the date of the Preliminary Memorandum, on the date hereof and on the Closing Date, Price Waterhouse LLP shall have furnished to you a letter or letters, dated respectively as of the date of the Preliminary Memorandum, the date hereof and as of the Closing Date, substantially in the forms of the drafts to which you have previously agreed and otherwise in form and substance satisfactory to you and to your counsel. (j) You shall have received from Duff & Phelps a rating letter assigning a rating not lower than "BB" to the Certificates, which ratings shall not have been modified, lowered or withdrawn. (k) You shall have received from Fitch a rating letter assigning a rating not lower than "BB" to the Certificates, which ratings shall not have been modified, lowered or withdrawn. (l) The Notes shall have been issued by the Trust and purchased by GCM pursuant to the Note Purchase Agreement. (m) You shall have received such further information, certificates, documents and opinions as you may reasonably have requested. (n) All proceedings in connection with the transactions contemplated by this Agreement and all documents incident hereto shall be satisfactory in form and substance to you and your counsel, and you and your counsel shall have received such information, certificates and documents as you or they may have reasonably requested. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, if either of the Depositor, NAL or Autorics is in breach of any covenants or agreements contained herein or if any of the opinions and certificates referred to above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to you and your counsel, this Agreement and all your obligations hereunder may be canceled by you at, or at any time on or prior to, the Closing Date. Notice of such cancellation shall be given to the Depositor in writing, or by telephone or facsimile transmission confirmed in writing. 14 7. Indemnification and Contribution. (a) The Depositor and NAL, jointly and severally, agree to indemnify and hold harmless you, your directors, officers, employees and agents and each person who controls you within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which you or any of them may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Final Memorandum or any information provided by the Depositor or NAL to any holder or prospective purchaser of Notes pursuant to Section 5(k), or in any amendment thereof or supplement thereto, or arise out of or are based upon the 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, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Depositor and NAL will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Preliminary Memorandum or the Final Memorandum, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Depositor by you or any of your affiliates specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Depositor or NAL may otherwise have. (b) You agree to indemnify and hold harmless the Depositor and NAL, their directors, their officers, and each person who controls the Depositor or NAL within the meaning of either the Securities Act or the Exchange Act, to the same extent as the foregoing indemnity from the Depositor and NAL to you, but only with reference to written information relating to you furnished to the Depositor by you specifically for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability which you may otherwise have. The Depositor and NAL acknowledge that the statements set forth in the second and third sentences of the first paragraph under the heading "Plan of Distribution" in the Preliminary Memorandum and in the Final Memorandum constitute the only information furnished in writing by or on behalf of you for inclusion in the 15 Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than under this Section 7. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party or parties shall have reasonably concluded that there may be legal defenses available to it or them and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to elect separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election to so assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved, in the case of paragraph (a) of this Section 7, by you and representing the indemnified parties under such paragraph (a) who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall only be in respect of the counsel referred to in such clause (i) or (iii). An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to 16 the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) If the indemnification provided for in this Section 7 shall for any reason be unavailable to an indemnified party under this Section 7, then the Depositor, NAL and you shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Depositor, NAL and you may be subject in such proportion that you are responsible for the excess, if any, of the Resale Price for any Certificates sold by you over the purchase price paid by you pursuant to Section 3 (including any Resale Adjustment) and the Depositor and NAL are responsible the balance. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Depositor, NAL and you shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Depositor and NAL on the one hand and of you on the other in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Relative benefits shall be determined as provided in the preceding sentence. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Depositor and NAL on the one hand or you on the other. The Depositor, NAL and you agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this Section 7, each person who controls you within the meaning of either the Securities Act or the Exchange Act and each of your directors, officers, employees and agents shall have the same rights to contribution as you, and each person who controls the Depositor or NAL within the meaning of either the Securities Act or the Exchange Act and each officer and director of the Depositor or NAL shall have the same rights to contribution as the Depositor or NAL, subject in each case to the applicable terms and conditions of this paragraph (d). Any party entitled to contribution will, promptly after receipt of notice 17 of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (d). 8. Termination. (a) If the sale of the Certificates shall not be consummated because any condition to your obligations set forth in Section 6 hereof is not satisfied or because of any refusal, inability or failure on the part of the Depositor, NAL or Autorics to perform any agreement herein or comply with any provision hereof other than by reason of your default, the Depositor and NAL jointly and severally agree to reimburse you for the reasonable fees and expenses of your counsel and for such other out-of-pocket expenses as shall have been incurred by you in connection with this Agreement and the proposed purchase of the Securities, and upon demand the Depositor or NAL shall pay the full amount thereof to you. (b) This Agreement will survive delivery of and payment for the Certificates. The provisions of Section 7 and this Section 8(c) shall survive the termination or cancellation of this Agreement. 9. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to you, will be mailed, delivered or transmitted by facsimile and confirmed to you at 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Robert Young and Bruce Katz; or, if sent to the Depositor, NAL or Autorics, will be mailed, delivered or transmitted by facsimile and confirmed to it at NAL Acceptance Corporation, 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309, Attention: Dennis LaVigne. 10. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7 and their successors and assigns, and no other person will have any right or obligation hereunder. 11. Applicable Law; Counterparts. This Agreement will be governed by and construed in accordance with the laws of the State of New York. This Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. 18 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this letter and your acceptance shall represent a binding agreement between you and the Depositor, NAL and Autorics I. Very truly yours, NAL ACCEPTANCE CORPORATION By:_________________________ Name: Title: AUTORICS II, INC. By:_________________________ Name: Title: AUTORICS, INC. By:_________________________ Name: Title: The foregoing Agreement is hereby confirmed and accepted as of the date first above written. GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. By:____________________________ Name: Title: 19 EX-10.21 8 NOTE PURCHASE AGREEMENT EXECUTION COPY AUTORICS II, INC. Depositor NAL ACCEPTANCE CORPORATION Servicer $36,524,000 6.65% Asset Backed Notes, Class A-1 $ 1,605,000 7.70% Asset Backed Notes, Class A-2 NOTE PURCHASE AGREEMENT New York, New York December 20, 1995 Greenwich Capital Markets, Inc. 600 Steamboat Road Greenwich, Connecticut 06830 Dear Sirs: Autorics II, Inc., a Delaware corporation (the "Depositor") and a wholly owned subsidiary of NAL Acceptance Corporation, a Florida corporation ("NAL"), proposes to cause NAL Auto Trust 1995-1 (the "Trust") to issue and sell to you (you are referred to from time to time herein as the "Purchaser") $36,524,000 principal amount of its 6.65% Asset Backed Notes, Class A-1 (the "Class A-1 Notes") and $1,605,000 principal amount of its 7.70% Asset Backed Notes Class A-2 (the "Class A-2 Notes" and, collectively with the Class A-1 Notes, the "Notes"). The assets of the Trust will include a pool of sub-prime precomputed and simple interest motor vehicle retail installment sale contracts (the "Receivables"), certain monies received thereon on and after December 1, 1995 (the "Cutoff Date"), Payaheads received thereon prior to the Cutoff Date but due thereafter, all insurance proceeds and liquidation proceeds with respect thereto, security interests in the used and new automobiles, light duty trucks and vans financed thereby, the related Receivables files, the Trust Accounts and proceeds of the foregoing. The Receivables will be serviced for the Trust by NAL. The Notes will be issued pursuant to the Indenture to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Indenture") between the Trust and Bankers Trust Company, as indenture trustee (the "Indenture Trustee"). The Notes will be secured by the assets of the Trust pursuant to the Indenture. In addition, simultaneously with the issuance and sale of the Notes, the Trust will also issue $2,006,897.86 principal amount of its 14.25% Asset Backed Certificates (the "Certificates"). The Certificates will be issued pursuant to the Trust Agreement to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Trust Agreement"), between the Depositor and Wilmington Trust Company, as owner trustee (the "Owner Trustee"). The Certificates will represent fractional undivided interests in the Trust. The Certificates will be sold pursuant to a purchase agreement dated the date hereof (the "Certificate Purchase Agreement") between the Depositor and Greenwich Capital Financial Products, Inc. ("GCFP"). The Notes and the Certificates are hereinafter referred to collectively as the "Securities." The sale of the Notes to the Purchaser will be made without registration of the Notes under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon exemptions from the registration requirements of the Securities Act. You have advised the Depositor that you will offer and sell the Notes purchased by you hereunder in accordance with Section 2 hereof as soon as you deem advisable. The Trust will acquire the Receivables from the Depositor pursuant to a Sale and Servicing Agreement to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Sale and Servicing Agreement"), among the Trust, the Depositor and NAL, as servicer. NAL will also agree to perform certain administrative functions on behalf of the Trust pursuant to the Administration Agreement, dated as of December 1, 1995 (as amended and supplemented from time to time, the "Administration Agreement") among NAL, as administrator, the Trust and the Indenture Trustee. The Depositor will acquire the Receivables from Autorics, Inc., a Delaware corporation and a wholly owned subsidiary of NAL, ("Autorics") on the Closing Date (as defined herein) pursuant to a Receivables Purchase Agreement to be dated as of December 1, 1995 (as amended and supplemented from time to time, the "Receivables Purchase Agreement") among the Depositor, as purchaser, Autorics, as seller and NAL for the purpose of making certain representations and warranties as to the Receivables and for certain other matters. Payments on the Receivables will be made into a Lockbox Account which will be established and maintained pursuant to a Lockbox Account Agreement, dated as of November 27, 1995 (as amended from time to time (the "Lockbox Account Agreement") among NAL, General Electric Capital Corporation ("GECC"), and SunTrust Bank, South Florida, National Association ("SunTrust"). In connection with the sale of the Notes by the Depositor, the Depositor and NAL have prepared a preliminary private placement memorandum, dated December 19, 1995 (including any and all exhibits thereto, the "Preliminary Memorandum"), and a private placement memorandum, dated the date hereof (including any and all exhibits thereto, the "Final Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Depositor, NAL, Autorics and 2 the Securities. The Depositor and NAL hereby confirm that they have authorized the use of the Preliminary Memorandum and the Final Memorandum, and any amendment or supplement thereto, in connection with the offer and sale of the Notes by you. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Final Memorandum. 1. Representations and Warranties. NAL and the Depositor jointly and severally (and with respect to each representation and warranty made as to Autorics in this Section 1, Autorics, NAL and the Depositor jointly and severally) represent and warrant to, and agree with, you, and each purchaser of a Note directly from you, that: (a) The Preliminary Memorandum, at the date thereof, did 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 under which they were made, not misleading and the Final Memorandum, at the date hereof, does not, and at the Closing Date will not (and any amendment or supplement thereto, at the date thereof and at the Closing Date, 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 under which they were made, not misleading; provided, however, that the Depositor and NAL make no representation or warranty as to the information contained in or omitted from the Preliminary Memorandum or the Final Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Depositor or NAL by the Purchaser specifically for inclusion therein. The Depositor and NAL acknowledge that the statements set forth in the Preliminary Memorandum and in the Final Memorandum in the second and third sentences of the first paragraph under the heading "Plan of Distribution" constitute the only information furnished by the Purchaser for inclusion in the Preliminary Memorandum or the Final Memorandum. (b) The Depositor has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, has full power and authority (corporate and other) necessary to own or hold its properties and to conduct its business as now conducted by it and to enter into and perform its obligations under this Agreement, the Trust Agreement, the Sale and Servicing Agreement and the Receivables Purchase Agreement and to cause the Trust to authorize, issue and sell the Notes and Certificates as contemplated by this Agreement and the Certificate Purchase Agreement, respectively. 3 (c) NAL has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Florida, has full power and authority (corporate and other) necessary to own or hold its properties and to conduct its business as now conducted by it and to enter into and perform its obligations under this Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, that certain demand note dated December 20, 1995 from NAL to the Depositor (the "Demand Note") and the Receivables Purchase Agreement. (d) Autorics has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, has full power and authority (corporate and other) necessary to own or hold its properties and to conduct its business as now conducted by it and to enter into and perform its obligations under this Agreement and the Receivables Purchase Agreement. (e) This Agreement has been duly authorized, executed and delivered by the Depositor, NAL and Autorics I. (f) Each of the Trust Agreement, the Sale and Servicing Agreement and the Receivables Purchase Agreement, when executed and delivered as contemplated hereby and thereby, will have been duly authorized, executed and delivered by the Depositor, and when so executed and delivered, will constitute a legal, valid, binding and enforceable agreement of the Depositor, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law. (g) Each of the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note and the Receivables Purchase Agreement, when executed and delivered as contemplated hereby and thereby, will have been duly authorized, executed and delivered by NAL, and when so executed and delivered, will constitute a legal, valid, binding and enforceable agreement of NAL, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law. (h) The Receivables Purchase Agreement, when executed and delivered as contemplated hereby and thereby, will have been duly authorized, executed and delivered by Autorics, 4 and when so executed and delivered, will constitute a legal, valid, binding and enforceable agreement of Autorics, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law. (i) The execution, delivery and performance of this Agreement, the Certificate Purchase Agreement, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note and the Receivables Purchase Agreement and the issuance and sale of the Securities and compliance with the terms and provisions hereof and of the Indenture and the Trust Agreement will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any agreement or instrument to which the Depositor, NAL or Autorics, as the case may be, is a party or by which the Depositor, NAL or Autorics is bound or to which any of the properties of the Depositor, NAL or Autorics is subject or of any statute, order or regulation applicable to the Depositor, NAL or Autorics of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Depositor, NAL or Autorics or any of their respective properties, in each case which could reasonably be expected to have a material adverse effect on the transactions contemplated herein. (j) As of the Closing Date, the Securities and the Indenture, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement and the Receivables Purchase Agreement will conform in all material respects to the respective descriptions thereof contained in the Final Memorandum. As of the Closing Date, the Securities will be duly and validly authorized and, when duly and validly executed, authenticated and delivered in accordance with the Indenture and Trust Agreement, as the case may be, and delivered to you or GCFP, as the case may be, against payment therefor as provided herein or in the Certificate Purchase Agreement, as applicable, will be duly and validly issued and outstanding and entitled to the benefits of the Indenture and the Trust Agreement, as the case may be. (k) The Depositor's representations and warranties in the Trust Agreement and in the Sale and Servicing Agreement, NAL's representations and warranties in the Receivables Purchase Agreement, the Administration Agreement and the Sale and Servicing Agreement and Autorics I's representations and warranties in the Receivables Purchase Agreement will be true and correct in all material respects as of the Closing Date and each such representation and 5 warranty will be true and correct in all material respects on each date thereafter if and to the extent that on such date such representation and warranty is made again by the Depositor, NAL or Autorics, as the case may be, pursuant to the terms of the related agreement. (l) None of the Depositor, NAL and Autorics is in violation of its certificate of incorporation or by-laws or in default under any agreement, indenture or instrument the effect of which violation or default would be material to the Depositor, NAL or Autorics I. None of the Depositor, NAL and Autorics is a party to, bound by or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it that materially and adversely affects, or may in the future materially and adversely affect, (i) the ability of the Depositor, NAL or Autorics to perform its obligations under this Agreement, and, to the extent that it is a party thereto, the Trust Agreement, the Sale and Servicing Agreement, the Lockbox Account Agreement, the Demand Note, the Administration Agreement or the Receivables Purchase Agreement or (ii) the business, operations, financial condition, properties, assets or prospects of the Depositor, NAL or Autorics I. (m) There are no actions or proceedings against, or investigations of, the Depositor, NAL or Autorics pending, or, to the knowledge of the Depositor, NAL or Autorics, threatened, before any court, arbitrator, administrative agency or other tribunal (i) asserting the invalidity of this Agreement, the Indenture, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note or the Receivables Purchase Agreement or the Securities, (ii) seeking to prevent the issuance of the Securities or the consummation of any of the transactions contemplated by this Agreement, the Indenture, the Trust Agreement, the Sale and Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the Demand Note or the Receivables Purchase Agreement, (iii) that, if adversely determined, could adversely affect the business, operations, financial condition, properties, assets or prospects of the Depositor, NAL or Autorics or the validity or enforceability of, or (to the extent each is a party thereto) the performance by the Depositor, NAL or Autorics of their respective obligations under, this Agreement, the Indenture, the Trust Agreement, the Sale Servicing Agreement, the Administration Agreement, the Lockbox Account Agreement, the 6 Demand Note or the Receivables Purchase Agreement or the Securities or (iv) seeking to affect adversely the federal or Florida income tax attributes of the Notes as described in the Final Memorandum. (n) Immediately prior to the assignment of the Receivables to the Trust as contemplated by the Sale and Servicing Agreement, the Depositor (i) had good title to, and was the sole owner of, each Receivable and the other property purported to be transferred by it to the Trust pursuant to the Sale and Servicing Agreement free and clear of any pledge, mortgage, lien, security interest or other encumbrance (collectively, "Liens"), (ii) had not assigned to any person any of its right, title or interest in such Receivables or property or in the Receivables Purchase Agreement and (iii) will have the power and authority to sell such Receivables and property to the Trust, and upon the execution and delivery of the Sale and Servicing Agreement by the Owner Trustee on behalf of the Trust, the Trust will have acquired all of the Depositor's right, title and interest in and to such Receivables and property free and clear of any Lien (except for the Lien of the Indenture). (o) The Trust's assignment of the Receivables and other Collateral (as defined in the Indenture) to the Indenture Trustee pursuant to the Indenture will vest in the Indenture Trustee, for the benefit of the Noteholders, a first priority perfected security interest therein, subject to no prior Lien. (p) There are no contracts, agreements or understandings between the Depositor or NAL and any person granting such person the right to require the Depositor or NAL to file a registration statement under the Securities Act with respect to any Securities owned or to be owned by such person. (q) The sale of the Notes pursuant to this Agreement and of the Certificates pursuant to the Certificate Purchase Agreement is exempt from the registration and prospectus delivery requirements of the Securities Act. In the case of each offer or sale of the Notes, no form of general solicitation or general advertising was used by the Depositor, any affiliates of the Depositor or any person acting on its or their behalf, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any 7 general solicitation or general advertising. Neither the Depositor, any affiliates of the Depositor nor any person acting on its or their behalf has offered or sold, nor will the Depositor or any person acting on its behalf offer or sell directly or indirectly, any Security or any other security in any manner that, assuming the accuracy of the representations and warranties and the performance of the covenants given by you, would render the issuance and sale of any of the Notes as contemplated hereby a violation of Section 5 of the Securities Act or the registration or qualification requirements of any state securities laws, nor has any such person authorized, nor will it authorize, any person to act in such manner. (r) Neither the Depositor nor the Trust is, and neither the issuance and sale of the Securities nor the activities of the Trust pursuant to the Indenture or the Trust Agreement will cause the Depositor or the Trust to be, an "investment company" or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). (s) It is not necessary to qualify the Indenture or the Trust Agreement under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (t) Neither the Depositor nor any affiliate thereof has paid or agreed to pay to any person any compensation for soliciting another to purchase any Notes (except as contemplated by this Agreement). (u) The information provided by the Depositor and NAL pursuant to Section 5(l) hereof will not, at the date thereof, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2. Representations, Warranties and Covenants of the Purchaser. You represent and warrant to, and agree with, the Depositor that: (a) You have not offered or sold, and will not offer or sell, any Notes except (i) to those you reasonably believe to be qualified institutional buyers (as defined in Rule 144A under the Securities Act) and that, in connection with each such sale, you have taken or will take reasonable steps to ensure that the purchaser of such Notes is aware that such sale is being made in reliance on Rule 144A, or 8 (ii) to other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act (hereinafter "Regulation D")) who provide to you and to the Depositor a letter in the form of Exhibit A to the Final Memorandum or (iii) in a transaction complying with or exempt from the registration requirements of the Securities Act and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. (b) You are an "accredited investor" as defined in Rule 501(a)(1), (2) or (3) of Regulation D and a "qualified institutional buyer" as defined in Rule 144A under the Securities Act. (c) Neither you nor any person acting on your behalf has made or will make offers or sales of the Notes by means of any form of general solicitation or general advertising (within the meaning of Regulation D). 3. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties set forth herein, the Depositor agrees to sell the Class A-1 Notes and the Class A-2 Notes to you in each case in the original principal balance with respect thereto set forth on Schedule I, and you agree to purchase such Class A-1 Notes and Class A-2 Notes from the Depositor, for the purchase price (expressed as a percentage of such original principal balance) for each of the Class A-1 Notes and Class A-2 Notes set forth with respect thereto on Schedule I (plus, in each case, accrued interest thereon at the applicable rate with respect thereto from and including the Cutoff Date to, but not including, the Closing Date). If, on or prior to January 21, 1996, you resell any Class A- 1 Notes at reoffer spreads less than 140 basis points over two-year Treasury Notes or any Class A-2 Notes at reoffer spreads less than 300 basis points over two-year Treasury Notes, you shall remit to the Depositor, in immediately available funds no later than two Business Days after the date of settlement of such resale, as an adjustment to the purchase price for such Notes paid by you hereunder, the dollar price equivalent of such lower reoffer spreads (but no more than the dollar price equivalent of reoffering spreads 10 basis points lower in the case of the Class A-1 Notes, and 50 basis points lower in the case of the Class A-2 Notes, than the reoffering spreads referred to above). Nothing herein shall be deemed to create any obligation on your part, express or implied, to sell or to make any attempt to sell Certificates at any time. 9 4. Delivery and Payment. Delivery of and payment for the Notes shall be made at the office of Brown & Wood, One World Trade Center, New York, New York 10048, at 10:00 a.m., New York time, on the date specified in Schedule I hereto (or such later date not later than seven business days after such specified date as you shall designate), which date and time may be changed by agreement between you and the Depositor (such date and time of delivery and payment for the Notes being herein called the "Closing Date"). Delivery of the Notes shall be made to you against payment by you of the purchase price therefor in immediately available funds. The Depositor agrees to have the Notes available for inspection, checking and packaging by you in New York, New York, not later than 10:00 a.m. on the business day prior to the Closing Date. 5. Covenants of the Depositor and NAL. The Depositor and NAL jointly and severally covenant and agree with you that: (a) During the period referred to in Section 5(c), the Depositor or NAL will furnish to you, without charge, copies of the Final Memorandum (including all documents incorporated by reference therein and all amendments or supplements to such documents) in such reasonable quantities as you request. (b) At any closing occurring during the period referred to in Section 5(c) as to which any of the Notes are resold by you to any subsequent purchaser, the Depositor and NAL will furnish or cause to be furnished to such subsequent purchaser, if you so request, a letter from each person furnishing a certificate or opinion on the Closing Date as described in Sections 6(a), (b) and (c) hereof, in which such person shall state that such subsequent purchaser may rely upon such original certificate or opinion as though delivered and addressed to such subsequent purchaser and made on and as of the closing of the resale to such subsequent purchaser, except for such exceptions set forth in such letter as are attributable to events occurring after the Closing Date. (c) If, at any time prior to 90 days after the date hereof or such earlier date as you shall have resold all of the Notes, any event occurs as a result of which the Final Memorandum (as then amended or supplemented) would include an 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 under which they were made, not misleading, or if it should be necessary to amend or 10 supplement the Final Memorandum to comply with applicable law, the Depositor and NAL will promptly prepare and furnish to you an amendment or supplement to the Final Memorandum satisfactory to you that will correct such statement or omission. (d) Neither the Depositor nor NAL will amend or supplement the Final Memorandum without your prior written consent. (e) During the period referred to in Section 5(c), the Depositor or NAL will, at your request, furnish through you to any prospective purchaser of Notes from you such information as is reasonably requested and is reasonably available concerning matters reasonably relevant to such prospective purchaser's decision to purchase the Notes and the Depositor and NAL jointly and severally represent and warrant that such information will be accurate and not misleading. (f) The Depositor and NAL authorize you to deliver to investors copies of the Final Memorandum, as then amended or supplemented, as contemplated by Section 5(c) hereof and any information provided under Section 5(e) hereof in connection with any reoffer or resale of the Notes by you in accordance herewith. (g) The Depositor and NAL will arrange for the qualification of the Notes for sale by you under the laws of such jurisdictions as you may designate and will maintain such qualifications in effect as long as required for the sale of the Notes. The Depositor or NAL will promptly advise you of the receipt by suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. (h) The Depositor and NAL jointly and severally agree to pay all costs and expenses in connection with the transactions herein contemplated, including, but not limited to, (i) the printing and delivery to you of the Preliminary Memorandum, the Final Memorandum, and each amendment thereto, (ii) the fees of the Owner Trustee, and its counsel, (iii) the fee of the Indenture Trustee and its counsel, (iv) the preparation, issuance and delivery of the Securities to you, (v) the fees and disbursements of the Depositor's accountants, Price Waterhouse LLP (including but not limited to the letters furnished by it pursuant to Section 6(m) hereof), (vi) the fees and disbursements of your counsel, (vii) the qualification of the Notes under securities laws in accordance with the provisions of Section 11 5(g), including filing fees and the fees and disbursements of Brown & Wood in connection therewith and in connection with the preparation of any blue sky or legal investment survey and (vii) any fees charged by Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors Service, Inc. ("Fitch") for the rating of the Notes. (i) Each of the Depositor and NAL will not, and will not permit any of the affiliates (as such term is defined in Rule 501(b) of Regulation D) of the Depositor (such affiliates (including NAL) being herein after referred to as the "Affiliates") to, resell any Notes that have been acquired by it or by any of them. (j) Neither the Depositor, nor any of its Affiliates, nor any person acting on its or their behalf will, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of the Notes under the Securities Act. (k) Neither the Depositor, nor any of its Affiliates, nor any person acting on its or their behalf will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Securities. (l) So long as any of the Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Depositor and NAL will, unless the Depositor becomes subject to and complies with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), provide to each holder of such restricted securities and to each prospective purchaser (as designated by such holder) of such restricted securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. This covenant is intended to be for the benefit of the holders, and the prospective purchasers designated by such holders, from time to time of such restricted securities. (m) For a period from the date of this Agreement until the retirement of the Notes, the Depositor and NAL will deliver to you the monthly servicing report, the annual statements of compliance and the annual independent certified public accounts' reports furnished to the Indenture Trustee or the Owner Trustee pursuant to the Indenture, the Trust Agreement or the Administration 12 Agreement, as soon as such statements and reports are furnished to the Indenture Trustee or the Owner Trustee. (n) To the extent, if any, that the rating provided with respect to the Notes by Duff & Phelps or Fitch is conditional upon the furnishing of documents or the taking of any actions by the Depositor or NAL, the Depositor or NAL, as the case may be, shall furnish such documents and take any such other actions. (o) Until 30 days following the Closing Date, neither the Depositor or NAL nor any trust or other entity originated, directly or indirectly, by the Depositor or NAL will, without the your prior written consent, offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce the offering of, any securities (other than the Securities). (p) The Depositor will enter into the Trust Agreement, NAL will enter into the Administration Agreement, the Depositor and NAL will enter into the Sale and Servicing Agreement and NAL, the Depositor and Autorics will enter into the Receivables Purchase Agreement on or prior to the Closing Date. 6. Conditions to the Purchase of the Notes. Your obligation hereunder to purchase the Notes shall be subject to the accuracy of the representations and warranties on the part of the Depositor, NAL and Autorics contained herein as of the date hereof and as of the Closing Date, to the accuracy of the statements of the Depositor, NAL and Autorics made in any certificates delivered pursuant to the provisions hereof, to the performance by each of the Depositor, NAL and Autorics of its obligations hereunder and to the following additional conditions: (a) Each of the Depositor, NAL and Autorics shall have delivered to you an officers' certificate, signed by its President or vice president and dated the Closing Date, to the effect that the signer of such certificate has carefully examined this Agreement and, in the case of NAL and the Depositor, the Final Memorandum and that: (i) the representations and warranties of the Depositor, NAL or Autorics, as the case may be, in this Agreement are true and correct in all material respects at and as of the Closing Date with the same effect as if made on the Closing Date and (ii) it has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date. 13 (b) You shall have received an opinion, addressed to you, of English, McCaughan & O'Bryan, P.A., counsel for the Depositor, NAL and Autorics, dated the Closing Date, in form and substance satisfactory to you and your counsel, substantially in the form attached hereto as Exhibit A. (c) With respect to each state in which Financed Vehicles are registered, you shall have received an opinion, addressed to you, of special counsel to the Depositor admitted to practice in such state and otherwise acceptable to you, dated the Closing Date, in form and substance satisfactory to you and your counsel, substantially in the form attached as Exhibit B hereto. (d) You shall have received an opinion addressed to you of Brown & Wood, in its capacity as federal tax counsel for the Trust, dated the Closing Date, to the effect that the statements in the Final Memorandum under the heading "Certain Federal Income Tax Consequences" and under the heading "Summary of Terms -- Tax Status" (to the extent relating to federal income tax consequences) accurately describe the material federal income tax consequences to holders of the Notes. (e) You shall have received an opinion addressed to you of Brown & Wood, in its capacity as special counsel to the Purchaser, dated the Closing Date, with respect to the validity of the Notes and such other related matters as you shall require, and the Depositor shall have furnished or caused to be furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. Brown & Wood, in its capacity as special ERISA counsel to the Trust, shall have delivered an opinion, addressed to you and dated the Closing Date, to the effect that the statements in the Final Memorandum under the heading "ERISA Considerations," to the extent that they constitute statements of matters of law or legal conclusions with respect thereto, have been prepared or reviewed by such counsel and accurately describe the material consequences to holders of the Notes under ERISA. (f) You will have received an opinion addressed to you, the Depositor and NAL of Seward & Kissel, counsel to the Indenture Trustee, dated the Closing Date and satisfactory in form and substance to you and your counsel, substantially in the form attached as Exhibit C hereto. (g) You shall have received an opinion addressed to you, the Depositor and NAL of Richard, Layton & Finger, counsel to the Owner Trustee, dated the Closing Date and 14 satisfactory in form and substance to you and your counsel, substantially in the form attached as Exhibit D hereto. (h) Counsel to the Depositor, NAL and Autorics shall have furnished and addressed to you any opinions addressed to Duff & Phelps or Fitch and not otherwise furnished pursuant to this Section 6. (i) You shall have received evidence satisfactory to you that, on or before the Closing Date, UCC-1 financing statements have been or are being filed in the office of the Secretary of State of the States of Florida and Delaware reflecting the transfer of the interest of Autorics, NAL and the Depositor in the Receivables and the proceeds thereof to NAL, the Depositor and the Trust, respectively, and the grant of the security interest by the Trust in the Receivables and the proceeds thereof to the Indenture Trustee. (j) On the date of the Preliminary Memorandum, on the date hereof and on the Closing Date, Price Waterhouse LLP shall have furnished to you a letter or letters, dated respectively as of the date of the Preliminary Memorandum, the date hereof and as of the Closing Date, substantially in the forms of the drafts to which you have previously agreed and otherwise in form and substance satisfactory to you and to your counsel. (k) You shall have received from Duff & Phelps a rating letter assigning a rating not lower than "A" to the Class A-1 Notes and a rating not lower than "BBB" to the Class A-2 Notes, which ratings shall not have been modified, lowered or withdrawn. (l) You shall have received from Fitch a rating letter assigning a rating not lower than "A" to the Class A-1 Notes and a rating not lower than "BBB" to the Class A-2 Notes, which ratings shall not have been modified, lowered or withdrawn. (m) You shall have received such further information, certificates, documents and opinions as you may reasonably have requested. (n) All proceedings in connection with the transactions contemplated by this Agreement and all documents incident hereto shall be satisfactory in form and substance to you and your counsel, and you and your counsel shall have received such information, certificates and documents as you or they may have reasonably requested. 15 If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, if either of the Depositor, NAL or Autorics is in breach of any covenants or agreements contained herein or if any of the opinions and certificates referred to above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to you and your counsel, this Agreement and all your obligations hereunder may be canceled by you at, or at any time on or prior to, the Closing Date. Notice of such cancellation shall be given to the Depositor in writing, or by telephone or facsimile transmission confirmed in writing. 7. Indemnification and Contribution. (a) The Depositor and NAL, jointly and severally, agree to indemnify and hold harmless you, your directors, officers, employees and agents and each person who controls you within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which you or any of them may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Final Memorandum or any information provided by the Depositor or NAL to any holder or prospective purchaser of Notes pursuant to Section 5(l), or in any amendment thereof or supplement thereto, or arise out of or are based upon the 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, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Depositor and NAL will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Preliminary Memorandum or the Final Memorandum, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Depositor by you specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Depositor or NAL may otherwise have. (b) You agree to indemnify and hold harmless the Depositor and NAL, their directors, their officers, and each person who controls the Depositor or NAL within the meaning of either the 16 Securities Act or the Exchange Act, to the same extent as the foregoing indemnity from the Depositor and NAL to you, but only with reference to written information relating to you furnished to the Depositor by you specifically for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability which you may otherwise have. The Depositor and NAL acknowledge that the statements set forth in the second and third sentences of the first paragraph under the heading "Plan of Distribution" in the Preliminary Memorandum and in the Final Memorandum constitute the only information furnished in writing by or on behalf of you for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than under this Section 7. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party or parties shall have reasonably concluded that there may be legal defenses available to it or them and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to elect separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election to so assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved, in the case of paragraph (a) 17 of this Section 7, by you and representing the indemnified parties under such paragraph (a) who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall only be in respect of the counsel referred to in such clause (i) or (iii). An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) If the indemnification provided for in this Section 7 shall for any reason be unavailable to an indemnified party under this Section 7, then the Depositor, NAL and you shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Depositor, NAL and you may be subject in such proportion as is appropriate to reflect the relative benefits received by the Depositor and NAL on the one hand and by you on the other from the offering of the Notes; provided, however, that in no case shall you be responsible for any amount in excess of the net purchase discount or commission applicable to the Notes purchased by you hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Depositor, NAL and you shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Depositor and NAL on the one hand and of you on the other in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Depositor and NAL shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses), and benefits received by you shall be deemed to be equal to the total purchase discounts and commissions received by you from the Depositor in connection with the purchase of the Notes hereunder. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Depositor and NAL on the one hand or you on the other. The Depositor, NAL and you agree that it would not be 18 just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this Section 7, each person who controls you within the meaning of either the Securities Act or the Exchange Act and each of your directors, officers, employees and agents shall have the same rights to contribution as you, and each person who controls the Depositor or NAL within the meaning of either the Securities Act or the Exchange Act and each officer and director of the Depositor or NAL shall have the same rights to contribution as the Depositor or NAL, subject in each case to the applicable terms and conditions of this paragraph (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (d). 8. Termination. (a) This Agreement shall be subject to termination in your absolute discretion by notice given to the Depositor prior to delivery of and payment for the Notes, if prior to such time, (i) there shall have occurred any change, or any development involving a prospective change, in or affecting particularly the business, assets or properties of the Depositor, NAL or NAL Financial Group, Inc.; (ii) trading of securities generally on the New York Stock Exchange, the American Stock Exchange or over the NASDAQ National Market shall have been suspended or materially limited; (iii) trading of any securities of NAL Financial Group, Inc. or any of its subsidiaries shall have been suspended or materially limited; (iv) a general moratorium on commercial banking activities in New York, Florida or Delaware shall have been declared by either federal or New York, Florida or Delaware authorities; or (v) there shall have occurred any material outbreak or declaration of hostilities or other calamity or crisis involving the United States, in each case the effect of which is such as to make it, in your reasonable judgment, inadvisable or impracticable to market the Notes on the terms specified herein. (b) If the sale of the Notes shall not be consummated because any condition to your obligations set forth in Section 6 19 hereof is not satisfied or because of any refusal, inability or failure on the part of the Depositor, NAL or Autorics to perform any agreement herein or comply with any provision hereof other than by reason of your default, the Depositor and NAL jointly and severally agree to reimburse you for the reasonable fees and expenses of your counsel and for such other out-of-pocket expenses as shall have been incurred by you in connection with this Agreement and the proposed purchase of the Notes, and upon demand the Depositor or NAL shall pay the full amount thereof to you. (c) This Agreement will survive delivery of and payment for the Notes. The provisions of Section 7 and this Section 8(c) shall survive the termination or cancellation of this Agreement. 9. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to you, will be mailed, delivered or transmitted by facsimile and confirmed to you at 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Robert Young and Bruce Katz; or, if sent to the Depositor, NAL or Autorics, will be mailed, delivered or transmitted by facsimile and confirmed to it at NAL Acceptance Corporation, 500 Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida 33309, Attention: Dennis LaVigne. 10. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7 and their successors and assigns, and no other person will have any right or obligation hereunder. 11. Applicable Law; Counterparts. This Agreement will be governed by and construed in accordance with the laws of the State of New York. This Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. 20 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this letter and your acceptance shall represent a binding agreement between you and the Depositor, NAL and Autorics I. Very truly yours, NAL ACCEPTANCE CORPORATION By:_________________________ Name: Title: AUTORICS II, INC. By:_________________________ Name: Title: AUTORICS, INC. By:_________________________ Name: Title: The foregoing Agreement is hereby confirmed and accepted as of the date first above written. GREENWICH CAPITAL MARKETS, INC. By:____________________________ Name: Title: 21 SCHEDULE I Purchase Agreement dated December 20, 1995. Closing Date: December 12, 1995 Cut-off Date: December 1, 1995. Original Principal Purchase Designation Balance Price - ----------- --------- -------- Class A-1 Notes $36,524,000 .98859375% Class A-2 Notes $1,605,000 .96718750% 22 Exhibit 21 Subsidiaries of the Registrant Subsidiary State of Incorporation - ---------- ---------------------- NAL Acceptance Corporation Florida NAL Insurance Services, Inc. Florida Performance Cars of South Florida, Inc. Florida NAL Mortgage Corporation Florida Autorics, Inc. Delaware Autorics II, Inc. Delaware EX-23.2 9 CONSENT Consent of Independent Certified Public Accountants We hereby consent to the use in the Prospectus constituting part of this Registration Ststement on Form SB-2 of our report dated March 29, 1995 relating to the financial statements of NAL Financial Group Inc., which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PRICE WATERHOUSE LLP - ------------------------ PRICE WATERHOUSE LLP Fort Lauderdale, Florida January 25, 1996 [/R] [/TEXT] -----END PRIVACY-ENHANCED MESSAGE-----