<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-20202
CREDIT ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-1999511
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification)
25505 WEST TWELVE MILE ROAD, SUITE 3000
SOUTHFIELD, MICHIGAN 48034-8339
(Address of principal executive offices) (zip code)
</TABLE>
Registrant's telephone number, including area code: 248-353-2700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/. No / /.
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest practicable date.
The number of shares outstanding of Common Stock, par value $.01, on
May 13, 1999 was 46,304,354.
<PAGE> 2
TABLE OF CONTENTS
PART I.--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets - As of December 31, 1998 and March 31, 1999............................. 1
Consolidated Income Statements - Three months ended March 31, 1998 and March 31, 1999 ............... 2
Consolidated Statements of Cash Flows - Three months ended March 31, 1998 and March 31, 1999......... 3
Consolidated Statement of Shareholders' Equity - Three months ended March 31, 1999................... 4
Notes to Consolidated Financial Statements........................................................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................... 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.......................................... 12
PART II.--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ................................................................................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................................... 13
SIGNATURES ................................................................................................... 14
INDEX OF EXHIBITS............................................................................................. 15
EXHIBITS...................................................................................................... 16
</TABLE>
<PAGE> 3
PART I. -FINANCIAL INFORMATION
ITEM 1. -FINANCIAL STATEMENTS
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
12/31/98 3/31/99
-------------------------------------
(Dollars in thousands) (UNAUDITED)
ASSETS:
<S> <C> <C>
Cash and cash equivalents............................................. $ 13,775 $ 19,308
Investments........................................................... 10,191 10,371
Installment contracts receivable ..................................... 671,768 612,506
Allowance for credit losses........................................... (7,075) (5,849)
----------- -----------
Installment contracts receivable, net........................... 664,693 606,657
Retained interest in securitization................................... 13,229 13,731
Floor plan receivables................................................ 14,071 15,928
Notes receivable...................................................... 2,278 2,239
Property and equipment, net........................................... 20,627 20,363
Other assets.......................................................... 13,065 13,051
----------- -----------
TOTAL ASSETS ................................................................ $ 751,929 $ 701,648
=========== ===========
LIABILITIES:
Senior notes.......................................................... $ 136,165 $ 136,165
Lines of credit....................................................... 79, 067 46,969
Mortgage loan payable to bank......................................... 3,566 3,504
Income taxes payable.................................................. 776 4,534
Accounts payable and accrued liabilities.............................. 22,423 26,349
Deferred dealer enrollment fees, net.................................. 296 185
Dealer holdbacks, net................................................. 222,275 194,254
Deferred income taxes, net............................................ 11,098 9,998
----------- -----------
TOTAL LIABILITIES............................................................ 475,666 421,958
----------- -----------
SHAREHOLDERS' EQUITY
Common stock.......................................................... 463 463
Paid-in capital....................................................... 129,914 130,024
Retained earnings..................................................... 142,989 148,368
Cumulative translation adjustment..................................... 2,897 835
----------- -----------
TOTAL SHAREHOLDERS' EQUITY................................................... 276,263 279,690
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 751,929 $ 701,648
=========== ===========
</TABLE>
1
<PAGE> 4
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
(Dollars in thousands, except per share data) 3/31/98 3/31/99
- --------------------------------------------------------------------------------------------------------------------
REVENUE:
<S> <C> <C>
Finance charges....................................................... $ 28,055 $ 19,405
Premiums earned ...................................................... 2,923 2,445
Other income.......................................................... 8,332 8,511
----------- -----------
Total revenue ................................................. 39,310 30,361
COSTS AND EXPENSES:
Operating expenses.................................................... 14,621 14,549
Provision for credit losses........................................... 5,796 2,136
Provision for claims.................................................. 1,035 831
Interest.............................................................. 7,346 4,527
----------- -----------
Total costs and expenses ...................................... 28,798 22,043
----------- -----------
Operating income............................................................. 10,512 8,318
----------- -----------
Foreign exchange gain(loss)........................................... 12 (45)
----------- -----------
Income before provision for income taxes..................................... 10,524 8,273
Provision for income taxes............................................ 3,637 2,894
----------- -----------
Net income................................................................... $ 6,887 $ 5,379
=========== ===========
Net income per common share:
Basic................................................................. $ 0.15 $ 0.12
=========== ===========
Diluted............................................................... $ 0.15 $ 0.12
=========== ===========
Weighted average shares outstanding:
Basic................................................................. 46,113,115 46,298,904
=========== ===========
Diluted............................................................... 46,949,673 46,705,859
=========== ===========
</TABLE>
2
<PAGE> 5
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
(Dollars in thousands) 3/31/98 3/31/99
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income.............................................................. $ 6,887 $ 5,379
Adjustments to reconcile net income to net cash
provided by operating activities -
Credit for deferred income taxes............................... (1,287) (1,100)
Depreciation and amortization.................................. 923 1,099
Amortization on retained interest in securitization............ - (502)
Provision for credit losses.................................... 5,796 2,136
Dealer stock option plan expense............................... - 33
Change in operating assets and liabilities -
Accounts payable and accrued liabilities....................... 6,636 3,926
Income taxes payable........................................... 7,049 3,758
Deferred dealer enrollment fees, net........................... (332) (111)
Unearned insurance premiums, insurance reserves, and fees...... (214) (409)
Other assets................................................... 20,025 14
----------- -----------
Net cash provided by operating activities.................. 45,483 14,223
=========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on installment contracts receivable................. 103,122 94,350
Advances to dealers and payments of dealer holdback..................... (95,316) (66,062)
Net purchases of marketable securities.................................. (293) (180)
Decrease (increase) in floor plan receivables........................... 126 (1,857)
Decrease (increase) in notes receivable................................. (191) 39
Purchase of property and equipment...................................... (572) (835)
----------- -----------
Net cash provided by investing activities.................. 6,876 25,455
=========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage loan payable to bank.............................. (58) (62)
Net repayments under line of credit agreement........................... (40,553) (32,098)
Proceeds from stock options exercised................................... - 77
----------- -----------
Net cash used in financing activities...................... (40,611) (32,083)
----------- -----------
Effect of exchange rate changes on cash.................... (108) (2,062)
----------- -----------
NET INCREASE IN CASH......................................................... 11,640 5,533
Cash and cash equivalents - beginning of period......................... 349 13,775
----------- -----------
Cash and cash equivalents - end of period............................... $ 11,989 $ 19,308
=========== ===========
</TABLE>
3
<PAGE> 6
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Total Other
Shareholders' Comprehensive Common Paid In Retained Comprehensive
Equity Income Stock Capital Earnings Income
------ ------ ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1998........... $ 276,263 $ $ 463 $ 129,914 $ 142,989 $ 2,897
Comprehensive income:
Net income....................... 5,379 5,379 5,379
----------
Other comprehensive income:
Foreign currency translation
adjustment................... (2,062) (2,062) (2,062)
Tax on other comprehensive
income..................... 722
----------
Other comprehensive income..... (1,340)
----------
Total comprehensive income.......... $ 4,039
==========
Stock options exercised............. 77 77
Dealer stock option plan expense.... 33 33
---------- --------- --------- ---------- ---------
Balance - March 31, 1999.............. $ 279,690 $ 463 $ 130,024 $ 148,368 $ 835
========== ========= ========= ========== =========
</TABLE>
4
<PAGE> 7
CREDIT ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for interim periods are not necessarily
indicative of actual results achieved for full fiscal years. The consolidated
balance sheet at December 31, 1998 has been derived from the audited financial
statements at that date but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. NET INCOME PER SHARE
Basic net income per share amounts are based on the weighted average
number of common shares outstanding. Diluted net income per share amounts are
based on the weighted average number of common shares and common stock
equivalents outstanding. Common stock equivalents included in the computation
represent shares issuable upon assumed exercise of stock options which would
have a dilutive effect. All per share amounts have been adjusted to reflect all
stock splits declared by the Company.
3. NEW ACCOUNTING STANDARDS
In the first quarter of 1998, the American Institute of Certified
Public Accountants' Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". SOP 98-1 provides guidance on the capitalization of
software for internal use. The Company adopted SOP 98-1 effective January 1,
1999, as required. The adoption of SOP 98-1 did not have a material effect on
the Company's consolidated financial position or results of operations.
4. BUSINESS SEGMENT INFORMATION
The Company operates in two reportable business segments: North
American Automotive Finance and U.K./Ireland Automotive Finance. Selected
segment information is set forth below:
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------------------------
1998 1999
--------------------- -------------------
Total revenue:
<S> <C> <C>
North American Automotive Finance.................. $ 31,456 $ 22,738
U.K./Ireland Automotive Finance.................... 6,114 4,023
All Other.......................................... 1,740 3,600
--------- ----------
39,310 30,361
========= ==========
Earnings before interest and taxes:
North American Automotive Finance.................. 13,535 9,926
U.K./Ireland Automotive Finance.................... 3,497 1,922
All Other.......................................... 838 952
--------- ----------
17,870 12,800
========= ==========
Reconciliation of total earnings before interest and
taxes to consolidated income before provision for
income taxes:
Total earnings before interest and taxes........... 17,870 12,800
Interest expense................................... (7,346) (4,527)
--------- ----------
Consolidated income before provision for income taxes... $ 10,524 $ 8,273
========= ==========
</TABLE>
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
TOTAL REVENUE. Total revenue decreased from $39.3 million for the three months
ended March 31, 1998 to $30.4 million for the same period in 1999, representing
a decrease of 22.8%. This decrease is primarily due to a decrease in finance
charge revenue resulting from a decrease in the average installment contracts
receivable balance. The decrease in the average installment contracts receivable
balance is primarily the result of collections on and charge offs of installment
contracts exceeding contract originations for the period. The Company's volume
of contract originations has decreased as the Company has continued implementing
more conservative advance programs and limited business with marginally
profitable and unprofitable dealers. Based on reviews of dealer profitability,
the Company continues to monitor its relationships with dealers and discontinues
or adjusts these relationships as deemed necessary.
The average yield on the Company's installment contract portfolio, calculated
using finance charge revenue divided by average installment contracts
receivable, was approximately 11.2% and 12.1% for the three months ended March
31, 1998 and 1999, respectively. The increase in the average yield is due to a
decrease in the percentage of installment contracts which were in non-accrual
status as well as improvements in collection levels on non-accrual installment
contracts. The percentage of installment contracts which were in non-accrual
status was 33.2% and 29.1% as of March 31, 1998 and 1999, respectively.
Premiums earned increased, as a percent of total revenue, from 7.4% for the
three months ended March 31, 1998 to 8.1% for the same period in 1999. Premiums
on the Company's service contract program are earned on a straight-line basis
over the life of the service contracts. Premiums reinsured under the Company's
credit life and collateral protection insurance programs are earned over the
life of the contracts using the pro rata and sum-of-digits methods. As a result
of these revenue recognition methods, premiums earned decreased at a slower rate
than the decrease in finance charges. In addition, the increase is due to an
increase in the penetration rate of the Company's service contract and credit
life insurance programs.
Other income increased, as a percent of total revenue, from 21.2% for the three
months ended March 31, 1998 to 28.0% for the same period in 1999. The increase
is primarily due to i) revenues from the Company's auction services business
which the Company began operating in June 1998; ii) an increase in revenues from
the Company's credit reporting subsidiary (which the Company sold on May 7,
1999) and iii) servicing fees and interest earned on the retained interest in
securitization resulting from the Company's securitization of advance
receivables in July 1998. The increase is partially offset by i) a decrease in
fees earned on third party service contract products offered by dealers on
installment contracts, as the volume of this business has declined
proportionately with the decrease in installment contract originations and ii) a
decrease in earned dealer enrollment fees due to a decline in the number of
dealers enrolling in the Company's financing program. Dealer enrollment fees are
deferred and amortized on a straight-line basis over the estimated repayment
term of the outstanding dealer advance.
OPERATING EXPENSES. Operating expenses, as a percent of total revenue, increased
from 37.2% for the three months ended March 31, 1998 to 47.9% for the same
period in 1999. Operating expenses consist primarily of salaries and wages,
general and administrative, and sales and marketing expenses.
The increase, as a percent of revenue, is primarily due to an increase in
salaries and wages. Salaries and wages increased principally due to increases in
the Company's average wage rates necessary to attract and retain quality
personnel and the Company's purchase of the auction services business in June
1998. The increase in operating expenses is partially offset by a decrease in
sales and marketing expenses. These expenses decreased primarily due to
reductions in sales commissions as a result of lower contract origination
volumes and reductions in the Company's total sales force. The decrease in sales
and marketing expenses is also the result of decreases in advertising due to the
termination of the Company's customer lead generating program.
PROVISION FOR CREDIT LOSSES. The amount provided for credit losses, as a percent
of total revenue, decreased from 14.7% for the three months ended March 31, 1998
to 7.0% for the same period in 1999. The provision for credit losses consists of
two components: (i) a provision for loan losses for the earned but unpaid
servicing fee or finance charge recognized on contractually delinquent
installment contracts and (ii) a provision for losses on advances to dealers
that are not expected to be recovered through collections on the related
installment contract receivable portfolio. The decrease is primarily due to
lower provisions needed for advance losses, based on improvements in the
Company's loan performance as measured by the static pool analysis. Advance
balances are continually reviewed by management utilizing the Company's loan
servicing system which allows management to estimate future collections for each
dealer pool using historical loss experience and a dealer by dealer static pool
analysis. In addition, the decrease is also due to lower provisions needed for
loan losses primarily resulting from the decrease in the percent of non-accrual
installment contracts receivable which were 33.2% and 29.1% of gross receivables
as of March 31, 1998 and 1999, respectively.
6
<PAGE> 9
PROVISION FOR CLAIMS. The amount provided for insurance and service contract
claims, as a percent of total revenue, increased from 2.6% during the three
months ended March 31, 1998 to 2.7% during the same period in 1999. This
increase corresponds with the increase, as a percent of total revenue, in
premiums earned from 7.4% for the three months ended March 31, 1998 to 8.1% for
the same period in 1999. The Company has established claims reserves on
accumulated estimates of claims reported but unpaid plus estimates of incurred
but unreported claims.
INTEREST EXPENSE. Interest expense, as a percent of total revenue, decreased
from 18.7% for the three months ended March 31, 1998 to 14.9% for the same
period in 1999. The decrease in interest expense is primarily the result of a
decrease in the amount of average outstanding borrowings, which results from i)
the positive cash flow generated primarily from collections on installment
contracts receivable exceeding cash advances to dealers and payments of dealer
holdbacks and ii) $49.3 million raised in July 1998 from the securitization of
advance receivables. The decrease was partially offset by higher average
interest rates during the 1999 period. The increase in the average interest
rates is the result of a 25 basis point increase in the interest rate on
outstanding borrowings under the Company's senior notes resulting from
amendments to the note purchase agreements due to the Company's securitization
of advance receivables in July 1998.
OPERATING INCOME. As a result of the aforementioned factors, operating income
decreased from $10.5 million for the three months ended March 31, 1998 to $8.3
million for the same period in 1999, representing a decrease of 20.9%.
FOREIGN EXCHANGE GAIN (LOSS). The Company incurred a foreign exchange gain of
$12,000 for the three months ended March 31, 1998 and a foreign exchange loss of
$45,000 for the same period in 1999. The losses result from the effect of
exchange rate fluctuations between the U.S. dollar and foreign currencies on
unhedged intercompany balances between the Company and its subsidiaries which
operate outside the United States.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased from $3.6
million during the three months ended March 31, 1998 to $2.9 million during the
same period in 1999. The decrease is due to a lower level of pretax income in
1999. For the three months ended March 31, the effective tax rate was 34.6% in
1998 and 35.0% in 1999. The increase in the effective tax rate is primarily due
to a lower percentage of the Company's consolidated pretax income being earned
by the Company's United Kingdom subsidiary in 1999, where the statutory rate is
lower than the U.S. statutory tax rate.
INSTALLMENT CONTRACTS RECEIVABLE
The following table summarizes the composition of installment contracts
receivable at the dates indicated:
<TABLE>
<CAPTION>
As of As of
(Dollars in thousands) 12/31/98 3/31/99
- ---------------------- -------- -------
(UNAUDITED)
<S> <C> <C>
Gross installment contracts receivable.................................... $ 794,831 $ 724,946
Unearned finance charges.................................................. (114,617) (104,403)
Unearned insurance premiums, insurance reserves, and fees................. (8,446) (8,037)
---------- -----------
Installment contracts receivable.......................................... $ 671,768 $ 612,506
========== ===========
</TABLE>
A summary of changes in gross installment contracts receivable is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
(Dollars in thousands) 3/31/98 3/31/99
- ---------------------- ------- -------
(UNAUDITED)
<S> <C> <C>
Balance - beginning of period............................................. $1,254,858 $ 794,831
Gross amount of installment contracts accepted............................ 202,965 127,980
Cash collections on installment contracts receivable...................... (139,104) (111,503)
Charge offs............................................................... (174,889) (82,543)
Currency translation...................................................... (361) (3,819)
----------- -----------
Balance - end of period................................................... $1,143,469 $ 724,946
=========== ===========
</TABLE>
7
<PAGE> 10
DEALER HOLDBACKS
The following table summarizes the composition of dealer holdbacks at
the dates indicated:
<TABLE>
<CAPTION>
As of As of
(Dollars in thousands) 12/31/98 3/31/99
- ---------------------- -------- -------
(UNAUDITED)
<S> <C> <C>
Dealer holdbacks.......................................................... $ 634,102 $ 578,418
Less: Advances (net of reserves of $19,954 and $16,884 at
December 31, 1998 and March 31, 1999, respectively)................ (411,827) (384,164)
----------- -----------
Dealer holdbacks, net..................................................... $ 222,275 $ 194,254
=========== ===========
</TABLE>
CREDIT POLICY AND EXPERIENCE
When an installment contract is assigned to the Company by a
participating dealer, the Company generally pays a cash advance to the dealer.
The Company maintains a reserve against advances to dealers that are not
expected to be recovered through collections on the related installment contract
portfolio. For purposes of establishing the reserve, future collections are
reduced to present-value in order to achieve a level yield over the remaining
term of the advance equal to the expected yield at the origination of the
impaired advance. The Company's loan servicing system allows the Company to
estimate future collections for each dealer pool using historical loss
experience and a dealer by dealer static pool analysis. Future reserve
requirements will depend in part on the magnitude of the variance between
management's prediction of future collections and the actual collections that
are realized. The Company charges off dealer advances against the reserve at
such time and to the extent that the Company's static pool analysis determines
that the advance is completely or partially impaired.
The Company also maintains an allowance for credit losses which, in the
opinion of management, adequately reserves against losses in the portfolio of
receivables. The risk of loss to the Company related to the installment
contracts receivable balances relates primarily to the earned but unpaid
servicing fee recognized on contractually delinquent accounts. Servicing fees,
which are booked as finance charges, are recognized under the interest method of
accounting until the underlying obligation is 90 days past due on a recency
basis. At such time, the Company suspends the accrual of revenue and makes a
provision for credit losses equal to the earned but unpaid revenue. In all
cases, contracts on which no material payment has been received for nine months
are charged off against dealer holdbacks, unearned finance charges and the
allowance for credit losses.
Ultimate losses may vary from current estimates and the amount of
provision, which is a current expense, may be either greater or less than actual
charge offs.
8
<PAGE> 11
The following tables set forth information relating to charge offs, the
allowance for credit losses, and the reserve on advances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
(Dollars in thousands) 3/31/98 3/31/99
- ---------------------- ------- -------
CHARGE OFFS (UNAUDITED)
<S> <C> <C>
Charged against dealer holdbacks.......................................... $ 139,869 $ 66,053
Charged against unearned finance charges)................................. 31,348 15,107
Charged against allowance for credit losses............................... 3,672 1,383
----------- -----------
Total contracts charged off............................................... $ 174,889 $ 82,543
=========== ===========
Net charge offs against the reserve on advances........................... $ - $ 4,882
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
(Dollars in thousands) 3/31/98 3/31/99
- ---------------------- ------- -------
ALLOWANCE FOR CREDIT LOSSES (UNAUDITED)
<S> <C> <C>
Balance - beginning of period............................................. $ 13,119 $ 7,075
Provision for loan losses................................................. 1,030 192
Charge offs............................................................... (3,672) (1,383)
Currency translation...................................................... (4) (35)
----------- -----------
Balance - end of period................................................... $ 10,473 $ 5,849
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
(Dollars in thousands) 3/31/98 3/31/99
- ---------------------- ------- -------
RESERVE ON ADVANCES (UNAUDITED)
<S> <C> <C>
Balance - beginning of period............................................. $ 16,369 $ 19,954
Provision for advance losses.............................................. 4,766 1,944
Advance reserve fees...................................................... 152 4
Charge offs............................................................... - (4,882)
Currency translation...................................................... (25) (136)
----------- -----------
Balance - end of period................................................... $ 21,262 $ 16,884
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF
---------------------------
(Dollars in thousands) 3/31/98 3/31/99
- ---------------------- ------- -------
CREDIT RATIOS (UNAUDITED)
<S> <C> <C>
Allowance for credit losses as a percent of gross installment
contracts receivable................................................... 0.9% 0.8%
Reserve on advances as a percent of advances.............................. 3.7% 4.2%
Gross dealer holdbacks as a percent of gross installment
contracts receivable................................................... 79.8% 79.8%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for capital is to fund cash advances made
to dealers in connection with the acceptance of installment contracts and for
the payment of dealer holdbacks to dealers who have repaid their advance
balances. These cash outflows to dealers decreased from $95.3 million during the
three months ended March 31, 1998 to $66.1 million during the same period in
1999. These amounts have historically been funded from cash collections on
installment contracts, cash provided by operating activities and draws under the
Company's credit agreements. The Company maintains a significant dealer holdback
on installment contracts accepted which assists the Company in funding its
long-term cash flow requirements. During the first three months of 1999, the
Company paid down approximately $32.1 million on its $125 million credit
agreement. The positive cash flow during the period is primarily a result of
9
<PAGE> 12
collections on installment contracts receivable exceeding cash advances to
dealers and payments of dealer holdbacks.
The Company has a $125 million credit agreement with a commercial bank
syndicate. The facility has a commitment period through June 15, 1999 and is
subject to annual extensions for additional one year periods at the request of
the Company with the consent of each of the banks in the facility. The agreement
provides that interest is payable at the Eurocurrency rate plus 140 basis
points, or at the prime rate. The Eurocurrency borrowings may be fixed for
periods up to six months. The credit agreement has certain restrictive
covenants, including limits on the ratio of the Company's debt-to-equity, debt
to advances, debt to gross installment contracts receivable, advances to
installment contracts receivable, fixed charges to net income, limits on the
Company's investment in its foreign subsidiaries and requirements that the
Company maintain a specified minimum level of net worth. Borrowings under the
credit agreement are secured through a lien on most of the Company's assets on
an equal and ratable basis with the Company's senior notes. As of March 31,
1999, there was approximately $47.0 million outstanding under this facility.
When borrowing to fund the operations of its foreign subsidiaries, the
Company's policy is to borrow funds denominated in the currency of the country
in which the subsidiary operates, thus mitigating the Company's exposure to
foreign exchange fluctuations.
As the Company's $125 million credit facility expires on June 15, 1999,
the Company will be required to renew the facility or refinance any amounts
outstanding under this facility on or before such date. As of May 11, 1999,
there was approximately $36.8 million outstanding under this facility. The
Company believes that the $125 million credit facility will be renewed with
similar terms. In addition, in 1999, the Company has $42.2 million of principal
maturing on its senior notes, which the Company expects to repay from cash
generated from operations and various financing alternatives available.
On April 26, 1999, the Company refinanced a mortgage loan on its
headquarters which resulted in net proceeds to the Company of approximately $5.0
million. These proceeds were used to reduce amounts outstanding under the
Company's $125 million credit facility. The Company has received approval,
subject to satisfying certain conditions, from a large commercial bank for the
securitization of advance receivables. This transaction is expected to yield net
proceeds to the Company of approximately $50 million which will be used to repay
amounts outstanding under the credit facility.
On May 7, 1999, the Company sold its credit reporting services
subsidiary for $20.5 million in cash. The net proceeds from the sale were used
to reduce the outstanding indebtedness under the Company's $125 million credit
facility. In connection with this transaction, the Company will report an after
tax gain of approximately $9 million in the second quarter of 1999.
Pending the appeal of the Missouri Litigation (described in Part II,
Item 1), the Company may be required to post a bond or letter of credit, which
would reduce availability under the Company's credit agreement. Based upon
anticipated cash flows, management believes that amounts available under its
credit agreement, cash flow from operations and various financing alternatives
available will provide sufficient financing for current debt maturities and for
future operations. Failure to complete the refinancing or failure to obtain
other financing alternatives may have a material adverse effect on the Company's
operations.
YEAR 2000 UPDATE
The year 2000 issue is the result of computer programs and
microprocessors using two digits rather than four to define the applicable year
(the "Year 2000 Issue"). Such programs or microprocessors may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations leading to disruptions in the Company's
activities and operations. If the Company or third parties with which it has a
significant relationship fail to make necessary modifications, conversions and
contingency plans on a timely basis, the Year 2000 Issue could have a material
adverse effect on the Company's business, financial condition and results of
operations. However, the effect cannot be quantified at this time because the
Company cannot accurately estimate the magnitude, duration or ultimate impact of
noncompliance by its systems or those of vendors and other third parties. The
Company believes that its competitors face a similar risk. Although the risk is
not presently quantifiable, the following disclosure is intended to summarize
the Company's actions to minimize its risk from the Year 2000 Issue. Programs
that will operate in the year 2000 unaffected by the change in year from 1999 to
2000 are referred to herein as "year 2000 compliant."
State of Readiness. The Company employs three major computer systems in
its U.S. Operations: (i) the Application and Contract System (ACS) which is used
from the time a dealer faxes an application to the Company until the contract is
received and funded, (ii) the Loan Servicing System (LSS) which contains all
loan and payment information and is the primary source for management
information reporting, and (iii) the Collection System (CS) which is used by the
Company's collections personnel to track and service all active customer
accounts. The ACS and LSS went into production in 1997 and were developed in
Oracle 7.3 and Oracle Forms 4.5 which are year 2000 compliant. The CS is a third
party software package which has been upgraded to be year 2000 compliant.
10
<PAGE> 13
The Company employs one major computer system in its United Kingdom
operations which is a third party software package. The vendor has certified to
the Company that the system is year 2000 compliant.
The Company has finished testing all of its mission critical computer
systems to ensure year 2000 compliance. All non-mission critical computer
systems are anticipated to be year 2000 compliant by June 30, 1999.
The Company has completed a comprehensive inventory of all other
computer hardware, software, third party vendors and other non-information
technology systems. All items identified were prioritized and assigned to a
responsible party to investigate and ensure that the item becomes year 2000
compliant by the end of 1999. While modifications and testing of all mission
critical and non-mission critical systems is substantially complete, these
systems will undergo additional testing in 1999.
Costs. The Company expects that all software installations or other
modifications will be expensed as incurred, while the cost for new software will
be capitalized and amortized over the software's useful life. At this time, the
Company anticipates spending no more than $50,000 in its efforts to become year
2000 compliant, of which approximately $35,000 has been spent to date. Estimates
of time, cost and risks are based on currently available information.
Developments that could affect estimates include, without limitation, the
availability of trained personnel, the ability to locate and correct all
non-compliant systems, cooperation and remediation success of third parties
material to the Company, and the ability to correctly anticipate risks and
implement suitable contingency plans in the event of system failures at the
Company or third parties.
Risks. Because the Company expects that the systems within its control
will be year 2000 compliant before the end of 1999, the Company believes that
the most reasonably likely worst case scenario is a compliance failure by a
third party upon which the Company relies. Such a failure would likely have an
effect on the Company's business, financial condition and results of operations.
The magnitude of that effect however, cannot be quantified at this time because
of variables such as the type and importance of the third party, the possible
effect on the Company's operations and the Company's ability to respond. Thus,
there can be no assurance that there will not be a material adverse effect on
the Company if such third parties do not remediate their systems in a timely
manner. In addition, it is possible that the Company could experience a failure
of a non-mission critical system for a period of time, which could result in a
minor disruption in some internal operations.
Contingency Plans. Contingency planning is an integral part of the
Company's year 2000 readiness project. The Company has and is continuing to
develop contingency plans, which document the processes necessary to maintain
critical business functions should a significant third party system or mission
critical internal system fail. These contingency plans generally include the
repair of existing systems and, in some instances, the use of alternative
systems or procedures.
The disclosure in this section contains information regarding Year 2000
readiness which constitutes "Year 2000 Readiness Disclosure" as defined in the
Year 2000 Readiness Disclosure Act. Readers are cautioned that forward-looking
statements contained in the Year 2000 Update should be read in conjunction with
the Company's disclosures under the heading "Forward-Looking Statements".
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis contains a number of forward
looking statements within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934, both as amended with respect to expectations
for future periods which are subject to various risks and uncertainties. The
risks and uncertainties are detailed from time to time in reports filed by the
Company with the Securities and Exchange Commission, including forms 8-K, 10-Q,
and 10-K, and include, among others, competition from traditional financing
sources and from non-traditional lenders, availability of funding at competitive
rates of interest, adverse changes in applicable laws and regulations, adverse
changes in economic conditions, year 2000 compliance by the Company or third
parties to the Company, adverse changes in the automobile or finance industries
or in the non-prime consumer finance market, the Company's ability to maintain
or increase the volume of installment contracts accepted and historical
collection rates and the Company's ability to complete various financing
alternatives.
11
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 for a complete discussion of the Company's market risk. There
have been no material changes to the market risk information included in the
Company's 1998 Annual Report on Form 10-K.
12
<PAGE> 15
PART II.--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's 1998 Annual Report on Form 10-K, the
Company is currently a defendant in a class action proceeding commenced on
October 15, 1996 in the United States District Court for the Western District of
Missouri seeking money damages resulting for alleged violations of a number of
state and federal consumer protection laws (the "Missouri Litigation"). On
October 9, 1997, the Court certified two classes on the claims brought against
the Company. On August 4, 1998, the Court granted partial summary judgment on
liability in favor of the plaintiffs based upon the Court's finding of certain
violations but denied summary judgment on certain other claims. The Court also
entered a number of permanent injunctions, which among other things, restrain
the Company from collecting the amounts found to be uncollectible. The Court
also ruled in favor of the Company on certain claims raised by class plaintiffs.
Because the entry of an injunction is immediately appealable as of right, the
Company has appealed the summary judgment order to the United States Court of
Appeals for the Eighth Circuit. Oral argument on the Company's appeal was heard
on April 19, 1999. The Company believes that its appeal has substantial merit.
Plaintiffs have filed a cross appeal. A trial on the remaining claims, as well
as on damages, is not expected to be scheduled until after the appeal has been
concluded. Should the Company's appeal be unsuccessful, the potential damages
could have a material adverse impact on the Company's financial position,
liquidity and results of operations.
Also, as previously disclosed in the Company's 1998 Annual Report on Form 10-K,
during the first quarter of 1998, several putative class action complaints were
filed against the Company and certain officers and directors of the Company in
the United States District Court for the Eastern District of Michigan seeking
money damages for alleged violations of the federal securities laws. On August
14, 1998, a Consolidated Class Action Complaint, consolidating the claims
asserted in those cases, was filed. The Complaint generally alleged that the
Company's financial statements issued during the period August 14, 1995 through
October 22, 1997 did not accurately reflect the Company's true financial
condition and results of operations because such reported results failed to be
in accordance with generally accepted accounting principles and such results
contained material accounting irregularities in that they failed to reflect
adequate reserves for credit losses. The Complaint further alleged that the
Company issued public statements during the alleged class period which
fraudulently created the impression that the Company's accounting practices were
proper. On April 23, 1999, the Court granted the Company's motion to dismiss the
Complaint and entered a final judgment dismissing the action with prejudice. On
May 6, 1999, plaintiffs filed a motion for reconsideration of the order
dismissing the Complaint or, in the alternative, for leave to file an amended
complaint. The Court has not yet ruled on that motion. In the event the
Complaint were to be reinstated, or a further amended complaint were to be
permitted, the Company would continue vigorously to defend this action. While
management believes it has meritorious legal and factual defenses, an adverse
ultimate disposition of this litigation could have a material adverse impact on
the Company's financial position, liquidity and results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits following the signature page.
(b) Reports on Form 8-K
The Company was not required to file a current report on
Form 8-K during the quarter ended March 31, 1999 and none
were filed during that period.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CREDIT ACCEPTANCE CORPORATION
(Registrant)
/S/ BRETT A. ROBERTS
---------------------------------------------
BRETT A. ROBERTS
Executive Vice President and Chief Financial
Officer
May 14, 1999
(Principal Financial Officer)
/S/ JOHN P. CAVANAUGH
---------------------------------------------
JOHN P. CAVANAUGH
Corporate Controller and Assistant Secretary
May 14, 1999
(Principal Accounting Officer)
14
<PAGE> 17
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
4(a) (6) Fifth Amendment dated April 13, 1999 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company
4(b) (4) Third Amendment dated April 13, 1999 to Note Purchase
Agreement dated August 1, 1996 between various insurance
companies and the Company
4(e) (4) Third Amendment dated April 13, 1999 to Note Purchase
Agreement dated March 25, 1997 between various insurance
companies and the Company
27 Financial Data Schedule
15
<PAGE> 1
Exhibit 4(a)(6)
FIFTH AMENDMENT TO NOTE PURCHASE AGREEMENT
RE:
CREDIT ACCEPTANCE CORPORATION
FIRST AMENDED AND RESTATED 9.12% SENIOR NOTES DUE NOVEMBER 1, 2001
Dated as of April 13, 1999
To the Noteholders listed on Annex I hereto
Ladies and Gentlemen:
Credit Acceptance Corporation, a Michigan corporation (together with
its successors and assigns, the "Company"), hereby agrees with you as follows:
SECTION 1. INTRODUCTORY MATTERS.
1.1 DESCRIPTION OF OUTSTANDING NOTES. The Company currently has
outstanding $_________ in aggregate unpaid principal amount of its First Amended
and Restated 9.12% Senior Notes due November 1, 2001 (collectively, the "Notes")
which it issued pursuant to the separate Note Purchase Agreements, each dated as
of October 1, 1994 (collectively, as amended by the First Amendment to Note
Purchase Agreement dated as of November 15, 1995, the Second Amendment to Note
Purchase Agreement dated as of August 29, 1996, the Third Amendment to Note
Purchase Agreement dated as of December 12, 1997 and the Fourth Amendment to
Note Purchase Agreement, dated as of July 1, 1998, the "Agreement"), entered
into by the Company with each of the original holders of the Notes listed on
Annex 1 thereto, respectively. Terms used herein but not otherwise defined
herein shall have the meanings assigned thereto in the Agreement, as amended
hereby.
1.2 PURPOSE OF AMENDMENT. The Company and you desire to amend the
Agreement as set forth in Section 2 hereof and to include in this amendment the
revision to the "Total Restricted Subsidiary Debt" definition, which revision
was included in the terms of the Intercreditor Agreement, dated as of December
15, 1998 among Comerica Bank, as collateral agent, the lenders under the Credit
Agreement and the holders of the Notes and other notes issued by the Company.
SECTION 2. AMENDMENT TO THE AGREEMENT.
Pursuant to Section 10.5 of the Agreement, the Company hereby agrees
with you that the Agreement shall be amended by this Fifth Amendment to Note
Purchase Agreement (the "Fifth Amendment") in the following respects:
2.1 SECTION 6.1
Clause (ii) of paragraph (a) of Section 6.1 is hereby amended and
restated in its entirety as follows:
(ii) seventy-five percent (75%) of Advances; and.
<PAGE> 2
Exhibit 4(a)(6)
2.2 SECTION 6.7
Section 6.7 is amended by replacing the word "or" with the word
"and" at the end of clause (ii) of paragraphs (a) and (b), redesignating clause
(iii) of paragraph (b) as paragraph (c), replacing the "." at the end of new
paragraph (c) with "; and" and adding the following paragraph (d):
(d) a merger, consolidation or Transfer of a Restricted
Subsidiary or Restricted Subsidiaries pursuant to the Montana
Disposition."
2.3 SECTION 6.8
(A) Paragraph (a) of Section 6.8 is amended by replacing the "." at
the end of clause (iv) with "; and", by adding, at the end of each of clauses
(iii) and (iv) before the semicolon the phrase "if, immediately before and after
the consummation of such Transfer, and after giving effect thereto, no Default
or Event of Default would exist", and by adding the following clause (v):
(v) any Transfer made pursuant to the Montana
Disposition if, immediately before and after the consummation
of such Transfer, and after giving effect thereto, no Default
or Event of Default would exist."
(B) Paragraph (b) of Section 6.8 is amended by amending and restating
the lead-in phrase of clause (iv) as follows:
(iv) the Transfer of all of the Restricted Subsidiary
Stock of a Restricted Subsidiary owned by the Company and the
other Restricted Subsidiaries pursuant to the Montana Disposition
or if:"
(C) Paragraph (c) of Section 6.8 is amended by adding in the second
line thereof after "except in connection with a Permitted Securitization" the
words "or in connection with the Montana Disposition".
2.4 SECTION 9.1
(A) The definition of "Permitted Securitization" in Section 9.1 of
the Agreement is hereby amended by deleting paragraph (d) in its entirety,
redesignating paragraph (e) as paragraph (d) and amending and restating
paragraph (b) of such definition as follows:
(b) (i) The disposition of Advances will not result in
the aggregate principal amount of Debt at any time
outstanding, and (without duplication) of Securities
at any time issued and outstanding (other than
subordinated Securities issued to and held by the
Company or a Subsidiary), of any Special Purpose
Subsidiary pursuant to Permitted Securitizations
occurring from and after the effective date of the
Second Amendment exceeding $100,000,000 (which amount
may be readvanced and reborrowed); and (ii) the
Company or the Restricted Subsidiary disposing of
Advances to a Special
<PAGE> 3
Exhibit 4(a)(6)
Purpose Subsidiary pursuant to such Permitted
Securitization shall itself actually receive
(substantially contemporaneously with such
disposition) cash from each disposition of such
Advances in connection with any such securitization
transaction in an amount not less than Seventy-Five
Percent (75%) of the value of such Advances;.
(B) The definition of "Total Restricted Subsidiary Debt" is amended
and restated in its entirety as follows:
TOTAL RESTRICTED SUBSIDIARY DEBT -- means, at any
time, the aggregate amount of Debt of all Restricted
Subsidiaries determined at such time after eliminating
intercompany transactions among the Company and the
Restricted Subsidiaries. For the avoidance of doubt, the
Company hereby acknowledges that Total Restricted
Subsidiary Debt includes the amount of Debt of any
Restricted Subsidiary attributable to its Guaranty of any
liabilities of another Person (including the Company or
any Subsidiary) made in favor of any Person other than the
Company or another Restricted Subsidiary. Notwithstanding
the foregoing, (i) Total Restricted Subsidiary Debt does
not include the amount of Debt of any Restricted
Subsidiary attributable to its Guaranty of obligations
under the Credit Agreement (and any related notes, letters
of credit and other agreements) of any Person (including
the Company or any Subsidiary) made in favor of the Banks
if, concurrently with the giving of any such Guaranty, you
are given the benefit of an equal and ratable Guaranty on
substantially similar terms; and (ii) the term "Total
Restricted Subsidiary Debt" shall not, at any time prior
to May 15, 1997 (but shall, at all times from and after
May 15, 1997), be deemed to include any Debt of CAC
International attributable to its Guaranty, for the
benefit of the Banks, of the liabilities of the Company
and certain Subsidiaries under the Credit Agreement.
(C) The definition of "Montana Disposition" is added to Section 9.1:
"MONTANA DISPOSITION -- means the sale of Montana
Investment Group, Inc. and its subsidiaries for net
proceeds totaling at least $16,000,000 in cash (all of
which net proceeds are used to reduce Debt outstanding
under the Credit Agreement), pursuant to (i) the sale of
all or substantially all of the assets of Montana
Investment Group, Inc. and its subsidiaries, (ii) the sale
of all of the capital stock of Montana Investment Group,
Inc. or (iii) the merger of Montana Investment Group, Inc.
with and into any Person other than the Company or a
Restricted Subsidiary; in each case, immediately prior to
and immediately after the consummation of which, and after
giving effect thereto, no Default or Event of Default
would exist.
3
<PAGE> 4
Exhibit 4(a)(6)
SECTION 3. MISCELLANEOUS
3.1 COUNTERPARTS. This Fifth Amendment may be executed in any number
of counterparts, each executed counterpart constituting an original, but all
together only one Fifth Amendment.
3.2 HEADINGS. The headings of the sections of this Fifth Amendment
are for purposes of convenience only and shall not be construed to affect the
meaning or construction of any of the provisions hereof.
3.3 GOVERNING LAW. This Fifth Amendment shall be governed by and
construed in accordance with the internal laws of the State of Connecticut.
3.4 EFFECT OF AMENDMENT. Except as expressly provided herein (a) no
other terms and provisions of the Agreement shall be modified or changed by this
Fifth Amendment and (b) the terms and provisions of the Agreement, as amended by
this Fifth Amendment, shall continue in full force and effect. The Company
hereby acknowledges and reaffirms all of its obligations and duties under each
of the Agreement, as modified by this Fifth Amendment, and the Notes.
3.5 REFERENCES TO THE AGREEMENT. Any and all notices, requests,
certificates and other instruments executed and delivered concurrently with or
after the execution of the Fifth Amendment may refer to the Agreement without
making specific reference to this Fifth Amendment but nevertheless all such
references shall be deemed to include, to the extent applicable, this Fifth
Amendment unless the context shall otherwise require.
3.6 COMPLIANCE. The Company certifies that immediately before and
after giving effect to this Fifth Amendment, no Default or Event of Default
exists or would exist after giving effect hereto.
3.7 EFFECTIVENESS OF AMENDMENTS.
The amendments to the Agreement contemplated by Section 2 hereof shall
(in accordance with Section 10.5(a) of the Agreement) become effective, if at
all, at such time as the Company and the Required Holders of the Notes shall
have indicated their written consent to such amendments by executing and
delivering the applicable counterparts of this Fifth Amendment. It is understood
that any holder of Notes may withhold its consent for any reason, including,
without limitation, any failure of the Company to satisfy all of the following
conditions:
(a) This Fifth Amendment shall have been executed and
delivered by the Company and each of the Required Holders of the Notes.
(b) The execution, delivery and effectiveness of an agreement,
signed by the Company and the requisite holders of the Company's First
Amended and Restated 8.24% Senior Notes due July 1, 2001 issued under
Note Purchase Agreements dated as of August
4
<PAGE> 5
Exhibit 4(a)(6)
1, 1996, containing amendments to such Note Purchase Agreements
identical in substance to the amendments set forth in Section 2 hereof.
(c) The execution, delivery and effectiveness of an agreement,
signed by the Company and the requisite holders of the Company's First
Amended and Restated 8.02% Senior Notes due October 1, 2001 issued
under Note Purchase Agreements dated as of March 25, 1997, containing
amendments to such Note Purchase Agreements identical in substance to
the amendments set forth in Section 2 hereof.
(d) The Company shall have paid the statement for reasonable
fees and disbursements of Hebb & Gitlin, your special counsel,
presented to the Company on or prior to the effective date of this
Fifth Amendment.
[Remainder of page intentionally blank. Next page is signature page.]
5
<PAGE> 6
Exhibit 4(a)(6)
If this Fifth Amendment is satisfactory to you, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this Fifth Amendment shall become binding between us in
accordance with its terms.
Very truly yours,
CREDIT ACCEPTANCE CORPORATION
By: /S/BRETT A. ROBERTS
------------------------------------
Name: Brett A. Roberts
Title: Executive Vice President
[Signature Page to Fifth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
6
<PAGE> 7
Exhibit 4(a)(6)
ACCEPTED:
ALLSTATE LIFE INSURANCE CO.
By: /S/JERRY D. ZINKULA
--------------------------------------------
Name: Jerry D. Zinkula
Title: Authorized Signatory
By: /S/JUDITH P. GRIFFIN
--------------------------------------------
Name: Judith P. Griffin
Title: Authorized Signatory
WILLIAM BLAIR & COMPANY, LLC
By: William Blair & Company, LLC
Attorney-in-Fact
By: /S/JAMES D. MC KINNEY
Name: James D. Mc Kinney
Title: Partner and Manager
Fixed Income Department
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
BY CIGNA INVESTMENTS, INC. (authorized agent)
By: /S/JAMES R. KUZEMCHAK
--------------------------------------------
Name: James R. Kuzemchak
Title: Managing Director
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
ON BEHALF OF ONE OR MORE SEPARATE ACCOUNTS
BY CIGNA INVESTMENTS, INC. (authorized agent)
By: /S/JAMES R. KUZEMCHAK
--------------------------------------------
Name: James R. Kuzemchak
Title: Managing Director
[Signature Page to Fifth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
7
<PAGE> 8
Exhibit 4(a)(6)
ACCEPTED:
WESTERN FARM BUREAU LIFE INSURANCE COMPANY
By /S/ROBERT J. RUMMELHART
---------------------------------------------
Name: Robert J. Rummelhart
Title: Fixed Income-Vice President
FARM BUREAU LIFE INSURANCE COMPANY
By /S/ROBERT J. RUMMELHART
Name: Robert J. Rummelhart
Title: Fixed Income-Vice President
WASHINGTON NATIONAL INSURANCE COMPANY
By: /S/ROBERT L. COOK
--------------------------------------------
Name: Robert L. Cook
Title: Second Vice President
PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY
BY: PHOENIX INVESTMENT COUNSEL, INC.
By: /S/ROSEMARY T. STREKEL
--------------------------------------------
Name: Rosemary T. Strekel
Title: Senior Managing Director
[Signature Page to Fifth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
8
<PAGE> 1
Exhibit 4(b)(4)
THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
RE:
CREDIT ACCEPTANCE CORPORATION
FIRST AMENDED AND RESTATED 8.24% SENIOR NOTES DUE JULY 1, 2001
Dated as of April 13, 1999
To the Noteholders listed on Annex I hereto
Ladies and Gentlemen:
Credit Acceptance Corporation, a Michigan corporation (together with
its successors and assigns, the "Company"), hereby agrees with you as follows:
SECTION 1. INTRODUCTORY MATTERS.
1.1 DESCRIPTION OF OUTSTANDING NOTES. The Company currently has
outstanding $_________ in aggregate unpaid principal amount of its First Amended
and Restated 8.24% Senior Notes due July 1, 2001 (collectively, the "Notes")
which it issued pursuant to the separate Note Purchase Agreements, each dated as
of August 1, 1996 (collectively, as amended by the First Amendment to Note
Purchase Agreement dated as of December 12, 1997 and the Second Amendment to
Note Purchase Agreement, dated as of July 1, 1998, the "Agreement"), entered
into by the Company with each of the original holders of the Notes listed on
Annex 1 thereto, respectively. Terms used herein but not otherwise defined
herein shall have the meanings assigned thereto in the Agreement, as amended
hereby.
1.2 PURPOSE OF AMENDMENT. The Company and you desire to amend the
Agreement as set forth in Section 2 hereof and to include in this amendment the
revision to the "Total Restricted Subsidiary Debt" definition, which revision
was included in the terms of the Intercreditor Agreement, dated as of December
15, 1998 among Comerica Bank, as collateral agent, the lenders under the Credit
Agreement and the holders of the Notes and other notes issued by the Company.
SECTION 2. AMENDMENT TO THE AGREEMENT.
Pursuant to Section 10.5 of the Agreement, the Company hereby agrees
with you that the Agreement shall be amended by this Third Amendment to Note
Purchase Agreement (the "Third Amendment") in the following respects:
2.1 SECTION 6.1
Clause (ii) of paragraph (a) of Section 6.1 is hereby amended
and restated in its entirety as follows:
"(ii) seventy-five percent (75%) of Advances; and".
<PAGE> 2
Exhibit 4(b)(4)
2.2 SECTION 6.7
Section 6.7 is amended by replacing the word "or" with the word
"and" at the end of clause (ii) of paragraphs (a) and (b), redesignating clause
(iii) of paragraph (b) as paragraph (c), replacing the "." at the end of new
paragraph (c) with "; and" and adding the following paragraph (d):
"(d) a merger, consolidation or Transfer of a Restricted
Subsidiary or Restricted Subsidiaries pursuant to the Montana
Disposition."
2.3 SECTION 6.8
(A) Paragraph (a) of Section 6.8 is amended by replacing the "." at
the end of clause (iv) with "; and", by adding, at the end of each of clauses
(iii) and (iv) before the semicolon the phrase "if, immediately before and after
the consummation of such Transfer, and after giving effect thereto, no Default
or Event of Default would exist", and by adding the following clause (v):
"(v) any Transfer made pursuant to the Montana
Disposition if, immediately before and after the consummation of
such Transfer, and after giving effect thereto, no Default or
Event of Default would exist."
(B) Paragraph (b) of Section 6.8 is amended by amending and restating
the lead-in phrase of clause (iv) as follows:
"(iv) the Transfer of all of the Restricted Subsidiary
Stock of a Restricted Subsidiary owned by the Company and the
other Restricted Subsidiaries pursuant to the Montana Disposition
or if:"
(C) Paragraph (c) of Section 6.8 is amended by adding in the second
line thereof after "except in connection with a Permitted Securitization" the
words "or in connection with the Montana Disposition".
2.4 SECTION 9.1
(A) The definition of "Permitted Securitization" in Section 9.1 of
the Agreement is hereby amended by deleting paragraph (d) in its entirety,
redesignating paragraph (e) as paragraph (d) and amending and restating
paragraph (b) of such definition as follows:
"(b) (i) The disposition of Advances will not result in
the aggregate principal amount of Debt at any time
outstanding, and (without duplication) of Securities
at any time issued and outstanding (other than
subordinated Securities issued to and held by the
Company or a Subsidiary), of any Special Purpose
Subsidiary pursuant to Permitted Securitizations
occurring from and after the effective date of the
Second Amendment exceeding $100,000,000 (which
amount may be readvanced and reborrowed); and (ii)
the Company or the Restricted
<PAGE> 3
Exhibit 4(b)(4)
Subsidiary disposing of Advances to a Special
Purpose Subsidiary pursuant to such Permitted
Securitization shall itself actually receive
(substantially contemporaneously with such
disposition) cash from each disposition of such
Advances in connection with any such securitization
transaction in an amount not less than Seventy-Five
Percent (75%) of the value of such Advances;".
(B) The definition of "Total Restricted Subsidiary Debt" is amended
and restated in its entirety as follows:
TOTAL RESTRICTED SUBSIDIARY DEBT -- means, at any
time, the aggregate amount of Debt of all Restricted
Subsidiaries determined at such time after eliminating
intercompany transactions among the Company and the
Restricted Subsidiaries. For the avoidance of doubt, the
Company hereby acknowledges that Total Restricted
Subsidiary Debt includes the amount of Debt of any
Restricted Subsidiary attributable to its Guaranty of any
liabilities of another Person (including the Company or
any Subsidiary) made in favor of any Person other than the
Company or another Restricted Subsidiary. Notwithstanding
the foregoing, (i) Total Restricted Subsidiary Debt does
not include the amount of Debt of any Restricted
Subsidiary attributable to its Guaranty of obligations
under the Credit Agreement (and any related notes, letters
of credit and other agreements) of any Person (including
the Company or any Subsidiary) made in favor of the Banks
if, concurrently with the giving of any such Guaranty, you
are given the benefit of an equal and ratable Guaranty on
substantially similar terms; and (ii) the term "Total
Restricted Subsidiary Debt" shall not, at any time prior
to May 15, 1997 (but shall, at all times from and after
May 15, 1997), be deemed to include any Debt of CAC
International attributable to its Guaranty, for the
benefit of the Banks, of the liabilities of the Company
and certain Subsidiaries under the Credit Agreement.
(C) The definition of "Montana Disposition" is added to Section 9.1:
"MONTANA DISPOSITION -- means the sale of Montana
Investment Group, Inc. and its subsidiaries for net
proceeds totaling at least $16,000,000 in cash (all of
which net proceeds are used to reduce Debt outstanding
under the Credit Agreement), pursuant to (i) the sale of
all or substantially all of the assets of Montana
Investment Group, Inc. and its subsidiaries, (ii) the sale
of all of the capital stock of Montana Investment Group,
Inc. or (iii) the merger of Montana Investment Group, Inc.
with and into any Person other than the Company or a
Restricted Subsidiary; in each case, immediately prior to
and immediately after the consummation of which, and after
giving effect thereto, no Default or Event of Default
would exist.
3
<PAGE> 4
Exhibit 4(b)(4)
SECTION 3. MISCELLANEOUS
3.1 COUNTERPARTS. This Third Amendment may be executed in any number
of counterparts, each executed counterpart constituting an original, but all
together only one Third Amendment.
3.2 HEADINGS. The headings of the sections of this Third Amendment
are for purposes of convenience only and shall not be construed to affect the
meaning or construction of any of the provisions hereof.
3.3 GOVERNING LAW. This Third Amendment shall be governed by and
construed in accordance with the internal laws of the State of Connecticut.
3.4 EFFECT OF AMENDMENT. Except as expressly provided herein (a) no
other terms and provisions of the Agreement shall be modified or changed by this
Third Amendment and (b) the terms and provisions of the Agreement, as amended by
this Third Amendment, shall continue in full force and effect. The Company
hereby acknowledges and reaffirms all of its obligations and duties under each
of the Agreement, as modified by this Third Amendment, and the Notes.
3.5 REFERENCES TO THE AGREEMENT. Any and all notices, requests,
certificates and other instruments executed and delivered concurrently with or
after the execution of the Third Amendment may refer to the Agreement without
making specific reference to this Third Amendment but nevertheless all such
references shall be deemed to include, to the extent applicable, this Third
Amendment unless the context shall otherwise require.
3.6 COMPLIANCE. The Company certifies that immediately before and
after giving effect to this Third Amendment, no Default or Event of Default
exists or would exist after giving effect hereto.
3.7 EFFECTIVENESS OF AMENDMENTS.
The amendments to the Agreement contemplated by Section 2 hereof shall
(in accordance with Section 10.5(a) of the Agreement) become effective, if at
all, at such time as the Company and the Required Holders of the Notes shall
have indicated their written consent to such amendments by executing and
delivering the applicable counterparts of this Third Amendment. It is understood
that any holder of Notes may withhold its consent for any reason, including,
without limitation, any failure of the Company to satisfy all of the following
conditions:
(a) This Third Amendment shall have been executed and delivered
by the Company and each of the Required Holders of the Notes.
(b) The execution, delivery and effectiveness of an agreement,
signed by the Company and the requisite holders of the Company's First
Amended and Restated 9.12% Senior Notes due November 1, 2001 issued
under Note Purchase Agreements dated as of October 1, 1994, containing
amendments to such Note Purchase Agreements identical in substance to
the amendments set forth in Section 2 hereof.
4
<PAGE> 5
Exhibit 4(b)(4)
(c) The execution, delivery and effectiveness of an agreement,
signed by the Company and the requisite holders of the Company's First
Amended and Restated 8.02% Senior Notes due October 1, 2001 issued
under Note Purchase Agreements dated as of March 25, 1997, containing
amendments to such Note Purchase Agreements identical in substance to
the amendments set forth in Section 2 hereof.
(d) The Company shall have paid the statement for reasonable
fees and disbursements of Hebb & Gitlin, your special counsel,
presented to the Company on or prior to the effective date of this
Third Amendment.
[Remainder of page intentionally blank. Next page is signature page.]
5
<PAGE> 6
Exhibit 4(b)(4)
If this Third Amendment is satisfactory to you, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this Third Amendment shall become binding between us in
accordance with its terms.
Very truly yours,
CREDIT ACCEPTANCE CORPORATION
By: /S/BRETT A. ROBERTS
------------------------------------
Name: Brett A. Roberts
Title: Executive Vice President
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
6
<PAGE> 7
Exhibit 4(b)(4)
ACCEPTED: ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR CENTRAL
STATES HEALTH & LIFE COMPANY OF
OMAHA
By: /S/K. LANGE
--------------------------------------------
Name: Kathy Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR THE CHARLES
SCHWAB TRUST COMPANY FBO
GUARANTY INCOME LIFE INSURANCE
COMPANY
By: /S/K. LANGE
--------------------------------------------
Name: Kathy Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR AMERICAN
COMMUNITY MUTUAL INSURANCE
By: /S/K. LANGE
--------------------------------------------
Name: Kathy Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR CENTRAL RE
CORP. & PHOENIX
By: /S/K. LANGE
--------------------------------------------
Name: Kathy Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR LONE STAR
LIFE INSURANCE COMPANY
By: /S/K. LANGE
--------------------------------------------
Name: Kathy Lange
Title:
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
7
<PAGE> 8
Exhibit 4(b)(4)
ACCEPTED:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR OZARK
NATIONAL LIFE INSURANCE COMPANY
By: /S/K. LANGE
----------------------------------------
Name: Kathy Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR CSA FRATERNAL LIFE
By: /S/K. LANGE
----------------------------------------
Name: Kathy Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR KANAWHA
INSURANCE COMPANY
By: /S/K. LANGE
----------------------------------------
Name: Kathy Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR OLD GUARD
MUTUAL INSURANCE COMPANY
By: /S/K. LANGE
----------------------------------------
Name: Kathy Lange
Title:
WILLIAM BLAIR & COMPANY, LLC
By: William Blair & Company, LLC
Attorney-in-Fact
By: /S/JAMES D. MC KINNEY
----------------------------------------
Name: James D. Mc Kinney
Title: Partner and Manager
Fixed Income Department
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
8
<PAGE> 9
Exhibit 4(b)(4)
ACCEPTED:
COMBINED INSURANCE COMPANY OF
AMERICA
BY: AON ADVISORS, INC.
By: /S/KEITH LEMMER
----------------------------------------
Name: Keith Lemmer
Title: Senior Portfolio Manager
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
BY CIGNA INVESTMENTS, INC. (authorized agent)
By: /S/JAMES R. KUZEMCHAK
----------------------------------------
Name: James R. Kuzemchak
Title: Managing Director
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY,
ON BEHALF OF ONE OR MORE SEPARATE ACCOUNTS
BY CIGNA INVESTMENTS, INC. (authorized agent)
By: /S/JAMES R. KUZEMCHAK
----------------------------------------
Name: James R. Kuzemchak
Title: Managing Director
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: /S/RICHARD E. SPENCER II
----------------------------------------
Name: Richard E. Spencer II
Title: Managing Director
CM LIFE INSURANCE COMPANY
By: /S/RICHARD E. SPENCER II
----------------------------------------
Name: Richard E. Spencer II
Title: Investment Officer
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
9
<PAGE> 10
Exhibit 4(b)(4)
ACCEPTED:
NATIONWIDE LIFE INSURANCE COMPANY
By: /S/MARK W. POEPPELMAN
----------------------------------------
Name: Mark W. Poeppelman
Title: Authorized Signatory
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: /S/CHOM S. RECTANUS
----------------------------------------
Name: Chom S. Rectanus
Title: Second Vice President
PAN AMERICAN LIFE INSURANCE COMPANY
By: /S/F. ANDERSON STONE
----------------------------------------
Name: F. Anderson Stone
Title: Vice President
Corporate Securities
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
BY: PHOENIX INVESTMENT COUNSEL, INC.
By: /S/ROSEMARY T. STREKEL
----------------------------------------
Name: Rosemary T. Strekel
Title: Senior Managing Director
SECURITY BENEFIT LIFE INSURANCE COMPANY
By: /S/STEVEN M. BOWSER
----------------------------------------
Name: Steven M. Bowser
Title: Second Vice President
Portfolio Manager
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
10
<PAGE> 1
Exhibit 4(e)(4)
THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
RE:
CREDIT ACCEPTANCE CORPORATION
FIRST AMENDED AND RESTATED 8.02% SENIOR NOTES DUE OCTOBER 1, 2001
Dated as of April 13, 1999
To the Noteholders listed on Annex I hereto
Ladies and Gentlemen:
Credit Acceptance Corporation, a Michigan corporation (together with
its successors and assigns, the "Company"), hereby agrees with you as follows:
SECTION 1. INTRODUCTORY MATTERS.
1.1 DESCRIPTION OF OUTSTANDING NOTES. The Company currently has
outstanding $_________ in aggregate unpaid principal amount of its First Amended
and Restated 8.02% Senior Notes due October 1, 2001 (collectively, the "Notes")
which it issued pursuant to the separate Note Purchase Agreements, each dated as
of March 25, 1997 (collectively, as amended by the First Amendment to Note
Purchase Agreement dated as of December 12, 1997 and the Second Amendment to
Note Purchase Agreement, dated as of July 1, 1998, the "Agreement"), entered
into by the Company with each of the original holders of the Notes listed on
Annex 1 thereto, respectively. Terms used herein but not otherwise defined
herein shall have the meanings assigned thereto in the Agreement, as amended
hereby.
1.2 PURPOSE OF AMENDMENT. The Company and you desire to amend the
Agreement as set forth in Section 2 hereof and to include in this amendment the
revision to the "Total Restricted Subsidiary Debt" definition, which revision
was included in the terms of the Intercreditor Agreement, dated as of December
15, 1998 among Comerica Bank, as collateral agent, the lenders under the Credit
Agreement and the holders of the Notes and other notes issued by the Company.
SECTION 2. AMENDMENT TO THE AGREEMENT.
Pursuant to Section 10.5 of the Agreement, the Company hereby agrees
with you that the Agreement shall be amended by this Third Amendment to Note
Purchase Agreement (the "Third Amendment") in the following respects:
2.1 SECTION 6.1
Clause (ii) of paragraph (a) of Section 6.1 is hereby amended and
restated in its entirety as follows:
"(ii) seventy-five percent (75%) of Advances; and".
<PAGE> 2
Exhibit 4(e)(4)
2.2 SECTION 6.7
Section 6.7 is amended by replacing the word "or" with the word
"and" at the end of clauses (i) and (ii) of paragraph (a), replacing the "." at
the end of clause (iii) of paragraph (a) with "; and" and adding the following
clause (iv):
"(iv) a merger, consolidation or Transfer of a Restricted
Subsidiary or Restricted Subsidiaries pursuant to the Montana
Disposition."
2.3 SECTION 6.8
(A) Paragraph (a) of Section 6.8 is amended by replacing the "." at
the end of clause (iv) with "; and", by adding, at the end of each of clauses
(iii) and (iv) before the semicolon the phrase "if, immediately before and after
the consummation of such Transfer, and after giving effect thereto, no Default
or Event of Default would exist", and by adding the following clause (v):
"(v) any Transfer made pursuant to the Montana
Disposition if, immediately before and after the consummation
of such Transfer, and after giving effect thereto, no Default
or Event of Default would exist."
(B) Paragraph (b) of Section 6.8 is amended by amending and restating
the lead-in phrase of clause (iv) as follows:
"(iv) the Transfer of all of the Restricted Subsidiary
Stock of a Restricted Subsidiary owned by the Company and the
other Restricted Subsidiaries pursuant to the Montana
Disposition or if:"
(C) Paragraph (c) of Section 6.8 is amended by adding in the second
line thereof after "except in connection with a Permitted Securitization" the
words "or in connection with the Montana Disposition".
2.4 SECTION 9.1
(A) The definition of "Permitted Securitization" in Section 9.1 of
the Agreement is hereby amended by deleting paragraph (d) in its entirety,
redesignating paragraph (e) as paragraph (d) and amending and restating
paragraph (b) of such definition as follows:
"(b) (i) The disposition of Advances will not result in
the aggregate principal amount of Debt at any time
outstanding, and (without duplication) of Securities
at any time issued and outstanding (other than
subordinated Securities issued to and held by the
Company or a Subsidiary), of any Special Purpose
Subsidiary pursuant to Permitted Securitizations
occurring from and after the effective date of the
Second Amendment exceeding $100,000,000 (which amount
may be readvanced and reborrowed); and (ii) the
Company or the Restricted
<PAGE> 3
Exhibit 4(e)(4)
Subsidiary disposing of Advances to a Special Purpose
Subsidiary pursuant to such Permitted Securitization
shall itself actually receive (substantially
contemporaneously with such disposition) cash from
each disposition of such Advances in connection with
any such securitization transaction in an amount not
less than Seventy-Five Percent (75%) of the value of
such Advances;".
(B) The definition of "Total Restricted Subsidiary Debt" is amended
and restated in its entirety as follows:
TOTAL RESTRICTED SUBSIDIARY DEBT -- means, at any
time, the aggregate amount of Debt of all Restricted
Subsidiaries determined at such time after eliminating
intercompany transactions among the Company and the
Restricted Subsidiaries. For the avoidance of doubt, the
Company hereby acknowledges that Total Restricted
Subsidiary Debt includes the amount of Debt of any
Restricted Subsidiary attributable to its Guaranty of any
liabilities of another Person (including the Company or
any Subsidiary) made in favor of any Person other than
the Company or another Restricted Subsidiary.
Notwithstanding the foregoing, (i) Total Restricted
Subsidiary Debt does not include the amount of Debt of
any Restricted Subsidiary attributable to its Guaranty of
obligations under the Credit Agreement (and any related
notes, letters of credit and other agreements) of any
Person (including the Company or any Subsidiary) made in
favor of the Banks if, concurrently with the giving of
any such Guaranty, you are given the benefit of an equal
and ratable Guaranty on substantially similar terms; and
(ii) the term "Total Restricted Subsidiary Debt" shall
not, at any time prior to May 15, 1997 (but shall, at all
times from and after May 15, 1997), be deemed to include
any Debt of CAC International attributable to its
Guaranty, for the benefit of the Banks, of the
liabilities of the Company and certain Subsidiaries under
the Credit Agreement.
(C) The definition of "Montana Disposition" is added to Section 9.1:
"MONTANA DISPOSITION -- means the sale of Montana
Investment Group, Inc. and its subsidiaries for net
proceeds totaling at least $16,000,000 in cash (all of
which net proceeds are used to reduce Debt outstanding
under the Credit Agreement), pursuant to (i) the sale of
all or substantially all of the assets of Montana
Investment Group, Inc. and its subsidiaries, (ii) the
sale of all of the capital stock of Montana Investment
Group, Inc. or (iii) the merger of Montana Investment
Group, Inc. with and into any Person other than the
Company or a Restricted Subsidiary; in each case,
immediately prior to and immediately after the
consummation of which, and after giving effect thereto,
no Default or Event of Default would exist.
3
<PAGE> 4
Exhibit 4(e)(4)
SECTION 3. MISCELLANEOUS
3.1 COUNTERPARTS. This Third Amendment may be executed in any number
of counterparts, each executed counterpart constituting an original, but all
together only one Third Amendment.
3.2 HEADINGS. The headings of the sections of this Third Amendment
are for purposes of convenience only and shall not be construed to affect the
meaning or construction of any of the provisions hereof.
3.3 GOVERNING LAW. This Third Amendment shall be governed by and
construed in accordance with the internal laws of the State of New York.
3.4 EFFECT OF AMENDMENT. Except as expressly provided herein (a) no
other terms and provisions of the Agreement shall be modified or changed by this
Third Amendment and (b) the terms and provisions of the Agreement, as amended by
this Third Amendment, shall continue in full force and effect. The Company
hereby acknowledges and reaffirms all of its obligations and duties under each
of the Agreement, as modified by this Third Amendment, and the Notes.
3.5 REFERENCES TO THE AGREEMENT. Any and all notices, requests,
certificates and other instruments executed and delivered concurrently with or
after the execution of the Third Amendment may refer to the Agreement without
making specific reference to this Third Amendment but nevertheless all such
references shall be deemed to include, to the extent applicable, this Third
Amendment unless the context shall otherwise require.
3.6 COMPLIANCE. The Company certifies that immediately before and
after giving effect to this Third Amendment, no Default or Event of Default
exists or would exist after giving effect hereto.
3.7 EFFECTIVENESS OF AMENDMENTS.
The amendments to the Agreement contemplated by Section 2 hereof shall
(in accordance with Section 10.5(a) of the Agreement) become effective, if at
all, at such time as the Company and the Required Holders of the Notes shall
have indicated their written consent to such amendments by executing and
delivering the applicable counterparts of this Third Amendment. It is understood
that any holder of Notes may withhold its consent for any reason, including,
without limitation, any failure of the Company to satisfy all of the following
conditions:
(a) This Third Amendment shall have been executed and
delivered by the Company and each of the Required Holders of the Notes.
(b) The execution, delivery and effectiveness of an
agreement, signed by the Company and the requisite holders of the
Company's First Amended and Restated 9.12% Senior Notes due November 1,
2001 issued under Note Purchase Agreements dated as of October 1, 1994,
containing amendments to such Note Purchase Agreements identical in
substance to the amendments set forth in Section 2 hereof.
4
<PAGE> 5
Exhibit 4(e)(4)
(c) The execution, delivery and effectiveness of an agreement,
signed by the Company and the requisite holders of the Company's First
Amended and Restated 8.24% Senior Notes due July 1, 2001 issued under
Note Purchase Agreements dated as of August 1, 1996, containing
amendments to such Note Purchase Agreements identical in substance to
the amendments set forth in Section 2 hereof.
(d) The Company shall have paid the statement for reasonable
fees and disbursements of Hebb & Gitlin, your special counsel,
presented to the Company on or prior to the effective date of this
Third Amendment.
[Remainder of page intentionally blank. Next page is signature page.]
5
<PAGE> 6
Exhibit 4(e)(4)
If this Third Amendment is satisfactory to you, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this Third Amendment shall become binding between us in
accordance with its terms.
Very truly yours,
CREDIT ACCEPTANCE CORPORATION
By: /S/BRETT A. ROBERTS
-----------------------------------
Name: Brett A. Roberts
Title: Executive Vice President
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
6
<PAGE> 7
Exhibit 4(e)(4)
ACCEPTED: THE GUARDIAN LIFE INSURANCE COMPANY
OF AMERICA
By: /S/THOMAS M. DONOHUE
-----------------------------------
Name: Thomas M. Donohue
Title: Vice President
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /S/RICHARD E. SPENCER II
-----------------------------------
Name: Richard E. Spencer II
Title: Managing Director
NATIONWIDE LIFE INSURANCE COMPANY
By: /S/MARK W. POEPPELMAN
-----------------------------------
Name: Mark W. Poeppelman
Title: Authorized Signatory
WILLIAM BLAIR & COMPANY, LLC
By: William Blair & Company, LLC
Attorney-in-Fact
By: /S/JAMES D. MC KINNEY
-----------------------------------
Name: James D. Mc Kinney
Title: Partner and Manager
Fixed Income Department
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
7
<PAGE> 8
Exhibit 4(e)(4)
ACCEPTED: AMERICAN BANKERS INSURANCE
COMPANY OF FLORIDA
By: /S/GUS RODRIQUEZ
----------------------------------------
Name: Gus Rodriquez
Title: Director of Investments
VOYAGER PROPERTY & CASUALTY
INSURANCE CO.
By: /S/GUS RODRIQUEZ
----------------------------------------
Name: Gus Rodriquez
Title: Director of Investments
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR AMERICAN
PIONEER LIFE INSURANCE COMPANY OF
NEW YORK
By: /S/K. LANGE
----------------------------------------
Name: K. Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR AMERICAN
PROGRESSIVE LIFE AND HEALTH
INSURANCE COMPANY OF NEW YORK
By: /S/K. LANGE
----------------------------------------
Name: K. Lange
Title:
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
8
<PAGE> 9
Exhibit 4(e)(4)
ACCEPTED: ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR THE FEDERATED
RURAL ELECTRIC INSURANCE CORP.
By: /S/K. LANGE
----------------------------------------
Name: K. Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR TOWER
LIFE INSURANCE COMPANY
By: /S/K. LANGE
----------------------------------------
Name: K. Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR PHYSICIANS
LIFE INSURANCE COMPANY VISTA 500
By: /S/K. LANGE
----------------------------------------
Name: K. Lange
Title:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR WORLD
INSURANCE COMPANY
By: /S/K. LANGE
----------------------------------------
Name: K. Lange
Title:
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
9
<PAGE> 10
Exhibit 4(e)(4)
ACCEPTED: ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR UNITED
TEACHERS ASSOCIATES INSURANCE
COMPANY
By: /S/K. LANGE
----------------------------------------
Name: K. Lange
Title:
FARM BUREAU LIFE INSURANCE
COMPANY
By: /S/ROBERT J. RUMMELHART
----------------------------------------
Name: Robert J. Rummelhart
Title: Fixed Income-Vice President
FARM BUREAU MUTUAL INSURANCE COMPANY
By: /S/ROBERT J. RUMMELHART
----------------------------------------
Name: Robert J. Rummelhart
Title: Fixed Income-Vice President
GENERAL AMERICAN LIFE INSURANCE
COMPANY
By: Conning Asset Management Company
By: /S/LAURA R. CARO
----------------------------------------
Name: Laura R. Caro
Title: Senior Vice President
[Signature Page to Third Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,308
<SECURITIES> 10,371
<RECEIVABLES> 612,506
<ALLOWANCES> 5,849
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 31,173
<DEPRECIATION> 10,810
<TOTAL-ASSETS> 701,648
<CURRENT-LIABILITIES> 0
<BONDS> 139,669
0
0
<COMMON> 463
<OTHER-SE> 279,227
<TOTAL-LIABILITY-AND-EQUITY> 701,648
<SALES> 0
<TOTAL-REVENUES> 30,361
<CGS> 0
<TOTAL-COSTS> 14,549
<OTHER-EXPENSES> 831
<LOSS-PROVISION> 2,136
<INTEREST-EXPENSE> 4,527
<INCOME-PRETAX> 8,273
<INCOME-TAX> 2,894
<INCOME-CONTINUING> 5,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,379
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
