SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-1
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AUTO CREDIT ACCEPTANCE, LTD.
(Exact name of registrant as specified in its charter)
d/b/a autocreditaccept.com
Washington 91-1887665
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
9564 Silverdale Way, Suite 201
Silverdale, Washington 98383; (360) 698-1279
(Address And Telephone Number Of principal executive offices)
Jack Orr, Esq., 3109 Narrows Place, Tacoma, WA 98407
------------------------------------
(Name and Address of agent of service)
(253) 756-9795
-----------------
(Telephone Number)
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[FOR RISK FACTORS, SEE PAGE SIX]
Page 1 of 36
Exhibit Index Begins on Page 36
Calculation of Registration Fee
================================================================================
Title of | Amount | Proposed | Proposed | Amount |
each Class | to be | maximum | maximum | of |
of | registered | offering | aggregate | registration |
Securities | | Price per | offering | fee |
to be | | share | price | |
registered | | | | |
- --------------------------------------------------------------------------------
Common | 1,600,000 | $6.00 | $9,600,000(1)| $2,640.00 |
Shares | | | | |
- --------------------------------------------------------------------------------
TOTAL 1,600,000 $6.00 $9,600,000 $2,640.00(2)
================================================================================
(1) Based on the proposed offering price of $6.00 per share.
(2) This expense item does not represent the only expense of this offering.
Other expenses as specified in Item 511 of Regulation S-B include
Attorneys fees, blue sky fees, accountants' fees, and general
registration fees.
<PAGE>
INITIAL PUBLIC OFFERING
PROSPECTUS
AUTO CREDIT ACCEPTANCE, LTD
D/B/A AUTOCREDITACCEPT.COM
$9,600,000
1,600,000 SHARES OF COMMON STOCK
OFFERING PRICE: $6.00 PER SHARE MINIMUM PURCHASE: 100 SHARES ($600.00)
We have arbitrarily determined the offering price of $6.00 per share.
Auto Credit Acceptance, Ltd.
9564 Silverdale Way, Suite 201
Silverdale, Washington 98383
The Offering
Per share Total
---------- ----------
Public price $6.00 $9,600,000
Selling consideration $ -0- $ -0-
Proceeds to ACA $6.00 $9,600,000
We acquire or originate automobile loans in the "non-prime" sector of
automobile financing. We hold these loans for investment.
This is our initial public offering, and no public market currently exists for
our shares. The offering price may not reflect the market price of our shares
after the offering.
AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK
This investment involves special risks including, immediate substantial
dilution from the public offering price, substantial competition, possible
operating losses, substantial dependence upon management, continued control by
present shareholders, and the lack of any commitment to purchase shares. You
should purchase the shares only if you can afford a complete loss.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined it this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We are offering the shares ourselves, through our officers and directors.
They will not receive any compensation in connection with the offer and sale of
the shares. In the future, it is possible that we may secure the services of
securities broker and dealers who will offer and sell the shares on our behalf
in which case they will receive compensation for their services. That
compensation will be paid from the proceeds we receive from sale of the shares
through the services of such brokers and dealers.
December _____, 1999
<PAGE>
ESCROW OF SUBSCRIPTION PROCEEDS
We are offering the shares for sale on a continuous, best efforts basis.
Pending sale of the minimum of 100,000 shares ($600,000) all proceeds from sale
of the shares will be deposited into an escrow account at First Trust Bank, N.A.
Upon sale of the minimum, the funds held in the escrow account will be released
to us, after payment of discounts and commissions to selling agents, if any.
Thereafter the offering will continue until all of the shares are sold or we
terminate the offering. In the event that the minimum amount of shares are not
sold by September 30, 2000 the offering will be terminated and all proceeds
held in the escrow account will be released to the persons having subscribed
for the shares, together with interest earned, if any. We will not make any
offering with this prospectus subsequent to December 31, 2001.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-
SUMMARY FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
--
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 29
--
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
--
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . . 33
--
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
--
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
--
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
--
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information and
financial statements appearing elsewhere in this Prospectus.
GENERAL
- -------
Autocreditaccept.com is a registered trade name of Auto Credit Acceptance,
Ltd., a Washington corporation. We were incorporated in the State of
Washington on December 22, 1997 to engage in the business of acquiring and
originating loans in the "non-prime" automobile finance market. We are engaged
in the business of purchasing and holding motor vehicle retail installment sale
contracts or loans. We will also be engaging in the business of electronic
brokering of loans to other financial concerns. One of our affiliates, Global
Acceptance Company is the "servicer" of our loans. In the non-prime
automobile financing market, loans are made for the purpose of financing
vehicles for consumers at varying credit levels below the "prime" credit level.
The prime credit level is referred to as the "A" credit level and is a market
segment that is dominated by banks, credit unions and some automobile
manufacturers' financing divisions. We operate in the "B," "C," and "D" tiers
of the market where the interest rates charged and gross rate of return on
the automobile loans is generally higher than that realized at the "A"
level.
The automobile finance market in general is the second largest consumer
credit market in the United States with approximately $365 billion in annual
volume in 1996. That figure grew to a volume of $602.80 billion in 1998. It is
estimated that the non prime market comprises approximately $199.23 billion of
this overall market place.(CNW Marketing/Research of Bandon, Oregon) We focus
on the used-car, non prime financing market which is the most rapidly growing
segment of the overall automobile market. An estimated 45 million cars were
sold in the United States in 1998 with approximately 29.6 million, or 65.72%, of
those cars being used vehicles. (CNW Marketing/Research of Bandon, Oregon).
A major portion of the proceeds from sale of our shares will be used to
finance vehicle loans for borrowers that meet our lending guidelines. The
borrowers will generally be persons that have been unable to secure loans
from conventional lending institutions due to credit challenges. Such borrowers
are expected to be willing to pay interest rates in excess of conventional
interest rates in order to secure a vehicle loan under non-prime terms. It is
our strict policy to secure all loans by title or another form of legal
ownership of the automobile being financed. We will also apply a portion of the
proceeds from sale of our shares to fund the start up of our electronic loan
brokering business.
THE OFFERING
- -------------
COMMON STOCK OFFERED A minimum of 100,000 and a maximum of 1,600,000
shares
OFFERING PRICE PER SHARE $6.00 per share.
MINIMUM SUBSCRIPTION 100 shares
COMMON STOCK OUTSTANDING PRIOR TO THE OFFERING
(as of September 30, 1999) 4,404,215 shares
COMMON STOCK OUTSTANDING AFTER THE OFFERING
4,504,215 shares at the
minimum and 6,004,215 shares
at the maximum offering.
<PAGE>
RISK FACTORS
- -------------
The shares of common stock we are offering involve a high degree of risk as
an investment. These risk factors include our limited operating history in a
higher risk market sector, our likely need for additional working capital in the
future, our dependence on key personnel, the substantial competition in our
industry, and the absence of a public market for the shares and general lack of
liquidity of the investment.
USE OF OFFERING PROCEEDS
- ---------------------------
We intend to use the proceeds of this offering (net of offering
expenses), for the repayment of short term debt, to purchase video
conferencing equipment, to purchase software and fund other start-up costs of
our electronic loan brokering business, advertising, and purchase or originate
auto loans.
SUMMARY FINANCIAL DATA
The financial data shown below as of December 31, 1998 have been derived
from, and should be read in conjunction with, our financial statements and the
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1998
Statements of Income Data:
<S> <C>
Revenues $ 46,997
Gross Profit
Operating Income (loss)
Net Income (loss) $ (97,809)
PER COMMON SHARE DATA(2):
Net Income (loss) per share $ (0.034)
Weighted average number of shares outstanding(2) 2,874,411
BALANCE SHEET DATA:
Working capital $ 10,807
Total assets $ 564,938
Shareholders equity. $ 206,552
</TABLE>
ACA
- ---
autocreditaccept.com is a trade name we have registered in the State of
Washington. Our legal name, as established by the Articles of Incorporation
filed with the State of Washington, is Auto Credit Acceptance, Ltd. We were
incorporated on December 22, 1997 and maintain a calendar year as our fiscal
year. For more information regarding a utocreditacceptance.com contact:
William V. Fowler, President
www.autocreditaccept.com
------------------------
e-mail: [email protected]
9564 Silverdale Way, Suite 201
Silverdale, Washington 98383
(360) 698-1279/fax (360) 698-0598
<PAGE>
RISK FACTORS
A purchase of the common shares involves a high degree of risk. Prospective
investors should carefully consider the following factors, among others set
forth in this prospectus before making a decision to purchase the shares we are
offering.
OUR BORROWERS ARE CONSIDERED AT HIGHER RISK OF DEFAULT, A HIGHER THAN EXPECTED
DEFAULT RATE WILL ADVERSELY AFFECT THE COMPANY'S FINANCIAL OPERATIONS
It is possible, if not likely, that we will experience a higher than
average default rate on our loans. If this occurs, we can expect to incur
additional costs, including legal expenses, to collect such loans and in most
instances will have to repossess on the collateral in order to effect payment of
a defaulted loan. If we experience a higher than anticipated default rate on
our loans, this could reduce our overall profitability, and in some instances,
could reduce our capital base. In addition to the general risks that are
vehicle financing lending activities, we will face additional risks due to our
participation in the non-prime lending market sector. We will be making loans
to borrowers who, for a variety of reasons, have elected to borrow funds
from us at terms less favorable than are available from conventional lending
institutions. These borrowers are generally expected to be considered higher
risks for default.
BECAUSE, INITIALLY, THE MAJORITY OF OUR ASSETS WILL BE COMMITTED TO LENDING
ACTIVITIES FAILURE TO ADEQUATELY IDENTIFY QUALIFIED BORROWERS OR TO OBTAIN
ADEQUATE COLLATERAL MAY ADVERSELY AFFECT THE COMPANY'S FINANCIAL OPERATIONS
Intially, we will be primarily engaged in fiancing automobile loans in the
non-prime vehicle loan market. Accordingly, the value of our shares, the
payment of dividends and our interm goal as an operating business, among other
things, will be dependant upon our success in identifying qualified borrowers
and obtaining adequate collateral to secure the loans we make.
BECAUSE WE WILL NOT OBTAIN ANY FORMAL APPRAISAL OR THIRD PARTY VALUATION
FOR THE COLLATERAL , LOANS MAY BE UNDER-COLLATERALIZED
We could incur a loss of capital if a borrower defaults and we are unable
to liquidate the collateral for an amount equal to or in excess of the
borrower's obligation to us. Generally we will not obtain any type of appraisal
or other independent third party valuation report, except for the use of the
usual and customary resources such as the "Kelly Blue Book." There can be no
assurance that the vehicles we take as collateral will have such market value
or that even if they do when a loan or loans are made, that in the event of
default we will be able to realize such value upon a liquidation of the
collateral to satisfy the loan obligation.
LACK OF ADEQUATE CAPITALIZATION MAY ADVERSELY AFFECT OUR ABILITY TO OPERATE AS A
GOING CONCERN
If only the minimum number of shares are sold, or even it all of the
shares offered are sold, it is possible that our capital needs may be greater
than currently anticipated. If this is the case, then we will be required to
seek other sources of financing. No assurance can be given that other financing
will be available, if it is required; or even if it is available, that it will
be available on terms and conditions satisfactory to our management.
At the present time we have limited working capital and face the need for
substantial additional working capital in the near future in order to continue
the development and expansion of autocreditaccept.com's business. We have
prepared audited financial statements as of December 31, 1998 and updated as
of September 30, 1999 1999, reporting that we are in the development stage and
our ability to establish ourselves as a going concern is dependent upon our
obtaining sufficient financing to continue to develop our financing activities.
Accordingly, our management believes that our continued existence is dependent
upon the proceeds from this offering and upon the achievement of profitable
operations in the future, for which there is no assurance. Management believes
that the proceeds from this offering will be sufficient to enable us to meet
our current working capital requirements. We anticipate that the proceeds from
the sale of the minimum of 100,000 shares will be sufficient to meet our
capital requirements and allow us to implement our business plans over the next
12 months. We also believe that the sale of the maximum of 1,600,000 shares
will provide us with sufficient capital to continue to finance our operations
and expansion plans beyond the next 12 months.
<PAGE>
THE INABILITY OF OUR AFFILIATES TO PROVIDE CERTAIN SERVICES MAY ADVERSELY IMPACT
THE OPERATIONS OF THE COMPANY
We will rely on some of our affiliates to provide us with certain services,
including the servicing of our loans. Global Acceptance Company or "GAC" will
service our vehicle loans by collecting and remitting payments, accounting for
principal and interest, contacting delinquent borrowers, and generally
administering all of our loans. We will be obligated to pay to GAC and any of
our other affiliates which may render to services to us from time to time
regardless of our profitability. The rate of compensation to be paid to GAC was
not determined by arms-length negotiations.
Certain conflicts of interest may arise between or among us and our
affiliates. Our management or affiliates directly or indirectly, are and may
again in the future, participate as general or limited partners of partnerships,
shareholders, officers and/or directors of other corporations, or members and/or
managers of limited liability companies that engage in lending activities that
are in similar to ours. In addition, our management or affiliates may be
financially interested in and devote substantial time to other businesses and
activities that may compete with ours.
FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD HAVE A MATERIAL NEGATIVE
IMPACT UPON THE MARKET PRICE FOR THE COMMON SHARES OF THE COMPANY
As of September 30, 1999, we had 4,404,215 shares of common stock
issued and outstanding that were issued and sold pursuant to exemptions form
registration with the Securities and Exchange Commission and state securities
agencies. Such shares are considered "restricted securities" but in the future
such shares may be resold in compliance with Rule 144 promulgated by the
Commission under the 1933 Act. Rule 144 generally provides, that a person
holding restricted securities for one year from the date the securities were
purchased from the issuer, or an affiliate of the issuer, and fully paid, may
sell limited quantities of the securities to the public without registration,
provided there shall be certain public information with respect to the issuer.
Pursuant to Rule 144, securities held by non_affiliates for more than two years
may generally be sold without reference to the current public information or
broker transaction requirements, or the volume limitations. None of the
outstanding restricted shares are currently available for resale pursuant to
Rule 144. However, as a result of this offering some or all of the currently
restricted shares will become available for resale in the near future. When and
if a market for the common shares is established, the resale of formerly
restricted shares could have a material negative impact upon the market price
for the common shares.
Further, since the shares are being offered by us through our officers,
directors, and agents of the issuer and, upon engagement, through qualified
broker_dealers on a "best efforts" basis there can be no assurance that a
substantial amount of shares above the minimum will be sold. No broker_dealer
has been retained as an underwriter and no broker_dealer is under any obligation
to purchase any of the shares. In addition, our officers, directors, and agents
of the issuer of ACA collectively have limited experience in the offer and sale
of securities on our behalf.
AT THE PRESENT TIME THERE IS NO TRADING MARKET FOR THE SHARES AND THEREFORE
THERE IS A LACK OF LIQUIDITY.
<PAGE>
There is currently no public market for our common stock and there can be
no assurance that a trading market will develop at the conclusion of this
offering. Even if such a trading market should develop an investor in the
shares may not be able to resell the shares at or near their original offering
price. Further, any market for our shares that might develop will, in all
likelihood, be a substantially limited one. All of this means that there will
be a general lack of liquidity to an investment in the shares.
WE WILL MAY EXPERIENCE CERTAIN DIFFICULTIES AS A RESULT OF OUR RELIANCE UPON THE
RELATIVELY NEW DIGITAL SUBSCRIBER LINE TECHNOLOGY
We will be using the relatively new Digital Subscriber Line (DSL) technology
in the video conferencing aspect of our loan purchasing procedures. As a
relatively new technology, DSL is relatively unproven and may be prone to
unanticipated problems. Such problems may result in delaying the process of
purchasing new loans as well as other efficiency related problems.
WITHOUT WORKING RELATIONSHIPS WITH AUTOMOBILE DEALERS, THE COMPANY MAY
EXPERIENCE DIFFICULTIES IN DISPOSSING OF REPOSSESSED VEHICLES
We will rely upon used automobile dealers to carry out our strategy of
liquidating repossessed vehicles. If we experience difficulaties in reaching
working agreements with such dealers, or are otherwise unable to carryout our
liquidation policy through reliable dealers, we may be forced to find other,
alternative sources of liquidation. One such source may be the auction houses
where the we will receive substantially less for the sale of such vehicles than
we otherwise may receive through a working retail strategy.
OUR EFFORTS TO DEVELOPE OUR ELECTRONIC LOAN BROKERING BUSINESS WILL BE SUBJECT
TO UNCERTAINTIES AND UNFORSEEN DIFFICULTIES AS A RESULT OF ESTABLISHING
RELATIONSHIPS WITH AUTOMOBILE DEALERS AND FINANCIAL INSITUTIONS AND AS A RESULT
OF NEW AND UNTESTED COMPUTER TECHNOLOGY.
We will be engaging in the new line of business of on-line, internet based
automobile loan brokering. This business will be dependant upon several
factors. It will be dependant upon establishing and maintaining relationships
with automobile dealers to participate in our program as well as with financial
institutions to purchase the loans from the dealers. It will also be dependant
upon the development of computer software to process the loan applications. We
have entered into an agreement with a software developer to purchsase and modify
existing software to meet our needs. Finally, it will also be dependant upon
our purchasing and maintaining a significant amount of computer hardware.
Although we already have installed a significant amount of hardware, we will
experience a continued need to update and expand our hardware.
USE OF PROCEEDS
The following table presents an estimation of how we intend to apply the
proceeds we receive from sale of the shares. It is only an estimation and the
actual application of the proceeds will depend upon a number of factors.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
(100,000 SHARES) (1,600,000)
CASH PERCENTAGE CASH PERCENTAGE
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
GROSS PROCEEDS $600,000 100.00% $9,600,000 100.00%
Less Expenses:
Accounting & legal (1) 25,000 4.17% 25,000 0.26%
Misc. expenses (2) 30,000 5.0% 96,000 1.00%
Total expenses $55,000 9.17 $121,000 1.26%
-------- ----------- ---------- -----------
NET OFFERING PROCEEDS: $545,000 90.83 $9,479,000 98.74%
USE OF THE NET PROCEEDS
*&*
Purchase of auto loans $ 33,953 6.23% $8,967,953 94.61%
Repayment of short term debt (3) $344,047 63.13% $344,047
3.63%
Purchase and installation of
video equipment: $ 40,000 7.34% $ 40,000 .42%
Advertising (4) $ 60,000 11.01% $ 60,000 .63%
Computer Software (5) $ 67,000 12.29% $ 67,000 .71%
-------- ----------- ---------- -----------
TOTAL USE OF NET PROCEEDS:
$545,000 100.00% $9,479,000 100.00%
======== =========== ========== ===========
(1) This expense item includes the costs incurred for outside professional
services associated with the Offering.
(2) This expense item includes the costs we expect to incur in
establishing our web site, accessing the Internet, printing and copying of this
prospectus, other miscellaneous costs including supplies, various costs
associated with offering the shares for sale and expanding recognition of our
name. We have estimated these costs to be 5% of the minimum offering amount
and, due to efficiencies, economies of scale, etc., 1% of the maximum offering
amount.
<PAGE>
(3) From the initial proceeds of its offering, company plans to discharge its
obligations under the promissory notes referred to under the "Litigation",
below. There are three notes comprising this item, "Repayment of short term
debt", one of which carries a per annum interest rate of 11% ($123,000
prinicipal balance) and two of which carry a per annum interest rate of 10%.
The 11% note is currently due. Of the remaining two notes, whose aggregate
principal balances are approximately $221,047, one note with outstanding
principal of $123,057 is due December 31, 1999 and the other, whose outstanding
principal balance is $97,990 is due December 31, 1999.
(4) We plan to begin running adverstisements through various mediums to
promote the Company's electronic loan brokering business. The amount indicated
is a budgeted amount for the initial costs only. The Company intends to
continue funding its advertising budget for the loan brokering business through
fees that may be collected from participating dealers in the future.
(5) This item represents the initial purchase price of the software that
the Company intends to purchase for use in its electronic loan brokering
business.
</TABLE>
The net proceeds we expect to realize from this offering, after allowance
for estimated expenses we incur and pay in connection with this offering
($121,000), will be $9,479,000 if the maximum number of shares are sold.
Based on our estimates, we expect to utilize approximately 94.61% of the net
proceeds for the purchase of automobile loans. Although this is our present
intention the actual use may vary depending upon economic conditions and
other factors, including the results of future operations. We can not predict
with certainty the date by which the entire net
<PAGE>
proceeds will be fully placed in automobile contracts. Pending the specific
application of the net proceeds of this offering, funds will be invested in
interest bearing obligations and mutual funds.
BUSINESS
INTRODUCTION.
Autocreditaccept.com or ACA operates in the non-prime automobile finance
market. ACA engages primarily in the business of making loans to finance
consumer automobile purchases.
The non-prime market is a rapidly expanding market and involves the retail
financing of new and used automobile purchasers who face credit
challenges. These consumers are considered by industry standards to be below
prime ("A" credit) level. The prime credit level makes up a market segment
that is dominated by banks, credit unions and some auto manufacturer's
financing divisions. ACA currently finances loans primarily in the "C" to
"D" credit tier market, with some "B" level placement, where the gross rate of
return is higher than that realized at the A level.
ACA estimates that virtually all of its initial revenues (with the
exception of late fees, processing fees, and other miscellaneous sources) will
be generated by direct financing activities with approximately 86% of these
revenues being derived from interest received on automobile contracts and the
remaining 14% being derived from dealer fees. However, addition to its initial
activities as a direct financer of loans, ACA also intends to engage in the
electronic brokering of loans with banks and other financing concerns. We are
currently in the process of establishing relationships with automobile dealers
and financial institutions to carry out these plans. This business will
involve ACA taking loan applications from participating automobile dealers
through its internet web site and process forwarding them on to various
financial institutions. ACA will receive monthly membership fees as well as
some transaction fees from the automobile dealers. ACA will also receive
origination fees estimated to be approximately $50 to $150 for each loan that is
placed. For more information on ACA's plans in this regard, please see the
section entitled "ELECTRONIC LOAN BROKERING AND ORIGINATION", below.
Additionally, ACA intends to avail itself of the Internet to accept loan
applications directly from potential borrowers. The strategy behind this type
of direct loan processing would be to prequalify potential automobile buyers and
then direct them to dealers who have a preexisting relationship with ACA. In
this way, ACA provides the dealer with a potential buyer and ACA, in return,
finances the buyer's automobile purchase. ACA would continue to charge these
dealers with its normal acquisition fees. In other words, ACA does not lose the
fees that it ordinarily would receive from dealers on indirect financings.
Although ACA has, in the past, purchased new loans using a manual
(the historically entrenched) method of receiving, reviewing and
accepting or rejecting loan application packages in hard copy form, ACA
intends to drastically alter this process by incorporating the internet and
computer/telecommunications technology into its purchasing process.
One of the central problems presented by the current manual procedure is
that it is not a personal, face-to-face process; the lender does not deal
directly with the consumer but, rather, the lender deals indirectly with the
consumer by dealing directly with the auto dealer. Not only does this slow the
process down, but it deprives ACA's loan processing agents of the intangible but
valuable benefit of being able to deal directly with and "look into the eyes" of
the consumer. The process also tends to leave the consumer feeling as though he
or she is merely a number or set of data and that the financing concern is far
removed and uncaring.
To address these concerns ACA proposes to use video conferencing over the
internet to meet directly with, on a virtual basis, the consumer. This is
generally not possible through use of the manual process due to the geographic
separation between the lender and the dealer. Based upon ACA's previous
successful testing of the concept, it intends to use video conferencing
technology through its proprietary web site to allow the loan consumer to speak
directly with ACA's loan officers on a real time basis. In addition, the
consumer's loan application and other documents will be completed and
transmitted to ACA through its web site. Loans which are ultimately purchased
by ACA, whether they are purchased under the old method or are purchased via the
utilization of the internet, are managed or "serviced" by an ACA affiliate,
Global Acceptance Corporation or GAC.
ACA'S AUTO CREDIT ACCEPT
Through its innovative efforts, ACA has developed a highly technologically
advanced system of purchasing automobile loans. This system is the Auto Credit
Accept system of loan origination. Although the Auto Credit Accept system is
not currently on line, ACA intends to have the first of such systems in place at
the offices of its selected dealers by April 1, 2000. ACA intends to
target approximately fifty dealers for installation of its Auto Credit Accept
system by December 31, 2000.
1. VIDEO CONFERENCING & TELECOMMUNICATIONS
ACA's Auto Credit Accept system will utilize an integrated system of video
conferencing and loan application data exchange via the internet.
a) THE PROBLEM.
Until recently video conferencing was essentially only a futuristic
concept. While Video conferencing is currently possible, the cost associated
with it essentially makes it available to only large corporate users. The
problem occurs in reaching the quality of real time video transmission. The
video images are essentially transmitted in the form of data exchange over
telephone lines and telephone lines, simply put, are not fast enough to
accommodate real time transmissions. Thus, special equipment must be utilized to
make up for the inadequacies of in place telecommunications technology.
Because video images are essentially large amounts of data being sent or
received, transmission speeds are critical in bringing real time quality to the
use of Video conferencing. Real time simply means being able to look at the
image of a user at the other end and see that other person move at essentially
the same speed and fluidity in which he or she would move if they were actually
in front of you. Traditional phone service is the medium through which
the signals carrying this data is passed. The problem with traditional
phone service is that it was created to let you exchange voice information
with someone at the other end via the use of an analog signal. Because
analog transmission uses such a small portion of the available information
that can be transmitted over existent copper telephone wires, the maximum
amount of data that can be received through the user's computer is 56
thousands of bits per second (56 Kbps). Video conferencing requires a much
higher band width than that, preferably in the neighborhood of 256 KbpsThe
current solution to obtaining the necessary faster speeds of data receipt is
found in the use of the essentially cost prohibitive Integrated Switched
Digital Network (ISDN) alternative. This alternative requires special
equipment at each end of the line and special lines to be laid.
b) THE SOLUTION, DSL TECHNOLOGY
A new technology is emerging called DSL (Digital Subscriber Line) which
more than eliminates the current problems facing the practical use of Video
conferencing as a viable tool in the real world, everyday working environment.
DSL is technology which brings into play high-bandwidth information capabilities
through the use of existing, ordinary copper telephone lines. DSL allows for the
receipt of data at speeds up to 25 times faster than traditional analog
technology. And DSL does this by using existing telephone copper wires. What is
required, however, is special switching equipment at the DSL provider's (in
ACA's case, its DSL provider is the local telephone company) central switching
location.
As DSL represents recent technology, it will not be available to ACA as a
recipient nor to some of its auto dealers until the fourth quarter of 1999. DSL
is, however, currently available to most users in the major metropolitan areas,
including Tacoma and Seattle.
2. PURCHASING LOANS USING VIDEO CONFERENCING AND THE INTERNET
What DSL means to ACA is that we will be able to install and utilize a
video conferencing system whereby our loan representatives can meet with on a
virtual face-to-face basis the car-buying consumer. The cost components of video
conferencing are
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- - the video camera, microphone, computer card, and other
equipment at an approximate retail cost of $400 to $500 for
each end
- - the cost of the monthly service which will be priced at
approximately per month for the 256 Kbps service and $65.00
per month for the Kbps service.
ACA has established an internet web site whereby all of our forms (retail
consumer application, automobile information form, deal structure form, etc.)
Are immediately available to the dealer and the consumer for their completion.
Upon completion, the forms can be immediately "e-mailed" back to ACA for review.
ACA has incorporate a filter system into the process whereby each loan
application is checked for compliance with the objective components of ACA's
purchasing criteria. Non compliant applications will be immediately identified
as such.
ACA views its new system as a way of offering a higher quality of consumer
relationship between it and the retail customer, a way of making better, more
humanly accurate decisions regarding loan applicants, and a way of providing
faster, more predictable and reliable services to its dealers.
THE NON-PRIME AUTOMOBILE FINANCING INDUSTRY IN GENERAL.
The automobile finance market in general is the second largest consumer
credit market in the United States with approximately $365 billion in annual
volume in 1996. That figure grew to a volume of $602.80 billion in 1998. It is
estimated that the non prime market comprises approximately $199.23 billion of
this overall market place.(CNW Marketing/Research of Bandon, Oregon) We focus
on the used-car, non-prime financing market which is the most rapidly
growing segment of the overall automobile market. An estimated 45 million cars
were sold in the United States in 1998 with approximately 29.6 million, or
65.72%, of those cars being used vehicles. (CNW Marketing/Research of Bandon,
Oregon).The average sales price per car is increasing and rose approximately
3% over the prior year to approximately $8,957.
ACA considers persons with annual incomes below the U.S. median
as non-prime consumers. The U.S. median income level was $35,287 in
1995/1996. (U.S. Bureau of the Census, Current Population Reports, pp 60-197,
Money Income in the United States: 1996 (With Separate Data on Valuation of
Noncash Benefits, Table C at xiii, U.S. Government Printing Office, Washington,
DC, 1997).The non-prime auto finance market has been a rapidly increasing
segment with 90.4% of families with annual incomes between $10,000 and
$24,999 owning automobiles during 1993, up from 81% in 1989 and 88% in
1992. (Asset Ownership of Households: 1993, Table 2. Households Owning Asset
Types, by Selected Characteristics: 1993 (last modified, April 18, 1997.)The
demand generally comes from borrowers who desire to finance their automobiles
but can not obtain financing from conventional lenders for a variety of
reasons including insufficient income levels. ACA's Management believes that
this growth in loan volume is the result of three factors: First,
increased marketing efforts on the part of automobile dealers and, to a lesser
degree, on the part of other non-prime lenders, that expanded the market
base resulting a larger pool of borrowers; Second, a general shift in the
purchasing habits and credit practices of the domestic economy; and Third,
the market itself has grown as conventional lenders continue to turn more
good loans and good borrowers away. ACA's management believes these trends
will continue for the immediate future.
The proceeds from the sale of ACA's securities will be used to finance
vehicle loans for borrowers that meet ACA's lending guidelines. The borrowers
will generally be persons that have been unable to secure loans from
conventional lending institutions due to credit challenges. Such borrowers are
expected to be willing to pay interest rates in excess of conventional interest
rates in order to secure a vehicle loan under non-prime terms. It is strict
Company policy to secure all loans by title or another form of legal ownership.
AUTO LOAN FINANCING BUSINESS
A. FINANCIAL ASPECTS OF OPERATIONS.
ACA's gross profit generally consists of three components: the
interest yields on the vehicle loans, generally ranging from 14.99% to 29.9%
per annum, the deferred revenue component referred to as the "buy-fee" or
"discount" portion, and miscellaneous fees such as late charges. The buy fee,
or discount rate, obtained on a loan varies between the credit tiers.
Typically, "B" credit loans may bring a flat buy fee of anywhere from $50.00 to
$75.00 per loan. "C" credit loans may bring a buy fee of approximately
$300.00 to $450.00 and "D" loans may produce buy fees expressed as a
percentage of the amount financed, generally about 10%. ACA's annual
expenditures, before repossession costs, reconditioning expenses, and other
costs attributable to defaults, is limited to the Servicer's management fee
of nine percent (9%) of the active portfolio balance per annum. This fee is
essentially the only overhead costs that will be incurred by ACA in its day
to day operations. ACA's Management, therefore, anticipates earning a profit
based upon the annual return earned on the portfolio (interest, amortized
buy fee, and other miscellaneous fees) less the 9% managerial fee and costs
attributable to defaults.
ACA may also, from time to time, sell some or all of its portfolio and
use the proceeds to repurchase a new portfolio or portfolios. The
operational purpose behind this strategy is essentially two-fold. By selling
its old loans ACA shifts its risk of loss to someone else (the purchaser).
Additionally, ACA is able to recognize any and all deferred revenue
attributable to the old loans in the period in which they are sold; in other
words, an immediate recognition of income. However, in selling its
portfolio, ACA forgoes the revenue that would have otherwise been earned
upon the loans had it continued holding and collecting payments upon them.
If successful, ACA is able to earn more by recognizing the accrued
buy-fees than it loses in forgone revenue.
B. NET DEFAULT COSTS
The strong demand throughout the United States for alternative sources of
vehicle financing for thousands of first time buyers and buyers with one or more
credit infractions support higher interest rates on these loans resulting in
substantial interest income to the loan holder. A primary concern, however, is
the greater likelihood that non-prime purchasers will default on their loans.
Operational success in this market is essentially a product of basic
economics. Although the price for the higher interest rates to be
earned through participation in the non-prime market is generally a higher
consumer default rate, ACA endeavors to minimize its default rate to an
annual rate of five to seven percent with a maximum annual default rate of ten
percent. However, the default rate in and of itself is not the final
step in determining profitability. The final step in determining
portfolio performance is taken through ACA's approach at liquidating
repossessed vehicles. In discussing profitability the default rate is a
virtually useless term without an actual dollar value assigned to the cost of
the defaults. Thus an analysis of the actual costs of defaults, or net
default cost, is in order.
ACA's approach to minimizing its costs of defaults is two fold: first,
through strict adherence to its loan purchase guidelines in its efforts to
prevent over advancing on vehicles (for example, limiting the maximum amount
financed on a particular vehicle to certain blue book values guidelines);
and second ACA disposes of its repossessed vehicles through local auto dealers
on a consignment basis, directly to such dealers on a wholesale basis or
through auto auctions. We aggressively pursue these approaches and believe
that they are one of the cornerstones to successful profitability in this
industry. It is Management's perception that larger, more conventional
financing concerns (banks, credit unions, etc.) often tend to liquidate their
repossessed vehicles at significant losses (through wholesaling or auctioning)
with net default costs perhaps as great as fifty to sixty percent.
ACA's Management believes that ACA may recover fifty percent of its
investment in each liquidated repossession within an average time of
approximately two months for the return of capital to the income stream. With
an expected maximum default rate of fifteen percent and a fifty percent
recovery rate, ACA estimates that at times it may achieve an actual dollar cost
of defaults ("net default cost") of approximately nine to ten percent of
the total active portfolio balance.
Thus, for example, if ACA's portfolio balance is $1,000,000 with an annual
default rate of 15%, then $150,000 of the loans in the portfolio will go into
default during the year. If ACA. recovers 50% of the these defaulted loans,
approximately $75,000 will go back into the portfolio. The result is a net
default cost for the year would be $75,000. Expressed as a percentage of the
overall portfolio, $1,000,000, this equates to a net default cost for the year
of attributable to these loans of 7.5%. This example assumes that all the loans
were purchased at face value and disregards any applicable discounts or
origination fees. If these fees are factored in to the equation, the net
default cost is lower. To illustrate, if ACA is receiving an average discount
of 10%, it means that ACA actually paid $900,000 for the portfolio but, again
using the above estimated recovery rate, ACA is recovering 50% of the face
amount of the defaulted loans, or $75,000 despite the fact that ACA actually
paid $90,000 for these defaulted loans. Thus, the out-of-pocket default costs
attributable to these loans, after factoring in the discount or buy fee, is
$25,000, or 2.5% of the actual cost of the entire portfolio.
A primary goal in the industry with regard to liquidating repossessions is
to return to the portfolio as soon as possible the proceeds collected from
liquidating repossessions the theory being that the sooner new loans are
purchased, the sooner that income can once again be earned. ACA's Management
believes that this theory is often carried out to an extreme resulting in an
actual increase in net default costs. In response to this common belief and
practice, ACA's management endeavors to mitigate ACA's net default cost through
its policy of micro-management often times with no more delay than that
experienced by the larger concerns through their liquidation efforts. The
benefit derived by following this practice is a decrease in the dollar amount of
losses sustained upon liquidation of vehicles.
PURCHASING LOANS IN THE NON-PRIME MARKET
ACA currently engages in the typical, manual purchasing process whereby
company representatives receive the hard copy of the loan application documents
from auto dealers and, upon a review of the documentation, credit history of the
consumer, etc., contacts the auto dealer with ACA's decisions to buy or not buy
each particular loan. However, a central goal of ACA is to effect a fundamental
change in its purchase procedures through the use of the Internet and
computer/telecommunication technology (See below). ACA purchases loans from
auto dealers pursuant to the application of strict underwriting guidelines set
by ACA's Management which involve performing comprehensive, loan-by-loan
collateral analysis, credit verifications and insurance verification.
1. LOAN PURCHASE PROCEDURES: ACA currently purchases or "originates"
its loans through its affiliate, Global Acceptance Corporation ("GAC").
ACA has contracted with GAC to originate the loans as well as service them. GAC
originates ACA's loans, inputs the data relating to the loans into its loan
servicing software, and then services the loans. GAC receives a monthly fee
equal to three-quarters of one percent (.0075%) of the outstanding and active
principal balance of the loans that it originates and services for ACA. GAC is
an affiliate of ACA through common, indirect stock ownership. The relationship
between ACA and GAC is more fully discussed in Subsection 6, below. GAC is
referred to herein as the "Servicer". In purchasing auto loans, ACA generally
follows these steps:
- - The Servicer purchases vehicle contracts for ACA after
reviewing the terms of each loan, analyzing the resale value of
the vehicles that serve as collateral for the loans, reviewing
credit applications, personally contacting the consumers, their
employers, and/or their references, performing other
verifications and checks, and generally applying the agreed upon
buying criteria set forth in its contract with ACA (these
guidelines may be reviewed and revised on a periodic basis where
changing economic conditions warrant it).
- - The Servicer seeks Lender's Single Interest coverage for each
contract that it purchases.
- - The Servicer, after satisfying the conditions for purchase, then
obtains the vehicle contract itself in exchange for payment
to the dealer. ACA is named as lien holder on the contract
itself as well as the title or application for title.
- - After purchase of the contract, the Servicer holds the contract
and other documentation in a custodial capacity and services the
loan on ACA's behalf.
- - In the event of defaults on loans in the portfolio the Servicer
is instructed to utilize outside independent repossession
companies to repossess vehicles. The servicer, under the
instruction of ACA, will then seek to market the vehicles, as
discussed above retail sales through consignments with outside,
independent dealers.
- - Finally, the Servicer will utilize a claims adjustment and legal
case management team to pursue loan deficiency payments, default
judgments, insurance claims and subordination rights.
<PAGE>
2. ORIGINATION, UNDERWRITING AND PURCHASE OF LOANS. ACA, through its
Servicer,currently uses a manual underwriting system which, when
combined with the information obtained by the retail centers in their
credit application, results in a systematic review and credit
verification of each applicant for vehicle financing. However, ACA
plans to begin using its Auto Credit Accept Internet system which
is, to a great degree, an automated system with regard to many
portions of the purchasing procedure. In accordance with these
underwriting and purchasing procedures, each credit and borrower
loan file should also contain the following:
- - Original credit application signed by the borrower.
- - Original and copy of the motor vehicle contract.
- - Assignment of installment sale contract to ACA.
- - Original title to the vehicle (or application for title).
- - Physical damage insurance certificates or agreements to provide
such insurance for the vehicle, furnished by the Borrower or
his/her insurance company.
- - Lien slips, DMV forms and registration documents.
- - Credit reports on borrower.
- - Description of vehicle with identification numbers.
- - Warranty agreement, if applicable.
- - Copy of receipt of down payment by dealer.
- - Proof of income by borrower, including pay stub, tax return, or
- - Copy of borrower's driver's license.
- - Copy of borrower's social security card.
- - Borrower's personal and business references.
- - Copy of borrower's recent telephone bill.
- - Vehicle odometer statement.
In underwriting each vehicle loan the borrower's ability to repay the
loan, the borrower's stability, and the borrower's credit history all
must be first assessed. The borrower's income must be determined and
generally the borrower's monthly vehicle payments (including
insurance), rent or mortgage, and other fixed debt payments, are not
to exceed 50% of the borrower's gross verifiable income. The minimum
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monthly income requirement for an individual is currently $1,400 and
for a married couple, currently $1,700. The customer must generally
have lived in an area for a minimum of three years or in a residence
for a minimum of one year, and have been employed with the same
employer for a minimum of six months or in the same field for a
minimum of three years, although recent college graduates, job
transferee and military personnel E-4 and above, on allotment are also
considered. In terms of credit history, the Originator is required to
have the following guidelines: (i) current credit delinquencies are
unacceptable unless there is a justifiable explanation, (ii)
outstanding liens and judgments are budgeted for, (iii) if there have
been prior credit problems, there should be a history of good credit
after the problems occurred, and (iv) if there has been a bankruptcy,
the bankruptcy cannot still be currently in effect, there should be no
derogatory credit after the bankruptcy proceeding, and there should be
a 6 month period from the termination of the customer's bankruptcy
proceedings before extending credit.
3. UNDERWRITING CRITERIA. The income, credit and stability guidelines
described in this Memorandum are some of the basic underwriting
criteria which are subject to exceptions and may vary in different
geographic areas. The Originator is required to take a common sense
approach in evaluating credit applications. ACA requires its
Originator to utilize certain Company approved guidelines in
purchasing contracts on ACA's behalf. These guidelines, however, are
subject to discretionary fluctuations on a loan by loan basis. The
guidelines for the state of Washington are generally as follows:
- - Contract interest rates: "B" credit generally no less than 14.99% APR;
and "D" credit generally no less than 17.99% and ranges up to APR;
- - Down payment: Ten percent (10%) to fifteen percent (15%) minimum down
payment.
- - Vehicle purchase price: Generally the lesser of: 1) NADA or Kelly
Blue Book wholesale plus 30% to 40%; or 2) NADA or Kelly Blue
Book retail, tax, license, Company approved add-ons (e.g., credit
life, extended warranties, alarms, etc.) plus an over advance of
5% to 10%.
- - Financing terms: For vehicles 10 years old, maximum financing term is
months; for vehicles 9 years old, a maximum financing term of 28
months; for vehicles 8 years old, a maximum financing term of
36 months; for vehicles 6 to 7 years old, a maximum financing term of
42 months; for vehicles 4 to 5 years old, a maximum financing term
of 48 months; for vehicles less than 5 years old, a maximum
financing term of 54 to 60 months.
- - Maximum finance amount: $15,000 including interest and charges.
- - Minimum finance amount: $2,000 including interest and charges.
- - Mileage: Varies depending upon the year and the make of the
vehicle, however, maximum mileage is 150,000 miles although the
Servicer is strongly encouraged by ACA to choose contracts with
underlying vehicles having much lower mileage; all vehicles with
more than 90,000 miles are encouraged to purchase a 12 month minimum
extended service warranty.
- - Dealers recourse: The Servicer contracts with the dealers, so that
the dealers are on full recourse basis if any of the information
supplied to ACA is falsified or is false or fraudulent.
- - Insurance: Physical damage insurance with a maximum deductible of
- - Variations: ACA's guidelines are subject to variation where the
situation warrants it.
4. LENDERS SINGLE INTEREST INSURANCE POLICIES.
At all times ACA seeks to maintain a physical damage insurance policy
providing collateralinsurance for the vehicles serving as collateral
for its loans. Such a policy is called a Lenders Single Interest
Policy. ACA currently maintains a contract with a local insurance
carrier to provide such coverage. ACA is currently paying a minimum
monthly premium of $300 for this insurance. This premium amount
increases by $25 per car when there are more than 200 loans in ACA's
portfolio ACA must report all vehicle loans covered by the policy
to the insurance company within thirty (30) days after each loan
is funded. The insurance company will not refund any portion of the
premium in the event a loan is prepaid. If the policy is canceled
or not renewed before the maturity date of loans covered by the
policy, the coverage will remain in place for outstanding loans
until the loans are repaid. The policy does not cover any vehicle
loan which exceeds 100% of the retail value as quoted in NADA or
the Kelly Blue Book for used vehicles, with possible exceptions where
there is warranty service or other contracts which help protect the
physical integrity of the vehicles.
5. LENDER'S SINGLE INTEREST COVERAGE. The Lender's Single Interest
policy
covers certain losses arising from the following events:
5. LENDER'S SINGLE INTEREST COVERAGE. The Lender's Single Interest policy
covers certain losses arising from the following events:
- - All_Risk Physical Damage Insurance (to provide the comprehensive and
collision coverage when the borrower's primary insurance is inadequate or
nonexistent at the time of loss).
- - Instrument Non_filing Insurance (to cover the security lien on a vehicle
when the filing has erroneously not been filed or filed incorrectly on
the collateral, or the title is defective).
- - Skip and Conversion Insurance (to cover the vehicle and the insured
collateral when the borrower, co_borrower or the collateral cannot be
located).
- - Confiscation Insurance (to cover the vehicle if the insured
collateral is seized by any local, city, county, state, or the federal
government).
- - Repossessed Physical Insurance (to cover comprehensive and
collision while repossessed vehicle is being delivered back into the
possession of the lien holder or its agent).
A loss will not be covered in some cases because of the limits placed
by the insurance company inside its policies, to the extent that there
is a delay on the part of the insured to repossess the vehicle after
default. In order to have coverage under this type of policy, (i) the
vehicle must be financed under ACA's program, (ii) the loan must be in
default, (iii) ACA must make all reasonable efforts to collect the
loan or repossess the vehicle, or be unable to repossess the vehicle
because it cannot be found or has been confiscated, and (iv) as a
result, ACA will suffer a loss under the vehicle loan.
Coverage on any of the insurance policies may be denied in event of
fraud or misrepresentations made by the loan applicants, auto
dealerships, the Servicer, or ACA. The policies do not cover the
expenses which may be incurred by ACA to enforce the loans or to
submit insurance claims. The policy will generally provide that valid
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claims will be paid within sixty (60) days after they are submitted.
The Lender's Single Interest insurance coverage's extend for the
entire term of each individual vehicle loan, even if the insurance
policies for ACA are canceled or not renewed for future vehicle loans.
The policies do not cover losses under loans with a term longer than
sixty (60) months. Copies of the Lender's Single Interest insurance
policy purchased by the Servicer, or ACA will be maintained at its
executive offices for review by qualified prospective investors at
reasonable times upon request.
6. THE SERVICER, GLOBAL ACCEPTANCE CORPORATION. ACA has entered into a
five year Origination Agreement and a five year Servicing Agreement
with its affiliate, Global Acceptance Corporation or GAC whereby GAC
is to originate, service, collect and hold ACA's automobile contracts
and titles in exchange for a Servicing Fee and
other remuneration. GAC is a Washington corporation licensed to do
business in the state of Washington. Fifty percent of GAC's shares are
owned by International Investors L.P. which has as one of its general
partners, William V. Fowler, who is, in turn, one of ACA's Directors
and Officers. The other fifty percent of GAC's shares are owned by
Puget Sound Diversified Investments L.P. which has as one of its
general partners, Norman K. Short, also one of ACA's Directors and
Officers. GAC will hold the automobile contracts, titles, and other
documents at its facilities located at 9564 Silverdale Way, Suite 201,
Silverdale, Washington 98383, generally on a temporary basis and it a
safe deposit maintained at a local branch of a large banking
institution. GAC will perform the following functions and duties for
the benefit of ACA and its Shareholders:
- - Custodian of all documents evidencing the retail automobile
installment loan contracts, including the original motor vehicle sales
contract, the original credit application, insurance certificates and
policies, and original title and security interest documents.
- - Creation and maintenance of a complete current file on the vehicle
loan.
- - Send a booklet advising of the monthly payment and due date and/or
mail a notice each month to the borrower on the loan to remit his/her
payments to the Servicer.
- - Collection and posting of all payments on each loan, and distributing
payments to ACA after retaining its compensation.
- - Respond to customer and regulatory inquiries.
- - Investigate loan delinquencies.
- - Send monthly reports to ACA regarding collections and distributions.
- - Initiate collection proceedings to enforce defaulted loans with ACA's
authorization, including filing lawsuits and repossessing vehicles, and
to be reimbursed for all expenses incurred by performing this function.
- - Resell repossessed vehicles with ACA's authorization.
- - File reports on the borrowers with credit agencies when required.
- - Release title to the vehicle to the borrower once the loan is repaid in
full.
- - Assist in tracking the physical damage insurance coverage on the
vehicles during the term of the loan.
- - Represent ACA's interest in borrower bankruptcy proceedings.
<PAGE>
As compensation for its services under the Origination Agreement and the
Servicing Agreement the Servicer, GAC, is entitled to receive fees
set forth in said agreements which are based upon loan amounts. The fee
amount is equal to three-quarters of one percent (.0075%) per month of
the prior month's portfolio balance. ACA is responsible for payment of
these fees for the duration of the Origination and Servicing Agreement with
GAC. The term of the Agreement is five years and commenced on January 1,
1999 shall be paid from ACA's gross operating income are intended to
cover most ongoing operational expenses except certain extraordinary
expenses such as costs of repossessions, repair expenses and/or
litigation. This arrangement, in turn, means that ACA is paying for many
of its operational expenses through the fee that it pays GAC.
ACA is, however, responsible for reimbursement to the Servicer of all
out_of_pocket expenses incurred by the Servicer in performing services
under the Servicing Agreement, plus direct costs, including filing fees,
repossession costs, postage costs, investigation fees, transportation and
storage costs, legal fees and DMV charges, as well as other similar costs
provided that they are fully documented and approved in advance by ACA.
ACA will pay for officers' salaries but is now paying a salary to only one
of its officers, its president, William Fowler.
GEOGRAPHIC BUSINESS ENVIRONMENT.
ACA believes that it is important to purchase loans that originate in its
own local geographic environment.
This is because it is easier to manage loans where the
debtors and vehicles are closer at hand and where the laws are more familiar.
Notwithstanding, however, the Servicer is not precluded from purchasing loans
in other states where the Company is legally able to operate and where the usury
laws permit sufficiently high interest rates to justify the expense and risk of
extending credit to non-prime consumers. At present ACA believes it is legally
permitted to purchase non-prime auto loans in approximately 40 states. ACA will
purchase most of its loans in Washington with a smaller number that may
originate in neighboring states such as Oregon and Idaho.
However, ACA also intends to engage in the brokering of loans with banks
and other financing concerns. This process will involve ACA taking loan
applications from dealers, processing them through an independent, third party
company, and simultaneously submitting the loan applications to various banks
and other lenders for approval. During the initial stages of this business,
loan applications will most likely originate from Washington auto dealers.
However, there is, theoretically, no reason why these applications could not
come from dealers in states other than Washington.
PRIMARY FACTORS OF COMPETITION.
The two primary factors of competition in ACA's marketplace are buy-fee
rates (or discount rates) and dealer service.
1. BUY-FEES. Contrary to one's initial assumptions, the rate of
interest charged to the consumer is not a significant enough factor to make it a
meaningful variable in the competitive equation. At the point of negotiating
the purchase of the loan, ACA's primary customer is the auto dealer and not the
retail purchaser of the automobiles, ACA is negotiating for and purchasing the
loan from the auto dealer and not the auto consumer. This means that, because
the retail consumer pays the interest on the loan and not the dealer, the dealer
is essentially inelastic or non-responsive to the interest rate. The dealer is,
on the other hand, very reactive to the buy fee or discount. Simply put, this is
because auto dealers pay this cost out of their own pockets although, most
dealers will, in effect, attempt to pass the fee on to the ultimate purchaser by
refusing to allow the purchaser to negotiate the purchase price of the vehicle
downward.The buy fee is typically expressed as either a flat fee or a
percentage of the loan balance (amount financed) and is, in effect,
subtracted from the advance proceeds payable to the dealer at the point of
purchase.
Buy fees related to the B and C credit categories can range anywhere from $50 or
$250 per vehicle and up to a percentage amount of 10% or higher in the D
category.
Because of the dealer's sensitivity to the buy fee component, it is
important for ACA maintain an awareness of what the competition is charging in
way of these fees and price its self accordingly. This is, in fact, what ACA
and its originator strive to do. The primary sources of information in this
regard is through dealer negotiations as well as the procuring of the
competition's "buy-sheets" (i.e., listings of the various purchasing
criteria of non-prime financiers including buy-fees) from auto dealers, there
always seems to be an open availability of competitors' buy sheets. In short,
ACA and its Originator stays aware of buy-fee rates and adjust
accordingly.
2. DEALER SERVICE. Auto dealers are very concerned about promptness in
funding. The primary reason underlying their concern is their own cash
flow--the quicker they receive funds in payment for the notes they sell, the
quicker they can repurchase inventory and continue generating sales. ACA is
<PAGE>
cognizant of the importance of this need and generally accommodates its dealers
by reacting quickly to loan analysis and, upon satisfaction of its criteria,
providing the dealer with a check. Due to the generally close geographical
proximity between ACA's offices and its auto dealers, funding may occur via hand
delivery. With some other financing concerns, funding may take as long as two
or more weeks.
3. PRINCIPAL COMPETITORS. The principal competitors competing in the
western Washington automobile non-prime market include such companies as Arcadia
Financial, Advanta Corp., WFS Financial Inc., Sunstar Acceptance, American
General Finance, Crown Finance, Reliable Credit, Merchants Acceptance, and
General Acceptance Corp. Because the non-prime market can prove to be so
lucrative there has been a great deal of entries into the market. However, many
of the conventional lending institutions are precluded through banking
regulations, stockholder restrictions, or other miscellaneous business reasons
from entering the market. These concerns have either turned away or formed
subsidiaries to pursue a position in the market.
4. SIZE AND MARKET STRENGTHS OF COMPETITORS. ACA's primary
geographical area of operations is its localized area of Western Washington.
However, to a lesser extent, ACA may purchase loans in eastern Washington and
western Oregon. With regard to ACA's immediate geographical environment, there
are only a few competing companies that maintain offices in the area. However,
as the industry lends itself well to electronic facsimile transmission, computer
modems, and other devices of technology, geographic location is not necessarily
a preclusion to doing business elsewhere. It, therefore, is perhaps of little
practical significance from a competitive standpoint whether or not other
non-prime lenders maintain local offices, they are still competing with ACA for
the purchase of non-prime loans. Some companies such as Arcadia Finance have
maintained one central office where their entire portfolio is operated with
loans originating from as close as Washington and Oregon and as far away as
Texas and Arkansas. Others such as Mercury Finance operated individual, smaller
portfolios through the use of a multitude of small, branch offices. Portfolio
sizes may range from fifty or sixty million dollars to five or six million
dollars. For example, General Acceptance Corp. apparently operated a portfolio
during the end of 1994 which was in excess of $62 million. The non-prime
finance industry also lends itself well to "mom and pop" operations; very small,
one or two owner operations.
5. HOW ACA COMPETES: ACA intends to build its portfolio to an initial
level, concurrent with the maximum amount of this offering, of approximately $9
million at an approximate initial monthly purchase volume of $250,000 in auto
loans (or approximately 30 to 40 loans). Management believes that this volume
can be easily reached through a relatively small number of auto dealers with the
end result being a relatively minor draw upon the market place. ACA's objective
is essentially to buy the target volume of loans while minimizing the
competitive contact with other financing concerns. By purchasing too large of a
monthly volume, the purchaser begins to draw down on the number of loans
available for purchase and, therefore, must start making concessions and other
adjustments to compete with other members of its market. These adjustments
typically are found in the form of lower standards of quality in the loans being
purchased and/or accepting a lesser buy fee. ACA's Management, through past
experience, estimates that ACA can easily obtain this level from as few as 8 or
10 Western Washington auto dealers therefore maintaining a fairly minimal
intrusion into the market.
Competition will be at its greatest force during this initial purchase
period. However, once ACA has reached the portfolio target size the monthly
volume of loan purchases can then be greatly decreased to that volume level
necessary to maintain the principal of the portfolio and for reinvestment of the
net profits (after tax and dividends). For every million dollars in portfolio
size, the purchase volume should only be
approximately four to six new loans per month.
FLOORING
Although ACA has not yet engaged in the business of flooring, the financing
of inventory for automobile dealers, it intends to do so as soon as is
practical. The business of flooring essentially is a financing process whereby
ACA advances money directly to the auto dealer's inventory purchase source,
<PAGE>
generally auto auctions, upon receipt of title from the source. The maximum
advance for auction purchased vehicles is generally the auction purchase price
plus auction fees. The auction price is generally at or below NADA wholesale
value but may, however, vary and be in excess of that amount. ACA earns a
profit from two sources, the first being an interest charge and the second being
certain fees charged for set-up, processing, title holding, administration, and
payoff. These fees are charged to the dealer on a per automobile basis and may
range anywhere from $75.00 to $100.00 per car. In addition, ACA may charge a
monthly inspection vehicle of approximately $10.00 per vehicle. Typically each
car is resold within the first 30 days.
To illustrate, assume ACA advances $3,000.00 on a car whose retail sales
price is $5,000.00 and the vehicle is resold by the dealer 30 days later.
Further assume that ACA charges an interest rate of 14.5% on the advanced
amount and $100.00 in administration fees. The Rate of Return on Investment,
therefore, is approximately 45.4%.
If ACA does enter into a flooring arrangement with a dealer, it would do so
under a written flooring agreement. The agreement would be in the form of a
promissory note and security agreement between ACA, as the maker of the
promissory note and beneficiary of the security agreement, and the automobile
dealer as the obligated party. ACA would not hold title to the vehicles serving
as collateral to the note rather, the dealer would obtain title to the vehicles
as they are purchased. ACA would, instead, require the dealer to grant a lien
to ACA under the agreement. In this way the dealer is allowed to purchase the
vehicle as part of its inventory and to convey title to the dealer's customers.
The promissory note would be written in such a manner as to allow for a maximum
advance limit. Advances against this limit would be on a vehicle by vehicle
basis.
Upon sale of the vehicle, the dealer would be required to immediately pay
to ACA the amount of money that ACA advanced on the vehicle. The dealer would
also be required, as part of the flooring agreement, to grant to ACA an
irrevocable power of attorney essentially giving ACA the power to do anything
that the dealer could do with respect to the vehicles serving as collateral for
the promissory note. The dealer would be required to meet other conditions and
obligations to ACA which would include; allowing ACA to inspect and audit the
dealer's inventory at any time without notice, keeping the vehicles serving as
collateral free of other liens or encumbrances, maintaining an insurance policy
insuring the vehicles against collision, theft, fire or other damage and making
ACA the beneficiary of the policy, and maintaining a valid state license to
conduct business as an automobile dealer at all times during the existence of
the agreement.
ELECTRONIC LOAN BROKERING AND ORIGINATION
Introduction.
We intend to utilize our internet capabilities and available computer technology
to engage in the brokering of automobile loans with banks and other financing
concerns. ACA has entered into an agreement with a software development company
for the purchase and modification of existing software to accommodate its loan
brokering service. The final software product will be ACA's Auto Credit system.
Essentially, ACA's loan brokering business will entail ACA taking loan
applications from participating dealers and submitting them electronically to
various banks and other lenders for approval. We anticipate charging a monthly
membership fee to participating dealers as well as receiving an origination
fee in the range of approximately $50 to $150 for each accepted loan. In this
way, ACA believes that it will be generate revenues by processing loans from
each credit category, A, B, C, and D, without the necessity of financing the
loans themselves. ACA does, however, intend to finance selected loans from the
submitted applications. ACA is currently in the process of soliciting
automobile dealers to participate in this program. The initial cost of the
software is estimated to be approximately $67,000. There will be monthly
maintenance fees of an as of yet undetermined amount. ACA intends to begin
testing its loan brokering system in the field by January, 2000.
Software System
We are in the process of designing and developing, through a third party
software developer, a software system that is a web-centric auto loan
origination, decision response and lender assimilation software system (the
"Auto Credit" system). This system will act as an application service provider
(ASP) for automobile dealers and lending institutions across the United States
and Canada. Auto Credit will be comprised of two front-end components and a
back end component: the two front-end components are a web browser interface
designed to originate loan requests from automobile dealers, borrower decision
results, and other functions and the lender criteria processing and report
interfaces. The back-end component is a loan decision software system that will
communicate loan information and requests to individual financing sources
(lending institutions) that will be selected based upon their respective loan
criteria and the incoming loan applicant's qualifications. Given that not all
lending institutions will be using the same loan processing software, our
software interaction with those institutions will be addressed on a case-by-case
basis.
Auto Credit System Overview
The software system that we have acquired, Auto Credit (with its modifications),
enables us to originate and process financing transactions for clients with "A"
through "D" credit. The Auto Credit system is actually composed of a multitude
of individual software systems. Auto Credit will allow a lending institution to
make lending decisions based upon automatic, electronic application of the
lender's criteria (the Credit Decisioning System). Additionally, Auto Credit
includes software for borrower/buyer data management (the Buyer Data Interface
System), communications and scripting facilities for credit report downloading
(the Credit Bureau Interface System), raw credit data manipulation (the Raw
Credit Data Processing System), credit statistics views and credit record
editing/auditing (the Buyer Credit Profile System), graphical forms/reports
module with print-previewing (the Forms Engine), automotive loan processing
facilities (the Consumer Loan System), and dial up communications (the
Communications System). Auto Credit utilizes a system that incorporates a
lender loan guideline management application (the Guideline Manager) that allows
a user to modify the loan guideline criteria data contained in the lender's
guideline base.
[graphics omitted]
EMPLOYEES
Currently, ACA pays a salary directly to only one employee, its president,
William Fowler. Mr. Fowler is currently receiving a salary of sixty thousand
dollars per year. However, ACA intends to add at least one more salaried
position, that of its vice president, Norman Short, in the near future. Its
current salaried employee, Mr. Fowler, maintains a day-to-day, active managerial
role in the business of the company. Additionally, as ACA more fully activates
its electronic loan origination business, it will add more employees to its
payroll. With regard to ACA's current portfolio, and its direct loan financing
business in general, ACA intends to continue its relationship with the Servicer,
GAC. GAC currently has two full time employees on salary and may add more as
ACA's portfolio increases. For more information regarding ACA's management,
please see Section entitled "MANAGEMENT", below.
FACILITIES
ACA currently maintains its executive offices and operations in space in
Silverdale, Washington which it rents from an unrelated third party. It
believes that this space is adequate for its needs for the foreseeable future.
REGULATION
ACA is not subject to any specific rules or regulations other than the
Federal Truth in Lending Act.
LITIGATION
Global Income Management, Company, a predecessor of ACA, is currently named
as a defendant in a lawsuit filed in the United States Federal Court for the
District of Idaho. William Fowler and Norman Short, ACA's President and
Vice-President are also named as defendants in the lawsuit. ACA is not named as
a defendant in the litigation.
The litigation arises out of the issuance of a promissory note by Global
Income to an Idaho resident in January, 1998. The face amount of the promissory
note is $123,000 and it bears interest at the rate of 11% per annum. Subsequent
to the issuance of the promissory note, ACA acquired all of the assets of Global
Income and agreed to pay its liabilities. Prior to the maturity date of the
note, ACA attempted to negotiate an extension of the due date and/or conversion
of the note to preferred stock. It was negotiating with a representative of the
holder of the note and believed that an agreement had been reached to convert
the note into ACA preferred stock. In reliance on that understanding ACA
prepared and delivered to the representative the documentation to effect the
conversion. In the interim, the holder of the note passed away and the executor
of the estate has elected not to honor the commitment by the representative to
convert the note. The executor demanded payment in full and filed the lawsuit
when Global and ACA declined to make the payment. It is ACA's intention to
discharge its obligation under the promissory note from the proceeds of this
offering. The total amount of its obligation was approximately $140,000 as of
August 1, 1999.
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth the names and ages of the members of ACA's
Board of Directors, executive officers, and the position with ACA held by each:
NAME AGE POSITION
- ---- --- --------
William V. Fowler 60 Director, President,
Chairman of the Board
Norman K. Short 40 Director, Vice President
Geraldine Fowler 48 Director, Treasurer and
Secretary
Tracy D. Bushnell 38 Director, National e-Business Director
William Wright 34 Director, Vice President of Operations
William Yates 71 Special Consultant to the Board
Each director is elected to hold office until the next annual meeting of
shareholders and until his successor has been elected and qualified. Officers
are elected annually by the Board of Directors and hold office until successors
are duly elected and qualified. The following is a brief account of business
experience during the past five years of each director and executive officer of
ACA.
WILLIAM V. FOWLER. Mr. Fowler has been with the company since its
inception. He has been the Company's President since December of 1997.Mr.
Fowler is an investment advisor representative for International Investment
Advisors, LLC. a Registered Investment Advisor. Mr. Fowler also maintains a
day-to-day, active role in the operations of autocreditaccept.com as a
member of the Board of Directors and President. He is engaged by the Servicer,
Global Acceptance Corporation, as Chairman of the Board and Vice President.
Mr. Fowler's background includes extensive experience in the direct sales
and marketing sector. Mr. Fowler has 33 years of business management and
ownership experience. His marketing background is diverse and very
successful. He was born on May 20, 1939 in St Louis, Missouri and he
attended college at Santa Monica City College in 1962 and 1963, majoring in
Psychology & Business Administration.
In 1997 Mr. Fowler entered into a Consent Order with the Washington State
Securities Division. The circumstances underlying that Order are completely
unrelated to the business or operations of ACA or any of its predecessors.
Under the Order, without admitting or denying any of the allegations of a
violation of the Washington State Securities Act, Mr. Fowler agreed to entry of
an order administratively enjoining him from any future violations of the
Washington State Securities Act. He also agreed to pay $1,000 to cover the cost
of the Division's investigation of the matter. Mr. Fowler has represented that
he has complied with all terms of the Order since its entry.
NORMAN K. SHORT. Mr. Short has been with the Company since its
inception. Mr. Short has held the position of vice president since December of
1997.Mr. Short is one of the co-founders of ACA and has maintained his
executive positions with ACA since its was formed. Mr. Short has obtained a
Juris Doctor Degree, a Masters Degree in Laws, Taxation, and holds a Certificate
in Public Accounting as well. He has served as the Chief Executive Officer of
Global Acceptance Corporation since its inception and continues to maintain an
active role in the non-prime automobile finance industry through his executive
positions maintained with ACA and the Servicer. Mr. Short, prior to beginning
his relationship with ACA and its Servicer, practiced law primarily in the
areas of tax management and planning, business formation and advisory, and
representation before the Internal Revenue Service.
GERALDINE M. FOWLER. Ms. Fowler has been with the Company since its
inception. Ms. Fowler has held the positions of Secretary and Treasurer since
December of 1997.Ms. Fowler is the Secretary and Treasurer of
Autocreditaccept.com She is presently engaged by the Servicer, Global
Acceptance Company, in a full time salaried position as its chief accountant and
as Secretary and Treasurer. She has worked in similar positions since 1995 and,
before that, she was employed by the Province of Ontario, Canada as an
<PAGE>
Environmental Officer from approximately May of 1986. Ms. Fowler received a
Degree in Environmental Engineering at Lambton College of Applied Arts &
Technology, Sarnia, Ontario, Canada in 1986. From 1969 to 1982 she worked for
the Canadian Imperial Bank of Commerce and the Bank of Montreal in the
accounting department.
TRACY D. BUSHNELL. Tracy Bushnell joined the Company in November of 1999.
In addition to his role as Director, Mr. Bushnell also maintains an active role
as National e-Business Director for autocreditaccept.com on a commissioned,
independent contractor basis. Mr. Bushnell is also currently a Business and
Warranty services representative for Wynn's Extended Care Service Contracts and
Northwest Business Consultants. He also represents Continental Protection
Services Inc., a GAP Insurance provider as well as Global Warranty Services,
Inc. Mr. Bushnell is a traveling representative for these latter companies as
well as a consultant to auto dealers throughout Washington State with regard to
their business and warranty services needs in the finance and insurance offices.
Additionally, Mr. Bushnell provides training and consulting to auto dealers in
the general area of business practices.
In 1991 Mr. Bushnell became a co-founder and the Sales Manager for Creative
Ventures Northwest, Inc., a Washington corporation doing business under the name
of Automotive Alternatives as an automotive dealer and automotive buying
service. During his tenure with Automotive Alternatives, Mr. Bushnell acquired
experience in many various aspects of retail automotive sales and day-to-day
operations in the automotive retail industry. While with Automotive
Alternatives, Mr. Bushnell held the positions of Sales Manager, Used Car
Manager, and Finance Manager and eventually became a partner and Vice President
of the company. In October of 1998, Mr. Bushnell sold his holdings in Creative
Ventures Northwest to pursue his other interests.
Mr. Bushnell, with his extensive in-the-trenches experience and his
hands-on style of learning, has brought to ACA a heightened background knowledge
of business development tactics, sales, marketing and public relations. His
ability to adapt and relate to customers' needs makes him an effective public
and business leader.
WILLIAM M. WRIGHT III. Mr. Wright joined the Company in December of 1999.
He is the President of a property management firm located in Silverdale,
Washington. He received his Bachelors of Science Degree in Business
Administration with an emphasis in Financial Services from San Diego State
University, California. Mr. Wright has experience and knowledge in Financial
Management spanning the past 14 years. His background and knowledge of systems
and technology have enabled him to deploy both internal and external
applications within his company and those of his business partners. Mr. Wright's
knowledge and ability to teach technology has created a demand for his expertise
at various national seminars and events where he has reached hundreds of users
nationwide. Additionally, Mr. Wright is a National Director for the National
Association of Residential Property Managers and past Chair of Washington States
Leadership group where he continues to provide advice in the area of technology.
WILLIAM R. YATES. William R. Yates has tentatively agreed to begin
serving the company on the basis of a consultant to the Board in December of
1999.Mr. Yates serves the Company in the limited capacity of Advisory
Director. He has no vote on the Board of Directors nor does he have any
direct managerial control. Mr. Yates has been in the finance business for
over forty-six years. He has served as the Chairman of the Board and
President/CEO of Imperial Thrift & Loan Association (Industrial Bank), as the
Vice President/Northeast Division Area, as the General Manager of AVCO
Financial Services and as the President/Representative Director of AVCO
Financial Services of Japan. Mr. Yates currently serves as Chief Operating
Officer of C a B Capital Markets, Inc. and as a management consultant to
Associates Financial Services Group. His career accomplishments include
reorganization of Industrial Bank whereby he established a centralized control
system that maximized efficiencies in a highly regulated market and achieved
superior results in the Thrift Operation by increasing assets 187%, reducing the
expense ratio by 54% and doubling the return on investment. Mr. Yates
successfully developed a highly profitable $100 million non-prime Auto Division
with a loss ratio of less than 1/10th of one percent per month and a quality
mid-market Real Estate Program that produced three billion dollars of new
business. He managed a 5-state regional area consisting of 90 Consumer Finance
branches, 450 employees and $300 million in receivables. Additionally, he was
responsible for all phases of field operations, financial planning, production,
training and profitability. He designed and successfully established the only
profitable Foreign Consumer Finance Company in Japan. That company currently
has over 500 branches with ROI in excess of 20%. He is currently a member of
the International Banking Group for BOJ. Mr. Yates studied TPC Philosophy and
Management at the Musahi Institute of Technology, Tokyo, Japan. Additionally,
he studied Japanese Management and Business Principals at Sophia University,
Tokyo, Japan and received a degree in Business Administration and Economics from
Missouri State University, Missouri.
EXECUTIVE COMPENSATION
As of the end of its last fiscal year ACA did not pay any compensation to
any of its executive officers in connection with the services they render to it.
Effective April 1, 1999 ACA began paying a salary to William Fowler in the
amount of $5,000 per month and, effective December 1, 1999, began paying
compensation in the amount of $2,500 per month to Norman Short. With regard to
Directors Tracy Bushnell and William M. Wright III, ACA intends to provide these
Directors with a combination of common stock and common stock options in lieu of
initial compensation for their services. ACA also intends to offer common stock
options to William Yates in addition to the monetary compensation already
contemplated. Tracy Bushnell, will also be compensated on a commission basis
for his marketing and sales services to ACA.
ACA does not presently provide group medical or life insurance for its
employees, although the Board of Directors may recommend such plans be adopted
in the future.
No officer of ACA receives any additional compensation for his or her
services as a director. However, directors are entitled to be reimbursed for
reasonable and necessary out-of-pocket expenses incurred by them in connection
with meetings of the Board of Directors or other matters of Company business.
Consultant to the Board, William R. Yates, will be participating in a
consultant capacity under a compensation plan whereby he receives a stipend of
seven hundred and fifty dollars per month. Additionally, ACA reimburses Mr.
Yates for his travel expenses incurred in attending board meetings. It
is anticipated that Mr. Yate's stipend will be increased in the future as
the need for his services increases as ACA expands its operations.
CHANGES IN CONTROL
ACA is not aware of any arrangement, including the pledge by any person of
securities of ACA, which may at a subsequent date result in a change in control
of ACA.
RELATIONSHIPS BETWEEN OFFICERS AND DIRECTORS
ACA's Chief Executive Officer, William Fowler, and ACA's
Secretary/Treasurer, Geraldine Fowler are husband and wife.
PRINCIPAL STOCKHOLDERS
The following schedule reflects the holdings of shares of common stock of
ACA by each person who, at the date of this Memorandum, holds of record or is
known by management of ACA to own beneficially more than 5% of the Common Shares
and, in addition, by all directors and officers of ACA, individually and as a
group.
<TABLE>
<CAPTION>
Name and Address of Number of Percent Before Percent After
Owner (1) Shares Offering Offering(2)
- ------------------------------------------------ --------- --------------- --------------
Max. Min.
---- ----
<S> <C> <C> <C> <C>
William V. and Geraldine Fowler(3) 1,563,140 35.4% 34.6% 26 %
Norman K. Short(4) 2,090,226 48.2% 47.1% 35.2%
1,563,140 35.4% 34.6% 26 %
All officers and Directors as a group (3 persons) 3,126,280 70.8% 69.2% 52 %
<FN>
(1) The address for all persons listed is 9564 Silverdale Way,
Suite 201, Silverdale, Washington 98383.
(2) Assumes that 100,000 Shares at the Minimum and 1,600,000 Shares
at the Maximum are sold under this offering at $6.00 per share and that:
a) 8824 currently issued shares of preferred stock are converted into
66,180 shares of common stock; and
b) 1,054,172 treasury shares are issued to individuals such as
directors, employees, consultants and other individuals excluding William
Fowler, Geraldine Fowler, and Norman Short.
Based upon these assumptions, the total common shares that would be issued
and outstanding at the minimum would be 4,512,075 shares, and at the maximum,
6,012,075 shares.
(3) Shares are held in the name of International Investors
Limited Partnership, a
Washington limited partnership, of which Mr. and Mrs. Fowler is the
general partners.
(4) Shares are held in the name of Puget Sound Diversified Investments
L.P., a Washington
limited partnership, of which Mr. Short is a general partner.
</TABLE>
CERTAIN TRANSACTIONS
INITIAL FINANCING
On December 31, 1998, ACA had issued and outstanding 4,180,452 Common
Shares to its two principal shareholders, International Investors, L.P. and
Puget Sound Diversified Investments, L.P. with said Common Shares having been
originally issued in consideration for a nominal amount of cash and the
performance of services in the development and preparation of ACA's operating
plan, marketing plan, plan of offering and distribution of its securities. Each
limited partnership shareholder holds an equal number of shares in ACA as well
as a fifty percent common stock interest in the Servicer. Some of ACA's costs
of formation were paid by Global Income Management Company, which, in exchange
for payment of said costs, received 21,320 of ACA's Preferred Shares. Those
Preferred Shares have since been redeemed and the majority of them reissued to
outside investors.
<PAGE>
There are no pending or anticipated mergers, acquisitions, spin-offs or
recapitalizations. ACA has, however, recently completed in a transaction that
involved ACA's purchase of automobile loan receivables from a former affiliate,
GIMC, in exchange for ACA's issuance of a combination of its Preferred Shares
and its Common Shares to a number of GIMC's prior investors. In August of 1998,
ACA entered into an agreement with GIMC whereby ACA agreed to purchase virtually
all of GIMC's automobile installment loan portfolio, its inventory of
repossessed vehicles, and certain selected deficiency account balances. In
exchange, ACA agreed to distribute up to 22,871 shares of its Preferred Stock
and 159,900 shares of its Common Stock. However, ACA ultimately issued 17,339
shares of its Preferred Stock, 8824 of which were still issued and outstanding
as of September 30, 1999, 125,000 shares of its Common Stock, and $234,484 in
short term promissory notes to GIMC's investors. Prior to this transaction
GIMC held 21,320 of ACA's convertible Preferred Shares. To complete the overall
transaction, ACA accelerated the conversion of the 21,320 Preferred Shares held
by GIMC into 159,900 Common Shares and GIMC tendered back to ACA all of the new
Common Shares. ACA, in turn, distributed 125,000 of these shares to its new
investors and retained the remaining 34,900 shares as treasury stock.
The Officers and Directors of ACA identified above do not own shares in ACA
directly. However, William V. Fowler and Norman K. Short are both general
partners in International Investors L.P. and Puget Sound Diversified Investments
L.P., respectively, with these two entities being ACA's two principal
shareholders.
DILUTION
As of December 31, 1998, ACA had 4,340,352 Common Shares and 17,339
Preferred Shares issued and outstanding. The Preferred Shares are convertible
into 130,043 Common Shares. Dilution is the reduction of value in a purchaser's
investment measured by the difference between the price of the shares in this
offering and the net tangible book value at December 31, 1998 plus the increase
attributable to purchases by investors in this Offering. Net tangible book
value per share represents the amount of ACA's tangible assets in excess of its
liabilities, divided by the number of shares outstanding.
The following tables summarize the difference between the number of shares
purchased from ACA, the total consideration paid in cash, and the average price
per share paid by existing shareholders and the purchaser of shares in this
Offering as of December 31, 1998 at both the Minimum and Maximum levels assuming
a per share purchase price of $6.00.
<TABLE>
<CAPTION>
SALE OF MINIMUM NUMBER OF SHARES
- -------------------------------------
Total Cash Average
Shares Purchased Consideration Price
------------------- ------------------ ---------
Number Percent Amount Percent per Share
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Founding Shareholders 4,180,452 94.1% $ 1,100 .20% $.0003
Other Shareholders 159,900 3.6% $ 5,364 .90% $ .034
New Investors 100,000 2.3% $600,000 98.9% $ 6.00
--------- -------- --------
Totals 4,440,352 100.0% $606,464 100.0%
========= ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SALE OF MAXIMUM NUMBER OF SHARES
- -------------------------------------
Total Cash Average
Shares Purchased Consideration Price
------------------- ------------------ ---------
Number Percent Amount Percent per Share
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Founding Shareholders(1)(2) 4,180,452 70.4% $ 1,100 .03% $.0003
Other Shareholders 159,900 2.7% $ 5,364 .07% $ .034
New Investors 1,600,000 26.9% $9,600,000 99.9% $ 6.00
--------- ---------- --------
Totals 5,940,352 100.0% $9,606,464 100.0%
========= ======== ========== ========
</TABLE>
On conclusion of this offering, assuming 100,000 Shares are sold at the
Minimum or 1,600,000 Shares are sold at the Maximum for $6.00, the proforma net
tangible book value to the existing shareholders and the decrease in net
tangible book value to purchasers of shares in the offering are summarized in
the following table:
<TABLE>
<CAPTION>
Minimum Maximum
Proceeds Proceeds
--------- ---------
<S> <C> <C>
Offering Price $ 6.00 $ 6.00
Net tangible book value per share at December 31, 1998 (1) $ 0.05 $ 0.05
Increase attributable to purchases by new investors $ 0.13 $ 1.60
Net tangible book value per share at December 31, 1998
as adjusted for this offering, before deducting offering
expenses (2) $ 0.18 $ 1.65
Dilution of net tangible book value to new investors $ 5.82 $ 4.35
<FN>
(1) Common Shares only.
(2) Assumes no conversion of outstanding preferred shares.
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of ACA at December 31,
1998, as adjusted to reflect the sale of 100,000 Shares at the Minimum and
1,600,000 at the Maximum at the offering price of $6.00 per share, and the
receipt of the anticipated proceeds in the amount of $600,000 at the Minimum and
$9,600,000 at the Maximum, net of estimated offering expenses of $55,000 and
$121,000 respectively.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
Actual As Adjusted
--------- ---------------------
Minimum Maximum
Proceeds Proceeds
--------- ----------
<S> <C> <C> <C>
Long-term notes payable, net of current portion. $ 0.00 $ 0.00 $ 0.00
Stockholders' Equity:
Common Stock (no par value),
32,500,000 shares authorized and
4,340,352 issued at December 31, 1998;
4,440,352 Shares if minimum and
5,940,352 Shares if maximum, outstanding
upon completion of this offering (1)
Retained Earnings (Deficit). . . . . . . . . . . (97,809) (97,809) (97,809)
--------- --------- -----------
Total Stockholders' Equity . . . . . . . . . . . 304,361 849,361 9,783,361
--------- --------- -----------
Total Capitalization . . . . . . . . . . . . . . $206,552 $751,552 $9,685,552
========= ========= ===========
<FN>
(1) Assumes all issued and outstanding shares of preferred stock were converted
into shares of common stock.
</TABLE>
DESCRIPTION OF SECURITIES
COMMON SHARES
ACA's Articles of Incorporation, as amended, authorize the issuance of up
to 32,500,000 no par value Common Shares. Each holder of record of Common
Shares is entitled to one vote for each share held on all matters properly
submitted to the shareholders for their vote. Cumulative voting is not
authorized by the Articles of Incorporation.
Holders of outstanding Common Shares are entitled to those dividends
declared by the Board of Directors out of legally available funds, and, in the
event of liquidation, dissolution or winding up of the affairs of ACA, holders
are entitled to receive ratably the net assets of ACA available to other Common
Shareholders. Holders of outstanding Common Shares have no preemptive,
conversion or redemptive rights. All of the issued and outstanding Common Shares
are, and all unissued Common Shares, when offered and sold will be, duly
authorized, validly issued, fully paid and nonassessable. To the extent that
additional Common Shares of ACA are issued, the relative interests of the then
existing shareholders may be diluted.
DIVIDEND POLICY
Holders of Common Shares are entitled to dividends in the discretion of the
Board of Directors and payment thereof will depend upon, among other things,
ACA's earnings, its capital requirements and its overall financial condition.
ACA has not paid any cash dividends on its Common Shares since inception and
intends to follow a policy of retaining any earnings to finance the development
and growth of its business. Accordingly, ACA does not anticipate the payment
of cash dividends upon its Common Shares in the foreseeable future.
MARKET FOR COMMON SHARES
There is currently no public market for the Common Shares of ACA, and there
can be no assurance that a trading market will develop in the future. Further,
<PAGE>
the outstanding Common Shares are restricted securities as that term is defined
in Rule 144 under the 1933 Act, and can not be resold without registration
under the 1933 Act or an exemption from registration.
PREFERRED SHARES
ACA's Articles of Incorporation, as amended, authorize the issuance of up
to 1,000,000 Class "A" 12% Cumulative, Convertible, no par value Preferred
Shares. As of September 30, 1999, there were 8,824, Preferred Shares issued and
outstanding. However, the preferred shareholders are allowed to convert their
shares into common shares at any time and most, if not all, will do so.ACA may
fix designations, preferences, powers, dividend rights, conversion rights,
voting rights, terms of redemption's and liquidating preferences. Any or all
of these may be greater than the rights of the Common Shares.
Preferred dividends
Holders of outstanding Preferred Shares are entitled to receive, when, as
declared by the Board of Directors of ACA, out of funds legally available
therefore, cumulative cash dividends at the rate of 12% per annum of the stated
value of $30.00 per share, or $3.60 per share per annum, and no more. Dividends
on the Preferred Shares if not paid in a particular year, will accrue. Each
dividend will be payable to holders of record as they appear on the stock
records of ACA on the record date of the dividend.
No cash dividends may be declared or paid or set for payment on any class
of stock ranking as to dividends junior to the Preferred Shares unless full
annual dividends have been paid or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereby set apart for such
payment.
Preferred conversion
The holders of the Preferred Shares are entitled at any time beginning six
months following the close of this offering, subject to prior redemption, to
convert the Preferred Shares into ACA's Common Shares, at a rate of seven and a
half Common Shares for each one Preferred Share, provided that the average bid
price of the Common Shares is at least $4.00 per share for the twenty trading
days prior to such conversion date. The conversion ratio is subject to
adjustment as set forth below. ACA is not required to issue fractional Common
Shares upon conversion of the Preferred Shares and, in lieu thereof, will pay a
cash adjustment based upon the market price of the Common Shares on the last
business day prior to the date of conversion. In the case of Preferred Shares
called for redemption, conversion rights will expire at the close of business
the tenth business day prior to the redemption date.
Preferred call feature
The Preferred Shares are callable by ACA at any time that the average bid
price of the Preferred Shares is at least $4.80 per share for the twenty trading
days prior to such call. The holders of the Preferred Shares will be required to
surrender and deliver, duly endorsed, the certificate or certificates
representing the number of Preferred Shares being called by ACA at its office or
to the transfer agent at their offices.
Preferred liquidation
Upon dissolution, liquidation or winding up of ACA, the holders of the
Preferred Shares shall be entitled to receive and to be paid out of the assets
of ACA available for distribution to its stockholders, before any payment or
distribution shall be made on the Common Shares or any class of stock ranking
junior to the Preferred Shares upon liquidation, 100% of the stated value amount
per share, plus a sum equal to all unpaid dividends thereon to the date of final
distribution.
<PAGE>
Neither the sale of all or substantially all of the property or business of
ACA, nor the merger or consolidation of ACA into or with any other corporation
or the merger or consolidation of any other corporation into or with ACA shall
be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary. After the payment to the holders of Preferred Shares or the full
liquidation preference provided above, the holders of Preferred Shares as such
shall have no right to claim to any of the remaining assets of ACA. In the event
the assets of ACA available for distribution to holders of Preferred Shares upon
any dissolution, liquidation or winding up of ACA, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts which such holders
are entitled, no distribution shall be made on account of any Common Shares
unless proportionate distribution amounts shall be paid on account of the
Preferred Shares ratably, in proportion to the full distribution amounts for
which holders of all such shares are respectively entitled upon such
dissolution, liquidation or winding up.
STOCK OPTIONS & WARRANTS
As partial consideration for services, the Company will make available
approximately 1,054,172 shares of its common stock for immediate issuance to
certain individuals. Initially, these individuals include:
William M. Wright, III
Tracy D. Bushnell
William Yates
The common shares that will be used to meet these distribution requirements
will be held as treasury stock by the Company as of December 20, 1999. The
Company will obtain these shares from its current principal shareholders,
International Investors L.P. which has as one of its general partners, William
V. Fowler, and Puget Sound Diversified Investments L.P. which has as one
of its general partners, Norman K. Short. These shareholders have agreed to
tender back to the Company 1,054,172 common shares for no additional
consideration.
Of the 1,054,172 common shares made available to the above named
individuals, an as-of-yet agreed upon number of shares will be issued directly
to one or more of such individuals solely in exchange for past, present and/or
future services, and additional shares, also as-of-yet agreed upon, will be
made available to them in the form of options.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares will be performed by
ACA until such time as there are enough stockholders to require outside
services.
DETERMINATION OF OFFERING PRICE
The offering price for the Shares was determined by ACA based a variety of
factors and does not bear any direct relationship to the assets, results of
operations to date or book value of ACA or to any other historically based
criteria of value. In determining such price, consideration was given to, among
other things, ACA's initial and projected operating results, its prospects and
earnings potential, its management and the risks associated with an investment
in the Shares. Additional consideration was given to the general state of the
economy, the auto finance market
and other factors which management deemed
material.
REPORTS TO SHAREHOLDERS
ACA intends to furnish its shareholders with annual reports which will
describe the nature and scope of ACA's business and operations for the prior
year and will contain a copy of ACA's financial statements for its most recent
fiscal year.
WASHINGTON STATUTES
Section 23B.08 of the Revised Code of Washington, as amended, authorizes a
Washington corporation to indemnify its officers and directors, against claims
or liabilities arising out of such person's conduct as officers and directors if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of ACA. The Articles of Incorporation provide
for indemnification of the directors and officers of ACA. In addition, Article
11 of the By-Laws of ACA provide for indemnification of the directors, officers,
employees or agents of ACA. In general, these provisions provide for
indemnification in instances when such persons acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
ACA. Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of ACA pursuant to
the foregoing provisions, or otherwise, ACA has been advised that in the opinion
of the Commission, such indemnification is against public policy as expressed in
the 1933 Act and is, therefore, unenforceable.
<PAGE>
PLAN OF DISTRIBUTION
ACA is presently offering its Common Shares pursuant to federal regulations
relating to Form SB-1 and concurrent state regulations. ACA is offering a
minimum of 100,000 and a maximum of 1,600,000 of its Common Shares at $6.00 per
share for an aggregate Offering amount of $600,000 at the minimum and $9,600,000
at the maximum offering. ACA reserves the right to terminate this Offering at
any time prior to the closing date of this Offering. The Offering will be
managed and the Shares will be offered and sold by or through ACA's officers,
directors, and agents on a "best efforts" basis. Such officers will not receive
separate compensation in connection with the offer and sale of the Shares.
Shares are offered only to bona fide residents of states where the Offering
has been qualified to be made. The Shares will be offered by officers of ACA
subject to applicable federal and state securities laws. No commission or other
remuneration will be paid with respect to the sale of Shares in this offering.
No broker or dealer has been retained or is under any obligation to sell or
purchase any of the Shares. However, ACA may obtain the services of securities
brokers and/or dealers in the future to assist it in the offer and sale of the
Shares. In such event, a commission may be paid to these broker-dealers as
agents of ACA, where allowed by law, in an amount not to exceed 10% of the gross
offering proceeds received on sales of the Shares made by them. ACA may also
agree to reimburse such participating broker-dealers for expenses incurred in
connection with the offering, on a non-accountable basis. ACA and the
participating broker-dealers may further agree to indemnify each other against
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended, the 1933 "Act".
ESCROW ACCOUNT
This offering is being made on a "best efforts" basis and there is no
assurance that all or any of the Shares offered will be subscribed. The offer
will terminate if the Minimum of 100,000 shares are not sold by September 30,
2000, unless extended by ACA to September 30, 2001. All funds paid to ACA by
investors in subscriptions for shares will be placed in an escrow account with
First Trust Bank, NA, until ACA has received subscriptions for the minimum of
100,000 shares, at which time the escrow will be terminated and the funds in the
escrow will be released to ACA to allow for the closing of this transaction. If
ACA does not receive subscriptions for 100,000 shares by September 30, 2000
(unless extended in ACA's sole discretion to September 30, 2001), then the
funds held in escrow will be returned to subscribers with interest earned,
if any, and the offering will be terminated. ACA will pay all bank
charges related to establishing and maintaining the Escrow Account. In
no event will the bank charges be deducted from the principal of any
subscription for the shares. There can be no assurance that all Shares
offered hereunder will be sold.
When and if the minimum is sold and the proceeds therefrom are deposited
into the escrow account, the escrow account will be closed and all proceeds
therein, including interest, will be delivered to ACA. After the escrow account
is closed, ACA may continue the offering until the earlier of the sale of all
shares or December 31, 2001. All proceeds from the sale of shares after the
minimum is sold will be paid directly to ACA and will be immediately available
for use by ACA for the purposes described herein. Subscribers will not
own shares until such time as the minimum escrow amount has been reached.
SUBSCRIPTION PROCEDURES
ACA proposes to sell the 1,600,000 shares of ACA stock at $6.00 per share.
Unless notified to the contrary, persons wishing to purchase Shares in this
offering should complete and deliver to ACA a Subscription Agreement, together
with the purchase price payable in cash or check. Checks should be made payable
to "First Trust Bank, for Auto Credit Acceptance, Ltd." Upon receipt of the
Subscription Documents, ACA will promptly review them to confirm the suitability
<PAGE>
of the investor. If the investor is suitable and the subscription is not
rejected by ACA, the check for the purchase price will be deposited into the
escrow account at First Trust Bank, NA. If, for any reason, ACA determines the
investor is not suitable or if it rejects the subscription for any other reason,
the investor's check and all subscription documents will be promptly returned to
the investor without interest and without deduction.
MINIMUM PURCHASE
The minimum number of shares any single investor may purchase pursuant to
this offering is 100 at a total minimum price of $600.00.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, ACA will have, assuming the maximum
number of Shares offered herein are sold and assuming full conversion of all
issued and outstanding preferred shares, issuance of all treasury shares to
certain individuals (see section entitled "STOCK OPTIONS AND WARRANTS"),
6,012,075 shares of Common Stock issued and outstanding. The Shares of
Common Stock sold in this offering will be freely transferable without
restrictions or further registration under the Securities Act. This does
not include those shares purchased and/or held by an "affiliate" (as that term
is defined under the Securities Act) of ACA who will be subject to the resale
limitations of Rule 144 promulgated under the Act if and when ACA's securities
qualify for the resale exemption afforded by Rule 144. Although no trading
market currently exists for the Common Shares, ACA anticipates that it
will make application to the NASD's Over-the-Counter Bulletin Board
market upon the sale of the maximum aggregate amount of this Offering.
The shares of Common Stock owned by "control persons", officers and
directors are deemed "restricted securities" as that term is defined under the
Securities Act and in the future may be sold under Rule 144 at such time as
ACA's securities qualify for the resale exception afforded by said rule. Rule
144 provides, in essence, that a person holding restricted securities for a
period of one year may re-sell shares every three (3) months, in brokerage
transactions and/or market maker transactions, in an amount equal to the greater
of (a) one per-cent (1%) of ACA's issued and outstanding Common Stock or (b) the
average weekly trading volume of the Common Stock during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the
sale of shares without any quantity limitation by a person who is not an
affiliate of ACA and who has satisfied a two year holding period.
Additionally, shares underlying employee stock options granted, to the
extent vested and exercised, may be resold beginning on the ninety-first day
after the effective date of a prospectus, offering circular, or offering
memorandum pursuant to Rule 701 promulgated under the Securities Act.
Upon completion of the Offering, and assuming all Shares offered hereby are
subscribed to and assuming full conversion of all outstanding Preferred Shares
and issuance of all treasury shares (see section entitled "STOCK OPTIONS AND
WARRANTS"), , ACA will have 6,012,075 shares of Common Stock outstanding, of
which 1,600,000 Shares will be freely transferable without restriction under the
Securities Act. Of the remaining shares of Common Stock which will be
outstanding (again, assuming full conversion of all Preferred Shares and
issuance of all treasury shares) approximately 4,340,352 shares will be held by
shareholders who, at the date of this Memorandum, have not held beneficial
ownership thereof for at least one year. Such shares will not qualify for
resale under Rule 144 until each shareholder holds the shares for at least one
year. At the end of one year from when the shares were issued these
shareholders will be able to sell their shares, assuming that a trading market
has been established for the shares. There will be certain volume and manner of
sale limitations imposed on such shareholders at the time of resale if and when
a public market for the shares develops. Of the total 4,340,352 shares
which have not yet been held for at least one year, 4,180,452 shares are
held by affiliates , existing shareholders, officers, directors and other
insiders and will continue to be subject to volume and manner resale
limitations. However, within six months from the date of this prospectus,
approximately shares of common stock held by current shareholders will
be eligible for resale in a public market in reliance on Rule 144 without
volume and manner of sale limitations, commencing 90 days after ACA meets the
issuer conditions of Rule 144. The remaining 4,180,452 shares held by
affiliates will be eligible for resale in a public market in reliance on Rule
144 with the volume and manner of sale limitations imposed upon affiliates of
<PAGE>
the issuer. Currently, none of ACA's shares of Common Stock are available for
resale under Rule 144 since ACA has not met all of the conditions required by
the rule, specifically, ACA has not made certain information available to the
public as required by Rule 144(c). Future resales under Rule 144, if and when
ACA meets the conditions of Rule 144, may have an adverse effect on the market
price of the Shares of Common Stock issued to subscribers in this Offering.
There has been no public market for the common stock of ACA. Although, ACA
believes a public market will be established at some future time, there can be
no assurances that a public market for the shares offered herein will develop.
If a public market for the Shares does develop at a future time, sales of shares
by shareholders of substantial amounts of Common Stock of ACA in the public
market could adversely affect the prevailing market price and could impair ACA's
future ability to raise capital through the sale of its equity securities.
LEGAL MATTERS
The validity of the shares offered herein will be opined on for us by the
Law Offices of Jack G. Orr, P.S. of Tacoma, Washington, which has acted as our
outside legal counsel in relation to certain, restricted tasks.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission in Washington,
D.C., a registration statement on Form SB-1 under the Securities Act of 1933, as
amended, with respect to the shares we are offering. Prior to the effective
date of the Registration Statement ACA was not subject to the information
requirements of the Securities Exchange Ac t of 1934, as amended, (the "Exchange
Act"). At the time of the effectiveness of the Registration Statement ACA
became a "reporting company" and is required to file reports pursuant to the
provisions of the Exchange Act. This Prospectus does not contain all of the
information set forth in the Registration Statement, as permitted by the rules
and regulations of the Commission. Reference is hereby made to the Registration
Statement and exhibits thereto for further information with respect to ACA and
the Debentures to which this Prospectus relates. Copies of the Registration
Statement and other information filed by ACA with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission in Washington, D.C. at 450 Fifth Street, N.W., Washington, DC 20549
and at certain of its regional offices which are located in the New York
Regional Office, Seven World Trade Center, Suite 1300, New York, NY 10048, and
the Chicago Regional Office, CitiCorp Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511. In addition, the Commission maintains a World Wide
Web site that contains reports, proxy statements and other information regarding
registrants such as the Issuer, that filed electronically with the Commission at
the following Internet address: (http:www.sec.gov).DIRECTORS OF THE COMPANY
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Auto Credit Acceptance, Ltd.
(dba Autocreditaccept.com)
I have audited the accompanying balance sheet of Auto Credit Acceptance,
Ltd., (dba Autocreditaccept.com) as of December 31, 1998, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Auto Credit
Acceptance, Ltd. as of December 31, 1998, and the results of its operations and
its cash flows for the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Auto Credit Acceptance, Ltd. will continue as a going concern. There is
substantial doubt about the Company's ability to continue as a going concern as
a result of recurrent losses and negative working capital. Management's plans in
regard to these matters are also described in note 1 to the financial
statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
W. Alan Jorgensen
Certified Public Accountant
May 18, 1999
Seattle, Washington
AUTO CREDIT ACCEPTANCE, LTD
Financial Statements
December 31, 1998
<PAGE>
<TABLE>
<CAPTION>
AUTO CREDIT ACCEPTANCE, LTD.
d/b/a Auto Credit Acceptance. com
BALANCE SHEETS
UNAUDITED
--------------
DECEMBER 31 SEPTEMBER 30
1998 1999
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,807 $ 48,191
Accrued Interest Receivable 7,086 4,392
------------- --------------
Total current assets 17,893 52,583
Contracts Receivable 554,130 391,198
TOTAL ASSETS $ 572,023 $ 443,781
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accrued Interest Payable $ 6,718 $ 28,039
Notes Payable 357,485 349,047
------------- --------------
TOTAL CURRENT LIABILITIES 364,203 377,086
------------- --------------
Contingencies - -
STOCKHOLDERS' DEFICIT
Preferred stock: 2,000,000 shares authorized - -
Issued and outstanding ($30 par value)
December 31, 1998 - 17,339, Sep. 30, 1999 8,515 520,170 264,720
APIC Deficit (221,274) (149,363)
Common stock: 32,500,000 shares, no par, authorized
Issued and outstanding: -
4,340,352 shares at 12/3198; and 4,404,215 at 9/30/99 6,464 152,758
Accumulated deficit (97,540) (201,420)
------------- --------------
TOTAL EQUITY 207,820 66,695
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 572,023 $ 443,781
============= ==============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
AUTO CREDIT ACCEPTANCE, LTD.
d/b/a Auto Credit Accpetance.com
STATEMENTS OF CASH FLOWS
UNAUDITED
-------------
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
1998 9/30/99
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss (97,540) (103,880)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED BY OPERATING ACTIVITY
Compensatory shares issued 1,000
Amortization of Unearned income 735 881
Bad debt expense 96,833 12,775
CHANGES IN OPERATING ASSETS AND LIABILITIES
Increase in Interest payable 6,718 21,321
Increase in unearned income 4,683 1,455
Increase in interest receivable (7,086) (2,694)
-------------- -------------
NET CASH USED BY OPERATING ACTIVITIES 5,343 (70,142)
INVESTING ACTIVITIES
Decrease in contracts receivable - 166,771
-------------- -------------
NET CASH USED BY INVESTING ACTIVITIES - 166,771
FINANCING ACTIVITIES
Proceeds from sale of common stock 5,464
Pay down of short term notes payable - (22,000)
Cost of issuing preferred shares - (37,245)
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,464 (59,245)
Increase (Decrease) in cash 10,807 37,384
Beginning of period - 10,807
-------------- -------------
END OF PERIOD $ 10,807 $ 48,191
============== =============
Interest paid $ 18,114
Corporate Income tax paid - -
NON CASH EVENTS:
Short term notes payable exchanged for contracts receivable $ 357,484 -
Preferred shares issued for contracts receivable net of issue costs
and discount on preferred totalling $222,274 $ 297,896 -
8,515 preferred shares were converted to 63,863 common shares - $ 255,450
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
AUTO CREDIT ACCEPTANCE, LTD.
d/b/a Auto Credit Acceptance.com
STATEMENTS OF OPERATIONS
UNAUDITED
-------------
YEAR END NINE MONTHS
DECEMBER 31, ENDED
1998 9/30/99
-------------- -------------
<S> <C> <C>
REVENUES $ 54,083 $ 97,594
EXPENSES
Interest Expense 24,821 27,089
Service Fees 18,041 32,449
Bad Debt Expense 96,833 12,775
General and Administrative 11,928 129,161
-------------- -------------
TOTAL EXPENSES 151,623 201,474
Loss from operations (97,540) (103,880)
Basic and Diluted loss per share $ (0.06) $ (0.03)
============== =============
Weighted average number of shares outstanding: 1,741,438 3,139,911
============== =============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
AUTO CREDIT ACCEPTANCE, LTD.
d/b/a Auto Credit Acceptance.com
STATEMENT OF STOCKHOLDERS' DEFICIT
SEPTEMBER 30, 1999 AMOUNTS ARE UNAUDITED
Preferred Stock Common Stock
per ------------------ -------------------- Accum.
share Shares Amount Shares Amount Deficit Totals
------ ------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCES - - - - - -
Common shares for services $ 0.10 1,000 100 100
-
Common shares issued for cash $ 0.03 159,900 5,364 5,364
-
Common shares for services May 1998 $4,179 4,179,452 1,000 1,000
-
Preferred shares for contracts $30.00 17,339 520,170 (222,274) 297,896
(May through December 1998) -
Net loss for year ended December 31, 1998 (97,540) (97,540)
------- --------- --------- --------- --------- --------
BALANCES AT DECEMBER 31, 1998 17,339 520,170 4,340,352 (215,810) (97,540) 206,820
------- --------- --------- --------- --------- --------
Conversion of preferred to common - (8,515) (255,450) 63,862 255,450
Cost issuing securities - (37,245)
Net loss for 3 Qtrs. ended September 30, 1999 (103,880)
------- --------- --------- --------- --------- --------
BALANCE AT SEPTEMBER 30, 1999 - UNAUDITED 8,824 264,720 4,404,214 2,395 (201,420) 65,695
------- --------- --------- --------- --------- --------
</TABLE>
See accompanying notes to the financial statements
<PAGE>
NON-CASH FINANCING AND INVESTING ACTIVITIES DURING 1998:
Short Term Notes Payable Exchanged for Contracts $357,484
Issuance of Preferred Stock for Contracts
(net of cost of issuing and discount on Preferred of $222,274) $297,896
See Notes to the financial statementsr
<PAGE>
Auto Credit Acceptance, Ltd. (d/b/a Autocreditaccept.com)
Notes to the financial statements - December 31, 1998
Note 1 - NATURE OF OPERATIONS
Auto Credit Acceptance, Ltd. ("Company") was incorporated in Washington State on
December 22, 1997. Autocreditaccept.com, is the Company's registered trade name.
The Company was organized to be in the business of purchasing and holding retail
installment contracts for vehicle purchasers who are at varying levels of credit
risk below prime. The Company operates in the non-prime consumer lending market
where the rate of default on consumer loans is higher than in the prime market.
During 1998, 4,179,452 shares were issued to founders of the Company for their
reorganization efforts on behalf of the Company. Because it is not possible to
determine a market value for these shares or for the entrepreneurial efforts by
the founders, these shares are valued at nominal amounts.
The Company, through its servicer Global Acceptance Corporation ("GAC"), an
affiliate, initiates and purchases automobile loans in the non-prime market.
(See Note 4).
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Revenue is recognized when earned using the effective interest method. Interest
receivable is accrued for interest due, but unpaid, at the end of each reporting
period for all active accounts ($527,042 at December 31, 1998 and $324,414 at
September 30, 1999). A portion of unearned income is recognized as revenue over
the estimated life of the purchased contract (however, this amount is not
material to the financial statements for the periods ended December 31, 1998 and
September 30, 1999
Impaired Loans
Impaired loans (or "contracts") (as defined by FAS No. 114) are contracts which
the Company estimates are probable that the Company will be unable to collect
all of the scheduled interest and principal payments. (See note 3 to the
financial statements).
No interest is accrued for accounts considered impaired. For impaired loans, for
which the underlying collateral has not been repossessed, interest income is
recognized for the interest due portion when cash is received. For impaired
loans for which the underlying collateral has been repossessed , cost related to
the acquisition and disposition of loan collateral is reflected as an expense in
the period incurred. Any net proceeds received by the Company from the sale of
repossessed automobiles offset the principal first with any remaining portion
reflected as interest income.
Unearned Income
Unearned income is recorded for the excess of principal amount of a purchased
contract over the price paid. At December 31, 1999 ($4,921), and September 30,
1999 ($5,495) unearned income was reflected in the financial statements as a
reduction of contracts receivable.
Cash and Short-term Deposits
Cash and short-term deposits include government treasury bills and bankers'
acceptances with maturities no longer than 90 days, together with accrued
interest.
Going Concern
The Company's ability to continue as a going concern is dependent upon
uncertainties related to the Company obtaining profitable operations and
reconfiguring its capital structure consistent with its
operations, including paying down or refinancing the short term notes.
Management plans to raise
additional capital through issuing common stock, acquire additional contracts to
increase revenues and to improve operational efficiencies through lowering
general and administrative expenses. The accompanying financial statements have
been prepared on the basis that the Company will be able to continue in
existence as a going concern. These statements do not include any adjustments
that might result from the outcome of this uncertainty
Disposition of Collateral
Cost related to the acquisition and disposition of loan collateral (repossessed
automobiles) is reflected as an expense in the period incurred. Any net proceeds
received by the Company from the sale of repossessed automobiles offset the
principal and interest owing. The company continues with efforts through the
Courts to collect any amounts owing after the collateral is sold. Sale of a
repossessed automobile typically takes from 30 to 90 days from the time of
repossession.
Fair Value of Financial Instruments
The Company's financial instruments include cash, receivables, interest payable,
notes payable and preferred shares. Except for preferred shares, the Company
believes that the fair value of these financial instruments approximates their
carrying amounts based on current market indicators, such as prevailing market
rates. It is not practicable to estimate the fair value of preferred shares, due
primarily to the uncertainty surrounding the timing of cash flows.
Use of Estimates
Preparing financial statements in conformity with generally accepted accounting
principles requires management to make judgments for estimates and assumptions
that affect the assets, liabilities, and disclosures of contingent assets and
liabilities reported in financial statements as well as the revenues and
expenses reported for the period. Actual results may differ from these
estimates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 128: Earnings per Share ("SFAS 128"), effective for
fiscal periods ending after December 15, 1997. Among other things SFAS 128
replaces the presentation of primary earnings per share ("EPS") with a
presentation of both basic and diluted EPS for all entities with complex capital
structures. Basic EPS excludes dilutive securities and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if dilutive securities were converted into common shares and is
computed similarly to fully diluted EPS pursuant to previous accounting
pronouncements. SFAS 128 applies equally to loss per share presentations.
Stock-Based Compensation
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123 (SFAS 123) which addresses the accounting for stock-based compensation
arrangements. SFAS 123 permits a company to choose either a new
fair-value-based method or the current APB Opinion 25 intrinsic-value-based
method of accounting for stock-option-based compensation arrangements. The
Company has adopted SFAS 123 for the year ending December 31, 1998 and
thereafter. Management will continue to record stock-based compensation using
current APB Opinion 25 intrinsic-value-based method and, therefore, believes
adoption of SFAS 123 will not impact the Company's financial position and
results of operations.
Note 3 - RELATED PARTY TRANSACTIONS
During 1998 the Company acquired its principal operating assets, the retail
automobile installment contracts receivable portfolio, from its predecessor,
having an aggregate net book value of $521,853. The Company paid for these
contracts by issuing to certain investors of the predecessor: (1) two notes
payable totaling $234,434, (2)17,339 preferred shares and, (3) 125,000 common
shares for the contracts. (See Note 5).
During 1998, the Company has entered into a 5 year agreement with GAC, an
affiliate, whereby GAC is to originate, service, collect and hold the Company's
contracts. GAC is compensated for it contribution based on the terms of the
agreement which were determined at non-arms length. Under the terms of this
contract the Company pays GAC .75% (9% annually) of the book value of the
contracts each month. In addition, the Company pays for certain out of pocket
costs incurred by GAC related to repossessions and other administrative costs.
During fiscal 1998, the Company paid GAC $18,041 pursuant to this agreement. GAC
is controlled by certain officers and directors of the Company.
Note 4 - CONTRACTS RECEIVABLE
Impaired Contracts
Impaired contracts (as defined by FAS No. 114) are contracts for which it is
probable that the Company will be unable to collect all of the scheduled
interest and principal payments of a loan as scheduled in the loan agreement
(contract). Of the Company's loans, $128,842 at December 31, 1998, and $177,369
at September 30, 1999 were considered by the Company to be impaired.
Allowance For Bad Debts
The Company estimates its allowance for bad debts based on a stratified aging of
its contracts receivable. Contracts are consider late when payments are over 30
days past due. The allowance for bad debts is estimated net of any proceeds from
the sale of automobiles securing the contracts. All contracts are secured by
automobiles. An allowance for doubtful accounts has been established and a
provision for bad debts has been reflected in the financial statements for
fiscal 1998 in the amount of $96,833 ($12,775 for the nine months ended
September 30, 1999). An analysis of the Allowance for bad debt follows.
At December 31, 1998 the median loan balance was $5,352; the Company's loan
portfolio average effective interest rate is 26.62%; and the typical loan is
made for 36 to 48 months.
Note 5 - SECURITIES
Preferred shares - Issued
17,339 preferred shares having $520,170 face value ($30 stated value) were
issued during 1998 to shareholders of an affiliate in exchange for contracts
receivable.
Because collection of the full contract amount (as is typical in the sub-prime
market), fair value of the contracts was established at less than the face
amount of the contracts. The preferred shares, along with notes payable totaling
$357,484, were issued to investors in the predecessor corporation for contracts
receivable. The difference between the aggregate valuations of the short term
notes payable plus the preferred shares and the valuation of the contracts has
been reflected in the financial statements as a reduction of paid in capital.
Holders of outstanding preferred shares are entitled to receive, when, if and as
declared by the Board of Directors, cumulative 12% cash dividends on the stated
par of $30 for each outstanding Preferred Share.
Beginning six months after the close of a successful public offering of the
Company's common shares, the holders of preferred shares will be entitled
(unless the preferred shares are called) to convert the preferred shares into
the Company's Common Shares. The conversion rate is 7.5 Common Shares for each
Preferred Share (except fractional shares are not issued), provided that the
average bid price of the Common Shares is at least $4.00 per share for twenty
trading days prior to such conversion date.
However, if the Company exercises the call provision for the preferred shares,
the conversion period will expire on the tenth day prior to the redemption date.
The preferred shares are callable by the Company at any time that the average
bid price of the preferred shares is at least $4.80 per share for twenty trading
days prior to such call.
Upon dissolution, liquidation or winding up of the Company, the holders of the
preferred shares shall be entitled to receive and to be paid out of the assets
of the Company available for distribution to its stockholders, before any
payment or distribution shall be made on the Common Shares or any class of stock
ranking junior to the preferred shares, 100% of the stated value amount per
share, plus all unpaid dividends.
Preferred shares - Not Issued
The Company's articles of incorporation provide that up to 2,000,000, 12%
Cumulative, Convertible, no par value preferred shares may be issued. The
articles further provide that the Company may fix designations, preferences,
powers, dividend rights, conversion rights, terms of redemption, and liquidation
preferences of the yet to be issued shares. Any or all of these may be greater
than the rights of the Common Shares.
Lost Per Share Calculations:
Basic loss per share information is calculated on a weighted average of shares
outstanding for fiscal 1998. Fully diluted loss per share is not presented due
to the indeterminable aspects of the conversion and call provisions of the
preferred stock.
Note 6 - NOTES PAYABLE
Loans from affiliates
At December 31, 1998, the Company owed $357,484 to three note holders of the
predecessor company. The notes are unsecured, due June 30, 1999 with an annual
interest rate of 10%. Payments of $22,000 have been made on the notes payable
during January 1, 1999 and September 30, 1999.
Note 7 - INCOME TAXES
Deferred tax assets primarily consist of net operating loss carryforward as the
Company has not generated taxable income since inception. There are no
significant deferred tax liabilities. A valuation allowance has been
established to reduce the deferred tax assets to zero due to the uncertainties
concerning the future ability of the Company to benefit from the net operating
loss carryforward. The net operating loss carryforward for federal income tax
purposes which are available to offset future taxable income is not considered
material to the financial statements. The difference between the operating loss
for tax and financial reporting for 1998 principally arises because while the
bad debt expense for 1998 reflected in the financial statements is $96,833,
there is no tax write off for bad debt expense taken for federal income tax
reporting.
Note 8 - COMMITMENTS AND CONTINGENCIES
Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when using year 2000
dates is processed. In addition, similar problems may arise in some systems that
use certain dates in 1999 to represent something other than a date. The effects
of the Year 2000 Issue may be experienced before, on, or after January 1, 2000
and, if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure, which could affect an
entity's ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity, including
those related to the efforts of customers, suppliers, or other third parties,
will be fully resolved.
Since December 31, 1998, the Company spent about $20,000 for outside computer
consultants to upgrade its computer information accounting systems with the
express purpose to correct and mitigate any Year 2000 Issues. Additionally, the
Company has complete paper copies of all information that could be relied upon
to recreate all of its accounting and information data in a computer useful
form.
Inasmuch as the Company expects to gain market access through the internet
marketing, its operations are at some risk. Should the internet be adversely
affected by the Year 2000 Issue, the impact on the Company's short term
marketing plans cannot be estimated in terms of dollars, but would be
significant. In this case the Company would be forced to seek other marketing
opportunities.
Management has not made inquiry into the Year 2000 Issue readiness of any of its
contract holders, suppliers or vendors.
The most likely worst-case scenario, should the Year 2000 Issue affect the
Company's hardware and software, would be that the Company would be unable to
rely on its computer based information system and need to rely on its backup
paper trail and manual system. Also, the Company would need to use more
traditional approaches for marketing. In this circumstance, there would be
inefficiencies in manual accounting and more traditional marketing. The Company
believes that at its current level of operations, and in view of its remediation
efforts, the risks associated with operations and the Year 2000 Issue are
manageable.
Information related to the interim period,
September 30, 1999, is unaudited
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION.
Article VIII of the Registrant's Articles of Incorporation provides as
follows:
The personal liability of a director or the directors to the corporation or
its shareholders for monetary damages is hereby eliminated for any conduct
as a director except acts or omissions that involve intentional misconduct
or a knowing violation of law by a director, for conduct violating RCW
23B.08.310, or for any transaction from which a director will personally
receive a benefit in money, property, or services to which a director is
not legally entitled.
If the Washington Business Corporation Act is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be
eliminated or limited to the full extent permitted by the Washington
Business Corporation Act, as so amended. Any repeal or modification of this
Article shall not adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or modification for or
with respect to an act or omission of such director occurring prior to such
repeal or modification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Registration Fee $ 2,640
NASD Filing Fee
Blue Sky Qualification Fees and Expenses 3,000*
Accounting Fees and Expenses 10,000*
Legal Fees and Disbursements 30,000*
Printing Expenses 5,000*
Miscellaneous Expenses
Total Expenses $
* Estimated Item
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the organization of the Registrant, a total of 40,000
shares of Common Stock of the Registrant were sold at a price of $1.00 per share
for an aggregate price for all shares of $40,000. The shares were sold to the
officers and directors and to one family an officer and director of the
Registrant in reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated thereunder.
<PAGE>
The names and identities of the persons to whom the securities were issued
are as follows:
NUMBER OF $
LAST NAME FIRST NAME(S) IDENTITY SHARES AMOUNT
ITEM 27. EXHIBITS
The following is a list of exhibits filed with this Registration Statement:
Exhibit No.
- ------------
2.1 Articles of Incorporation, as amended
2.2 Bylaws*
3.1 Form of Share Certificate
4 Subscription Agreement*
6.1 Servicing Agreement with Global Acceptance Corporation
10.1 Consent of Alan Jorgenson, CPA
10.2 Consent of Law Offices of Jack G. Orr, P.S.
11 Opinion of Law Offices of Jack G. Orr, P.S.
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such 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 remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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
<PAGE>
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling persons of the
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such 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.
(c) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus 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.
ITEM 29. FINANCIAL STATEMENTS.
Not Applicable
<PAGE>
SIGNATURES
The issuer has duly caused this offering statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Silverdale,
State of Washington, on , 1999.
--------
AUTO CREDIT ACCEPTANCE, LTD.
By /s/ William V. Fowler
----------------------------------
William V. Fowler, President
This registration statement was signed by the following persons in the
capacities and on the dates stated.
NAME TITLE DATE
- ---- ----- ----
/s/ William V. Fowler
- ---------------------- President, Chairman of the Board ___/99
William V. Fowler and Director
/s/ Norman K. Short
- ---------------------- Vice-President ___/99
Norman K. Short and Director
/s/ Geraldine Fowler
- ---------------------- Secretary-Treasurer ___/99
Geraldine Fowler And Director
/s/ Tracy Bushnell
- ---------------------- National email Director ___/99
Tracy Bushnell and Director
/s/ William Wright III
- ---------------------- Vice-President of Operations ___/99
William Wright III and Director
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
The following is a list of exhibits filed with this Registration Statement:
Exhibit No. Page
- ----------- ----
2.1 Articles of Incorporation, as amended
2.2 Bylaws*
3.1 Form of Share Certificate
4 Subscription Agreement*
6.1 Servicing Agreement with Global Acceptance Corporation
10.1 Consent of Alan Jorgenson, CPA
10.2 Consent of Law Offices of Jack G. Orr, P.S.
11 Opinion of Law Offices of Jack G. Orr, P.S.
- --------------------------------
<PAGE>
