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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THIS FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 000-20202
CREDIT ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MICHIGAN 38-1999511
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)
25505 W. TWELVE MILE ROAD, SUITE 3000 48034-8339
SOUTHFIELD, MICHIGAN (Zip Code)
(Address of Principal Executive Offices)
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Registrant's telephone number, including area code: (248) 353-2700
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of 11,087,409 shares of the Registrant's common stock
held by non-affiliates on March 22, 2000 was approximately $54,051,119. For
purposes of this computation all officers, directors and 5% beneficial owners of
the Registrant are assumed to be affiliates. Such determination should not be
deemed an admission that such officers, directors and beneficial owners are, in
fact, affiliates of the Registrant.
At March 22, 2000 there were 44,916,654 shares of the Registrant's Common Stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement pertaining to the 2000
Annual Meeting of Shareholders (the "Proxy Statement") filed pursuant to
Regulation 14A are incorporated herein by reference into Part III.
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CREDIT ACCEPTANCE CORPORATION
YEAR ENDED DECEMBER 31, 1999
INDEX TO FORM 10-K
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ITEM PAGE
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PART I
1. Business.................................................... 2
2. Properties.................................................. 10
3. Legal Proceedings........................................... 11
4. Submission of Matters to a Vote of Security Holders......... 12
PART II
5. Market Price and Dividend Information....................... 13
6. Selected Financial Data..................................... 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 26
8. Financial Statements and Supplemental Data.................. 28
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 55
PART III
10. Directors and Executive Officers of the Registrant.......... 55
11. Executive Compensation...................................... 55
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 55
13. Certain Relationships and Related Transactions.............. 55
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 55
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PART I
ITEM 1. BUSINESS
GENERAL
Credit Acceptance Corporation ("CAC" or the "Company"), incorporated in
Michigan in 1972, is a specialized financial services company which provides
funding, receivables management, collection, sales training and related products
and services to automobile dealers located in the United States, the United
Kingdom, Canada and Ireland. CAC assists such dealers with the sale of used
vehicles by providing an indirect financing source for buyers with limited
access to traditional sources of consumer credit ("Non-prime Consumers"). For
the year ended December 31, 1999, CAC had total revenues of $116.1 million and a
net loss of ($10.7) million. At December 31, 1999, aggregate gross installment
contracts receivable were $679.2 million and total shareholders' equity was
$263.0 million.
CAC also provides additional products and services to dealers which give
the Non-prime Consumer the opportunity to purchase a number of ancillary
products, including credit life and disability insurance and vehicle service
contracts offered by dealers and point-of-sale dual interest collateral
protection insurance provided by third party insurance carriers. Through
wholly-owned subsidiaries, the Company also reinsures certain of the credit life
and disability insurance and point-of-sale dual interest collateral protection
insurance policies issued in conjunction with installment contracts originated
by dealers.
The Company is organized into two primary business segments: CAC North
America and CAC United Kingdom. See Note 13 to the consolidated financial
statements for information regarding the Company's reportable segments.
PRODUCTS AND SERVICES
CAC derives its revenues from the following principal sources: (i)
servicing fees (which are accounted for as finance charges) earned as a result
of servicing and collecting installment contracts originated and assigned to the
Company by dealers; (ii) premiums earned from the Company's reinsurance
activities and service contract programs; and (iii) other income which primarily
consists of fees earned from third party service contract products offered by
dealers, fees charged to dealers at the time they enroll in the Company's
program, income from operating lease assets and interest income from loans made
directly to dealers for floor plan financing and working capital purposes. The
following table sets forth the percent relationship to total revenue of each of
these sources.
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FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
PERCENT OF TOTAL REVENUE 1997 1998 1999
------------------------ ----- ----- -----
<S> <C> <C> <C>
Finance charges.......................................... 71.2% 68.8% 65.9%
Gain on sale of advance receivables, net................. -- 0.5 --
Premiums earned.......................................... 6.9 7.7 9.0
Other income............................................. 21.9 23.0 25.1
----- ----- -----
Total revenue.......................................... 100.0% 100.0% 100.0%
===== ===== =====
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PRINCIPAL BUSINESS
CAC's principal business involves: (i) the acceptance of installment
contracts originated and assigned by participating dealers; and (ii) the
subsequent management and collection of such contracts. For installment
contracts meeting the Company's criteria, CAC makes a formula-based cash payment
to the dealer (an "Advance"). In North America, the Company may Advance up to
90% of the amount financed, but Advances typically range between 50% and 75% of
the amount financed. In the United Kingdom, the Company may Advance up to 100%
of the amount financed, however, Advances typically range between 70% and 90% of
the amount financed. To mitigate its risk, at the time of accepting the
assignment of an installment contract, CAC obtains a security interest in the
vehicle and establishes a dealer holdback equal to the gross amount of the
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contract, less the Company's servicing fee, which is recorded as an unearned
finance charge. CAC's acceptance of such contracts is generally without recourse
to the general assets of the dealer, and accordingly, the dealer usually has no
liability to the Company if the consumer defaults on the contract.
CAC offers its dealers in North America several Advance alternatives, which
are calculated based upon the dealer's history with the Company, the credit
score for a particular customer and the year, make, model, and mileage of the
used vehicle to be financed. A similar method is used in the United Kingdom to
calculate the Advance, with the exception of credit scoring the customer.
Monthly cash receipts related to the aggregate installment contracts
accepted from an individual dealer are remitted to such dealer, but only after:
(i) the Company is reimbursed for certain collection costs relating to
all contracts accepted from such dealer;
(ii) the Company receives a servicing fee (typically 20%) of the
aggregate net monthly receipts (monthly cash receipts less certain
collection costs); and
(iii) the Company has recovered all advances made to such dealer.
OPERATIONS -- CAC NORTH AMERICA AND CAC UNITED KINGDOM
Dealer Selection and Enrollment Fee. CAC has adopted specific policies
relative to establishing the eligibility of prospective dealers for the
Company's program. A dealer's participation in the Company's program begins with
the execution of a Servicing Agreement, which requires the dealer to disclose
information about his dealership and personal finances. The Company undertakes a
review of the dealer information to determine whether the dealer should be
permitted to participate in the Company's program.
Pursuant to the Servicing Agreement, a dealer represents that it will only
submit contracts to CAC which satisfy criteria established by the Company, meet
certain conditions with respect to the binding nature and the status of the
security interest in the purchased vehicle and comply with applicable state,
federal and foreign laws and regulations. Dealers receive a monthly statement
from the Company, summarizing all transactions on contracts originated by such
dealer. Also, where applicable, the dealer will receive a payment from CAC for
any portion of the payments on contracts to which the dealer is entitled under
the Servicing Agreement.
The Servicing Agreement may be terminated by the Company or by the dealer
(as long as there is no event of default or an event which, with the lapse of
time, giving of notice or both, would become an event of default) upon 30 days
prior written notice. Events of default include, among other things, (i) the
dealer's failure to perform or observe covenants in the Servicing Agreement;
(ii) the dealer's breach of a representation in the Servicing Agreement; (iii) a
misrepresentation by the dealer relating to an installment contract submitted to
the Company or a related vehicle or purchaser; and (iv) the appointment of a
receiver for, or the bankruptcy or insolvency of, the dealer. The Company may
terminate the servicing agreement immediately in the case of an event of default
by the dealer. Upon any termination by the dealer or in the event of a default,
the dealer must immediately pay the Company: (i) any unreimbursed collection
costs; (ii) any unpaid advances and all amounts owed by the dealer to the
Company; and (iii) a termination fee equal to 20% of the then outstanding amount
of the installment contracts originated and accepted by the Company. Upon
receipt in full of such amounts, the Company will reassign the installment
contract receivable and its security interest in the financed vehicle to the
dealer. In the event of a termination by the Company (or any other termination
if the Company and the dealer agree), the Company may continue to service
installment contracts accepted prior to termination in the normal course of
business without charging a termination fee.
New dealers located in North America are generally charged a $4,500 dealer
enrollment fee, which affords the dealer access to the Company's training
material and programs and helps offset the administrative expenses associated
with new dealer enrollment. In 1999, the Company began generally charging new
dealers located in the United Kingdom an enrollment fee of 2,500 pounds.
Assignment of Contracts. The dealer assigns title to the installment
contract and the security interest in the vehicle to the Company. Thereafter,
the rights and obligations of the Company and the dealer are defined
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by the servicing agreement, which provides that the contract assignment to the
Company is for the purposes of administration, servicing and collection of the
amounts due under the assigned contract, as well as for security purposes. At
the time a contract is submitted, CAC evaluates the contract to determine if it
meets the Company's cash Advance criteria. Contracts which do not meet the
Company's cash Advance criteria may still be accepted for servicing without an
Advance being paid.
Contract Portfolio. The portfolio of installment contracts contains loans
of initial duration generally ranging from 24 to 42 months, with an average
initial maturity of approximately 32 months. The Company receives a servicing
fee generally equal to 20% of the gross amount of the contract, with rate of
return varying, based upon the amount of the Advance and the term of the
contract.
The following table sets forth, for each of the periods indicated, the
average size of installment contracts accepted by the Company, the percent
growth in the average size of contracts accepted, the average initial maturity
of the contracts accepted, the average advance per installment contract accepted
and the average advance as a percent of the average installment contract
accepted.
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AS OF DECEMBER 31,
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AVERAGE CONTRACT DATA 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C>
Average size of installment contracts accepted
during the period................................. $6,507 $7,249 $8,340 $8,402 $8,931
Percentage growth in average size of contract....... 9.9% 11.4% 15.1% 0.7% 6.3%
Average initial maturity (in months)................ 25 30 31 31 32
Average advance per installment contract............ $3,220 $3,837 $4,228 $4,260 $4,784
Average advance as a percent of average installment
contract accepted................................. 49.5% 52.9% 50.7% 50.7% 53.6%
</TABLE>
Systems Overview. 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.
ACS -- The ACS, designed and built by an independent consulting firm hired
by the Company, was installed in May 1997. This system replaced certain
functionality of the Company's previous systems. The system enables the Company
to efficiently process a large volume of application and contract data. When a
dealer faxes an application to the Company's headquarters in Southfield,
Michigan, Company personnel input the application data into the ACS. The system
automatically pulls all credit bureau and vehicle guidebook data and includes
such data in the application file, which is routed to the analyst team assigned
to the dealer's geographic area. An analyst reviews each application file
on-line to determine if the transaction is properly structured and meets the
Company's guidelines for an Advance. The ACS provides the analyst with
information regarding the borrower, including information on the borrower's
residence, employment, wage level and references, information regarding the
vehicle, including the vehicle's age, mileage and guidebook value, and
information regarding the transaction, including sale price, down payment,
interest rate and term. The system computes the Advance amount according to
predefined programs based on dealer and loan variables, provides the analyst
with warning flags on out-of-tolerance application variables and allows the
analyst to select from a predefined set of stipulations to include on the
Advance approval transmittal, which is automatically faxed to the dealer. After
the sale of the vehicle, the installment contract package is sent to the Company
by the dealer. The contract information is input into the ACS. The system
compares the contract data to the application data and reviews compliance with
analyst stipulations. After any variances have been addressed, the system sends
an Advance payment to the dealer by check or electronic transaction. The system
generally enables the Company to approve application files in under one hour and
fund contracts within 24 hours of receipt of all required documents. The system
enables management personnel to report on service level by analyst and by
region, application and contract volumes by dealer and by program, exceptions
granted and various other reports as needed. The ACS automatically loads all new
contract data into the LSS system.
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LSS -- The LSS, designed and built for the Company by the same consulting
firm, was installed and implemented in the third quarter 1997. This system
contains all loan transaction data, including payments and charge-offs for loans
accepted by the Company since July 1990. The system is the Company's primary
information source for management reporting including production of monthly
statements sent to dealers summarizing the status of their accounts and the
Company's static pool system, which provides the Company with a static pool
analysis on a per dealer basis. This system provides the Company with the
ability to project future collections for each dealer based on actual prior loss
history. These projections are then used to analyze dealer profitability and to
estimate and record the Company's reserve on Advances to dealers. The LSS
interfaces with both the ACS and CS.
CS -- The CS, which is used by Company collection personnel to service all
active accounts was purchased, modified and installed in 1989. The collection
system provides data on all of the Company's customer accounts including loan
and payment information as well as a log of all account activity including
letters sent and summaries of telephone contact. The system generates payment
books which are sent on all new accounts, generates all collection letters and
notices, allows collectors to record promises to pay and broken promises,
interfaces with an automated dialing system, assigns accounts to collection
personnel and tracks results on a per collector basis. Repossession and legal
accounts are also processed on this system. The CS also interfaces with the LSS.
The Company employs one major computer system in its UK operation, which
was originally developed by a major software vendor. The Company purchased the
source code in 1997 and now continues to develop and enhance the system in
house. The system encompasses the main features of the ACS, LSS and CS with the
exception of (i) the ability to automatically pull all credit bureau and vehicle
guidebook data, which have to be referenced separately, and (ii) the automatic
interface with the phone system.
Servicing and Collections. CAC's staff of professional and experienced
collection personnel collects amounts due on installment contracts, assisted by
the CS and telephone systems. The customized CS system is integrated with an
automated dialing telephone system, which allows the Company's collection
personnel to contact a large number of customers on a daily basis. The
integration of the systems allows critical calling information to be seamlessly
uploaded to the CS. This integration helps identify customers who are difficult
to contact by phone and need additional collection efforts. In North America,
customer payments are received through a bank lockbox and at CAC's Southfield,
Michigan location. Payment receipt data is electronically transferred from the
bank lockbox on a daily basis for posting to the customer's account. The
payments are processed in CAC's LSS which provides customer payment information
to the CS on a real time basis.
In the United Kingdom, customers can make payments at banks and post
offices. The payment receipt data is received electronically, on a daily basis,
and is automatically posted to the customer's account. In addition to payments
being received at the Company's UK offices, the Company electronically
originates a large percentage of payments directly from a customer's bank
account, with the customer's prior consent. All payments processed update the
customer's account on a real time basis.
Customer accounts are monitored and serviced by regional collection teams.
The team members consist of junior, mid-level, and senior collection personnel.
The teams typically take action on accounts within five days of delinquency. If
a customer is delinquent, the Company's policy is to attempt to resolve the
delinquency by persuading the customer to make payment arrangements until the
delinquency is resolved. Since the customer generally has a poor credit history,
the Company's program provides the customer with an opportunity to restore their
credit rating. The Company believes its interests are best served by permitting
the customer to retain the vehicle while making payments, even if the maturity
of the loan needs to be extended beyond the original term. Customers, within the
first three payments of the contract, are monitored and serviced by a
specialized collection team. The first-payment-miss team typically takes action
on accounts at one day past due, attempting to resolve the delinquency as soon
as possible.
The repossession process typically begins when a customer becomes
approximately 30 days past due. At that time, the Company contracts with a third
party to repossess and sell the vehicle at an auction. The costs related to such
activities, to the extent permitted by law, are added to the amount due from the
customer and the dealer Advance amount. If the proceeds from the sale are not
sufficient to cover the total balance due, the
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Company may seek to recover its "deficiency balance" from the customer through
legal means, including wage garnishment to the extent permitted by applicable
law. Although the Company continues to pursue collection, the deficiency balance
is charged-off after nine months of not receiving any material payments.
Proprietary Credit Scoring System. In 1999, the Company implemented a
proprietary credit scoring system in North America which is based upon the
Company's portfolio database and was developed with the assistance of an
independent statistical consulting firm. Credit scoring is used to evaluate risk
in terms of expected collection rates. Factors considered in the credit scoring
model include data contained in the customer's credit application, the
customer's credit bureau report and the structure of the proposed transaction.
The credit scoring system provides the Company with the ability to vary the
structure of the installment contract and the Advance rate on the contract based
upon the statistical probability of default. The credit scoring system is not
utilized in the United Kingdom.
The Company's credit scoring model is evaluated monthly through the
comparison of actual versus projected loan collection performance by credit
score. The Company continues to enhance and refine its proprietary credit
scoring model based on new information and trends in its portfolio of
installment contracts receivable.
OPERATIONS -- CAC AUTOMOTIVE LEASING
During 1999, the Company began to expand its automotive leasing business
through two business units, AutoNet Finance.com and CAC Leasing, Inc. Through
these business units, the Company purchases 24 to 36 month used vehicle leases
originated by dealers participating in the Company's automotive leasing
programs. The Company had been evaluating leasing as an alternative for the
Non-prime Consumer for several years through a pilot program. The programs are
designed to provide dealers with a leasing alternative for Non-prime Consumers
with limited access to traditional sources of consumer credit. Because the
Company assumes ownership of the vehicles from the dealers, these leases are
accounted for as operating leases with the capitalized cost of the vehicles
recorded as depreciable assets (net investment in operating leases). This
program differs from the Company's principal business in that, as these leases
are purchased outright, the dealer does not have any rights to future
collections on the lease contracts.
The Company anticipates that as it expands its leasing business to new
markets and dealers, the leasing business could become a more significant part
of the Company's overall operations.
ANCILLARY PRODUCTS
The Company continually explores methods by which its business
relationships with dealers may be enhanced, including several ancillary products
such as insurance and service contracts.
Insurance and Service Contract Programs. In the U.S., CAC has arrangements
with insurance carriers to assist dealers in offering credit life and disability
insurance to Non-prime Consumers. Pursuant to this program, the Company advances
to dealers an amount equal to the credit life and disability insurance premium
on contracts accepted by the Company, which include credit life and disability
insurance written by the Company's designated insurance carriers. The Company is
not involved in the actual sale of insurance; however, as part of the program,
the insurance carriers cede insurance coverages and premiums (less a fee) to
wholly-owned subsidiaries of the Company, which reinsure such coverages. As a
result, the subsidiaries bear the risk of loss attendant to claims under the
coverages ceded to it, and earn revenues resulting from premiums ceded and the
investment of such funds.
Buyers Vehicle Protection Plan, Inc. ("BVPP"), a wholly-owned subsidiary of
CAC, operates as an administrator of certain vehicle service contract programs
offered by dealers to consumers in the U.S. Under this program, BVPP charges
dealers a premium for the service contracts and in return agrees to reimburse
dealers for designated amounts that the dealer is required to pay for covered
repairs on the vehicles it sells. CAC advances to dealers an amount equal to the
purchase price of the vehicle service contract on contracts
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accepted by the Company which include vehicle service contracts. CAC has, in
turn, subcontracted its obligations to administer these programs to third
parties that have experience with such programs. Nevertheless, the risk of loss
(reimbursement obligations in excess of the purchase price of the vehicle
service contract) remains with BVPP. In addition, BVPP has relationships with
third party service contract providers which pay BVPP a fee on service contracts
included on installment contracts financed through participating dealers. BVPP
does not bear any risk of loss for covered claims on these third party service
contracts.
In the United Kingdom, the Company has relationships with third party
credit life and disability and service contract providers, which pay the Company
a fee on credit life and disability and service contracts included on
installment contracts financed through participating dealers.
The Company has an arrangement with insurance carriers and a third party
administrator in the U.S. to market and provide claims administration for a dual
interest collateral protection program. This insurance program, which insures
the financed vehicle against physical damage up to the lesser of the cost to
repair the vehicle or the unpaid balance owed on the related installment
contract, is offered to Non-prime Consumers who finance vehicles through
participating dealers. If desired by a Non-prime Consumer, collateral protection
insurance coverage is written under a group master policy issued by the
unaffiliated insurance carriers to the Company. The Company is not involved in
the actual sale of insurance; however, as part of the program, the insurance
carriers cede insurance coverages and premiums (less a fee) to CAC Reinsurance,
Ltd., a wholly-owned subsidiary of the Company, which acts as a reinsurer of
such coverages. As a result, the subsidiary bears the risk of loss attendant to
claims under the coverages ceded to it, and earns revenues resulting from
premiums ceded and the investment of such funds.
The Company continually considers other programs that will increase its
services to dealers. The Company intends that such programs, if undertaken, will
be initially marketed selectively in order to establish strong operating systems
and assess the potential profitability of these services.
OTHER SERVICES
Floor Plan Financing and Secured Working Capital Loans. In the U.S., the
Company offers floor plan financing to certain dealers, pursuant to which the
Company makes loans to dealers to finance vehicle inventories, in each case
secured by the inventory, the related proceeds from the future sale of such
inventory and, for dealers participating in the Company's financing program,
future collections on installment contracts accepted from such dealers. This
financing is provided on a selected basis primarily to dealers participating in
the Company's financing program. On a limited basis, the Company provides floor
plan financing to dealers not participating in the Company's financing program.
The interest rate charged on outstanding floor plan balances generally ranges
from 12% to 18% per annum. On a selected basis, the Company also provides
dealers with working capital loans. These loans are secured by substantially all
assets of the dealer, including any future cash collections owed to the dealer
on installment contracts accepted by the Company.
Credit Reporting Services. In May 1999, the Company sold Montana Investment
Group, Inc., a subsidiary of the Company which supplied risk assessment and
fraud alert information and computerized skip tracing services regarding
Non-prime Consumers to companies serving the Non-prime Consumer market.
Auction Services. In December 1999, the Company sold substantially all of
the assets and rights to operate its automotive auctions in Pennsylvania and
South Carolina. The auctions provided vehicle suppliers with a full range of
services to process and sell vehicles to buyers at the auctions.
SALES AND MARKETING
The Company's program is marketed directly to used vehicle dealers and to
new automobile dealers with used vehicle departments. Marketing efforts are
initially concentrated in a particular geographic area through the distribution
of marketing brochures and via advertising in trade journals and other industry
publications directly to automobile dealers. Follow-up is subsequently conducted
through telemarketing, videotapes and monthly newsletters explaining the
Company's program. Free training seminars are available to dealers
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desiring to learn more about the Company's program, as well as to participating
dealers. The Company also establishes relationships with dealers through
referrals from third party vendors and participating dealers.
CAC employs experienced sales and marketing professionals (sales
representatives) both at the Company's headquarters and in the field for
purposes of enrolling new dealers and providing services to existing dealers.
Sales personnel are compensated on a commission basis calculated on the
profitability and volume of business submitted by dealers.
CAC provides dealers with training regarding the operation of the Company's
program. Seminars are held on a regular basis at the Company's headquarters and
periodically at locations throughout the country. Pursuant to the Servicing
Agreement, each dealer agrees to attend at least one such seminar each calendar
year.
CREDIT LOSS 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. These Advance
balances represent the Company's primary risk of loss related to the funding
activity with the dealers.
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, expected future collections
are reduced to their present-value in order to achieve a level yield over the
expected term of the 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. The Company
recorded a non-cash charge during 1999 to reflect the impact of collections on
loan pools originated primarily during 1995, 1996 and 1997 falling below
previous estimates, indicating further impairment of Advance balances associated
with these loan pools. While previous loss curves indicated that loans
originated in 1995, 1996 and 1997 would generate lower overall collection rates
than those originated in prior years, in the third quarter of 1999 the loss
curves indicated collection rates on these pools would be lower than previously
estimated. Management's analysis of the static pool model also indicates that
the business originated subsequent to 1997 is of higher quality than business
originated during the three years ended December 31, 1997. Future reserve
requirements will depend in part on the magnitude of the variance between
management's current estimate of future collections and the actual collections
that are realized. The Company charges off dealer Advances against the reserve
at such time when the Company determines that an Advance is permanently
impaired. Ultimate losses may vary from current estimates and the amount of the
provision, which is the current expense, may be either greater or less than
actual charge offs.
The Company also maintains an allowance for credit losses which, in the
opinion of management, adequately reserves against expected 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 revenue on installment contracts which were transferred to non-accrual
status during the period.
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.
During the third quarter of 1997, the Company changed its non-accrual
policy from 120 days on a contractual basis to 90 days on a recency basis and,
during the fourth quarter of 1997, changed its charge off policy to nine months
on a recency basis from one year on a recency basis. The Company believes these
changes allow for earlier recognition of under-performing dealer pools.
COMPETITION
The Non-prime Consumer finance market is very fragmented and highly
competitive. The Company believes that there are numerous competitors providing,
or are capable of providing, financing programs
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through dealers to purchasers and lessees of used vehicles. The Company also
competes, indirectly, with dealers operating dealer-financed programs. Because
the Company's program is directed to provide financing to individuals who cannot
ordinarily qualify for traditional financing, the Company does not believe that
it directly competes with commercial banks, thrifts, automobile finance
companies and others that apply more traditional lending criteria to the credit
approval process. Historically, these traditional sources of used vehicle
financing (some of which are larger, have significantly greater financial
resources and have relationships with captive dealer networks) have not served
the Company's market segment consistently. The Company's market is primarily
served by smaller finance organizations which solicit business when and as their
capital resources allow. The Company intends to capitalize on this market
segment's lack of a major, consistent financing source. However, if such a
competitor were to enter the Company's market segment, the Company's financial
position and results of operations could be materially adversely affected. The
Company believes that it can compete on the basis of service provided to its
participating dealers, innovative products and superior collection performance.
CUSTOMER AND GEOGRAPHIC CONCENTRATIONS
Installment contracts receivable attributable to contracts accepted from
affiliated dealers owned by the Company's majority shareholder represented
approximately 4% at the end of 1997 and 2% of gross installment contracts
receivable at the end of 1998 and 1999. Approximately 1%, 2 % and 2% of the
value and number of installment contracts accepted by the Company during 1997,
1998 and 1999, respectively, were originated by affiliated dealers. Affiliated
dealers are not obligated to continue doing business with CAC, nor are they
precluded from owning or operating businesses which may compete with the
Company. As of December 31, 1999, approximately 27.5% of the participating
dealers in North America were located in Michigan, Maryland, and Virginia and
these dealers accounted for approximately 31.2% of the number of contracts
accepted from North American dealers in 1999. As of December 31, 1999,
approximately 13.6% of the Company's total participating dealers were located in
the United Kingdom and during 1999 these dealers accounted for approximately
16.4% of the new contracts accepted by the Company. No single dealer accounted
for more than 10% of the number of installment contracts accepted by the Company
during 1997, 1998 or 1999, however, during 1999, two dealer groups in the United
Kingdom accounted for approximately 47.4% of new contracts accepted by that
business segment.
The following table sets forth, for each of the last three years for the
Company's domestic and foreign operations, the amount of revenues from customers
and long-lived assets (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Revenues from customers
United States.................................. $134,950 $120,086 $97,895
United Kingdom................................. 28,598 20,828 16,660
Other foreign.................................. 687 1,435 1,500
Long-lived assets
United States.................................. $ 18,910 $ 18,781 $16,699
United Kingdom................................. 1,914 1,834 1,544
Other foreign.................................. 15 12 --
</TABLE>
The Company's operations are structured to achieve consolidated objectives.
As a result, significant interdependencies and overlaps exist among the
Company's domestic and foreign operations. Accordingly, the revenue and
identifiable assets shown may not be indicative of the amounts which would have
been reported if the domestic and foreign operations were independent of one
another.
REGULATION
The Company's businesses are subject to various state, federal and foreign
laws and regulations which require licensing and qualification, limit interest
rates, fees and other charges associated with the installment
9
<PAGE> 11
contracts assigned to the Company, require specified disclosures by automobile
dealers to consumers, govern the sale and terms of the ancillary products and
define the Company's rights to repossess and sell collateral. Failure to comply
with, or an adverse change in, these laws or regulations could have a material
adverse effect on the Company by, among other things, limiting the states or
countries in which the Company may operate, restricting the Company's ability to
realize the value of the collateral securing the contracts, or resulting in
potential liability related to contracts accepted from dealers. In addition,
governmental regulations which would deplete the supply of used vehicles, such
as environmental protection regulations governing emissions or fuel consumption,
could have a material adverse effect on the Company. The Company is not aware of
any such legislation currently pending.
The sale of insurance products by dealers is also subject to state laws and
regulations. As the Company does not deal directly with consumers in the sale of
insurance products, it does not believe that its business is significantly
affected by such laws and regulations. Nevertheless, there can be no assurance
that insurance regulatory authorities in the jurisdictions in which such
products are offered by dealers will not seek to regulate the Company or
restrict the operation of the Company's business in such jurisdictions. Any such
action could materially adversely affect the income received from such products.
CAC's credit life and disability reinsurance and property and casualty insurance
subsidiaries are licensed and subject to regulation in the state of Arizona and
in the Turks and Caicos Islands.
The Company's operations in the United Kingdom, Canada and Ireland are also
subject to various laws and regulations. Generally, these requirements tend to
be no more restrictive than those in effect in the United States.
Management believes that the Company maintains all material licenses and
permits required for its current operations and is in substantial compliance
with all applicable laws and regulations. The Company's Servicing Agreement with
dealers provides that the dealer shall indemnify the Company with respect to any
loss or expense the Company incurs as a result of the dealer's failure to comply
with applicable laws and regulations.
EMPLOYEES
As of December 31, 1999, the Company employed 627 persons, 353 of whom were
collection personnel, 90 were contract origination and processing personnel, 69
were marketing professionals, 26 were information systems professionals, 22 were
accounting professionals and the remainder were management or support personnel.
The Company's employees have no union affiliations and the Company believes its
relationship with its employees is good.
ITEM 2. PROPERTIES
CAC NORTH AMERICA
The Company's headquarters are located at 25505 West Twelve Mile Road,
Southfield, Michigan 48034. The Company purchased the office building in 1993,
which it financed in part by a loan secured by a mortgage on the building. The
office building includes approximately 118,000 square feet of space on five
floors. The Company occupies approximately 60,000 square feet of the building,
with most of the remainder of the building leased to various tenants. The
Company plans to continue to lease excess space in the building until such time
as the Company's expansion needs require it to occupy additional space.
The Company leases space in an office building in Henderson, Nevada, which
houses CAC's western North America collections and sales operations. The Company
occupies approximately 9,300 square feet of the building. The lease expires in
February 2004.
CAC UNITED KINGDOM
The Company leases space in an office building in Worthing, West Sussex, in
the United Kingdom, which is the headquarters for the Company's United Kingdom
operations. The Company occupies approximately 10,000 square feet of the
building under a lease expiring in September 2007.
10
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business and as a result of the consumer-oriented
nature of the industry in which the Company operates, industry participants are
frequently subject to various consumer claims and litigation seeking damages and
statutory penalties. The claims allege, among other theories of liability,
violations of state, federal and foreign truth in lending, credit availability,
credit reporting, consumer protection, warranty, debt collection, insurance and
other consumer-oriented laws and regulations. The Company, as the assignee of
finance contracts originated by dealers, may also be named as a co-defendant in
lawsuits filed by consumers principally against dealers. Many of these cases are
filed as purported class actions and seek damages in large dollar amounts.
During the first quarter of 1998, several putative class action complaints
were filed by shareholders 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 and the defendant officers' and directors' 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. On July 13, 1999, the Court granted the plaintiffs' motion for
reconsideration and granted the plaintiffs leave to file an amended complaint.
Plaintiffs filed their First Amended Consolidated Class Action Complaint on
August 2, 1999. On September 30, 1999, the Company and the defendant officers
and directors filed a motion to dismiss that complaint. On or about November 10,
1999, plaintiffs sought and were granted leave to file a Second Amended
Consolidated Class Action Complaint. A hearing on the defendants' motion to
dismiss the Second Amended Consolidated Class Action Complaint was held on March
1, 2000 and, on March 24, 2000, the Court granted the Company's and the
defendant officers' and directors' motion to dismiss the Second Amended
Consolidated Class Action Complaint and entered a final judgment dismissing the
action with prejudice. In the event that plaintiffs choose to appeal this
judgment, the Company and the defendant officers and directors will continue to
vigorously defend this action. While the Company believes it has meritorious
legal and factual defenses, an adverse ultimate disposition of this litigation
could have a material negative impact on the Company's financial position,
liquidity and results of operations.
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 for alleged violations of a number of state
and federal consumer protection laws (the "Missouri Litigation"). On October 9,
1997, the District Court certified two classes on the claims brought against the
Company, one relating to alleged overcharges of official fees, the other
relating to alleged overcharges of post-maturity interest. On August 4, 1998,
the District Court granted partial summary judgment on liability in favor of the
plaintiffs on the interest overcharge claims based upon the District Court's
finding of certain violations but denied summary judgment on certain other
claims. The District Court also entered a number of permanent injunctions, which
among other things, restrained 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 appealed the summary judgment order to the
United States Court of Appeals for the Eighth Circuit. Oral argument on the
appeals was heard on April 19, 1999. On September 1, 1999, the United States
Court of Appeals for the Eighth Circuit overturned the August 4, 1998 partial
summary judgment order and injunctions against the Company. The Court of Appeals
held that the District Court lacked jurisdiction over the interest overcharge
claims and directed the District Court to sever those claims and remand them to
state court. The class action claims of
11
<PAGE> 13
alleged public official fee overcharges have not been finally adjudicated by the
District Court and were not part of the appeal. On February 18, 2000, the
District Court entered an Order remanding the post-maturity interest class to
Missouri state court while retaining jurisdiction on the official fee class. The
District Court has set a bench trial date commencing the week of June 19, 2000.
The Company will continue its vigorous defense of all remaining claims. However,
an adverse ultimate disposition of this litigation could have a material
negative impact on the Company's financial position, liquidity and results of
operations.
The frequency of litigation has increased as the Company's business
activities have expanded. The Company believes that the structure of its dealer
program and the ancillary products, including the terms and conditions of its
Servicing Agreement with dealers, may mitigate its risk of loss in any such
litigation. Management believes the Company has taken prudent steps to address
the litigation risks associated with its business activities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
<PAGE> 14
PART II
ITEM 5. MARKET PRICE AND DIVIDEND INFORMATION
The Company's Common Stock is traded on The Nasdaq Stock Market(R) under
the symbol CACC. The high and low sale prices for the Common Stock for each
quarter during the two year period ending December 31, 1999 as reported by The
Nasdaq Stock Market(R) are set forth in the following table.
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
March 31........................................ $ 9.63 $5.25 $10.25 $5.44
June 30......................................... 12.38 8.38 8.63 4.88
September 30.................................... 9.19 5.56 6.25 4.88
December 31..................................... 7.75 4.63 6.00 3.00
</TABLE>
As of December 31, 1999, the approximate number of beneficial holders and
shareholders of record of the Common Stock was 5,000 based upon securities
position listings furnished to the Company.
The Company has not paid any cash dividends during periods presented and
has no present plans to pay any cash dividends on its Common Stock. The Company
intends to retain its earnings to finance the growth and development of its
business. The Company's credit agreements contain certain covenants which
prohibit the payment of dividends under certain circumstances and other
covenants pertaining to the Company's tangible net worth which may indirectly
limit the payment of dividends on Common Stock.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The selected income statement and balance sheet data presented below for
and as of each of the five years ended December 31, 1999 are derived from the
Company's audited consolidated financial statements. The selected financial data
presented below as of December 31, 1998 and 1999 and for the years ended
December 31, 1997, 1998 and 1999 should be read in conjunction with the
Company's consolidated audited financial statements and notes thereto and "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Report.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Finance charges.................... $ 66,276 $ 92,944 $ 117,020 $ 98,007 $ 76,497
Premiums earned.................... 6,504 9,653 11,304 10,904 10,389
Gain on sale of Advance
receivables, net................ -- -- -- 685 --
Other income....................... 12,301 21,337 35,911 32,753 29,169
---------- ---------- ---------- ---------- ----------
Total revenue................. 85,081 123,934 164,235 142,349 116,055
---------- ---------- ---------- ---------- ----------
Costs and Expenses:
Operating expenses................. 21,716 30,627 45,911 59,004 56,772
Provision for credit losses........ 7,066 13,071 85,472 16,405 56,073
Provision for claims............... 1,964 3,060 3,911 3,734 3,498
Valuation adjustment on retained
interest in securitization...... -- -- -- -- 13,517
Interest........................... 8,785 13,568 27,597 25,565 16,576
---------- ---------- ---------- ---------- ----------
Total costs and expenses...... 39,531 60,326 162,891 104,708 146,436
---------- ---------- ---------- ---------- ----------
Other Operating Income Gain on sale
of subsidiary...................... -- -- -- -- 14,720
---------- ---------- ---------- ---------- ----------
Operating income (loss).............. 45,550 63,608 1,344 37,641 (15,661)
Foreign exchange gain (loss)....... (57) 27 (41) (116) (66)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.... 45,493 63,635 1,303 37,525 (15,727)
Provision (credit) for income
taxes........................... 15,921 22,126 (234) 12,559 (5,041)
---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 29,572 $ 41,509 $ 1,537 $ 24,966 $ (10,686)
========== ========== ========== ========== ==========
Net income (loss) per common
share(A):
Basic.............................. $ .70 $ .91 $ .03 $ .54 $ (.23)
========== ========== ========== ========== ==========
Diluted............................ $ .68 $ .89 $ .03 $ .53 $ (.23)
========== ========== ========== ========== ==========
Weighted average shares outstanding
(A):
Basic.............................. 42,385,262 45,605,159 46,081,804 46,190,208 46,222,730
Diluted............................ 43,527,770 46,623,655 46,754,713 46,960,290 46,222,730
BALANCE SHEET DATA:
Installment contracts receivable,
net................................ $ 653,297 $1,030,971 $1,037,760 $ 665,574 $ 568,378
Floor plan receivables............... 13,249 15,493 19,800 14,071 15,492
Notes receivables.................... 3,232 2,663 1,231 2,278 3,610
All other assets..................... 16,662 25,291 56,819 70,006 72,760
---------- ---------- ---------- ---------- ----------
Total assets.................. $ 686,440 $1,074,418 $1,115,610 $ 751,929 $ 660,240
========== ========== ========== ========== ==========
Dealer holdbacks, net................ $ 363,519 $ 496,434 $ 439,554 $ 222,275 $ 202,143
Total debt........................... 95,780 288,899 391,666 218,798 158,985
Other liabilities.................... 28,166 42,942 35,399 34,593 36,137
---------- ---------- ---------- ---------- ----------
Total liabilities............. 487,465 828,275 866,619 475,666 397,265
Shareholders' equity(B).............. 198,975 246,143 248,991 276,263 262,975
---------- ---------- ---------- ---------- ----------
Total liabilities and shareholders'
equity.......................... $ 686,440 $1,074,418 $1,115,610 $ 751,929 $ 660,240
========== ========== ========== ========== ==========
</TABLE>
(A) On September 29, 1995 the Company consummated a public offering of 3,900,000
shares of its Common Stock.
(B) No dividends were paid during the periods presented.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
CAC is a specialized financial services company providing funding,
receivables management, collection, sales training and related products and
services to automobile dealers located in the United States, the United Kingdom,
Ireland and Canada. The Company assists such dealers by providing them with an
indirect source of financing for buyers of used vehicles with limited access to
traditional sources of consumer credit. In addition, but to a significantly
lesser extent, the Company provides floor plan financing and secured working
capital loans to dealers, secured by the related vehicle inventory and any
future cash collections owed to the dealer on contracts accepted under the
Company's program.
The Company's relationship with a dealer is defined by: (i) the servicing
agreement which sets forth the terms and conditions associated with the
Company's acceptance of a contract from a dealer; and (ii) the contract, which
is a retail installment sales contract between a dealer and a purchaser of a
used vehicle, providing for payment over a specified term. With respect to its
principal financing program, the dealer assigns title to the contract and the
security interest in the vehicle to the Company. Thereafter, the rights and
obligations of the Company and the dealer are defined by the servicing
agreement, which provides that a contract is assigned to the Company as nominee
for the dealer for purposes of administration, servicing and collection of the
amount due under the assigned contract, as well as for security purposes. The
Company takes title to the contract as nominee and records the gross amount of
the contract as a gross installment contract receivable and the amount of its
"servicing fee" (see below) as an unearned finance charge which, for balance
sheet purposes, is netted from the gross amount of the contract. The Company
records the remaining portion of the contract (the gross amount of the contract
less the unearned finance charge) as a "dealer holdback". For balance sheet
purposes, dealer holdbacks are shown net of any Advances made by the Company to
the dealer in connection with accepting the assignment of a contract.
The Company's program allows dealers to establish the interest rate on
contracts, which typically is the maximum rate allowable by the state or country
in which the dealer is doing business. As the majority of the Company's revenue
is derived from the servicing fee it receives on the gross amount due under the
contract (typically 20% of the principal and interest), the Company's revenues
from servicing fees are not materially impacted by changes in interest rates.
The Company's revenue is principally dependent upon the gross value of contracts
accepted, which is determined by the number of contracts accepted and the amount
of the average contract. The contracts assigned to the Company are: (i) secured
by the related vehicle; and (ii) short-term in duration (generally maturing in
24 to 42 months, with an initial average maturity of approximately 32 months).
The interest rates charged on floor plan financing and on secured working
capital loans typically range from 12% to 18% per annum.
Through its automotive leasing business, the Company purchases 24 to 36
month used vehicle leases originated by dealers participating in the Company's
automotive leasing programs. The programs are designed to provide dealers with a
leasing alternative for Non-prime Consumers with limited access to traditional
sources of consumer credit. Because the Company assumes ownership of the
vehicles from the dealers, these leases are accounted for as operating leases
with the capitalized cost of the vehicles recorded as depreciable assets (net
investment in operating leases). This program differs from the Company's
principal business in that, as these leases are purchased outright, the dealer
does not have any rights to future collections on the lease contracts.
The Company's subsidiaries provide additional services to dealers. One such
subsidiary is primarily engaged in the business of reinsuring credit life and
disability insurance policies and collateral protection insurance coverage
issued to borrowers under contracts originated by dealers. Premiums are ceded to
the subsidiary on both an earned and written basis and are earned over the life
of the contracts using pro rata and sum-of-digits methods. Another subsidiary
administers short-term limited extended service contracts offered by dealers. In
connection therewith, the subsidiary bears the risk of loss for any repairs
covered under the service contract. Revenue is recognized on a straight-line
basis over the life of the service contracts. In addition, the subsidiary has
relationships with third party service contract providers which pay the
subsidiary a fee on service contracts included on installment contracts financed
through participating dealers. The
15
<PAGE> 17
subsidiary does not bear the risk of loss for covered claims on these third
party service contracts. The income from the non-refundable fee is recognized
upon acceptance of the installment contract.
RESULTS OF OPERATIONS
The following table sets forth the percent relationship of certain items to
total revenue for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
PERCENT OF TOTAL REVENUES 1997 1998 1999
------------------------- ----- ----- -----
<S> <C> <C> <C>
Finance charges.......................................... 71.2% 68.8% 65.9%
Premiums earned.......................................... 6.9 7.7 9.0
Gain on sale of Advance receivables, net................. -- 0.5 --
Other income............................................. 21.9 23.0 25.1
----- ----- -----
Total revenue............................................ 100.0 100.0 100.0
----- ----- -----
Operating expenses....................................... 28.0 41.5 48.9
Provision for credit losses.............................. 52.0 11.5 48.3
Provision for claims..................................... 2.4 2.6 3.0
Valuation adjustment on retained interest in
securitization......................................... -- -- 11.7
Interest................................................. 16.8 18.0 14.3
----- ----- -----
Total costs and expenses............................... 99.2 73.6 126.2
----- ----- -----
Gain on sale of subsidiary............................... -- -- 12.7
----- ----- -----
Operating income (loss).................................. 0.8 26.4 (13.5)
Foreign exchange loss.................................. -- (0.1) (0.1)
----- ----- -----
Income (loss) before income taxes........................ 0.8 26.3 (13.6)
Provision (credit) for income taxes.................... (0.1) 8.8 (4.4)
----- ----- -----
Net income (loss)........................................ 0.9% 17.5% (9.2)%
===== ===== =====
</TABLE>
Year Ended December 31, 1998 Compared To Year Ended December 31, 1999
Total Revenue. Total revenue decreased from $142.3 million in 1998 to
$116.1 million in 1999, a decrease of $26.2 million or 18.4%. This decrease was
primarily due to the decrease in finance charge revenue resulting from a
decrease in the average installment contracts receivable balance. The decrease
in gross installment contracts receivable is primarily the result of collections
on and charge offs of installment contracts exceeding contract originations for
the period. The volume of contract originations for CAC's North America
operations decreased from $521.5 million for the year ended December 31, 1998 to
$408.5 million for 1999. The volume of contract originations for CAC's United
Kingdom operations increased from $59.1 million in 1998 to $124.6 million in
1999. Based upon reviews of dealer profitability and improvements in credit
quality on installment contracts originated since the fourth quarter of 1997, in
an effort to increase origination volumes, the Company has introduced new
advance programs, both in the United States and United Kingdom, which have
increased the Company's overall advance rates. The Company's Advances to dealers
and payment of dealer holdback, as a percent of gross installment contracts
accepted, increased from 50.1% for the year ended December 31, 1998 to 55.5% for
1999. There can be no assurance that higher Advance rates will lead to increased
origination volumes in future periods or that Advance rates will not need to be
reduced in future periods based on continued review of dealer profitability and
credit quality. While management expects the increased Advance rates to have a
positive effect on the Company's results, higher Advance rates increase the
Company's risk of loss on dealer Advances in future periods.
The average yield on the Company's installment contract portfolio,
calculated using finance charge revenue divided by average installment contracts
receivable, was approximately 11.4% and 12.3% in 1998 and 1999, respectively.
The increase in the average yield is due to a decrease in the percentage of
installment
16
<PAGE> 18
contracts which were in non-accrual status. The percentage of installment
contracts which were in non-accrual status was 32.4% and 23.0% as of December
31, 1998 and 1999, respectively.
Premiums earned increased, as a percentage of total revenue, from 7.7% in
1998 to 9.0% 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 charge
revenue.
In July 1998, the Company recognized a net gain on sale of advance
receivables of approximately $685,000. The gain resulted from the securitization
of dealer Advances having a carrying value of approximately $56 million. See
"Liquidity and Capital Resources". The gain represents the difference between
the sale proceeds to the Company from the sale of dealer Advance receivables to
an institutional investor, net of transaction costs, and the Company's carrying
amount of the Advances, plus the present value of the estimated cash flows to be
received by the Company. In determining the gain on sale of receivables, the
Company assumed an excess cash flow discount rate of 15%, cumulative credit
losses of 14% and an interest rate on the underlying debt of 7.5%. The present
value of such estimated excess cash flows has been recorded by the Company as a
retained interest in securitization of $4.1 million as of December 31, 1999. The
Company recorded a valuation adjustment to the retained interest in
securitization in the third quarter of 1999 (see "Results of Operations --
Valuation Adjustment on Retained Interest in Securitization"). The installment
contracts supporting the dealer Advances include contracts with origination
dates ranging from July 1990 to June 1998, with a weighted average age of 15
months as of the date of the transaction. The amount of such contracts included
on the Company's balance sheet as of June 30, 1998 was $98.6 million, of which
$43.8 million was in non-accrual status. In addition, the Advances are supported
by installment contracts which had been previously written off for financial
statement purposes. The excess cash flows result from the amount by which
projected collections on the installment contracts exceeds (i) the principal and
interest to be paid to the institutional investor and (ii) the amount of dealer
holdback due to dealers.
In the securitization, the Company retained servicing responsibilities and
subordinated interests. The Company receives monthly servicing fees of 4% of the
collections on the installment contracts receivable, and rights to future cash
flows arising after the institutional investor has received the return for which
they are contracted. The investor has no recourse to the Company's other assets
for failure of debtors to pay when due. The Company's retained interests are
generally restricted until investors have been fully paid and are subordinate to
investors' interests. The value of the retained interest is subject to
substantial credit risk and moderate interest rate risk, as well as the timing
of projected collections on the transferred financial assets.
Other income increased, as a percent of total revenue, from 23.0% in 1998
to 25.1% in 1999. The increase is primarily due to (i) revenue from the
Company's auction services business which the Company began operating in June
1998 until it was sold in December 1999, (ii) servicing fees from the
securitization of advance receivables completed in July 1998 and (iii) operating
lease revenue from the CAC Automotive Leasing business unit which began
operating in 1999. The increase is partially offset by (i) a decrease in
revenues from the Company's credit reporting subsidiary which was sold on May 7,
1999, (ii) decreases in earned dealer enrollment fees due to a decline in the
number of dealers enrolling in the Company's financing program and (iii) 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.
Operating Expenses. Operating expenses, as a percent of total revenue,
increased from 41.5% in 1998 to 48.9% 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, as a percent of revenue, due
to the Company's employee headcount not being reduced proportionately with the
decrease in revenues. The Company has retained collection personnel in an effort
to improve collection levels.
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<PAGE> 19
A portion of management personnel compensation paid by the Company is
charged to a company controlled by the Company's Chairman (the "Affiliated
Company"), based upon the percentage of time spent working for the Affiliated
Company. The Company charged the Affiliated Company approximately $226,000 and
$203,000 in 1998 and 1999, respectively. Shared employees devote between 30% and
90% of their time to the Company, depending on their responsibilities. The
Company believes that the amounts charged by the Company are representative of
the respective employees' activities.
The increase is also due to an increase, as a percent of revenue, in
general and administrative expenses which, due to the fixed nature of certain of
these expenses, did not decline proportionately with the decline in revenue.
This increase is partially offset by a decrease in legal fees and settlement
provisions resulting from a decline in material new litigation against the
Company.
To a lesser extent, the increase in operating expenses, as a percent of
revenue, resulted from the Company's auction services business, which requires
proportionately higher operating expenses than the Company's other businesses.
The Company operated the auction service business from June of 1998 when it was
the purchased until it was sold in December 1999.
The increases, as a percent of revenue, in salaries and wages and general
and administrative expenses are partially offset by a decrease in sales and
marketing expenses. This expense decreased primarily due to reductions in sales
commissions as a result of lower contract origination volumes and lower average
sales force headcounts. The decrease in sales and marketing expenses is also the
result of a decrease 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, increased from 11.5% in 1998 to 48.3% in 1999. The
provision for credit losses consists of two components: (i) a provision for
losses on Advances to dealers that are not expected to be recovered through
collections on the related installment contract receivable portfolio and (ii) a
provision for earned but unpaid revenue on installment contracts which were
transferred to non-accrual status during the period. The increase is primarily
due to higher provisions needed for losses on Advances to dealers with respect
to loan pools originated in 1995, 1996 and 1997. As such, the Company recorded a
pre-tax charge of $47.3 million during the third quarter of 1999. The charge was
necessary due to collections in affected loan pools falling below estimates
indicating further impairment of advance balances associated with these pools.
Management's analysis of collection results leads to a conclusion that the
actual collection results will be below previous forecasts produced by its
static pool model. While previous loss curves indicated that loans originated in
1995, 1996 and 1997 would generate lower overall collection rates than loans
originated in prior years, trends in these loss curves indicate that collection
rates on these pools will be lower than previously estimated. Management's
analysis of the static pool data, after considering the effect of this less
favorable trend, continues to indicate that the business originated since 1998
is of higher quality than that written in the prior three years.
The decreases are partially offset by the lower provisions needed for
earned but unpaid revenue primarily resulting from the decrease in the percent
of non-accrual installment contracts receivable which were 32.4% and 23.0% of
gross receivables as of December 31, 1998 and 1999, respectively.
Provision for Claims. The amount provided for insurance and service
contract claims, as a percent of total revenue, increased from 2.6% in 1998 to
3.0% in 1999. The increase corresponds with the increase, as a percent of total
revenue, in premiums earned from 7.7% in 1998 to 9.0% in 1999. The Company has
established claims reserves on accumulated estimates of claims reported but
unpaid plus estimates of incurred but unreported claims. The Company believes
the reserves are adequate to cover future claims associated with the programs.
Valuation Adjustment on Retained Interest in Securitization. The Company
recorded a $13.5 million valuation adjustment in 1999 on the retained interest
in securitization related to the Company's July 1998 securitization. The
retained interest in securitization represents an accounting estimate based on
several variables including the amount and timing of collections on the
underlying installment contracts receivable, the amount and timing of projected
dealer holdback payments and interest costs. The Company regularly
18
<PAGE> 20
reviews the actual performance of these variables against the assumptions used
to record the retained interest. This evaluation led to a reassessment of the
timing and amount of collections on the installment contracts underlying the
securitized advances and the resulting $13.5 million write down in the third
quarter of 1999. The Company continues to assess the performance of the 1998
securitization and makes adjustments when necessary.
Interest Expense. Interest expense, as a percent of total revenue,
decreased from 18.0% in 1998 to 14.3% in 1999. Total interest expense decreased
from $25.6 million in 1998 to $16.6 million in 1999. The $9.0 million decrease
in interest expense for 1999 is primarily the result of a decrease in the amount
of average outstanding borrowings which results from (i) the positive cash flow
generated from collections on installment contracts receivable exceeding cash
advances to dealers and payments of dealer holdbacks and (ii) amounts raised in
July 1998 from the securitization of advance receivables. The decrease was
partially offset by higher average interest rates in 1999. The weighted average
interest rate was 9.27% in 1998 and 9.36% in 1999. The increase in the average
interest rates for 1999 is the result of (i) the impact of fixed borrowing
costs, such as facility fees, up front fees and other costs on average interest
rates when average outstanding borrowings are decreasing, (ii) an increase in
the interest rate on outstanding borrowings under the Company's senior notes
resulting from amendments to the note purchase agreements entered into in
contemplation of the Company's securitization of advance receivables in 1998 and
the $47.3 million pre-tax charge on Advances to dealers in the third quarter of
1999, (iii) a decrease in line of credit balances, which carry lower interest
rates, as a percentage of total average balance sheet debt and (iv) the
acceleration of amortization of certain deferred debt issuance cost in
connection with the repurchase of senior notes. These interest rate increases
are partially offset by the secured financings completed in 1999, which are at
lower rates of interest than the debt they replaced.
Gain on Sale of Subsidiary. The Company recorded a pre-tax gain of $14.7
million in 1999 from the sale of the Company's credit reporting services
subsidiary. The net proceeds from the sale were used to reduce outstanding
indebtedness under the Company's $125 million credit facility.
Operating Income (Loss). As a result of the aforementioned factors,
operating income (loss) decreased from $37.6 million in 1998 to ($15.7) million
in 1999, a decrease of $53.3 million.
Foreign Exchange Loss. The Company incurred a foreign exchange loss of
$116,000 and $66,000 in 1998 and 1999, respectively. The losses were the result
of exchange rate fluctuations between the U.S. dollar and foreign currency on
unhedged intercompany balances between the Company and subsidiaries which
operate outside the United States.
Provision (Credit) for Income Taxes. The provision (credit) for income
taxes decreased from $12.6 million in 1998 to ($5.0) million in 1999. The
decrease is primarily due to a pretax loss in 1999. In 1998 and 1999, the
effective tax rate was 33.5% and 32.1%, respectively. The 1999 income tax
benefit is partially offset by state income taxes incurred on the sale of the
Company's credit reporting subsidiary in 1999.
Year Ended December 31, 1997 Compared To Year Ended December 31, 1998
Total Revenue. Total revenue decreased from $164.2 million in 1997 to
$142.3 million in 1998, a decrease of $21.9 million or 13.3%. This decrease was
primarily due to the decrease in finance charge revenue resulting from a
decrease in the average installment contracts receivable balance. The decrease
in gross installment contracts receivable 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 decreased in the
fourth quarter of 1997 and in 1998 as the Company has implemented more
conservative Advance programs and has limited business with marginally
profitable and unprofitable dealers. These changes were made primarily as a
result of the Company's enhanced analysis made possible by the Company's loan
servicing system which became operational in the third quarter of 1997. Based on
this review of dealer profitability, the Company has discontinued relationships
with certain dealers and continues to monitor its relationships with dealers and
make adjustments to these relationships as required. It is expected that the
volume of contract originations will continue at lower levels than those
experienced prior to the implementation of these changes.
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<PAGE> 21
The average yield on the Company's installment contract portfolio,
calculated using finance charge revenue divided by average installment contracts
receivable, was approximately 10.4% and 11.4% in 1997 and 1998, 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 37.6% and 32.4% as of
December 31, 1997 and 1998, respectively.
Premiums earned increased, as a percentage of total revenue, from 6.9% in
1997 to 7.7% in 1998. 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 on the
Company's service contract and credit life insurance programs.
In July 1998, the Company recognized a net gain on sale of advance
receivables of approximately $685,000. The gain resulted from the securitization
of dealer Advances having a carrying value of approximately $56 million. See
"Liquidity and Capital Resources". The gain represents the difference between
the sale proceeds to the Company, net of transaction costs, and the Company's
carrying amount of the dealers Advances, plus the present value of the estimated
cash flows to be received by the Company. In determining the gain on sale of
receivables, the Company assumed an excess cash flow discount rate of 15%,
cumulative credit losses of 14% and an interest rate on the underlying debt of
7.5%. The present value of such estimated excess cash flows has been recorded by
the Company as a retained interest in securitization of $14.7 million as of
December 31, 1998. The installment contracts supporting the dealer Advances
include contracts with origination dates ranging from July 1990 to June 1998,
with a weighted average age of 15 months. The amount of such contracts included
on the Company's balance sheet as of June 30, 1998 was $98.6 million, of which
$43.8 million was in non-accrual status. In addition, the Advances are supported
by installment contracts which had been previously written off for financial
statement purposes. The excess cash flows result from the amount by which
projected collections on the installment contracts exceeds i) the principal and
interest to be paid and ii) the amount of dealer holdback due to dealers.
In the securitization, the Company retained servicing responsibilities and
subordinated interests. The Company receives monthly servicing fees of 4% of the
collections on the installment contracts receivable, and rights to future cash
flows arising after the investors in the commercial paper received the return
for which they are contracted. The investors have no recourse to the Company's
other assets for failure of debtors to pay when due. The Company's retained
interests are generally restricted until investors have been fully paid and are
subordinate to investors' interests. Their value is subject to substantial
credit and interest rate risk and the timing of projected collections on the
transferred financial assets.
Other income increased, as a percent of total revenue, from 21.9% in 1997
to 23.0% in 1998. 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
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 offset by decreases 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
decline in contract originations; and by a decrease due to a decline in the
number of new dealers enrolling in the Company's financing program. The Company
has become more selective with respect to the enrollment of new dealers in an
effort to improve the performance of its portfolio of installment contracts
receivable.
Operating Expenses. Operating expenses, as a percent of total revenue,
increased from 28.0% in 1997 to 41.5% in 1998. Operating expenses consist
primarily of salaries and wages, general and administrative, and sales and
marketing expenses.
The increase for the period is due in part to an increase in salaries and
wages. Salaries and wages increased due to i) increases in the Company's average
wage rates necessary to attract and retain quality
20
<PAGE> 22
personnel; ii) the Company's purchase of the auction services business in June
1998; iii) information technology personnel added to maintain the Company's new
computer systems and applications and; iv) severance compensation paid to or
accrued for an executive who terminated employment in 1998.
A portion of management personnel compensation paid by the Company is
charged to a company controlled by the Company's Chairman (the "Affiliated
Company"), based upon the percentage of time spent working for the Affiliated
Company. The Company charged the Affiliated Company approximately $208,000 and
$226,000 in 1997 and 1998, respectively. Shared employees devote between 30% and
90% of their time to the Company, depending on their responsibilities. The
Company believes that the amounts charged by the Company are representative of
the respective employees' activities.
In addition, the increase in operating expenses is due to an increase in
general and administrative expenses. These expenses were higher in 1998
primarily due to increases in i) legal fees and settlement provisions resulting
from an increase in the frequency and magnitude of litigation against the
Company (See Item 3. "Legal Proceedings"); ii) depreciation and amortization
primarily resulting from the addition of new computer systems in 1997 and; iii)
audit fees charged by the Company's independent auditors. Also, the increase
results from general and administrative expenses at the Company's auction
services subsidiary.
Provision for Credit Losses. The amount provided for credit losses, as a
percent of total revenue, decreased from 52.0% in 1997 to 11.5% in 1998. The
provision for the year ended December 31, 1997 included a charge recorded to
reflect the enhancements in the Company's methodology for estimating its reserve
for Advances made possible by a new loan servicing system implemented by the
Company. Utilizing the new information made available upon the successful
implementation of this new system, the Company undertook an extensive review of
its exposure related to dealer Advances using a static pool analysis on a per
dealer basis. In order to reflect the impact of this analysis on the Company's
Advance reserve, additional provisions were recorded in 1997.
The provision for credit losses consists of two components: i) a provision
for loan losses for the earned but unpaid servicing fees or finance charges
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
decreases were primarily due to lower provisions needed for Advance losses,
based on the Company's 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 decreases were also due to lower provisions needed for loan losses
primarily resulting from a decrease in the percent of non-accrual installment
contracts receivable, which were 37.6% and 32.4% of gross receivables as of
December 31, 1997 and 1998, respectively.
Provision for Claims. The amount provided for insurance and service
contract claims, as a percent of total revenue, was 2.4% and 2.6% in 1997 and
1998, respectively. The increase corresponds with the increase, as a percent of
total revenue, in premiums earned from 6.9% in 1997 to 7.7% in 1998.
The Company has established claims reserves on accumulated estimates of
claims reported but unpaid plus estimates of incurred but unreported claims. The
Company believes the reserves are adequate to cover future claims associated
with the programs.
Interest Expense. Interest expense, as a percent of total revenue,
increased from 16.8% in 1997 to 18.0% in 1998. Total interest expense decreased
from $27.6 million in 1997 to $25.6 million in 1998. The $2.0 million decrease
in interest expense for 1998 is primarily the result of a decrease in the amount
of average outstanding borrowings, which resulted 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 for 1998 was partially offset by higher average
interest rates during the year. The increase in the average interest rate is
primarily the result of increases in the Company's Eurocurrency-based borrowing
and facility fee margins under its credit agreement with a commercial bank
syndicate, due to the downgrade of the Company's credit rating with Moody's
Investor Service from Baa3 to Ba2, and with Standard and Poor's from BBB- to BB
21
<PAGE> 23
effective October 22, 1997, and a further downgrade by Moody's Investor Service
on June 24, 1998 from Ba2 to Ba3. Additionally, the increase in the average
interest rate is due to increases in the interest rate on outstanding borrowings
under the Company's note purchase agreements resulting from amendments due to
the Company's securitization of advance receivables.
Operating Income. As a result of the aforementioned factors, operating
income increased from $1.3 million in 1997 to $37.6 million in 1998, a increase
of $36.3 million.
Foreign Exchange Loss. The Company incurred a foreign exchange loss of
$41,000 and $116,000 in 1997 and 1998, respectively. The losses were the result
of exchange rate fluctuations between the U.S. dollar and foreign currency on
unhedged intercompany balances between the Company and subsidiaries which
operate outside the United States.
Provision (Credit) for Income Taxes. The provision (credit) for income
taxes increased from ($0.2) million in 1997 to $12.6 million in 1998. The
increase is due to higher pretax profits in 1998. For 1998, the effective tax
rate was 33.5%. The Company provides income taxes on its foreign earnings at the
statutory rate in effect for the applicable country where such earnings arise.
The principal foreign earnings of the Company arise from its operations in the
United Kingdom, where the statutory rate is lower than the U.S. statutory tax
rate.
CREDIT LOSS 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. These Advance
balances represent the Company's primary risk of loss related to the funding
activity with the dealers.
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, expected future collections
are reduced to their present-value in order to achieve a level yield over the
expected term of the 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. The Company
recorded a non-cash charge during 1999 to reflect the impact of collections on
loan pools originated primarily during 1995, 1996 and 1997 falling below
previous estimates, indicating further impairment of Advance balances associated
with these loan pools. While previous loss curves indicated that loans
originated in 1995, 1996 and 1997 would generate lower overall collection rates
than those originated in prior years, in the third quarter of 1999 the loss
curves indicated collection rates on these pools would be lower than previously
estimated. Management's analysis of the static pool model also indicates that
the business originated subsequent to 1997 is of higher quality than business
originated during the three years ended December 31, 1997. Future reserve
requirements will depend in part on the magnitude of the variance between
management's current estimate of future collections and the actual collections
that are realized. The Company charges off dealer Advances against the reserve
at such time when the Company determines that an Advance is permanently
impaired. Ultimate losses may vary from current estimates and the amount of the
provision, which is the current expense, may be either greater or less than
actual charge offs.
The Company also maintains an allowance for credit losses which, in the
opinion of management, adequately reserves against expected 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 revenue on installment contracts which were transferred to non-accrual
status during the period.
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.
During the third quarter of 1997, the Company changed its non-accrual
policy from 120 days on a contractual basis to 90 days on a recency basis and,
during the fourth quarter of 1997, changed its charge off
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<PAGE> 24
policy to nine months on a recency basis from one year on a recency basis. The
Company believes these changes allow for earlier recognition of under-performing
dealer pools.
The following table sets forth information relating to charge offs, the
allowance for credit losses, the reserve on Advances, and dealer holdbacks.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Provision for credit losses -- installment
contracts..................................... $ 11,072 $ 3,432 $ 1,205
-------- -------- --------
Provision for credit losses -- Advances......... $ 74,400 $ 12,973 $ 54,868
======== ======== ========
CHARGE OFFS
- ------------------------------------------------
Charged against dealer holdbacks................ $374,646 $359,846 $187,584
Charged against unearned finance charges........ 82,748 81,632 43,094
Charged against allowance for credit losses..... 10,138 8,392 3,489
-------- -------- --------
Total contracts charged off..................... $467,532 $449,870 $234,167
======== ======== ========
Net charge off against the reserve on
Advances...................................... $ 71,391 $ 9,744 $ 70,353
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
CREDIT RATIOS 1997 1998 1999
------------- ----- ----- -----
<S> <C> <C> <C>
Allowance for credit losses as a percent of gross
installment contracts receivable..................... 1.0% 0.9% 0.7%
Reserve on Advances as a percent of Advances........... 2.8% 4.6% 1.3%
Gross dealer holdbacks as a percent of gross
installment contracts receivable..................... 79.9% 79.8% 79.6%
</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 increased from $290.6 million in 1998 to $295.6
million in 1999. These amounts have historically been funded primarily from cash
collections on installment contracts, cash provided by operating activities and
draws under the Company's line of credit agreements. During 1999, the Company
paid down approximately $42.1 million on its line of credit and repaid $105.6
million on its outstanding senior notes, primarily funded by (i) $100 million
raised through secured financings of Advance receivables during the third and
fourth quarters of 1999, (ii) principal collections on installment contracts
receivable exceeding cash advances to dealers and (iii) proceeds from the sale
of the Company's credit reporting services subsidiary. During the fourth quarter
of 1997 and in 1998, the Company implemented more conservative Advance programs
and reduced business with marginally profitable and unprofitable dealers in
order to improve the performance of its portfolio of installment contracts.
These changes have resulted in reduced levels of originations and cash Advances
to dealers in 1998 and in 1999.
The Company has a $125 million credit agreement with a commercial bank
syndicate. The facility has a commitment period through June 13, 2000 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
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<PAGE> 25
Company's assets on an equal and ratable basis with the Company's senior notes.
As of December 31, 1999, there was approximately $34.2 million outstanding under
this facility.
The Company has a $2.0 million British pound sterling line of credit
agreement with a commercial bank in the United Kingdom. The borrowings are
secured by a letter of credit issued by the Company's principal commercial bank,
with interest payable at the greater of the United Kingdom bank's base rate
(5.5% as of December 31, 1999) plus 65 basis points or at the Libor rate plus
56.25 basis points. As of December 31, 1999, there was approximately 1.5 million
British pounds ($2.4 million U.S. dollars) outstanding under this agreement.
In July 1999 and December 1999, the Company completed two separate $50
million secured financings of Advance receivables. Pursuant to these
transactions, in July 1999 and December 1999, the Company contributed dealer
advances having a carrying amount of approximately $62.4 million and $65.0
million respectively and received approximately $97.7 million in financing from
an institutional investor. The financing, which is nonrecourse to the Company,
bears interest at a floating rate equal to the applicable commercial paper rate
plus 70 basis points with a maximum rate of 7.5%. The commercial paper may be
issued for terms of between 1 and 270 days. The July 1999 transaction is
expected to amortize within 28 months while the December 1999 transaction is
expected to amortize within 12 months. The financing is secured by the
contributed dealer Advances and the rights to collections on the related
installment contracts receivable. The proceeds of the July 1999 secured
financing were used to reduce indebtedness under the Company's credit facility
while the proceeds of the December 1999 secured financing were used to
repurchase, at par, approximately $49.5 million in principal of its senior
notes.
On August 5, 1999, the Company's Board of Directors authorized a common
stock repurchase program of up to 1,000,000 shares of the Company's common
stock. On February 7, 2000, the Company's Board of Directors authorized an
increase in the Company's stock repurchase program from 1,000,000 to 2,000,000
shares. The 2,000,000 shares, which can be repurchased through the open market
or in privately negotiated transactions, represent approximately 4% of the
outstanding common shares. As of March 22, 2000, the Company had repurchased
approximately 1.4 million shares under this program.
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.
The Company maintains a significant dealer holdback on installment
contracts accepted which assists the Company in funding its long-term cash flow
requirements.
As the Company's $125 million credit facility expires on June 13, 2000, the
Company will be required to renew the facility or refinance any amounts
outstanding under this facility on or before such date. As of March 22, 2000,
there was approximately $57.5 million outstanding under this facility. In
addition, in 2000, the Company will have $14.6 million of principal maturing on
its senior notes and $600,000 maturing on a mortgage loan. The Company believes
that the $125 million credit facility will be renewed with similar terms and a
similar commitment amount, and that the other repayments can be made from cash
resources available to the Company at the time such repayments are due.
The Company's short and long-term cash flow requirements are materially
dependent on future levels of originations. During the third and fourth quarters
of 1999, the Company experienced an increase in originations over 1998. The
Company expects this trend to continue in future periods and, to the extent this
trend does continue, the Company will experience an increase in its need for
capital.
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.
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<PAGE> 26
MARKET RISK
The market risk discussion and the estimated amounts generated from the
analysis that follows are forward-looking statements of market risk assuming
certain adverse market conditions occur. Actual results in the future may differ
materially due to changes in the Company's product and debt mix and developments
in the financial markets.
The Company is exposed primarily to market risks associated with movements
in interest rates and foreign currency exchange rates. The Company believes that
it takes the necessary steps to appropriately reduce the potential impact of
interest rate and foreign exchange exposures on the Company's financial position
and operating performance. The Company's policies and procedures prohibit the
use of financial instruments for trading purposes. Sensitivity analysis is used
to manage and monitor interest rate and foreign exchange risk.
A discussion of the Company's accounting policies for derivative
instruments is included in the Summary of Significant Accounting Policies in the
notes to the consolidated financial statements.
Interest Rate Risk. The Company requires substantial amounts of cash to
fund cash Advances to dealers in connection with the acceptance of installment
contracts. The Company relies on various sources of financing to assist in
funding its operations, some of which is at floating rates of interest and
exposes the Company to risks associated with increases in interest rates. The
Company manages such risk primarily by entering into interest rate cap
agreements on certain portions of its floating rate debt.
As of December 31, 1999, the Company had $37.0 million of floating rate
debt outstanding on its bank credit facilities, with no interest rate cap
protection, and $83.2 million in floating rate commercial paper outstanding
under its secured financings, with interest rate caps at 7.5%. Based on the
difference between the Company's commercial paper rates at 12/31/99 and the 7.5%
interest rate cap, the Company's maximum interest rate risk on the secured
financing is a 1.8% increase in commercial paper rates, which would reduce
annual after-tax earnings by approximately $700,000. For every 1% increase in
rates on the Company's bank credit facilities, annual after-tax earnings would
decrease by approximately an additional $250,000. This analysis assumes the
Company maintains a level amount of floating rate debt and assumes an immediate
increase in rates.
Foreign Currency Risk. The Company is exposed to foreign currency risk from
the possibility of changes in foreign exchange rates that could have a negative
impact on earnings or asset and liability values from operations in foreign
countries. The Company's most significant foreign currency exposure relates to
the United Kingdom. It is the Company's policy to borrow and lend in local
currencies to mitigate such risks. For an immediate, hypothetical 10% decrease
in quoted foreign currency exchange rates, annual after tax earnings would have
declined by approximately $350,000 at December 31, 1999. The potential loss in
net asset values from such a decrease would be approximately $7.0 million as of
December 31, 1999.
Immediate changes in interest rates and foreign currency exchange rates
discussed in the proceeding paragraphs are hypothetical rate scenarios, used to
calibrate risk, and do not currently represent management's view of future
market developments.
YEAR 2000 UPDATE
The Year 2000 issue results from the inability of some computer programs to
recognize the Year 2000 properly, potentially leading to errors or system
failure. CAC adopted a Year 2000 compliance program in an attempt to minimize or
prevent the number and seriousness of any disruptions that could have occurred
as a result of the Year 2000 issue. CAC's compliance program included an
assessment of its hardware and software computer systems and other
non-information technology systems, as well as an assessment of the Year 2000
issues relating to third parties with which CAC had a material relationship or
whose systems were material to the operations of CAC.
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<PAGE> 27
Neither the Company or any material third parties incurred any significant
problems relating to the Year 2000 issue and the Company does not expect to
incur significant expenses to remediate immaterial Year 2000 operating issues.
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, 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 , the Company's
inability to accurately forecast and estimate future collections and historical
collection rates and the Company's ability to complete various financing
alternatives.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by Item 7A is incorporated by reference from the
information in Item 7 under the caption "Market Risk" in this Form 10-K.
26
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Credit Acceptance Corporation:
We have audited the accompanying consolidated balance sheets of Credit
Acceptance Corporation and subsidiaries (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 26, 2000
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Credit Acceptance Corporation:
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Credit Acceptance Corporation and
subsidiaries for the year ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Credit Acceptance Corporation and subsidiaries for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan
February 2, 1998
27
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................... $ 13,775 $ 11,122
Investments -- held to maturity............................. 10,191 11,569
Installment contracts receivable............................ 672,649 573,120
Allowance for credit losses................................. (7,075) (4,742)
-------- --------
Installment contracts receivable, net..................... 665,574 568,378
-------- --------
Floor plan receivables:
Non-affiliates............................................ 9,455 12,874
Affiliates................................................ 4,616 2,618
-------- --------
14,071 15,492
-------- --------
Notes receivable:
Non-affiliates............................................ 1,627 2,547
Affiliates................................................ 651 1,063
-------- --------
2,278 3,610
-------- --------
Retained interest in securitization......................... 14,669 4,105
Property and equipment, net................................. 20,627 18,243
Investment in operating leases, net......................... -- 7,898
Income taxes receivable..................................... -- 12,686
Other assets................................................ 10,744 7,137
-------- --------
Total Assets........................................... $751,929 $660,240
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Senior notes.............................................. $136,165 $ 30,579
Lines of credit........................................... 79,067 36,994
Mortgage loan payable to bank............................. 3,566 8,215
Secured financing......................................... -- 83,197
Income taxes payable...................................... 776 --
Accounts payable and accrued liabilities.................. 22,423 25,813
Deferred dealer enrollment fees, net...................... 296 524
Dealer holdbacks, net..................................... 222,275 202,143
Deferred income taxes, net................................ 11,098 9,800
-------- --------
Total Liabilities...................................... 475,666 397,265
-------- --------
CONTINGENCIES (NOTE 14)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued................................
Common stock, $.01 par value, 80,000,000 shares
authorized, 46,291,487 and 46,071,454 shares issued and
outstanding in 1998 and 1999, respectively............. 463 461
Paid-in capital........................................... 129,914 128,917
Retained earnings......................................... 142,989 132,303
Accumulated other comprehensive income-cumulative
translation adjustment................................. 2,897 1,294
-------- --------
Total Shareholders' Equity............................. 276,263 262,975
-------- --------
Total Liabilities and Shareholders' Equity............. $751,929 $660,240
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 30
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Finance charges................................... $ 117,020 $ 98,007 $ 76,497
Premiums earned................................... 11,304 10,904 10,389
Gain on sale of advance receivables, net.......... -- 685 --
Other income...................................... 35,911 32,753 29,169
----------- ----------- -----------
Total revenue.................................. 164,235 142,349 116,055
----------- ----------- -----------
COSTS AND EXPENSES:
Operating expenses................................ 45,911 59,004 56,772
Provision for credit losses....................... 85,472 16,405 56,073
Provision for claims.............................. 3,911 3,734 3,498
Valuation adjustment on retained interest in
securitization................................. -- -- 13,517
Interest.......................................... 27,597 25,565 16,576
----------- ----------- -----------
Total costs and expenses....................... 162,891 104,708 146,436
----------- ----------- -----------
Other Operating Income:
Gain on sale of subsidiary........................ -- -- 14,720
----------- ----------- -----------
Operating income (loss)............................. 1,344 37,641 (15,661)
Foreign exchange loss............................. (41) (116) (66)
----------- ----------- -----------
Income (loss) before provision for income taxes..... 1,303 37,525 (15,727)
Provision (credit) for income taxes............... (234) 12,559 (5,041)
----------- ----------- -----------
Net income (loss)................................... $ 1,537 $ 24,966 $ (10,686)
----------- ----------- -----------
Net income (loss) per common share:
Basic............................................. $ .03 $ .54 $ (.23)
=========== =========== ===========
Diluted........................................... $ .03 $ .53 $ (.23)
=========== =========== ===========
Weighted average shares outstanding:
Basic............................................. 46,081,804 46,190,208 46,222,730
Diluted........................................... 46,754,713 46,960,290 46,222,730
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
ACCUMULATED
TOTAL COMPREHENSIVE OTHER
SHAREHOLDERS' INCOME COMMON PAID-IN RETAINED COMPREHENSIVE
EQUITY (LOSS) STOCK CAPITAL EARNINGS INCOME
------------- ------------- ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1996............ $246,143 $458 $125,398 $116,486 $ 3,801
Comprehensive income:
Net income.......................... 1,537 $ 1,537 1,537
--------
Other comprehensive income:
Foreign currency translation
adjustment..................... (1,630) (1,630) (1,630)
Tax on other comprehensive loss... 570
--------
Other comprehensive loss.......... (1,060)
--------
Total comprehensive income............ 477
========
Stock options exercised............... 2,874 3 2,871
Dealer stock option plan.............. 67 67
-------- ---- -------- -------- -------
Balance -- December 31, 1997............ 248,991 461 128,336 118,023 2,171
Comprehensive income:
Net income.......................... 24,966 $ 24,966 24,966
--------
Other comprehensive income:
Foreign currency translation
adjustment..................... 726 726 726
Tax on other comprehensive
income......................... (254)
--------
Other comprehensive income.......... 472
--------
Total comprehensive income............ 25,438
========
Stock options exercised............... 1,430 2 1,428
Dealer stock option plan.............. 150 150
-------- ---- -------- -------- -------
Balance -- December 31, 1998............ 276,263 463 129,914 142,989 2,897
Comprehensive income:
Net income (loss)................... (10,686) (10,686) (10,686)
--------
Other comprehensive income:
Foreign currency translation
adjustment..................... (1,603) (1,603) (1,603)
Tax on other comprehensive loss... 561
--------
Other comprehensive loss.......... (1,042)
--------
Total comprehensive loss.............. $(11,728)
========
Repurchase and retirement of common
stock............................... (1,510) (3) (1,507)
Stock options exercised............... 380 1 379
Dealer stock option plan.............. 131 131
-------- ---- -------- -------- -------
Balance -- December 31, 1999............ $262,975 $461 $128,917 $132,303 $ 1,294
======== ==== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss)......................................... $ 1,537 $ 24,966 $ (10,686)
Adjustments to reconcile cash provided by operating
activities --
Gain on sale of subsidiary.............................. -- -- (14,720)
Provision (credit) for deferred income taxes............ 5,628 (3,518) (1,298)
Depreciation............................................ 2,550 3,793 4,697
Gain on sale of advance receivables, gross.............. -- (1,261) --
Valuation adjustments on retained interest in
securitization........................................ -- -- 13,517
Amortization of retained interest in securitization..... -- (951) (1,586)
(Gain) loss on retirement of property and equipment..... 512 -- (543)
Provision for credit losses............................. 85,472 16,405 56,073
Provision for residual losses........................... -- -- 91
Dealer stock option plan expense........................ 67 150 131
Change in operating assets and liabilities --
Accounts payable and accrued liabilities................ (8,759) 2,061 3,754
Income taxes payable.................................... (2,569) 776 (776)
Income taxes receivable................................. -- -- (12,686)
Unearned insurance premiums, insurance reserves and
fees.................................................. 1,450 (238) (658)
Deferred dealer enrollment fees, net.................... (1,843) (125) 228
Other assets............................................ (21,915) 13,654 145
--------- --------- ---------
Net cash provided by operating activities............. 62,130 55,712 35,683
--------- --------- ---------
Cash Flows From Investing Activities:
Principal collected on installment contracts receivable... 370,059 368,873 315,869
Advances to dealers and payments of dealer holdbacks...... (520,609) (290,605) (295,587)
Net proceeds from sale of advance receivables............. -- 49,275 --
Proceeds from sale of subsidiary.......................... -- -- 16,147
Purchase of investments held to maturity.................. (3,653) (218) (1,378)
Decrease in floor plan receivables -- affiliates.......... 140 7,047 1,998
Increase in floor plan receivables -- non-affiliates...... (4,447) (1,318) (3,419)
Increases in notes receivable -- affiliates............... (363) (309) (1,301)
Decreases in notes receivable -- affiliates............... 1,049 189 889
Increases in notes receivable -- non-affiliates........... (345) (1,254) (2,156)
Decreases in notes receivable -- non-affiliates........... 1,091 327 1,236
Operating lease acquisitions.............................. -- -- (8,538)
Operating lease liquidations.............................. -- -- 79
Purchases of property and equipment....................... (8,943) (3,581) (4,821)
Proceeds from sale of property and equipment.............. -- -- 5,192
--------- --------- ---------
Net cash provided by (used in) investing activities... (166,021) 128,426 24,210
--------- --------- ---------
Cash Flows From Financing Activities:
Proceeds from sale of senior notes........................ 71,750 -- --
Repayment of senior notes................................. (20,000) (38,985) (105,586)
Net borrowings (repayments) under line of credit
agreements.............................................. 51,235 (133,650) (42,073)
Proceeds from secured financings.......................... -- -- 97,720
Repayments of secured financings.......................... -- -- (14,523)
Proceeds from mortgage loan refinancing................... -- -- 5,046
Repayment of mortgage loan................................ (218) (233) (397)
Repurchase of common stock................................ -- -- (1,510)
Proceeds from stock options exercised..................... 2,874 1,430 380
--------- --------- ---------
Net cash provided by (used in) financing activities... 105,641 (171,438) (60,943)
--------- --------- ---------
Effect of exchange rate changes on cash............... (1,630) 726 (1,603)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ 120 13,426 (2,653)
Cash and cash equivalents beginning of period............... 229 349 13,775
--------- --------- ---------
Cash and Cash Equivalents End of Period..................... $ 349 $ 13,775 $ 11,122
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest.................. $ 27,464 $ 23,142 $ 18,593
========= ========= =========
Cash paid during the period for income taxes.............. $ 14,887 $ 17,812 $ 8,451
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Principal Business. Credit Acceptance Corporation and its subsidiaries
("CAC" or the "Company") is a specialized financial services company which
provides funding, receivables management, collection, sales training and related
products and services to automobile dealers located in the United States, the
United Kingdom, Canada and Ireland. The Company assists such dealers by
providing an indirect source of financing for buyers with limited access to
traditional sources of consumer credit due to past credit history. Installment
contracts originated and assigned to the Company by automobile dealers are
generally considered to have a high risk of default. To a significantly lesser
extent, CAC provides inventory floor plan financing and working capital loans
for dealers secured by inventory and the related cash collections owed to the
dealer by CAC.
Credit Acceptance Corporation UK, Ltd., CAC of Canada, Ltd., and Credit
Acceptance Corporation of Ireland Ltd. are all wholly-owned subsidiaries of the
Company which operate in their respective countries. These subsidiary companies
offer essentially the same dealer programs as are offered in the United States.
The dealer assigns title to the installment contract and the security
interest in the vehicle to the Company. At the time it accepts the assignment of
a contract, CAC records the gross amount of the contract as a gross installment
contract receivable. The Company records the amount of its servicing fee as an
unearned finance charge with the remaining portion recorded as a dealer
holdback. At the time of acceptance, contracts which meet certain criteria are
eligible for a cash advance, which is computed on a formula basis. Advances are
non-interest bearing and are secured by the cash collections on all of the
installment contracts receivable assigned from an individual dealer. Dealer
advances are netted against dealer holdbacks in the accompanying consolidated
financial statements, as dealer holdbacks are not paid until such time as all
advances related to such dealer have been recovered.
CAC collects the scheduled monthly payments based on contractual
arrangements with the consumer. Monthly cash collections are remitted to the
dealer subject to the Company first: (i) being reimbursed for certain collection
costs associated with all installment contracts originated by such dealer; (ii)
reducing the collections by the Company's servicing fee; and (iii) recovering
the aggregate advances made to such dealer.
Upon enrollment into the Company's financing program, the dealer enters
into a servicing agreement with CAC which defines the rights and obligations of
CAC and the dealer. The servicing agreement may be terminated by the Company or
by the dealer (so long as there is no event of default or an event which with
the lapse of time, giving of notice or both, would become an event of default)
upon 30 days prior written notice. The Company may also terminate the servicing
agreement immediately in the case of an event of default by the dealer. Upon any
termination by the dealer or in the event of a default, the dealer must
immediately pay the Company: (i) any unreimbursed collection costs; (ii) any
unpaid advances and all amounts owed by the dealer to the Company; and (iii) a
termination fee equal to the unearned finance charge of the then outstanding
amount of the installment contracts originated by such dealer and accepted by
the Company.
Ancillary Products and Services. Buyers Vehicle Protection Plan, Inc.
("BVPP") and Credit Acceptance Reinsurance, LTD. ("CAC Reinsurance"), both
wholly-owned subsidiaries of the Company, provide additional services to
participating dealers.
CAC Reinsurance is engaged primarily in the business of reinsuring credit
life and disability insurance policies issued to borrowers under installment
contracts originated by participating dealers. CAC advances to dealers an amount
equal to the credit life and disability insurance premium on contracts accepted
by the Company which include credit life and disability insurance written by the
Company's designated insurance carriers. The policies insure the holder of the
installment contract for the outstanding balance payable in the event of death
or disability of the debtor. Premiums are ceded to CAC Reinsurance on both an
earned and written basis and are earned over the life of the contracts using pro
rata and sum-of-digits methods. CAC Reinsurance bears the risk of loss attendant
to claims under the coverages ceded to it.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
To a lesser extent, CAC Reinsurance has arrangements with insurance
carriers and a third party administrator to market and provide claims
administration for a dual interest collateral protection program. This insurance
program, which insures the financed vehicle against physical damage up to the
lesser of the cost to repair the vehicle or the unpaid balance owed on the
related installment contract, is made available to borrowers who finance
vehicles through participating dealers. If desired by a borrower, collateral
protection insurance coverage is written under group master policies issued by
unaffiliated insurance carriers to the Company. As part of the program, the
insurance carriers cede insurance coverages and premiums (less a fee) to CAC
Reinsurance, which acts as a reinsurer of such coverages. As a result, CAC
Reinsurance bears the risk of loss attendant to claims under the coverages ceded
to it, and earns revenues resulting from premiums ceded and the investment of
such funds.
BVPP administers short-term limited extended service contracts offered by
participating dealers. In connection therewith, BVPP bears the risk of loss for
any repairs covered under the service contract. Income is recognized on a
straight-line basis over the life of the service contracts. In addition, BVPP
has relationships with third party service contract providers which pay BVPP a
fee on service contracts included on installment contracts financed through
participating dealers. BVPP does not bear any risk of loss for covered claims on
these third party service contracts. The income from the non-refundable fee is
recognized upon acceptance of the installment contract. The Company advances to
dealers an amount equal to the purchase price of the vehicle service contract on
contracts accepted by the Company which include vehicle service contracts.
Automotive Leasing. Through its automotive leasing business, the Company
purchases used vehicle leases originated by dealers participating in the
Company's automotive leasing programs. The programs are designed to provide
participating dealers with a leasing alternative for non-prime consumers with
limited access to traditional sources of consumer credit. As the Company assumes
ownership of the vehicles from the dealers, these leases are accounted for as
operating leases with the capitalized cost of the vehicles recorded as
depreciable assets (net investment in operating leases). This program differs
from the Company's principal business in that, as these leases are purchased
outright, the dealer does not have any rights to future collections on the lease
contracts.
Significant accounting policies are described in the following paragraphs.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany transactions have been
eliminated.
REPORTABLE BUSINESS SEGMENTS
The Company is organized into two primary business segments: CAC North
America and CAC United Kingdom. See Note 13 for information regarding the
Company's reportable segments.
USE OF ESTIMATES
The accounting and reporting policies of the Company require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The accounts which are subject to such estimation
techniques include the reserve against advances, the allowance for credit
losses, the retained interest in securitization and the residual reserve on
leased vehicles. Actual results could differ from those estimates.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
DERIVATIVE INSTRUMENTS
The Company utilizes interest rate cap and floor agreements to manage its
interest rate risk on its secured financings. The Company does not hold or issue
derivative financial instruments for trading purposes. Premiums paid for
interest rate caps are amortized to interest expense over the terms of the cap
agreements.
The derivative agreements generally match the notional amounts of the
hedged debt to assure the effectiveness of the derivatives in reducing interest
rate risk. As of December 31, 1999, the following interest rate cap agreements
were outstanding:
<TABLE>
<CAPTION>
COMMERCIAL PAPER
NOTIONAL AMOUNT CAP RATE TERM
- --------------- ---------------- -------------------------------
<C> <S> <C> <C>
$ 8,697,152 .................. 7.5% July 1998 through October 2001
9,723,198 .................. 7.5% July 1999 through August 2003
46,728,110 .................. 7.5% December 1999 through June 2003
</TABLE>
As of December 31, 1999, the following interest rate floor agreements were
outstanding:
<TABLE>
<CAPTION>
COMMERCIAL PAPER
NOTIONAL AMOUNT FLOOR RATE TERM
- --------------- ---------------- -----------------------------
<C> <S> <C> <C>
$9,723,198 ...................... 4.79% July 1999 through August 2003
</TABLE>
The Company is exposed to credit risk in the event of nonperformance by the
counterparty to its interest rate cap agreements. The Company anticipates that
its counterparty will fully perform their obligations under the agreements. The
Company manages credit risk by utilizing a financial sound counterparty.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
operations are measured using the local currency as the functional currency.
Revenues and expenses are translated at average exchange rates during the year
and assets and liabilities are translated at current exchange rates at the
balance sheet date. Translation adjustments are reflected in accumulated other
comprehensive income, as a separate component of shareholders' equity.
On January 1, 1999, 11 of 15 member countries of the European Monetary
Union established fixed conversion rates between their existing currencies and
adopted the euro as their new common currency. The euro trades on currency
exchanges and the legacy currencies remain legal tender in the participating
countries for a transition period until January 1, 2002. Beginning on January 1,
2002, euro denominated bills and coins will be issued and legacy currencies will
be withdrawn from circulation.
The Company will assess and address the potential impact to CAC that may
result from the euro conversion, as the Company has operations in both the
United Kingdom and Ireland. These issues include, but are not limited to: 1) the
technical challenges to adapt information systems to accommodate euro
transactions; 2) the impact on currency exchange rate risks; 3) the impact on
existing contracts; and 4) tax and accounting implications. The Company expects
that the euro conversion will not have a material adverse impact on its
consolidated financial condition or results of operations.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of readily marketable securities with original
maturities at the date of acquisition of three months or less.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INVESTMENTS
Investments consist principally of short-term money market funds and U.S.
Treasury securities which the Company has both the intent and the ability to
hold to maturity. Accordingly, such investments are carried at amortized cost,
with no recognition of temporary changes in fair value.
INSTALLMENT CONTRACTS RECEIVABLE
Installment contracts receivable are collateralized by vehicle titles, and
the Company has the right to repossess the vehicle in the event that the
consumer defaults on the payment terms of the contract. Repossessed collateral
is valued at the lower of the carrying amount of the receivable or estimated
fair value, less estimated costs of disposition, and is classified in
installment contracts receivable on the balance sheets. At December 31, 1998 and
1999, repossessed assets totaled approximately $10.2 million and $5.5 million,
respectively. The Company's policy for non-accrual loans is 90 days measured on
a recency (no material payments received) basis. The Company writes-off
delinquent installment contracts at nine months on a recency basis.
ALLOWANCE FOR CREDIT LOSSES
The Company maintains an allowance for credit losses which, in the opinion
of management, adequately reserves against credit losses on installment
contracts that are considered to be impaired. The risk of loss to the Company
related to the installment contracts receivable balances relates primarily to
the earned but unpaid servicing fee or finance charge recognized on
contractually delinquent accounts. To the extent that the Company does not
collect the gross amount of the contract balance, the remaining gross
installment contract receivable balance is 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 the provision, which is
current expense, may be either greater or less than actual charge-offs.
RESERVE ON ADVANCES
When an installment contract is accepted, the Company generally pays a cash
advance to the dealer. These advance balances represent the Company's primary
risk of loss related to the funding activity with the dealers. The Company
maintains a reserve on advances to dealers which reflects advance balances that
are not expected to be recovered through collections on the related installment
contract receivable portfolio. To serve as a basis for evaluating the reserve
requirement, management reviews delinquencies, charge-off experience factors,
the payment performance of loan pools, changes in collateral value, economic
conditions and trends and other information. For purposes of establishing the
reserve, future collections (including the anticipated proceeds from repossessed
collateral) are reduced to present value in order to achieve a level yield over
the expected term of the advance.
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. Estimating cash collections from the installment
contracts receivable is complicated by the unusual payment patterns of the
borrowers who generally cannot obtain traditional financing. The evaluation of
the reserve against advances considers such factors as current delinquencies,
the characteristics of the accounts, the value of the underlying collateral, the
location of the borrower, general economic conditions and trends among other
information. Although the Company uses many resources to assess the adequacy of
the reserve against advances, actual losses may vary significantly from current
estimates and the amount of provision, which is a current expense, may be either
greater or less than actual charge offs.
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FLOOR PLAN RECEIVABLES
CAC finances used vehicle inventories for both affiliated dealers and
nonaffiliated dealers. Amounts loaned are secured by the related inventories and
any future cash collections owed to the dealer on outstanding contracts.
NOTES RECEIVABLE
Notes receivable are primarily working capital loans to dealers and are due
on demand. These notes receivable are secured by substantially all assets of the
dealer including any future cash collections owed to the dealer on outstanding
contracts.
ADVANCE RECEIVABLE SALES
When the Company sells advance receivables in securitizations or secured
financings, it retains interest-only strips and servicing rights, all of which
are retained interests in the securitized assets. Gain or loss on sale of the
advance receivables depends in part on the previous carrying amount of advances,
allocated between the portion sold and the portion retained in proportion to
their relative fair value. To obtain fair values, quoted market prices are used
if available. However, quotes are generally not available for retained
interests, so the Company generally estimates fair value based on the present
value of future cash flows expected under management's best estimates of the key
assumptions -- credit losses, timing of projected collections, and discount
rates commensurate with the risks involved. The Company evaluates the fair value
and potential impairment of its retained interest in securitization on a
quarterly basis.
PROPERTY AND EQUIPMENT
Additions to property and equipment are recorded at cost. Depreciation is
generally provided on a straight-line basis over the estimated useful lives
(primarily five to forty years) of the assets. The cost of assets sold or
retired and the related accumulated depreciation are removed from the accounts
at the time of disposition and any resulting gain or loss is included in
operations. Maintenance, repairs and minor replacements are charged to
operations as incurred; major replacements and betterments are capitalized.
GOODWILL
At December 31, 1998, the Company had goodwill representing the excess of
cost over the fair value of assets acquired and was amortized using the
straight-line method over ten years. At December 31, 1998, goodwill, net of
amortization of $181,000, is recorded in other assets at $2,919,000. In 1999,
the assets pertaining to this goodwill were sold.
INVESTMENTS IN OPERATING LEASES, NET
Leased vehicles are generally depreciated down to their residual values on
a straight-line basis over the term of the lease. The residual values represent
the estimate of the values of the vehicles at the end of the lease contracts and
are initially recorded based on appraisals and estimates. Realization of the
residual values is dependent on the Company's future ability to market the
vehicles under then prevailing market conditions. Management reviews residual
values periodically to determine that recorded amounts are recoverable.
DEALER HOLDBACKS
As part of the dealer servicing agreement, the Company establishes a dealer
holdback to protect the Company from potential losses associated with
installment contracts. This dealer holdback is not paid until such time as all
advances related to such dealer have been recovered.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONCLUDED)
INCOME TAXES
Deferred income taxes are provided for all temporary differences between
the book and tax basis of assets and liabilities. Deferred income taxes are
adjusted to reflect new tax rates when they are enacted into law.
REVENUE RECOGNITION
Finance Charges. The Company computes its servicing fee based upon the
gross amount due under the installment contract. Income is 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.
Premiums Earned. Credit life and disability premiums and collision premiums
are ceded to the Company on both an earned and written basis and are earned over
the life of the contracts using the pro rata and sum-of-digits methods. Premiums
on BVPP warranties are earned on a straight-line basis over the life of the
service contracts.
Other Income. Dealers are charged an initial fee to floor plan a vehicle.
Interest is charged based on the number of days a vehicle remains on the floor
plan. Interest rates typically range from 12% to 18% per annum.
Income from operating lease assets is recognized on a straight-line basis
over the scheduled lease term.
Enrollment fees are generally paid by each dealer signing a servicing
agreement and are nonrefundable. These fees and the related direct incremental
costs of originating these fees are deferred and amortized on a straight-line
basis over the estimated repayment term of the outstanding dealer advance.
Interest on notes receivable is recognized in income based on the
outstanding monthly balance and is generally 12% to 18% per annum.
Fees received by the Company for the sale of third party vehicle service
contracts are recognized upon acceptance of the related installment contract
receivable as the Company bears no further obligation.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS No. 133). SFAS No. 137 delayed the implementation
of SFAS No. 133 which is now effective for fiscal years beginning after June 15,
2000. This statement standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
recognition of those items as assets and liabilities in the statement of
financial position and measurement of fair value. The impact of SFAS No. 133 on
the Company's financial position and results of operations has not yet been
determined.
RECLASSIFICATION
Certain amounts for the prior periods have been reclassified to conform to
the current presentation.
(2) FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.
Cash and Cash Equivalents. The carrying amount of cash and cash equivalents
approximate the fair values due to the short maturity of these instruments.
Pursuant to the secured financings of advance
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) FINANCIAL INSTRUMENTS -- (CONTINUED)
receivables, the Company is required to hold cash and cash equivalents in a
trust account. The restricted cash and cash equivalents totaled $10.4 million at
December 31, 1999.
Investments. The fair value of U.S. Treasury securities are based on quoted
market prices. The carrying amount of money market funds approximates the fair
value due to the short maturity.
Installment Contracts Receivable and Net Dealer Holdbacks. As the majority
of the Company's revenue is derived from the servicing fee it receives on the
gross amount due under the installment contract (typically 20% of the principal
and interest), the Company's revenues from servicing fees are not materially
impacted by changes in interest rates. As such, the carrying amounts recorded on
a historical cost basis for installment contracts receivable and net dealer
holdbacks in the financial statements related to the financing and service
program which the Company provides to dealers approximates fair value.
Floor Plan and Notes Receivable. The fair values of floor plan and note
receivables are estimated by discounting the future cash flows using applicable
current interest rates.
Retained Interest in Securitization. The fair value of the retained
interest in securitization is estimated by discounting expected future excess
cash flows utilizing current assumptions as described in Note 4.
Debt. The fair value of debt is determined using quoted market prices, if
available, or calculating the estimated value of each debt instrument based on
current rates offered to the Company for debt with similar maturities.
The fair value of interest rate caps represents the amount that the Company
would receive to terminate the agreement, taking into account current interest
rates, which was immaterial as of December 31, 1999 and 1998.
A comparison of the carrying value and fair value of these financial
instruments is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1999
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 13,775 $ 13,775 $ 11,122 $ 11,122
Investments -- held to maturity................ 10,191 10,193 11,569 11,572
Installment contracts receivable, net.......... 665,574 665,574 568,378 568,378
Floor plan receivable.......................... 14,071 14,071 15,492 15,492
Notes receivable............................... 2,278 2,278 3,610 3,610
Retained interest in securitization............ 14,669 14,669 4,105 4,105
Senior notes................................... 136,165 135,529 30,579 30,491
Lines of credit................................ 79,067 79,067 36,994 36,994
Mortgage loan payable to bank.................. 3,566 3,566 8,215 8,215
Secured financing.............................. -- -- 83,197 83,197
Dealer holdbacks, net.......................... 222,275 222,275 202,143 202,143
</TABLE>
The Company's portfolio of investment securities includes short-term money
market instruments and U.S. Treasury securities. All investments are categorized
as held-to-maturity and are stated at amortized cost. Pursuant to reinsurance
agreements, the Company is required to hold investment securities in a trust
account. The restricted investment securities totaled approximately $8.9 million
and $7.6 million at December 31, 1998 and 1999, respectively.
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) FINANCIAL INSTRUMENTS -- (CONTINUED)
CERTAIN DEBT AND MARKETABLE SECURITIES
A summary of investments held by the Company consist of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1999
-------------------------------- --------------------------------
GROSS GROSS
UNREALIZED FAIR UNREALIZED FAIR
COST GAINS VALUE COST GAINS VALUE
------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Money market funds................... $ 9,466 $-- $ 9,466 $ 2,640 $-- $ 2,640
U.S. Treasury securities............. 725 2 727 8,929 3 8,932
------- --- ------- ------- --- -------
Total investments.................. $10,191 $ 2 $10,193 $11,569 $ 3 $11,572
======= === ======= ======= === =======
</TABLE>
Installment contracts generally have initial terms ranging from 24 to 42
months and are collateralized by the related vehicles. Contractual maturities of
contracts by year have not been presented as this information is not meaningful
due to the uneven payment patterns of non-prime consumers. The initial average
term of an installment contract was approximately 31 months in 1997 and 1998 and
32 months in 1999. As of December 31, 1998 and 1999, the accrual of finance
charge revenue has been suspended, and fully reserved for, on approximately
$257.5 million and $156.5 million of delinquent installment contracts,
respectively. Installment contracts receivable consisted of the following (in
thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1998 1999
--------- --------
<S> <C> <C>
Gross installment contracts receivable.................. $ 794,831 $679,201
Unearned finance charges................................ (114,617) (99,174)
Unearned insurance premiums, insurance reserves and
fees.................................................. (7,565) (6,907)
--------- --------
Installment contracts receivable........................ $ 672,649 $573,120
========= ========
Non-accrual installment contracts as a percent of total
gross installment contracts........................... 32.4% 23.0%
========= ========
</TABLE>
(3) INSTALLMENT CONTRACTS RECEIVABLE
A summary of changes in gross installment contracts receivable is as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Balance -- beginning of period.............. $1,251,139 $1,254,858 $ 794,831
Gross amount of installment contracts
accepted.................................. 983,459 580,578 533,065
Gross installment contracts underlying
advance receivables securitized........... -- (98,591) --
Cash collections on installment contracts
accepted.................................. (505,925) (493,900) (409,742)
Charge offs................................. (467,532) (449,870) (234,167)
Currency translation........................ (6,283) 1,756 (4,786)
---------- ---------- ---------
Balance -- end of period.................... $1,254,858 $ 794,831 $ 679,201
========== ========== =========
</TABLE>
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INSTALLMENT CONTRACTS RECEIVABLE -- (CONCLUDED)
A summary of the allowance for credit losses is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Balance -- beginning of period.................... $ 12,195 $13,119 $ 7,075
Provision for loan losses......................... 11,072 3,432 1,205
Allowance on installment contracts underlying
advance receivables securitized................. -- (1,107) --
Charge offs, net.................................. (10,138) (8,392) (3,489)
Currency translation.............................. (10) 23 (49)
-------- ------- -------
Balance -- end of period.......................... $ 13,119 $ 7,075 $ 4,742
======== ======= =======
</TABLE>
Recoveries related to charged off contracts are primarily the result of the
recovery of earned but unpaid finance charges and are netted against
charge-offs.
The Company's financing and service program allows dealers to establish the
interest rate on contracts, which typically is the maximum rate allowable by the
state or country in which the dealer is doing business.
(4) ADVANCE RECEIVABLE SALES
On July 8, 1998, the Company completed a $50 million securitization of
advance receivables. Pursuant to this transaction, the Company contributed
dealer advances having a carrying value of approximately $56 million and
received approximately $49.3 million in financing from an institutional
investor. The debt is non-recourse to the Company and bears interest at the
applicable commercial paper rate plus 1% with a maximum of 7.5%. The commercial
paper may be issued for terms of between 1 and 270 days. As of December 31,
1999, the debt is anticipated to fully amortize within 21 months. The Company
recognized a gain on the transaction of approximately $685,000 which represents
the difference between the sale proceeds to the Company, net of transaction
costs, and the Company's carrying amount of the dealer advances, plus the
present value of the estimated cash flows to be received by the Company. In
determining the gain on the sale of receivables and the estimated fair value of
the Company's retained interest in securitization, the Company assumed an excess
cash flow discount rate of 15%, cumulative credit losses of 14% on the related
installment contracts receivable (which is less than the Company would have
incurred had these assets been securitized when originated) and an interest rate
of 7.5% on the underlying debt. The excess cash flows result from the amount by
which projected collections on the installment contracts exceeds i) the
principal and interest to be paid to the institutional investor and ii) the
amount of dealer holdback due to dealers.
In the securitization, the Company retained servicing responsibilities and
subordinated interests. The Company receives monthly servicing fees of 4% of the
collections on the installment contracts receivable, and rights to future cash
flows arising after the investor has received the return for which they are
contracted. The present value of such estimated cash flows has been recorded by
the Company as a retained interest in securitization of $14.7 and $4.1 million
as of December 31, 1998 and 1999, respectively. The investors have no recourse
to the Company's other assets for failure of debtors to pay when due. The
Company's retained interests are generally restricted until investors have been
fully paid and are subordinate to investors' interests.
The Company recorded a $13.5 million valuation adjustment in 1999 on the
retained interest in securitization. The retained interest in securitization
represents an accounting estimate based on several variables including the
amount and timing of collections on the underlying installment contracts
receivable, the amount and timing of projected dealer holdback payments and
interest costs. The Company regularly reviews the actual performance of these
variables against the assumptions used to record the retained interest. This
evaluation has led to a reassessment of the timing and amount of collections on
the installment contracts underlying the securitized advances and the resulting
$13.5 million write down in 1999. For purposes of
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) ADVANCE RECEIVABLE SALES -- (CONCLUDED)
valuing the retained interest as of December 31, 1999, the Company assumed
an excess cash flow discount rate of 15% and an interest rate of 7.5% on the
underlying debt.
The installment contracts supporting the dealer advances that were sold
included contracts with origination dates ranging from July 1990 to June 1998,
with a weighted average age of 15 months as of the date of the transaction. The
amount of such contracts included on the Company's balance sheet as of June 30,
1998 was $98.6 million, of which $43.8 million was in non-accrual status.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Land....................................................... $ 2,587 $ 2,587
Building and improvements.................................. 6,968 6,804
Data processing equipment.................................. 17,460 17,828
Office furniture & equipment............................... 2,648 2,292
Leasehold improvements..................................... 781 706
------- -------
30,444 30,217
Less accumulated depreciation.............................. 9,817 11,974
------- -------
$20,627 $18,243
======= =======
</TABLE>
Depreciation expense on property and equipment was $2,550,000, $3,793,000
and $4,227,000 in 1997, 1998 and 1999, respectively.
(6) LEASED PROPERTIES
PROPERTY LEASED TO OTHERS
The Company leases part of its headquarters to outside parties as
non-cancelable operating leases, which is not a significant part of its business
activities. Rental income, which is included in other income, is recognized on a
straight-line basis over the related lease term. Rental income on leased
property was $991,000, $997,000 and $1,105,000 for 1997, 1998 and 1999,
respectively.
PROPERTY LEASED FROM OTHERS
The Company utilizes leases in its day to day operations for administrative
offices and office equipment. Management expects that in the normal course of
business, leases will be renewed or replaced by other leases.
Total rental expense on all operating leases was $242,000, $388,000 and
$499,000 for 1997, 1998 and 1999, respectively. Contingent rentals under the
operating leases were insignificant. Minimum future lease commitments under
operating leases are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 359,000
2001........................................................ 359,000
2002........................................................ 359,000
2003........................................................ 359,000
2004........................................................ 225,000
2005 and beyond............................................. 545,000
----------
Total minimum lease commitments........................... $2,206,000
==========
</TABLE>
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INVESTMENTS IN OPERATING LEASES
The following schedule provides an analysis of the Company's investment in
property of operating leases (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Vehicles, at cost........................................... $8,351
Less: accumulated depreciation............................ 453
------
Investment in operating leases, net......................... $7,898
======
</TABLE>
A summary of changes in gross leased vehicles is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Balance-beginning of period................................. $ --
Gross operating leases originated........................... 8,659
Provision for residual losses............................... (91)
Operating lease liquidations................................ (217)
------
Balance-end of period....................................... $8,351
======
</TABLE>
Future minimum rentals on vehicles leased at December 31, 1999 are as
follows: 2000 -- $4.0 million; 2001 -- $4.0 million; and 2002 -- $2.5 million.
(8) DEBT
SENIOR NOTES
As of December 31, 1999, the Company had $15,127,000, $10,186,000 and
$5,266,000 in outstanding borrowings under the three Senior Notes issued to
various insurance companies in 1994, 1996 and 1997, respectively. The Notes are
secured and require semi-annual interest payments and annual payments of
principal. The final payments are due November 1, 2001, July 1, 2001 and October
1, 2001 for the 1994, 1996 and 1997 Senior Notes, respectively. The interest
rates at December 31, 1999 were 9.87%, 8.99% and 8.77% and increased on January
15, 2000 to 10.37%, 9.49% and 9.27% for the 1994, 1996 and 1997 Senior Notes,
respectively.
MORTGAGE LOAN PAYABLE
The Company has a mortgage loan from a commercial bank which is secured by
a first mortgage lien on the Company's headquarters building and an assignment
of all leases, rents, revenues and profits under all present and future leases.
During 1999, the Company refinanced this loan, borrowing an additional $5.0
million of principal. There was $3,566,000 and $8,215,000 outstanding on this
loan as of December 31, 1998 and 1999, respectively. The refinanced loan matures
on May 1, 2004, requires monthly payments of principal and interest and bears
interest at a fixed rate of 7.07%.
SECURED FINANCING
On July 21, 1999 and December 15, 1999, the Company completed two separate
$50 million secured financings of advance receivables, receiving approximately
$97.7 million in financing from an institutional investor. The secured
financings are secured by dealer advances having a carrying value as of the date
of the transactions of approximately $62.4 million and $65.0 million for the
July 1999 and December 1999 secured financings, respectively. The secured
financings are non-recourse to the Company and bear interest at the applicable
commercial paper rate plus 70 basis points with a maximum of 7.5%. The interest
rates at December 31, 1999 on the July 1999 and December 1999 secured financings
were 5.66% and 6.63%,
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) DEBT -- (CONTINUED)
respectively. The commercial paper may be issued for terms of between 1 and
270 days. As of December 31, 1999, the July 1999 secured financing had an
outstanding balance of approximately $33.2 million and was anticipated to fully
amortize within 28 months while the December 1999 secured financing has an
outstanding balance of $50.0 million and is anticipated to fully amortize within
12 months.
LINES OF CREDIT
The Company has a $125 million credit agreement with a commercial bank
syndicate with a commitment period through June 13, 2000 subject to annual
extensions for additional one year periods at the request of the Company and
with the consent of each of the banks in the facility. The borrowings are
secured by a lien on most of the Company's assets, including a pledge of the
stock in its United Kingdom subsidiary, with interest payable at the
Eurocurrency rate plus 1.4% or at the prime rate (8.5% as of December 31, 1999).
The Eurocurrency borrowings may be fixed for periods of up to six months. The
Company must pay an agent's fee of $42,000 annually and a commitment fee of .60%
quarterly on the amount of the commitment. In addition, when outstandings under
the commitment earn 50% of the amount of the commitment, the Company must pay,
quarterly, a fee equal to .25% on the amount outstanding under the commitment.
As of December 31, 1999, there was approximately $34.2 million outstanding under
this facility. The maximum amount outstanding was approximately $210.2 million
and $81.4 million in 1998 and 1999, respectively. The weighted average balance
outstanding was $143.4 million and $49.5 million in 1998 and 1999, respectively.
The Company also has a 2.0 million British pound sterling line of credit
agreement with a commercial bank in the United Kingdom, which is used to fund
the day to day cash flow requirements of the Company's United Kingdom
subsidiary. The borrowings are secured by a letter of credit issued by the
Company's principal commercial bank, with interest payable at the greater of the
United Kingdom bank's base rate (5.5% as of December 31, 1999) plus 65 basis
points or at the Libor rate plus 56.25 basis points. The rates may be fixed for
periods of up to six months. As of December 31, 1999, there was approximately
1.5 million British pounds ($2.4 million U.S. dollars), outstanding under this
facility which matures on May 29, 2000. The maximum amount outstanding was 1.6
million British pounds ($2.6 million U.S. dollars) and 2.3 million British
pounds ($3.7 million U.S. dollars) in 1998 and 1999, respectively. The weighted
average balance outstanding was 900,000 British pounds ($1.5 million U.S.
dollars) and 1.4 million British pounds ($2.3 million U.S. dollars) in 1998 and
1999, respectively.
The Company also has a $1,000,000 Canadian dollar line of credit with a
commercial bank in Canada, which is used to fund the day to day cash flow
requirements of the Company's Canadian subsidiary. The borrowings are unsecured,
guaranteed by the Company, with interest payable at the Libor rate plus 1.4% or
at the Canadian bank's prime rate (6.5% at December 31, 1999). As of December
31, 1999, there was approximately $526,000 Canadian dollars ($363,000 U.S.
dollars) outstanding under the facility.
The weighted average interest rate on line of credit borrowings outstanding
was 6.9% and 7.5% as of December 31, 1998 and 1999, respectively.
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) DEBT -- (CONCLUDED)
PRINCIPAL DEBT MATURITIES
The scheduled principal maturities of the Company's long-term debt at
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 87,276
2001........................................................ 25,274
2002........................................................ 3,249
2003........................................................ 776
2004........................................................ 5,416
--------
$121,991
========
</TABLE>
Included in scheduled principal maturities are anticipated maturities of
secured financing debt. The maturities of this debt are dependant on the timing
of cash collections on the contributed installment contracts receivable and
changes in interest rates on the commercial paper. Such amounts included in the
table above are $72.0 million, $8.7 million and $2.5 million for 2000, 2001 and
2002, respectively.
DEBT COVENANTS
The Company must comply with various restrictive debt covenants which
require the maintenance of certain financial ratios and other financial
conditions. The most restrictive covenants limit the ratio of the Company's
debt-to-equity, limit the ratio of the Company's fixed charges to net income,
limit the Company's investment in its foreign subsidiaries, limit the ratio of
debt to advances, limit the ratio of debt to gross installment contracts
receivable, limit the ratio of advances to installment contracts receivable, and
require that the Company maintain specified minimum levels of net worth.
(9) DEALER HOLDBACKS AND RESERVE ON ADVANCES
Dealer holdbacks consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Dealer holdbacks....................................... $ 634,102 $ 540,799
Less: advances (net of reserve of 19,954 and $4,329 in
1998 and 1999, respectively)......................... (411,827) (338,656)
--------- ---------
Dealer holdbacks, net.................................. $ 222,275 $ 202,143
========= =========
</TABLE>
A summary of the change in the reserve against advances (classified with
dealer holdbacks, net in the accompanying balance sheets) is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
-------- ------- --------
<S> <C> <C> <C>
Balance -- beginning of period................... $ 8,754 $16,369 $ 19,954
Provision for advance losses..................... 74,400 12,973 54,868
Advance reserve fees............................. 4,673 181 8
Charge offs, net................................. (71,391) (9,744) (70,353)
Currency translation............................. (67) 175 (148)
-------- ------- --------
Balance -- end of period......................... $ 16,369 $19,954 $ 4,329
======== ======= ========
</TABLE>
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) DEALER HOLDBACKS AND RESERVE ON ADVANCES -- (CONCLUDED)
During 1997, the Company implemented a new loan servicing system which
allowed the Company to better estimate future collections for each dealer pool
using historical loss experience and a dealer by dealer static pool analysis.
The Company took a charge during 1997 to reflect the impact of this enhancement
in the Company's methodology for estimating the reserve.
During the third quarter of 1999, the Company recorded a non-cash charge of
$47.3 million to reflect the impact of collections on loan pools originated
primarily in 1995, 1996 and 1997 falling below previous estimates, indicating
further impairment of advance balances associated with these pools. While
previous loss curves indicated that loans originated in 1995, 1996 and 1997
would generate lower overall collection rates than loans originated in prior
years, in the third quarter of 1999 the loss curves indicated that collection
rates on these pools will be lower than previously estimated. Future reserve
requirements will depend in part on the magnitude of the variance between
management's estimate 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.
(10) RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company regularly accepts
assignments of installment contracts originated by affiliated dealers owned by
the Company's majority shareholder and from a Company executive. Installment
contracts accepted from affiliated dealers were approximately $13.4 million,
$10.0 million and $9.3 million in 1997, 1998 and 1999, respectively. Remaining
installment contracts receivable from affiliated dealers represented
approximately 1.6% and 2.1% of the gross installment contracts receivable
balance as of December 31, 1998 and 1999, respectively. The Company accepted
installment contracts from affiliated dealers and nonaffiliated dealers on the
same terms. Dealer holdbacks from contracts accepted from affiliated dealers
were approximately $10.7 million, $8.0 million and $7.4 million in 1997, 1998
and 1999, respectively.
The Company receives interest income and fees from affiliated dealers on
floor plan receivables and notes receivable. Total income earned was $1,564,000,
$1,187,000 and $679,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
The Company regularly purchases operating lease contracts originated by
affiliated dealers owned by the Company's majority shareholder and originated by
affiliated dealers owned by a Company executive. Lease contracts accepted from
affiliated dealers were $5.8 million in 1999. Approximately 60.4% of the value
of leasing contracts purchased and approximately 63.6% of the number of leasing
contracts purchased by the Company during 1999 were originated by affiliated
dealers.
The Company shares certain expenses including payroll and related benefits,
occupancy costs and insurance with its affiliated company owned by the Company's
majority shareholder. For the years ended December 31, 1997, 1998 and 1999, the
Company charged its affiliated company and majority shareholder approximately
$247,000, $248,000 and $367,000 for such shared expenses incurred in its
operations. This arrangement is covered under a services agreement. The
agreement has an indefinite term, but may be terminated upon 30 days written
notice by either party.
45
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES
The income tax provision (credit) consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Income (loss) before provision (benefit) for income taxes:
Domestic.................................................. $(9,285) $26,635 $(21,090)
Foreign................................................... 10,588 10,890 5,363
------- ------- --------
$ 1,303 $37,525 $(15,727)
======= ======= ========
Domestic provision (benefit) for income taxes:
Current................................................... $(6,516) $12,507 $ (5,470)
Deferred.................................................. 2,799 (3,179) (1,285)
Foreign provision (benefit) for income taxes:
Current................................................... 654 3,570 1,727
Deferred.................................................. 2,829 (339) (13)
------- ------- --------
Provision (credit) for income taxes......................... $ (234) $12,559 $ (5,041)
======= ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities consist of the
following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses............................... $12,080 $12,431
Reserve on advances....................................... 5,451 1,177
Sale of advance receivables............................... -- 3,140
Deferred dealer enrollment fees........................... 110 189
Accrued warranty claims................................... 713 631
Other, net................................................ 813 1,430
------- -------
Total deferred tax assets.............................. 19,167 18,998
------- -------
Deferred tax liabilities:
Unearned finance charges.................................. 28,204 27,203
Sale of advance receivables............................... 853 --
Accumulated depreciation.................................. 775 1,135
Deferred credit life and warranty costs................... 433 460
------- -------
Total deferred tax liabilities......................... 30,265 28,798
------- -------
Net deferred tax liability............................. $11,098 $ 9,800
======= =======
</TABLE>
No valuation allowances were considered necessary in the calculation of
deferred tax assets as of December 31, 1998 and 1999.
The Company's effective income tax rate was approximately equal to the
domestic and foreign statutory rates in 1997 and 1998. In 1999, the effective
income tax rate differs from the domestic and foreign statutory rates due
primarily to state income taxes.
Deferred U.S. federal income taxes and withholding taxes have not been
provided on the undistributed earnings of the Company's foreign subsidiaries as
such amounts are considered to be permanently reinvested. The cumulative
undistributed earnings at December 31, 1999 on which the Company had not
provided additional national income taxes and withholding taxes were
approximately $24.7 million.
46
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) CAPITAL TRANSACTIONS
NET INCOME PER SHARE
Basic net income per share has been computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net income per
share has been computed by dividing net income by the total of the weighted
average number of common shares and potentially dilutive securities outstanding
during the period. Potentially dilutive securities included in the computation
represent shares issuable upon assumed exercise of stock options which would
have a dilutive effect. As the Company incurred a net loss for the year ended
December 31, 1999, potentially dilutive securities of 263,516 would be
anti-dilutive to diluted net income per share and have not been included in the
weighted average shares calculation.
The share effect is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares outstanding............... 46,081,804 46,190,208 46,222,730
Dilutive securities -- stock options..................... 672,909 770,082 --
---------- ---------- ----------
Weighted average common shares and common stock
equivalents............................................ 46,754,713 46,960,290 46,222,730
========== ========== ==========
</TABLE>
STOCK REPURCHASE PROGRAM
In 1999, the Company began acquiring shares of its common stock in
connection with a stock repurchase program announced in August 1999. That
program authorized the Company to purchase up to 1,000,000 common shares on the
open market or pursuant to negotiated transactions at price levels the Company
deems attractive. The Company purchased 263,300 shares of common stock in 1999
at an aggregate cost of $1,510,000. The total shares authorized for repurchase
represents 2.2% of the 46,071,454 shares outstanding as of December 31, 1999.
STOCK OPTION PLANS
Pursuant to the Company's 1992 Stock Option Plan (the "1992 Plan"), the
Company has reserved 8,000,000 shares of its common stock for the future
granting of options to officers and other employees. The exercise price of the
options is equal to the fair market value on the date of the grant. Options
under the 1992 Plan generally become exercisable over a three to five year
period, or immediately upon a change of control. In 1999, the Company issued
1,369,500 options that will vest only if certain performance targets are met. As
it was not foreseeable that the performance targets would be met, no
compensation expense was recorded for these performance-based options in 1999.
Nonvested options are forfeited upon termination of employment and otherwise
expire ten years from the date of grant. Shares available for future grants
totaled 967,066, 115,559 and 1,911,519 as of December 31, 1997, 1998 and 1999,
respectively.
Pursuant to the Company's Stock Option Plan for dealers (the "Dealer Plan")
the Company has reserved 1,000,000 shares of its common stock for the future
granting of options to participating dealers. The exercise price of the options
is equal to the fair market value on the date of grant. The options become
exercisable over a three year period. Nonvested options are forfeited upon the
termination of the dealer's servicing agreement by the Company or the dealer and
otherwise expire five years from the date of grant. Shares available for future
grants totaled 185,600, 478,385 and 605,899 as of December 31, 1997, 1998 and
1999, respectively. Effective January 1, 1999, the Company suspended the
granting of future options under the Dealer Plan.
47
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) CAPITAL TRANSACTIONS -- (CONTINUED)
The Company accounts for the 1992 Plan under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for the
1992 Plan been recognized, the Company's net income (loss) and net income (loss)
per share would have been negatively impacted as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net income (loss)
As reported..................................... $ 1,537 $24,966 $(10,686)
Pro forma....................................... (2,519) 22,346 (12,800)
Net income (loss) per common share:
As reported -- basic............................ $ 0.03 $ 0.54 $ (0.23)
As reported -- diluted.......................... 0.03 0.53 (0.23)
Pro forma -- basic.............................. (0.05) 0.48 (0.28)
Pro forma -- diluted............................ (0.05) 0.48 (0.28)
</TABLE>
The Company accounts for the compensation costs related to its grants under
the Dealer Plan in accordance with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). The sales and
marketing cost that has been charged against income for the non-employee Dealer
Plan was $67,000, $150,000 and $131,000 in 1997, 1998 and 1999, respectively.
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995 (December 15, 1995 for the Dealer Plan), the
resulting cost is not necessarily indicative of costs which may be recognized in
future years.
The fair value of each option granted included in the above calculations is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1992 PLAN 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate......................... 6.50% 5.25% 5.75%
Expected life................................... 6.0 years 6.0 years 6.0 years
Expected volatility............................. 43.97% 56.47% 56.47%
Dividend yield.................................. 0% 0% 0%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
DEALER PLAN 1997 1998
----------- --------- ---------
<S> <C> <C>
Risk-free interest rate................................. 5.89% 4.59%
Expected life........................................... 5.0 years 5.0 years
Expected volatility..................................... 48.40% 56.25%
Dividend yield.......................................... 0% 0%
</TABLE>
48
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) CAPITAL TRANSACTIONS -- (CONTINUED)
Additional information relating to the Stock Option Plans are as follows:
<TABLE>
<CAPTION>
1992 PLAN DEALER PLAN
------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
OF OPTIONS PER SHARE OF OPTIONS PER SHARE
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996......... 2,298,275 $13.73 718,564 $18.60
Options granted........................ 3,020,129 9.42 173,400 11.49
Options exercised...................... (266,532) 4.11 (3,597) 13.95
Options forfeited...................... (1,807,636) 20.70 (123,400) 21.35
---------- --------
Outstanding at December 31, 1997......... 3,244,236 6.63 764,967 17.76
Options granted........................ 1,420,965 8.71 75,800 7.54
Options exercised...................... (178,372) 2.56 -- --
Options forfeited...................... (569,458) 6.28 (368,585) 18.45
---------- --------
Outstanding at December 31, 1998......... 3,917,371 7.62 472,182 15.60
Options granted........................ 1,761,200 5.48 -- --
Options exercised...................... (25,567) 4.10 -- --
Options forfeited...................... (557,160) 9.08 (127,514) 14.15
---------- --------
Outstanding at December 31, 1999......... 5,095,844 $ 6.74 344,668 $16.14
========== ========
Exercisable at:
December 31, 1997...................... 894,167 $ 7.95 481,318 $17.90
1998................................ 1,251,152 7.91 296,407 17.85
1999................................ 1,766,521 7.18 258,719 18.41
</TABLE>
Options granted and options forfeited under the 1992 Plan for 1997 include
1,713,577 options which were repriced on November 3, 1997. The options which
were repriced were originally granted between September 30, 1995 and September
2, 1997 with original exercise prices between $12.75 and $27.50. These options
were cancelled on November 3, 1997 and reissued at an exercise price of $6.00
per share with a new three year vesting period.
The weighted average fair value of options granted during 1997, 1998 and
1999 was $4.68, $5.09 and $3.13 respectively, for the 1992 Plan. The weighted
average fair value of options granted during 1997 and 1998 was $4.06 and $3.98,
respectively, for the Dealer Plan.
49
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) CAPITAL TRANSACTIONS -- (CONCLUDED)
The following tables summarize information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ---------------------------------
OUTSTANDING WEIGHTED-AVERAGE EXERCISABLE
RANGE OF AS OF REMAINING WEIGHTED-AVERAGE AS OF WEIGHTED-AVERAGE
EXERCISABLE PRICES 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE 12/31/99 EXERCISE PRICE
------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
1992 PLAN
$ 2.16 - 5.63........ 799,500 6.7 Years $ 3.05 360,500 $ 2.28
6.00 - 7.75........ 3,187,142 8.6 6.24 937,091 6.12
8.00 - 11.07........ 846,201 8.4 9.35 205,929 9.74
$11.50 - 22.25........ 263,001 4.7 15.68 263,001 15.68
--------- --------- ------ --------- ------
Totals................ 5,095,844 8.1 $ 6.74 1,766,521 $ 7.18
========= =========
DEALER PLAN
$ 6.34 - 9.35........ 117,000 3.5 Years $ 7.51 53,875 $ 7.51
11.18 - 17.63........ 61,000 2.6 13.78 40,647 13.78
$18.25 - 27.63........ 166,668 1.3 23.06 164,197 23.13
--------- --------- ------ --------- ------
Totals................ 344,668 2.3 $16.14 258,719 $18.41
========= =========
</TABLE>
(13) BUSINESS SEGMENT INFORMATION
Prior year segment information has been restated on a basis consistent with
the 1999 presentation. The Company has two reportable business segments: CAC
North America and CAC United Kingdom.
REPORTABLE SEGMENT OVERVIEW
CAC North America operations consist of the Company's U.S. and Canadian
automotive finance and services businesses, including the Company's reinsurance
activities and automotive service contract programs. These businesses have been
aggregated into one reportable segment because they have similar operating and
economic characteristics. The CAC North America segment provides funding,
receivables management, collection, sales training and related products and
services to automobile dealers located in the United States and Canada. The CAC
United Kingdom operations provide substantially the same products and services
as the CAC North America operations to dealers located in the United Kingdom and
Ireland. The CAC Automotive Leasing operations and credit reporting and auction
services businesses, which were sold in 1999, do not constitute reportable
operating segments as they do not meet the quantitative thresholds prescribed by
SFAS 131, and have therefore been disclosed in the "all other" category in the
following table. The CAC Automotive Leasing segment provides a sub-prime leasing
program to automobile dealers located in the United States.
50
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) BUSINESS SEGMENT INFORMATION -- (CONCLUDED)
MEASUREMENT
The Company allocates resources to and evaluates the performance of its
segments primarily based on finance charges, other revenue, segment earnings
before interest and taxes (EBIT), and segment assets. The table below presents
this information for each reportable segment (in thousands):
<TABLE>
<CAPTION>
CAC CAC ALL TOTAL
NORTH AMERICA UNITED KINGDOM OTHER COMPANY
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999
Finance charges............................ $ 62,568 $ 13,929 $ -- $ 76,497
Other revenue.............................. 28,973 3,007 7,578 39,558
EBIT....................................... (3,922) 5,200 (429) 849
Segment assets............................. 519,278 132,450 8,512 660,240
Year Ended December 31, 1998
Finance charges............................ $ 80,330 $ 17,677 $ -- $ 98,007
Other revenue.............................. 33,092 3,528 7,722 44,342
EBIT....................................... 50,236 11,501 1,353 63,090
Segment assets............................. 621,418 122,819 7,692 751,929
Year Ended December 31, 1997
Finance charges............................ $ 92,660 $ 24,360 $ -- $ 117,020
Other revenue.............................. 40,036 4,433 2,746 47,215
EBIT....................................... 14,937 13,210 753 28,900
Segment assets............................. 952,259 162,154 1,197 1,115,610
</TABLE>
INFORMATION ABOUT PRODUCTS AND SERVICES
The Company manages its product and service offerings primarily through
those reportable segments. Therefore, pursuant with the provisions of SFAS 131,
no enterprise-wide disclosures of information about products and services are
necessary.
MAJOR CUSTOMERS
The Company did not have any customer which provided 10% or more of the
Company's revenue during 1997, 1998 or 1999, however, during 1999, two dealer
groups in the United Kingdom accounted for approximately 47.4% of new contracts
accepted by the CAC United Kingdom segment.
(14) LITIGATION AND CONTINGENT LIABILITIES
In the normal course of business and as a result of the consumer-oriented
nature of the industry in which the Company operates, industry participants are
frequently subject to various consumer claims and litigation seeking damages and
statutory penalties. The claims allege, among other theories of liability,
violations of state, federal and foreign truth in lending, credit availability,
credit reporting, consumer protection, warranty, debt collection, insurance and
other consumer-oriented laws and regulations. The Company, as the assignee of
finance contracts originated by dealers, may also be named as a co-defendant in
lawsuits filed by consumers principally against dealers. Many of these cases are
filed as purported class actions and seek damages in large dollar amounts.
During the first quarter of 1998, several putative class action complaints
were filed by shareholders 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
51
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) LITIGATION AND CONTINGENT LIABILITIES -- (CONCLUDED)
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 and the defendant officers' and directors' 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. On July 13, 1999, the Court granted the plaintiffs' motion for
reconsideration and granted the plaintiffs leave to file an amended complaint.
Plaintiffs filed their First Amended Consolidated Class Action Complaint on
August 2, 1999. On September 30, 1999, the Company and the defendant officers
and directors filed a motion to dismiss that complaint. On or about November 10,
1999, plaintiffs sought and were granted leave to file a Second Amended
Consolidated Class Action Complaint. The Company and the defendant officers and
directors intend to continue to vigorously defend this action. While the Company
believes it has meritorious legal and factual defenses, an adverse ultimate
disposition of this litigation could have a material negative impact on the
Company's financial position, liquidity and results of operations.
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 for alleged violations of a number of state
and federal consumer protection laws (the "Missouri Litigation"). On October 9,
1997, the District Court certified two classes on the claims brought against the
Company, one relating to alleged overcharges of official fees, the other
relating to alleged overcharges of post-maturity interest. On August 4, 1998,
the District Court granted partial summary judgment on liability in favor of the
plaintiffs on the interest overcharge claims based upon the District Court's
finding of certain violations but denied summary judgment on certain other
claims. The District Court also entered a number of permanent injunctions, which
among other things, restrained the Company from collecting the amounts found to
be uncollectible. The District 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 appealed the summary judgment
order to the United States Court of Appeals for the Eighth Circuit. Oral
argument on the appeals was heard on April 19, 1999. On September 1, 1999, the
United States Court of Appeals for the Eighth Circuit overturned the August 4,
1998 partial summary judgment order and injunctions against the Company. The
Court of Appeals held that the District Court lacked jurisdiction over the
interest overcharge claims and directed the District Court to sever those claims
and remand them to state court. The class action claims of alleged public
official fee overcharges have not been finally adjudicated by the District Court
and were not part of the appeal. On February 18, 2000, the District Court
entered an Order remanding the post-maturity interest class to Missouri state
court while retaining jurisdiction on the official fee class. The District Court
has set a bench trial date commencing the week of June 19, 2000. The Company
will continue its vigorous defense of all remaining claims. However, an adverse
ultimate disposition of this litigation could have a material negative impact on
the Company's financial position, liquidity and results of operations.
The Company is currently being examined for tax years 1993 to 1996 by the
Internal Revenue Service. The outcome of the examination is undeterminable at
this time.
52
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial position and results of
operations for the years ended December 31, 1998 and 1999. Certain amounts have
been reclassified to conform to the 1999 presentation.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1998
----------------------------------------------
1ST Q 2ND Q 3RD Q 4TH Q
---------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEETS
Installment contracts receivable, net.............. $ 948,539 $866,489 $727,069 $665,574
Floor plan receivables............................. 19,674 18,457 15,846 14,071
Notes receivables.................................. 1,422 1,574 1,894 2,278
All other assets................................... 48,404 43,635 65,050 70,006
---------- -------- -------- --------
Total assets.................................. $1,018,039 $930,155 $809,859 $751,929
========== ======== ======== ========
Dealer holdbacks, net.............................. $ 361,260 $306,539 $253,495 $222,275
Total debt......................................... 351,055 314,486 244,599 218,798
Other liabilities.................................. 49,954 44,834 40,111 34,593
---------- -------- -------- --------
Total liabilities............................. 762,269 665,859 538,205 475,666
Shareholders' equity............................... 255,770 264,296 271,654 276,263
---------- -------- -------- --------
Total liabilities and shareholders' equity.... $1,018,039 $930,155 $809,859 $751,929
========== ======== ======== ========
INCOME STATEMENTS
Revenue:
Finance charges.................................. $ 28,055 $ 27,894 $ 21,708 $ 20,350
Premiums earned.................................. 2,923 2,630 2,741 2,610
Gain on sale of advance receivables, net......... -- -- 685 --
Other income..................................... 8,332 7,312 8,094 9,015
---------- -------- -------- --------
Total revenue................................. 39,310 37,836 33,228 31,975
---------- -------- -------- --------
Costs and Expenses:
Operating expenses............................... 14,621 14,019 14,706 15,658
Provision for credit losses...................... 5,796 4,666 3,438 2,505
Provision for claims............................. 1,035 937 896 866
Interest......................................... 7,346 6,829 5,923 5,467
---------- -------- -------- --------
Total costs and expenses...................... 28,798 26,451 24,963 24,496
---------- -------- -------- --------
Operating Income................................... 10,512 11,385 8,265 7,479
Foreign exchange gain (loss)..................... 12 (7) (77) (44)
---------- -------- -------- --------
Income before income taxes......................... 10,524 11,378 8,188 7,435
Provision for income taxes....................... 3,637 3,935 2,577 2,410
---------- -------- -------- --------
Net Income......................................... $ 6,887 $ 7,443 $ 5,611 $ 5,025
========== ======== ======== ========
Net income per common share
Basic......................................... $ 0.15 $ 0.16 $ 0.12 $ 0.11
========== ======== ======== ========
Diluted....................................... $ 0.15 $ 0.16 $ 0.12 $ 0.11
========== ======== ======== ========
Weighted average shares outstanding
Basic......................................... 46,113 46,113 46,243 46,291
Diluted....................................... 46,950 47,410 46,897 46,584
</TABLE>
53
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONCLUDED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999
--------------------------------------------
1ST Q 2ND Q 3RD Q 4TH Q
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEETS
Installment contracts receivable, net............... $607,620 $582,006 $571,442 $568,378
Floor plan receivables.............................. 15,928 18,666 17,491 15,492
Notes receivables................................... 2,239 2,637 3,027 3,610
All other assets.................................... 75,861 71,954 69,588 72,760
-------- -------- -------- --------
Total assets................................... $701,648 $675,263 $661,548 $660,240
======== ======== ======== ========
Dealer holdbacks, net............................... $194,254 $171,765 $205,932 $202,143
Total debt.......................................... 186,638 168,527 158,361 158,985
Other liabilities................................... 41,066 42,818 37,065 36,137
-------- -------- -------- --------
Total liabilities.............................. 421,958 383,110 401,358 397,265
Shareholders' equity................................ 279,690 292,153 260,190 262,975
-------- -------- -------- --------
Total liabilities and shareholders' equity..... $701,648 $675,263 $661,548 $660,240
======== ======== ======== ========
INCOME STATEMENTS
Revenue:
Finance charges................................... $ 19,405 $ 19,797 $ 18,783 $ 18,512
Premiums earned................................... 2,445 2,331 3,034 2,579
Other income...................................... 8,511 7,380 6,106 7,172
-------- -------- -------- --------
Total revenue.................................. 30,361 29,508 27,923 28,263
-------- -------- -------- --------
Costs and Expenses:
Operating expenses................................ 14,549 14,461 12,612 15,150
Provision for credit losses....................... 2,136 2,084 49,565 2,288
Provision for claims.............................. 831 894 884 889
Valuation adjustment on retained interest
in securitization.............................. -- 517 13,000 --
Interest.......................................... 4,527 4,272 3,673 4,104
-------- -------- -------- --------
Total costs and expenses....................... 22,043 22,228 79,734 22,431
-------- -------- -------- --------
Other Operating Income
Gain on sale of subsidiary........................ -- 14,720 -- --
-------- -------- -------- --------
Operating income (loss)............................. 8,318 22,000 (51,811) 5,832
Foreign exchange gain (loss)...................... (45) (9) 62 (74)
-------- -------- -------- --------
Income (loss) before income taxes................... 8,273 21,991 (51,749) 5,758
Provision (credit) for income taxes............... 2,894 8,220 (18,108) 1,953
-------- -------- -------- --------
Net (loss) income................................... $ 5,379 $ 13,771 $(33,641) $ 3,805
======== ======== ======== ========
Net (loss) income per common share
Basic............................................. $ 0.12 $ 0.30 $ (0.73) $ 0.08
======== ======== ======== ========
Diluted........................................... $ 0.12 $ 0.30 $ (0.73) $ 0.08
======== ======== ======== ========
Weighted average shares outstanding
Basic............................................. 46,299 46,304 46,214 46,074
Diluted........................................... 46,706 46,545 46,214 46,253
</TABLE>
54
<PAGE> 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information is contained under the captions "Matters to Come Before the
Meeting -- Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information is contained under the caption "Compensation of Executive
Officers" (excluding the Report of the Executive Compensation Committee and the
stock performance graph) in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information is contained under the caption "Common Stock Ownership of
Certain Beneficial Owners and Management" in the Company's Proxy Statement and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information is contained under the caption "Certain Relationships and
Transactions" in the Company's Proxy Statement and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a)(1) The following consolidated financial statements of the
Company and Report of Independent Public Accountants are
contained "Item 8 -- Financial Statements and Supplementary
Data."
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONSOLIDATED FINANCIAL STATEMENTS:
-- Consolidated Balance Sheets as of December 31, 1998 and
1999
-- Consolidated Income Statements for the years ended
December 31, 1997, 1998 and 1999
-- Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999
-- Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1998 and 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Financial Statement Schedules have been omitted because they
are not applicable or are not required or the information
required to be set forth therein is included in the
Consolidated Financial Statements or Notes thereto.
(3) The Exhibits filed in response to Item 601 of Regulation S-K
are listed in the Exhibit Index, which is incorporated
herein by reference.
(b) The Company was not required to file a current report on
Form 8-K during the quarter ended December 31, 1999 and none
were filed during that period.
</TABLE>
55
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 29, 2000.
CREDIT ACCEPTANCE CORPORATION
By: /s/ DONALD A. FOSS
------------------------------------
Donald A. Foss
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on March 29, 2000 on behalf of
the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C> <S>
/s/ DONALD A. FOSS Chairman of the Board and Chief Executive
- -------------------------------------------------------- Officer (Principal Executive Officer)
Donald A. Foss
/s/ DOUGLAS W. BUSK Chief Financial Officer
- -------------------------------------------------------- (Principal Financial Officer)
Douglas W. Busk
/s/ JOHN P. CAVANAUGH Corporate Controller and Assistant
- -------------------------------------------------------- Secretary (Principal Accounting Officer)
John P. Cavanaugh
/s/ HARRY E. CRAIG Director
- --------------------------------------------------------
Harry E. Craig
/s/ THOMAS A. FITZSIMMONS Director
- --------------------------------------------------------
Thomas A. FitzSimmons
/s/ DAVID T. HARRISON Director
- --------------------------------------------------------
David T. Harrison
/s/ SAM M. LAFATA Director
- --------------------------------------------------------
Sam M. LaFata
/s/ THOMAS N. TRYFOROS Director
- --------------------------------------------------------
Thomas N. Tryforos
</TABLE>
56
<PAGE> 58
EXHIBIT INDEX
The following documents are filed as part of this report. Those exhibits
previously filed and incorporated herein by reference are identified below.
Exhibits not required for this report have been omitted. The Company's
commission file number is 000-20202.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
3(a)(1) 7 Articles of Incorporation, as amended July 1, 1997
3(b) 2 Bylaws of the Company, as amended
4(a) 1 Note Purchase Agreement dated October 1, 1994 between
various insurance companies and the Company and related form
of note.
4(a)(1) 1 First Amendment dated November 15, 1995 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company.
4(a)(2) 5 Second Amendment dated August 29, 1996 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company.
4(a)(3) 8 Third Amendment dated December 12, 1997 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company.
4(a)(4) 9 Fourth Amendment dated July 1, 1998 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company
4(a)(5) 9 Limited Waiver dated July 27, 1998 to First Amended and
Restated 9.12% Senior Notes due November 1, 2001 Issued
Under Note Purchase Agreement dated as of October 1, 1994
4(a)(6) 12 Fifth Amendment dated April 13, 1999 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company
4(a)(7) 14 Sixth Amendment dated December 1, 1999 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company
4(b) 5 Note Purchase Agreement dated August 1, 1996 between various
insurance companies and the Company and the related form of
note.
4(b)(1) 8 First Amendment dated December 12, 1997 to Note Purchase
Agreement dated August 1, 1996 between various insurance
companies and the Company.
4(b)(2) 9 Second Amendment dated July 1, 1998 to Note Purchase
Agreement dated August 1, 1996 between various insurance
companies and the Company
4(b)(3) 9 Limited Waiver dated July 12, 1998 to First Amended and
Restated 8.24% Senior Notes due July 1, 2001 Issued Under
Note Purchase Agreement dated as of August 1, 1996
4(b)(4) 12 Third Amendment dated April 13, 1999 to Note Purchase
Agreement dated August 1, 1996 between various insurance
companies and the Company
4(b)(5) 14 Fourth Amendment dated December 1, 1999 to Note Purchase
Agreement dated August 1, 1996 between various insurance
companies and the Company
4(c)(5) 12 Third Amended and Restated Credit Agreement dated as of June
15, 1999 between the Company, Comerica Bank as
Administrative Agent and Collateral Agent, NationsBank,
N.A., as Syndications Agent and Banc of America Securities,
LLC as Sole Lead Arranger and Sole Bank Manager
4(c)(6) 14 First Amendment dated December 10, 1999 to the Third Amended
and Restated Credit Agreement dated as of June 15, 1999
between the Company, Comerica Bank as Administrative Agent
and Collateral Agent, NationsBank, N.A., as Syndications
Agent and Banc of America Securities, LLC as Sole Lead
Arranger and Sole Bank Manager
4(e) 6 Note Purchase Agreement dated March 25, 1997 between various
insurance companies and the Company and related form of
note.
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
4(e)(1) 8 First Amendment dated December 12, 1997 to Note Purchase
Agreement dated March 25, 1997 between various insurance
companies and the Company
4(e)(2) 9 Second Amendment dated July 1, 1998 to Note Purchase
Agreement dated March 25, 1997 between various insurance
companies and the Company
4(e)(3) 9 Limited Waiver dated July 27, 1998 to First Amended and
Restated 8.02% Senior Notes due October 1, 2001 Issued Under
Note Purchase Agreement dated as of March 25, 1997
4(e)(4) 12 Third Amendment dated April 13, 1999 to Note Purchase
Agreement dated March 25, 1997 between various insurance
companies and the Company
4(e)(5) 14 Fourth Amendment dated December 1, 1999 to Note Purchase
Agreement dated March 25, 1997 between various insurance
companies and the Company
4(f) 9 Note Purchase Agreement dated July 7, 1998 among Kitty Hawk
Funding Corporation, CAC Funding Corp. and NationsBank, N.A.
4(f)(1) 9 Security Agreement dated July 7, 1998 among Kitty Hawk
Funding Corporation, CAC Funding Corp., the Company and
NationsBank, N.A.
4(f)(2) 9 Servicing Agreement dated July 7, 1998 between CAC Funding
Corp. and the Company
4(f)(3) 9 Contribution Agreement dated July 7, 1998 between the
Company and CAC Funding Corp.
4(f)(4) 12 Amendment No. 1 dated June 30, 1999 to Note Purchase
Agreement dated July 7, 1998 among Kitty Hawk Funding
Corporation, CAC Funding Corp., and NationsBank, N.A.
4(f)(5) 12 Amendment No. 1 dated June 30, 1999 to Security Agreement
dated July 7, 1998 among Kitty Hawk Funding Corporation, CAC
Funding Corp., the Company and NationsBank, N.A.
4(f)(6) 12 Amendment No. 1 dated June 30, 1999 to Contribution
Agreement dated July 7, 1998 between the Company and CAC
Funding Corp.
4(f)(7) 13 Amendment No. 2 dated September 29, 1999 to Security
Agreement dated July 7, 1998 among Kitty Hawk Funding
Corporation, CAC Funding Corp., the Company and NationsBank,
N.A.
4(f)(8) 14 Amendment No. 2 dated December 15, 1999 to Note Purchase
Agreement dated July 7, 1998 among Kitty Hawk Funding
Corporation, CAC Funding Corp., and NationsBank, N.A.
4(f)(9) 14 Amendment No. 3 dated December 15, 1999 to Security
Agreement dated July 7, 1998 among Kitty Hawk Funding
Corporation, CAC Funding Corp., the Company and NationsBank,
N.A.
4(f)(10) 14 Amendment No. 2 dated December 15, 1999 to Contribution
Agreement dated July 7, 1998 between the Company and CAC
Funding Corp.
4(g)(1) 11 Security Agreement dated December 15, 1998 between Comerica
Bank, as Collateral Agent, and the Company
4(g)(2) 11 Intercreditor Agreement dated as of December 15, 1998 among
Comerica Bank, as Collateral Agent, and various lenders and
note holders
4(g)(3) 11 Deed of Charge, dated December 17, 1998 between Comerica
Bank, as Collateral Agent, and the Company
NOTE: Other instruments, notes or extracts from agreements
defining the rights of holders of long-term debt of the
Company or its subsidiaries have not been filed because (i)
in each case the total amount of long-term debt permitted
thereunder does not exceed 10% of the Company's consolidated
assets, and (ii) the Company hereby agrees that it will
furnish such instruments, notes and extracts to the
Securities and Exchange Commission upon its request.
10(b)(1) 4 Amended and Restated Services Agreement dated April 17, 1996
between the Company and Larry Lee's Auto Finance Center,
Inc. d/b/a Dealer Enterprise Group
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
10(d)(4) 1 Form of Addendum 3 to Servicing Agreement (Multiple Lots)
10(d)(6) 11 Prior form of Servicing Agreement, including Addendum 1 and
Addendum 2
10(d)(7) 14 Current form of Servicing Agreement, Including Addendum 1
and Addendum 2
10(f)(3)* 7 Credit Acceptance Corporation 1992 Stock Option Plan, as
amended and restated May 1997
10(f)(4)* 12 Credit Acceptance Corporation 1992 Stock Option Plan, as
amended and restated May, 1999
10(o)(2) 10 Credit Acceptance Corporation Stock Option Plan for Dealers,
as amended and restated September 21, 1998
21(1) 14 Schedule of Credit Acceptance Corporation Subsidiaries
23(1) 14 Consent of Deloitte and Touche LLP
23(2) 14 Consent of Arthur Andersen LLP
27 14 Financial Data Schedule
</TABLE>
* Management compensatory contracts and arrangements.
1 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended September 30, 1994, and incorporated herein by reference.
2 Previously filed as an exhibit to the Company's Form 10-K Annual Report for
the year ended December 31, 1994, and incorporated herein by reference.
3 Previously filed as an exhibit to the Company's Form 10-K Annual Report for
the year ended December 31, 1995, and incorporated herein by reference.
4 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended March 31, 1996, and incorporated herein by reference.
5 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended September 30, 1996 and incorporated herein by reference.
6 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended March 31, 1997 and incorporated herein by reference.
7 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended June 30, 1997, and incorporated herein by reference.
8 Previously filed as an exhibit to the Company's Form 10-K Annual Report for
the year ended December 31, 1997, and incorporated herein by reference.
9 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended June 30, 1998, and incorporated herein by reference.
10 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended September 30, 1998, and incorporated herein by reference.
11 Previously filed as an exhibit to the Company's Form 10-K Annual Report for
the year ended December 31, 1998, and incorporated herein by reference.
12 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended June 30, 1999, and incorporated herein by reference.
13 Previously filed as an exhibit to the Company's Form 10-Q for the quarterly
period ended September 30, 1999, and incorporated herein by reference.
14 Filed herewith
<PAGE> 1
Exhibit 4(A)(7)
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
RE:
CREDIT ACCEPTANCE CORPORATION
FIRST AMENDED AND RESTATED 9.12% SENIOR NOTES DUE NOVEMBER 1, 2001
Dated as of December 1, 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 $22,108,810.81 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, the Fourth Amendment to Note
Purchase Agreement, dated as of July 1, 1998, and the Fifth Amendment to Note
Purchase Agreement, dated as of April 13, 1999, 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.
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 Sixth Amendment to Note
Purchase Agreement (this "Sixth Amendment") in the following respects:
2.1 SECTION 1.1. Section 1.1 is hereby amended and restated in its
entirety as set forth below.
<PAGE> 2
"1.1 AUTHORIZATION OF NOTES.
(a) On November 8, 1994, the Company issued Sixty
Million Dollars ($60,000,000) in aggregate principal amount of
its 8.87% Senior Notes due November 1, 2001 (the "Original
Notes," such term to include each Original Note delivered from
time to time prior to the effectiveness of the Fourth
Amendment in accordance with any of the Note Purchase
Agreements), each:
(i) bearing interest (computed on the basis of
a 360-day year of twelve 30-day months) on the unpaid
principal balance thereof from the date of such
Original Note at the rate of eight and eighty-seven
one-hundredths percent (8.87%) per annum, payable
semi-annually on the first (1st) day of November and
the first (1st) day of May in each year commencing on
the later of May 1, 1995 or the payment date next
succeeding the date of such Original Note;
(ii) bearing interest, payable on demand, on any
overdue principal (including any overdue prepayment
of principal) and Make-Whole Amount, if any, and (to
the extent permitted by applicable law) on any
overdue installment of interest, at a rate equal to
the lesser of
(A) the highest rate allowed by applicable
law, or
(B) ten and eighty-seven one-hundredths
percent (10.87%) per annum;
(iii) maturing on November 1, 2001; and
(iv) in the form of the Original Note set out in
Exhibit A, as in effect on the Closing Date.
(b) Pursuant to the Fourth Amendment, the Company and
the holders of the Original Notes have agreed to amend and
restate in full the Original Notes substantially in the form
attached to the Fourth Amendment as Attachment 1 thereto (the
"First Amended and Restated Notes," such term to include each
Original Note, as amended and restated pursuant to the Fourth
Amendment, and each First Amended and Restated Note delivered
from time to time on or after the effectiveness of the Fourth
Amendment in accordance with any of the Note Purchase
Agreements). Each First Amended and Restated Note will:
(i) be designated a "First Amended and Restated
9.12% Senior Note Due November 1, 2001";
(ii) bear interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid
principal balance thereof from the date
2
<PAGE> 3
of such Note at the rate of eight and eighty-seven
one-hundredths percent (8.87%) per annum through (but
not including) July 1, 1998, and at the rate of nine
and twelve one-hundredths percent (9.12%) per annum
from and after July 1, 1998 through, but not
including, December 1, 1999, payable semi-annually on
the first (1st) day of November and the first (1st)
day of May in each year commencing on the payment
date next succeeding the date of such First Amended
and Restated Note;
(iii) bear interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) (I) ten and eighty-seven
one-hundredths percent (10.87%) per annum if
such time is prior to July 1, 1998, or (II)
eleven and twelve one-hundredths percent
(11.12%) per annum if such time is on or
after July 1, 1998 and prior to December 1,
1999;
(iv) mature on November 1, 2001; and
(v) be in the form of the First Amended
and Restated Note set out in Exhibit A (as in effect
upon the effectiveness of the Fourth Amendment).
(c) Pursuant to the Sixth Amendment, the Company and
the holders of the Notes have agreed to amend and restate in
full the First Amended and Restated Notes which remain
outstanding at and after December 1, 1999 substantially in the
form attached to the Sixth Amendment as Attachment 4 thereto
(the "Second Amended and Restated Notes," such term to include
each Original Note, as amended and restated pursuant to the
Fourth Amendment, each First Amended and Restated Note
delivered from time to time on or after the effectiveness of
the Fourth Amendment in accordance with any of the Note
Purchase Agreements, and each Second Amended and Restated Note
delivered from time to time on or after December 1, 1999 in
accordance with any of the Note Purchase Agreements). Each
Second Amended and Restated Note will:
(i) (A) from and including December 1,
1999 through, but not including, January 15, 2000 be
designated a "Second Amended and Restated 9.87%
Senior Note Due November 1, 2001" and (B) from and
after January 15, 2000 be designated a "Second
Amended and Restated 10.37% Senior Note Due November
1, 2001";
3
<PAGE> 4
(ii) bear interest (computed on the basis
of a 360-day year of twelve 30-day months) on the
unpaid principal balance thereof from the date of
such Note at the rate of nine and eighty-seven
one-hundredths percent (9.87%) per annum from and
including December 1, 1999 through, but not
including, January 15, 2000, and at the rate of ten
and thirty-seven one-hundredths percent (10.37%) per
annum from and after January 15, 2000 to and
including the date of maturity thereof, payable
semi-annually on the first (1st) day of November and
the first (1st) day of May in each year commencing on
the payment date next succeeding the date of such
Second Amended and Restated Note;
(iii) bear interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) (I) eleven and eighty-seven
one-hundredths percent (11.87%) per annum if
such time is from and including December 1,
1999 through, but not including, January 15,
2000, or (II) twelve and thirty-seven
one-hundredths percent (12.37%) per annum if
such time is on or after January 15, 2000;
(iv) mature on November 1, 2001; and
(v) be in the form of the Second Amended
and Restated Note set out in Exhibit A (as in effect
upon the effectiveness of the Sixth Amendment).
(d) The Original Notes, the First Amended and
Restated Notes and the Second Amended and Restated Notes are
referred to herein, collectively, as the "Notes". The term
"Notes" as used herein shall include each Note delivered
pursuant to the Note Purchase Agreements and each Note
delivered in substitution or exchange for any such Note
pursuant to Section 5.2 or Section 5.3, and shall be deemed
(i) when reference is made to a date prior to the effective
date of the Fourth Amendment, to be a reference to the
Original Notes, (ii) when reference is made to a date on or
after the effective date of the Fourth Amendment, to be a
reference to the First Amended and Restated Notes, and (iii)
when reference is made to a date on or after December 1, 1999,
to be a reference to the Second Amended and Restated Notes."
2.2 ARTICLE 6. Article 6 is hereby amended and restated in its
entirety as set forth below.
4
<PAGE> 5
"6. COVENANTS
The Company covenants that on and after the Closing Date and so long as
any of the Notes shall be outstanding:
6.1 DEBT AND ADVANCES.
(A) TOTAL DEBT. The Company will not at any time permit
Consolidated Total Debt to exceed any of the following:
(i) (A) two hundred seventy-five percent (275%) of
Consolidated Tangible Net Worth prior to the effective date of
the Fourth Amendment, and (B) two hundred percent (200%) of
Consolidated Tangible Net Worth from the effective date of the
Fourth Amendment until such time (but in no event prior to
December 31, 1998) as the Company has maintained a ratio of
(A) Consolidated Income Available for Fixed Charges for the
four consecutive fiscal quarters of the Company most recently
ended at such time to (B) Consolidated Fixed Charges for such
period of not less than 2.25 to 1.0 for two consecutive fiscal
quarters, then two hundred seventy-five percent (275%) of
Consolidated Tangible Net Worth, provided however, that for
the purposes of this test, Consolidated Total Debt shall be
calculated by including all Debt incurred by a Special Purpose
Subsidiary, whether or not included therein under GAAP;
(ii) Seventy-Five Percent (75%) of the sum of (A)
Advances and (B) Leased Vehicles; and
(iii) Sixty Percent (60%) of the sum of (A) Gross Current
Installment Contract Receivables and (B) Gross Current Leased
Vehicles.
(B) SENIOR FUNDED DEBT. The Company will not at any time
permit Consolidated Senior Funded Debt to exceed either
(i) two hundred percent (200%) of Consolidated Tangible
Net Worth at such time, or
(ii) (A) the sum of (I) Net Installment Contract
Receivables less Net Dealer Holdbacks and (II) Leased Vehicles
less Net Leased Vehicle Dealer Holdbacks, in each case at such
time, divided by
(B) 1.10.
5
<PAGE> 6
(C) SUBORDINATED FUNDED DEBT. The Company will not at any time
permit Consolidated Subordinated Funded Debt to exceed one hundred
fifty percent (150%) of Consolidated Tangible Net Worth at such time.
(D) RESTRICTED SUBSIDIARY DEBT. The Company will not at any
time permit the sum of (i) Total Restricted Subsidiary Debt at such
time plus, without duplication, (ii) the aggregate amount of all Debt
and other obligations outstanding at such time secured by Liens
permitted by clause (v), clause (vi) and clause (vii) of Section 6.6(a)
to exceed (A) on or before July 31, 1997, fifteen percent (15%) of
Consolidated Tangible Net Worth or (B) on or after August 1, 1997,
twenty percent (20%) of Consolidated Tangible Net Worth.
(E) COMMERCIAL PAPER. The Company will not, and will not
permit any Restricted Subsidiary to, issue commercial paper unless the
obligations of the Company or such Restricted Subsidiary with respect
to such commercial paper are backed by a Letter of Credit Facility.
(F) GROSS ADVANCES. The Company will not at any time permit
Gross Advances to exceed seventy percent (70%) of Net Installment
Contract Receivables; provided, however, that at any time at which the
Credit Agreement (as from time to time amended, restated, refinanced,
replaced or supplemented) does not permit the amount of Gross Advances
to exceed 65% of Net Installment Contract Receivables, the Company
shall not permit Gross Advances to exceed sixty-five percent (65%) of
Net Installment Contract Receivables.
6.2 FIXED CHARGE COVERAGE.
The Company will not at any time permit the ratio of
(a) Consolidated Income Available for Fixed Charges for
the period of four (4) consecutive fiscal quarters of the
Company most recently ended at such time to
(b) Consolidated Fixed Charges for such period
to be less than (i) 2.5 to 1.0 for any period of four fiscal
quarters ended on or prior to September 30, 1997, (ii) 1.9 to
1.0 for the four fiscal quarters ended December 31, 1997,
(iii) 1.7 to 1.0 for the four fiscal quarters ended March 31,
1998, (iv) 1.6 to 1.0 for the four fiscal quarters ended June
30, 1998, (v) 2.0 to 1.0 for the four fiscal quarters ended
September 30, 1998 and (vi) 2.25 to 1.0 for any four fiscal
quarters ended on or after December 31, 1998.
6
<PAGE> 7
6.3 CONSOLIDATED TANGIBLE NET WORTH.
The Company will not at any time permit Consolidated Tangible Net
Worth, determined at such time, to be less than the result of
(a) Two Hundred Eighteen Million Seven Hundred Twenty Five
Thousand Dollars ($218,725,000), plus
(b) the sum of (i) seventy-five percent (75%) of Consolidated
Net Income for each fiscal year ended during the period beginning on
January 1, 1999 and ending on such date (unless Consolidated Net Income
shall be a loss in any such fiscal year, in which event the amount
determined pursuant to this clause (b)(i) for such fiscal year shall be
zero) and (ii) 100% of the proceeds of each Equity Offering conducted
on and after July 1, 1998 by the Company or any of its Restricted
Subsidiaries, net of related costs of issuance payable to third
parties, on a cumulative basis.
6.4 SALE AND LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into, at any time, any Sale and Leaseback Transaction unless,
(a) after giving effect thereto,
(i) the sale of Property in connection with such
Sale and Leaseback Transaction is permitted pursuant to
Section 6.8 and
(ii) the Debt to be secured by a Lien on the
Property to be leased in connection with such Sale and
Leaseback Transaction is permitted pursuant to the provisions
of Section 6.1 and Section 6.6, and
(b) the lease of such Property constitutes a Capital
Lease.
6.5 RESTRICTED INVESTMENTS.
The Company will not, and will not permit any Restricted Subsidiary to,
make any Restricted Investment.
6.6 LIENS.
(A) NEGATIVE PLEDGE. The Company will not, and will not
permit any Restricted Subsidiary to, cause or permit to exist, or agree
or consent to cause or permit to exist in the future (upon the
happening of a contingency or otherwise), any of their Property,
whether now owned or hereafter acquired, to be subject to any Lien
except:
7
<PAGE> 8
(i) (A) Liens securing Property taxes,
assessments or governmental charges or levies or the claims or
demands of materialmen, mechanics, carriers, warehousemen,
vendors, landlords and other like Persons, provided that the
payment thereof is not at the time required by Section 6.12,
(B) any Lien encumbering Securitization Property which is the
subject of a Transfer pursuant to a Permitted Securitization,
and (C) any Lien granted in favor of the "Collateral Agent"
(as defined in the Intercreditor Agreement) for the benefit of
the Banks, the holders of Notes and "Future Debt Holders" (as
defined in the Intercreditor Agreement) and subject to the
Intercreditor Agreement;
(ii) Liens
(A) arising from judicial attachments and
judgments,
(B) securing appeal bonds or supersedeas
bonds, and
(C) arising in connection with court
proceedings (including, without limitation, surety
bonds and letters of credit or any other instrument
serving a similar purpose),
provided that (1) the execution or other enforcement of such
Liens is effectively stayed, (2) the claims secured thereby
are being contested in good faith and by appropriate
proceedings, (3) adequate book reserves in accordance with
GAAP shall have been established and maintained and shall
exist with respect thereto, (4) such Liens do not in the
aggregate detract from the value of such Property and (5) the
title of the Company or the Restricted Subsidiary, as the case
may be, to, and its right to use, such Property, is not
materially adversely affected thereby;
(iii) Liens incurred or deposits made in the
ordinary course of business
(A) in connection with workers'
compensation, unemployment insurance, social security
and other like laws, and
(B) to secure the performance of letters of
credit, bids, tenders, sales contracts, leases,
statutory obligations, surety and performance bonds
(of a type other than set forth in Section
6.6(a)(ii)) and other similar obligations not
incurred in connection with the borrowing of money,
the obtaining of advances or the payment of the
deferred purchase price of Property;
(iv) Liens in the nature of reservations,
exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other similar
title exceptions or encumbrances affecting real Property,
provided that (1) such
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exceptions and encumbrances do not in the aggregate materially
detract from the value of such Property and (2) title of the
Company or the Restricted Subsidiary, as the case may be, to,
and the right to use, such Property, is not materially
adversely affected thereby;
(v) Liens in existence on the Closing Date securing
Debt, provided that such Liens are described in Part 6.6(a)(v)
of Annex 3;
(vi) Purchase Money Liens, if, after giving effect
thereto and to any concurrent transactions:
(A) each such Purchase Money Lien secures
Debt in an amount not exceeding the cost of
acquisition or construction of the particular
Property to which such Debt relates; and
(B) immediately after giving effect thereto,
no Default or Event of Default would exist; and
(vii) Liens on Property not otherwise permitted under
clause (i) through clause (vi) of this Section 6.6(a) if the
obligations secured by such Liens, when added to (A) the
obligations secured by Liens pursuant to clause (v) and clause
(vi) of this Section 6.6(a) plus, without duplication, (B)
Total Restricted Subsidiary Debt at such time, do not exceed
(1) on or before July 31, 1997, fifteen percent (15%) of
Consolidated Tangible Net Worth or (2) on or after August 1,
1997, twenty percent (20%) of Consolidated Tangible Net Worth.
(B) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any
Property shall be subjected to a Lien in violation of this Section 6.6,
the Company will immediately make or cause to be made, to the fullest
extent permitted by applicable law, provision whereby the Notes will be
secured equally and ratably with all other obligations secured thereby
pursuant to such agreements and instruments as shall be approved by the
Required Holders, and the Company will cause to be delivered to each
holder of a Note an opinion, satisfactory in form and substance to the
Required Holders, of independent counsel to the effect that such
agreements and instruments are enforceable in accordance with their
terms, and in any such case the Notes shall have the benefit, to the
fullest extent that, and with such priority as, the holders of Notes
may be entitled thereto under applicable law, of an equitable Lien on
such Property securing the Notes (provided that, notwithstanding the
foregoing, each holder of Notes shall have the right to elect at any
time, by delivery of written notice of such election to the Company, to
cause the Notes held by such holder not to be secured by such Lien or
such equitable Lien). A violation of this Section 6.6 will constitute
an Event of Default, whether or not any such provision is made pursuant
to this Section 6.6(b).
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(C) FINANCING STATEMENTS. The Company will not, and will not
permit any Restricted Subsidiary to, sign or file a financing statement
under the Uniform Commercial Code of any jurisdiction that names the
Company or such Restricted Subsidiary as debtor, or sign any security
agreement authorizing any secured party thereunder to file any such
financing statement, except, in any such case, a financing statement
filed or to be filed to perfect or protect a security interest that the
Company or such Restricted Subsidiary is permitted to create, assume or
incur, or permit to exist, under the foregoing provisions of this
Section 6.6 or to evidence for informational purposes a lessor's
interest in Property leased to the Company or any such Restricted
Subsidiary.
6.7 MERGER AND CONSOLIDATION; COVENANT TO MERGE CAC INTERNATIONAL.
(A) MERGER AND CONSOLIDATION. The Company will not, and
will not permit any Restricted Subsidiary to, merge or consolidate with
or into, or sell, lease, transfer or otherwise dispose of all or
substantially all of its Property to, any other Person or permit any
other Person to merge or consolidate with or into it (the Company, the
Restricted Subsidiary or such other Person that is the surviving
corporation or transferee being herein referred to as the "Surviving
Corporation"), provided that the foregoing restrictions shall not apply
to:
(i) the merger or consolidation of the Company with
or into, or the sale of all or substantially all of the
Property of the Company to, another corporation, if:
(A) the Surviving Corporation is solvent and is
organized under the laws of the United States of
America or any state thereof;
(B) the due and punctual payment of the
principal of and Make-Whole Amount, if any, and
interest on all of the Notes, according to their
tenor, and the due and punctual performance and
observance of all the covenants in the Notes and this
Agreement to be performed or observed by the Company,
are expressly assumed or acknowledged by the
Surviving Corporation in a manner satisfactory to the
Required Holders, and the Company causes to be
delivered to each holder of Notes an opinion of
independent counsel, in form, scope and substance
satisfactory to the Required Holders, to the effect
that such assumption or acknowledgment is enforceable
in accordance with its terms; and
(C) immediately prior to, and immediately
after the consummation of the transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist;
(ii) the merger or consolidation of a Restricted
Subsidiary with or into, or the sale of all or substantially
all of the Property of such Restricted Subsidiary to, the
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Company, another Restricted Subsidiary or any other Person
that concurrently with such merger, consolidation or sale
becomes a Restricted Subsidiary, if:
(A) the Surviving Corporation is organized
under the laws of the United States of America or any
state thereof; and
(B) immediately prior to, and immediately
after the consummation of the transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist;
(iii) the Transfer of Securitization Property to any
Special Purpose Subsidiary in connection with a Permitted
Securitization; and
(iv) a merger, consolidation or Transfer of a
Restricted Subsidiary or Restricted Subsidiaries pursuant to
the Montana Disposition or the Arlington Disposition.
(B) COVENANT TO MERGE CAC INTERNATIONAL. The Company
covenants and agrees that it shall merge CAC International with and
into the Company (with the Company being the survivor) on or before May
15, 1997, in accordance with Section 6.7(a).
6.8 TRANSFERS OF PROPERTY; SUBSIDIARY STOCK.
(A) TRANSFERS OF PROPERTY. Except as permitted under
Section 6.7(a), the Company will not, and will not permit any
Restricted Subsidiary to, sell, lease as lessor, transfer or otherwise
dispose of any Property (including, without limitation, Restricted
Subsidiary Stock) (collectively, "Transfers"), except:
(i) Transfers from a Restricted Subsidiary to the
Company or to a Wholly-Owned Restricted Subsidiary;
(ii) any other Transfer at any time of any Property
to a Person, other than an Affiliate, for an Acceptable
Consideration, if each of the following conditions would be
satisfied with respect to such Transfer:
(A) the result of
(1) the sum of
(aa) the current book value of
such Property, plus
(bb) the aggregate book value of
all other Property of the Company and
the Restricted Subsidiaries, determined
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on a consolidated basis, Transferred
(other than in Transfers referred to in
clauses (i), (iii), (iv), (v) and (vi)
of this Section 6.8(a) (the "Excluded
Transfers"), but including Transfers
pursuant to Section 6.8(b) other than
in connection with the Montana
Disposition or the Arlington
Disposition) during the twelve (12)
month period ended immediately prior to
the date of such Transfer, minus
(2) the aggregate cost of all Capital
Assets acquired by the Company and the
Restricted Subsidiaries, determined on a
consolidated basis, during such twelve (12)
month period,
would not exceed ten percent (10%) of Consolidated
Net Tangible Assets determined as at the end of the
most recently ended fiscal year of the Company prior
to giving effect to such Transfer, and
(B) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default would
exist;
(iii) Transfers of Securitization Property to a
Restricted Subsidiary or a Special Purpose Subsidiary pursuant
to a Permitted Securitization if, immediately before and after
the consummation of such Transfer, and after giving effect
thereto, no Default or Event of Default would exist;
(iv) Transfers of the capital stock of a Special
Purpose Subsidiary to the Company or a Restricted Subsidiary
if, immediately before and after the consummation of such
Transfer, and after giving effect thereto, no Default or Event
of Default would exist;
(v) any Transfer made pursuant to the Montana
Disposition (including without limitation the transfer by the
Company of its intellectual property rights to the name
Tele-Track, Inc.) or the Arlington Disposition if, immediately
before and after the consummation of such Transfer, and after
giving effect thereto, no Default or Event of Default would
exist; and
(vi) any Transfer of Installment Contracts or
Leases made to a Dealer due to the termination of a Dealer
Agreement, for which Transfer the Company or any of its
Restricted Subsidiaries receives an Acceptable Consideration.
(B) TRANSFERS OF SUBSIDIARY STOCK. The Company will not,
and will not permit any Restricted Subsidiary to, Transfer any shares
of the stock (or any warrants, rights or options to purchase stock or
other Securities exchangeable for or convertible into stock) of a
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Restricted Subsidiary (such stock, warrants, rights, options and other
Securities herein called "Restricted Subsidiary Stock"), nor will any
Restricted Subsidiary issue, sell or otherwise dispose of any shares of
its own Restricted Subsidiary Stock, provided that the foregoing
restrictions do not apply to:
(i) the issuance by a Restricted Subsidiary of
shares of its own Restricted Subsidiary Stock to the Company
or a Wholly-Owned Restricted Subsidiary;
(ii) Transfers by the Company or a Restricted
Subsidiary of shares of Restricted Subsidiary Stock to the
Company or a Wholly-Owned Restricted Subsidiary;
(iii) the issuance by a Restricted Subsidiary of
directors' qualifying shares; and
(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 the Arlington Disposition or if:
(A) such Transfer satisfies the requirements of
Section 6.8(a)(ii);
(B) in connection with such Transfer the entire
Investment (whether represented by stock, Debt,
claims or otherwise) of the Company and the other
Restricted Subsidiaries in such Restricted Subsidiary
is Transferred to a Person other than the Company or
a Restricted Subsidiary not simultaneously being
disposed of;
(C) the Restricted Subsidiary being disposed of
has no continuing Investment in any other Restricted
Subsidiary not simultaneously being disposed of or in
the Company; and
(D) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default would
exist.
For purposes of determining the book value of Property constituting
Restricted Subsidiary Stock being Transferred as provided in clause
(iv) above, such book value shall be deemed to be the aggregate book
value of all assets of the Restricted Subsidiary that shall have issued
such Restricted Subsidiary Stock. Any Transfer of Restricted Subsidiary
Stock pursuant to clause (iv) above shall be deemed to be a Transfer of
the accounts receivable of such Restricted Subsidiary which must
satisfy the requirements of Section 6.8(c).
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(C) ACCOUNTS RECEIVABLE. Notwithstanding the provisions of
Section 6.8(a), except in connection with a Permitted Securitization or
in connection with the Montana Disposition or the Arlington
Disposition, neither the Company nor any Restricted Subsidiary will
Transfer any accounts receivable if the sum of
(i) the face value of the accounts receivable proposed
to be Transferred, plus
(ii) the face value of accounts receivable Transferred by
the Company and all Restricted Subsidiaries during the then
current fiscal year of the Company,
would exceed five percent (5%) of the face value of the accounts
receivable of the Company and the Restricted Subsidiaries determined on
a consolidated basis as at the end of the most recently ended fiscal
year of the Company prior to giving effect to such Transfer (but
excluding for purposes of such calculation accounts receivable
attributable to assets the title to which is held by a Special Purpose
Subsidiary pursuant to a Permitted Securitization).
6.9 LINE OF BUSINESS.
The Company will not, and will not permit any Restricted Subsidiary to,
engage in, or make any Investment in any business engaged in, the provision of
property and casualty insurance unless the Company or such Restricted Subsidiary
shall maintain reinsurance of its underwriting risk, with one or more reinsurers
rated "A-" or better by Standard & Poor's Ratings Group or "A(3)" or better by
Moody's Investors Service, Inc., for all of the Company's or such Restricted
Subsidiary's exposure in excess of one hundred percent (100%) of the premiums
written by the Company or such Restricted Subsidiary. In addition to the
foregoing, the Company will not, and will not permit any Restricted Subsidiary
to, engage in any business if, after giving effect thereto, the general nature
of the businesses of the Company and the Restricted Subsidiaries, taken as a
whole, would no longer be the provision of financing programs for the purchase
or lease of used motor vehicles, motor vehicle service protection programs,
credit life, accident and health insurance programs and other programs related
to the foregoing (it being understood that, in the course of the provision of
such programs, the Company may be obligated to remit monies held by it in
connection with dealer holdbacks, claims or refunds under insurance policies,
claims or refunds under service contracts, and to make deposits in trust or
otherwise as required under reinsurance agreements or pursuant to state
regulatory requirements). The Company shall manage and operate such businesses
in substantially the same manner that they are managed and operated as of the
date hereof.
6.10 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any transaction, including, without limitation, the purchase, sale or
exchange of Property or the rendering of any service, with any Affiliate, except
(a) a Permitted Securitization or (b) in the ordinary course of and pursuant to
the reasonable requirements of the Company's or such Restricted Subsidiary's
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business and upon fair and reasonable terms no less favorable to the Company or
such Restricted Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
6.11 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC.
The Company will, and will cause each Restricted Subsidiary to:
(A) PROPERTY -- maintain, preserve and keep its Property in
good condition and working order, ordinary wear and tear excepted, and
make all necessary repairs, renewals, replacements, additions,
betterments and improvements thereto, except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect;
(B) INSURANCE -- maintain, with financially sound and
reputable insurers, insurance with respect to its Property and business
against such casualties and contingencies, of such types (including,
without limitation, insurance with respect to losses arising out of
Property loss or damage, public liability, business interruption,
larceny, workers' compensation, embezzlement or other criminal
misappropriation) and in such amounts as is customary in the case of
corporations of established reputations engaged in the same or a
similar business and similarly situated, provided that such insurance
is commercially available, it being understood that the Company and the
Restricted Subsidiaries may self-insure against hazards and risks with
respect to which, and in such amounts as, the Company in good faith
determines to be prudent and consistent with sound financial and
business practice;
(C) FINANCIAL RECORDS -- keep accurate and complete books of
records and accounts in which accurate and complete entries shall be
made of all its business transactions and that will permit the
provision of accurate and complete financial statements in accordance
with GAAP;
(D) CORPORATE EXISTENCE AND RIGHTS --
(i) do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises,
except where the failure to do so, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, and
(ii) to maintain each Subsidiary as a Subsidiary,
in each case except as permitted or required by Section 6.7(a) and
Section 6.8(b); and
(E) COMPLIANCE WITH LAW -- not be in violation of any law,
ordinance or governmental rule or regulation to which it is subject
(including, without limitation, any Environmental Protection Law and
OSHA) and not fail to obtain any license, certificate,
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permit, franchise or other governmental authorization necessary to the
ownership of its Properties or to the conduct of its business if such
violations or failures to obtain, in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
6.12 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, pay before they
become delinquent:
(a) all taxes, assessments and governmental charges or levies
imposed upon it or its Property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if
unpaid, might result in the creation of a Lien upon its Property;
provided, that items of the foregoing description need not be paid
(i) while being contested in good faith and by
appropriate proceedings as long as adequate book reserves have
been established and maintained and exist with respect
thereto, and
(ii) so long as the title of the Company or the
Subsidiary, as the case may be, to, and its right to use, such
Property, is not materially adversely affected thereby.
6.13 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of
and interest (and Make-Whole Amount, if any) on, the Notes, as and when the same
shall become due according to the terms hereof and of the Notes, and will
maintain an office at the address of the Company set forth in Section 10.1 where
notices, presentations and demands in respect hereof or of the Notes may be made
upon it. Such office will be maintained at such address until such time as the
Company shall notify the holders of the Notes in writing of any change of
location of such office, which will in any event be located within the United
States of America.
6.14 PENSION PLANS.
(A) COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times with respect to each Pension Plan, make
timely payment of contributions required to meet the minimum funding
standard set forth in ERISA or the IRC with respect thereto, and to
comply with all other applicable provisions of ERISA and the IRC.
(B) RELATIONSHIP OF VESTED BENEFITS TO PENSION PLAN ASSETS.
The Company will not at any time permit the present value of all
employee benefits vested under each Pension
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Plan to exceed the assets of such Pension Plan allocable to such vested
benefits at such time, in each case determined pursuant to Section
6.14(c).
(C) VALUATIONS. All assumptions and methods used to determine
the actuarial valuation of vested employee benefits under Pension Plans
and the present value of assets of Pension Plans will be reasonable in
the good faith judgment of the Company and will comply with all
requirements of law.
(D) PROHIBITED ACTIONS. The Company will not, and will not
permit any ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as defined
in section 406 of ERISA or section 4975 of the IRC) that would
result in the imposition of a material tax or penalty;
(ii) incur with respect to any Pension Plan any
"accumulated funding deficiency" (as defined in section 302 of
ERISA), whether or not waived;
(iii) terminate any Pension Plan in a manner that could
result in the imposition of a Lien on the Property of the
Company or any Subsidiary pursuant to section 4068 of ERISA or
the creation of any liability under section 4062 of ERISA;
(iv) fail to make any payment required by section 515 of
ERISA; or
(v) at any time be an "employer" (as defined in section
3(5) of ERISA) required to contribute to any Multiemployer
Plan or a "substantial employer" (as defined in section 4001
of ERISA) required to contribute to any Multiple Employer
Pension Plan if, at such time, it could reasonably be expected
that the Company or any Subsidiary will incur withdrawal
liability in respect of such Multiemployer Plan or Multiple
Employer Pension Plan and such liability, if incurred,
together with the aggregate amount of all other withdrawal
liability as to which there is a reasonable expectation of
incurrence by the Company or any Subsidiary under any one or
more Multiemployer Plans or Multiple Employer Pension Plans,
could reasonably be expected to have a Material Adverse
Effect.
6.15 PRO-RATA OFFERS; MANDATORY PURCHASE.
(A) GENERAL. Except as provided in Section 6.15(b), the
Company will not, and will not permit any Subsidiary or any Affiliate
to, directly or indirectly, acquire or make any offer to acquire any
Notes unless the Company or such Subsidiary or Affiliate shall have
offered to acquire Notes, pro rata, from all holders of the Notes and
upon the same terms. In case the Company acquires any Notes pursuant to
this Section 6.15, such Notes will immediately thereafter be canceled
and no Notes will be issued in substitution therefor. Each
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purchase of the Notes pursuant to this Section 6.15 shall be applied to
reduce ratably each of the Mandatory Principal Amortization Payments
remaining after the date of such purchase.
(B) MANDATORY PURCHASE OF NOTES. The Company shall, on or
before January 15, 2000, acquire from the holders thereof the Notes
listed on Attachment 6 to the Sixth Amendment (the "Repurchased Notes")
for a price equal to the outstanding principal amount of such
Repurchased Notes at such time as set forth on Attachment 6, plus
interest accrued but unpaid to, but not including, the date of such
purchase. The Company shall give written notice to the holders of the
Repurchased Notes, no later than the second Business Day prior to such
payment, of the date on which such payment is to be made. It is
understood and acknowledged by the parties to this Agreement that (i)
compliance by the Company with the obligations in this Section 6.15(b)
shall not be deemed a breach of any of the Company's obligations under
Section 4 of this Agreement; (ii) upon payment of the price provided in
this Section 6.15(b) to the holders of the Repurchased Notes, the
Company shall immediately cancel the Repurchased Notes and no Notes
will be issued in substitution therefor (except that a substitute Note
shall be issued for the balance outstanding if less than the full
amount of the Note is to be repurchased pursuant hereto); and (iii) the
Company's failure to comply with the obligation to make any payment
required by this Section 6.15(b) on or before the required payment date
shall be considered a failure to make a principal payment when due for
purposes of Section 8.1(a) of this Agreement. The purchase of
Repurchased Notes pursuant to this Section 6.15(b) shall be applied to
reduce ratably each of the Mandatory Principal Amortization Payments
remaining after the date of such purchase.
6.16 PRIVATE OFFERING.
The Company will not, and will not permit any Person acting on its
behalf to, offer the Notes or any part thereof or any similar Securities for
issuance or sale to, or solicit any offer to acquire any of the same from, any
Person so as to bring the issuance and sale of the Notes within the provisions
of section 5 of the Securities Act.
6.17 DESIGNATION OF SUBSIDIARIES.
(A) RIGHT OF DESIGNATION. Subject to the satisfaction of the
requirements of Section 6.17(c), the Company shall have the right to
designate any newly acquired or formed Subsidiary as an Unrestricted
Subsidiary by delivering to each holder of Notes a writing, signed by a
Vice President or the President of the Company, so designating such
Subsidiary within thirty (30) days of the acquisition or formation of
such Subsidiary by the Company or any Restricted Subsidiary. Any such
Subsidiary so designated within such thirty (30) day period shall be
deemed to have been an Unrestricted Subsidiary as of the date of such
acquisition or formation and any such Subsidiary not so designated
within such thirty (30) day period shall be deemed to have been a
Restricted Subsidiary as of the date of such acquisition or formation.
For all purposes of this Agreement, each Subsidiary designated as an
Unrestricted Subsidiary in Part 6.17(a) of Annex 3 shall, subject to
Section 6.17(b), be an
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Unrestricted Subsidiary and all other Subsidiaries, if any, listed in
Part 2.3 of Annex 3 shall be Restricted Subsidiaries.
(B) RIGHT OF REDESIGNATION. No Restricted Subsidiary shall be
redesignated as an Unrestricted Subsidiary. Subject to the satisfaction
of the requirements of Section 6.17(c), the Company may at any time
designate any Unrestricted Subsidiary as a Restricted Subsidiary by
delivering a written notice to such effect, signed by a Vice President
or the Chairman, President or Treasurer of the Company, to each holder
of Notes.
(C) DESIGNATION CRITERIA.
(i) No corporation acquired or formed after the Closing
Date shall be designated as a Restricted Subsidiary (including
deemed designation pursuant to Section 6.17(a)) unless:
(A) such Subsidiary at such time meets all of the
requirements of a "Restricted Subsidiary" as set forth in
the definition thereof; and
(B) immediately before and after, and after giving
effect to such designation, no Default or Event of Default
exists or would exist.
(ii) No Subsidiary shall at any time after the Closing
Date be designated as an Unrestricted Subsidiary pursuant to
Section 6.17(a) unless:
(A) immediately before and after, and after giving
effect to such designation, no Default or Event of Default
exists or would exist; and
(B) such Subsidiary does not own, directly or
indirectly, any Funded Debt or capital stock of any
Restricted Subsidiary.
(D) EFFECTIVENESS. Any designation under Section 6.17(b) that
satisfies all of the conditions set forth in Section 6.17(c) shall
become effective, for purposes of this Agreement, on the day that
notice thereof shall have been mailed (postage prepaid, by registered
or certified mail, return receipt requested) by the Company to each
holder of Notes at the addresses as provided in Section 10.1.
6.18 AMENDMENT OF BANK TERM DEBT OR SUBORDINATED DEBT DOCUMENTS;
TERMINATION OF RESTRICTION ON BANK TERM DEBT AMENDMENTS; NO
FURTHER RESTRICTIONS ON AMENDMENTS OF THIS AGREEMENT.
(A) AMENDMENT OF BANK TERM DEBT OR SUBORDINATED DEBT
DOCUMENTS. The Company will not amend, modify or otherwise alter (or
suffer to be amended, modified or
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altered), or waive (or permit to be waived), in any material respect,
any of the terms or provisions of any document or instrument:
(i) evidencing or otherwise relating to any Bank
Term Debt so as to shorten the maturity or original
amortization of such Bank Term Debt, or
(ii) evidencing or otherwise relating to any
Subordinated Debt so as to increase the original interest rate
on, or the principal amount of, such Subordinated Debt,
shorten the original amortization of such Subordinated Debt,
change any other repayment terms or any default or remedial
provisions in any such document or instrument, or change the
subordination provisions contained in any such document or
instrument,
in each case without the prior written approval of the Required
Holders.
(B) TERMINATION OF RESTRICTION ON BANK TERM DEBT AMENDMENTS.
Subject to Section 6.18(c), the provisions of Section 6.18(a), insofar
as such provisions relate to amendments, modifications, alterations or
waivers of Bank Term Debt, will terminate and be of no further force or
effect at such time as the Company causes to be delivered to each
holder of Notes a duly executed copy of an amendment or modification of
the Credit Agreement (or any new agreement contemplated by Section
6.18(c)(ii) below) deleting Section 8.13 of the Credit Agreement (or
the comparable provision in such new agreement) effective on or prior
to the date of such delivery.
(C) NO FURTHER RESTRICTIONS ON AMENDMENTS OF THIS AGREEMENT.
The Company will not:
(i) amend, modify or otherwise alter (or suffer to be
amended, modified or altered) the Credit Agreement (including,
without limitation, Section 8.13 thereof) or any document or
instrument relating thereto to include any covenant or other
provision (other than Section 8.13 of the Credit Agreement as
in effect on the Closing Date) that requires, as a condition
to the amendment of any term or provision of this Agreement,
or the waiver of any term or provision herein, the approval or
consent of any other creditor of the Company; or
(ii) enter into any other agreement (or suffer to be
amended, modified or altered any other agreement to which the
Company is a party) that requires, as a condition to the
amendment of any term or provision of this Agreement, or the
waiver of any term or provision herein, the approval or
consent of any other creditor of the Company; provided that if
(A) any such agreement is entered into to replace, refinance
or supplement the Credit Agreement and (B) Section 8.13 of the
Credit Agreement (as in effect on the Closing Date) shall not
have been deleted from the Credit Agreement as of the time
such new agreement is to be entered into, such new
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agreement may include a covenant substantially the same as
(and not more onerous on the Company than) Section 8.13 of the
Credit Agreement (as in effect on the Closing Date).
6.19 AMENDMENT OF SECURITIZATION DOCUMENTS. Once executed and
delivered pursuant to a Permitted Securitization, the Company covenants that it
will not permit the "pertinent terms, conditions or provisions" of the
Securitization Documents to be waived, amended, modified or otherwise altered in
any material respect adverse to the Company or any Restricted Subsidiary or
Special Purpose Subsidiary without the prior written approval of the Required
Holders. For purposes of the Securitization Documents, the "pertinent terms,
conditions or provisions" thereof shall be deemed solely those terms, conditions
or provisions with respect to servicer fees, servicer expenses, defaults, events
of default, recourse to the Company or any Restricted Subsidiary, Cleanup Calls
or conditions contained therein which are required under or necessary for
compliance with this Agreement.
6.20 RESTRICTED PAYMENTS.
(A) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, declare, make, set apart any
funds or other property for, or incur any liability to make any
Restricted Payment unless, at the time of such action, at least two of
the following four organizations shall have assigned an Investment
Grade Rating to the Company, the Notes or any other senior unsecured
debt obligation of the Company: Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group, the National Association of Insurance
Commissioners (the "NAIC"), or Fitch Investors Services, Inc.
(B) The parties hereto specifically acknowledge that the NAIC
is not in any way a rating agency with functions such as those
performed by Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, or Fitch Investors Services, Inc. Further, the parties hereto
specifically acknowledge that any rating given to the Notes by the NAIC
is not to be interpreted as an expression by the NAIC with respect to
the suitability of an investment in the Notes or the likelihood of any
payment in respect thereof. In addition, the signatories hereto
specifically affirm that the holders of the Notes will not obtain any
benefit from satisfaction of the requirement set forth in Section
6.20(a).
(C) If the NAIC makes specific reference to Section 6.20(a)
and states that it will withdraw any rating or designation of the
Notes, or will take any other action adverse to any one or more of the
holders of the Notes, as a result of the agreement set forth in Section
6.20(a), the parties hereto hereby agree that:
(i) Section 6.20(a) shall, in lieu of the requirement
set forth therein, be deemed to require an Investment Grade
Rating from at least two of the following three organizations:
Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, or Fitch Investors Services, Inc.; and
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(ii) Clause (iii) of the definition of "Investment
Grade Rating" shall be deemed to have been deleted.
Such changes shall take effect upon delivery of written notice to the
Company by the Required Holders referring to such proposed withdrawal
or other action and stating that the condition set forth in this
Section 6.20(c) has occurred.
6.21 NO SECURITIZATIONS OTHER THAN PERMITTED SECURITIZATIONS. The
Company will not, and will not permit any Restricted Subsidiary to, engage in
any Securitization Transaction other than a Permitted Securitization."
2.3 SECTION 7.1. Section 7.1 is hereby amended and restated in its
entirety as set forth below.
"7.1 Financial and Business Information.
The Company will deliver to each holder of Notes:
(A) QUARTERLY STATEMENTS -- as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year),
and in any event within sixty (60) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries and consolidated and consolidating
balance sheets of the Company and the Restricted Subsidiaries, as
at the end of such quarter, and
(ii) consolidated statements of income and cash flows of the
Company and its consolidated subsidiaries and consolidated and
consolidating statements of income and cash flows of the Company
and the Restricted Subsidiaries, for such quarter and (in the case
of the second and third quarters) for the portion of the fiscal
year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the immediately preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and accompanied by the
certificate required by Section 7.2, and, in the case of the financial
statements relating to the Company and its Restricted Subsidiaries,
certified as complete and correct, subject to changes resulting from
year-end adjustments, by a Senior Financial Officer, and, in the case
of the financial statements relating to the Company and its
consolidated subsidiaries at any time when a Quarterly Report on Form
10-Q is not filed by the Company with the Securities and Exchange
Commission and delivered to the holders of the Notes pursuant to clause
(d) of
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this Section 7.1, certified as complete and correct, subject to changes
resulting from year-end adjustments, by a Senior Financial Officer;
(B) ANNUAL STATEMENTS -- as soon as practicable after the
end of each fiscal year of the Company, and in any event within one
hundred twenty (120) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and
its consolidated subsidiaries and consolidated and
consolidating balance sheets of the Company and the
Restricted Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, shareholders'
equity and cash flows of the Company and its consolidated
subsidiaries and consolidated and consolidating statements
of income, shareholders' equity and cash flows of the
Company and the Restricted Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
immediately preceding fiscal year, all in reasonable detail, prepared
in accordance with GAAP, and accompanied by
(A) in the case of the financial statements
relating to the Company and its consolidated
subsidiaries, an opinion of independent certified
public accountants of recognized national standing,
which opinion shall, without qualification, state that
such financial statements present fairly, in all
material respects, the financial position of the
companies being reported upon and their results of
operations and cash flows and have been prepared in
conformity with GAAP, and that the examination of such
accountants in connection with such financial
statements has been made in accordance with generally
accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the
circumstances, and
(B) in the case of the financial statements
relating to the Company and its Restricted
Subsidiaries, certified as complete and correct by a
Senior Financial Officer, and
(C) the certificate required by Section 7.2 and,
in the case of the financial statements relating to the
Company and its consolidated subsidiaries, the
certificate required by Section 7.3;
(C) AUDIT REPORTS -- promptly upon receipt thereof, a copy
of each other report submitted to the Company or any Restricted
Subsidiary by independent accountants in connection with any management
report, special audit report or comparable analysis prepared by them
with respect to the books of the Company or any Restricted Subsidiary;
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<PAGE> 24
(D) SEC AND OTHER REPORTS -- promptly upon their becoming
available, a copy of each financial statement, report (including,
without limitation, each Quarterly Report on Form 10-Q, each Annual
Report on Form 10-K and each Current Report on Form 8-K), notice or
proxy statement sent by the Company or any Subsidiary to stockholders
generally and of each regular or periodic report and any registration
statement, prospectus or written communication (other than transmittal
letters), and each amendment thereto, in respect thereof filed by the
Company or any Subsidiary with, or received by, such Person in
connection therewith from, the National Association of Securities
Dealers, any securities exchange or the Securities and Exchange
Commission or any successor agency;
(E) ERISA --
(i) immediately upon becoming aware of the occurrence
of any
(A) "reportable event" (as defined in section 4043
of ERISA), excluding, however, such events as to which
the PBGC by regulation shall have waived the
requirement of section 4043(a) of ERISA that it be
notified within thirty (30) days of the occurrence of
such event (provided that a failure to meet the minimum
funding standard of section 412 of the IRC and of
section 302 of ERISA shall not be so excluded
regardless of the issuance of any such waiver of the
notice requirement in accordance with either section
4043(a) of ERISA or section 412(d) of the IRC), or
(B) "prohibited transaction" (as defined in
section 406 of ERISA or section 4975 of the IRC),
in connection with any Pension Plan or any trust created
thereunder, a written notice specifying the nature thereof,
what action the Company is taking or proposes to take with
respect thereto and, when known, any action taken by the IRS,
the DOL or the PBGC with respect thereto, and
(ii) prompt written notice of and, where applicable, a
description of
(A) any notice from the PBGC in respect of the
commencement of any proceedings pursuant to section
4042 of ERISA to terminate any Pension Plan or for the
appointment of a trustee to administer any Pension
Plan,
(B) any distress termination notice delivered to
the PBGC under section 4041 of ERISA in respect of any
Pension Plan, and any determination of the PBGC in
respect thereof,
(C) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA,
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<PAGE> 25
(D) any Multiemployer Plan becoming "insolvent"
(as defined in section 4245 of ERISA) under Title IV of
ERISA, and
(E) the whole or partial withdrawal of the Company
or any ERISA Affiliate from any Multiemployer Plan or
Multiple Employer Pension Plan and the withdrawal
liability incurred in connection therewith;
(F) ACTIONS, PROCEEDINGS -- promptly after the commencement
thereof, notice of any action or proceeding relating to the Company or
any Subsidiary in any court or before any Governmental Authority or
arbitration board or tribunal as to which there is a reasonable
possibility of an adverse determination and that, if adversely
determined, would have a Material Adverse Effect;
(G) CERTAIN ENVIRONMENTAL MATTERS -- prompt written notice
of and a description of any event or circumstance that, had such event
or circumstance occurred or existed immediately prior to the Closing
Date, would have been required to be disclosed as an exception to any
statement set forth in Section 2.13;
(H) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- immediately
upon becoming aware of the existence of any condition or event that
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company is taking or proposes to take with respect thereto;
(I) NOTICE OF CLAIMED DEFAULT -- immediately upon becoming
aware that the holder of any Note, or of any Debt or any Security of
the Company or any Subsidiary, shall have given notice or taken any
other action with respect to a claimed Default, Event of Default,
default or event of default, a written notice specifying the notice
given or action taken by such holder and the nature of the claimed
Default, Event of Default, default or event of default and what action
the Company is taking or proposes to take with respect thereto; and
(J) REQUESTED INFORMATION -- with reasonable promptness,
such other data and information as from time to time may be reasonably
requested by any holder of Notes, including, without limitation,
(i) copies of any statement, report or certificate
furnished to any holder of any Debt or any Security of the
Company or any Subsidiary,
(ii) information requested to comply with any request
of the National Association of Insurance Commissioners in
respect of the designation of the Notes, and
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<PAGE> 26
(iii) information requested to comply with 17 C.F.R.
ss.230.144A, as amended from time to time;
provided that any such request with respect to any of the data and
information referred to in the foregoing clauses (i), (ii) and (iii)
shall be deemed to be reasonable for purposes of this Section 7.1(j).
In addition to the foregoing, the Company will also deliver to each
holder of Notes:
(1) as soon as available, and in any event within
sixty (60) days of the end of each fiscal quarter, (A) a
"static pool analysis" substantially in the form of Exhibit F
attached hereto and in any event satisfactory in form and
substance to the Required Holders, which analyzes the
performance of the Company's and each Restricted Subsidiary's
Installment Contracts (segregated between the Company's North
American operations and its UK operations) on a quarterly
basis, and (B) for quarters beginning with the quarter ended
September 30, 1999, a comparable "static pool analysis" which
analyzes the performance of the Company's and each Restricted
Subsidiary's Leases on a quarterly basis (segregated between
the Company's North American operations and its UK
operations), in each case, with respect to clauses (A) and (B)
above, certified by an authorized officer of the Company as to
consistency with prior such analyses, accuracy and fairness of
presentation;
(2) promptly upon the request of the Required Holders
from time to time (but no more often than semi-annually), a
"static pool analysis" which analyzes the performance of any
Installment Contracts or Leases transferred or encumbered
pursuant to a Permitted Securitization comparable to the
static pool analysis required to be delivered pursuant to
clause (1) of this Section 7.1(j); and
(3) within five (5) Business Days after the execution
and delivery thereof, a copy of any amendment to, or waiver of
any provisions of, the Credit Agreement or Securitization
Documents (in each case, as from time to time amended,
restated, refinanced, replaced or supplemented)."
2.4 SECTION 9.1. Section 9.1 is hereby amended and restated in
its entirety as set forth below.
"9.1 Terms Defined.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ACCEPTABLE CONSIDERATION -- means, with respect to any Transfer of any
Property of the Company or a Restricted Subsidiary, cash consideration,
promissory notes or such other
26
<PAGE> 27
consideration (or any combination of the foregoing) received by such Person in
connection with such Transfer as is, in each case, determined by the Board of
Directors, in its good faith opinion, to be in the best interests of the Company
and to reflect the Fair Market Value of such Property. It is understood that the
Company's or such Restricted Subsidiary's acceptance of any such consideration
in connection with such Transfer will constitute an Investment and may,
depending upon the form of such consideration, constitute a Restricted
Investment made by the Company or such Restricted Subsidiary.
ADVANCES -- means, at any time, the dollar amount of advances in
respect of Installment Contracts, as such amount would appear in the footnotes
to the financial statements of the Company and the Restricted Subsidiaries
prepared in accordance with GAAP (if such amount would not appear net of
reserves, then net of any reserves established by the Company as an allowance
for credit losses related to such advances not expected to be recovered),
provided that Advances shall not include (a) any such advances (and the related
Installment Contracts) transferred or encumbered pursuant to a Permitted
Securitization (whether or not attributable to the Company under GAAP) unless
and until such advances (and the related Installment Contracts) are reassigned
to the Company or a Restricted Subsidiary or such encumbrances are discharged,
or (b) Charged-Off Advances to the extent that such Charged-Off Advances exceed
the portion of the Company's allowance for credit losses related to reserves
against such advances not expected to be recovered, as such allowance would
appear in the footnotes to the financial statements of the Company and the
Restricted Subsidiaries prepared in accordance with GAAP.
AFFILIATE -- means, at any time, a Person (other than a Restricted
Subsidiary):
(a) that directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common
Control with, the Company;
(b) that beneficially owns or holds five percent (5%) or more
of any class of the Voting Stock of the Company;
(c) five percent (5%) or more of the Voting Stock (or in the
case of a Person that is not a corporation, five percent (5%) or more
of the equity interest) of which is beneficially owned or held by the
Company or a Subsidiary; or
(d) that is an officer or director (or a member of the
immediate family of an officer or director) of the Company or any
Subsidiary;
at such time.
As used in this definition:
CONTROL -- means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
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<PAGE> 28
AGREEMENT, THIS -- means this agreement, as it may be amended and
restated from time to time.
ALLOWANCES FOR CREDIT LOSSES -- means those allowances or reserves
established by the Company or its Restricted Subsidiaries in arriving at
installment contracts receivable, net or Leased Vehicles, as the case may be, on
its Consolidated balance sheets, as specifically identified in such financial
statements or as disclosed in the footnotes thereto, provided that Allowances
for Credit Losses shall not include allowances or reserves attributable to
retail installment contracts or leases which are not at such time "Installment
Contracts" or "Leases", as the case may be, due to the proviso in the definition
of such terms in this Agreement.
ARLINGTON DISPOSITION -- means the sale of the business of Arlington
Investment Company and/or any of its subsidiaries for net proceeds totaling at
least $4,000,000 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 Arlington Investment Company and/or any of
its subsidiaries or divisions, (ii) the sale of all of the capital stock of
Arlington Investment Company and/or any of its subsidiaries or (iii) the merger
of Arlington Investment Company and/or any of its subsidiaries 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.
BACK-END DEALER AGREEMENT(S) -- means Dealer Agreements referred to in
clause (a) of the definition of Dealer Agreements.
BANK TERM DEBT -- means term Debt of the Company or any Restricted
Subsidiary owed to banks and having an initial maturity of more than one (1)
year and a fixed amortization schedule, but in any event excluding any Debt
which by its terms is permitted to be readvanced or reborrowed, whether or not
subject to mandatory reductions or stepdowns in the availability thereof.
BANKS -- means the Banks that are parties to the Credit Agreement.
BOARD OF DIRECTORS -- means the board of directors of the Company or
any committee thereof that, in the instance, shall have the lawful power to
exercise the power and authority of such board of directors.
BUSINESS DAY -- means, at any time, a day other than a Saturday, a
Sunday or a day on which the bank designated by the holder of a Note to receive
(for such holder's account) payments on such Note is required by law (other than
a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
CAC INTERNATIONAL -- means CAC International, Inc., a wholly-owned
Subsidiary of the Company.
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<PAGE> 29
CAC LIFE -- means Credit Acceptance Corporation Life Insurance Company,
a Wholly-Owned Restricted Subsidiary of the Company.
CAC UK -- means Credit Acceptance Corporation UK Limited, a
wholly-owned Subsidiary of the Company incorporated under the laws of England
for the purpose of acquiring substantially all of the assets of CAC
International.
CAPITAL ASSETS -- means all assets of a Person other than Intangible
Assets, inventories, accounts receivable and Investments (as defined in clause
(a) of the definition of such term) in and Securities of any other Person.
CAPITAL LEASE -- means, at any time, a lease with respect to which the
lessee is required by GAAP to recognize the acquisition of an asset and the
incurrence of a liability at such time.
CHANGE IN CONTROL -- means, at any time, either
(a) the failure of Donald A. Foss, his wife and children,
or trusts for his or their benefit, to beneficially own, in the
aggregate, at least thirty-five percent (35%) (by number of votes) of
the Voting Stock of the Company outstanding at such time (excluding for
such purpose Persons who own shares through any employee benefit plan
of the Company or any trust established in connection therewith), or
(b) except for the individuals and trusts identified in the
foregoing clause (a), the acquisition, holding or control (whether
directly or indirectly) by
(i) any "person" (as such term is used in section
13(d) and section 14(d)(2) of the Exchange Act as in effect on
the Closing Date), or
(ii) related Persons constituting a "group" (as such
term is used in Rule 13d-5 under the Exchange Act as in effect
on the Closing Date),
of beneficial ownership of more than twenty-five percent (25%) (by
number of votes) of the Voting Stock of the Company outstanding at such
time (excluding for such purpose Persons who own shares through any
employee benefit plan of the Company or any trust established in
connection therewith), or
(c) all or substantially all of the assets of the Company
are sold or otherwise transferred, in a single transaction or in a
series of related transactions, to any "person" or "group of persons"
(as such terms are used in section 13(d)(3) of the Exchange Act as in
effect on the Closing Date).
29
<PAGE> 30
CHARGED-OFF ADVANCES -- means those Advances which the Company or any
of its Restricted Subsidiaries has determined, based on the application of a
static pool analysis or otherwise are completely or partially impaired, to the
extent of such impairment.
CHARGED-OFF LEASE ADVANCES -- means those Leased Vehicles which the
Company or any of its Subsidiaries has determined, based on the application of a
static pool or comparable analysis or otherwise, are completely or partially
impaired, to the extent of such impairment.
CLEANUP CALL(S) -- means
(a) in the case of an optional cleanup call, a cleanup call to
be exercised at the option of the Company or a Special Purpose
Subsidiary under the terms of the applicable Permitted Securitization
(provided that, both before and after giving effect thereto, no Default
or Event of Default has occurred and is continuing when such option is
exercised), in an amount not in excess of (i) Fifteen Percent (15%) of
the initial amount received by the Company or the Special Purpose
Subsidiary pursuant to such Permitted Securitization (before fees and
other deductions), it being understood that, for purposes of this
clause (a)(i) of this definition, each tranche of a multi-tranche
Permitted Securitization shall be considered a separate Permitted
Securitization or (ii) in the case of any Securitization Transaction
structured on a revolving basis, Fifteen Percent (15%) of the maximum
aggregate availability at any time to the Company or a Special Purpose
Subsidiary, and
(b) in the case of a mandatory cleanup call, a mandatory
cleanup call to be exercised at the option of the investors under the
terms of the applicable Permitted Securitization(s), in an amount not
in excess of (i) Two and One-Half Percent (2 1/2%) of the aggregate
amount received by the Company or the Special Purpose Subsidiary
pursuant to the Permitted Securitization (before fees and other
deductions), it being understood that, for purposes of this clause
(b)(i) of this definition, all tranches of a multi-tranche Permitted
Securitization shall be together be considered one Permitted
Securitization, or (ii) in the case of any Securitization Transaction
structured on a revolving basis, Two and One-Half Percent (2 1/2%) of
the maximum aggregate availability at any time to the Company or a
Special Purpose Subsidiary,
in either case, such Cleanup Call being accompanied by the repurchase of or
release of encumbrances on Advances, Leased Vehicles, Installment Contracts
(whether assigned outright or related to Advances) or Leases (whether assigned
outright or related to Leased Vehicles), as the case may be, previously
transferred or encumbered pursuant to such Permitted Securitization in at least
the amount of such cleanup call.
CLOSING -- Section 1.2(b).
CLOSING DATE -- Section 1.2(b).
COMPANY -- introductory paragraph hereof.
30
<PAGE> 31
CONSOLIDATED CURRENT LIABILITIES -- means, at any time, the aggregate
amount of current liabilities of the Company and the Restricted Subsidiaries,
determined at such time after eliminating inter-company transactions among the
Company and the Restricted Subsidiaries and liabilities incurred solely by a
Special Purpose Subsidiary pursuant to a Permitted Securitization but
attributable to the Company or a Restricted Subsidiary under GAAP.
CONSOLIDATED FIXED CHARGES -- means, for any period, the sum of
(a) Consolidated Interest Expense for such period, plus
(b) the amount payable in respect of such period with
respect to Operating Rentals payable by the Company and the Restricted
Subsidiaries, determined after eliminating intercompany transactions
among the Company and the Restricted Subsidiaries.
CONSOLIDATED INCOME AVAILABLE FOR FIXED CHARGES -- means, for any
period, the sum of
(a) Consolidated Net Income, plus
(b) the aggregate amount of income taxes, depreciation,
amortization (including the amortization of any excess servicing asset)
and Consolidated Fixed Charges (to the extent, and only to the extent,
that such aggregate amount was reflected in the computation of
Consolidated Net Income for such period), plus
(c) with respect to the periods ending September 30, 1997,
December 31, 1997, March 31, 1998 and June 30, 1998, $30,000,000
representing the portion of the non-cash charge recorded by the Company
during the period ended September 30, 1997 attributable to the present
valuing of future cash flows consistent with Statement of Financial
Accounting Standards No. 114 `Accounting by Creditors for Impairment of
a Loan', plus
(d) with respect to the periods ending September 30, 1999,
December 31, 1999, March 31, 2000 and June 30, 2000, $47,300,000
representing the accounting adjustment to the Company's reserve against
advances recorded by the Company during the period ended September 30,
1999,
in each case accrued for such period by the Company and the Restricted
Subsidiaries, determined on a consolidated basis for such Persons.
CONSOLIDATED INTEREST EXPENSE -- means, for any period, the amount of
interest accrued or capitalized on, or with respect to, Consolidated Total Debt
for such period, including, without limitation, amortization of debt discount,
imputed interest on Capital Leases and interest on the Notes.
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<PAGE> 32
CONSOLIDATED NET INCOME -- means, for any period, net earnings (or
loss) after income taxes of the Company and the Restricted Subsidiaries,
determined on a consolidated basis for such Persons, but excluding:
(a) net earnings (or loss) of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(b) any gain or loss (net of tax effects applicable thereto)
resulting from the sale, conversion or other disposition of Capital
Assets other than in the ordinary course of business;
(c) any extraordinary or nonrecurring gains or losses
(including, without limitation, any gain on sale generated by a
Permitted Securitization, except to the extent the Company has received
a cash benefit therefrom in the applicable reporting period); and any
interest income generated by a Permitted Securitization, except to the
extent the Company has received a cash benefit therefrom in the
applicable reporting period;
(d) any gain arising from any reappraisal or write-up of
assets;
(e) any portion of the net earnings of any Restricted
Subsidiary that for any reason is unavailable for payment of dividends
to the Company or a Restricted Subsidiary, provided that the net
earnings of CAC Life that are unavailable (due to regulatory
requirements applicable to CAC Life) for the payment of dividends to
the Company may be included in the determination of Consolidated Net
Income, to the extent that such unavailable net earnings do not exceed
five percent (5%) of Consolidated Net Income (determined without giving
effect to this proviso), and provided, further that so long as the net
earnings of CAC Life shall be included in Consolidated Net Income
pursuant to the preceding proviso, CAC Life shall not have outstanding
any Debt, regardless of whether any other Restricted Subsidiary may be
permitted to have Debt outstanding at such time by reason of a waiver
of or an amendment to Section 6.1(d);
(f) any gain or loss (net of tax effects applicable thereto)
during such period resulting from the receipt of any proceeds of any
insurance policy;
(g) any earnings of any Person acquired by the Company or any
Restricted Subsidiary through purchase, merger or consolidation or
otherwise, or earnings of any Person substantially all of whose assets
have been acquired by the Company or any Restricted Subsidiary, for any
period prior to the date of acquisition;
(h) net earnings of any Person (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary shall
have an ownership interest unless such net earnings shall have actually
been received by the Company or such Restricted Subsidiary in the form
of cash distributions; and
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(i) any restoration during such period to income of any
contingency reserve, except to the extent that provision for such
reserve
(i) was made during such period out of income accrued
during such period,
(ii) was made in connection with the Company's
program of financing Installment Contracts or Leases
(A) to provide for warranty claims for which the
Company may be responsible, or
(B) to cover credit losses in connection with
Advances, Installment Contracts, Leased Vehicles or
Leases,
or
(iii) is required by applicable law with respect to
reserves for claims related to the operation of CAC Life,
provided that the aggregate restoration to income during any period
from reserves described in clause (ii) and clause (iii) above shall not
exceed ten percent (10%) of Consolidated Net Income for such period,
prior to giving effect to such restoration.
CONSOLIDATED NET TANGIBLE ASSETS -- means, at any time, the remainder
of
(a) Consolidated Total Assets at such time minus
(b) the sum of
(i) Consolidated Current Liabilities at such time,
plus
(ii) Intangible Assets of the Company and the
Restricted Subsidiaries as would be reflected on a
consolidated balance sheet of such Persons at such time.
CONSOLIDATED SENIOR FUNDED DEBT -- means, at any time, Funded Debt of
the Company and the Restricted Subsidiaries, other than Subordinated Funded
Debt, determined on a consolidated basis for such Persons at such time.
CONSOLIDATED SUBORDINATED FUNDED DEBT -- means, at any time, the
aggregate amount of Subordinated Funded Debt of the Company and the Restricted
Subsidiaries, determined on a consolidated basis for such Persons at such time.
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CONSOLIDATED TANGIBLE NET WORTH -- means, at any time, the result of
(a) the shareholders' equity of the Company and its
Subsidiaries, minus
(b) the retained earnings of the Unrestricted
Subsidiaries, minus
(c) all Intangible Assets of the Company and the
Subsidiaries, minus
(d) without duplication, (i) any excess servicing asset
resulting from the Transfer, pursuant to a Permitted
Securitization, of Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or
related to Advances) or Leases (whether assigned
outright or related to Leased Vehicles) and (ii) the
equity interest in any Special Purpose Subsidiary to
the extent such equity interest is included in
Consolidated Net Worth,
in each case as would be reflected on a consolidated balance sheet of such
Persons at such time. As used in this definition, "Consolidated Net Worth"
means, at any time, the amount of "consolidated total assets" less the amount of
"consolidated total liabilities", as each would be reflected on a consolidated
balance sheet of the Company and its Subsidiaries at such time, prepared in
accordance with GAAP.
CONSOLIDATED TOTAL ASSETS -- means, at any time, all assets of the
Company and the Restricted Subsidiaries, determined on a consolidated basis for
such Persons at such time (but excluding from the determination thereof, without
duplication, (a) any excess servicing asset resulting from the Transfer,
pursuant to a Permitted Securitization, of Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or related to Advances) or
Leases (whether assigned outright or related to Leased Vehicles) and (b) the
equity interest in any Special Purpose Subsidiary to the extent such equity
interest is included in the assets of the Company and the Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP for
such Persons at such time).
CONSOLIDATED TOTAL DEBT -- means, at any time, the aggregate amount of
Funded Debt and Current Debt of the Company and the Restricted Subsidiaries,
determined on a consolidated basis for such Persons at such time.
CONTROL EVENT -- means the execution of any written agreement that,
when fully performed by the parties thereto, would result in a Change in
Control.
CONTROL PREPAYMENT DATE -- Section 4.3(a).
CREDIT AGREEMENT -- means the Credit Agreement described in Part 2.2(b)
of Annex 3, as may be amended, restated, refinanced, replaced, supplemented or
otherwise modified from time to time.
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CURRENT DEBT -- means, with respect to any Person, at any time, all
Debt of such Person other than Funded Debt.
DEALER -- means a Person engaged in the business of the retail sale or
lease of new or used motor vehicles, including businesses exclusively selling or
leasing used motor vehicles and businesses principally selling or leasing new
motor vehicles, but having a used vehicle department, including any such Person
which constitutes an Affiliate of the Company.
DEALER AGREEMENTS -- means the sales and/or servicing agreements
between the Company or its Subsidiaries and a participating Dealer which sets
forth the terms and conditions under which the Company or its Subsidiaries (a)
accepts, as nominee for such Dealer, the assignment of Installment Contracts or
Leases for purposes of administration, servicing and collection and under which
the Company or its Subsidiary may make advances to such Dealers included in
Advances or Leased Vehicles and (b) accepts outright assignments of Installment
Contracts or Leases from Dealers or funds Installment Contracts or Leases
originated by such Dealer in the name of the Company or any of its Subsidiaries,
in each case as such agreements may be in effect from time to time.
DEBT -- means, with respect to any Person, without duplication:
(a) its liabilities for borrowed money (whether or not
evidenced by a Security);
(b) any liabilities secured by any Lien existing on Property
owned by such Person (whether or not such liabilities have been
assumed);
(c) its liabilities in respect of Capital Leases;
(d) the present value of all payments due under any
arrangement for retention of title or any conditional sale agreement
(other than a Capital Lease) discounted at the implicit rate, if known,
with respect thereto or, if unknown, at eight and eighty-seven
one-hundredths percent (8.87%) per annum; and
(e) its Guaranties of any liabilities of another Person
constituting liabilities of a type set forth above.
Except as provided in Section 6.1(a)(i), neither Debt of any Special Purpose
Subsidiary which is an Unrestricted Subsidiary incurred pursuant to a Permitted
Securitization (whether or not such Debt is reflected on the consolidated
balance sheet of the Company and its Restricted Subsidiaries prepared in
accordance with GAAP) nor dealer holdbacks shall be considered Debt of the
Company or any Restricted Subsidiary.
DEFAULT -- means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.
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DOL -- means the Department of Labor and any successor agency.
DOLLARS or $ -- means United States of America dollars.
ENVIRONMENTAL PROTECTION LAWS -- means any federal, state, county,
regional or local law, statute or regulation (including, without limitation,
CERCLA, RCRA and SARA) enacted in connection with or relating to the protection
or regulation of the environment, including, without limitation, those laws,
statutes and regulations regulating the disposal, removal, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Substances, and any regulations issued or promulgated in connection with such
statutes by any Governmental Authority, and any orders, decrees or judgments
issued by any court of competent jurisdiction in connection with any of the
foregoing.
As used in this definition:
CERCLA -- means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended from time to time
(by SARA or otherwise), and all rules and regulations promulgated in
connection therewith.
RCRA -- means the Resource Conservation and Recovery Act of
1976, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
SARA -- means the Superfund Amendments and Reauthorization Act
of 1986, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
EQUITY OFFERING -- means the issuance and sale for cash by the Company
or any of its Restricted Subsidiaries of additional capital stock or other
equity interests, other than upon the exercise of employee and dealer stock
options pursuant to stock option plans maintained or offered by the Company or
its Restricted Subsidiaries in the ordinary course of business and not in
anticipation of any sale of capital stock or equity interests to the general
public.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA AFFILIATE -- means any corporation or trade or business that:
(a) is a member of the same controlled group of corporations
(within the meaning of section 414(b) of the IRC) as the Company; or
(b) is under common control (within the meaning of section
414(c) of the IRC) with the Company.
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EVENT OF DEFAULT -- Section 8.1.
EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended.
EXCLUDED TRANSFERS -- Section 6.8(a).
FAIR MARKET VALUE -- means, at any time, with respect to any Property,
the sale value of such Property that would be realized in an arm's-length sale
at such time between an informed and willing buyer and an informed and willing
seller under no compulsion to buy or sell, respectively.
FIRST AMENDED AND RESTATED NOTES -- Section 1.1(b).
FOREIGN PENSION PLAN -- means any plan, fund or other similar program
(a) established or maintained outside of the United States of
America by any one or more of the Company or the Subsidiaries primarily
for the benefit of the employees (substantially all of whom are aliens
not residing in the United States of America) of the Company or such
Subsidiaries which plan, fund or other similar program provides for
retirement income for such employees or results in a deferral of income
for such employees in contemplation of retirement, and
(b) not otherwise subject to ERISA.
401(K) PLAN -- Section 2.12(a).
FOURTH AMENDMENT -- means the Fourth Amendment, dated as of July 1,
1998, to this Agreement.
FUNDED DEBT -- means, at any time of determination, with respect to any
borrower, all Debt of such borrower that is expressed to mature more than one
(1) year from the date of the creation thereof or that is extendible or
renewable at the option of such borrower to a time more than one (1) year after
the date of the creation thereof (whether or not at such time of determination
such Debt is payable within one (1) year).
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
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GOVERNMENTAL AUTHORITY -- means:
(a) the government of
(i) the United States of America and any state or
other political subdivision thereof, or
(ii) any other jurisdiction (y) in which the Company
or any Subsidiary conducts all or any part of its business or
(z) that asserts jurisdiction over the conduct of the affairs
or Properties of the Company or any Subsidiary; and
(b) any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or pertaining to,
any such government.
GROSS ADVANCES -- means, as of any applicable date of determination,
the dollar amount of Advances, plus any reserves established by the Company as
an allowance for credit losses related to such advances not expected to be
recovered, plus Charged-Off Advances to the extent such Charged-Off Advances
exceed the amount of such reserves.
GROSS CURRENT INSTALLMENT CONTRACT RECEIVABLES -- means, as of any
applicable date of determination, the aggregate amount of Gross Installment
Contract Receivables, less the amount of such receivables which are classified
as being on "non-accrual" in the financial statements of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
GROSS CURRENT LEASED VEHICLES -- means, as of any applicable date of
determination, the aggregate amount of Gross Leased Vehicles, less the amount of
Leased Vehicles in respect of which the underlying Leases are classified as
being on "non-accrual" in the financial statements of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
GROSS DEALER HOLDBACKS -- means the aggregate amount, as of any
applicable date of determination, of dealer holdbacks utilized in arriving at
"Dealer holdbacks, net" on the consolidated balance sheet of the Company and its
Restricted Subsidiaries, as disclosed in the footnotes thereto, provided that
Gross Dealer Holdbacks shall not include the amount of dealer holdbacks
attributable to retail installment contracts which are not at such time
"Installment Contracts" due to the proviso in the definition of such term in
this Agreement.
GROSS INSTALLMENT CONTRACT RECEIVABLES -- means, as of any applicable
date of determination, the aggregate amount of installment contract receivables
utilized in arriving at "Installment contract receivables, net" on the
consolidated balance sheet of the Company and its Restricted Subsidiaries, as
determined in the footnotes thereto, provided that Gross Installment Contract
Receivables shall not include receivables attributable to retail installment
contracts which are not at such time "Installment Contracts" due to the proviso
in the definition of such term in this Agreement.
GROSS LEASED VEHICLES -- means, as of any applicable date of
determination, the dollar amount of Leased Vehicles, plus any reserves
established by the Company as an allowance for credit
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losses related to such Leased Vehicles not expected to be recovered, plus
Charged-Off Lease Advances to the extent such Charged-Off Lease Advances exceed
the amount of such reserves, provided that Gross Leased Vehicles shall not
include the dollar amount of Leased Vehicles attributable to leases which are
not at such time "Leases" due to the proviso in the definition of such term in
this Agreement.
GUARANTY -- means, with respect to any Person (for the purposes of this
definition, the "Guarantor"), any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of the Guarantor guaranteeing or in effect guaranteeing (including, without
limitation, by means of a surety bond, letter of credit or other similar
instrument, whether or not designated as a "guaranty") any indebtedness,
dividend or other obligation of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, including, without limitation,
obligations incurred through an agreement, contingent or otherwise, by the
Guarantor:
(a) to purchase such indebtedness or obligation or any
Property constituting security therefor;
(b) to advance or supply funds
(i) for the purpose of payment of such indebtedness
or obligation, or
(ii) to maintain working capital or other balance
sheet (or statement of financial condition) condition or any
income statement condition of the Primary Obligor or otherwise
to advance or make available funds for the purchase or payment
of such indebtedness or obligation;
(c) to lease Property or to purchase Securities or other
Property or services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of the Primary Obligor
to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or
obligation of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty in connection with any
computation of indebtedness or other liability, it shall be assumed that the
indebtedness or other liabilities that are the subject of such Guaranty are
direct obligations of the issuer of such Guaranty. Without limiting the
generality of the foregoing, it is agreed and understood that each general
partner of a partnership shall be deemed to be a Guarantor of all indebtedness
and other obligations of such partnership and such partnership shall be deemed
to be the Primary Obligor in respect of such indebtedness and other obligations.
For purposes of the immediately preceding sentence, a Person shall be deemed to
be a general partner of any so-called "joint venture" or other arrangement
(whether or not constituting a partnership), and such joint venture or other
arrangement shall be deemed to be a partnership, if,
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pursuant to applicable law, by contract or otherwise, such Person is liable,
directly or indirectly, contingently or otherwise, either individually or
jointly with one or more other Persons, for the indebtedness or other
obligations of such joint venture or other arrangement.
HAZARDOUS SUBSTANCES -- means any and all pollutants, contaminants,
toxic or hazardous wastes and any other substances that might pose a hazard to
health or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage, seepage
or filtration of which is or shall be, in each of the foregoing cases,
restricted, prohibited or penalized by any applicable law.
INSTALLMENT CONTRACTS -- means retail installment contracts for the
sale of new or used motor vehicles assigned outright by Dealers to the Company
or a Restricted Subsidiary or written by Dealers in the name of the Company or a
Restricted Subsidiary (and funded by the Company or such Restricted Subsidiary)
or assigned by Dealers to the Company or a Restricted Subsidiary, as nominee for
the Dealer, for administration, servicing and collection, in each case pursuant
to an applicable Dealer Agreement; provided, however, that to the extent the
Company or any Restricted Subsidiary transfers or encumbers its interest in any
Installment Contracts (or any Advances related thereto) pursuant to a Permitted
Securitization, such Installment Contracts shall, from and after the date of
such transfer or encumbrance, cease to be considered Installment Contracts under
this Agreement (reducing the amount of Advances by the outstanding amount of
such advances, if any, attributable to such Installment Contracts) unless and
until such installment contracts are reassigned to the Company or a Restricted
Subsidiary or such encumbrances are discharged.
INSTITUTIONAL INVESTOR -- means the Purchasers, any affiliate of any of
the Purchasers and any holder or beneficial owner of Notes that is an
"accredited investor" as defined in section 2(15) of the Securities Act or a
"qualified institutional buyer" as defined in 17 C.F.R. ss.230.144A, as amended
from time to time.
INTANGIBLE ASSETS -- means any assets of a Person that would be
classified as "intangible assets" under GAAP, including, without limitation,
goodwill, trademarks, trade names, patents, copyrights, franchises and other
intangible assets of such Person.
INTERCREDITOR AGREEMENT -- means the Intercreditor Agreement, dated as
of December 15, 1998, by and among the Banks, the holders of Notes, the holders
of "Future Debt" (as defined in such agreement) and Comerica Bank, as collateral
agent, as such agreement may be amended from time to time.
INVESTMENT -- means any investment, made in cash or by delivery of
Property, by the Company or any Restricted Subsidiary:
(a) in any Person, whether by acquisition of stock,
indebtedness or other obligation or Security, or by loan, Guaranty,
advance, capital contribution or otherwise; or
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(b) in any Property.
Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon. Any designation
of a Subsidiary as an Unrestricted Subsidiary pursuant to Section 6.17 shall be
deemed to be an Investment, in an amount equal to the net worth of such
Subsidiary, at the time of such designation and any Investments of a Person
existing at the time it shall become a Restricted Subsidiary shall be deemed to
have been made immediately after such time.
INVESTMENT GRADE RATING -- means a rating of at least, but not lower
than:
(i) "Baa3" by Moody's Investors Service, Inc.,
(ii) "BBB-" by Standard & Poor's Ratings Group,
(iii) a category "1" or category "2" designation from the
National Association of Insurance Commissioners, and
(iv) "BBB-" by Fitch Investors Services, Inc.
IRC -- means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
IRS -- means the Internal Revenue Service and any successor agency.
LEASED VEHICLES -- means, as of any applicable date of determination,
the dollar amount of advances in respect of Leases, as such amount would appear
in the footnotes to the financial statements of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP or, if specifically identified,
elsewhere in such financial statements, net of depreciation on the motor
vehicles which are covered by Leases with respect to which such Leased Vehicles
are attributable (and if such amount is not shown net of such reserves, then net
of any reserves established by the Company as an allowance for credit losses
related to such advances not expected to be recovered), provided that Leased
Vehicles shall not include (a) the amount of any such advances attributable to
any Leases transferred or encumbered pursuant to a Permitted Securitization
(whether or not attributable to the Company under GAAP) unless and until such
advances (and the related Leases) are reassigned to the Company or a Restricted
Subsidiary or such encumbrances are discharged, or (b) Charged-Off Lease
Advances, to the extent that such Charged-Off Lease Advances (i) exceed the
portion of the allowance for credit losses related to reserves against such
advances not expected to be recovered, as such allowance would appear in the
footnotes to the financial statements of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP at such time or if specifically
identified, elsewhere in such financial statements and (ii) have not already
been eliminated in the determination of Leased Vehicles.
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LEASE(S) -- means the retail agreements for the lease of motor vehicles
assigned outright by Dealers to the Company or a Restricted Subsidiary or
written by a Dealer in the name of the Company or a Restricted Subsidiary (and
funded by the Company or such Restricted Subsidiary) or assigned by Dealers to
the Company or a Restricted Subsidiary, as nominee for the Dealer, for
administration, servicing and collection, in each case pursuant to an applicable
Dealer Agreement; provided, however, that to the extent the Company or any
Restricted Subsidiary transfers or encumbers its interest in any Leases pursuant
to a Permitted Securitization, such Leases shall, from and after the date of
such transfer or encumbrance, cease to be considered Leases under this Agreement
(reducing the amount of Leased Vehicles by the outstanding amount of Leased
Vehicles attributable to such Leases) unless and until such Leases are
reassigned to the Company or a Restricted Subsidiary or such encumbrances have
been discharged.
LETTER OF CREDIT FACILITY -- means a letter of credit issued by a
commercial bank for the account of the Company or a Restricted Subsidiary,
solely in support of the Company's or such Restricted Subsidiary's obligations
in respect of commercial paper issued by the Company or such Restricted
Subsidiary.
LIEN -- means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including, but not
limited to, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale, sale with recourse or a trust receipt, or a lease,
consignment or bailment for security purposes. The term "Lien" includes, without
limitation, reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property and includes, without limitation, with
respect to stock, stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements. For the purposes hereof, the Company
and each Subsidiary shall be deemed to be the owner of any Property that it
shall have acquired or holds subject to a conditional sale agreement, Capital
Lease or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes, and such
retention or vesting is deemed a Lien. The term "Lien" does not include negative
pledge clauses in agreements relating to the borrowing of money or the
obligation of the Company (a) to remit monies held by it in connection with
dealer holdbacks (including, without limitation, with respect to Leases or
Installment Contracts), claims or refunds under insurance policies, or claims or
refunds under service contracts or (b) to make deposits in trust or otherwise as
required under reinsurance agreements or pursuant to state regulatory
requirements, unless the Company has encumbered its interest in such monies or
deposits or in other Property of the Company to secure such obligations. The
term "Lien" also does not include the rights of the "Agent" (as defined in the
Credit Agreement) and the Banks to money, consisting either of net proceeds of
any "Permitted Securitization" (as defined in the Credit Agreement) or net
proceeds from the issuance of "Future Debt" (as defined in the Credit Agreement)
deposited by the Company or any Restricted Subsidiary in a cash collateral
account, in lieu of the Company's reduction of indebtedness outstanding under
the Credit Agreement, for the purpose of avoiding breakage charges in connection
with "Eurocurrency-based Advances" (as defined in the
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Credit Agreement) under the Credit Agreement, all in accordance with clause (d)
of the definition of "Permitted Securitization" and clause (d) of the definition
of "Funding Conditions" in the Credit Agreement, as applicable; it being also
understood and agreed that the holders of Notes shall have no rights to a
security interest in or Lien on the money so deposited.
MAKE-WHOLE AMOUNT -- means, with respect to any date (a "Prepayment
Date") and any principal amount ("Prepaid Principal") of Notes required for any
reason to be paid prior to the regularly scheduled maturity thereof on such
Prepayment Date, the greater of
(a) Zero Dollars ($0), and
(b) (i) the sum of the present values of the then remaining
scheduled payments of principal and interest that would be
payable in respect of such Prepaid Principal but for such
prepayment or acceleration, minus
(ii) the sum of
(1) the amount of such Prepaid Principal,
plus
(2) the amount of interest accrued on
such Prepaid Principal since the scheduled
interest payment date immediately preceding
such Prepayment Date.
In determining such present values, a discount rate equal to the Make-Whole
Discount Rate with respect to such Prepayment Date and Prepaid Principal divided
by two (2), and a discount period of six (6) months of thirty (30) days each,
shall be used.
As used in this definition:
Make-Whole Discount Rate -- means, with respect to any
Prepayment Date and Prepaid Principal, the sum of
(a) the per annum percentage rate (rounded to the
nearest three (3) decimal places) equal to the bond equivalent
yield to maturity derived from the Bloomberg Rate with respect
to such Prepaid Principal, or if such Bloomberg Rate is not
then available, the Applicable H.15 Rate, in either case,
determined as of the date that is two (2) Business Days prior
to such Payment Date, plus
(b) fifty one-hundredths percent (0.50%) per annum.
For purposes of clause (a) of the preceding sentence, if no United
States Treasury obligation with a Treasury Constant Maturity
corresponding exactly to the Weighted Average Life to Maturity of such
Prepaid Principal is listed, the yields for the two (2) published
United States
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Treasury obligations with Treasury Constant Maturities most closely
corresponding to such Weighted Average Life to Maturity (one (1) with a
longer maturity and one (1) with a shorter maturity, if available)
shall be calculated pursuant to the immediately preceding sentence and
the Make-Whole Discount Rate shall be interpolated or extrapolated from
such yields on a straight-line basis.
Applicable H.15 -- means, at any time, United States Federal
Reserve Statistical Release H.15(519) or its successor publication then
most recently published and available to the public or, if no such
successor publication is available, then any other source of current
information in respect of interest rates on securities of the United
States of America that is generally available and, in the judgment of
the Required Holders, provides information reasonably comparable to the
H.15(519) report.
Applicable H.15 Rate -- means, at any time with respect to any
Prepaid Principal, the then most current annual yield to maturity of
the hypothetical United States Treasury obligation listed in the
Applicable H.15 for the then most recently available day in such
Applicable H.15 with a Treasury Constant Maturity (as defined in such
Applicable H.15) equal to the Weighted Average Life to Maturity of such
Prepaid Principal determined as of such Prepayment Date. If no such
United States Treasury obligation with a Treasury Constant Maturity
corresponding exactly to such Weighted Average Life to Maturity is
listed, then the yields for the two (2) published United States
Treasury obligations with Treasury Constant Maturities most closely
corresponding to such Weighted Average Life to Maturity (one (1) with a
longer maturity and one (1) with a shorter maturity, if available)
shall be calculated pursuant to the immediately preceding sentence and
the Make-Whole Discount Rate shall be interpolated or extrapolated from
such yields on a straight-line basis.
Bloomberg Rate -- means, on any date, with respect to any
Prepaid Principal, the yields reported, as of 10:00 A.M. (New York City
time) on such date with respect to such Prepaid Principal, on the
display designated as "USD" on the Bloomberg Financial Market Service
(or such other display as may replace Page USD on the Bloomberg
Financial Market Service) for actively traded U.S. Treasury securities
having a maturity equal to the Weighted Average Life to Maturity of
such Prepaid Principal as of such date. If no such U.S. Treasury
security with a maturity corresponding exactly to the Weighted Average
Life to Maturity of such Prepaid Principal is reported, then the yields
for the two (2) U.S. Treasury securities with maturities most closely
corresponding to the Weighted Average Life to Maturity of such Prepaid
Principal (one (1) with a longer maturity and one (1) with a shorter
maturity, if available) shall be calculated pursuant to the immediately
preceding sentence and the Make-Whole Discount Rate shall be
interpolated or extrapolated from such yields on a straight-line basis.
Weighted Average Life to Maturity -- means, with respect to
any Prepayment Date and Prepaid Principal, the number of years obtained
by dividing the Remaining Dollar-Years of such Prepaid Principal
determined on such Prepayment Date by such Prepaid Principal.
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Remaining Dollar-Years -- means, with respect to any
Prepayment Date and Prepaid Principal, the result obtained by
(a) multiplying, in the case of each required payment
of principal (including payment at maturity) that would be
payable in respect of such Prepaid Principal but for such
prepayment,
(i) an amount equal to such required
payment of principal, by
(ii) the number of years (calculated to the
nearest one-twelfth (1/12)) that will elapse between
such Prepayment Date and the date such required
principal payment would be due if such Prepaid
Principal had not been so prepaid, and
(b) calculating the sum of each of the products
obtained in the preceding subsection (a).
MANDATORY PRINCIPAL AMORTIZATION PAYMENT -- Section 4.1.
MARGIN SECURITY -- means "margin stock" within the meaning of
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II, as amended from time to time.
MATERIAL ADVERSE EFFECT -- means a material adverse effect on the
business, profits, Properties or financial condition of the Company and the
Restricted Subsidiaries, taken as a whole, or on the ability of the Company to
perform its obligations set forth herein and in the Notes.
MONTANA DISPOSITION -- means the sale of Montana Investment Group, Inc.
and/or any of 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/or any of 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.
MULTIEMPLOYER PLAN -- means any "multiemployer plan" (as defined in
section 3 of ERISA) in respect of which the Company or any ERISA Affiliate is an
"employer" (as defined in section 3 of ERISA).
MULTIPLE EMPLOYER PENSION PLAN -- means any "employee benefit plan"
within the meaning of section 3(3) of ERISA (other than a Multiemployer Plan),
subject to Title IV of ERISA,
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constituting a "single-employer plan" (as defined in section 4001 of ERISA)
which has two (2) or more "contributing sponsors" (as defined in section 4001 of
ERISA), at least two (2) of which are not under "common control" (as defined in
section 4001 of ERISA) and to which the Company or any ERISA Affiliate
contribute.
NET DEALER HOLDBACKS -- means, at any time, (a) Gross Dealer Holdbacks
minus (b) Advances at such time.
NET INSTALLMENT CONTRACT RECEIVABLES -- means, at any time, the amount
computed as the result of (a) Gross Installment Contract Receivables minus (b)
Unearned Finance Charges minus (c) Allowances for Credit Losses relating to
Installment Contracts (but excluding any such allowances which are related to
Leases), at such time.
NET LEASED VEHICLE DEALER HOLDBACKS -- means, at any time, with respect
to Dealer Agreements relating to Leases, amounts due to Dealers at such time
from collections of Leased Vehicles by the Company or any Restricted Subsidiary
(other than with respect to Leases which have been transferred or encumbered
pursuant to a Permitted Securitization and (x) have not been reassigned to the
Company or a Restricted Subsidiary or (y) with respect to which such
encumbrances have not been discharged) pursuant to the applicable Dealer
Agreements.
NON-RECOURSE DEBT -- means Debt of a partnership, joint venture or
similar entity in which the Company or a Restricted Subsidiary is a participant,
so long as the holder or holders of such Debt shall have no rights or recourse
against any Property of the Company or any Restricted Subsidiary, other than
Property used solely in connection with such partnership, joint venture or
similar entity.
NOTE PURCHASE AGREEMENTS -- Section 1.2(c).
NOTES -- Section 1.1.
OPERATING LEASE -- means, with respect to any Person, any lease other
than a Capital Lease.
OPERATING RENTALS -- means all fixed payments that the lessee is
required to make by the terms of any Operating Lease.
ORIGINAL NOTES -- Section 1.1(a).
OSHA -- means the Occupational Safety and Health Act of 1970, together
with all rules, regulations and standards promulgated pursuant thereto, all as
amended from time to time.
OTHER PURCHASERS -- Section 1.2(c).
OUTRIGHT DEALER AGREEMENT(S) -- means Dealer Agreements referred to in
clause (b) of the definition of Dealer Agreements.
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PBGC -- means the Pension Benefit Guaranty Corporation and any
successor corporation or governmental agency.
PENSION PLAN -- means, at any time, any "employee pension benefit plan"
(as defined in section 3 of ERISA) maintained at such time by the Company or any
ERISA Affiliate for employees of the Company or such ERISA Affiliate, excluding
any Multiemployer Plan, but including any Multiple Employer Pension Plan.
PERMITTED SECURITIZATION(S) -- means each transfer or encumbrance (each
a "disposition") of specific Advances or Leased Vehicles funded under Back-End
Dealer Agreements (and any interest in or lien on the Installment Contracts,
Leases, motor vehicles or other rights relating thereto) or of specific
Installment Contracts or Leases (and any interest in or lien on motor vehicles
or other rights relating thereto) arising under Outright Dealer Agreements, in
each case by the Company or one or more Restricted Subsidiaries to a Special
Purpose Subsidiary conducted in accordance with the following requirements:
(a) Each disposition shall identify with reasonable
certainty the specific Advances, Leased Vehicles,
Installment Contracts or Leases covered by such
disposition; and such Advances or Leased Vehicles
(and the Installment Contracts, Leases, motor
vehicles or other rights relating thereto) and the
Installment Contracts and Leases shall have
performance and other characteristics so that the
quality of such Advances, Leased Vehicles,
Installment Contracts or Leases, as the case may be,
is comparable to, but not materially better than, the
overall quality of the Company's Advances, Leased
Vehicles, Installment Contracts or Leases, as
applicable, as a whole, as determined in good faith
by the Company in its reasonable discretion;
(b) (i) The disposition of Advances, Leased Vehicles,
Installment Contracts or Leases will not result in
the aggregate principal amount of Debt at any time
outstanding, and (without duplication) of similar
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
exceeding $100,000,000, which amount may be
readvanced and reborrowed and (ii) the Company or the
Restricted Subsidiary disposing of Advances, Leased
Vehicles, Installment Contracts or Leases 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
financial assets in connection with any such
Securitization Transaction in an amount not less than
Seventy-Five Percent (75%) of the sum of (A) the
amount of such Advances, (B) the amount of Net
Installment Contract Receivables in respect of
Installment Contracts arising under Outright Dealer
Agreements, and (C)
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the amount of Leased Vehicles, in each case
determined on the date of such Securitization
Transaction;
(c) Each such disposition shall be without recourse
(except to the extent of normal and customary
representations and warranties given as of the date
of each such disposition, and not as continuing
representations and warranties) and otherwise on
normal and customary terms and conditions for
comparable asset-based securitization transactions
which may include, without limitation, Cleanup Call
provisions;
(d) Each such Securitization Transaction shall be
structured on the basis of the issuance of
non-recourse Debt or other similar securities by the
Special Purpose Subsidiary; and
(e) Both immediately before and after giving effect to
such disposition, no Default or Event of Default
(whether or not related to such disposition) exists
or would exist.
In connection with each Permitted Securitization conducted
hereunder, not less than ten (10) Business Days prior to the
date of consummation thereof, the Company shall provide to
each holder of a Note (i) a schedule in the form attached
hereto as Exhibit E identifying the specific Installment
Contracts or Leases or the Advances or Leased Vehicles (and
providing collection information regarding the related
Installment Contracts or Leases) proposed to be covered by
such transaction (with evidence supporting its determination
under subparagraph (a) of this definition, including without
limitation a "static pool analysis" comparable to the static
pool analysis required to be delivered under Section 7.1(j)(1)
hereof with respect to such Installment Contracts or Leases)
and (ii) proposed drafts of the material Securitization
Documents covering the applicable securitization (and the term
sheet or commitment relating thereto). Within five (5)
Business Days following the consummation thereof, the Company
shall have provided to each holder of Notes copies of the
material Securitization Documents, as executed, including an
updated schedule, substantially in the form of the schedule
delivered under clause (i) above, identifying the financial
assets actually covered by such transaction (and, if such
financial assets are materially different, as reasonably
determined by the Company, from those shown in the schedule
delivered under clause (i) above, collection information and
evidence supporting its determination under subparagraph (a)
of this definition, including a comparable "static pool
analysis," as aforesaid, with respect to such financial
assets).
PERSON -- means an individual, sole proprietorship, partnership,
corporation, limited liability company, trust, joint venture, unincorporated
organization, or a government or agency or political subdivision thereof.
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PLACEMENT AGENT -- means William Blair & Company, L.L.C.
PLACEMENT MEMORANDUM -- Section 2.1.
PROPERTY -- means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
PURCHASE MONEY LIEN -- means a Lien held by any Person (whether or not
the seller of such Property) on tangible Property (or a group of related items
of Property the substantial portion of which is tangible) acquired or
constructed by the Company or any Restricted Subsidiary, which Lien secures all
or a portion of the related purchase price or construction costs of such
Property, provided that such Lien
(a) is created contemporaneously with, or within thirty (30)
days of, such acquisition or construction,
(b) encumbers only Property purchased or constructed after the
Closing Date and acquired with the proceeds of the Debt secured
thereby, and
(c) is not thereafter extended to any other Property.
PURCHASERS -- means you and the Other Purchasers.
REQUIRED HOLDERS -- means, at any time, the holders of at least
sixty-six and two-thirds percent (66-_%) in principal amount of the Notes at the
time outstanding (exclusive of Notes then owned by any one or more of the
Company, any Restricted Subsidiary and any Affiliate).
RESTRICTED INVESTMENT -- means, at any time, all Investments except the
following:
(a) Investments in Property to be used in the ordinary course
of business of the Company and the Restricted Subsidiaries;
(b) subject to clause (k) of this definition, Investments in
receivables, advances, Leases and Leased Vehicles arising from the sale
or lease of goods and services, in each case in the ordinary course of
business of the Company and the Restricted Subsidiaries;
(c) Investments by the Company or any Restricted Subsidiary in
the ordinary course of its business in one or more Restricted
Subsidiaries or any corporation that concurrently with such Investment
becomes a Restricted Subsidiary, provided that the aggregate amount of
all Investments made pursuant to this paragraph (c) and paragraph (d)
of this definition (excluding Guaranties by the Company of Debt of
Restricted Subsidiaries) does not at any time exceed twenty-five
percent (25%) of Consolidated Tangible Net Worth
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(it being understood that loans and advances to any Restricted
Subsidiary by any Person other than the Company or any other Restricted
Subsidiary, regardless of whether such loans and advances are
guaranteed by the Company or any other Restricted Subsidiary, shall not
be taken into account in determining the aggregate amount of
Investments made pursuant to this paragraph (c) and paragraph (d) of
this definition);
(d) Investments consisting of loans by the Company or any
Restricted Subsidiary, and advances from the Company or any Restricted
Subsidiary, in each case to the Company or any Restricted Subsidiary in
the ordinary course of business of the Company and the Restricted
Subsidiaries, provided that the aggregate amount of all Investments
made pursuant to paragraph (c) of this definition and this paragraph
(d) (excluding Guarantees by the Company of Debt of Restricted
Subsidiaries) does not at any time exceed twenty-five percent (25%) of
Consolidated Tangible Net Worth (it being understood that loans and
advances to any Restricted Subsidiary by any Person other than the
Company or any other Restricted Subsidiary, regardless of whether such
loans and advances are guaranteed by the Company or any other
Restricted Subsidiary, shall not be taken into account in determining
the aggregate amount of Investments made pursuant to this paragraph (d)
and paragraph (c) of this definition);
(e) Investments in direct obligations of, or obligations
guarantied by, the United States of America or any agency of the United
States of America the obligations of which agency carry the full faith
and credit of the United States of America, provided that such
obligations (other than Investments by CAC Life in such obligations
made to match liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition thereof;
(f) Investments in any obligation of any state or municipality
thereof that at the time of acquisition thereof have an assigned rating
of "A" or higher by Standard & Poor's Ratings Group (or an equivalent
or higher rating by another credit rating agency of recognized national
standing in the United States of America), provided that such
obligations (other than Investments by CAC Life in such obligations
made to match liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition thereof;
(g) Investments in negotiable certificates of deposit issued
by commercial banks organized under the laws of the United States of
America or any state thereof, having capital, surplus and undivided
profits aggregating at least Fifty Million Dollars ($50,000,000) and
the long-term unsecured debt obligations of which are rated "A" or
higher by Standard & Poor's Ratings Group (or an equivalent or higher
rating by another credit rating agency of recognized national standing
in the United States of America), provided that such certificates of
deposit (other than Investments by CAC Life in such certificates of
deposit made to match liabilities incurred in the ordinary course of
business) mature within one (1) year from the date of acquisition
thereof;
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(h) Investments in corporate debt obligations of corporations
organized under the laws of the United States of America or any state
thereof that at the time of acquisition thereof have an assigned rating
of "A" or higher by Standard & Poor's Ratings Group (or an equivalent
or higher rating by another credit rating agency of recognized national
standing in the United States of America);
(i) Investments in preferred stock of corporations organized
under the laws of the United States of America or any state thereof
that have an assigned rating of "A" or higher by Standard & Poor's
Ratings Group (or an equivalent or higher rating by another credit
rating agency of recognized national standing in the United States of
America);
(j) Investments in loans or advances, in the ordinary course
of business and necessary to carrying on the business of the Company or
any Restricted Subsidiary, to officers, directors and employees of the
Company and the Restricted Subsidiaries, provided that the aggregate
amount of all such Investments does not at any time exceed One Million
Dollars ($1,000,000);
(k) Investments in receivables arising from floor plan
receivables and note receivables due from dealers in the ordinary
course of business of the Company and the Restricted Subsidiaries,
provided that the aggregate amount of all such Investments does not at
any time exceed ten percent (10%) of Consolidated Total Assets;
(l) Investments by the Company or any Restricted Subsidiary in
the Company, any Restricted Subsidiary or any Special Purpose
Subsidiary from and after the effective date of the Fourth Amendment,
consisting of (i) dispositions of specific Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or related to
Advances) or Leases (whether assigned outright or related to Leased
Vehicles) made pursuant to a Permitted Securitization and the resultant
Debt issued by a Special Purpose Subsidiary to another Subsidiary as
part of a Permitted Securitization, in each case to the extent
constituting Investments, (ii) advances by the Company, as servicer of
the Installment Contracts or Leases covered by a Permitted
Securitization, in an aggregate amount not to exceed $1,500,000
outstanding at any time, to cover the interest component of obligations
issued as part of a Permitted Securitization and payable from
collections on such Installment Contracts (such advances to be
repayable to the Company on a priority basis from such collections),
(iii) the repurchase or replacement from and after the date of the
effectiveness of the Fourth Amendment of an aggregate amount not to
exceed $5,000,000 in Advances, Leased Vehicles, Installment Contracts
(whether assigned outright or related to Advances) or Leases (whether
assigned outright or related to Leased Vehicles) subsequently
determined not to satisfy the eligibility standards contained in the
applicable Securitization Documents relating to a Permitted
Securitization, so long as (x) such replacement is accompanied by the
repurchase of or release of encumbrances on such financial assets
previously transferred or encumbered pursuant to such securitization
and in the amount thereof, (y) any replacement
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Advances, Leased Vehicles, Installment Contracts (whether assigned
outright or related to Advances) or Leases (whether assigned outright
or related to Leased Vehicles) are selected by the Company according to
the requirements set forth in clause (a) of the definition of Permitted
Securitization and (z) such replacements are made at a time when (both
before and after giving effect thereto) no Default or Event of Default
exists or would exist, (iv) amounts required to fund any Cleanup Call
under the terms of such Permitted Securitization, and (v) the
disposition of the capital stock of a Special Purpose Subsidiary; and
(m) Investments not otherwise included in clause (a) through
clause (l) of this definition, provided that the aggregate amount of
all such Investments does not at any time exceed Two Million Five
Hundred Thousand Dollars ($2,500,000).
RESTRICTED PAYMENT -- means (x) any dividend or other distribution,
direct or indirect and whether payable in cash or property, on account of any
capital stock or other equity interest of the Company or any of its Restricted
Subsidiaries and (y) any redemption, retirement, purchase, or other acquisition,
direct or indirect, of any capital stock or other equity interests of the
Company or any of its Restricted Subsidiaries now or hereafter outstanding, or
of any warrants, rights or options to acquire any such capital stock or other
equity interests or any securities convertible into such capital stock or other
equity interests, except to the extent that any such dividend or distribution,
or any such redemption, retirement, purchase or other acquisition (i) is payable
to the Company or any of its Restricted Subsidiaries or (ii) is payable solely
in capital stock or other equity interests of the Company or any such Restricted
Subsidiary.
RESTRICTED SUBSIDIARY -- means any Subsidiary (a) in respect of which
the Company owns, directly or indirectly, (i) at least eighty percent (80%) (by
number of votes) of each class of such Subsidiary's Voting Stock, or (ii) in the
case of CAC Insurance Agency of Ohio, Inc., at least 99% of the shares of
capital stock issued and outstanding of all classes in the aggregate, (b) that
is organized under the laws of the United States of America or any jurisdiction
thereof, the United Kingdom or any jurisdiction thereof (including, without
limitation, England, Scotland and Wales), Canada or any jurisdiction thereof or
the Republic of Ireland or any jurisdiction thereof, and that conducts all of
its business in, and has all of its Property located in, the United States of
America, the United Kingdom, Canada and/or the Republic of Ireland and (c) that
is not an Unrestricted Subsidiary. Any Restricted Subsidiary in compliance with
the requirements set forth in the first sentence of this definition and
designated as a Restricted Subsidiary on the Closing Date shall be deemed to
have been a Restricted Subsidiary for all periods prior to the Closing Date.
Notwithstanding any provision in Section 6.17 to the contrary, CAC International
and CAC UK shall be deemed Restricted Subsidiaries as of October 1, 1995 and CAC
of Canada Limited and any Subsidiary formed by the Company to provide property
and casualty insurance shall each be deemed a Restricted Subsidiary as of the
date of its formation.
RESTRICTED SUBSIDIARY STOCK -- Section 6.8(b).
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SALE AND LEASEBACK TRANSACTION -- means any transaction or series of
related transactions in which the Company or a Restricted Subsidiary sells or
transfers any of its Property to any Person (other than to the Company or to a
Restricted Subsidiary) and concurrently with such sale or transfer, or
thereafter, rents or leases such transferred Property or substantially similar
Property from any Person.
SECURITIES ACT -- means the Securities Act of 1933, as amended.
SECURITIZATION DOCUMENTS -- means any note purchase agreement (and any
notes issued thereunder), transfer or security documents, master trust or other
trust agreements, servicing agreement, indenture, pooling agreement,
contribution or sale agreement or other documents, instruments and certificates
executed and delivered, subject to the terms of this Agreement, to evidence or
secure (or otherwise relating to) a Permitted Securitization, as the same may be
amended from time to time (subject to the terms hereof) and any and all other
documents executed in connection therewith or replacement or renewal thereof.
SECURITIZATION PROPERTY -- means (i) amounts advanced by the Company or
a Restricted Subsidiary under a Dealer Agreement and payable from collections,
including servicing charges, insurance charges and service policies and all
related finance charges, late charges, and all other fees and charges charged to
customers and all monies due or to become due, and all monies received, with
respect thereto ("Loans"); (ii) all proceeds (including "proceeds" as defined in
the Uniform Commercial Code) thereof; (iii) all of the Company's or a Restricted
Subsidiary's interest in the Dealer Agreements and Installment Contracts
securing payment of Loans, all security interests or liens purporting to secure
payment of Loans and all other property obtained upon foreclosure of any
security interest securing payment of Loans or any related Installment Contract
and all guarantees, insurance (including insurance insuring the priority or
perfection of any lien) or other agreements or arrangements of any kind from
time to time supporting or securing payment of such Installment Contract whether
pursuant to such Installment Contract or otherwise; (iv) all records with
respect to Loans, (v) the Company's or a Restricted Subsidiary's right, title
and interest in and to business interruption insurance, and (vi) all payments
received by the Company in respect of Transferred Loans in the form of cash,
checks, wire transfers or other form of payment.
SECURITIZATION TRANSACTION -- means a Transfer of, or grant of a Lien
on, Advances, Installment Contracts, Leased Vehicles, Leases, accounts
receivable and/or other financial assets by the Company or any Restricted
Subsidiary to a Special Purpose Subsidiary or other special purpose or limited
purpose entity and the issuance (whether by such Special Purpose Subsidiary or
other special purpose or limited purpose entity or any other Person) of Debt or
of any Securities secured directly or indirectly by interests in, or of trust
certificates or other Securities directly or indirectly evidencing interests in,
such Advances, Installment Contracts, Leased Vehicles, Leases, accounts
receivable and/or other financial assets.
SECURITY -- means "security" as defined in section 2(1) of the
Securities Act.
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SENIOR FINANCIAL OFFICER -- means the chief financial officer, the
principal accounting officer, the controller or the treasurer of the Company.
SENIOR OFFICER -- means the chief executive officer, the president or
the chief financial officer of the Company.
SIXTH AMENDMENT -- means the Sixth Amendment, dated as of December 1,
1999, to this Agreement.
SPECIAL PURPOSE SUBSIDIARY -- means any Unrestricted Subsidiary of the
Company, all of the capital stock of which is owned by the Company or a
Restricted Subsidiary, which Unrestricted Subsidiary is formed for the sole
purpose of conducting one or more Permitted Securitizations and is operated for
such purpose in accordance with customary industry practices.
STANDARD & POOR'S RATINGS GROUP -- means Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc.
SUBORDINATED DEBT -- means, at any time, unsecured Debt of the Company
that is junior and subordinate in right of payment to the Notes on terms and
conditions satisfactory to the Required Holders, as evidenced by their written
consent.
SUBORDINATED FUNDED DEBT -- means, at any time, Funded Debt of the
Company or any Restricted Subsidiary that is:
(a) junior and subordinate in right of payment to the Notes on
terms and conditions satisfactory to the Required Holders, as evidenced
by their written consent thereto,
(b) not subject to any sinking fund or required prepayment
provisions that would result in its having at any time an average life
to maturity, computed in accordance with accepted financial practice,
shorter than the Weighted Average Life to Maturity (as defined in the
definition of "Make-Whole Amount") of the Notes at such time or a final
maturity earlier than the stated final maturity of the Notes, and
(c) not secured by a Lien on the Property of the Company or
any Restricted Subsidiary (whether or not such Funded Debt is recourse
to the Company or any Restricted Subsidiary).
SUBSIDIARY -- means, at any time, a corporation of which the Company
owns, directly or indirectly, more than fifty percent (50%) (by number of votes)
of each class of the Voting Stock at such time.
SURVIVING CORPORATION -- Section 6.7(a).
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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, the holders of the
Notes at such time 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.
TRANSFERS -- Section 6.8(a).
UNEARNED FINANCE CHARGES -- means, as of any applicable date of
determination, the unearned finance charges utilized in deriving installment
contract receivables, net on the consolidated balance sheet of the Company and
its Restricted Subsidiaries, as disclosed in the footnotes thereto, provided
that Unearned Finance Charges shall not include unearned finance charges
attributable to retail installment contracts which are not at such time
"Installment Contracts" due to the proviso in the definition of such term in
this Agreement.
UNRESTRICTED SUBSIDIARY -- means any Subsidiary that, as of the date of
this Agreement, is designated in Part 6.17(a) of Annex 3 as an Unrestricted
Subsidiary or, after the date of this Agreement, has been designated as an
Unrestricted Subsidiary as provided in Section 6.17.
VOTING STOCK -- means capital stock of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect corporate directors (or Persons performing
similar functions).
WHOLLY-OWNED RESTRICTED SUBSIDIARY -- means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity Securities
(except directors' qualifying shares) and voting Securities of which are owned
by, and all of the Debt of which is held by, any one or more of the Company and
the other Wholly-Owned Restricted Subsidiaries at such time."
2.5 AMENDMENT AND RESTATEMENT OF EXHIBIT A. The form of First Amended
and Restated Note set forth as Exhibit A to the Agreement is hereby amended and
restated, in its entirety, to be in the form of Attachment 4 attached to this
Sixth Amendment. All references to "Exhibit A" in the Note Purchase Agreements
shall, if in reference to a date on or after the date of the Sixth
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Amendment, refer to the form of Second Amended and Restated 9.87% (or 10.37%, if
on or after January 15, 2000) Senior Note Due November 1, 2001, as amended and
restated hereby.
2.6 AMENDMENT OF FIRST AMENDED AND RESTATED NOTES. The forms of the
respective First Amended and Restated Notes are hereby amended in their entirety
to conform to the form of Second Amended and Restated Note attached to this
Sixth Amendment as Attachment 4. On the date of this Sixth Amendment, each of
the terms of each outstanding First Amended and Restated Note shall be deemed to
be amended to conform with such form, without any further action on the part of
the Company or any holder of any First Amended and Restated Note (including,
without limitation, any requirement that any holder surrender its outstanding
First Amended and Restated Notes to the Company). Upon surrender of any
outstanding First Amended and Restated Note, the Company shall deliver to the
registered holder thereof a Second Amended and Restated Note in the form
attached hereto as Attachment 4, dated the date of the last interest payment on
such surrendered First Amended and Restated Note and in an aggregate principal
amount equal to the unpaid principal amount of such surrendered First Amended
and Restated Note, all in accordance with the provisions of Section 5.2 of the
Agreement. Without limitation of the foregoing, the amendment and restatement of
the First Amended and Restated Notes provided for herein, including, without
limitation, the increase in the interest rate applicable to the Notes, shall be
effective with respect to any and all of the Notes irrespective of whether any
such Notes are surrendered to the Company for reissuance in the form attached to
this Sixth Amendment as Attachment 4.
SECTION 3. MISCELLANEOUS
3.1 COUNTERPARTS. This Sixth Amendment may be executed in any number of
counterparts, each executed counterpart constituting an original, but all
together only one Sixth Amendment.
3.2 HEADINGS. The headings of the sections of this Sixth 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 Sixth 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
Sixth Amendment and (b) the terms and provisions of the Agreement, as amended by
this Sixth Amendment, shall continue in full force and effect. The Company
hereby acknowledges and reaffirms all of its obligations and duties under the
Agreement, as modified by this Sixth 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 Sixth Amendment may refer to the Agreement without
making specific reference to this Sixth Amendment
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but nevertheless all such references shall be deemed to include, to the extent
applicable, this Sixth Amendment unless the context shall otherwise require.
3.6 COMPLIANCE. The Company certifies that immediately before and after
giving effect to this Sixth Amendment, no Default or Event of Default exists or
would exist after giving effect hereto; provided that the Company may not be in
compliance with the covenant contained in Section 6.2 before giving effect to
this Sixth Amendment.
3.7 FULL DISCLOSURE. The Company warrants and represents to you that,
as of the effective date hereof, none of the written statements, documents or
other written materials furnished by, or on behalf of, the Company to you in
connection with the negotiation, execution and delivery of this Sixth Amendment
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances in which they were made. There is no fact of which
any of the Company's executive officers has actual knowledge which the Company
has not disclosed to you which materially affects adversely or, so far as the
Company can now reasonably foresee, will materially affect adversely the
business, prospects, profits, Properties or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or the ability of the
Company to perform its obligations set forth in the Agreement (after giving
effect to this Sixth Amendment) and the Notes.
3.8 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 (retroactive to September 30, 1999), 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 Sixth 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 Sixth 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 8.02% 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.
(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.
57
<PAGE> 58
(d) The Company shall have paid the statement for reasonable
fees and disbursements of Bingham Dana LLP, your special counsel,
presented to the Company on or prior to the effective date of this
Sixth Amendment.
(e) The Company's legal counsel shall have delivered an
opinion, dated the effective date of this Sixth Amendment,
substantially in the form attached as Attachment 5 to this Sixth
Amendment.
(f) The holders of Notes shall have received from the Company
a certificate of a Senior Officer, dated the effective date of this
Sixth Amendment, certifying as to the resolutions attached thereto and
other corporate proceedings relating to the authorization, execution
and delivery of this Sixth Amendment and the transactions contemplated
hereby.
3.9 AMENDMENT FEE. The Company shall pay a fee to all holders of Notes,
in consideration of the amendment set forth herein, in an amount equal to 0.20%
of the outstanding principal amount of the Notes held by such holder as of the
date hereof. Such fee shall be paid no later than the fifth business day after
all of the Required Holders have executed this Sixth Amendment.
3.10 COMMITMENT TO SELL NOTES. Each of the holders listed on Attachment
6 to this Sixth Amendment hereby irrevocably commits to sell the Repurchased
Notes held by such holder upon payment therefor by the Company on or before
January 15, 2000 in accordance with, and in the amount provided in, Section
6.15(b) of the Agreement (as amended by this Sixth Amendment) and such
Attachment 6.
3.11 WAIVER OF DELIVERY REQUIREMENT. In order to facilitate the
Company's prompt compliance with its obligations under Section 6.15(b) of the
Agreement (as amended by this Sixth
58
<PAGE> 59
Amendment), each of the Note holders hereby waives, with respect to the
Securitization Transaction to be consummated in connection with the fulfillment
of the Company's obligations under Section 6.15(b), the requirement in the
definition of Permitted Securitization that certain deliveries be made by the
Company not less than ten Business Days prior to the date of the consummation of
a Permitted Securitization; provided, however, that the Company shall make such
deliveries as promptly as reasonably practicable and, in any event, not less
than five Business Days prior to the consummation of such Securitization
Transaction.
[Remainder of page intentionally blank. Next page is signature page.]
59
<PAGE> 60
ACCEPTED:
ALLSTATE LIFE INSURANCE CO.
By /S/ Jerry D. Zinkula
---------------------------------
Name: Jerry D. Zinkula
Title: Authorized Signatory
By /S/ Patricia W. Wilson
---------------------------------
Name: Patricia W. Wilson
Title: Authorized Signatory
[Signature Page to Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
60
<PAGE> 61
ACCEPTED:
THE OHIO CASUALTY INSURANCE
COMPANY
By /S/ Bret Parrish
----------------------------
Name: Bret Parrish
Title: Portfolio Manager
THE OHIO LIFE INSURANCE COMPANY
By /S/ Bret Parrish
----------------------------
Name: Bret Parrish
Title: Portfolio Manager
[Signature Page to Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
61
<PAGE> 62
ACCEPTED:
WILLIAM BLAIR & COMPANY, LLC
By William Blair & Company, LLC, Attorney-
in-Fact
By /S/ James McKinney
-----------------------------------------
Name: James D. McKinney
Title: Principle and Manager
Fixed Income Department
[Signature Page to Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
62
<PAGE> 63
ACCEPTED:
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
ACE PROPERTY AND CASUALTY
INSURANCE COMPANY (F.K.A. CIGNA
PROPERTY AND CASUALTY INSURANCE COMPANY)
BY CIGNA INVESTMENTS, INC. (authorized agent)
By /S/ James R. Kuzemchak
----------------------------------------
Name: James R. Kuzemchak
Title: Managing Director
[Signature Page to Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
63
<PAGE> 64
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
[Signature Page to Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
64
<PAGE> 65
ACCEPTED:
WASHINGTON NATIONAL INSURANCE
COMPANY
By /S/ Michael R. Glick
------------------------------
Name: Michael R. Glick
Title:
[Signature Page to Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
65
<PAGE> 66
ACCEPTED:
LINCOLN LIFE & ANNUITY COMPANY OF
NEW YORK
By /S/ Chom S. Rectanus
--------------------------------------
Name: Chom S. Rectanus
Title: Vice President
[Signature Page to Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
66
<PAGE> 67
ACCEPTED:
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 Sixth Amendment to Note Purchase Agreement in respect of
9.12% Senior Notes Due November 1, 2001 of Credit Acceptance Corporation]
67
<PAGE> 68
ATTACHMENT 4
EXHIBIT A
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). ANY RESALE OR TRANSFER OF THIS NOTE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT MAY ONLY BE MADE IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
CREDIT ACCEPTANCE CORPORATION
SECOND AMENDED AND RESTATED 9.87% SENIOR NOTE DUE NOVEMBER 1, 2001
[FROM AND INCLUDING DECEMBER 1, 1999 TO, BUT NOT INCLUDING, JANUARY 15, 2000]
SECOND AMENDED AND RESTATED 10.37% SENIOR NOTE DUE NOVEMBER 1, 2001
[FROM AND AFTER JANUARY 15, 2000]
NO. R-
----
$
------------
PPN: 225310 A* 2 [DATE]
CREDIT ACCEPTANCE CORPORATION, a Michigan corporation (the "Company"),
for value received, hereby promises to pay to or registered assigns
the principal sum of DOLLARS ($ ) on November 1, 2001
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal balance thereof from the date of this Note (i)
at the rate of eight and eighty-seven one-hundredths percent (8.87%) per annum
through (but not including) July 1, 1998, (ii) at the rate of nine and twelve
one-hundredths percent (9.12%) per annum from and after July 1, 1998 through
(but not including) December 1, 1999, (iii) at the rate of nine and eighty-seven
one-hundredths percent (9.87%) per annum from (and including) and after December
1, 1999 through (but not including) January 15, 2000, and (iv) at the rate of
ten and thirty-seven one-hundredths percent (10.37%) per annum from and after
January 15, 2000, payable semi-annually on the first (1st) day of November and
May in each year, commencing on the payment date next succeeding the date
hereof, until the principal amount hereof shall become due and payable; and to
pay on demand interest on any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if any, and (to the extent
permitted by applicable law) on any overdue installment of interest, at a rate
equal to the lesser of (a) the highest rate allowed by applicable law or (b) ten
and eighty-seven one-hundredths percent (10.87%) per annum if such time is prior
A-1
<PAGE> 69
to July 1, 1998, eleven and twelve one-hundredths percent (11.12%) per annum if
such time is on or after July 1, 1998 but prior to December 1, 1999, eleven and
eighty-seven one-hundredths percent (11.87%) per annum if such time is on or
after December 1, 1999 but prior to January 15, 2000 and twelve and thirty-seven
one-hundredths percent (12.37%) per annum if such time is on or after January
15, 2000.
Payments of principal, Make-Whole Amount, if any, and interest shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts to the
registered holder hereof at the address shown in the register maintained by the
Company for such purpose, in the manner provided in the Note Purchase Agreement
(defined below).
This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to Sixty Million Dollars ($60,000,000)
pursuant to the Company's separate Note Purchase Agreements, each dated as of
October 1, 1994 (collectively, as may be amended from time to time, the "Note
Purchase Agreement"), with the purchasers listed on Annex 1 thereto. This Note
is entitled to the benefits of the Note Purchase Agreement and the terms thereof
are incorporated herein by reference. Capitalized terms used herein and not
otherwise defined herein have the meanings specified in the Note Purchase
Agreement. As provided in the Note Purchase Agreement, this Note is subject to
prepayment, in whole or in part, in certain cases without a Make-Whole Amount
and in other cases with a Make-Whole Amount. The Company agrees to make required
prepayments on account of such Notes in accordance with the provisions of the
Note Purchase Agreement.
This Note is a registered Note and is transferable only by surrender
hereof at the principal office of the Company as specified in the Note Purchase
Agreement, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Note or its attorney duly authorized
in writing.
Under certain circumstances, as specified in the Note Purchase
Agreement, the principal of this Note (in certain cases together with any
applicable Make-Whole Amount) may be declared due and payable in the manner and
with the effect provided in the Note Purchase Agreement.
The Company's Second Amended and Restated [9.87%] [10.37%] Senior Notes
due November 1, 2001 (the "Second Amended and Restated Notes") amend and restate
the Company's First Amended and Restated 9.12% Senior Notes due November 1, 2001
(the "First Amended and Restated Notes") and its 8.87% Senior Notes due November
1, 2001 (the "Original Notes"). The obligations formerly evidenced by the First
Amended and Restated Notes and the Original Notes are continuing obligations
which are evidenced by the Second Amended and Restated Notes and nothing
contained in the Second Amended and Restated Notes shall be deemed to constitute
payment, settlement or a novation of such obligations.
A-2
<PAGE> 70
THIS NOTE AND THE NOTE PURCHASE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL CONNECTICUT LAW.
CREDIT ACCEPTANCE CORPORATION
By
--------------------------------------
Name:
Title:
A-3
<PAGE> 71
ATTACHMENT 5
[FORM OF COMPANY COUNSEL LEGAL OPINION]
December 1, 1999
To each of the Persons
listed on Annex 1 hereto
Re: Credit Acceptance Corporation, a Michigan
corporation (the "Company")
Ladies and Gentlemen:
We have acted as special counsel to the Company and have provided this
opinion pursuant to the Sixth Amendment to Note Purchase Agreement, dated as of
December 1, 1999 (the "Sixth Amendment"), among the Company and the Persons
listed on Annex 1 thereto (the "Holders"), in respect of 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, the
Fourth Amendment to Note Purchase Agreement dated as of July 1, 1998 and the
Fifth Amendment to Note Purchase Agreement dated as of April 13, 1999, the
"Existing Note Agreement", and as further amended by the Sixth Amendment, the
"Amended Note Agreement"), between the Company and each of the Persons listed on
Annex 1 thereto (the "Purchasers"), pursuant to which the Company sold to the
Purchasers the Original Notes in the aggregate principal amount of $60,000,000.
The capitalized terms used herein and not defined herein have the meanings
specified in the Amended Note Agreement.
The law covered by the opinions expressed herein is limited to the
federal law of the United States and the laws of the State of Michigan. In
rendering the opinion in paragraph (2) below, we have assumed that the laws of
the State of Connecticut as to the enforceability of the Amended Note Agreement
and the Notes are not different from the State of Michigan (excluding the choice
of law rules).
In our examination, we have assumed the genuineness of all signatures
(other than signatures of officers of the Company), the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals
or copies, the conformity with originals of all documents submitted to us as
copies and, as to documents executed by the Holders and Persons other than the
Company, that each such Person executing documents had the power to enter into
and perform its obligations under such documents, and that such documents have
been duly
1
<PAGE> 72
authorized, executed and delivered by, and are binding upon and enforceable
against, such Persons.
In rendering our opinion, we have relied, without further investigation
or analysis, upon certificates of officers of the Company attached hereto;
warranties and representations as to certain factual matters made by the Company
and by the Holders in the Amended Note Agreement and in the certificate
delivered to the Holders pursuant to the Sixth Amendment.
In acting as such counsel, we have examined (a) the Existing Note
Agreement, (b) the Sixth Amendment, including the form of the Company's Second
Amended and Restated 9.87% Senior Note due November 1, 2001 attached to the
Sixth Amendment as Attachment 4, (c) the bylaws of the Company, (d) the records
of proceedings of the board of directors of the Company, (e) a certified copy of
the articles of incorporation of the Company, as in effect on the date hereof,
and (f) originals, or copies certified or otherwise identified to our
satisfaction, of such other documents, records, instruments and certificates of
public officials as we have deemed necessary or appropriate to enable us to
render this opinion. The First Amended and Restated Notes held by the Holders,
as amended and restated pursuant to the Sixth Amendment, are referred to herein
as the "Notes".
Based upon and subject to the foregoing and to the additional
assumptions, qualifications and limitations set forth herein, we are of the
opinion that:
1. The Sixth Amendment has been duly authorized by all necessary
corporate action on the part of the Company and has been executed and delivered
by a duly authorized officer of the Company.
2. Each of the Amended Note Agreement and the Notes constitute a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as (a) the enforceability thereof may be
limited by or subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws now or hereafter affecting creditors'
rights generally, and (b) rights or remedies (including, without limitation,
acceleration, specific performance and injunctive relief) may be limited by
equitable principles of general applicability (including, without limitation,
standards of materiality, good faith, fair dealing and reasonableness) whether
such principles are considered in a proceeding in equity or at law, and may be
subject to the discretion of the court before which any proceedings therefor may
be brought.
3. All consents, approvals and authorizations of Governmental
Authorities required on the part of the Company have been obtained in connection
with the execution and delivery of the Sixth Amendment.
4. The execution and delivery of the Amended Note Agreement in
accordance with, and subject to the terms and conditions of, the Amended Note
Agreement, by the Company and
2
<PAGE> 73
the performance by the Company of its obligations thereunder and under the Notes
do not violate any applicable statute, rule or regulation to which the Company
is subject.
5. Under existing law, the amendment of the First Amended and Restated
Notes under the circumstances contemplated by the Sixth Amendment is an exempt
transaction under the Securities Act and neither the registration of the Notes
under the Securities Act, nor the qualification of an indenture with respect
thereto under the Trust Indenture Act of 1939, as amended, is required in
connection with such transaction.
In rendering this opinion, we assume no obligation to revise or
supplement this opinion should any law now in effect be changed by legislative
action, judicial decision or otherwise.
We acknowledge that this opinion is being issued at the request of the
Company pursuant to the Sixth Amendment and we agree that the parties listed on
Annex 1 thereto are relying hereon. Future holders of the Notes may rely on this
opinion as if it were addressed to them. Except as otherwise provided in this
paragraph, no one is entitled to rely on this opinion.
This opinion is solely for the information of the addressees hereof,
and is not to be quoted in whole or in part or otherwise referred to, nor is it
to be filed with any governmental agency or other person without our prior
written consent (except that you may furnish a copy hereof (i) to any one or
more of your employees, officers, directors, agents, attorneys, accountants or
professional consultants, (ii) to any state or federal authority or independent
insurance board or body having regulatory jurisdiction over any holder of a
Note, (iii) pursuant to order or legal process of any court or governmental
agency, (iv) in connection with any legal action in which you are a party
arising out of or in respect of the transactions contemplated under the Amended
Note Agreement, and (v) for informational and due diligence purposes only, to
prospective transferees of the Notes).
Very truly yours,
3
<PAGE> 74
ATTACHMENT 6
LIST OF HOLDERS OF NOTES WHOSE NOTES WILL BE PURCHASED
BY COMPANY PURSUANT TO SECTION 6.15(B)
<TABLE>
<CAPTION>
1997 Series Reg. No. Principal Outstanding
- ----------- -------- ---------------------
<S> <C> <C>
The Guardian Life Insurance Company of America R-1 $ 10,210,452.96
Massachusetts Mutual Life Insurance Company R-2 $ 5,105,226.48
Nationwide Life Insurance Company R-3 $ 5,105,226.48
Farm Bureau Life Insurance Company R-6 $ 1,531,567.95
Farm Bureau Mutual Insurance Company R-7 $ 1,021,045.30
American Bankers Insurance Company of Florida R-8 $ 1,531,567.95
Voyager Property & Casualty Insurance Co. R-9 $ 1,021,045.30
---------------
Subtotal $ 25,526,132.42
1996 Series
Massachusetts Mutual Life Insurance Company R-1 $ 3,764,285.71
R-3 $ 1,217,857.14
R-4 $ 332,142.86
R-30 $ 1,328,571.43
Nationwide Life Insurance Company R-5 $ 5,535,714.29
Security Benefit Life Insurance Company R-17 $ 2,657,142.86
Combined Insurance Company of America R-29 $ 2,214,285.71
---------------
Subtotal $ 17,050,000.00
1994 Series
Western Farm Bureau Life Insurance R-12 $ 1,095,833.34
FBL Insurance Company R-13 $ 2,410,833.34
Ohio Casualty Insurance Co. R-17 $ 1,315,000.00
Ohio Life Insurance Company R-18 $ 876,666.66
Washington National Insurance Company R-39 $ 258,497.17
William Blair & Company, L.L.C. R-40 $ 500,000.00*
Lincoln Life & Annuity Company of New York R-44 $ 317,951.52
R-45 $ 206,797.74
Subtotal $ 6,981,579.77
TOTAL $49,557,712.19
</TABLE>
*Represents a portion of Note which has a total of $646,242.92 principal amount
outstanding.
<PAGE> 1
EXHIBIT 4(B)(5)
FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENT
RE:
CREDIT ACCEPTANCE CORPORATION
FIRST AMENDED AND RESTATED 8.24% SENIOR NOTES DUE JULY 1, 2001
Dated as of December 1, 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 $27,235,714.01 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, the Second Amendment to
Note Purchase Agreement, dated as of July 1, 1998, and the Third Amendment to
Note Purchase Agreement, dated as of April 13, 1999, 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.
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 Fourth Amendment to Note
Purchase Agreement (this "Fourth Amendment") in the following respects:
2.1 SECTION 1.1. Section 1.1 is hereby amended and restated in its
entirety as set forth below.
<PAGE> 2
"1.1 Authorization of Notes.
(a) On August 29, 1996, the Company issued Seventy
Million Dollars ($70,000,000) in aggregate principal amount of
its 7.99% Senior Notes due August 1, 2001 (the "Original
Notes," such term to include each Original Note delivered from
time to time prior to the effectiveness of the Second
Amendment in accordance with any of the Note Purchase
Agreements), each:
(i) bearing interest (computed on the basis
of a 360-day year of twelve 30-day months) on the
unpaid principal balance thereof from the date of
such Original Note at the rate of seven and
ninety-nine one-hundredths percent (7.99%) per annum,
payable semi-annually on the first (1st) day of
January and the first (1st) day of July in each year
commencing on the later of January 1, 1997 or the
payment date next succeeding the date of such
Original Note;
(ii) bearing interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) nine and ninety-nine
one-hundredths percent (9.99%) per annum;
(iii) maturing on July 1, 2001; and
(iv) in the form of the Original Note set
out in Exhibit A, as in effect on the Closing Date.
(b) Pursuant to the Second Amendment, the Company and
the holders of the Original Notes have agreed to amend and
restate in full the Original Notes substantially in the form
attached to the Second Amendment as Attachment 1 thereto (the
"First Amended and Restated Notes," such term to include each
Original Note, as amended and restated pursuant to the Second
Amendment, and each First Amended and Restated Note delivered
from time to time on or after the effectiveness of the Second
Amendment in accordance with any of the Note Purchase
Agreements). Each First Amended and Restated Note will:
(i) be designated a "First Amended and
Restated 8.24% Senior Note Due July 1, 2001";
(ii) bear interest (computed on the basis of
a 360-day year of twelve 30-day months) on the unpaid
principal balance thereof from the date
2
<PAGE> 3
of such Note at the rate of seven and ninety-nine
one-hundredths percent (7.99%) per annum through (but
not including) July 1, 1998, and at the rate of eight
and twenty-four one-hundredths percent (8.24%) per
annum from and after July 1, 1998 through, but not
including, December 1, 1999, payable semi-annually on
the first (1st) day of January and the first (1st)
day of July in each year commencing on the payment
date next succeeding the date of such First Amended
and Restated Note;
(iii) bear interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) (I) nine and ninety-nine
one-hundredths percent (9.99%) per annum if
such time is prior to July 1, 1998, or (II)
ten and twenty-four one-hundredths percent
(10.24%) per annum if such time is on or
after July 1, 1998 and prior to December 1,
1999;
(iv) mature on July 1, 2001; and
(v) be in the form of the First Amended and
Restated Note set out in Exhibit A (as in effect upon
the effectiveness of the Second Amendment).
(c) Pursuant to the Fourth Amendment, the Company and
the holders of the Notes have agreed to amend and restate in
full the First Amended and Restated Notes which remain
outstanding at and after December 1, 1999 substantially in the
form attached to the Fourth Amendment as Attachment 4 thereto
(the "Second Amended and Restated Notes," such term to include
each Original Note, as amended and restated pursuant to the
Second Amendment, each First Amended and Restated Note
delivered from time to time on or after the effectiveness of
the Second Amendment in accordance with any of the Note
Purchase Agreements, and each Second Amended and Restated Note
delivered from time to time on or after December 1, 1999 in
accordance with any of the Note Purchase Agreements). Each
Second Amended and Restated Note will:
(i) (A) from and including December 1, 1999
through, but not including, January 15, 2000 be
designated a "Second Amended and Restated 8.99%
Senior Note Due July 1, 2001" and (B) from and after
January 15, 2000 be designated a "Second Amended and
Restated 9.49% Senior Note Due July 1, 2001";
3
<PAGE> 4
(ii) bear interest (computed on the basis of
a 360-day year of twelve 30-day months) on the unpaid
principal balance thereof from the date of such Note
at the rate of eight and ninety-nine one-hundredths
percent (8.99%) per annum from and including December
1, 1999 through, but not including, January 15, 2000,
and at the rate of nine and forty-nine one-hundredths
percent (9.49%) per annum from and after January 15,
2000 to and including the date of maturity thereof,
payable semi-annually on the first (1st) day of
January and the first (1st) day of July in each year
commencing on the payment date next succeeding the
date of such Second Amended and Restated Note;
(iii) bear interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) (I) ten and ninety-nine
one-hundredths percent (10.99%) per annum if
such time is from and including December 1,
1999 through, but not including, January 15,
2000, or (II) eleven and forty-nine
one-hundredths percent (11.49%) per annum if
such time is on or after January 15, 2000;
(iv) mature on July 1, 2001; and
(v) be in the form of the Second Amended and
Restated Note set out in Exhibit A (as in effect upon
the effectiveness of the Fourth Amendment).
(d) The Original Notes, the First Amended and
Restated Notes and the Second Amended and Restated Notes are
referred to herein, collectively, as the "Notes". The term
"Notes" as used herein shall include each Note delivered
pursuant to the Note Purchase Agreements and each Note
delivered in substitution or exchange for any such Note
pursuant to Section 5.2 or Section 5.3, and shall be deemed
(i) when reference is made to a date prior to the effective
date of the Second Amendment, to be a reference to the
Original Notes, (ii) when reference is made to a date on or
after the effective date of the Second Amendment, to be a
reference to the First Amended and Restated Notes, and (iii)
when reference is made to a date on or after December 1, 1999,
to be a reference to the Second Amended and Restated Notes."
2.2 ARTICLE 6. Article 6 is hereby amended and restated in its entirety
as set forth below.
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"6. COVENANTS
The Company covenants that on and after the Closing Date and so long as
any of the Notes shall be outstanding:
6.1 DEBT AND ADVANCES.
(A) TOTAL DEBT. The Company will not at any time permit
Consolidated Total Debt to exceed any of the following:
(i)(A) two hundred seventy-five percent (275%) of
Consolidated Tangible Net Worth prior to the effective date of
the Second Amendment, and (B) two hundred percent (200%) of
Consolidated Tangible Net Worth from the effective date of the
Second Amendment until such time (but in no event prior to
December 31, 1998) as the Company has maintained a ratio of
(A) Consolidated Income Available for Fixed Charges for the
four consecutive fiscal quarters of the Company most recently
ended at such time to (B) Consolidated Fixed Charges for such
period of not less than 2.25 to 1.0 for two consecutive fiscal
quarters, then two hundred seventy-five percent (275%) of
Consolidated Tangible Net Worth, provided however, that for
the purposes of this test, Consolidated Total Debt shall be
calculated by including all Debt incurred by a Special Purpose
Subsidiary, whether or not included therein under GAAP;
(ii) Seventy-Five Percent (75%) of the sum of (A)
Advances and (B) Leased Vehicles; and
(iii) Sixty Percent (60%) of the sum of (A) Gross
Current Installment Contract Receivables and (B) Gross Current
Leased Vehicles.
(B) SENIOR FUNDED DEBT. The Company will not at any time
permit Consolidated Senior Funded Debt to exceed either
(i) two hundred percent (200%) of Consolidated
Tangible Net Worth at such time, or
(ii) (A) the sum of (I) Net Installment Contract
Receivables less Net Dealer Holdbacks and (II) Leased Vehicles
less Net Leased Vehicle Dealer Holdbacks, in each case at such
time, divided by
(B) 1.10.
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(C) SUBORDINATED FUNDED DEBT. The Company will not at any time
permit Consolidated Subordinated Funded Debt to exceed one hundred
fifty percent (150%) of Consolidated Tangible Net Worth at such time.
(D) RESTRICTED SUBSIDIARY DEBT. The Company will not at any
time permit the sum of (i) Total Restricted Subsidiary Debt at such
time plus, without duplication, (ii) the aggregate amount of all Debt
and other obligations outstanding at such time secured by Liens
permitted by clause (v), clause (vi) and clause (vii) of Section 6.6(a)
to exceed (A) on or before July 31, 1997, fifteen percent (15%) of
Consolidated Tangible Net Worth or (B) on or after August 1, 1997,
twenty percent (20%) of Consolidated Tangible Net Worth.
(E) COMMERCIAL PAPER. The Company will not, and will not
permit any Restricted Subsidiary to, issue commercial paper unless the
obligations of the Company or such Restricted Subsidiary with respect
to such commercial paper are backed by a Letter of Credit Facility.
(F) GROSS ADVANCES. The Company will not at any time permit
Gross Advances to exceed seventy percent (70%) of Net Installment
Contract Receivables; provided, however, that at any time at which the
Credit Agreement (as from time to time amended, restated, refinanced,
replaced or supplemented) does not permit the amount of Gross Advances
to exceed 65% of Net Installment Contract Receivables, the Company
shall not permit Gross Advances to exceed sixty-five percent (65%) of
Net Installment Contract Receivables.
6.2 FIXED CHARGE COVERAGE.
The Company will not at any time permit the ratio of
(a) Consolidated Income Available for Fixed Charges
for the period of four (4) consecutive fiscal quarters of the
Company most recently ended at such time to
(b) Consolidated Fixed Charges for such period
to be less than (i) 2.5 to 1.0 for any period of four fiscal
quarters ended on or prior to September 30, 1997, (ii) 1.9 to
1.0 for the four fiscal quarters ended December 31, 1997,
(iii) 1.7 to 1.0 for the four fiscal quarters ended March 31,
1998, (iv) 1.6 to 1.0 for the four fiscal quarters ended June
30, 1998, (v) 2.0 to 1.0 for the four fiscal quarters ended
September 30, 1998 and (vi) 2.25 to 1.0 for any four fiscal
quarters ended on or after December 31, 1998.
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6.3 CONSOLIDATED TANGIBLE NET WORTH.
The Company will not at any time permit Consolidated Tangible Net
Worth, determined at such time, to be less than the result of
(a) Two Hundred Eighteen Million Seven Hundred Twenty Five
Thousand Dollars ($218,725,000), plus
(b) the sum of (i) seventy-five percent (75%) of Consolidated
Net Income for each fiscal year ended during the period beginning on
January 1, 1999 and ending on such date (unless Consolidated Net Income
shall be a loss in any such fiscal year, in which event the amount
determined pursuant to this clause (b)(i) for such fiscal year shall be
zero) and (ii) 100% of the proceeds of each Equity Offering conducted
on and after July 1, 1998 by the Company or any of its Restricted
Subsidiaries, net of related costs of issuance payable to third
parties, on a cumulative basis.
6.4 SALE AND LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into, at any time, any Sale and Leaseback Transaction unless,
(a) after giving effect thereto,
(i) the sale of Property in connection with such Sale
and Leaseback Transaction is permitted pursuant to Section 6.8
and
(ii) the Debt to be secured by a Lien on the Property
to be leased in connection with such Sale and Leaseback
Transaction is permitted pursuant to the provisions of Section
6.1 and Section 6.6, and
(b) the lease of such Property constitutes a Capital Lease.
6.5 RESTRICTED INVESTMENTS.
The Company will not, and will not permit any Restricted Subsidiary to,
make any Restricted Investment.
6.6 LIENS.
(A) NEGATIVE PLEDGE. The Company will not, and will not permit
any Restricted Subsidiary to, cause or permit to exist, or agree or
consent to cause or permit to exist in the future (upon the happening
of a contingency or otherwise), any of their Property, whether now
owned or hereafter acquired, to be subject to any Lien except:
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<PAGE> 8
(i) (A) Liens securing Property taxes, assessments or
governmental charges or levies or the claims or demands of
materialmen, mechanics, carriers, warehousemen, vendors,
landlords and other like Persons, provided that the payment
thereof is not at the time required by Section 6.12, (B) any
Lien encumbering Securitization Property which is the subject
of a Transfer pursuant to a Permitted Securitization, and (C)
any Lien granted in favor of the "Collateral Agent" (as
defined in the Intercreditor Agreement) for the benefit of the
Banks, the holders of Notes and "Future Debt Holders" (as
defined in the Intercreditor Agreement) and subject to the
Intercreditor Agreement;
(ii) Liens
(A) arising from judicial attachments and
judgments,
(B) securing appeal bonds or supersedeas
bonds, and
(C) arising in connection with court
proceedings (including, without limitation, surety
bonds and letters of credit or any other instrument
serving a similar purpose),
provided that (1) the execution or other enforcement of such
Liens is effectively stayed, (2) the claims secured thereby
are being contested in good faith and by appropriate
proceedings, (3) adequate book reserves in accordance with
GAAP shall have been established and maintained and shall
exist with respect thereto, (4) such Liens do not in the
aggregate detract from the value of such Property and (5) the
title of the Company or the Restricted Subsidiary, as the case
may be, to, and its right to use, such Property, is not
materially adversely affected thereby;
(iii) Liens incurred or deposits made in the ordinary
course of business
(A) in connection with workers'
compensation, unemployment insurance, social security
and other like laws, and
(B) to secure the performance of letters of
credit, bids, tenders, sales contracts, leases,
statutory obligations, surety and performance bonds
(of a type other than set forth in Section
6.6(a)(ii)) and other similar obligations not
incurred in connection with the borrowing of money,
the obtaining of advances or the payment of the
deferred purchase price of Property;
(iv) Liens in the nature of reservations, exceptions,
encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real Property, provided
that (1) such
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<PAGE> 9
exceptions and encumbrances do not in the aggregate materially
detract from the value of such Property and (2) title of the
Company or the Restricted Subsidiary, as the case may be, to,
and the right to use, such Property, is not materially
adversely affected thereby;
(v) Liens in existence on the Closing Date securing
Debt, provided that such Liens are described in Part 6.6(a)(v)
of Annex 3;
(vi) Purchase Money Liens, if, after giving effect
thereto and to any concurrent transactions:
(A) each such Purchase Money Lien secures
Debt in an amount not exceeding the cost of
acquisition or construction of the particular
Property to which such Debt relates; and
(B) immediately after giving effect thereto,
no Default or Event of Default would exist; and
(vii) Liens on Property not otherwise permitted under
clause (i) through clause (vi) of this Section 6.6(a) if the
obligations secured by such Liens, when added to (A) the
obligations secured by Liens pursuant to clause (v) and clause
(vi) of this Section 6.6(a) plus, without duplication, (B)
Total Restricted Subsidiary Debt at such time, do not exceed
(1) on or before July 31, 1997, fifteen percent (15%) of
Consolidated Tangible Net Worth or (2) on or after August 1,
1997, twenty percent (20%) of Consolidated Tangible Net Worth.
(B) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any
Property shall be subjected to a Lien in violation of this Section 6.6,
the Company will immediately make or cause to be made, to the fullest
extent permitted by applicable law, provision whereby the Notes will be
secured equally and ratably with all other obligations secured thereby
pursuant to such agreements and instruments as shall be approved by the
Required Holders, and the Company will cause to be delivered to each
holder of a Note an opinion, satisfactory in form and substance to the
Required Holders, of independent counsel to the effect that such
agreements and instruments are enforceable in accordance with their
terms, and in any such case the Notes shall have the benefit, to the
fullest extent that, and with such priority as, the holders of Notes
may be entitled thereto under applicable law, of an equitable Lien on
such Property securing the Notes (provided that, notwithstanding the
foregoing, each holder of Notes shall have the right to elect at any
time, by delivery of written notice of such election to the Company, to
cause the Notes held by such holder not to be secured by such Lien or
such equitable Lien). A violation of this Section 6.6 will constitute
an Event of Default, whether or not any such provision is made pursuant
to this Section 6.6(b).
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<PAGE> 10
(C) FINANCING STATEMENTS. The Company will not, and will not
permit any Restricted Subsidiary to, sign or file a financing statement
under the Uniform Commercial Code of any jurisdiction that names the
Company or such Restricted Subsidiary as debtor, or sign any security
agreement authorizing any secured party thereunder to file any such
financing statement, except, in any such case, a financing statement
filed or to be filed to perfect or protect a security interest that the
Company or such Restricted Subsidiary is permitted to create, assume or
incur, or permit to exist, under the foregoing provisions of this
Section 6.6 or to evidence for informational purposes a lessor's
interest in Property leased to the Company or any such Restricted
Subsidiary.
6.7 MERGER AND CONSOLIDATION; COVENANT TO MERGE CAC INTERNATIONAL.
(A) MERGER AND CONSOLIDATION. The Company will not, and will
not permit any Restricted Subsidiary to, merge or consolidate with or
into, or sell, lease, transfer or otherwise dispose of all or
substantially all of its Property to, any other Person or permit any
other Person to merge or consolidate with or into it (the Company, the
Restricted Subsidiary or such other Person that is the surviving
corporation or transferee being herein referred to as the "Surviving
Corporation"), provided that the foregoing restrictions shall not apply
to:
(i) the merger or consolidation of the Company with
or into, or the sale of all or substantially all of the
Property of the Company to, another corporation, if:
(A) the Surviving Corporation is solvent and
is organized under the laws of the United States of
America or any state thereof;
(B) the due and punctual payment of the
principal of and Make-Whole Amount, if any, and
interest on all of the Notes, according to their
tenor, and the due and punctual performance and
observance of all the covenants in the Notes and this
Agreement to be performed or observed by the Company,
are expressly assumed or acknowledged by the
Surviving Corporation in a manner satisfactory to the
Required Holders, and the Company causes to be
delivered to each holder of Notes an opinion of
independent counsel, in form, scope and substance
satisfactory to the Required Holders, to the effect
that such assumption or acknowledgment is enforceable
in accordance with its terms; and
(C) immediately prior to, and immediately
after the consummation of the transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist;
(ii) the merger or consolidation of a Restricted
Subsidiary with or into, or the sale of all or substantially
all of the Property of such Restricted Subsidiary to, the
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<PAGE> 11
Company, another Restricted Subsidiary or any other Person
that concurrently with such merger, consolidation or sale
becomes a Restricted Subsidiary, if:
(A) the Surviving Corporation is organized
under the laws of the United States of America or any
state thereof; and
(B) immediately prior to, and immediately
after the consummation of the transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist;
(iii) the Transfer of Securitization Property to any
Special Purpose Subsidiary in connection with a Permitted
Securitization; and
(iv) a merger, consolidation or Transfer of a
Restricted Subsidiary or Restricted Subsidiaries pursuant to
the Montana Disposition or the Arlington Disposition.
(B) COVENANT TO MERGE CAC INTERNATIONAL. The Company covenants
and agrees that it shall merge CAC International with and into the
Company (with the Company being the survivor) on or before May 15,
1997, in accordance with Section 6.7(a).
6.8 TRANSFERS OF PROPERTY; SUBSIDIARY STOCK.
(A) TRANSFERS OF PROPERTY. Except as permitted under Section
6.7(a), the Company will not, and will not permit any Restricted
Subsidiary to, sell, lease as lessor, transfer or otherwise dispose of
any Property (including, without limitation, Restricted Subsidiary
Stock) (collectively, "Transfers"), except:
(i) Transfers from a Restricted Subsidiary to the
Company or to a Wholly-Owned Restricted Subsidiary;
(ii) any other Transfer at any time of any Property
to a Person, other than an Affiliate, for an Acceptable
Consideration, if each of the following conditions would be
satisfied with respect to such Transfer:
(A) the result of
(1) the sum of
(aa) the current book value
of such Property, plus
(bb) the aggregate book
value of all other Property of the
Company and the Restricted
Subsidiaries, determined
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on a consolidated basis, Transferred
(other than in Transfers referred to
in clauses (i), (iii), (iv), (v) and
(vi) of this Section 6.8(a) (the
"Excluded Transfers"), but including
Transfers pursuant to Section 6.8(b)
other than in connection with the
Montana Disposition or the Arlington
Disposition) during the twelve (12)
month period ended immediately prior
to the date of such Transfer, minus
(2) the aggregate cost of all
Capital Assets acquired by the Company and
the Restricted Subsidiaries, determined on a
consolidated basis, during such twelve (12)
month period,
would not exceed ten percent (10%) of Consolidated
Net Tangible Assets determined as at the end of the
most recently ended fiscal year of the Company prior
to giving effect to such Transfer, and
(B) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default would
exist;
(iii) Transfers of Securitization Property to a
Restricted Subsidiary or a Special Purpose Subsidiary pursuant
to a Permitted Securitization if, immediately before and after
the consummation of such Transfer, and after giving effect
thereto, no Default or Event of Default would exist;
(iv) Transfers of the capital stock of a Special
Purpose Subsidiary to the Company or a Restricted Subsidiary
if, immediately before and after the consummation of such
Transfer, and after giving effect thereto, no Default or Event
of Default would exist;
(v) any Transfer made pursuant to the Montana
Disposition (including without limitation the transfer by the
Company of its intellectual property rights to the name
Tele-Track, Inc.) or the Arlington Disposition if, immediately
before and after the consummation of such Transfer, and after
giving effect thereto, no Default or Event of Default would
exist; and
(vi) any Transfer of Installment Contracts or Leases
made to a Dealer due to the termination of a Dealer Agreement,
for which Transfer the Company or any of its Restricted
Subsidiaries receives an Acceptable Consideration.
(B) TRANSFERS OF SUBSIDIARY STOCK. The Company will not, and
will not permit any Restricted Subsidiary to, Transfer any shares of
the stock (or any warrants, rights or options to purchase stock or
other Securities exchangeable for or convertible into stock) of a
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<PAGE> 13
Restricted Subsidiary (such stock, warrants, rights, options and other
Securities herein called "Restricted Subsidiary Stock"), nor will any
Restricted Subsidiary issue, sell or otherwise dispose of any shares of
its own Restricted Subsidiary Stock, provided that the foregoing
restrictions do not apply to:
(i) the issuance by a Restricted Subsidiary of shares
of its own Restricted Subsidiary Stock to the Company or a
Wholly-Owned Restricted Subsidiary;
(ii) Transfers by the Company or a Restricted
Subsidiary of shares of Restricted Subsidiary Stock to the
Company or a Wholly-Owned Restricted Subsidiary;
(iii) the issuance by a Restricted Subsidiary of
directors' qualifying shares; and
(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 the Arlington Disposition or if:
(A) such Transfer satisfies the requirements
of Section 6.8(a)(ii);
(B) in connection with such Transfer the
entire Investment (whether represented by stock,
Debt, claims or otherwise) of the Company and the
other Restricted Subsidiaries in such Restricted
Subsidiary is Transferred to a Person other than the
Company or a Restricted Subsidiary not simultaneously
being disposed of;
(C) the Restricted Subsidiary being disposed
of has no continuing Investment in any other
Restricted Subsidiary not simultaneously being
disposed of or in the Company; and
(D) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default would
exist.
For purposes of determining the book value of Property constituting
Restricted Subsidiary Stock being Transferred as provided in clause
(iv) above, such book value shall be deemed to be the aggregate book
value of all assets of the Restricted Subsidiary that shall have issued
such Restricted Subsidiary Stock. Any Transfer of Restricted Subsidiary
Stock pursuant to clause (iv) above shall be deemed to be a Transfer of
the accounts receivable of such Restricted Subsidiary which must
satisfy the requirements of Section 6.8(c).
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(C) ACCOUNTS RECEIVABLE. Notwithstanding the provisions of
Section 6.8(a), except in connection with a Permitted Securitization or
in connection with the Montana Disposition or the Arlington
Disposition, neither the Company nor any Restricted Subsidiary will
Transfer any accounts receivable if the sum of
(i) the face value of the accounts receivable
proposed to be Transferred, plus
(ii) the face value of accounts receivable
Transferred by the Company and all Restricted Subsidiaries
during the then current fiscal year of the Company,
would exceed five percent (5%) of the face value of the accounts
receivable of the Company and the Restricted Subsidiaries determined on
a consolidated basis as at the end of the most recently ended fiscal
year of the Company prior to giving effect to such Transfer (but
excluding for purposes of such calculation accounts receivable
attributable to assets the title to which is held by a Special Purpose
Subsidiary pursuant to a Permitted Securitization).
6.9 LINE OF BUSINESS.
The Company will not, and will not permit any Restricted Subsidiary to,
engage in, or make any Investment in any business engaged in, the provision of
property and casualty insurance unless the Company or such Restricted Subsidiary
shall maintain reinsurance of its underwriting risk, with one or more reinsurers
rated "A-" or better by Standard & Poor's Ratings Group or (A3) or better by
Moody's Investors Service, Inc., for all of the Company's or such Restricted
Subsidiary's exposure in excess of one hundred percent (100%) of the premiums
written by the Company or such Restricted Subsidiary. In addition to the
foregoing, the Company will not, and will not permit any Restricted Subsidiary
to, engage in any business if, after giving effect thereto, the general nature
of the businesses of the Company and the Restricted Subsidiaries, taken as a
whole, would no longer be the provision of financing programs for the purchase
or lease of used motor vehicles, motor vehicle service protection programs,
credit life, accident and health insurance programs and other programs related
to the foregoing (it being understood that, in the course of the provision of
such programs, the Company may be obligated to remit monies held by it in
connection with dealer holdbacks, claims or refunds under insurance policies,
claims or refunds under service contracts, and to make deposits in trust or
otherwise as required under reinsurance agreements or pursuant to state
regulatory requirements). The Company shall manage and operate such businesses
in substantially the same manner that they are managed and operated as of the
date hereof.
6.10 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any transaction, including, without limitation, the purchase, sale or
exchange of Property or the rendering of any service, with any Affiliate, except
(a) a Permitted Securitization or (b) in the ordinary course of and pursuant to
the reasonable requirements of the Company's or such Restricted Subsidiary's
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business and upon fair and reasonable terms no less favorable to the Company or
such Restricted Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
6.11 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC.
The Company will, and will cause each Restricted Subsidiary to:
(A) PROPERTY -- maintain, preserve and keep its Property in
good condition and working order, ordinary wear and tear excepted, and
make all necessary repairs, renewals, replacements, additions,
betterments and improvements thereto, except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect;
(B) INSURANCE -- maintain, with financially sound and
reputable insurers, insurance with respect to its Property and business
against such casualties and contingencies, of such types (including,
without limitation, insurance with respect to losses arising out of
Property loss or damage, public liability, business interruption,
larceny, workers' compensation, embezzlement or other criminal
misappropriation) and in such amounts as is customary in the case of
corporations of established reputations engaged in the same or a
similar business and similarly situated, provided that such insurance
is commercially available, it being understood that the Company and the
Restricted Subsidiaries may self-insure against hazards and risks with
respect to which, and in such amounts as, the Company in good faith
determines to be prudent and consistent with sound financial and
business practice;
(C) FINANCIAL RECORDS -- keep accurate and complete books of
records and accounts in which accurate and complete entries shall be
made of all its business transactions and that will permit the
provision of accurate and complete financial statements in accordance
with GAAP;
(D) CORPORATE EXISTENCE AND RIGHTS --
(i) do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises,
except where the failure to do so, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, and
(ii) to maintain each Subsidiary as a Subsidiary,
in each case except as permitted or required by Section 6.7(a) and
Section 6.8(b); and
(E) COMPLIANCE WITH LAW -- not be in violation of any law,
ordinance or governmental rule or regulation to which it is subject
(including, without limitation, any Environmental Protection Law and
OSHA) and not fail to obtain any license, certificate,
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<PAGE> 16
permit, franchise or other governmental authorization necessary to the
ownership of its Properties or to the conduct of its business if such
violations or failures to obtain, in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
6.12 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, pay before they
become delinquent:
(a) all taxes, assessments and governmental charges or levies
imposed upon it or its Property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if
unpaid, might result in the creation of a Lien upon its Property;
provided, that items of the foregoing description need not be paid
(i) while being contested in good faith and by
appropriate proceedings as long as adequate book reserves have
been established and maintained and exist with respect
thereto, and
(ii) so long as the title of the Company or the
Subsidiary, as the case may be, to, and its right to use, such
Property, is not materially adversely affected thereby.
6.13 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of
and interest (and Make-Whole Amount, if any) on, the Notes, as and when the same
shall become due according to the terms hereof and of the Notes, and will
maintain an office at the address of the Company set forth in Section 10.1 where
notices, presentations and demands in respect hereof or of the Notes may be made
upon it. Such office will be maintained at such address until such time as the
Company shall notify the holders of the Notes in writing of any change of
location of such office, which will in any event be located within the United
States of America.
6.14 PENSION PLANS.
(A) COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times with respect to each Pension Plan, make
timely payment of contributions required to meet the minimum funding
standard set forth in ERISA or the IRC with respect thereto, and to
comply with all other applicable provisions of ERISA and the IRC.
(B) RELATIONSHIP OF VESTED BENEFITS TO PENSION PLAN ASSETS.
The Company will not at any time permit the present value of all
employee benefits vested under each Pension
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<PAGE> 17
Plan to exceed the assets of such Pension Plan allocable to such vested
benefits at such time, in each case determined pursuant to Section
6.14(c).
(C) VALUATIONS. All assumptions and methods used to determine
the actuarial valuation of vested employee benefits under Pension Plans
and the present value of assets of Pension Plans will be reasonable in
the good faith judgment of the Company and will comply with all
requirements of law.
(D) PROHIBITED ACTIONS. The Company will not, and will not
permit any ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as
defined in section 406 of ERISA or section 4975 of the IRC)
that would result in the imposition of a material tax or
penalty;
(ii) incur with respect to any Pension Plan any
"accumulated funding deficiency" (as defined in section 302 of
ERISA), whether or not waived;
(iii) terminate any Pension Plan in a manner that
could result in the imposition of a Lien on the Property of
the Company or any Subsidiary pursuant to section 4068 of
ERISA or the creation of any liability under section 4062 of
ERISA;
(iv) fail to make any payment required by section 515
of ERISA; or
(v) at any time be an "employer" (as defined in
section 3(5) of ERISA) required to contribute to any
Multiemployer Plan or a "substantial employer" (as defined in
section 4001 of ERISA) required to contribute to any Multiple
Employer Pension Plan if, at such time, it could reasonably be
expected that the Company or any Subsidiary will incur
withdrawal liability in respect of such Multiemployer Plan or
Multiple Employer Pension Plan and such liability, if
incurred, together with the aggregate amount of all other
withdrawal liability as to which there is a reasonable
expectation of incurrence by the Company or any Subsidiary
under any one or more Multiemployer Plans or Multiple Employer
Pension Plans, could reasonably be expected to have a Material
Adverse Effect.
6.15 PRO-RATA OFFERS; MANDATORY PURCHASE.
(A) GENERAL. Except as provided in Section 6.15(b), the
Company will not, and will not permit any Subsidiary or any Affiliate
to, directly or indirectly, acquire or make any offer to acquire any
Notes unless the Company or such Subsidiary or Affiliate shall have
offered to acquire Notes, pro rata, from all holders of the Notes and
upon the same terms. In case the Company acquires any Notes pursuant to
this Section 6.15, such Notes will immediately thereafter be canceled
and no Notes will be issued in substitution therefor. Each
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purchase of the Notes pursuant to this Section 6.15 shall be applied to
reduce ratably each of the Mandatory Principal Amortization Payments
remaining after the date of such purchase.
(B) MANDATORY PURCHASE OF NOTES. The Company shall, on or
before January 15, 2000, acquire from the holders thereof the Notes
listed on Attachment 6 to the Fourth Amendment (the "Repurchased
Notes") for a price equal to the outstanding principal amount of such
Repurchased Notes at such time as set forth on Attachment 6, plus
interest accrued but unpaid to, but not including, the date of such
purchase. The Company shall give written notice to the holders of the
Repurchased Notes, no later than the second Business Day prior to such
payment, of the date on which such payment is to be made. It is
understood and acknowledged by the parties to this Agreement that (i)
compliance by the Company with the obligations in this Section 6.15(b)
shall not be deemed a breach of any of the Company's obligations under
Section 4 of this Agreement; (ii) upon payment of the price provided in
this Section 6.15(b) to the holders of the Repurchased Notes, the
Company shall immediately cancel the Repurchased Notes and no Notes
will be issued in substitution therefor (except that a substitute Note
shall be issued for the balance outstanding if less than the full
amount of the Note is to be repurchased pursuant hereto); and (iii) the
Company's failure to comply with the obligation to make any payment
required by this Section 6.15(b) on or before the required payment date
shall be considered a failure to make a principal payment when due for
purposes of Section 8.1(a) of this Agreement. The purchase of
Repurchased Notes pursuant to this Section 6.15(b) shall be applied to
reduce ratably each of the Mandatory Principal Amortization Payments
remaining after the date of such purchase.
6.16 PRIVATE OFFERING.
The Company will not, and will not permit any Person acting on its
behalf to, offer the Notes or any part thereof or any similar Securities for
issuance or sale to, or solicit any offer to acquire any of the same from, any
Person so as to bring the issuance and sale of the Notes within the provisions
of section 5 of the Securities Act.
6.17 DESIGNATION OF SUBSIDIARIES.
(A) RIGHT OF DESIGNATION. Subject to the satisfaction of the
requirements of Section 6.17(c), the Company shall have the right to
designate any newly acquired or formed Subsidiary as an Unrestricted
Subsidiary by delivering to each holder of Notes a writing, signed by a
Vice President or the President of the Company, so designating such
Subsidiary within thirty (30) days of the acquisition or formation of
such Subsidiary by the Company or any Restricted Subsidiary. Any such
Subsidiary so designated within such thirty (30) day period shall be
deemed to have been an Unrestricted Subsidiary as of the date of such
acquisition or formation and any such Subsidiary not so designated
within such thirty (30) day period shall be deemed to have been a
Restricted Subsidiary as of the date of such acquisition or formation.
For all purposes of this Agreement, each Subsidiary designated as an
Unrestricted Subsidiary in Part 6.17(a) of Annex 3 shall, subject to
Section 6.17(b), be an
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Unrestricted Subsidiary and all other Subsidiaries, if any, listed in
Part 2.3 of Annex 3 shall be Restricted Subsidiaries.
(B) RIGHT OF REDESIGNATION. No Restricted Subsidiary shall be
redesignated as an Unrestricted Subsidiary. Subject to the satisfaction
of the requirements of Section 6.17(c), the Company may at any time
designate any Unrestricted Subsidiary as a Restricted Subsidiary by
delivering a written notice to such effect, signed by a Vice President
or the Chairman, President or Treasurer of the Company, to each holder
of Notes.
(C) DESIGNATION CRITERIA.
(i) No corporation acquired or formed after the
Closing Date shall be designated as a Restricted Subsidiary
(including deemed designation pursuant to Section 6.17(a))
unless:
(A) such Subsidiary at such time meets all
of the requirements of a "Restricted Subsidiary" as
set forth in the definition thereof; and
(B) immediately before and after, and after
giving effect to such designation, no Default or
Event of Default exists or would exist.
(ii) No Subsidiary shall at any time after the
Closing Date be designated as an Unrestricted Subsidiary
pursuant to Section 6.17(a) unless:
(A) immediately before and after, and after
giving effect to such designation, no Default or
Event of Default exists or would exist; and
(B) such Subsidiary does not own, directly
or indirectly, any Funded Debt or capital stock of
any Restricted Subsidiary.
(D) EFFECTIVENESS. Any designation under Section 6.17(b) that
satisfies all of the conditions set forth in Section 6.17(c) shall
become effective, for purposes of this Agreement, on the day that
notice thereof shall have been mailed (postage prepaid, by registered
or certified mail, return receipt requested) by the Company to each
holder of Notes at the addresses as provided in Section 10.1.
6.18 AMENDMENT OF BANK TERM DEBT OR SUBORDINATED DEBT DOCUMENTS;
TERMINATION OF RESTRICTION ON BANK TERM DEBT AMENDMENTS; NO
FURTHER RESTRICTIONS ON AMENDMENTS OF THIS AGREEMENT.
(A) AMENDMENT OF BANK TERM DEBT OR SUBORDINATED DEBT
DOCUMENTS. The Company will not amend, modify or otherwise alter (or
suffer to be amended, modified or
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altered), or waive (or permit to be waived), in any material respect,
any of the terms or provisions of any document or instrument:
(i) evidencing or otherwise relating to any Bank Term
Debt so as to shorten the maturity or original amortization of
such Bank Term Debt, or
(ii) evidencing or otherwise relating to any
Subordinated Debt so as to increase the original interest rate
on, or the principal amount of, such Subordinated Debt,
shorten the original amortization of such Subordinated Debt,
change any other repayment terms or any default or remedial
provisions in any such document or instrument, or change the
subordination provisions contained in any such document or
instrument,
in each case without the prior written approval of the Required
Holders.
(B) TERMINATION OF RESTRICTION ON BANK TERM DEBT AMENDMENTS.
Subject to Section 6.18(c), the provisions of Section 6.18(a), insofar
as such provisions relate to amendments, modifications, alterations or
waivers of Bank Term Debt, will terminate and be of no further force or
effect at such time as the Company causes to be delivered to each
holder of Notes a duly executed copy of an amendment or modification of
the Credit Agreement (or any new agreement contemplated by Section
6.18(c)(ii) below) deleting Section 8.13 of the Credit Agreement (or
the comparable provision in such new agreement) effective on or prior
to the date of such delivery.
(C) NO FURTHER RESTRICTIONS ON AMENDMENTS OF THIS AGREEMENT.
The Company will not:
(i) amend, modify or otherwise alter (or suffer to be
amended, modified or altered) the Credit Agreement (including,
without limitation, Section 8.13 thereof) or any document or
instrument relating thereto to include any covenant or other
provision (other than Section 8.13 of the Credit Agreement as
in effect on the Closing Date) that requires, as a condition
to the amendment of any term or provision of this Agreement,
or the waiver of any term or provision herein, the approval or
consent of any other creditor of the Company; or
(ii) enter into any other agreement (or suffer to be
amended, modified or altered any other agreement to which the
Company is a party) that requires, as a condition to the
amendment of any term or provision of this Agreement, or the
waiver of any term or provision herein, the approval or
consent of any other creditor of the Company; provided that if
(A) any such agreement is entered into to replace, refinance
or supplement the Credit Agreement and (B) Section 8.13 of the
Credit Agreement (as in effect on the Closing Date) shall not
have been deleted from the Credit Agreement as of the time
such new agreement is to be entered into, such new
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<PAGE> 21
agreement may include a covenant substantially the same as
(and not more onerous on the Company than) Section 8.13 of the
Credit Agreement (as in effect on the Closing Date).
6.19 AMENDMENT OF SECURITIZATION DOCUMENTS. Once executed and delivered
pursuant to a Permitted Securitization, the Company covenants that it will not
permit the "pertinent terms, conditions or provisions" of the Securitization
Documents to be waived, amended, modified or otherwise altered in any material
respect adverse to the Company or any Restricted Subsidiary or Special Purpose
Subsidiary without the prior written approval of the Required Holders. For
purposes of the Securitization Documents, the "pertinent terms, conditions or
provisions" thereof shall be deemed solely those terms, conditions or provisions
with respect to servicer fees, servicer expenses, defaults, events of default,
recourse to the Company or any Restricted Subsidiary, Cleanup Calls or
conditions contained therein which are required under or necessary for
compliance with this Agreement.
6.20 RESTRICTED PAYMENTS.
(A) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, declare, make, set apart any
funds or other property for, or incur any liability to make any
Restricted Payment unless, at the time of such action, at least two of
the following four organizations shall have assigned an Investment
Grade Rating to the Company, the Notes or any other senior unsecured
debt obligation of the Company: Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group, the National Association of Insurance
Commissioners (the "NAIC"), or Fitch Investors Services, Inc.
(B) The parties hereto specifically acknowledge that the NAIC
is not in any way a rating agency with functions such as those
performed by Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, or Fitch Investors Services, Inc. Further, the parties hereto
specifically acknowledge that any rating given to the Notes by the NAIC
is not to be interpreted as an expression by the NAIC with respect to
the suitability of an investment in the Notes or the likelihood of any
payment in respect thereof. In addition, the signatories hereto
specifically affirm that the holders of the Notes will not obtain any
benefit from satisfaction of the requirement set forth in Section
6.20(a).
(C) If the NAIC makes specific reference to Section 6.20(a)
and states that it will withdraw any rating or designation of the
Notes, or will take any other action adverse to any one or more of the
holders of the Notes, as a result of the agreement set forth in Section
6.20(a), the parties hereto hereby agree that:
(i) Section 6.20(a) shall, in lieu of the requirement
set forth therein, be deemed to require an Investment Grade
Rating from at least two of the following three organizations:
Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, or Fitch Investors Services, Inc.; and
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<PAGE> 22
(ii) Clause (iii) of the definition of "Investment
Grade Rating" shall be deemed to have been deleted.
Such changes shall take effect upon delivery of written notice to the
Company by the Required Holders referring to such proposed withdrawal
or other action and stating that the condition set forth in this
Section 6.20(c) has occurred.
6.21 NO SECURITIZATIONS OTHER THAN PERMITTED SECURITIZATIONS. The
Company will not, and will not permit any Restricted Subsidiary to, engage in
any Securitization Transaction other than a Permitted Securitization."
2.3 SECTION 7.1. Section 7.1 is hereby amended and restated in its
entirety as set forth below.
"7.1 Financial and Business Information.
The Company will deliver to each holder of Notes:
(A) QUARTERLY STATEMENTS -- as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year),
and in any event within sixty (60) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries and consolidated and consolidating
balance sheets of the Company and the Restricted Subsidiaries,
as at the end of such quarter, and
(ii) consolidated statements of income and cash flows of
the Company and its consolidated subsidiaries and consolidated
and consolidating statements of income and cash flows of the
Company and the Restricted Subsidiaries, for such quarter and
(in the case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the immediately preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and accompanied by the
certificate required by Section 7.2, and, in the case of the financial
statements relating to the Company and its Restricted Subsidiaries,
certified as complete and correct, subject to changes resulting from
year-end adjustments, by a Senior Financial Officer, and, in the case
of the financial statements relating to the Company and its
consolidated subsidiaries at any time when a Quarterly Report on Form
10-Q is not filed by the Company with the Securities and Exchange
Commission and delivered to the holders of the Notes pursuant to clause
(d) of
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this Section 7.1, certified as complete and correct, subject to changes
resulting from year-end adjustments, by a Senior Financial Officer;
(B) ANNUAL STATEMENTS -- as soon as practicable after the end
of each fiscal year of the Company, and in any event within one hundred
twenty (120) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries and consolidated and consolidating
balance sheets of the Company and the Restricted Subsidiaries,
as at the end of such year, and
(ii) consolidated statements of income, shareholders'
equity and cash flows of the Company and its consolidated
subsidiaries and consolidated and consolidating statements of
income, shareholders' equity and cash flows of the Company and
the Restricted Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
immediately preceding fiscal year, all in reasonable detail, prepared
in accordance with GAAP, and accompanied by
(A) in the case of the financial statements relating
to the Company and its consolidated subsidiaries, an
opinion of independent certified public accountants of
recognized national standing, which opinion shall, without
qualification, state that such financial statements present
fairly, in all material respects, the financial position of
the companies being reported upon and their results of
operations and cash flows and have been prepared in
conformity with GAAP, and that the examination of such
accountants in connection with such financial statements
has been made in accordance with generally accepted
auditing standards, and that such audit provides a
reasonable basis for such opinion in the circumstances, and
(B) in the case of the financial statements relating
to the Company and its Restricted Subsidiaries, certified
as complete and correct by a Senior Financial Officer, and
(C) the certificate required by Section 7.2 and, in
the case of the financial statements relating to the
Company and its consolidated subsidiaries, the certificate
required by Section 7.3;
(C) AUDIT REPORTS -- promptly upon receipt thereof, a copy of
each other report submitted to the Company or any Restricted Subsidiary
by independent accountants in connection with any management report,
special audit report or comparable analysis prepared by them with
respect to the books of the Company or any Restricted Subsidiary;
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<PAGE> 24
(D) SEC AND OTHER REPORTS -- promptly upon their becoming
available, a copy of each financial statement, report (including,
without limitation, each Quarterly Report on Form 10-Q, each Annual
Report on Form 10-K and each Current Report on Form 8-K), notice or
proxy statement sent by the Company or any Subsidiary to stockholders
generally and of each regular or periodic report and any registration
statement, prospectus or written communication (other than transmittal
letters), and each amendment thereto, in respect thereof filed by the
Company or any Subsidiary with, or received by, such Person in
connection therewith from, the National Association of Securities
Dealers, any securities exchange or the Securities and Exchange
Commission or any successor agency;
(E) ERISA --
(i) immediately upon becoming aware of the occurrence of
any
(A) "reportable event" (as defined in section 4043 of
ERISA), excluding, however, such events as to which the
PBGC by regulation shall have waived the requirement of
section 4043(a) of ERISA that it be notified within thirty
(30) days of the occurrence of such event (provided that a
failure to meet the minimum funding standard of section 412
of the IRC and of section 302 of ERISA shall not be so
excluded regardless of the issuance of any such waiver of
the notice requirement in accordance with either section
4043(a) of ERISA or section 412(d) of the IRC), or
(B) "prohibited transaction" (as defined in section
406 of ERISA or section 4975 of the IRC),
in connection with any Pension Plan or any trust created
thereunder, a written notice specifying the nature thereof,
what action the Company is taking or proposes to take with
respect thereto and, when known, any action taken by the IRS,
the DOL or the PBGC with respect thereto, and
(ii) prompt written notice of and, where applicable, a
description of
(A) any notice from the PBGC in respect of the
commencement of any proceedings pursuant to section 4042 of
ERISA to terminate any Pension Plan or for the appointment
of a trustee to administer any Pension Plan,
(B) any distress termination notice delivered to the
PBGC under section 4041 of ERISA in respect of any Pension
Plan, and any determination of the PBGC in respect thereof,
(C) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA,
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(D) any Multiemployer Plan becoming
"insolvent" (as defined in section 4245 of ERISA)
under Title IV of ERISA, and
(E) the whole or partial withdrawal of the
Company or any ERISA Affiliate from any Multiemployer
Plan or Multiple Employer Pension Plan and the
withdrawal liability incurred in connection
therewith;
(F) ACTIONS, PROCEEDINGS -- promptly after the
commencement thereof, notice of any action or proceeding relating to
the Company or any Subsidiary in any court or before any Governmental
Authority or arbitration board or tribunal as to which there is a
reasonable possibility of an adverse determination and that, if
adversely determined, would have a Material Adverse Effect;
(G) CERTAIN ENVIRONMENTAL MATTERS -- prompt written
notice of and a description of any event or circumstance that, had such
event or circumstance occurred or existed immediately prior to the
Closing Date, would have been required to be disclosed as an exception
to any statement set forth in Section 2.13;
(H) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- immediately
upon becoming aware of the existence of any condition or event that
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company is taking or proposes to take with respect thereto;
(I) NOTICE OF CLAIMED DEFAULT -- immediately upon
becoming aware that the holder of any Note, or of any Debt or any
Security of the Company or any Subsidiary, shall have given notice or
taken any other action with respect to a claimed Default, Event of
Default, default or event of default, a written notice specifying the
notice given or action taken by such holder and the nature of the
claimed Default, Event of Default, default or event of default and what
action the Company is taking or proposes to take with respect thereto;
and
(J) REQUESTED INFORMATION -- with reasonable promptness,
such other data and information as from time to time may be reasonably
requested by any holder of Notes, including, without limitation,
(i) copies of any statement, report or certificate
furnished to any holder of any Debt or any Security of the
Company or any Subsidiary,
(ii) information requested to comply with any
request of the National Association of Insurance Commissioners
in respect of the designation of the Notes, and
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<PAGE> 26
(iii) information requested to comply with 17 C.F.R.
ss.230.144A, as amended from time to time;
provided that any such request with respect to any of the data and
information referred to in the foregoing clauses (i), (ii) and (iii)
shall be deemed to be reasonable for purposes of this Section 7.1(j).
In addition to the foregoing, the Company will also deliver to each
holder of Notes:
(1) as soon as available, and in any event within
sixty (60) days of the end of each fiscal quarter, (A) a
"static pool analysis" substantially in the form of Exhibit F
attached hereto and in any event satisfactory in form and
substance to the Required Holders, which analyzes the
performance of the Company's and each Restricted Subsidiary's
Installment Contracts (segregated between the Company's North
American operations and its UK operations) on a quarterly
basis, and (B) for quarters beginning with the quarter ended
September 30, 1999, a comparable "static pool analysis" which
analyzes the performance of the Company's and each Restricted
Subsidiary's Leases on a quarterly basis (segregated between
the Company's North American operations and its UK
operations), in each case, with respect to clauses (A) and (B)
above, certified by an authorized officer of the Company as to
consistency with prior such analyses, accuracy and fairness of
presentation;
(2) promptly upon the request of the Required
Holders from time to time (but no more often than
semi-annually), a "static pool analysis" which analyzes the
performance of any Installment Contracts or Leases transferred
or encumbered pursuant to a Permitted Securitization
comparable to the static pool analysis required to be
delivered pursuant to clause (1) of this Section 7.1(j); and
(3) within five (5) Business Days after the
execution and delivery thereof, a copy of any amendment to, or
waiver of any provisions of, the Credit Agreement or
Securitization Documents (in each case, as from time to time
amended, restated, refinanced, replaced or supplemented)."
2.4 SECTION 9.1. Section 9.1 is hereby amended and restated in its
entirety as set forth below.
"9.1 TERMS DEFINED.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ACCEPTABLE CONSIDERATION -- means, with respect to any Transfer of any
Property of the Company or a Restricted Subsidiary, cash consideration,
promissory notes or such other
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<PAGE> 27
consideration (or any combination of the foregoing) received by such Person in
connection with such Transfer as is, in each case, determined by the Board of
Directors, in its good faith opinion, to be in the best interests of the Company
and to reflect the Fair Market Value of such Property. It is understood that the
Company's or such Restricted Subsidiary's acceptance of any such consideration
in connection with such Transfer will constitute an Investment and may,
depending upon the form of such consideration, constitute a Restricted
Investment made by the Company or such Restricted Subsidiary.
ADVANCES -- means, at any time, the dollar amount of advances in
respect of Installment Contracts, as such amount would appear in the footnotes
to the financial statements of the Company and the Restricted Subsidiaries
prepared in accordance with GAAP (if such amount would not appear net of
reserves, then net of any reserves established by the Company as an allowance
for credit losses related to such advances not expected to be recovered),
provided that Advances shall not include (a) any such advances (and the related
Installment Contracts) transferred or encumbered pursuant to a Permitted
Securitization (whether or not attributable to the Company under GAAP) unless
and until such advances (and the related Installment Contracts) are reassigned
to the Company or a Restricted Subsidiary or such encumbrances are discharged,
or (b) Charged-Off Advances to the extent that such Charged-Off Advances exceed
the portion of the Company's allowance for credit losses related to reserves
against such advances not expected to be recovered, as such allowance would
appear in the footnotes to the financial statements of the Company and the
Restricted Subsidiaries prepared in accordance with GAAP.
AFFILIATE -- means, at any time, a Person (other than a Restricted
Subsidiary):
(a) that directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common
Control with, the Company;
(b) that beneficially owns or holds five percent (5%) or more
of any class of the Voting Stock of the Company;
(c) five percent (5%) or more of the Voting Stock (or in the
case of a Person that is not a corporation, five percent (5%) or more
of the equity interest) of which is beneficially owned or held by the
Company or a Subsidiary; or
(d) that is an officer or director (or a member of the
immediate family of an officer or director) of the Company or any
Subsidiary; at such time.
As used in this definition:
CONTROL -- means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
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AGREEMENT, THIS -- means this agreement, as it may be amended and
restated from time to time.
ALLOWANCES FOR CREDIT LOSSES -- means those allowances or reserves
established by the Company or its Restricted Subsidiaries in arriving at
installment contracts receivable, net or Leased Vehicles, as the case may be, on
its Consolidated balance sheets, as specifically identified in such financial
statements or as disclosed in the footnotes thereto, provided that Allowances
for Credit Losses shall not include allowances or reserves attributable to
retail installment contracts or leases which are not at such time "Installment
Contracts" or "Leases", as the case may be, due to the proviso in the definition
of such terms in this Agreement.
ARLINGTON DISPOSITION -- means the sale of the business of Arlington
Investment Company and/or any of its subsidiaries for net proceeds totaling at
least $4,000,000 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 Arlington Investment Company and/or any of
its subsidiaries or divisions, (ii) the sale of all of the capital stock of
Arlington Investment Company and/or any of its subsidiaries or (iii) the merger
of Arlington Investment Company and/or any of its subsidiaries 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.
BACK-END DEALER AGREEMENT(S) -- means Dealer Agreements referred to in
clause (a) of the definition of Dealer Agreements.
BANK TERM DEBT -- means term Debt of the Company or any Restricted
Subsidiary owed to banks and having an initial maturity of more than one (1)
year and a fixed amortization schedule, but in any event excluding any Debt
which by its terms is permitted to be readvanced or reborrowed, whether or not
subject to mandatory reductions or stepdowns in the availability thereof.
BANKS -- means the Banks that are parties to the Credit Agreement.
BOARD OF DIRECTORS -- means the board of directors of the Company or
any committee thereof that, in the instance, shall have the lawful power to
exercise the power and authority of such board of directors.
BUSINESS DAY -- means, at any time, a day other than a Saturday, a
Sunday or a day on which the bank designated by the holder of a Note to receive
(for such holder's account) payments on such Note is required by law (other than
a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
CAC INTERNATIONAL -- means CAC International, Inc., a wholly-owned
Subsidiary of the Company.
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CAC LIFE -- means Credit Acceptance Corporation Life Insurance Company,
a Wholly-Owned Restricted Subsidiary of the Company.
CAC UK -- means Credit Acceptance Corporation UK Limited, a
wholly-owned Subsidiary of the Company incorporated under the laws of England
for the purpose of acquiring substantially all of the assets of CAC
International.
CAPITAL ASSETS -- means all assets of a Person other than Intangible
Assets, inventories, accounts receivable and Investments (as defined in clause
(a) of the definition of such term) in and Securities of any other Person.
CAPITAL LEASE -- means, at any time, a lease with respect to which the
lessee is required by GAAP to recognize the acquisition of an asset and the
incurrence of a liability at such time.
CHANGE IN CONTROL -- means, at any time, either
(a) the failure of Donald A. Foss, his wife and children, or
trusts for his or their benefit, to beneficially own, in the aggregate,
at least thirty-five percent (35%) (by number of votes) of the Voting
Stock of the Company outstanding at such time (excluding for such
purpose Persons who own shares through any employee benefit plan of the
Company or any trust established in connection therewith), or
(b) except for the individuals and trusts identified in the
foregoing clause (a), the acquisition, holding or control (whether
directly or indirectly) by
(i) any "person" (as such term is used in section 13(d)
and section 14(d)(2) of the Exchange Act as in effect on the
Closing Date), or
(ii) related Persons constituting a "group" (as such term
is used in Rule 13d-5 under the Exchange Act as in effect on
the Closing Date),
of beneficial ownership of more than twenty-five percent (25%) (by
number of votes) of the Voting Stock of the Company outstanding at such
time (excluding for such purpose Persons who own shares through any
employee benefit plan of the Company or any trust established in
connection therewith), or
(c) all or substantially all of the assets of the Company are
sold or otherwise transferred, in a single transaction or in a series
of related transactions, to any "person" or "group of persons" (as such
terms are used in section 13(d)(3) of the Exchange Act as in effect on
the Closing Date).
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CHARGED-OFF ADVANCES -- means those Advances which the Company or any
of its Restricted Subsidiaries has determined, based on the application of a
static pool analysis or otherwise are completely or partially impaired, to the
extent of such impairment.
CHARGED-OFF LEASE ADVANCES -- means those Leased Vehicles which the
Company or any of its Subsidiaries has determined, based on the application of a
static pool or comparable analysis or otherwise, are completely or partially
impaired, to the extent of such impairment.
CLEANUP CALL(S) -- means
(a) in the case of an optional cleanup call, a cleanup call to
be exercised at the option of the Company or a Special Purpose
Subsidiary under the terms of the applicable Permitted Securitization
(provided that, both before and after giving effect thereto, no Default
or Event of Default has occurred and is continuing when such option is
exercised), in an amount not in excess of (i) Fifteen Percent (15%) of
the initial amount received by the Company or the Special Purpose
Subsidiary pursuant to such Permitted Securitization (before fees and
other deductions), it being understood that, for purposes of this
clause (a)(i) of this definition, each tranche of a multi-tranche
Permitted Securitization shall be considered a separate Permitted
Securitization or (ii) in the case of any Securitization Transaction
structured on a revolving basis, Fifteen Percent (15%) of the maximum
aggregate availability at any time to the Company or a Special Purpose
Subsidiary, and
(b) in the case of a mandatory cleanup call, a mandatory
cleanup call to be exercised at the option of the investors under the
terms of the applicable Permitted Securitization(s), in an amount not
in excess of (i) Two and One-Half Percent (2 1/2%) of the aggregate
amount received by the Company or the Special Purpose Subsidiary
pursuant to the Permitted Securitization (before fees and other
deductions), it being understood that, for purposes of this clause
(b)(i) of this definition, all tranches of a multi-tranche Permitted
Securitization shall be together be considered one Permitted
Securitization, or (ii) in the case of any Securitization Transaction
structured on a revolving basis, Two and One-Half Percent (2 1/2%) of
the maximum aggregate availability at any time to the Company or a
Special Purpose Subsidiary,
in either case, such Cleanup Call being accompanied by the repurchase of or
release of encumbrances on Advances, Leased Vehicles, Installment Contracts
(whether assigned outright or related to Advances) or Leases (whether assigned
outright or related to Leased Vehicles), as the case may be, previously
transferred or encumbered pursuant to such Permitted Securitization in at least
the amount of such cleanup call.
CLOSING -- Section 1.2(b).
CLOSING DATE -- Section 1.2(b).
COMPANY -- introductory paragraph hereof.
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CONSOLIDATED CURRENT LIABILITIES -- means, at any time, the aggregate
amount of current liabilities of the Company and the Restricted Subsidiaries,
determined at such time after eliminating inter-company transactions among the
Company and the Restricted Subsidiaries and liabilities incurred solely by a
Special Purpose Subsidiary pursuant to a Permitted Securitization but
attributable to the Company or a Restricted Subsidiary under GAAP.
CONSOLIDATED FIXED CHARGES -- means, for any period, the sum of
(a) Consolidated Interest Expense for such period, plus
(b) the amount payable in respect of such period with respect
to Operating Rentals payable by the Company and the Restricted
Subsidiaries, determined after eliminating intercompany transactions
among the Company and the Restricted Subsidiaries.
CONSOLIDATED INCOME AVAILABLE FOR FIXED CHARGES -- means, for any
period, the sum of
(a) Consolidated Net Income, plus
(b) the aggregate amount of income taxes, depreciation,
amortization (including the amortization of any excess servicing asset)
and Consolidated Fixed Charges (to the extent, and only to the extent,
that such aggregate amount was reflected in the computation of
Consolidated Net Income for such period), plus
(c) with respect to the periods ending September 30, 1997,
December 31, 1997, March 31, 1998 and June 30, 1998, $30,000,000
representing the portion of the non-cash charge recorded by the Company
during the period ended September 30, 1997 attributable to the present
valuing of future cash flows consistent with Statement of Financial
Accounting Standards No. 114 `Accounting by Creditors for Impairment of
a Loan', plus
(d) with respect to the periods ending September 30, 1999,
December 31, 1999, March 31, 2000 and June 30, 2000, $47,300,000
representing the accounting adjustment to the Company's reserve against
advances recorded by the Company during the period ended September 30,
1999,
in each case accrued for such period by the Company and the Restricted
Subsidiaries, determined on a consolidated basis for such Persons.
CONSOLIDATED INTEREST EXPENSE -- means, for any period, the amount of
interest accrued or capitalized on, or with respect to, Consolidated Total Debt
for such period, including, without limitation, amortization of debt discount,
imputed interest on Capital Leases and interest on the Notes.
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CONSOLIDATED NET INCOME -- means, for any period, net earnings (or
loss) after income taxes of the Company and the Restricted Subsidiaries,
determined on a consolidated basis for such Persons, but excluding:
(a) net earnings (or loss) of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(b) any gain or loss (net of tax effects applicable thereto)
resulting from the sale, conversion or other disposition of Capital
Assets other than in the ordinary course of business;
(c) any extraordinary or nonrecurring gains or losses
(including, without limitation, any gain on sale generated by a
Permitted Securitization, except to the extent the Company has received
a cash benefit therefrom in the applicable reporting period); and any
interest income generated by a Permitted Securitization, except to the
extent the Company has received a cash benefit therefrom in the
applicable reporting period;
(d) any gain arising from any reappraisal or write-up of
assets;
(e) any portion of the net earnings of any Restricted
Subsidiary that for any reason is unavailable for payment of dividends
to the Company or a Restricted Subsidiary, provided that the net
earnings of CAC Life that are unavailable (due to regulatory
requirements applicable to CAC Life) for the payment of dividends to
the Company may be included in the determination of Consolidated Net
Income, to the extent that such unavailable net earnings do not exceed
five percent (5%) of Consolidated Net Income (determined without giving
effect to this proviso), and provided, further that so long as the net
earnings of CAC Life shall be included in Consolidated Net Income
pursuant to the preceding proviso, CAC Life shall not have outstanding
any Debt, regardless of whether any other Restricted Subsidiary may be
permitted to have Debt outstanding at such time by reason of a waiver
of or an amendment to Section 6.1(d);
(f) any gain or loss (net of tax effects applicable thereto)
during such period resulting from the receipt of any proceeds of any
insurance policy;
(g) any earnings of any Person acquired by the Company or any
Restricted Subsidiary through purchase, merger or consolidation or
otherwise, or earnings of any Person substantially all of whose assets
have been acquired by the Company or any Restricted Subsidiary, for any
period prior to the date of acquisition;
(h) net earnings of any Person (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary shall
have an ownership interest unless such net earnings shall have actually
been received by the Company or such Restricted Subsidiary in the form
of cash distributions; and
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(i) any restoration during such period to income of any
contingency reserve, except to the extent that provision for such
reserve
(i) was made during such period out of income accrued
during such period,
(ii) was made in connection with the Company's program of
financing Installment Contracts or Leases
(A) to provide for warranty claims for which
the Company may be responsible, or
(B) to cover credit losses in connection with
Advances, Installment Contracts, Leased Vehicles or
Leases,
or
(iii) is required by applicable law with respect to
reserves for claims related to the operation of CAC Life,
provided that the aggregate restoration to income during any period
from reserves described in clause (ii) and clause (iii) above shall not
exceed ten percent (10%) of Consolidated Net Income for such period,
prior to giving effect to such restoration.
CONSOLIDATED NET TANGIBLE ASSETS -- means, at any time, the remainder
of
(a) Consolidated Total Assets at such time minus
(b) the sum of
(i) Consolidated Current Liabilities at such time, plus
(ii) Intangible Assets of the Company and the
Restricted Subsidiaries as would be reflected on a
consolidated balance sheet of such Persons at such time.
CONSOLIDATED SENIOR FUNDED DEBT -- means, at any time, Funded Debt of
the Company and the Restricted Subsidiaries, other than Subordinated Funded
Debt, determined on a consolidated basis for such Persons at such time.
CONSOLIDATED SUBORDINATED FUNDED DEBT -- means, at any time, the
aggregate amount of Subordinated Funded Debt of the Company and the Restricted
Subsidiaries, determined on a consolidated basis for such Persons at such time.
CONSOLIDATED TANGIBLE NET WORTH -- means, at any time, the result of
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(a) the shareholders' equity of the Company and its
Subsidiaries, minus
(b) the retained earnings of the Unrestricted
Subsidiaries, minus
(c) all Intangible Assets of the Company and the
Subsidiaries, minus
(d) without duplication, (i) any excess servicing asset
resulting from the Transfer, pursuant to a Permitted
Securitization, of Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or
related to Advances) or Leases (whether assigned
outright or related to Leased Vehicles) and (ii) the
equity interest in any Special Purpose Subsidiary to
the extent such equity interest is included in
Consolidated Net Worth,
in each case as would be reflected on a consolidated balance sheet of such
Persons at such time. As used in this definition, "Consolidated Net Worth"
means, at any time, the amount of "consolidated total assets" less the amount of
"consolidated total liabilities", as each would be reflected on a consolidated
balance sheet of the Company and its Subsidiaries at such time, prepared in
accordance with GAAP.
CONSOLIDATED TOTAL ASSETS -- means, at any time, all assets of the
Company and the Restricted Subsidiaries, determined on a consolidated basis for
such Persons at such time (but excluding from the determination thereof, without
duplication, (a) any excess servicing asset resulting from the Transfer,
pursuant to a Permitted Securitization, of Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or related to Advances) or
Leases (whether assigned outright or related to Leased Vehicles) and (b) the
equity interest in any Special Purpose Subsidiary to the extent such equity
interest is included in the assets of the Company and the Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP for
such Persons at such time).
CONSOLIDATED TOTAL DEBT -- means, at any time, the aggregate amount of
Funded Debt and Current Debt of the Company and the Restricted Subsidiaries,
determined on a consolidated basis for such Persons at such time.
CONTROL EVENT -- means the execution of any written agreement that,
when fully performed by the parties thereto, would result in a Change in
Control.
CONTROL PREPAYMENT DATE -- Section 4.3(a).
CREDIT AGREEMENT -- means the Credit Agreement described in Part 2.2(b)
of Annex 3, as may be amended, restated, refinanced, replaced, supplemented or
otherwise modified from time to time.
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CURRENT DEBT -- means, with respect to any Person, at any time, all
Debt of such Person other than Funded Debt.
DEALER -- means a Person engaged in the business of the retail sale or
lease of new or used motor vehicles, including businesses exclusively selling or
leasing used motor vehicles and businesses principally selling or leasing new
motor vehicles, but having a used vehicle department, including any such Person
which constitutes an Affiliate of the Company.
DEALER AGREEMENTS -- means the sales and/or servicing agreements
between the Company or its Subsidiaries and a participating Dealer which sets
forth the terms and conditions under which the Company or its Subsidiaries (a)
accepts, as nominee for such Dealer, the assignment of Installment Contracts or
Leases for purposes of administration, servicing and collection and under which
the Company or its Subsidiary may make advances to such Dealers included in
Advances or Leased Vehicles and (b) accepts outright assignments of Installment
Contracts or Leases from Dealers or funds Installment Contracts or Leases
originated by such Dealer in the name of the Company or any of its Subsidiaries,
in each case as such agreements may be in effect from time to time.
DEBT -- means, with respect to any Person, without duplication:
(a) its liabilities for borrowed money (whether or not
evidenced by a Security);
(b) any liabilities secured by any Lien existing on Property
owned by such Person (whether or not such liabilities have been
assumed);
(c) its liabilities in respect of Capital Leases;
(d) the present value of all payments due under any
arrangement for retention of title or any conditional sale agreement
(other than a Capital Lease) discounted at the implicit rate, if known,
with respect thereto or, if unknown, at eight and eighty-seven
one-hundredths percent (8.87%) per annum; and
(e) its Guaranties of any liabilities of another Person
constituting liabilities of a type set forth above.
Except as provided in Section 6.1(a)(i), neither Debt of any Special Purpose
Subsidiary which is an Unrestricted Subsidiary incurred pursuant to a Permitted
Securitization (whether or not such Debt is reflected on the consolidated
balance sheet of the Company and its Restricted Subsidiaries prepared in
accordance with GAAP) nor dealer holdbacks shall be considered Debt of the
Company or any Restricted Subsidiary.
DEFAULT -- means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.
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DOL -- means the Department of Labor and any successor agency.
DOLLARS or $ -- means United States of America dollars.
ENVIRONMENTAL PROTECTION LAWS -- means any federal, state, county,
regional or local law, statute or regulation (including, without limitation,
CERCLA, RCRA and SARA) enacted in connection with or relating to the protection
or regulation of the environment, including, without limitation, those laws,
statutes and regulations regulating the disposal, removal, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Substances, and any regulations issued or promulgated in connection with such
statutes by any Governmental Authority, and any orders, decrees or judgments
issued by any court of competent jurisdiction in connection with any of the
foregoing.
As used in this definition:
CERCLA -- means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended from time to time
(by SARA or otherwise), and all rules and regulations promulgated in
connection therewith.
RCRA -- means the Resource Conservation and Recovery Act of
1976, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
SARA -- means the Superfund Amendments and Reauthorization Act
of 1986, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
EQUITY OFFERING -- means the issuance and sale for cash by the Company
or any of its Restricted Subsidiaries of additional capital stock or other
equity interests, other than upon the exercise of employee and dealer stock
options pursuant to stock option plans maintained or offered by the Company or
its Restricted Subsidiaries in the ordinary course of business and not in
anticipation of any sale of capital stock or equity interests to the general
public.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA AFFILIATE -- means any corporation or trade or business that:
(a) is a member of the same controlled group of corporations
(within the meaning of section 414(b) of the IRC) as the Company; or
(b) is under common control (within the meaning of section
414(c) of the IRC) with the Company.
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EVENT OF DEFAULT -- Section 8.1.
EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended.
EXCLUDED TRANSFERS -- Section 6.8(a).
FAIR MARKET VALUE -- means, at any time, with respect to any Property,
the sale value of such Property that would be realized in an arm's-length sale
at such time between an informed and willing buyer and an informed and willing
seller under no compulsion to buy or sell, respectively.
FIRST AMENDED AND RESTATED NOTES -- Section 1.1(b).
FOREIGN PENSION PLAN -- means any plan, fund or other similar program
(a) established or maintained outside of the United States of
America by any one or more of the Company or the Subsidiaries primarily
for the benefit of the employees (substantially all of whom are aliens
not residing in the United States of America) of the Company or such
Subsidiaries which plan, fund or other similar program provides for
retirement income for such employees or results in a deferral of income
for such employees in contemplation of retirement, and
(b) not otherwise subject to ERISA.
401(K) PLAN -- Section 2.12(a).
FOURTH AMENDMENT -- means the Fourth Amendment, dated as of December 1,
1999, to this Agreement.
FUNDED DEBT -- means, at any time of determination, with respect to any
borrower, all Debt of such borrower that is expressed to mature more than one
(1) year from the date of the creation thereof or that is extendible or
renewable at the option of such borrower to a time more than one (1) year after
the date of the creation thereof (whether or not at such time of determination
such Debt is payable within one (1) year).
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
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GOVERNMENTAL AUTHORITY -- means:
(a) the government of
(i) the United States of America and any state or other
political subdivision thereof, or
(ii) any other jurisdiction (y) in which the Company or
any Subsidiary conducts all or any part of its business or (z)
that asserts jurisdiction over the conduct of the affairs or
Properties of the Company or any Subsidiary; and
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
GROSS ADVANCES -- means, as of any applicable date of determination,
the dollar amount of Advances, plus any reserves established by the Company as
an allowance for credit losses related to such advances not expected to be
recovered, plus Charged-Off Advances to the extent such Charged-Off Advances
exceed the amount of such reserves.
GROSS CURRENT INSTALLMENT CONTRACT RECEIVABLES -- means, as of any
applicable date of determination, the aggregate amount of Gross Installment
Contract Receivables, less the amount of such receivables which are classified
as being on "non-accrual" in the financial statements of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
GROSS CURRENT LEASED VEHICLES -- means, as of any applicable date of
determination, the aggregate amount of Gross Leased Vehicles, less the amount of
Leased Vehicles in respect of which the underlying Leases are classified as
being on "non-accrual" in the financial statements of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
GROSS DEALER HOLDBACKS -- means the aggregate amount, as of any
applicable date of determination, of dealer holdbacks utilized in arriving at
"Dealer holdbacks, net" on the consolidated balance sheet of the Company and its
Restricted Subsidiaries, as disclosed in the footnotes thereto, provided that
Gross Dealer Holdbacks shall not include the amount of dealer holdbacks
attributable to retail installment contracts which are not at such time
"Installment Contracts" due to the proviso in the definition of such term in
this Agreement.
GROSS INSTALLMENT CONTRACT RECEIVABLES -- means, as of any applicable
date of determination, the aggregate amount of installment contract receivables
utilized in arriving at "Installment contract receivables, net" on the
consolidated balance sheet of the Company and its Restricted Subsidiaries, as
determined in the footnotes thereto, provided that Gross Installment Contract
Receivables shall not include receivables attributable to retail installment
contracts which are not at such time "Installment Contracts" due to the proviso
in the definition of such term in this Agreement.
GROSS LEASED VEHICLES -- means, as of any applicable date of
determination, the dollar amount of Leased Vehicles, plus any reserves
established by the Company as an allowance for credit
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losses related to such Leased Vehicles not expected to be recovered, plus
Charged-Off Lease Advances to the extent such Charged-Off Lease Advances exceed
the amount of such reserves, provided that Gross Leased Vehicles shall not
include the dollar amount of Leased Vehicles attributable to leases which are
not at such time "Leases" due to the proviso in the definition of such term in
this Agreement.
GUARANTY -- means, with respect to any Person (for the purposes of this
definition, the "Guarantor"), any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of the Guarantor guaranteeing or in effect guaranteeing (including, without
limitation, by means of a surety bond, letter of credit or other similar
instrument, whether or not designated as a "guaranty") any indebtedness,
dividend or other obligation of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, including, without limitation,
obligations incurred through an agreement, contingent or otherwise, by the
Guarantor:
(a) to purchase such indebtedness or obligation or any
Property constituting security therefor;
(b) to advance or supply funds
(i) for the purpose of payment of such indebtedness or
obligation, or
(ii) to maintain working capital or other balance sheet
(or statement of financial condition) condition or any income
statement condition of the Primary Obligor or otherwise to
advance or make available funds for the purchase or payment of
such indebtedness or obligation;
(c) to lease Property or to purchase Securities or other
Property or services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of the Primary Obligor
to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or
obligation of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty in connection with any
computation of indebtedness or other liability, it shall be assumed that the
indebtedness or other liabilities that are the subject of such Guaranty are
direct obligations of the issuer of such Guaranty. Without limiting the
generality of the foregoing, it is agreed and understood that each general
partner of a partnership shall be deemed to be a Guarantor of all indebtedness
and other obligations of such partnership and such partnership shall be deemed
to be the Primary Obligor in respect of such indebtedness and other obligations.
For purposes of the immediately preceding sentence, a Person shall be deemed to
be a general partner of any so-called "joint venture" or other arrangement
(whether or not constituting a partnership), and such joint venture or other
arrangement shall be deemed to be a partnership, if,
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pursuant to applicable law, by contract or otherwise, such Person is liable,
directly or indirectly, contingently or otherwise, either individually or
jointly with one or more other Persons, for the indebtedness or other
obligations of such joint venture or other arrangement.
HAZARDOUS SUBSTANCES -- means any and all pollutants, contaminants,
toxic or hazardous wastes and any other substances that might pose a hazard to
health or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage, seepage
or filtration of which is or shall be, in each of the foregoing cases,
restricted, prohibited or penalized by any applicable law.
INSTALLMENT CONTRACTS -- means retail installment contracts for the
sale of new or used motor vehicles assigned outright by Dealers to the Company
or a Restricted Subsidiary or written by Dealers in the name of the Company or a
Restricted Subsidiary (and funded by the Company or such Restricted Subsidiary)
or assigned by Dealers to the Company or a Restricted Subsidiary, as nominee for
the Dealer, for administration, servicing and collection, in each case pursuant
to an applicable Dealer Agreement; provided, however, that to the extent the
Company or any Restricted Subsidiary transfers or encumbers its interest in any
Installment Contracts (or any Advances related thereto) pursuant to a Permitted
Securitization, such Installment Contracts shall, from and after the date of
such transfer or encumbrance, cease to be considered Installment Contracts under
this Agreement (reducing the amount of Advances by the outstanding amount of
such advances, if any, attributable to such Installment Contracts) unless and
until such installment contracts are reassigned to the Company or a Restricted
Subsidiary or such encumbrances are discharged.
INSTITUTIONAL INVESTOR -- means the Purchasers, any affiliate of any of
the Purchasers and any holder or beneficial owner of Notes that is an
"accredited investor" as defined in section 2(15) of the Securities Act or a
"qualified institutional buyer" as defined in 17 C.F.R. ss.230.144A, as amended
from time to time.
INTANGIBLE ASSETS -- means any assets of a Person that would be
classified as "intangible assets" under GAAP, including, without limitation,
goodwill, trademarks, trade names, patents, copyrights, franchises and other
intangible assets of such Person.
INTERCREDITOR AGREEMENT -- means the Intercreditor Agreement, dated as
of December 15, 1998, by and among the Banks, the holders of Notes, the holders
of "Future Debt" (as defined in such agreement) and Comerica Bank, as collateral
agent, as such agreement may be amended from time to time.
INVESTMENT -- means any investment, made in cash or by delivery of
Property, by the Company or any Restricted Subsidiary:
(a) in any Person, whether by acquisition of stock,
indebtedness or other obligation or Security, or by loan, Guaranty,
advance, capital contribution or otherwise; or
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(b) in any Property.
Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon. Any designation
of a Subsidiary as an Unrestricted Subsidiary pursuant to Section 6.17 shall be
deemed to be an Investment, in an amount equal to the net worth of such
Subsidiary, at the time of such designation and any Investments of a Person
existing at the time it shall become a Restricted Subsidiary shall be deemed to
have been made immediately after such time.
INVESTMENT GRADE RATING -- means a rating of at least, but not lower
than:
(i) "Baa3" by Moody's Investors Service, Inc.,
(ii) "BBB-" by Standard & Poor's Ratings Group,
(iii) a category "1" or category "2" designation from the
National Association of Insurance Commissioners, and
(iv) "BBB-" by Fitch Investors Services, Inc.
IRC -- means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
IRS -- means the Internal Revenue Service and any successor agency.
LEASED VEHICLES -- means, as of any applicable date of determination,
the dollar amount of advances in respect of Leases, as such amount would appear
in the footnotes to the financial statements of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP or, if specifically identified,
elsewhere in such financial statements, net of depreciation on the motor
vehicles which are covered by Leases with respect to which such Leased Vehicles
are attributable (and if such amount is not shown net of such reserves, then net
of any reserves established by the Company as an allowance for credit losses
related to such advances not expected to be recovered), provided that Leased
Vehicles shall not include (a) the amount of any such advances attributable to
any Leases transferred or encumbered pursuant to a Permitted Securitization
(whether or not attributable to the Company under GAAP) unless and until such
advances (and the related Leases) are reassigned to the Company or a Restricted
Subsidiary or such encumbrances are discharged, or (b) Charged-Off Lease
Advances, to the extent that such Charged-Off Lease Advances (i) exceed the
portion of the allowance for credit losses related to reserves against such
advances not expected to be recovered, as such allowance would appear in the
footnotes to the financial statements of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP at such time or if specifically
identified, elsewhere in such financial statements and (ii) have not already
been eliminated in the determination of Leased Vehicles.
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LEASE(S) -- means the retail agreements for the lease of motor vehicles
assigned outright by Dealers to the Company or a Restricted Subsidiary or
written by a Dealer in the name of the Company or a Restricted Subsidiary (and
funded by the Company or such Restricted Subsidiary) or assigned by Dealers to
the Company or a Restricted Subsidiary, as nominee for the Dealer, for
administration, servicing and collection, in each case pursuant to an applicable
Dealer Agreement; provided, however, that to the extent the Company or any
Restricted Subsidiary transfers or encumbers its interest in any Leases pursuant
to a Permitted Securitization, such Leases shall, from and after the date of
such transfer or encumbrance, cease to be considered Leases under this Agreement
(reducing the amount of Leased Vehicles by the outstanding amount of Leased
Vehicles attributable to such Leases) unless and until such Leases are
reassigned to the Company or a Restricted Subsidiary or such encumbrances have
been discharged.
LETTER OF CREDIT FACILITY -- means a letter of credit issued by a
commercial bank for the account of the Company or a Restricted Subsidiary,
solely in support of the Company's or such Restricted Subsidiary's obligations
in respect of commercial paper issued by the Company or such Restricted
Subsidiary.
LIEN -- means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including, but not
limited to, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale, sale with recourse or a trust receipt, or a lease,
consignment or bailment for security purposes. The term "Lien" includes, without
limitation, reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property and includes, without limitation, with
respect to stock, stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements. For the purposes hereof, the Company
and each Subsidiary shall be deemed to be the owner of any Property that it
shall have acquired or holds subject to a conditional sale agreement, Capital
Lease or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes, and such
retention or vesting is deemed a Lien. The term "Lien" does not include negative
pledge clauses in agreements relating to the borrowing of money or the
obligation of the Company (a) to remit monies held by it in connection with
dealer holdbacks (including, without limitation, with respect to Leases or
Installment Contracts), claims or refunds under insurance policies, or claims or
refunds under service contracts or (b) to make deposits in trust or otherwise as
required under reinsurance agreements or pursuant to state regulatory
requirements, unless the Company has encumbered its interest in such monies or
deposits or in other Property of the Company to secure such obligations. The
term "Lien" also does not include the rights of the "Agent" (as defined in the
Credit Agreement) and the Banks to money, consisting either of net proceeds of
any "Permitted Securitization" (as defined in the Credit Agreement) or net
proceeds from the issuance of "Future Debt" (as defined in the Credit Agreement)
deposited by the Company or any Restricted Subsidiary in a cash collateral
account, in lieu of the Company's reduction of indebtedness outstanding under
the Credit Agreement, for the purpose of avoiding breakage charges in connection
with "Eurocurrency-based Advances" (as defined in the
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Credit Agreement) under the Credit Agreement, all in accordance with clause (d)
of the definition of "Permitted Securitization" and clause (d) of the definition
of "Funding Conditions" in the Credit Agreement, as applicable; it being also
understood and agreed that the holders of Notes shall have no rights to a
security interest in or Lien on the money so deposited.
MAKE-WHOLE AMOUNT -- means, with respect to any date (a "Prepayment
Date") and any principal amount ("Prepaid Principal") of Notes required for any
reason to be paid prior to the regularly scheduled maturity thereof on such
Prepayment Date, the greater of
(a) Zero Dollars ($0), and
(b) (i) the sum of the present values of the then remaining
scheduled payments of principal and interest that would be
payable in respect of such Prepaid Principal but for such
prepayment or acceleration, minus
(ii) the sum of
(1) the amount of such Prepaid Principal,
plus
(2) the amount of interest accrued on such
Prepaid Principal since the scheduled
interest payment date immediately preceding
such Prepayment Date.
In determining such present values, a discount rate equal to the Make-Whole
Discount Rate with respect to such Prepayment Date and Prepaid Principal divided
by two (2), and a discount period of six (6) months of thirty (30) days each,
shall be used.
As used in this definition:
Make-Whole Discount Rate -- means, with respect to any
Prepayment Date and Prepaid Principal, the sum of
(a) the per annum percentage rate (rounded to the
nearest three (3) decimal places) equal to the bond equivalent
yield to maturity derived from the Bloomberg Rate with respect
to such Prepaid Principal, or if such Bloomberg Rate is not
then available, the Applicable H.15 Rate, in either case,
determined as of the date that is two (2) Business Days prior
to such Payment Date, plus
(b) fifty one-hundredths percent (0.50%) per annum.
For purposes of clause (a) of the preceding sentence, if no United
States Treasury obligation with a Treasury Constant Maturity
corresponding exactly to the Weighted Average Life to Maturity of such
Prepaid Principal is listed, the yields for the two (2) published
United States
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Treasury obligations with Treasury Constant Maturities most closely
corresponding to such Weighted Average Life to Maturity (one (1) with a
longer maturity and one (1) with a shorter maturity, if available)
shall be calculated pursuant to the immediately preceding sentence and
the Make-Whole Discount Rate shall be interpolated or extrapolated from
such yields on a straight-line basis.
Applicable H.15 -- means, at any time, United States Federal
Reserve Statistical Release H.15(519) or its successor publication then
most recently published and available to the public or, if no such
successor publication is available, then any other source of current
information in respect of interest rates on securities of the United
States of America that is generally available and, in the judgment of
the Required Holders, provides information reasonably comparable to the
H.15(519) report.
Applicable H.15 Rate -- means, at any time with respect to any
Prepaid Principal, the then most current annual yield to maturity of
the hypothetical United States Treasury obligation listed in the
Applicable H.15 for the then most recently available day in such
Applicable H.15 with a Treasury Constant Maturity (as defined in such
Applicable H.15) equal to the Weighted Average Life to Maturity of such
Prepaid Principal determined as of such Prepayment Date. If no such
United States Treasury obligation with a Treasury Constant Maturity
corresponding exactly to such Weighted Average Life to Maturity is
listed, then the yields for the two (2) published United States
Treasury obligations with Treasury Constant Maturities most closely
corresponding to such Weighted Average Life to Maturity (one (1) with a
longer maturity and one (1) with a shorter maturity, if available)
shall be calculated pursuant to the immediately preceding sentence and
the Make-Whole Discount Rate shall be interpolated or extrapolated from
such yields on a straight-line basis.
Bloomberg Rate -- means, on any date, with respect to any
Prepaid Principal, the yields reported, as of 10:00 A.M. (New York City
time) on such date with respect to such Prepaid Principal, on the
display designated as "USD" on the Bloomberg Financial Market Service
(or such other display as may replace Page USD on the Bloomberg
Financial Market Service) for actively traded U.S. Treasury securities
having a maturity equal to the Weighted Average Life to Maturity of
such Prepaid Principal as of such date. If no such U.S. Treasury
security with a maturity corresponding exactly to the Weighted Average
Life to Maturity of such Prepaid Principal is reported, then the yields
for the two (2) U.S. Treasury securities with maturities most closely
corresponding to the Weighted Average Life to Maturity of such Prepaid
Principal (one (1) with a longer maturity and one (1) with a shorter
maturity, if available) shall be calculated pursuant to the immediately
preceding sentence and the Make-Whole Discount Rate shall be
interpolated or extrapolated from such yields on a straight-line basis.
Weighted Average Life to Maturity -- means, with respect to
any Prepayment Date and Prepaid Principal, the number of years obtained
by dividing the Remaining Dollar-Years of such Prepaid Principal
determined on such Prepayment Date by such Prepaid Principal.
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Remaining Dollar-Years -- means, with respect to any
Prepayment Date and Prepaid Principal, the result obtained by
(a) multiplying, in the case of each required payment
of principal (including payment at maturity) that would be
payable in respect of such Prepaid Principal but for such
prepayment,
(i) an amount equal to such required payment of
principal, by
(ii) the number of years (calculated to the
nearest one-twelfth (1/12)) that will elapse between
such Prepayment Date and the date such required
principal payment would be due if such Prepaid
Principal had not been so prepaid, and
(b) calculating the sum of each of the products
obtained in the preceding subsection (a).
MANDATORY PRINCIPAL AMORTIZATION PAYMENT -- Section 4.1.
MARGIN SECURITY -- means "margin stock" within the meaning of
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II, as amended from time to time.
MATERIAL ADVERSE EFFECT -- means a material adverse effect on the
business, profits, Properties or financial condition of the Company and the
Restricted Subsidiaries, taken as a whole, or on the ability of the Company to
perform its obligations set forth herein and in the Notes.
MONTANA DISPOSITION -- means the sale of Montana Investment Group, Inc.
and/or any of 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/or any of 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.
MULTIEMPLOYER PLAN -- means any "multiemployer plan" (as defined in
section 3 of ERISA) in respect of which the Company or any ERISA Affiliate is an
"employer" (as defined in section 3 of ERISA).
MULTIPLE EMPLOYER PENSION PLAN -- means any "employee benefit plan"
within the meaning of section 3(3) of ERISA (other than a Multiemployer Plan),
subject to Title IV of ERISA,
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constituting a "single-employer plan" (as defined in section 4001 of ERISA)
which has two (2) or more "contributing sponsors" (as defined in section 4001 of
ERISA), at least two (2) of which are not under "common control" (as defined in
section 4001 of ERISA) and to which the Company or any ERISA Affiliate
contribute.
NET DEALER HOLDBACKS -- means, at any time, (a) Gross Dealer Holdbacks
minus (b) Advances at such time.
NET INSTALLMENT CONTRACT RECEIVABLES -- means, at any time, the amount
computed as the result of (a) Gross Installment Contract Receivables minus (b)
Unearned Finance Charges minus (c) Allowances for Credit Losses relating to
Installment Contracts (but excluding any such allowances which are related to
Leases), at such time.
NET LEASED VEHICLE DEALER HOLDBACKS -- means, at any time, with respect
to Dealer Agreements relating to Leases, amounts due to Dealers at such time
from collections of Leased Vehicles by the Company or any Restricted Subsidiary
(other than with respect to Leases which have been transferred or encumbered
pursuant to a Permitted Securitization and (x) have not been reassigned to the
Company or a Restricted Subsidiary or (y) with respect to which such
encumbrances have not been discharged) pursuant to the applicable Dealer
Agreements.
NON-RECOURSE DEBT -- means Debt of a partnership, joint venture or
similar entity in which the Company or a Restricted Subsidiary is a participant,
so long as the holder or holders of such Debt shall have no rights or recourse
against any Property of the Company or any Restricted Subsidiary, other than
Property used solely in connection with such partnership, joint venture or
similar entity.
NOTE PURCHASE AGREEMENTS -- Section 1.2(c).
NOTES -- Section 1.1.
OPERATING LEASE -- means, with respect to any Person, any lease other
than a Capital Lease.
OPERATING RENTALS -- means all fixed payments that the lessee is
required to make by the terms of any Operating Lease.
ORIGINAL NOTES -- Section 1.1(a).
OSHA -- means the Occupational Safety and Health Act of 1970, together
with all rules, regulations and standards promulgated pursuant thereto, all as
amended from time to time.
OTHER PURCHASERS -- Section 1.2(c).
OUTRIGHT DEALER AGREEMENT(S) -- means Dealer Agreements referred to in
clause (b) of the definition of Dealer Agreements.
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PBGC -- means the Pension Benefit Guaranty Corporation and any
successor corporation or governmental agency.
PENSION PLAN -- means, at any time, any "employee pension benefit plan"
(as defined in section 3 of ERISA) maintained at such time by the Company or any
ERISA Affiliate for employees of the Company or such ERISA Affiliate, excluding
any Multiemployer Plan, but including any Multiple Employer Pension Plan.
PERMITTED SECURITIZATION(S) -- means each transfer or encumbrance (each
a "disposition") of specific Advances or Leased Vehicles funded under Back-End
Dealer Agreements (and any interest in or lien on the Installment Contracts,
Leases, motor vehicles or other rights relating thereto) or of specific
Installment Contracts or Leases (and any interest in or lien on motor vehicles
or other rights relating thereto) arising under Outright Dealer Agreements, in
each case by the Company or one or more Restricted Subsidiaries to a Special
Purpose Subsidiary conducted in accordance with the following requirements:
(a) Each disposition shall identify with reasonable
certainty the specific Advances, Leased Vehicles,
Installment Contracts or Leases covered by such
disposition; and such Advances or Leased Vehicles
(and the Installment Contracts, Leases, motor
vehicles or other rights relating thereto) and the
Installment Contracts and Leases shall have
performance and other characteristics so that the
quality of such Advances, Leased Vehicles,
Installment Contracts or Leases, as the case may be,
is comparable to, but not materially better than, the
overall quality of the Company's Advances, Leased
Vehicles, Installment Contracts or Leases, as
applicable, as a whole, as determined in good faith
by the Company in its reasonable discretion;
(b) (i) The disposition of Advances, Leased Vehicles,
Installment Contracts or Leases will not result in
the aggregate principal amount of Debt at any time
outstanding, and (without duplication) of similar
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
exceeding $100,000,000, which amount may be
readvanced and reborrowed and (ii) the Company or the
Restricted Subsidiary disposing of Advances, Leased
Vehicles, Installment Contracts or Leases 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
financial assets in connection with any such
Securitization Transaction in an amount not less than
Seventy-Five Percent (75%) of the sum of (A) the
amount of such Advances, (B) the amount of Net
Installment Contract Receivables in respect of
Installment Contracts arising under Outright Dealer
Agreements, and (C)
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the amount of Leased Vehicles, in each case
determined on the date of such Securitization
Transaction;
(c) Each such disposition shall be without recourse
(except to the extent of normal and customary
representations and warranties given as of the date
of each such disposition, and not as continuing
representations and warranties) and otherwise on
normal and customary terms and conditions for
comparable asset-based securitization transactions
which may include, without limitation, Cleanup Call
provisions;
(d) Each such Securitization Transaction shall be
structured on the basis of the issuance of
non-recourse Debt or other similar securities by the
Special Purpose Subsidiary; and
(e) Both immediately before and after giving effect to
such disposition, no Default or Event of Default
(whether or not related to such disposition) exists
or would exist.
In connection with each Permitted Securitization conducted
hereunder, not less than ten (10) Business Days prior to the
date of consummation thereof, the Company shall provide to
each holder of a Note (i) a schedule in the form attached
hereto as Exhibit E identifying the specific Installment
Contracts or Leases or the Advances or Leased Vehicles (and
providing collection information regarding the related
Installment Contracts or Leases) proposed to be covered by
such transaction (with evidence supporting its determination
under subparagraph (a) of this definition, including without
limitation a "static pool analysis" comparable to the static
pool analysis required to be delivered under Section 7.1(j)(1)
hereof with respect to such Installment Contracts or Leases)
and (ii) proposed drafts of the material Securitization
Documents covering the applicable securitization (and the term
sheet or commitment relating thereto). Within five (5)
Business Days following the consummation thereof, the Company
shall have provided to each holder of Notes copies of the
material Securitization Documents, as executed, including an
updated schedule, substantially in the form of the schedule
delivered under clause (i) above, identifying the financial
assets actually covered by such transaction (and, if such
financial assets are materially different, as reasonably
determined by the Company, from those shown in the schedule
delivered under clause (i) above, collection information and
evidence supporting its determination under subparagraph (a)
of this definition, including a comparable "static pool
analysis," as aforesaid, with respect to such financial
assets).
PERSON -- means an individual, sole proprietorship, partnership,
corporation, limited liability company, trust, joint venture, unincorporated
organization, or a government or agency or political subdivision thereof.
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PLACEMENT AGENT -- means William Blair & Company, L.L.C.
PLACEMENT MEMORANDUM -- Section 2.1.
PROPERTY -- means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
PURCHASE MONEY LIEN -- means a Lien held by any Person (whether or not
the seller of such Property) on tangible Property (or a group of related items
of Property the substantial portion of which is tangible) acquired or
constructed by the Company or any Restricted Subsidiary, which Lien secures all
or a portion of the related purchase price or construction costs of such
Property, provided that such Lien
(a) is created contemporaneously with, or within thirty (30)
days of, such acquisition or construction,
(b) encumbers only Property purchased or constructed after the
Closing Date and acquired with the proceeds of the Debt secured
thereby, and
(c) is not thereafter extended to any other Property.
PURCHASERS -- means you and the Other Purchasers.
REQUIRED HOLDERS -- means, at any time, the holders of at least
sixty-six and two-thirds percent (66-_%) in principal amount of the Notes at the
time outstanding (exclusive of Notes then owned by any one or more of the
Company, any Restricted Subsidiary and any Affiliate).
RESTRICTED INVESTMENT -- means, at any time, all Investments except the
following:
(a) Investments in Property to be used in the ordinary course
of business of the Company and the Restricted Subsidiaries;
(b) subject to clause (k) of this definition, Investments in
receivables, advances, Leases and Leased Vehicles arising from the sale
or lease of goods and services, in each case in the ordinary course of
business of the Company and the Restricted Subsidiaries;
(c) Investments by the Company or any Restricted Subsidiary in
the ordinary course of its business in one or more Restricted
Subsidiaries or any corporation that concurrently with such Investment
becomes a Restricted Subsidiary, provided that the aggregate amount of
all Investments made pursuant to this paragraph (c) and paragraph (d)
of this definition (excluding Guaranties by the Company of Debt of
Restricted Subsidiaries) does not at any time exceed twenty-five
percent (25%) of Consolidated Tangible Net Worth
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(it being understood that loans and advances to any Restricted
Subsidiary by any Person other than the Company or any other Restricted
Subsidiary, regardless of whether such loans and advances are
guaranteed by the Company or any other Restricted Subsidiary, shall not
be taken into account in determining the aggregate amount of
Investments made pursuant to this paragraph (c) and paragraph (d) of
this definition);
(d) Investments consisting of loans by the Company or any
Restricted Subsidiary, and advances from the Company or any Restricted
Subsidiary, in each case to the Company or any Restricted Subsidiary in
the ordinary course of business of the Company and the Restricted
Subsidiaries, provided that the aggregate amount of all Investments
made pursuant to paragraph (c) of this definition and this paragraph
(d) (excluding Guarantees by the Company of Debt of Restricted
Subsidiaries) does not at any time exceed twenty-five percent (25%) of
Consolidated Tangible Net Worth (it being understood that loans and
advances to any Restricted Subsidiary by any Person other than the
Company or any other Restricted Subsidiary, regardless of whether such
loans and advances are guaranteed by the Company or any other
Restricted Subsidiary, shall not be taken into account in determining
the aggregate amount of Investments made pursuant to this paragraph (d)
and paragraph (c) of this definition);
(e) Investments in direct obligations of, or obligations
guarantied by, the United States of America or any agency of the United
States of America the obligations of which agency carry the full faith
and credit of the United States of America, provided that such
obligations (other than Investments by CAC Life in such obligations
made to match liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition thereof;
(f) Investments in any obligation of any state or municipality
thereof that at the time of acquisition thereof have an assigned rating
of "A" or higher by Standard & Poor's Ratings Group (or an equivalent
or higher rating by another credit rating agency of recognized national
standing in the United States of America), provided that such
obligations (other than Investments by CAC Life in such obligations
made to match liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition thereof;
(g) Investments in negotiable certificates of deposit issued
by commercial banks organized under the laws of the United States of
America or any state thereof, having capital, surplus and undivided
profits aggregating at least Fifty Million Dollars ($50,000,000) and
the long-term unsecured debt obligations of which are rated "A" or
higher by Standard & Poor's Ratings Group (or an equivalent or higher
rating by another credit rating agency of recognized national standing
in the United States of America), provided that such certificates of
deposit (other than Investments by CAC Life in such certificates of
deposit made to match liabilities incurred in the ordinary course of
business) mature within one (1) year from the date of acquisition
thereof;
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(h) Investments in corporate debt obligations of corporations
organized under the laws of the United States of America or any state
thereof that at the time of acquisition thereof have an assigned rating
of "A" or higher by Standard & Poor's Ratings Group (or an equivalent
or higher rating by another credit rating agency of recognized national
standing in the United States of America);
(i) Investments in preferred stock of corporations organized
under the laws of the United States of America or any state thereof
that have an assigned rating of "A" or higher by Standard & Poor's
Ratings Group (or an equivalent or higher rating by another credit
rating agency of recognized national standing in the United States of
America);
(j) Investments in loans or advances, in the ordinary course
of business and necessary to carrying on the business of the Company or
any Restricted Subsidiary, to officers, directors and employees of the
Company and the Restricted Subsidiaries, provided that the aggregate
amount of all such Investments does not at any time exceed One Million
Dollars ($1,000,000);
(k) Investments in receivables arising from floor plan
receivables and note receivables due from dealers in the ordinary
course of business of the Company and the Restricted Subsidiaries,
provided that the aggregate amount of all such Investments does not at
any time exceed ten percent (10%) of Consolidated Total Assets;
(l) Investments by the Company or any Restricted Subsidiary in
the Company, any Restricted Subsidiary or any Special Purpose
Subsidiary from and after the effective date of the Second Amendment,
consisting of (i) dispositions of specific Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or related to
Advances) or Leases (whether assigned outright or related to Leased
Vehicles) made pursuant to a Permitted Securitization and the resultant
Debt issued by a Special Purpose Subsidiary to another Subsidiary as
part of a Permitted Securitization, in each case to the extent
constituting Investments, (ii) advances by the Company, as servicer of
the Installment Contracts or Leases covered by a Permitted
Securitization, in an aggregate amount not to exceed $1,500,000
outstanding at any time, to cover the interest component of obligations
issued as part of a Permitted Securitization and payable from
collections on such Installment Contracts (such advances to be
repayable to the Company on a priority basis from such collections),
(iii) the repurchase or replacement from and after the date of the
effectiveness of the Second Amendment of an aggregate amount not to
exceed $5,000,000 in Advances, Leased Vehicles, Installment Contracts
(whether assigned outright or related to Advances) or Leases (whether
assigned outright or related to Leased Vehicles) subsequently
determined not to satisfy the eligibility standards contained in the
applicable Securitization Documents relating to a Permitted
Securitization, so long as (x) such replacement is accompanied by the
repurchase of or release of encumbrances on such financial assets
previously transferred or encumbered pursuant to such securitization
and in the amount thereof, (y) any replacement
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Advances, Leased Vehicles, Installment Contracts (whether assigned
outright or related to Advances) or Leases (whether assigned outright
or related to Leased Vehicles) are selected by the Company according to
the requirements set forth in clause (a) of the definition of Permitted
Securitization and (z) such replacements are made at a time when (both
before and after giving effect thereto) no Default or Event of Default
exists or would exist, (iv) amounts required to fund any Cleanup Call
under the terms of such Permitted Securitization, and (v) the
disposition of the capital stock of a Special Purpose Subsidiary; and
(m) Investments not otherwise included in clause (a) through
clause (l) of this definition, provided that the aggregate amount of
all such Investments does not at any time exceed Two Million Five
Hundred Thousand Dollars ($2,500,000).
RESTRICTED PAYMENT -- means (x) any dividend or other distribution,
direct or indirect and whether payable in cash or property, on account of any
capital stock or other equity interest of the Company or any of its Restricted
Subsidiaries and (y) any redemption, retirement, purchase, or other acquisition,
direct or indirect, of any capital stock or other equity interests of the
Company or any of its Restricted Subsidiaries now or hereafter outstanding, or
of any warrants, rights or options to acquire any such capital stock or other
equity interests or any securities convertible into such capital stock or other
equity interests, except to the extent that any such dividend or distribution,
or any such redemption, retirement, purchase or other acquisition (i) is payable
to the Company or any of its Restricted Subsidiaries or (ii) is payable solely
in capital stock or other equity interests of the Company or any such Restricted
Subsidiary.
RESTRICTED SUBSIDIARY -- means any Subsidiary (a) in respect of which
the Company owns, directly or indirectly, (i) at least eighty percent (80%) (by
number of votes) of each class of such Subsidiary's Voting Stock, or (ii) in the
case of CAC Insurance Agency of Ohio, Inc., at least 99% of the shares of
capital stock issued and outstanding of all classes in the aggregate, (b) that
is organized under the laws of the United States of America or any jurisdiction
thereof, the United Kingdom or any jurisdiction thereof (including, without
limitation, England, Scotland and Wales), Canada or any jurisdiction thereof or
the Republic of Ireland or any jurisdiction thereof, and that conducts all of
its business in, and has all of its Property located in, the United States of
America, the United Kingdom, Canada and/or the Republic of Ireland and (c) that
is not an Unrestricted Subsidiary. Any Restricted Subsidiary in compliance with
the requirements set forth in the first sentence of this definition and
designated as a Restricted Subsidiary on the Closing Date shall be deemed to
have been a Restricted Subsidiary for all periods prior to the Closing Date.
Notwithstanding any provision in Section 6.17 to the contrary, CAC International
and CAC UK shall be deemed Restricted Subsidiaries as of October 1, 1995 and CAC
of Canada Limited and any Subsidiary formed by the Company to provide property
and casualty insurance shall each be deemed a Restricted Subsidiary as of the
date of its formation.
RESTRICTED SUBSIDIARY STOCK -- Section 6.8(b).
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SALE AND LEASEBACK TRANSACTION -- means any transaction or series of
related transactions in which the Company or a Restricted Subsidiary sells or
transfers any of its Property to any Person (other than to the Company or to a
Restricted Subsidiary) and concurrently with such sale or transfer, or
thereafter, rents or leases such transferred Property or substantially similar
Property from any Person.
SECOND AMENDMENT -- means the Second Amendment, dated as of July 1,
1998, to this Agreement.
SECURITIES ACT -- means the Securities Act of 1933, as amended.
SECURITIZATION DOCUMENTS -- means any note purchase agreement (and any
notes issued thereunder), transfer or security documents, master trust or other
trust agreements, servicing agreement, indenture, pooling agreement,
contribution or sale agreement or other documents, instruments and certificates
executed and delivered, subject to the terms of this Agreement, to evidence or
secure (or otherwise relating to) a Permitted Securitization, as the same may be
amended from time to time (subject to the terms hereof) and any and all other
documents executed in connection therewith or replacement or renewal thereof.
SECURITIZATION PROPERTY -- means (i) amounts advanced by the Company or
a Restricted Subsidiary under a Dealer Agreement and payable from collections,
including servicing charges, insurance charges and service policies and all
related finance charges, late charges, and all other fees and charges charged to
customers and all monies due or to become due, and all monies received, with
respect thereto ("Loans"); (ii) all proceeds (including "proceeds" as defined in
the Uniform Commercial Code) thereof; (iii) all of the Company's or a Restricted
Subsidiary's interest in the Dealer Agreements and Installment Contracts
securing payment of Loans, all security interests or liens purporting to secure
payment of Loans and all other property obtained upon foreclosure of any
security interest securing payment of Loans or any related Installment Contract
and all guarantees, insurance (including insurance insuring the priority or
perfection of any lien) or other agreements or arrangements of any kind from
time to time supporting or securing payment of such Installment Contract whether
pursuant to such Installment Contract or otherwise; (iv) all records with
respect to Loans, (v) the Company's or a Restricted Subsidiary's right, title
and interest in and to business interruption insurance, and (vi) all payments
received by the Company in respect of Transferred Loans in the form of cash,
checks, wire transfers or other form of payment.
SECURITIZATION TRANSACTION -- means a Transfer of, or grant of a Lien
on, Advances, Installment Contracts, Leased Vehicles, Leases, accounts
receivable and/or other financial assets by the Company or any Restricted
Subsidiary to a Special Purpose Subsidiary or other special purpose or limited
purpose entity and the issuance (whether by such Special Purpose Subsidiary or
other special purpose or limited purpose entity or any other Person) of Debt or
of any Securities secured directly or indirectly by interests in, or of trust
certificates or other Securities directly or indirectly evidencing interests in,
such Advances, Installment Contracts, Leased Vehicles, Leases, accounts
receivable and/or other financial assets.
53
<PAGE> 54
SECURITY -- means "security" as defined in section 2(1) of the
Securities Act.
SENIOR FINANCIAL OFFICER -- means the chief financial officer, the
principal accounting officer, the controller or the treasurer of the Company.
SENIOR OFFICER -- means the chief executive officer, the president or
the chief financial officer of the Company.
SPECIAL PURPOSE SUBSIDIARY -- means any Unrestricted Subsidiary of the
Company, all of the capital stock of which is owned by the Company or a
Restricted Subsidiary, which Unrestricted Subsidiary is formed for the sole
purpose of conducting one or more Permitted Securitizations and is operated for
such purpose in accordance with customary industry practices.
STANDARD & POOR'S RATINGS GROUP -- means Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc.
SUBORDINATED DEBT -- means, at any time, unsecured Debt of the Company
that is junior and subordinate in right of payment to the Notes on terms and
conditions satisfactory to the Required Holders, as evidenced by their written
consent.
SUBORDINATED FUNDED DEBT -- means, at any time, Funded Debt of the
Company or any Restricted Subsidiary that is:
(a) junior and subordinate in right of payment to the Notes on
terms and conditions satisfactory to the Required Holders, as evidenced
by their written consent thereto,
(b) not subject to any sinking fund or required prepayment
provisions that would result in its having at any time an average life
to maturity, computed in accordance with accepted financial practice,
shorter than the Weighted Average Life to Maturity (as defined in the
definition of "Make-Whole Amount") of the Notes at such time or a final
maturity earlier than the stated final maturity of the Notes, and
(c) not secured by a Lien on the Property of the Company or
any Restricted Subsidiary (whether or not such Funded Debt is recourse
to the Company or any Restricted Subsidiary).
SUBSIDIARY -- means, at any time, a corporation of which the Company
owns, directly or indirectly, more than fifty percent (50%) (by number of votes)
of each class of the Voting Stock at such time.
SURVIVING CORPORATION -- Section 6.7(a).
54
<PAGE> 55
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, the holders of the
Notes at such time 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.
TRANSFERS -- Section 6.8(a).
UNEARNED FINANCE CHARGES -- means, as of any applicable date of
determination, the unearned finance charges utilized in deriving installment
contract receivables, net on the consolidated balance sheet of the Company and
its Restricted Subsidiaries, as disclosed in the footnotes thereto, provided
that Unearned Finance Charges shall not include unearned finance charges
attributable to retail installment contracts which are not at such time
"Installment Contracts" due to the proviso in the definition of such term in
this Agreement.
UNRESTRICTED SUBSIDIARY -- means any Subsidiary that, as of the date of
this Agreement, is designated in Part 6.17(a) of Annex 3 as an Unrestricted
Subsidiary or, after the date of this Agreement, has been designated as an
Unrestricted Subsidiary as provided in Section 6.17.
VOTING STOCK -- means capital stock of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect corporate directors (or Persons performing
similar functions).
WHOLLY-OWNED RESTRICTED SUBSIDIARY -- means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity Securities
(except directors' qualifying shares) and voting Securities of which are owned
by, and all of the Debt of which is held by, any one or more of the Company and
the other Wholly-Owned Restricted Subsidiaries at such time."
2.5 AMENDMENT AND RESTATEMENT OF EXHIBIT A. The form of First Amended
and Restated Note set forth as Exhibit A to the Agreement is hereby amended and
restated, in its entirety, to be in the form of Attachment 4 attached to this
Fourth Amendment. All references to "Exhibit A" in the Note Purchase Agreements
shall, if in reference to a date on or after the date of the Fourth
55
<PAGE> 56
Amendment, refer to the form of Second Amended and Restated 8.99% (or 9.49%, if
on or after January 15, 2000) Senior Note Due July 1, 2001, as amended and
restated hereby.
2.6 AMENDMENT OF FIRST AMENDED AND RESTATED NOTES. The forms of the
respective First Amended and Restated Notes are hereby amended in their entirety
to conform to the form of Second Amended and Restated Note attached to this
Fourth Amendment as Attachment 4. On the date of this Fourth Amendment, each of
the terms of each outstanding First Amended and Restated Note shall be deemed to
be amended to conform with such form, without any further action on the part of
the Company or any holder of any First Amended and Restated Note (including,
without limitation, any requirement that any holder surrender its outstanding
First Amended and Restated Notes to the Company). Upon surrender of any
outstanding First Amended and Restated Note, the Company shall deliver to the
registered holder thereof a Second Amended and Restated Note in the form
attached hereto as Attachment 4, dated the date of the last interest payment on
such surrendered First Amended and Restated Note and in an aggregate principal
amount equal to the unpaid principal amount of such surrendered First Amended
and Restated Note, all in accordance with the provisions of Section 5.2 of the
Agreement. Without limitation of the foregoing, the amendment and restatement of
the First Amended and Restated Notes provided for herein, including, without
limitation, the increase in the interest rate applicable to the Notes, shall be
effective with respect to any and all of the Notes irrespective of whether any
such Notes are surrendered to the Company for reissuance in the form attached to
this Fourth Amendment as Attachment 4.
SECTION 3. MISCELLANEOUS
3.1 COUNTERPARTS. This Fourth Amendment may be executed in any number
of counterparts, each executed counterpart constituting an original, but all
together only one Fourth Amendment.
3.2 HEADINGS. The headings of the sections of this Fourth 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 Fourth 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
Fourth Amendment and (b) the terms and provisions of the Agreement, as amended
by this Fourth Amendment, shall continue in full force and effect. The Company
hereby acknowledges and reaffirms all of its obligations and duties under the
Agreement, as modified by this Fourth 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 Fourth Amendment may refer to the Agreement without
making specific reference to this Fourth
56
<PAGE> 57
Amendment but nevertheless all such references shall be deemed to include, to
the extent applicable, this Fourth Amendment unless the context shall otherwise
require.
3.6 COMPLIANCE. The Company certifies that immediately before and
after giving effect to this Fourth Amendment, no Default or Event of Default
exists or would exist after giving effect hereto; provided that the Company may
not be in compliance with the covenant contained in Section 6.2 before giving
effect to this Fourth Amendment.
3.7 FULL DISCLOSURE. The Company warrants and represents to you that,
as of the effective date hereof, none of the written statements, documents or
other written materials furnished by, or on behalf of, the Company to you in
connection with the negotiation, execution and delivery of this Fourth Amendment
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances in which they were made. There is no fact of which
any of the Company's executive officers has actual knowledge which the Company
has not disclosed to you which materially affects adversely or, so far as the
Company can now reasonably foresee, will materially affect adversely the
business, prospects, profits, Properties or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or the ability of the
Company to perform its obligations set forth in the Agreement (after giving
effect to this Fourth Amendment) and the Notes.
3.8 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 (retroactive to September 30, 1999), 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 Fourth 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 Fourth 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.
(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.
57
<PAGE> 58
(d) The Company shall have paid the statement for reasonable
fees and disbursements of Bingham Dana LLP, your special counsel,
presented to the Company on or prior to the effective date of this
Fourth Amendment.
(e) The Company's legal counsel shall have delivered an
opinion, dated the effective date of this Fourth Amendment,
substantially in the form attached as Attachment 5 to this Fourth
Amendment.
(f) The holders of Notes shall have received from the Company
a certificate of a Senior Officer, dated the effective date of this
Fourth Amendment, certifying as to the resolutions attached thereto and
other corporate proceedings relating to the authorization, execution
and delivery of this Fourth Amendment and the transactions contemplated
hereby.
3.9 AMENDMENT FEE. The Company shall pay a fee to all holders of
Notes, in consideration of the amendment set forth herein, in an amount equal to
0.20% of the outstanding principal amount of the Notes held by such holder as of
the date hereof. Such fee shall be paid no later than the fifth business day
after all of the Required Holders have executed this Fourth Amendment.
3.10 COMMITMENT TO SELL NOTES. Each of the holders listed on
Attachment 6 to this Fourth Amendment hereby irrevocably commits to sell the
Repurchased Notes held by such holder upon payment therefor by the Company on or
before January 15, 2000 in accordance with, and in the amount provided in,
Section 6.15(b) of the Agreement (as amended by this Fourth Amendment) and such
Attachment 6.
3.11 WAIVER OF DELIVERY REQUIREMENT. In order to facilitate the
Company's prompt compliance with its obligations under Section 6.15(b) of the
Agreement (as amended by this Fourth
58
<PAGE> 59
Amendment), each of the Note holders hereby waives, with respect to the
Securitization Transaction to be consummated in connection with the fulfillment
of the Company's obligations under Section 6.15(b), the requirement in the
definition of Permitted Securitization that certain deliveries be made by the
Company not less than ten Business Days prior to the date of the consummation of
a Permitted Securitization; provided, however, that the Company shall make such
deliveries as promptly as reasonably practicable and, in any event, not less
than five Business Days prior to the consummation of such Securitization
Transaction.
[Remainder of page intentionally blank. Next page is signature page.]
59
<PAGE> 60
ACCEPTED:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR CENTRAL
STATES HEALTH & LIFE COMPANY OF
OMAHA
By /S/ K. Lange
-----------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
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: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR AMERICAN
COMMUNITY MUTUAL INSURANCE
By /S/ K. Lange
-----------------------------------------
Name: Kathy Lange
Title: Portfolio Manger
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR CENTRAL RE
CORP. & PHOENIX
By /S/ K. Lange
-----------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
60
<PAGE> 61
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR OLD GUARD
MUTUAL INSURANCE COMPANY
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR OZARK
NATIONAL LIFE INSURANCE COMPANY
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR CSA
FRATERNAL LIFE
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR KANAWHA
INSURANCE COMPANY
By /S/ K Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
61
<PAGE> 62
ACCEPTED:
COMBINED INSURANCE COMPANY OF AMERICA
BY: AON ADVISORS, INC.
By /S/ Keith Lemmer
-------------------------------------
Name: Keith Lemmer
Title: Senior Portfolio Manager
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
62
<PAGE> 63
ACCEPTED:
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 Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
63
<PAGE> 64
ACCEPTED:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By /S/ Richard E Spencer II
---------------------------------------
Name: Richard E Spencer II
Title:
CM LIFE INSURANCE COMPANY
By /S/ Richard E Spencer II
---------------------------------------
Name: Richard E Spencer II
Title:
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
64
<PAGE> 65
ACCEPTED:
NATIONWIDE LIFE INSURANCE
COMPANY
By /S/ Mark Poeppelman
---------------------------------
Name: Mark W. Poeppelman
Title: Authorized Signatory
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
65
<PAGE> 66
ACCEPTED:
PAN AMERICAN LIFE INSURANCE
COMPANY
By /S/ F. A Stone
-------------------------------------------------
Name: F. Anderson Stone
Title: Vice President Corporate Securities
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
66
<PAGE> 67
ACCEPTED:
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 Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
67
<PAGE> 68
ACCEPTED:
SECURITY BENEFIT LIFE INSURANCE
COMPANY
By /S/ Steven M. Bowser
----------------------------------------------
Name: Steven M. Bowser
Title: Vice President - Sr. Portfolio Mgr.
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.24% Senior Notes Due July 1, 2001 of Credit Acceptance Corporation]
68
<PAGE> 69
ATTACHMENT 4
EXHIBIT A
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). ANY RESALE OR TRANSFER OF THIS NOTE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT MAY ONLY BE MADE IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
CREDIT ACCEPTANCE CORPORATION
SECOND AMENDED AND RESTATED 8.99% SENIOR NOTE DUE JULY 1, 2001
[FROM AND INCLUDING DECEMBER 1, 1999 TO, BUT NOT INCLUDING, JANUARY 15, 2000]
SECOND AMENDED AND RESTATED 9.49% SENIOR NOTE DUE JULY 1, 2001
[FROM AND AFTER JANUARY 15, 2000]
NO. R-___
$____________
PPN: 225310 A@ 0 [DATE]
CREDIT ACCEPTANCE CORPORATION, a Michigan corporation (the "Company"),
for value received, hereby promises to pay to ____________ or registered assigns
the principal sum of ____________ DOLLARS ($____________) on July 1, 2001 and to
pay interest (computed on the basis of a 360-day year of twelve 30-day months)
on the unpaid principal balance thereof from the date of this Note (i) at the
rate of seven and ninety-nine one-hundredths percent (7.99%) per annum through
(but not including) July 1, 1998, (ii) at the rate of eight and twenty-four
one-hundredths percent (8.24%) per annum from and after July 1, 1998 through
(but not including) December 1, 1999, (iii) at the rate of eight and ninety-nine
one-hundredths percent (8.99%) per annum from (and including) and after December
1, 1999 through (but not including) January 15, 2000, and (iv) at the rate of
nine and forty-nine one-hundredths percent (9.49%) per annum from and after
January 15, 2000, payable semi-annually on the first (1st) day of January and
July in each year, commencing on the payment date next succeeding the date
hereof, until the principal amount hereof shall become due and payable; and to
pay on demand interest on any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if any, and (to the extent
permitted by applicable law) on any overdue installment of interest, at a rate
equal to the lesser of (a) the highest rate allowed by applicable law or (b)
nine and ninety-nine one-hundredths percent (9.99%) per annum if such time is
prior
A-1
<PAGE> 70
to July 1, 1998, ten and twenty-four one-hundredths percent (10.24%) per
annum if such time is on or after July 1, 1998 but prior to December 1, 1999,
ten and ninety-nine one-hundredths percent (10.99%) per annum if such time is on
or after December 1, 1999 but prior to January 15, 2000 and eleven and
forty-nine one-hundredths percent (11.49%) per annum if such time is on or after
January 15, 2000.
Payments of principal, Make-Whole Amount, if any, and interest shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts to the
registered holder hereof at the address shown in the register maintained by the
Company for such purpose, in the manner provided in the Note Purchase Agreement
(defined below).
This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to Seventy Million Dollars ($70,000,000)
pursuant to the Company's separate Note Purchase Agreements, each dated as of
August 1, 1996 (collectively, as may be amended from time to time, the "Note
Purchase Agreement"), with the purchasers listed on Annex 1 thereto. This Note
is entitled to the benefits of the Note Purchase Agreement and the terms thereof
are incorporated herein by reference. Capitalized terms used herein and not
otherwise defined herein have the meanings specified in the Note Purchase
Agreement. As provided in the Note Purchase Agreement, this Note is subject to
prepayment, in whole or in part, in certain cases without a Make-Whole Amount
and in other cases with a Make-Whole Amount. The Company agrees to make required
prepayments on account of such Notes in accordance with the provisions of the
Note Purchase Agreement.
This Note is a registered Note and is transferable only by surrender
hereof at the principal office of the Company as specified in the Note Purchase
Agreement, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Note or its attorney duly authorized
in writing.
Under certain circumstances, as specified in the Note Purchase
Agreement, the principal of this Note (in certain cases together with any
applicable Make-Whole Amount) may be declared due and payable in the manner and
with the effect provided in the Note Purchase Agreement.
The Company's Second Amended and Restated [8.99%] [9.49%] Senior Notes
due July 1, 2001 (the "Second Amended and Restated Notes") amend and restate the
Company's First Amended and Restated 8.24% Senior Notes due July 1, 2001 (the
"First Amended and Restated Notes") and its 7.99% Senior Notes due July 1, 2001
(the "Original Notes"). The obligations formerly evidenced by the First Amended
and Restated Notes and the Original Notes are continuing obligations which are
evidenced by the Second Amended and Restated Notes and nothing contained in the
Second Amended and Restated Notes shall be deemed to constitute payment,
settlement or a novation of such obligations.
A-2
<PAGE> 71
THIS NOTE AND THE NOTE PURCHASE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL CONNECTICUT LAW.
CREDIT ACCEPTANCE CORPORATION
By
------------------------------------------
Name:
Title:
A-3
<PAGE> 72
ATTACHMENT 5
[FORM OF COMPANY COUNSEL LEGAL OPINION]
December 1, 1999
To each of the Persons
listed on Annex 1 hereto
Re: Credit Acceptance Corporation, a Michigan
corporation (the "Company")
Ladies and Gentlemen:
We have acted as special counsel to the Company and have provided this
opinion pursuant to the Fourth Amendment to Note Purchase Agreement, dated as of
December 1, 1999 (the "Fourth Amendment"), among the Company and the Persons
listed on Annex 1 thereto (the "Holders"), in respect of 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,
the Second Amendment to Note Purchase Agreement dated as of July 1, 1998 and the
Third Amendment to Note Purchase Agreement dated as of April 13, 1999, the
"Existing Note Agreement", and as further amended by the Fourth Amendment, the
"Amended Note Agreement"), between the Company and each of the Persons listed on
Annex 1 thereto (the "Purchasers"), pursuant to which the Company sold to the
Purchasers the Original Notes in the aggregate principal amount of $70,000,000.
The capitalized terms used herein and not defined herein have the meanings
specified in the Amended Note Agreement.
The law covered by the opinions expressed herein is limited to the
federal law of the United States and the laws of the State of Michigan. In
rendering the opinion in paragraph (2) below, we have assumed that the laws of
the State of Connecticut as to the enforceability of the Amended Note Agreement
and the Notes are not different from the State of Michigan (excluding the choice
of law rules).
In our examination, we have assumed the genuineness of all signatures
(other than signatures of officers of the Company), the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals
or copies, the conformity with originals of all documents submitted to us as
copies and, as to documents executed by the Holders and Persons other than the
Company, that each such Person executing documents had the power to enter into
and perform its obligations under such documents, and that such documents have
been duly authorized, executed and delivered by, and are binding upon and
enforceable against, such Persons.
1
<PAGE> 73
In rendering our opinion, we have relied, without further investigation
or analysis, upon certificates of officers of the Company attached hereto;
warranties and representations as to certain factual matters made by the Company
and by the Holders in the Amended Note Agreement and in the certificate
delivered to the Holders pursuant to the Fourth Amendment.
In acting as such counsel, we have examined (a) the Existing Note
Agreement, (b) the Fourth Amendment, including the form of the Company's Second
Amended and Restated 8.99% Senior Note due July 1, 2001 attached to the Fourth
Amendment as Attachment 4, (c) the bylaws of the Company, (d) the records of
proceedings of the board of directors of the Company, (e) a certified copy of
the articles of incorporation of the Company, as in effect on the date hereof,
and (f) originals, or copies certified or otherwise identified to our
satisfaction, of such other documents, records, instruments and certificates of
public officials as we have deemed necessary or appropriate to enable us to
render this opinion. The First Amended and Restated Notes held by the Holders,
as amended and restated pursuant to the Fourth Amendment, are referred to herein
as the "Notes".
Based upon and subject to the foregoing and to the additional
assumptions, qualifications and limitations set forth herein, we are of the
opinion that:
1. The Fourth Amendment has been duly authorized by all necessary
corporate action on the part of the Company and has been executed and delivered
by a duly authorized officer of the Company.
2. Each of the Amended Note Agreement and the Notes constitute a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as (a) the enforceability thereof may be
limited by or subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws now or hereafter affecting creditors'
rights generally, and (b) rights or remedies (including, without limitation,
acceleration, specific performance and injunctive relief) may be limited by
equitable principles of general applicability (including, without limitation,
standards of materiality, good faith, fair dealing and reasonableness) whether
such principles are considered in a proceeding in equity or at law, and may be
subject to the discretion of the court before which any proceedings therefor may
be brought.
3. All consents, approvals and authorizations of Governmental
Authorities required on the part of the Company have been obtained in connection
with the execution and delivery of the Fourth Amendment.
4. The execution and delivery of the Amended Note Agreement in
accordance with, and subject to the terms and conditions of, the Amended Note
Agreement, by the Company and the performance by the Company of its obligations
thereunder and under the Notes do not violate any applicable statute, rule or
regulation to which the Company is subject.
2
<PAGE> 74
5. Under existing law, the amendment of the First Amended and Restated
Notes under the circumstances contemplated by the Fourth Amendment is an exempt
transaction under the Securities Act and neither the registration of the Notes
under the Securities Act, nor the qualification of an indenture with respect
thereto under the Trust Indenture Act of 1939, as amended, is required in
connection with such transaction.
In rendering this opinion, we assume no obligation to revise or
supplement this opinion should any law now in effect be changed by legislative
action, judicial decision or otherwise.
We acknowledge that this opinion is being issued at the request of the
Company pursuant to the Fourth Amendment and we agree that the parties listed on
Annex 1 thereto are relying hereon. Future holders of the Notes may rely on this
opinion as if it were addressed to them. Except as otherwise provided in this
paragraph, no one is entitled to rely on this opinion.
This opinion is solely for the information of the addressees hereof,
and is not to be quoted in whole or in part or otherwise referred to, nor is it
to be filed with any governmental agency or other person without our prior
written consent (except that you may furnish a copy hereof (i) to any one or
more of your employees, officers, directors, agents, attorneys, accountants or
professional consultants, (ii) to any state or federal authority or independent
insurance board or body having regulatory jurisdiction over any holder of a
Note, (iii) pursuant to order or legal process of any court or governmental
agency, (iv) in connection with any legal action in which you are a party
arising out of or in respect of the transactions contemplated under the Amended
Note Agreement, and (v) for informational and due diligence purposes only, to
prospective transferees of the Notes).
Very truly yours,
3
<PAGE> 75
ATTACHMENT 6
LIST OF HOLDERS OF NOTES WHOSE NOTES WILL BE PURCHASED
BY COMPANY PURSUANT TO SECTION 6.15(B)
<TABLE>
<CAPTION>
1997 Series Reg. No. Principal Outstanding
- ----------- -------- ---------------------
<S> <C> <C>
The Guardian Life Insurance Company of America R-1 $10,210,452.96
Massachusetts Mutual Life Insurance Company R-2 $ 5,105,226.48
Nationwide Life Insurance Company R-3 $ 5,105,226.48
Farm Bureau Life Insurance Company R-6 $ 1,531,567.95
Farm Bureau Mutual Insurance Company R-7 $ 1,021,045.30
American Bankers Insurance Company of Florida R-8 $ 1,531,567.95
Voyager Property & Casualty Insurance Co. R-9 $ 1,021,045.30
--------------
Subtotal $25,526,132.42
1996 Series
Massachusetts Mutual Life Insurance Company R-1 $ 3,764,285.71
R-3 $ 1,217,857.14
R-4 $ 332,142.86
R-30 $ 1,328,571.43
Nationwide Life Insurance Company R-5 $ 5,535,714.29
Security Benefit Life Insurance Company R-17 $ 2,657,142.86
Combined Insurance Company of America R-29 $ 2,214,285.71
--------------
Subtotal $17,050,000.00
1994 Series
Western Farm Bureau Life Insurance R-12 $ 1,095,833.34
FBL Insurance Company R-13 $ 2,410,833.34
Ohio Casualty Insurance Co. R-17 $ 1,315,000.00
Ohio Life Insurance Company R-18 $ 876,666.66
Washington National Insurance Company R-39 $ 258,497.17
William Blair & Company, L.L.C. R-40 $ 500,000.00*
Lincoln Life & Annuity Company of New York R-44 $ 317,951.52
R-45 $ 206,797.74
--------------
Subtotal $ 6,981,579.77
TOTAL $49,557,712.19
</TABLE>
*Represents a portion of Note which has a total of $646,242.92 principal amount
outstanding.
<PAGE> 1
EXHIBIT 4 (C) (06)
FIRST AMENDMENT
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
("First Amendment") is made as of this 10th day of December, 1999 by and among
Credit Acceptance Corporation, a Michigan corporation ("Company"), the Permitted
Borrowers signatory hereto (each, a "Permitted Borrower" and collectively, the
"Permitted Borrowers"), Comerica Bank and the other banks signatory hereto
(individually, a "Bank" and collectively, the "Banks") and Comerica Bank, as
agent for the Banks (in such capacity, "Agent").
RECITALS
A. Company, Permitted Borrowers, Agent and the Banks entered into that
Third Amended and Restated Credit Agreement dated as of June 15, 1999 (the
"Credit Agreement") under which the Banks renewed and extended (or committed to
extend) credit to the Company and the Permitted Borrowers, as set forth therein.
B. The Company and the Permitted Borrowers have requested that Agent
and the Banks agree to make certain amendments to the Credit Agreement and Agent
and the Banks are willing to do so, but only on the terms and conditions set
forth in this First Amendment.
NOW, THEREFORE, Company, Permitted Borrowers, Agent and the Banks
agree:
l. Section 1 of the Credit Agreement is hereby amended and
restated in its entirety as set forth in Attachment 2 marked
"Selected Sections - Section 1", which Attachment 2 is marked
(for the convenience of the parties), to show the changes from
Section 1 of the Credit Agreement.
2. Sections 2.13 and 2.15 and of the Credit Agreement are hereby
amended and restated in their entirety as set forth in
Attachment 3 marked "Selected Sections - Sections 2.13 and
2.15", which Attachment 3 is marked (for the convenience of
the parties), to show the changes from Sections 2.13 and 2.15
of the Credit Agreement.
3. Section 7 of the Credit Agreement is hereby amended and
restated in its entirety as set forth in Attachment 4 marked
"Selected Sections - Section 7", which Attachment
<PAGE> 2
4 is marked (for the convenience of the parties), to show the
changes from Section 7 of the Credit Agreement.
4. Section 8 of the Credit Agreement is hereby amended and
restated in its entirety as set forth in Attachment 5 marked
"Selected Sections - Section 8", which Attachment 5 is marked
(for the convenience of the parties), to show the changes from
Section 8 of the Credit Agreement; provided, however, that the
amendment in Section 8.11 of the Credit Agreement shall be
given retroactive effect to July 1, 1998.
5. In order to facilitate the Company's Permitted Senior Note
Prepayment described in Section 1 of the Credit Agreement (as
amended by this First Amendment), the Banks hereby waive, with
respect to the Permitted Securitization to be consummated in
connection with the Permitted Senior Note Prepayment, the
requirement in the definition of Permitted Securitization that
certain deliveries be made by the Company not less than ten
Business Days prior to the date of the consummation of a
Permitted Securitization; provided, however, that the Company
shall make such deliveries as promptly as reasonably
practicable and, in any event, not less than five Business
Days prior to the consummation of such Permitted
Securitization.
6. Subject to the terms and conditions of this First Amendment,
this First Amendment will confirm that (a) the Waiver (issued
pursuant to the Waiver Letter dated as of October 20, 1999, as
extended) continues in full force, except that the restriction
on Permitted Repurchases set forth therein and the provisions
concerning the expiration of such Waiver shall no longer apply
and (b) for the avoidance of doubt, the Banks hereby consent
to amendments to the Securitization Documents substantially in
form and substance as the draft Amendment No. 3 to Security
Agreement dated December 7, 1999 and draft Amendment No. 2 to
Note Purchase Agreement dated December 6, 1999 previously
distributed to the Agent and the Banks.
7. Replacement Schedules 1.1 (Pricing Grid) and 6.15 (Litigation)
to the Credit Agreement set forth on Attachments 1A and 1B
shall replace in their entirety, existing Schedules 1.1 and
6.15 respectively to the Credit Agreement.
8. This First Amendment shall become effective, according to the
terms and as of the date hereof, upon satisfaction by the
Company and the Permitted Borrowers, on or before December 10,
1999, of the following conditions:
(a) Agent shall have received counterpart originals of
this First Amendment, in each case duly executed and
delivered by Company, the Permitted Borrowers and the
requisite Banks, in form satisfactory to Agent and
the Banks;
(b) Agent shall have received from the Company and each
of the Permitted Borrowers a certification (i) that
all necessary actions have been taken by such parties
to authorize execution and delivery of this First
Amendment, supported by such resolutions or other
evidence of corporate authority or action as
reasonably required by Agent and the Majority Banks
and that no
<PAGE> 3
consents or other authorizations of any third parties
are required in connection therewith; and (ii) that,
after giving effect to this First Amendment, no
Default or Event of Default has occurred and is
continuing on the proposed effective date of the
First Amendment;
(c) Agent shall have received, with a copy for each of
the Banks, amendments to the Senior Debt Documents
executed and delivered by the Company and the
requisite holders of the Senior Debt, such amendments
to be in form and substance satisfactory to the Agent
and the Majority Banks; and
(d) Company shall have paid (directly, or through the
Agent) to those Banks which have executed and
delivered this First Amendment (subject to the terms
and conditions hereof) on or before the close of
business on December 10, 1999 an amendment fee in the
amount of twenty (20) basis points on the aggregate
commitment of each such Bank under the Revolving
Credit as of the date of the First Amendment.
If the foregoing conditions have not been satisfied or waived
on or before December 10, 1999, this First Amendment shall
lapse and be of no further force and effect.
9. Each of the Company and the Permitted Borrowers ratifies and
confirms, as of the date hereof and after giving effect to the
amendments contained herein, each of the representations and
warranties set forth in Sections 6.1 through 6.22, inclusive,
of the Credit Agreement and acknowledges that such
representations and warranties are and shall remain continuing
representations and warranties during the entire life of the
Credit Agreement.
10. Except as specifically set forth above, this First Amendment
shall not be deemed to amend or alter in any respect the terms
and conditions of the Credit Agreement, any of the Notes
issued thereunder or any of the other Loan Documents, or to
constitute a waiver by the Banks or Agent of any right or
remedy under or a consent to any transaction not meeting the
terms and conditions of the Credit Agreement, any of the Notes
issued thereunder or any of the other Loan Documents.
11. Unless otherwise defined to the contrary herein, all
capitalized terms used in this First Amendment shall have the
meaning set forth in the Credit Agreement.
12. This First Amendment may be executed in counterpart in
accordance with Section 13.10 of the Credit Agreement.
13. Comerica Bank - Canada having been designated by Comerica
Bank, in its capacity as swing line bank (and as a Bank) under
the Credit Agreement to fund Comerica Bank's advances in $C
pursuant to Section 11.12 of the Credit Agreement, has
executed this First Amendment to evidence its approval of the
terms and conditions thereof.
3
<PAGE> 4
14. This First Amendment shall be construed in accordance with and
governed by the laws of the State of Michigan.
[SIGNATURES FOLLOW ON SUCCEEDING PAGES]
4
<PAGE> 5
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK, CREDIT ACCEPTANCE CORPORATION
as Agent
By: /S/ Scottie S. Knight By: /S/ Douglas W. Busk
-------------------------------- ---------------------------------
Its: Vice President Its: Treasurer
-------------------------------- ---------------------------------
One Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
Attention: Michael P. Stapleton
COMERICA BANK - CANADA CREDIT ACCEPTANCE CORPORATION
UK LIMITED
By: /S/ Philip Buxton By:/S/ Douglas W. Busk
-------------------------------- ---------------------------------
Its:/S/ Managing Director Its: Treasurer
-------------------------------- ---------------------------------
And Chief Executive Officer
CAC OF CANADA LIMITED
By: /S/ Douglas W. Busk
---------------------------------
Its: Treasurer
----------------------
CREDIT ACCEPTANCE CORPORATION
IRELAND LIMITED
By: /S/ Douglas W. Busk
--------------------------------
Its: Treasurer
----------------------
5
<PAGE> 6
BANKS: COMERICA BANK
By: /S/ Scottie S. Knight
-------------------------------------------
Its: Vice President
---------------------------
LASALLE BANK NATIONAL ASSOCIATION
By: /S/ Lisa Man
-------------------------------------------
Its: Assistant Vice President
-----------------------------------------
HARRIS TRUST AND SAVINGS BANK
By: /S/ Michael A Cameli
-------------------------------------------
Its: Vice President
-----------------------------------------
NATIONAL CITY BANK OF MINNEAPOLIS
By: /S/ Steven Berglund
-------------------------------------------
Its: Assistant Vice President
-----------------------------------------
BANK OF AMERICA, N.A.
By: /S/ Elizabeth Kurilecz
-------------------------------------------
Its: Managing Director
-----------------------------------------
Signature Page For
CAC First Amendment
<PAGE> 7
THE BANK OF NOVA SCOTIA
By: /S/ F.C.H. Ashby
-------------------------------------------
Its: Senior Manager Loan Operations
-----------------------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /S/ Robert C Nagel
-------------------------------------------
Its: Vice President
-----------------------------------------
Signature Page For
CAC First Amendment
<PAGE> 8
ATTACHMENT 1
"REPLACEMENT SCHEDULE 1.1 - Pricing Grid"
<PAGE> 9
Attachment 1
SCHEDULE 1.1*/
PRICING MATRIX
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
THE APPLICABLE MARGIN FOR APPLICABLE FEE PERCENTAGE FOR
- ---------------------------------------------------------------------------------------------------------------------------
NOTWITHSTANDING ADVANCES AT THE ADVANCES OF THE ADVANCES OF REVOLVING LETTER OF CREDIT
THE COMPANY'S PRIME-BASED RATE REVOLVING CREDIT THE TERM LOAN CREDIT FACILITY FEE
RATING LEVEL: SHALL BE CARRIED AT THE CARRIED AT THE FEE
EUROCURRENCY- EUROCURRENCY-
BASED RATE SHALL BASED RATE SHALL
BE BE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0% 1.40% 2.00% .6000% 1.525%
(inclusive of facing fee)
- ---------------------------------------------------------------------------------------------------------------------------
APPLICABLE FEE If Utilization is < 50% of RCMA,**/ 0%
PERCENTAGE FOR
UTILIZATION FEE If Utilization is > 50%, 0.25%
---
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------
*/ All terms as defined in the Agreement.
**/ "RCMA" shall mean the Revolving Credit Maximum Amount as determined
hereunder, or, in the event the Company has elected to convert the outstandings
under the Revolving Credit to a Term Loan pursuant to Section 4.1, "RCMA" shall
mean the Revolving Credit Maximum Amount as in effect immediately prior to such
conversion. All other capitalized terms shall be defined as in the Agreement.
<PAGE> 10
ATTACHMENT 2
"SELECTED SECTIONS -- Section 1"
<PAGE> 11
1. DEFINITIONS
For the purposes of this Agreement the following terms will have the
following meanings:
"Account Party(ies)" shall mean, with respect to any Letter of Credit,
the account party or parties (which shall be Company and/or any Permitted
Borrower) as named in an application to the Agent for the issuance of such
Letter of Credit.
"Advance(s)" shall mean, as the context may indicate, a borrowing
requested by Company or by a Permitted Borrower, and made by Banks under Section
2.1 or 4.1 of this Agreement, as the case may be, or requested by the Company or
by a Permitted Borrower and made by the Swing Line Bank under Section 2.5 hereof
(including without limitation any readvance, refunding or conversion of such
borrowing pursuant to Section 2.3, 2.5(c) or 4.4 hereof) and any advance in
respect of a Letter of Credit under Section 3.6 hereof (including without
limitation the unreimbursed amount of any draws under Letters of Credit), and
shall include, as applicable, a Eurocurrency-based Advance, a Quoted Rate
Advance, a Prime-based Advance and a Swing Line Advance.
"Advances to Dealers" shall mean, as of any applicable date of
determination, the Dollar Amount of advances in respect of Installment
Contracts, as such amount would appear in the footnotes to the financial
statements of the Company and its Subsidiaries prepared in accordance with GAAP
(and if such amount is not shown net of such reserves, then net of any reserves
established by the Company as an allowance for credit losses related to such
advances not expected to be recovered), provided that Advances to Dealers shall
not include (a) any such advances (and the related Installment Contracts)
transferred or encumbered pursuant to a Permitted Securitization (whether or not
attributable to the company under GAAP), unless and until such advances (and the
related installment contracts) are reassigned to the Company or a subsidiary of
the Company or such encumbrances are discharged or (b) Charged-Off Advances, to
the extent that such Charged-Off Advances exceed the portion of the Company's
allowance for credit losses related to reserves against such advances not
expected to be recovered, as such allowance would appear in the footnotes to the
financial statements of the Company and its Subsidiaries prepared in accordance
with GAAP at such time. For purposes of this definition, "Charged-Off Advances"
shall mean those Advances to Dealers which the Company or any of its
Subsidiaries has determined, based on the application of a static pool analysis
or otherwise, are completely or partially impaired, to the extent of such
impairment.
"Affiliate" shall mean, at any time, a Person (other than a Subsidiary)
(a) that directly or indirectly through one or more intermediaries Controls, or
is Controlled by, or is under common Control with, the Company; (b) that
beneficially owns or holds five percent (5%) or more of any class of the voting
stock of the Company; (c) five percent (5%) or more of the voting stock (or in
the case of a Person that is not a corporation, five percent (5%) or more of the
equity interest) of which is beneficially owned or held by the Company or a
Subsidiary; or (d) that is an officer or director (or a member of the immediate
family of an officer or director) of the Company or any Subsidiary; in
1
<PAGE> 12
each case, at such time. As used in this definition, "Control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" shall mean Comerica Bank, a Michigan banking corporation, or
any successor appointed in accordance with Section 12.4 hereof.
"Agent's Correspondent" shall mean:
(a) for Advances in Sterling, Midland Bank plc., London, Great
Britain;
(b) for Advances in C$, Comerica Bank - Canada, Agent's
Canadian Affiliate, or such other bank or banks as Agent may from time
to time designate by written notice to Company, the Permitted Borrowers
and the Lenders;
(c) for Advances in Irish Punts, Ulster Bank Limited, Ireland;
and
(d) for Advances in Eurodollars, Agent's Grand Cayman Branch
(or for the account of said branch office, at Agent's main office in
Detroit, Michigan, United States);
or at such other bank or banks as Agent may from time to time designate by
written notice to Company, the Permitted Borrowers and the Banks.
"Agent's Fees" shall mean those fees and expenses required to be paid
by Company to Agent under Section 12.8 hereof.
"Aggregate Commitment" shall mean the Revolving Credit Maximum Amount,
as in effect from time to time.
"Aggregate Sublimit" shall mean, as of any applicable date of
determination, that amount equal to twenty percent (20%), of Company's
Consolidated Tangible Net Worth, determined as of the end of each fiscal quarter
based upon the financial statements required to be delivered under Section
7.3(b) or 7.3(c) hereof, as the case may be, or (subject to the terms hereof)
determined on a monthly basis at the request of the Company based on monthly
financial statements to be delivered pursuant to Sections 2.13(b) and 2.14(b)
hereof, (and giving effect to any changes in net worth shown in the applicable
financial statements on the required date of delivery thereof).
"Allowances for Credit Losses" shall mean those allowances or reserves
established by Company or its Subsidiaries in arriving at installment contracts
receivable, net or Leased Vehicles, as the case may be, on its Consolidated
balance sheets, as specifically identified in such financial statements or as
disclosed in the footnotes thereto; provided that Allowances for Credit Losses
shall not include allowances or reserves attributable to retail installment
contracts or leases
2
<PAGE> 13
which are not at such time "Installment Contracts" or "Leases," as the case may
be, due to the proviso in the definition of such terms in this Agreement.
"Alternate Base Rate" shall mean, for any day, an interest rate per
annum equal to the Federal Funds Effective Rate in effect on such day, plus one
percent (1%).
"Alternative Currency" shall mean British Pounds Sterling ("Sterling"),
Canadian Dollars ("C$"), Irish Punts ("Irish Punts"), and, subject to the prior
written approval of Agent and each of the Banks and to the terms and conditions
of this Agreement, such other freely convertible foreign currencies including
(subject to the terms hereof) the "Euro", as requested by the Company or a
Permitted Borrower and acceptable to Agent and the Banks, in their reasonable
discretion. Any reference to a National Currency Unit of a Participating Member
State in this definition of "Alternative Currency" shall be deemed to also
include a reference to the Euro Unit.
"Applicable Fee Percentage" shall mean, as of any date of determination
thereof, the applicable percentage used to calculate certain of the fees due and
payable hereunder, determined by reference to the appropriate columns in the
Pricing Matrix attached to this Agreement as Schedule
"Applicable Interest Rate" shall mean the Eurocurrency-based Rate, the
Prime-based Rate or, with respect to Swing Line Advances, the Quoted Rate, as
selected by Company or a Permitted Borrower from time to time subject to the
terms and conditions of this Agreement.
"Applicable Margin" shall mean, as of any date of determination
thereof, the applicable interest rate margin, determined by reference to the
appropriate columns in the Pricing Matrix attached to this Agreement as Schedule
1.1.
"Applicable Sublimit" shall mean the Canadian Sublimit, the Irish
Sublimit or the Aggregate Sublimit, as the context may require.
"Assignment Agreement" shall have the meaning ascribed to such term in
Section 13.8(c) hereof.
"Back-End Dealer Agreement(s)" shall mean Dealer Agreements referred to
in clause (i) of the definition of Dealer Agreements.
"Banks" shall mean the Banks signatory hereto (including the New Banks)
and any assignee which becomes a Bank pursuant to Section 13.8(c) hereof.
"Business Day" shall mean any day on which commercial banks are open
for domestic and international business (including dealings in foreign exchange)
in Detroit, London (except with respect to any Prime-based Advances), and New
York and if funds are to be paid or made available in any Alternative Currency,
on such day in the place where such funds are to be paid or made available and,
if the applicable Business Day relates to the borrowing or payment of a
3
<PAGE> 14
Eurocurrency-based Advance denominated in Euros, on which banks and foreign
exchange markets are open for business in the city where disbursements of or
payments on such Advance are to be made which is a Trans-European Business Day.
"CAC Canada" is defined in the Preamble.
"CAC Ireland" is defined in the Preamble.
"CAC Leasing" shall mean CAC Leasing, Inc., a Michigan corporation and
a wholly-owned Subsidiary of Company.
"CAC Life" shall mean Credit Acceptance Corporation Life Insurance
Company, an Arizona corporation and a wholly-owned Subsidiary of Company.
"CAC UK" is defined in the Preamble.
"Canadian BA Rate" shall mean, with respect to the relevant Advance of
C$ to CAC Canada, the rate per annum quoted by Agent's Correspondent as the
Agent's bid rate for C$ bankers' acceptances having a comparable face value as
the amount of such Advance and a tenor identical to the applicable
Eurocurrency-Interest Period as of 10:00 a.m. (Toronto time) on the first day of
such Interest Period.
"Canadian BA Period" shall mean, for Advances of C$ to CAC Canada, an
interest Period of 30 days, 60 days, 90 days or with the consent of the Agent
180 days.
"Canadian Prime Rate" shall mean, for any day, the per annum rate of
interest in effect for such day as announced from time to time by the Agent's
Canadian Affiliate in Toronto, Ontario as its "prime rate." (The "prime rate" is
a rate set by such Canadian Affiliate based upon various factors including such
Canadian Affiliate's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans, which
may be priced at, above or below such announced rate.) Any change in the prime
rate by such Canadian Affiliate shall take effect at the opening of business on
such day.
"Canadian Prime-based Rate" shall mean, for any day, that rate of
interest which is equal to the sum of the Applicable Margin plus the greater of
(i) the Canadian Prime Rate and (ii) an interest rate per annum equal to the
Canadian BA Rate in effect on such day, plus one percent (1%).
"Canadian Sublimit" shall mean, as of any applicable date of
determination, that amount equal to the lesser of
(a) five percent (5%) of Company's Consolidated Tangible
Net Worth, determined as of the end of each fiscal quarter based upon
the financial statements required
4
<PAGE> 15
to be delivered under Section 7.3(b) or 7.3(c) hereof, as the case may
be, or (subject to the terms hereof) determined on a monthly basis at
the request of the Company based on monthly financial statements to be
delivered pursuant to Section 2.14(b) hereof, (and giving effect to any
changes in net worth shown in such financial statements on the required
date of delivery thereof); and
(b) the Aggregate Sublimit minus the sum of the aggregate
principal amount of Advances outstanding to the Permitted Borrowers,
including CAC Canada, (after giving effect to any such Advances being
requested by any Permitted Borrower, including CAC Canada, on such
date, using the Current Dollar Equivalent of any such Advances
outstanding or requested in any Alternative Currency, determined
pursuant to the terms hereof as of the date of such requested Advance),
plus the aggregate undrawn portion of any Letters of Credit issued for
the account of the Permitted Borrowers (including CAC Canada) which
shall be outstanding as of the date of such requested Advance (based on
the Dollar Amount of the undrawn portion of any Letters of Credit
denominated in Dollars and the Current Dollar Equivalent of the undrawn
portion of any Letters of Credit denominated in any Alternative
Currency), the aggregate face amount of Letters of Credit requested but
not yet issued for the account of such Permitted Borrowers (determined
as aforesaid) and the aggregate amount of all drawings made under any
Letter of Credit for which the Agent has not received full
reimbursement from such Permitted Borrowers (using the Current Dollar
Equivalent thereof for any Letters of Credit denominated in any
Alternative Currency).
"Capital Assets" shall mean all assets of a Person other than
intangible assets (so classified in accordance with GAAP), inventories, accounts
receivable and Investments in and securities of any other Person.
"Cleanup Call(s)" shall mean
(a) in the case of an optional cleanup call, a cleanup call
to be exercised at the option of the Company or a Special Purpose
Subsidiary under the terms of the applicable Permitted Securitization
(provided that, both before and after giving effect thereto, no Default
or Event of Default has occurred and is continuing when such option is
exercised), in an amount not in excess of (i) Fifteen Percent
(15%) of the initial amount received by the Company or a Special
Purpose Subsidiary pursuant to such Permitted Securitization (before
fees and other deductions), it being understood that, for purposes of
clause (a)(i) of this definition, each tranche of a multi-tranche
Permitted Securitization shall be considered a separate Permitted
Securitization or (ii) in the case of any Securitization Transaction
structured on a revolving basis, fifteen percent (15%) of the maximum
aggregate availability at any time to Company or a Special Purpose
Subsidiary, and (b) in the case of a mandatory cleanup call, a
mandatory cleanup call to be exercised at the option of the investors
under the terms of the applicable Permitted Securitization, in an
amount not in excess of (i) Two and One-Half Percent (2 1/2%) of the
5
<PAGE> 16
aggregate amount received by the Company or a Special Purpose
Subsidiary pursuant to the Permitted Securitization to which such
mandatory cleanup call relates (before fees and other deductions), it
being understood that, for purposes of clause (b)(i) of this
definition, all tranches of a multi-tranche Permitted Securitization
shall be considered one Permitted Securitization or (ii) in the case of
any Securitization Transaction structured on a revolving basis, Two and
One-Half Percent (2 1/2%) of the maximum aggregate availability at any
time to Company or a Special Purpose Subsidiary,
in either case, such Cleanup Call being accompanied by the repurchase of or
release of encumbrances on Advances to Dealers, Leased Vehicles, Installment
Contracts (whether assigned outright or related to Advances to Dealers) or
Leases (whether assigned outright or related to Leased Vehicles), as the case
may be, previously transferred or encumbered pursuant to such Permitted
Securitization in at least the amount of such cleanup call.
"Closing Fee" shall mean the closing fee payable by Company to Agent,
for distribution to the Banks, in the amounts previously agreed to between Agent
and each of the Banks.
"Collateral" shall mean (x) all right, title and interest of each of
the Company and each of its Significant Domestic Subsidiaries in, to and under
its accounts, inventory, machinery, equipment, contract rights, chattel paper,
general intangibles, including without limitation Advances to Dealers, Leased
Vehicles, Dealer Agreements (and any amounts advanced to or liens granted by
Dealers thereunder), Installment Contracts, Leases and related financial
property (such Dealer Agreements, Advances to Dealers and the Installment
Contracts, Leases, accounts, contract rights, chattel paper and general
intangibles relating to such Dealer Agreements, Advances to Dealers and Leased
Vehicles, being subject to the rights, if any, of Dealers under Dealer
Agreements), and computer records and software relating thereto, whether now
owned or hereafter acquired by such Person, (y) one hundred percent (100%) of
the share capital of each Significant Domestic Subsidiary of the Company
(whether direct or indirect) and (z) not less than sixty-five percent (65%) of
the share capital of CAC UK, and all proceeds and products of the foregoing.
"Collateral Documents" shall mean that certain Security Agreement and
that certain English Share Charge, each dated as of December 15, 1998 and
executed and delivered by Company in favor of the Agent, as Collateral Agent
pursuant to the Intercreditor Agreement, and encumbering the property described
therein, and all other security documents (including, without limitation,
financing statements, stock powers, acknowledgments, registrations, joinders and
the like) executed by the Company or any of its Subsidiaries and delivered to
the Agent, as Collateral Agent (as aforesaid), as of the date thereof or, from
time to time, subsequent thereto in connection with such security documents,
this Agreement or the other Loan Documents, as such security documents may be in
each case amended (subject to the Intercreditor Agreement) from time to time.
"Company" is defined in the Preamble.
6
<PAGE> 17
"Company Guaranty" shall mean that certain amended and restated
guaranty of all of the Indebtedness outstanding from the Permitted Borrowers
hereunder, executed and delivered by the Company to the Agent, on behalf of the
Banks, in connection with the Prior Credit Agreement, as amended from time to
time.
"Consolidated" or "Consolidating" shall, when used with reference to
any financial information pertaining to (or when used as a part of any defined
term or statement pertaining to the financial condition of) Company and its
Subsidiaries, mean the accounts of Company and its Subsidiaries determined on a
consolidated or consolidating basis, as the case may be, all determined as to
principles of consolidation and, except as otherwise specifically required by
the definition of such term or by such statements, as to such accounts, in
accordance with GAAP applied on a consistent basis and consistent with the
financial statements as at and for the fiscal year ended December 31, 1998.
"Consolidated Current Debt" shall mean, as of any applicable date of
determination, all Current Debt of the Company and its Subsidiaries, determined
on a Consolidated basis in accordance with GAAP as of such date.
"Consolidated Fixed Charges" shall mean, for any period, the sum of (a)
Consolidated Interest Expense for such period, plus (b) Operating Rentals
payable by the Company and its Subsidiaries in respect of such period under
Operating Leases, determined after eliminating intercompany transactions among
the Company and its Subsidiaries.
"Consolidated Income Available for Fixed Charges" shall mean, for any
period, the sum of (a) Consolidated Net Income, plus (b) the aggregate amount of
income taxes, depreciation, amortization (including the amortization of any
excess servicing asset) and Consolidated Fixed Charges (to the extent, and only
to the extent, that such aggregate amount was reflected in the computation of
Consolidated Net Income for such period), determined on a Consolidated basis for
such Persons in accordance with GAAP, plus (c) for the next succeeding four
fiscal quarters of the Company (commencing with the fiscal quarter ending
september 30, 1999), the after-tax effect of the non-cash charge in the amount
of $47,300,000 taken by the Company in its financial statements for its fiscal
quarter ending September 30, 1999 relating to the accounting adjustment to its
reserves against advances resulting from the downward revision in the Company's
collection forecasts.
"Consolidated Interest Expense" shall mean, for any period, the amount
of interest charged or chargeable to the Consolidated Statement of Operations of
Company and its Subsidiaries in respect of such period, as determined in
accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, net earnings (or
loss) after income taxes of Company and its Subsidiaries, determined on a
Consolidated basis for such Persons, as defined according to GAAP, but
excluding:
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<PAGE> 18
(a) net earnings (or loss) of any Subsidiary accrued prior to
the date it became a Subsidiary;
(b) any gain or loss (net of tax effects applicable thereto)
resulting from the sale, conversion or other disposition
of Capital Assets other than in the ordinary course of
business;
(c) any extraordinary or non-recurring gains or losses
(including, without limitation, any gain on sale generated
by a Permitted Securitization, except to the extent the
Company has received a cash benefit therefrom in the
applicable reporting period); and any interest income
generated by a Permitted Securitization, except to the
extent the Company has received a cash benefit therefrom
in the applicable reporting period;
(d) any gain arising from any reappraisal or write-up of
assets;
(e) any portion of the net earnings of any Subsidiary that for
any reason is unavailable for payment of dividends to the
Company or any other Subsidiary, provided that the net
earnings of CAC Life that are unavailable (due to
regulatory requirements applicable to CAC Life) for the
payment of dividends to the Company may be included in the
determination of Consolidated Net Income, to the extent
that such unavailable net earnings do not exceed five
percent (5%) of Consolidated Net Income (determined
without giving effect to this proviso), and provided,
further that so long as the net earnings of CAC Life shall
be included in Consolidated Net Income pursuant to the
preceding proviso, CAC Life shall not have outstanding any
debt, regardless of whether any other Subsidiary may be
permitted to have debt outstanding at such time by reason
of a waiver of or an amendment to this Agreement;
(f) any gain or loss (net of tax effects applicable thereto)
during such period resulting from the receipt of any
proceeds of any insurance policy;
(g) except as set forth herein, any earnings of any Person
acquired by Company or any Subsidiary through the
purchase, merger or consolidation or otherwise, or
earnings of any Person substantially all of the assets of
which have been acquired by Company or any Subsidiary, for
any period prior to the date of acquisition;
(h) net earnings of any Person (other than a Subsidiary) in
which Company or any Subsidiary shall have an ownership
interest unless such net earnings shall actually have been
received by the Company or such Subsidiary in the form of
cash distributions; and
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<PAGE> 19
(i) any restoration during such period to income of any
contingency reserve, except to the extent that provision
for such reserve
(i) was made during such period out of income accrued
during such period,
(ii) was made in connection with the Company's program of
financing Installment Contracts or Leases
(A) to provide for warranty claims for which the
Company may be responsible, or
(B) to cover credit losses in connection with Advances
to Dealers, Installment Contracts, Leased Vehicles or
Leases, or
(iii) is required by applicable law with respect to reserve
for claims related to the operation of CAC Life,
provided that the aggregate restoration to income during any period from
reserves described in clause (ii) and clause (iii) above shall not exceed ten
percent (10%) of Consolidated Net Income for such period, prior to giving effect
to such restoration.
"Consolidated Senior Funded Debt" shall mean, as of any applicable date
of determination, the aggregate amount of Funded Debt of the Company and its
Subsidiaries, other than Subordinated Funded Debt, determined on a Consolidated
basis according to GAAP as of such date.
"Consolidated Subordinated Funded Debt" shall mean, as of any
applicable date of determination, the aggregate amount of Subordinated Funded
Debt of the Company and its Subsidiaries, determined on a Consolidated basis
according to GAAP as of such date.
"Consolidated Tangible Net Worth" shall mean the total preferred
shareholders' investment and common shareholders' investment (common stock, paid
in capital and retained earnings) as computed under GAAP, less assets properly
classified as intangible assets according to GAAP, but excluding from the
determination thereof, without duplication, (a) any excess servicing asset
resulting from the transfer, pursuant to a Permitted Securitization, of Advances
to Dealers, Leased Vehicles, Installment Contracts (whether assigned outright or
related to Advances to Dealers) or Leases (whether assigned outright or related
to Leased Vehicles) and (b) the equity interest in any Special Purpose
Subsidiary, to the extent such equity interest is included in the
determination of the total preferred shareholders' investment and common
shareholders' investment (common stock, paid in capital and retained earnings)
of the Company and its Subsidiaries computed in accordance with GAAP.
9
<PAGE> 20
"Consolidated Total Assets" shall mean the Consolidated total assets of
Company and its Subsidiaries as determined according to GAAP, but excluding
from the determination thereof, without duplication, (a) any excess servicing
asset resulting from the transfer, pursuant to a Permitted Securitization, of
Advances to Dealers, Leased Vehicles, Installment Contracts (whether assigned
outright or related to Advances to Dealers) or Leases (whether assigned outright
or related to Advances to Dealers) and (b) the equity interest in any Special
Purpose Subsidiary, to the extent such equity interest is included in the
determination of the Consolidated Total Assets of the Company and its
Subsidiaries computed in accordance with GAAP.
"Consolidated Total Debt" shall mean, as of any applicable date of
determination, the aggregate amount of Funded Debt and Current Debt of the
Company and its Subsidiaries, determined on a Consolidated basis according to
GAAP as of such date.
"Covenant Compliance Report" shall mean the report to be furnished by
the Company to the Agent, in substantially the form attached to this Agreement
as Exhibit H and certified by the chief financial officer of the Company
pursuant to Section 7.3(c) hereof, as to whether the Company and its
Subsidiaries are in compliance with the financial covenants contained in
Sections 7.4 through 7.9, inclusive, of this Agreement, in which report the
Company shall set forth its calculations and the resultant ratios or financial
tests determined thereunder, and certifying that no Default or Event of Default
has occurred and is continuing.
"Current Debt" shall mean, with respect to any Person (as of any
applicable date of determination), all Debt of such Person, other than Funded
Debt, determined as of such date according to GAAP.
"Current Dollar Equivalent" shall mean, as of any applicable date of
determination, with respect to any Advance or Letter of Credit in an Alternative
Currency, the amount of Dollars which is equivalent to the then outstanding
principal amount of such Advance or Letter of Credit at the most favorable spot
exchange rate determined by the Agent to be available to it for the sale of
Dollars for such Alternative Currency for delivery at approximately 11:00 A.M.
(Detroit time) two (2) Business Days after such date. Alternative Currency
equivalents of Advances or Letters of Credit in Dollars (to the extent used
herein) shall be determined by Agent in a manner consistent herewith.
"Dealer(s)" shall mean a Person engaged in the business of the retail
sale or lease of new or used motor vehicles, including both businesses
exclusively selling or leasing used motor vehicles and businesses principally
selling or leasing new motor vehicles, but having a used vehicle department,
including any such Person which constitutes an Affiliate of Company.
"Dealer Agreement(s)" shall mean the sales and/or servicing agreements
between the Company or its Subsidiaries and a participating Dealer which sets
forth the terms and conditions under which the Company or its Subsidiaries (i)
accepts, as nominee for such Dealer, the assignment of Installment Contracts or
Leases for purposes of administration, servicing and collection and under
10
<PAGE> 21
which the Company or its Subsidiary may make advances to such Dealers included
in Advances to Dealers or Leased Vehicles and (ii) accepts outright assignments
of Installments Contracts or Leases from Dealers or funds Installments Contracts
or Leases originated by such Dealer in the name of Company or any of its
Subsidiaries, in each case as such agreements may be in effect from time to
time.
"Debt" shall mean, with respect to any Person, without duplication, (a)
its liabilities for borrowed money (whether or not evidenced by a security), (b)
any liabilities secured by any Lien existing on property owned by such Person
(whether or not such liabilities have been assumed), (c) its liabilities
consisting of Capital Lease Obligations, (d) the present value of all payments
due under any arrangement for retention of title or any conditional sale
agreement (other than a Capital Lease) discounted at the implicit rate, if
known, with respect thereto or, if unknown, at eight and eighty-seven
one-hundredths percent (8.87%) per annum, and (e) its guaranties of any
liabilities of another Person constituting liabilities of a type set forth
above; provided however that dealer holdbacks shall not be considered Debt of
the Company or its Subsidiaries; and provided further that, solely for purposes
of Section 8.5 hereof, "Debt" shall also include reimbursement obligations
(contingent or otherwise) in respect of letters of credit, obligations in
respect of bankers acceptances, and payment obligations, if any, under interest
rate protection agreements (including without limitation interest rate swaps and
similar agreements) and currency swaps and hedges and similar agreements.
"Debt Rating" shall mean the debt rating of Company's long-term
non-credit enhanced senior debt by Fitch.
"Default" shall mean any event which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default.
"Dollar Amount" shall mean (a) with respect to Dollars or an amount
denominated in Dollars, such amount and (b) with respect to an amount of any
other Alternative Currency or an amount denominated in such Alternative
Currency, the amount of Dollars that may be purchased with such amount of
Alternative Currency in the interbank foreign exchange market, at the most
favorable spot rate of exchange (including all related costs of conversion)
applicable to the relevant transaction determined by the Agent to be available
to it at or about 11:00 a.m. Detroit time (i) on the date on which such
calculation would be necessary for the delivery of Dollars on the applicable
date contemplated in this Agreement or (ii) for interest rate setting purposes
only, on the date which is two Business Days prior to the commencement of an
Interest Period (or such other number of days as shall be reasonably deemed
necessary by Agent, for purposes of this Agreement). Alternative Currency
amounts of Advances or Letters of Credit made, issued, carried or expressed in
Dollars (to the extent used herein) shall be determined by Agent in a manner
consistent herewith.
"Dollars" and the sign "$" shall mean lawful money of the United States
of America.
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<PAGE> 22
"Domestic Advance" shall mean any Advance other than a
Eurocurrency-based Advance or any other Advance denominated in an Alternative
Currency.
"Domestic Guaranty" shall mean that certain guaranty of all
Indebtedness outstanding from the Company and the Permitted Borrowers hereunder,
executed and delivered (or to be executed and delivered) by each of the
Significant Domestic Subsidiaries (whether by execution thereof, or by execution
of the Joinder Agreement attached as "Exhibit A" to the form of such Guaranty),
to the Agent, on behalf of the Banks, in the form annexed hereto as Exhibit J-2,
as amended from time to time.
"Domestic Subsidiaries" shall mean those Subsidiaries of the Company
incorporated under the laws of the United States of America, or any state
thereof.
"Effective Date" shall mean the date on which the conditions precedent
to the effectiveness of this Agreement set forth in Sections 5.1 through 5.9
shall have been satisfied, amended or waived.
"EMU" shall mean Economic and Monetary Union as contemplated in the
Treaty on European Union.
"EMU Legislation" shall mean legislative measures of the European
Council (including European Council regulations) for the introduction of,
changeover to or operation of a single or unified European currency (whether
known as the euro or otherwise), being in part the implementation of the third
stage of EMU.
"Equity Offering" shall mean the issuance and sale for cash, on or
after the Effective Date by Company or any of its Subsidiaries of additional
capital stock or other equity interests, other than upon the exercise of
employee and dealer stock options pursuant to stock option plans maintained or
offered by the Company or its Subsidiaries in the ordinary course of business
and not in anticipation of any sale of capital stock or equity interests to the
general public.
"Equity Offering Adjustment" shall mean that amount to be added to the
minimum Consolidated Tangible Net Worth required to be maintained under Section
7.7 hereof consisting of an amount equal to one hundred percent (100%) of each
Equity Offering conducted by the Company or any of its subsidiaries, net of
related costs of issuance payable to third parties, on and after July 1, 1998,
on a cumulative basis.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code, and the regulations in effect from
time to time thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is under common control with the Company within the meaning
of Section 4001 of ERISA or is part of
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<PAGE> 23
a group which includes the Company and would be treated as a single employer
under Section 414 of the Internal Revenue Code, and any Domestic Subsidiary.
"Euro" or "Euro Unit" shall mean the currency unit of the euro as
defined in the EMU Legislation.
"Eurocurrency-based Advance" shall mean any Advance (including a Swing
Line Advance) which bears interest at the Eurocurrency-based Rate.
"Eurocurrency-based Rate" shall mean a per annum interest rate which is
equal to the sum of (a) the Applicable Margin (subject, if applicable, to
adjustment under Section 11.11 hereof), plus
(b)(i) in the case of any Eurocurrency-based Advance other
than an Advance of C$ to CAC Canada described in clause (b)(ii) below,
the quotient of:
(A) the per annum interest rate at which deposits in the
relevant eurocurrency are offered to Agent's
Eurocurrency Lending Office by other prime banks in
the relevant eurocurrency market in an amount
comparable to the relevant Eurocurrency-based
Advance and for a period equal to the relevant
Eurocurrency-Interest Period at approximately 11:00
a.m. Detroit time two (2) Business Days (or, in the
case of a Eurocurrency-based Advance in Euros, on
such other date as is customary in the relevant
offshore interbank market) prior to the first day of
such Eurocurrency-Interest Period, divided by
(B) a percentage equal to 100% minus the maximum rate on
such date at which Agent is required to maintain
reserves on `eurocurrency liabilities' as defined in
and pursuant to Regulation D of the Board of
Governors of the Federal Reserve System or, if such
regulation or definition is modified, and as long as
Agent is required to maintain reserves against a
category of liabilities which includes eurocurrency
deposits or includes a category of assets which
includes eurocurrency loans, the rate at which such
reserves are required to be maintained on such
category,
such sum to be rounded upward, if necessary, to the nearest whole
multiple of 1/16th of 1%; or
(b)(ii) in the case of any Advances of C$ to CAC Canada, the greater of
the Eurocurrency-based Rate determined in the manner set forth in clause (A)
above and the Canadian BA Rate.
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<PAGE> 24
"Eurocurrency-Interest Period" shall mean, (a) for Swing Line Advances
carried at the Eurocurrency-based Rate, an interest period of seven days, one
month (or any lesser number of days agreed to in advance by Company or a
Permitted Borrower, Agent and the Swing Line Bank), (b) for Eurocurrency-based
Advances of C$ to CAC Canada, a Canadian BA Rate Period and (c) for all other
Eurocurrency-based Advances, an interest period of one, two, three or six months
(or any lesser or greater number of days agreed to in advance by Agent and the
Banks), in each case as selected by Company or such Permitted Borrower, as
applicable, for a Eurocurrency-based Advance pursuant to Section 2.3, 2.5, or
4.4 hereof, as the case may be.
"Eurocurrency Lending Office" shall mean, (a) with respect to the
Agent, Agent's office located at its Grand Caymans Branch or such other branch
of Agent, domestic or foreign, as it may hereafter designate as its Eurocurrency
Lending Office by notice to Company, the Permitted Borrowers and the Banks and
(b) as to each of the Banks, its office, branch or affiliate located at its
address set forth on the signature pages hereof (or identified thereon as its
Eurocurrency Lending Office), or at such other office, branch or affiliate of
such Bank as it may hereafter designate as its Eurocurrency Lending Office by
notice to Company and Agent.
"Event of Default" shall mean any of the events specified in Section
9.1 hereof.
"Existing Letter of Credit" shall mean a letter of credit issued under
the Prior Credit Agreement which is outstanding on the effective date hereof.
"Federal Funds Effective Rate" shall mean, for any day, a fluctuating
interest rate per annum equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by it.
"Fees" shall mean the Agent's Fees, the Revolving Credit Facility Fee,
the Utilization Fee and the Letter of Credit Fees.
"Fitch" shall mean Fitch Investor Services, Inc. or its successors.
"Fixed Charge Coverage Ratio" shall mean, as of any applicable date of
determination, the ratio of (a) Consolidated Income Available for Fixed Charges
for the period of four (4) consecutive fiscal quarters of the Company most
recently ended at such time to (b) Consolidated Fixed Charges for such period.
"Floor Plan Receivables" shall mean, as of any applicable date of
determination, the aggregate amount outstanding from Dealers pursuant to
financing extended to such Dealers by
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<PAGE> 25
Company or any of its Subsidiaries for used motor vehicle inventories, such
financing to be secured by the related motor vehicle inventories and any future
cash collections owed by Company or its Subsidiaries to the Dealer under the
applicable Dealer Agreement in respect of outstanding Advances to Dealers (and
the related Installment Contracts) or Leased Vehicles (and the related Leases)
"Foreign Guaranty" shall mean that certain guaranty under the Prior
Credit Agreement of all Indebtedness outstanding from the Permitted Borrowers
hereunder, executed and delivered (or to be executed and delivered by joinder)
by each of the Significant Foreign Subsidiaries, as amended from time to time.
"Foreign Subsidiaries" shall mean all of the Company's Subsidiaries
other than its Domestic Subsidiaries.
"Funded Debt" shall mean, with respect to any Person (as of any
applicable date of determination), all Debt of a Person which matures, or which
at the election of such Person may mature, more than one (1) year after the date
as of which such computation was made, determined as of such date according to
GAAP.
"Funding Conditions" shall mean those conditions required to be
satisfied prior to or concurrently with the funding of any Future Debt, as
follows:
(a) within a period of one hundred eighty (180) days prior to
the date any such Debt is incurred, Company shall have
provided to the Agent and the Banks a Consolidated plan and
financial projections meeting the requirements therefor as
set forth in Section 7.3(h) of this Agreement;
(b) both immediately before and immediately after such
additional Debt is incurred, no Default or Event of Default
(whether or not related to such additional Debt, and taking
into account the incurring of such additional Debt) has
occurred and is continuing;
(c) if such additional Debt shall be issued pursuant to loan
documents containing covenants which are more restrictive
than the covenants contained in this Agreement, Company
shall, upon the written request of the Majority Banks,
enter into amendments to this Agreement to extend the
benefit of such covenants to the Banks; and
(d) concurrently with the incurring of such additional Debt,
(i) the proceeds of such Debt, net of third party expenses
incurred by the Company in connection with the issuance of
such Debt, shall be applied to reduce the principal balance
outstanding under the Senior Debt or the Future Debt or
(ii) the principal balance outstanding under the Revolving
Credit (to the extent then outstanding, and including the
15
<PAGE> 26
aggregate amount of drawings made under any Letter of
Credit and the aggregate amount of drawings made under any
Letter of Credit for which the Agent has not received full
payment) shall be reduced by the amount of Debt so
incurred, net of third party expenses incurred by Company
in connection with the issuance of such Debt, subject to
the right to reborrow in accordance with this Agreement;
provided, however, that to the extent that, on the date any
reduction of the principal balance outstanding under the
Revolving Credit shall be required under this clause (d),
the Indebtedness under the Revolving Credit is being
carried, in whole or in part, at the Eurocurrency-based
Rate and no Default or Event of Default has occurred and is
continuing, the Company may, after prepaying that portion
of the Indebtedness then carried at the Prime-based Rate,
deposit the amount of such required principal reductions in
a cash collateral account to be held by the Agent, for and
on behalf of the Banks (which shall be an interest-bearing
account), on such terms and conditions as are reasonably
acceptable to Agent and the Majority Banks and, subject to
the terms and conditions of such cash collateral account,
sums on deposit therein shall be applied (until exhausted)
to reduce the principal balance of the Revolving Credit on
the last day of each Interest Period attributable to the
applicable Eurocurrency-based Advances of the Revolving
Credit (subject to the right to reborrow, as aforesaid).
"Future Debt" shall mean (i) Debt evidenced by Medium Term Notes and
(ii) Debt evidenced by Long Term Notes; provided that the aggregate principal
amount of all such Debt incurred from and after the date hereof shall not exceed
Three Hundred Million Dollars ($300,000,000); and provided further that, at the
time any such Debt is incurred, the Funding Conditions have been satisfied.
For the purposes of this definition of "Future Debt",
"(x) `Long Term Notes' shall mean unsecured or, subject to
the terms hereof, secured promissory notes to be issued by the Company
(other than Debt evidenced by Medium Term Notes) issued as part of a
private placement or carrying a public debt rating by a Rating Agency
and which Debt shall have a term extending at least beyond the
Revolving Credit Maturity Date then in effect, with an amortization
schedule not greater than level amortization to maturity (but with no
principal payments required for a period of at least 24 months) and
with no call option or other provision for mandatory early repayment
except for acceleration on default or following a change in control;
and
"(y) `Medium Term Notes' shall mean unsecured or, subject
to the terms hereof, secured promissory notes to be issued by the
Company pursuant to the registration statement to be filed with the
Securities and Exchange Commission and carrying a public debt rating by
a Rating Agency, with maturities of not less than two (2) or more than
ten (10) years from the date of issuance, with amortization schedules
not greater than level amortization to
16
<PAGE> 27
maturity and with no call option or other provision for mandatory early
repayment except for acceleration on default or following a change in
control; provided, however, that notes in an aggregate principal amount
of up to Fifty Million Dollars ($50,000,000) may be issued with
maturities less than two (2) years or greater than ten (10) years
and/or with a call option or other provision for mandatory early
repayment, so long as such notes otherwise comply with the other
limitations contained herein.
"Future Debt Documents" shall mean the promissory note(s),
guaranty(ies), agreement(s) or other documents, instruments and certificates
executed and delivered, subject to the terms of this Agreement, to evidence or
secure (or otherwise relating to) Future Debt, as the same may be amended from
time to time and any and all other documents executed in exchange therefor or
replacement or renewal thereof.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect on the date hereof, consistently applied.
"Gross Advances to Dealers" shall mean, as of any applicable date of
determination, the Dollar Amount of Advances to Dealers, plus any reserves
established by the Company as an allowance for credit losses related to such
advances not expected to be recovered, plus Charged-off Advances (as defined in
the definition of Advances to Dealers) to the extent such Charged-off Advances
exceed the amount of such reserves.
"Gross Current Leased Vehicles" shall mean, as of any applicable date
of determination, the aggregate amount of Gross Leased Vehicles, less the amount
of Leased Vehicles in respect of which the underlying Leases are classified as
being on "non-accrual" in the financial statements of the Company and its
Subsidiaries in accordance with GAAP.
"Gross Current Installment Contract Receivables" shall mean, as of any
applicable date of determination, the aggregate amount of Gross Installment
Contract Receivables, less the amount of such receivables which are classified
as being on "non-accrual" in the financial statements of the Company and its
Subsidiaries in accordance with GAAP.
"Gross Dealer Holdbacks" shall mean the aggregate amount, as of any
applicable date of determination, of dealer holdbacks under dealer agreements
relating to installment contracts utilized in arriving at Dealer holdbacks,
net on the Consolidated balance sheet of the Company and its Subsidiaries, as
disclosed in the footnotes thereto; provided that Gross Dealer Holdbacks shall
not include the amount of dealer holdbacks attributable to retail installment
contracts which are not at such time "Installment Contracts" due to the proviso
in the definition of such term in this Agreement.
"Gross Leased Vehicles " shall mean, as of any applicable date of
determination, the Dollar Amount of Leased Vehicles, plus any reserves
established by the Company as an allowance for
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<PAGE> 28
credit losses related to such Leased Vehicles not expected to be recovered, plus
Charged-Off Advances (as defined in the definition of Leased Vehicles) to the
extent such Charged-Off Advances exceed the amount of such reserves; provided
that Gross Leased Vehicles shall not include the dollar amount of Leased
Vehicles attributable to leases which are not at such time "Leases" due to the
proviso in the definition of such term in this Agreement.
"Gross Installment Contract Receivables" shall mean, as of any
applicable date of determination, the aggregate amount of Installment Contract
receivables utilized in arriving at installment contract receivables, net on
the Consolidated balance sheet of the Company and its Subsidiaries, as
determined in the footnotes thereto; provided that Gross Installment Contract
Receivables shall not include receivables attributable to retail installment
contracts which are not at such time "Installment Contracts" due to the proviso
in the definition of such term in this Agreement.
"Guaranties" shall mean the Company Guaranty, the Domestic Guaranty and
the Foreign Guaranty.
"Guarantor(s)" shall mean each Significant Subsidiary which is required
by the Banks to guarantee the obligations of the Company and/or the Permitted
Borrowers hereunder and under the other Loan Documents.
"Hazardous Material" shall mean and include any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for purposes of)
the Hazardous Material Laws.
"Hazardous Material Law(s)" shall mean all laws, codes, ordinances,
rules, regulations, orders, decrees and directives issued by any federal, state,
local, foreign or other governmental or quasi-governmental authority or body (or
any agency, instrumentality or political subdivision thereof) pertaining to
Hazardous Material on or about the Material Property or any portion thereof
including, without limitation, those relating to soil, surface, subsurface
ground water conditions and the condition of the ambient air; any so-called
"superfund" or "superlien" law; and any other federal, state, foreign or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in effect. For the purposes of this definition "Material
Property" shall mean any property, whether personal or real, owned, leased or
otherwise used by the Company or any of the Subsidiaries which is material to
the operations of the Company and the Subsidiaries, taken as a whole.
"Hereof", "hereto", "hereunder" and similar terms shall refer to this
Agreement in its entirety and not to any particular paragraph or provision of
this Agreement.
"Indebtedness" shall mean all indebtedness and liabilities, whether
direct or indirect, absolute or contingent, owing by Company or any of the
Permitted Borrowers to the Banks (or any of them)
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or to the Agent, in any manner and at any time, under this Agreement or the
other Loan Documents, whether evidenced by the Notes, the Guaranties, Letter of
Credit Agreements or otherwise, due or hereafter to become due, now owing or
that may hereafter be incurred by the Company, or any of the Permitted Borrowers
to, or acquired by, the Banks or by Agent, and any judgments that may hereafter
be rendered on such indebtedness or any part thereof, with interest according to
the rates and terms specified, or as provided by law, and any and all
consolidations, amendments, renewals, replacements or extensions of any of the
foregoing.
"Installment Contract(s)" shall mean retail installment contracts for
the sale of new or used motor vehicles assigned outright by Dealers to Company
or a Subsidiary of Company or written by Dealers in the name of the Company or a
Subsidiary of the Company (and funded by Company or such Subsidiary) or assigned
by Dealers to Company or a Subsidiary of Company, as nominee for the Dealer, for
administration, servicing, and collection, in each case pursuant to an
applicable Dealer Agreement; provided, however, that to the extent the Company
or any Subsidiary transfers or encumbers its interest in any Installment
Contracts (or any Advances to Dealers related thereto) pursuant to a Permitted
Securitization, such Installment Contracts shall, from and after the date of
such transfer or encumbrance, cease to be considered Installment Contracts under
this Agreement (reducing the amount of Advances to Dealers by the outstanding
amount of such advances, if any, attributable to such Installment Contracts)
unless and until such installment contracts are reassigned to the Company or a
Subsidiary of the Company or such encumbrances are discharged.
"Intercreditor Agreement" shall mean that certain Intercreditor
Agreement executed and delivered as of December 15, 1998 by and among the Banks,
the Noteholders and the Agent, as Collateral Agent thereunder, and acknowledged
and accepted by the Company and the Permitted Borrowers, as amended from time to
time.
"Interest Period" shall mean
(a) with respect to a Eurocurrency-based Advance, a
Eurocurrency-Interest Period commencing on the day a Eurocurrency-based
Advance is made, or on the effective date of an election of the
Eurocurrency-based Rate made under Section 2.3 or hereof, as the case
may be, and
(b) with respect to a Swing Line Advance, a period of one
(1) to thirty (30) days agreed to in advance by Company and the Swing
Line Bank as selected by Company pursuant to Section 2.5(c),
provided that (i) any Interest Period which would otherwise end on a day which
is not a Business Day shall end on the next succeeding Business Day, except that
as to a Eurocurrency-Interest Period, if the next succeeding Business Day falls
in another calendar month, such Eurocurrency-Interest Period shall end on the
next preceding Business Day, and (ii) when a Eurocurrency-Interest Period begins
on a day which has no numerically corresponding day in the calendar month during
which
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<PAGE> 30
such Eurocurrency-Interest Period is to end, it shall end on the last Business
Day of such calendar month, and (iii) no Interest Period shall extend beyond the
maturity date set forth in the Note to which such Interest Period is to apply.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated thereunder.
"Investment" shall mean, in respect of any Person, any loan, advance,
extension of credit, guaranty or contribution of capital or any investment in,
or purchase or other acquisition of, stocks, notes, debentures or other
securities of such Person.
"Irish Sublimit" shall mean, as of any applicable date of
determination, that amount equal to the lesser of
(a) five percent (5%) of Company's Consolidated Tangible
Net Worth, determined as of the end of each fiscal quarter based upon
the financial statements required to be delivered under Section 7.3(b)
or 7.3(c) hereof, as the case may be, or (subject to the terms hereof)
determined on a monthly basis at the request of the Company based on
monthly financial statements to be delivered pursuant to Section
2.14(b) hereof, (and giving effect to any changes in net worth shown in
such financial statements on the required date of delivery thereof);
and
(b) the Aggregate Sublimit minus the sum of the aggregate
principal amount of Advances outstanding to the Permitted Borrowers,
including CAC Ireland, (after giving effect to any such Advances being
requested by any Permitted Borrower, including CAC Ireland, on such
date, using the Current Dollar Equivalent of any such Advances
outstanding or requested in any Alternative Currency, determined
pursuant to the terms hereof as of the date of such requested Advance),
plus the aggregate undrawn portion of any Letters of Credit issued for
the account of the Permitted Borrowers (including CAC Ireland) which
shall be outstanding as of the date of such requested Advance (based on
the Dollar Amount of the undrawn portion of any such Letters of Credit
denominated in Dollars and the Current Dollar Equivalent of the undrawn
portion of any such Letters of Credit denominated in any Alternative
Currency), the aggregate face amount of Letters of Credit requested but
not yet issued (determined as aforesaid) and the aggregate amount of
all drawings for the account of such Permitted Borrowers made under any
Letter of Credit for which the Agent has not received full
reimbursement from such Permitted Borrowers (using the Current Dollar
Equivalent thereof for any such Letters of Credit denominated in any
Alternative Currency).
"Issuing Office" shall mean Agent's office located at One Detroit
Center, 500 Woodward Avenue, Detroit, Michigan 48275 or such other office as
Agent shall designate as its Issuing Office.
"ITA" shall mean the Income Tax Act (Canada) as the same may, from time
to time be in effect.
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<PAGE> 31
"Joinder Agreement (Guaranty)" shall mean a joinder agreement in the
form attached as "Exhibit A" to the form of the Domestic Guaranty and to the
form of the Foreign Guaranty, to be executed and delivered by any Person
required to be a Guarantor pursuant to Section 7.22 of this Agreement.
"Leased Vehicles" shall mean, as of any applicable date of
determination, the Dollar Amount of advances in respect of Leases, as such
amount would appear in the footnotes to the financial statements of the Company
and its Subsidiaries prepared in accordance with GAAP or, if specifically
identified, elsewhere in such financial statements, net of depreciation on the
motor vehicles which are covered by Leases with respect to which such Leased
Vehicles are attributable (and if such amount is not shown net of such reserves,
then net of any reserves established by the Company as an Allowance for Credit
Losses related to such advances not expected to be recovered), provided that
Leased Vehicles shall not include (a) the amount of any such advances
attributable to any Leases transferred or encumbered pursuant to a Permitted
Securitization (whether or not attributable to the Company under GAAP)unless and
until such advances (and the related Leases) are reassigned to the Company or a
Subsidiary of the Company or such encumbrances are discharged or (b) Charged-Off
Advances, to the extent that such Charged-Off Advances (i) exceed the portion of
the Company's Allowance for Credit Losses related to reserves against such
advances not expected to be recovered, as such allowance would appear in the
footnotes to the financial statements of the Company and its Subsidiaries
prepared in accordance with GAAP at such time or if specifically identified,
elsewhere in such financial statements and (ii) have not already been eliminated
in the determination of Leased Vehicles. For purposes of this definition,
"Charged-off Advances" shall mean those Leased Vehicles which the Company or any
of its Subsidiaries has determined, based on the application of a static pool or
comparable analysis or otherwise, are completely or partially impaired, to the
extent of such impairment.
"Lease(s)" shall mean the retail agreements for the lease of motor
vehicles assigned outright by Dealers to Company or a Subsidiary of Company or
written by a Dealer in the name of the Company or a Subsidiary of Company (and
funded by Company or such Subsidiary) or assigned by Dealers to Company or a
Subsidiary of Company, as nominee for the Dealer, for administration, servicing
and collection, in each case pursuant to an applicable Dealer Agreement;
provided, however, that to the extent the Company or any Subsidiary transfers or
encumbers its interest in any Leases pursuant to a Permitted Securitization,
such Leases shall, from and after the date of such transfer or encumbrance,
cease to be considered Leases under this Agreement (reducing the amount of
Leased Vehicles by the outstanding amount of Leased Vehicles attributable to
such Leases) unless and until such Leases are reassigned to Company or a
Subsidiary of the Company or such encumbrances have been discharged.
"Lenders" shall mean the Banks, the Noteholders and the Future Debt
Holders (as defined in the Intercreditor Agreement).
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"Letter of Credit Agreement" shall mean, in respect of each Letter of
Credit, the application and related documentation satisfactory to the Agent of
an Account Party or Account Parties requesting Agent to issue such Letter of
Credit, as amended from time to time.
"Letter of Credit Fees" shall mean the fees payable to Agent for the
accounts of the Banks in connection with Letters of Credit pursuant to Section
3.4 hereof.
"Letter of Credit Maximum Amount" shall mean as of any date of
determination the lesser of: (a) Ten Million Dollars ($10,000,000); or (b) the
Revolving Credit Maximum Amount as of such date, minus the aggregate principal
amount of Advances outstanding as of such date under the Revolving Credit Notes
and the Swing Line Notes.
"Letter of Credit Obligation(s)" shall mean the obligation of an
Account Party or Account Parties under this Agreement and each Letter of Credit
Agreement to reimburse the Agent for each payment made by the Agent under the
Letter of Credit issued pursuant to such Letter of Credit Agreement, together
with all other sums, fees, charges and amounts which may be owing to the Agent
under such Letter of Credit Agreement.
"Letter of Credit Payment" shall mean any amount paid or required to be
paid by the Agent in its capacity hereunder as issuer of a Letter of Credit as a
result of a draft or other demand for payment under any Letter of Credit.
"Letter(s) of Credit" shall mean any standby or documentary letters of
credit issued by Agent at the request of or for the account of an Account Party
or Account Parties pursuant to Article 3A hereof, including without limitation
any Existing Letters of Credit.
"Lien" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, trust receipt, conditional sale
or title retaining contract, sale and leaseback transaction, or any other type
of lien, charge or encumbrance, whether based on common law, statute or
contract; provided that the term "Lien" shall not include any negative pledge
clauses in agreements relating to the borrowing of money or the obligation of
Company or any of its Subsidiaries (a) to remit monies held by it in connection
with dealer holdbacks (including, without limitation, with respect to Leases or
Installment Contracts), claims or refunds under insurance policies or claims or
refunds under service contracts or (b) to make deposits in trust or otherwise as
required under re-insurance agreements and pursuant to state regulatory
requirements, unless the Company or any of its Subsidiaries, as the case may be,
has encumbered its interest in such monies or deposits or in other property of
the Company to secure such obligations.
"Loan Documents" shall mean, collectively, this Agreement, the Notes,
the Guaranties, the Letter of Credit Agreements, the Collateral Documents and
any other documents, instruments or agreements executed pursuant to or in
connection with any such document, or this Agreement, as such documents may be
amended, renewed, replaced or extended from time to time.
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<PAGE> 33
"Majority Banks" shall mean at any time Banks holding 66-2/3% of the
aggregate principal amount of the Indebtedness then outstanding under the Notes
(provided that, for purposes of determining Majority Banks hereunder,
Indebtedness outstanding under the Swing Line Notes shall be allocated among the
Banks based on their respective Percentages of the Revolving Credit), or, if no
Indebtedness is then outstanding, Banks holding 66-2/3% of the Percentages.
"Moody's" shall mean Moody's Investors Service, Inc., and its
successors.
"Multiemployer Plan" shall mean any Pension Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"National Currency Unit" shall mean a fraction or multiple of one Euro
Unit expressed in units of the former national currency of a Participating
Member State.
"Net Dealer Holdbacks" shall mean, as of any applicable date of
determination, (a) Gross Dealer Holdbacks minus (b) Advances to Dealers.
"Net Installment Contract Receivables" shall mean, as of any date of
determination thereof, Gross Installment Contract Receivables minus Unearned
Finance Charges minus Allowances for Credit Losses related to Installment
Contracts (but excluding any such allowances which are related to Leases).
"Net Leased Vehicle Dealer Holdbacks" shall mean, as of any date of
determination thereof, with respect to Dealer Agreements relating to Leases,
amounts due to Dealers at such time from collections of Leased Vehicles by the
Company or any Subsidiary (other than with respect to Leases which have been
transferred or encumbered pursuant to a Permitted Securitization and (x) have
not been reassigned to the Company or a Subsidiary of the Company or (y) with
respect to which such encumbrances have not been discharged) pursuant to the
applicable Dealer Agreements.
"New Bank" is defined in clause (b) of Section 2.18.
"New Bank Addendum" shall mean an addendum, substantially in the form
of Exhibit M hereto, to be executed and delivered by each Bank becoming a party
to this Agreement pursuant to Section 2.18 hereof.
"Notes" shall mean the Term Notes, the Revolving Credit Notes or the
Swing Line Notes, or any or all of the Term Notes, the Revolving Credit Notes,
and the Swing Line Notes as the context indicates, and in the absence of such
indication, all such notes.
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<PAGE> 34
"Notes Receivable" shall mean, as of any applicable date of
determination, the aggregate amount outstanding under promissory notes issued by
Dealers to Company or its Subsidiaries to evidence working capital loans by
Company or any of its Subsidiaries to Dealers.
"Operating Lease" shall mean any lease other than a Capital Lease.
"Operating Rental" shall mean all rental payments that the Company or
any of its Subsidiaries, as lessee, is required to make under the terms of any
Operating Lease.
"Outright Dealer Agreement(s)" shall mean Dealer Agreements referred to
in clause (ii) of the definition of Dealer Agreements.
"Participating Member State" shall mean such country so described in
any EMU Legislation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation under ERISA,
or any successor corporation.
"Pension Plan(s)" shall mean all employee pension benefit plans of
Company, any ERISA Affiliate or any Permitted Borrower, as defined in Section
3(2) of ERISA.
"Percentage" shall mean, with respect to any Bank, its percentage
share, as set forth on Exhibit D hereto, of the Letters of Credit, the Term
Loan, and/or the Revolving Credit, as the context indicates, as such Exhibit may
be revised from time to time by Agent in accordance with Section 13.8(d) hereof.
"Permitted Acquisition" shall mean any acquisition by the Company or
any of its Subsidiaries (other than any Special Purpose Subsidiary) of assets,
businesses or business interests or shares of stock or other ownership interests
of or in any Person conducted in accordance with the following requirements:
(a) not less than twenty (20) nor more than ninety (90) days
prior to the commencement of each such proposed
acquisition, the Company provides written notice thereof to
Agent (with drafts of all material documents pertaining to
such proposed acquisition to be furnished to Agent within
not less than twenty (20) days prior to such proposed
acquisition);
(b) on the date of any such acquisition, all necessary or
appropriate governmental, quasi-governmental, agency,
regulatory or similar approvals of applicable jurisdictions
(or the respective agencies, instrumentalities or political
subdivisions, as applicable, of such jurisdictions) and all
necessary or appropriate non-governmental and other
third-party approvals which, in each case, are material to
such acquisition have been obtained and are in effect, and
the Company and its
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<PAGE> 35
Subsidiaries are in full compliance therewith, and all
necessary or appropriate declarations, registrations or
other filings with any court, governmental or regulatory
authority, securities exchange or any other person have
been made;
(c) the aggregate value of all of such acquisitions, including
the value of any proposed new acquisition, conducted while
this Agreement remains in effect as Permitted Acquisitions
(but excluding any acquisition conducted with the specific
written approval of the Majority Banks, and not as a
Permitted Acquisition hereunder) computed on the basis of
total acquisition consideration paid or incurred, or to be
paid or incurred, by the Company or its Subsidiaries with
respect thereto, including all indebtedness which is
assumed or to which such assets, businesses or business or
ownership interests or shares, or any Person so acquired,
is subject, shall not exceed Ten Million Dollars
($10,000,000) (or the Alternative Currency equivalent
thereof, if applicable), determined as of the date of such
acquisition;
(d) within thirty (30) days after any such acquisition has been
completed the Company shall deliver to the Agent executed
copies of all material documents pertaining to such
acquisition, and the Company, its Subsidiaries and any of
the corporate entities involved in such acquisition shall
execute or cause to be executed, and provide or cause to be
provided to Agent, for the Banks, such documents and
instruments (including without limitation, the Guaranties
as required by Section 7.22 hereof, and opinions of
counsel, amendments, acknowledgments, consents and evidence
of approvals or filings) as reasonably requested by Agent,
if any; and
(e) both immediately before and after such acquisition, no
Default or Event of Default (whether or not related to such
acquisition), has occurred and is continuing.
"Permitted Borrower" shall mean CAC UK, CAC Canada and/or CAC Ireland.
"Permitted CAC UK Debt" shall mean additional Debt of CAC UK issued as
part of any short term, working capital or overdraft loan facility denominated
in an Alternative Currency in an aggregate amount at any time outstanding
(determined on the date any such Debt is incurred) not to exceed the greater of
(a) twelve and one-half percent (12.5%) of Consolidated Tangible Net Worth or
(b) the equivalent of Ten Million Dollars ($10,000,000) in such Alternative
Currency, less the aggregate amount at any time outstanding of overdraft lines
of credit or similar credit facilities in the name of CAC UK permitted under
Section 8.5(d) hereof; provided that such Debt (i) is unsecured, except to
extent of any Lien granted by CAC UK which is permitted under Section 8.6(d)
hereof, (ii) is not guaranteed or otherwise supported by Company or any of its
other Subsidiaries, and (iii) both immediately before and immediately after such
additional Debt is incurred, no Default or Event of Default (whether or not
related to such additional Debt, and taking into account the incurring of such
additional Debt) has occurred and is continuing.
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"Permitted Currencies" shall mean Dollars or any Alternative Currency.
"Permitted Guaranties" shall mean (i) any guaranties or other support
provided by the Company, for the benefit of the Permitted Borrowers, covering
any overdraft lines of credit or similar credit arrangements maintained by the
Permitted Borrowers or Arlington Investment Company under Section 8.5(d) hereof,
(ii) any guaranties provided by a Significant Subsidiary of the Company of the
Debt outstanding to the Noteholders or the Future Debt Holders, provided that
concurrently with the giving of any such guaranty, such Subsidiary shall enter
into a Guaranty on substantially similar terms and providing an equal and
ratable benefit to the Banks or (iii) any agreement or other undertaking by the
Company, as servicer of the Installment Contracts or Leases covered by a
Permitted Securitization, to advance funds to cover the interest component of
obligations issued as part of such securitization and payable from collections
on such Installment Contracts or Leases (such advances to be repayable to
Company on a priority basis from such collections), provided that the aggregate
amount of such advances under this clause (iii) at any time outstanding shall
not exceed $1,500,000.
"Permitted Investments" shall mean:
(a) Investments in direct obligations of, or obligations
guarantied by, the United States of America or any agency
of the United States of America the obligations of which
agency carry the full faith and credit of the United States
of America, provided that such obligations (other than
Investments by CAC Life in such obligations made to match
liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition
thereof;
(b) Investments in any obligation of any state or municipality
thereof that at the time of acquisition thereof have an
assigned rating of "A" or higher by S&P (or an equivalent
or higher rating by another credit rating agency of
recognized national standing in the United States of
America), provided that such obligations (other than
Investments by CAC Life in such obligations made to match
liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition
thereof;
(c) Investments in negotiable certificates of deposit issued by
commercial banks organized under the laws of the United
States of America or any state thereof, having capital,
surplus and undivided profits aggregating at least Fifty
Million Dollars ($50,000,000) and the long-term unsecured
debt obligations of which are rated "A" or higher by S&P
(or an equivalent or higher rating by another credit rating
agency of recognized national standing in the United States
of America), provided that such certificates of deposit
(other than Investments by CAC Life in such certificates of
deposit made to match liabilities incurred in the ordinary
course of business) mature within one (1) year from the
date of acquisition thereof;
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(d) Investments in corporate debt obligations of corporations
organized under the laws of the United States of America or
any state thereof that at the time of acquisition thereof
have an assigned rating of "A" or higher by S&P (or an
equivalent or higher rating by another credit rating agency
of recognized national standing in the United States of
America); and
(e) Investments in preferred stock of corporations organized
under the laws of the United States of America or any state
thereof that have an assigned rating of "A" or higher by
S&P (or an equivalent or higher rating by another credit
rating agency of recognized national standing in the United
States of America); and
(f) Investments by CAC UK in obligations similar in nature,
term and credit quality to those enumerated in paragraphs
(a) through (e) above except that the United Kingdom shall
be substituted for the United States of America in each
case.
"Permitted Liens" shall mean, with respect to any Person:
(a) any Liens granted under or established by this Agreement or
the other Loan Documents;
(b) Liens for taxes not yet due and payable or which are being
contested in good faith by appropriate proceedings
diligently pursued, provided that such provision for the
payment of all such taxes known to such Person has been
made on the books of such Person as may be required by
GAAP;
(c) mechanics', materialmen's, banker's, carriers',
warehousemen's and similar Liens arising in the ordinary
course of business and securing obligations of such Person
that are not overdue for a period of more than 60 days or
are being contested in good faith by appropriate
proceedings diligently pursued, provided that in the case
of any such contest (i) any proceedings commenced for the
enforcement of such liens and encumbrances shall have been
duly suspended; and (ii) such provision for the payment of
such liens and encumbrances has been made on the books of
such Person as may be required by GAAP;
(d) Liens arising in connection with worker's compensation,
unemployment insurance, old age pensions (subject to the
applicable provisions of this Agreement) and social
security benefits which are not overdue or are being
contested in good faith by appropriate proceedings
diligently pursued, provided that in the case of any such
contest (i) any proceedings commenced for the enforcement
of such Liens shall have been duly suspended; and (ii) such
provision for the payment of such Liens has been made on
the books of such Person as may be required by GAAP;
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<PAGE> 38
(e) (i) Liens incurred in the ordinary course of business to
secure the performance of statutory obligations arising in
connection with progress payments or advance payments due
under contracts with the United States or any foreign
government or any agency thereof entered into in the
ordinary course of business and (ii) liens incurred or
deposits made in the ordinary course of business to secure
the performance of statutory obligations, bids, leases, fee
and expense arrangements with trustees and fiscal agents
and other similar obligations (exclusive of obligations
incurred in connection with the borrowing of money, any
lease-purchase arrangements or the payment of the deferred
purchase price of property), provided that full provision
for the payment of all such obligations set forth in
clauses (i) and (ii) has been made on the books of such
Person as may be required by GAAP;
(f) Liens in the nature of any minor imperfections of title,
including but not limited to easements, covenants,
rights-of-way or other similar restrictions, which, either
individually or in the aggregate, would not (i) materially
adversely affect the present or future use of the property
to which they relate, or (ii) have a material adverse
effect on the sale or lease of such property, or (iii)
render title thereto unmarketable;
(g) Liens (i) arising from judicial attachments and judgments,
(ii) securing appeal bonds or supersedeas bonds, and (iii)
arising in connection with court proceedings (including,
without limitation, surety bonds and letters of credit or
any other instrument serving a similar purpose), provided
that (1) the execution or other enforcement of such Liens
is effectively stayed, (2) the claims secured thereby are
being contested in good faith and by appropriate
proceedings, (3) adequate book reserves in accordance with
GAAP shall have been established and maintained and shall
exist with respect thereto, (4) such Liens do not in the
aggregate detract from the value of such property and (5)
the title of the Company or a Subsidiary, as the case may
be, to, and its right to use, such property, is not
materially adversely affected thereby; and
(h) those Liens of the Company or its Subsidiaries identified
in Schedule 8.6 hereto.
"Permitted Merger(s)" shall mean any merger of (i) any Subsidiary
(including, without limitation, a Permitted Borrower or Guarantor, excluding any
Special Purpose Subsidiary) or any Person which is being acquired pursuant to a
Permitted Acquisition into Company or any Permitted Borrower or (ii) the merger
of any Subsidiary or any Person which is being acquired pursuant to a Permitted
Acquisition (other than a Permitted Borrower or Guarantor) into any other
Subsidiary (excluding any Special Purpose Subsidiary) or any Person which is
being acquired pursuant to a Permitted Acquisition, which, in each case,
satisfies and/or is conducted in accordance with the following requirements:
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(a) not less than twenty (20) nor more than ninety (90) days
prior to the commencement of such proposed merger, Company
provides written notice thereof to Agent (with drafts of
all material documents pertaining to such proposed merger
to be furnished to Agent not less than twenty (20) days
prior to such proposed merger);
(b) immediately following and as the direct result of any such
merger, the surviving or successor entity has succeeded by
operation of applicable law (as confirmed by an opinion(s)
of counsel in form and substance satisfactory to the
Majority Banks) to all of the obligations of the
non-surviving entity under this Agreement and the other
Loan Documents, and to all of the property rights of such
non-surviving entity subject to the applicable Loan
Documents;
(c) concurrently with such proposed merger, the surviving
entity involved in such merger shall execute or cause to be
executed, and provide or cause to be provided to Agent, for
the Banks, such documents and instruments (including
without limitation opinions of counsel, amendments,
acknowledgments and consents), if any, as reasonably
requested by the Majority Banks; and
(d) both immediately before and immediately after such merger,
no Default or Event of Default (whether or not related to
such merger), has occurred and is continuing.
"Permitted Prepayment" shall mean any prepayment of the Senior Debt or
Future Debt which is funded solely with the proceeds of (x) new cash equity in
the form of nonconvertible common shares, (y) Subordinated Debt, or (z)
substitute long term Debt which satisfies the following conditions:
(a) such Debt shall have a term extending at least beyond the
Revolving Credit Maturity Date then in effect, with an
amortization schedule not greater than level amortization
to maturity (but with no principal payments required for a
period of at least 24 months) and with no call option or
other provision for mandatory early repayment except for
acceleration on default or following a Change in Control;
(b) such Debt shall be unsecured, or, subject to the
Intercreditor Agreement, secured;
(c) both immediately before and immediately after such
additional Debt is incurred, no Default or Event of Default
(whether or not related to such additional Debt, and taking
into account the incurring of such additional Debt) has
occurred and is continuing; and
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<PAGE> 40
(d) if such additional Debt shall be issued pursuant to loan
documents containing covenants which are more restrictive
than the covenants contained in this Agreement, Company
shall, upon the written request of the Majority Banks,
enter into amendments to this Agreement to extend the
benefit of such covenants to the Banks,
in each case, issued concurrently with such prepayment.
"Permitted Repurchase" shall mean any purchases by the Company of its
capital stock during the period commencing on the Effective Date and ending on
the Revolving Credit Maturity Date then in effect, in an aggregate amount for
all such purchases not to exceed $30,000,000; provided that at the time of any
such purchase no Default or Event of Default has occurred and is continuing or
would occur after giving effect thereto.
"Permitted Securitization(s)" shall mean each transfer or encumbrance
(each a "disposition") of specific Advances to Dealers or Leased Vehicles funded
under Back-End Dealer Agreements (and any interest in or lien on the Installment
Contracts, Leases, motor vehicles or other rights relating thereto) or of
specific Installment Contracts or Leases (and any interest in or lien on motor
vehicles or other rights relating thereto) arising under Outright Dealer
Agreements, in each case by the Company or one or more OF its Subsidiaries to a
Special Purpose Subsidiary conducted in accordance with the following
requirements:
(a) Each disposition shall identify with reasonable certainty
the specific Advances to Dealers, Leased Vehicles,
Installment Contracts or Leases covered by such
disposition; and such Advances to Dealers or Leased
Vehicles (and the Installment Contracts, Leases, motor
vehicles or other rights relating thereto) and the
Installment Contracts and Leases shall have performance and
other characteristics so that the quality of such Advances
to Dealers, Leases Vehicles, Installment Contracts or
Leases, as the case may be, is comparable to, but not
materially better than, the overall quality of the
Company's Advances to Dealers, Leased Vehicles, Installment
Contracts or Leases, as applicable, as determined in good
faith by the Company in its reasonable discretion;
(b) (i) The disposition of Advances to Dealers, Leased
Vehicles, Installment Contracts or Leases will not result
in the aggregate principal amount of Debt at any time
outstanding, and (without duplication) of similar
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 before or after the
Effective Date exceeding $100,000,000, which amount may be
readvanced and reborrowed and (ii) the Company or the
Subsidiary disposing of Advances to Dealers, Leased
Vehicles, Installment Contracts or Leases to a Special
Purpose Subsidiary pursuant to such Permitted
Securitization shall itself actually receive (substantially
contemporaneously with such
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disposition) cash from each disposition of such financial
assets in connection with any such Securitization
Transaction in an amount not less than Seventy- Five
Percent (75%) of the sum of (A) the amount of such Advances
to Dealers, (B) the amount of Net Installment Contract
Receivables in respect of Installment Contracts arising
under Outright Dealer Agreements, and (C) the amount of
Leased Vehicles, in each case determined on the date of
such Securitization Transaction;
(c) Each such disposition shall be without recourse (except to
the extent of normal and customary representations and
warranties given as of the date of each such disposition,
and not as continuing representations and warranties) and
otherwise on normal and customary terms and conditions for
comparable asset-based securitization transactions, which
may include Cleanup Call provisions;
(d) Concurrently with each such disposition, the aforesaid net
proceeds shall be applied to reduce the principal balance
outstanding under the Revolving Credit (to the extent then
outstanding, and including the aggregate amount of drawings
made under any Letter of Credit for which the Agent has not
received full payment) by the amount of such net proceeds,
subject to the right to reborrow in accordance with this
Agreement; provided, however, that to the extent that, on
the date any reduction of the principal balance outstanding
under the Revolving Credit shall be required under this
clause (d), the Indebtedness under the Revolving Credit is
being carried, in whole or in part, at the Euro
Currency-based Rate and no Default or Event of Default has
occurred and is continuing, the Company may, after
prepaying that portion of the Indebtedness then carried at
the Prime-based Rate, deposit the amount of such required
principal reductions in a cash collateral account to be
held by the Agent, for and on behalf of the Banks (which
shall be an interest-bearing account), on such terms and
conditions as are reasonably acceptable to Agent and the
Majority Banks and, subject to the terms and conditions of
such cash collateral account, sums on deposit therein shall
be applied (until exhausted) to reduce the principal
balance of the revolving credit on the last day of each
Interest Period attributable to the applicable
Eurocurrency-based Advances of the Revolving Credit;
(e) Each such Securitization Transaction shall be structured on
the basis of the issuance of non-recourse Debt or other
similar securities by the Special Purpose Subsidiary;
(f) Before conducting a Permitted Securitization, Agent shall
have received, to the extent the applicable Senior Debt
Documents require amendment or consent in order to effect
such Permitted Securitization, copies of amendments to or
consents under the Senior Debt Documents executed and
delivered by the Company and the requisite holders of the
Senior Debt reflecting such amendments or consents; and
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(g) Both immediately before and after such disposition, no
Default or Event of Default (whether or not related to such
disposition) has occurred and is continuing.
In connection with each Permitted Securitization conducted hereunder,
not less than ten (10) Business Days prior to the date of consummation
thereof, the Company shall provide to the Agent and each of the Banks
(i) a schedule in the form attached hereto as Exhibit K identifying the
specific Installment Contracts or Leases or the Advances to Dealers or
Leased Vehicles (and providing collection information regarding the
related Installment Contracts or Leases) proposed to be covered by such
transaction (with evidence supporting its determination under
subparagraph (a) of this definition, including without limitation a
"static pool analysis" comparable to the static pool analysis required
to be delivered under Section 7.3(c) hereof with respect to such
Installment Contracts or Leases) and (ii) proposed drafts of the
material Securitization Documents covering the applicable
securitization (and the term sheet or commitment relating thereto) and
within five (5) Business Days following the consummation thereof, the
Company shall have provided to Agent and each Bank copies of the
material Securitization Documents, as executed, including an updated
schedule, substantially in the form of the schedule delivered under
clause (i) above, identifying the financial assets actually covered by
such transaction (and, if such financial assets are materially
different, as reasonably determined by the Company, from those shown in
the schedule delivered under clause (i), above, collection information
and evidence supporting its determination under subparagraph (a) of
this definition, including a comparable "static pool analysis," as
aforesaid, with respect to such financial assets).
"Permitted Senior Note Prepayment" shall mean, in addition to the
prepayment made by the Company on June 15, 1999 thereunder, any prepayment by
the Company, on or before January 15, 2000 (as such date may be extended by the
requisite holders of the Senior Debt, provided, however that such date shall not
be extended to a date later than May 31, 2000 and such extension shall not be
given in consideration for any further increase in the interest rate on the
Senior Debt or any other material amendments to the applicable Senior Debt
Documents) of Debt under the senior notes issued in connection with the Senior
Debt Documents in an aggregate PRINCIPAL amount not to exceed $50,000,000;
provided, however, that (i) at the time of such prepayment (both before and
after giving effect thereto), no Default or Event of Default has occurred and is
continuing and (ii) prior to each such prepayment conducted as a Permitted
Senior Note Prepayment, the Company has received proceeds from Permitted
Securitization(s) (net of any fees, costs and expenses) conducted on or after
December 1, 1999 in an amount substantially equal to the aggregate amount of
such prepayment(s).
"Permitted Transfer(s)" shall mean (i) any sale, assignment, transfer
or other disposition of inventory or worn-out or obsolete machinery, equipment
or other such personal property in the ordinary course of business, (ii) any
transfer of property by a Subsidiary to the Company, (iii) the transfer of the
Teletrack name (owned by the Company) in connection with the sale of Teletrack,
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<PAGE> 43
Inc., approved by the Banks under the Prior Credit Agreement, (iv) the sale of
the business of Arlington Investment Company and/or any of its subsidiaries for
net proceeds totaling at least $4,000,000 in cash (all of which net proceeds are
used to reduce Debt outstanding under this Agreement), pursuant to (x) the sale
of all or substantially all of the assets of Arlington Investment Company and/or
any of its subsidiaries or divisions, (y) the sale of all of the capital stock
of Arlington Investment Company and/or any of its subsidiaries or (z) the merger
of Arlington Investment Company and/or any of its subsidiaries with and into any
Person other than the Company or any 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; and (v) any transfer of the
stock of a Special Purpose Subsidiary to the Company or to any other Subsidiary
which is not a Special Purpose Subsidiary.
"Person" shall mean an individual, corporation, partnership, limited
liability company, trust, incorporated or unincorporated organization, joint
venture, joint stock company, or a government or any agency or political
subdivision thereof or other entity of any kind.
"Prime Rate" shall mean the per annum interest rate established by
Agent as its prime rate for its borrowers as such rate may vary from time to
time, which rate is not necessarily the lowest rate on loans made by Agent at
any such time.
"Prime-based Advance" shall mean an Advance (including a Swing Line
Advance) which bears interest at the Prime-based Rate.
"Prime-based Rate" shall mean (i) with respect to any Advances in
Dollars, the U.S. Prime-based Rate and (ii) with respect to Swing Line Advances
in Canadian Dollars to CAC Canada, the Canadian Prime-based Rate.
"Prior Credit Agreement" is defined in Recital A to this Agreement.
"Prohibited Transaction" shall mean any transaction involving a Pension
Plan which constitutes a "prohibited transaction" under Section 406 of ERISA or
Section 4975 of the Internal Revenue Code.
"Quoted Rate" shall mean the rate of interest per annum offered by the
Swing Line Bank in its sole discretion with respect to a Swing Line Advance.
"Quoted Rate Advance" means any Swing Line Advance which bears interest
at the Quoted Rate.
"Rating Agency" shall mean Fitch, or S&P, or Moody's, and "Rating
Agencies" shall be the collective reference to any or all of the foregoing.
"Refunded Swing Line Advance" is defined in Section 2.5(e) hereof.
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"Reportable Event" shall mean a "reportable event" within the meaning
of Section 4043 of ERISA and the regulations promulgated thereunder, which is
material to the Company and its Subsidiaries, taken as a whole.
"Request for Advance" shall mean a Request for Advance of the Revolving
Credit issued by Company or by a Permitted Borrower and countersigned by the
Company under Section 2.3 of this Agreement in the form annexed hereto as
Exhibit A.
"Revolving Credit" shall mean the revolving credit loan to be advanced
to the Company or a Permitted Borrower by the Banks pursuant to Section 2
hereof, in an amount not to exceed the Revolving Credit Maximum Amount.
"Revolving Credit Facility Fee" shall mean the facility fee payable to
Agent for distribution to the Banks pursuant to Section 2.13, hereof.
"Revolving Credit Maturity Date" shall mean the earlier to occur of (i)
June 13, 2000, as such date may be extended from time to time pursuant to
Section 2.16 hereof, and (ii) the date on which the Revolving Credit Maximum
Amount shall be terminated pursuant to Section 2.15 or 9.2 hereof.
"Revolving Credit Maximum Amount" shall mean One Hundred Ten Million
Dollars ($110,000,000), subject to any increases in the Revolving Credit Maximum
Amount, pursuant to Section 2.18 of this Agreement, by an amount not to exceed
the Revolving Credit Optional Increase and subject to any reductions or
termination of the Revolving Credit Maximum Amount under Sections 2.15 or 9.2 of
this Agreement.
"Revolving Credit Notes" shall mean the Notes described in Section 2.1,
hereof, made or to be made by Company or a Permitted Borrower to each of the
Banks in the form annexed to this Agreement as Exhibit C-1 or C-2, as the case
may be, as such Notes may be amended, renewed, replaced or extended from time to
time.
"Revolving Credit Optional Increase" shall mean an amount up to Forty
Million Dollars ($40,000,000), minus the portions thereof applied from time to
time under Section 2.18 hereof to increase the Revolving Credit Maximum Amount.
"Securitization Documents" shall mean any note purchase agreement (and
any notes issued thereunder), transfer or security document, master trust or
other trust agreement, servicing agreement, indenture, pooling agreement,
contribution or sale agreement or other document, instruments and certificates
executed and delivered, subject to the terms of this Agreement, to evidence or
secure (or otherwise relating to) a Permitted Securitization, as the same may be
amended from time to time (subject to the terms hereof) and any and all other
documents executed in connection therewith or replacement or renewal thereof.
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<PAGE> 45
"Securitization Transaction" shall mean a transfer of, or grant of a
Lien on, Advances to Dealers, Leased Vehicles, Installment Contracts, Leases,
accounts receivable and/or other financial assets by the Company or any
Subsidiary to a Special Purpose Subsidiary or other special purpose or limited
purpose entity and the issuance (whether by such Special Purpose Subsidiary or
other special purpose or limited purpose entity or any other Person) of Debt or
of any securities secured directly or indirectly by interests in, or of trust
certificates or other securities directly or indirectly evidencing interests in,
such Advances to Dealers, Leased Vehicles, Installment Contracts, Leases,
accounts receivable and/or other financial assets.
"Senior Debt" shall mean the debt issued by the Company pursuant to the
Senior Debt Documents in an aggregate principal amount of Two Hundred One
Million Seven Hundred Fifty Thousand Dollars ($201,750,000).
"Senior Debt Documents" shall mean (i) the several Credit Acceptance
Corporation Note Purchase Agreements dated as of October 1, 1994 ($60,000,000
9.87%/10.37% (formerly 8.87%) Senior Notes due November 1, 2001), as amended to
the date hereof and (ii) the several Credit Acceptance Corporation Note Purchase
Agreements dated as of August 1, 1996 ($70,000,000 8.99%/9.49% (formerly 7.99%)
Senior Notes due July 1, 2001), as amended to the dated hereof, and (iii) the
several Credit Acceptance Corporation Note Purchase Agreements dated as of March
25, 1997 ($71,750,000 8.77%/9.27% (formerly 7.77%) Senior Notes due October 1,
2001), as amended to the date hereof; and, in each case, the senior notes issued
thereunder, together with any and all other documents, instruments and
certificates executed and delivered pursuant thereto, as the same may be amended
(subject to the terms hereof) from time to time and any and all other documents
executed in exchange therefor or replacement or renewal thereof.
"Senior Funded Debt" shall mean Funded Debt, other than Subordinated
Funded Debt.
"Shares", "share capital", "capital stock", "stock" and words of
similar import shall mean and refer to the equity capital interest under
applicable law of any Person in a corporation, howsoever such interest is
created or arises, whether such capital consists of common stock, preferred
stock or preference shares, or other stock, and whether such capital is
evidenced by a certificate, share register entry or otherwise.
"Significant Subsidiary(ies)" shall mean, as of any date of
determination, any Subsidiary other than any Special Purpose Subsidiary which is
a Permitted Borrower or which has total assets (but excluding in the calculation
of total assets, for any Domestic Subsidiary, any assets which constitute
intercompany loans, advances, or extensions of credit by such Subsidiary to
Company outstanding from time to time and any assets which are acquired or arise
pursuant to a Permitted Securitization, including any equity interest in a
Special Purpose Subsidiary) [this change retroactive to March 31, 1997] in
excess of five percent (5%) of Company's Consolidated Tangible Net Worth,
determined as of the end of each fiscal quarter based upon the financial
statements required to be
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<PAGE> 46
delivered under Section 7.3(b) or 7.3(c) hereof, as the case may be (and giving
effect to any changes in net worth shown in such financial statements on the
required date of delivery thereof).
"Significant Domestic Subsidiaries" shall mean those Domestic
Subsidiaries identified as such on Schedule 6.6 hereto, and any Domestic
Subsidiaries which become Significant Subsidiaries subsequent to the date
hereof.
"Significant Foreign Subsidiaries" shall mean those Foreign
Subsidiaries identified as such on Schedule 6.6 hereto, and any Foreign
Subsidiaries which become Significant Subsidiaries subsequent to the date
hereof.
"Single Employer Plan" shall mean any Pension Plan which does not
constitute a Multiemployer Plan.
"Special Purpose Subsidiary" shall mean any wholly-owned direct or
indirect subsidiary of the Company established for the sole purpose of
conducting one or more Permitted Securitizations and otherwise established and
operated in accordance with customary industry practices.
"Subordinated Debt" shall mean any unsecured Debt subordinated to the
prior payment and discharge in full of the Indebtedness, on written terms and
conditions approved by and acceptable to each of the Banks, in their sole
discretion.
"Subordinated Funded Debt" shall mean any unsecured Funded Debt which
is subordinate in right of payment and priority to the Indebtedness and which
has an average life and final maturity extending beyond the average life and
final maturity of the Indebtedness.
"Subsidiary(ies)" shall mean any other corporation or other entity, of
which more than fifty percent (50%) of the outstanding voting stock or interests
is owned either directly or indirectly by Company or one or more of its
Subsidiaries or by Company and one or more of its Subsidiaries. "100%
Subsidiary(ies)" shall mean any Subsidiary whose stock (other than directors' or
qualifying shares to the extent required under applicable law) is owned directly
or indirectly entirely by the Company and/or any of the Permitted Borrowers.
"Swing Line" shall mean the revolving credit loan to be advanced to the
Company or a Permitted Borrower by the Swing Line Bank pursuant to Section 2.5
hereof, in an aggregate amount (subject to the terms hereof) not to exceed, at
any one time outstanding, the Swing Line Maximum Amount.
"Swing Line Advance" shall mean an Advance made by Swing Line Bank to
Company or a Permitted Borrower pursuant to Section 2.5 hereof.
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"Swing Line Bank" shall mean Comerica Bank, in its capacity as lender
under Section 2.5 of this Agreement, and its successors and assigns.
"Swing Line Maximum Amount" shall mean Seven Million Five Hundred
Thousand Dollars ($7,500,000).
"Swing Line Notes" shall mean the swing line notes described in Section
2.5 hereof, made by Company or a Permitted Borrower to Swing Line Bank in the
form annexed hereto as Exhibit E, as such Notes may be amended or supplemented
from time to time, and any notes issued in substitution, replacement or renewal
thereof from time to time.
"Syndications Agent" shall mean Bank of America, N.A. (formerly known
as NationsBank, N.A., "Bank of AMERICA") or such successor syndication agent as
appointed by the Company under Section 12.15 hereof.
"S&P" shall mean Standard & Poor's Ratings Group, and its successors.
"Trans-European Business Day" shall mean a day when the Trans-European
Settlement System is open for business.
"Trans-European Settlement System" shall mean the Trans-European
Automated Real-time Gross Settlement Express Transfer System or any successor.
"Treaty on European Union" shall mean the Treaty of Rome of March 25,
1957, as amended by the Single European Act 1986 and the Maastricht Treaty
(which was signed at Maastricht on February 7, 1992 and came into force on
November 1, 1993), as amended from time to time.
"Term Loan" shall mean the term loan funded by the Banks at the
election of the Company, by conversion, pursuant to Section 4.1 hereof.
"Term Loan Conversion Date" is defined in Section 4.1.
"Term Loan Maturity Date" shall mean the one-year anniversary of the
Term Loan Conversion Date.
"Term Loan Rate Request" shall mean the Term Loan Rate Request issued
by the Company and the Permitted Borrowers under this Agreement in the form
attached to this Agreement as Exhibit K.
"Term Notes" shall mean the Term Notes described in Section 4.1 made or
to be made by the Company to each of the Banks in the form attached to this
Agreement as Exhibit B, as such Notes may be amended, renewed, replaced or
extended from time to time.
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"Unearned Finance Charges" shall mean, as of any applicable date of
determination, the unearned finance charges utilized in deriving Installment
Contract receivables, net on the Consolidated balance sheet of the Company and
its Subsidiaries, as disclosed in the footnotes thereto; provided that Unearned
Finance Charges shall not include unearned finance charges attributable to
retail installment contracts which are not at such time "Installment Contracts",
due to the proviso in the definition of such term in this Agreement.
"U.S. Prime-based Rate" shall mean, for any day, that rate of interest
which is equal to the sum of the Applicable Margin plus the greater of (i) the
U.S. Prime Rate, and (ii) the Alternate Base Rate.
"U.S. Prime Rate" shall mean the per annum rate of interest announced
by the Agent, at its main office from time to time as its "prime rate" (it being
acknowledged that such announced rate may not necessarily be the lowest rate
charged by the Agent to any of its customers), which U.S. Prime Rate shall
change simultaneously with any change in such announced rate.
"Utilization" shall mean (a) on or before the Revolving Credit Maturity
Date, the aggregate amount outstanding under the Revolving Credit including all
Letter of Credit Obligations and all Swing Line Advances, determined in the
manner set forth under Sections 2.13 or 3.4, as the case may be, and (b) after
the Revolving Credit Maturity Date, in the event the Company elects to convert
the aggregate principal amount outstanding under the Revolving Credit to a Term
Loan, the aggregate amount outstanding under the Term Loan.
"Utilization Fee" shall mean the fees payable to Agent for distribution
to the Banks pursuant to Section 2.13 hereof.
1.2 Euro.
(a) Redenomination of Eurocurrency-based Advances and other
Advances into Euro Units.
(i) From and after January 1, 1999, each obligation
under this Agreement of a party hereto which (A) was
originally denominated in the former national currency of a
Participating Member State, or (B) would otherwise have been
denominated in such former national currency prior to such
date shall be denominated in, or redenominated into, as
applicable, the Euro Unit in accordance with EMU Legislation
and applicable state law, provided that, if and to the extent
that any EMU Legislation provides that amounts denominated in
the euro unit or the National Currency Unit of a Participating
Member State, that are payable by crediting an account of the
creditor within that country, may be made in either Euro or
National Currency Units, each party to this Agreement shall be
entitled to
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<PAGE> 49
pay or repay any such amounts in either the Euro Unit or such
National Currency Unit.
(ii) Any Eurocurrency-based Advances denominated in a
National Currency Unit of a Participating Member State which
were made prior to January 1, 1999 but which have Interest
Periods ending after January 1, 1999 shall, for purposes of
this Agreement, remain denominated in such National Currency
Unit provided that such Advances may be repaid either in the
Euro or in such National Currency Unit after January 1, 1999;
provided, further, that from and after January 1, 2002 all
such amounts shall be deemed to be in Euro Units.
(iii) Subject to any EMU Legislation, references in
this Agreement to a minimum amount (or an integral multiple
thereof) in a National Currency Unit to be paid to or by a
party hereto shall be deemed to be a reference to such
reasonably comparable and convenient amount (or an integral
multiple thereof) in the Euro Unit as the Agent may from time
to time specify.
(b) Payments.
(i) All payments by any of the Company or a Permitted
Borrower or any Bank of amounts denominated in the Euro or a
National Currency Unit of a Participating Member State, shall
be made in immediately available, freely transferable, cleared
funds to the account of the Agent in the principal financial
center in such Participating Member State, as from time to
time designated by the Agent for such purpose.
(ii) All amounts payable by the Agent to any party
under this Agreement in the National Currency Unit of a
Participating Member State shall instead be paid in the Euro
Unit.
(iii) The Agent shall not be liable to any party to
this Agreement in any way whatsoever for any delay, or the
consequences of any delay, in the crediting to any account of
any amount denominated in the Euro or a National Currency Unit
of a Participating Member State.
(iv) All references herein to the London interbank or
other national market with respect to any National Currency
Unit of a Participating Member State shall be deemed a
reference to the applicable markets and locations referred to
in the definition of "Business Day" in Section 1.1.
(c) If the basis of accrual of interest or fees expressed in
this Agreement with respect to the currency of any state that becomes a
Participating Member State shall be inconsistent
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with any convention or practice in the London interbank market for the basis of
accrual of interest or fees in respect of Euros, such convention or practice
shall replace such expressed basis effective as of and from the date on which
such state becomes a Participating Member State; provided, that if any Advance
in the currency of such state is outstanding immediately prior to such date,
such replacement shall take effect, with respect to such Advance, at the end of
the then current Interest Period.
(d) Increased Costs. The Company and the Permitted Borrowers
shall, from time to time upon demand of any Bank (with a copy to the Agent), pay
to such Bank the amount of any cost or increased cost incurred by, or of any
reduction in any amount payable to or in the effective return on its capital to,
or of interest or other return foregone by, such Bank or any holding company of
such Bank as a result of the introduction of, changeover to or operation of the
Euro in a Participating Member State, other than any such cost or reduction or
amount foregone reflected in any interest rate hereunder.
(e) Unavailability of Euro. If the Agent at any time
determines that: (i) the Euro has ceased to be utilized as the basic accounting
unit of the European Community; (ii) for reasons affecting the market in Euros
generally, Euros are not freely traded between banks internationally; or (iii)
it is illegal, impossible or impracticable for payments to be made hereunder in
Euro, then the Agent may, in its discretion declare (such declaration to be
binding on all the parties hereto) that any payment made or to be made
thereafter which, but for this provision, would have been payable in the Euro
shall be made in a component currency of the Euro or Dollars (as selected by the
Agent (the "Selected Currency") and the amount to be so paid shall be calculated
on the basis of the equivalent of the Euro in the Selected Currency).
(f) Additional Changes at Agent's Discretion. This section and
other provisions of this Agreement relating to Euros and the National Currency
Units of Participating Member States shall be subject to such further changes
(including changes in interpretation or construction) as the Agent may from time
to time in its reasonable discretion notify to the Company and the Permitted
Borrowers and the Banks to be necessary or appropriate to reflect the changeover
to the Euro in Participating Member States.
1.3 Interest Act (Canada). For the purposes of disclosure under the
ITA, if and to the extent applicable, whenever interest is to be paid hereunder
and such interest is to be calculated on the basis of a period of less than a
calendar year, the yearly rate of interest to which the rate determined pursuant
to such calculation is equivalent is the rate so determined multiplied by the
actual number of days in the calendar year in which the same is to be
ascertained and divided by the number of days in such period.
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ATTACHMENT 3
"Selected Sections -- Section 2"
<PAGE> 52
2.13 Revolving Credit Facility Fee And Utilization Fee.
(a) Revolving Credit Facility Fee. From the date hereof to the
Revolving Credit Maturity Date, the Company shall pay to the Agent, for
distribution to the Banks (as set forth below), a Revolving Credit Facility Fee
determined by multiplying the Applicable Fee Percentage per annum times the
Revolving Credit Maximum Amount then applicable under Section 2.15 hereof
(whether used or unused), computed on a daily basis. The Revolving Credit
Facility Fee shall be payable quarterly in arrears commencing July 1, 1999 (in
respect of the prior calendar quarter or portion thereof), and on the first day
of each calendar quarter thereafter and on the Revolving Credit Maturity Date,
and shall be computed on the basis of a year of three hundred sixty (360) days
and assessed for the actual number of days elapsed. Whenever any payment of the
Revolving Credit Facility Fee shall be due on a day which is not a Business Day,
the date for payment thereof shall be extended to the next Business Day. Upon
receipt of such payment Agent shall make prompt payment to each Bank of its
share of the Revolving Credit Facility Fee based upon its respective Percentage.
(b) Utilization Fee. For each day from and after December 1, 1999 that
the Utilization equals or exceeds 50% of (x) the Revolving Credit Maximum Amount
in effect on such day, if such day is before the Revolving Credit Maturity Date
or (y) the Revolving Credit Maximum Amount in effect on the Revolving Credit
Maturity Date, if such day is on or after the Revolving Credit Maturity Date and
the Company elects the "term out" option under Section 4.1 hereof (in either
case until the Indebtedness has been paid and discharged in full and all
commitments terminated), the Company shall pay to the Agent, for distribution to
the Banks pro rata in accordance with their respective Percentages, a
Utilization Fee, which fee shall be determined and payable in accordance with
this Section 2.13. The Utilization Fee shall be equal to the Utilization on such
day times the applicable Fee Percentage computed on a daily basis. The
Utilization Fee shall be computed on the basis of a year of three hundred sixty
(360) days and assessed for the actual number of days elapsed, and shall be
payable quarterly in arrears commencing January 1, 2000 (in respect to the prior
fiscal quarter or portion thereof) and on the first day of each fiscal quarter
thereafter and on the Revolving Credit Maturity Date (or, if the company elects
the "term out" option under Section 4.1 hereof, the Term Loan Maturity Date).
whenever any payment of the Utilization Fee shall be due on a day which is not a
Business Day, the day for payment thereof shall be extended to the next Business
Day. Upon receipt of such payment, Agent shall make prompt payment to each Bank
of its share of the Utilization Fee based upon its respective Percentage. It is
expressly understood that the Utilization Fee described in this Section shall
not be refundable under any circumstances.
2.15 Optional Reduction or Termination of Revolving Credit Maximum
Amount. Provided that no Default or Event of Default has occurred and is
continuing, the Company may upon at least five Business Days' prior written
notice to the Agent, permanently reduce the Revolving Credit Maximum Amount in
whole at any time, or in part from time to time, without premium or penalty,
provided that: (i) each partial reduction of the Revolving Credit Maximum Amount
shall be
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in an aggregate amount equal to Ten Million Dollars ($10,000,000) or a larger
integral multiple of One Million Dollars ($1,000,000); (ii) each reduction shall
be accompanied by the payment of the Revolving Credit Facility Fee and
Utilization Fee, if any, accrued to the date of such reduction; (iii) the
Company or any Permitted Borrower, as applicable, shall prepay in accordance
with the terms hereof the amount, if any, by which the aggregate unpaid
principal amount of Advances (using the Current Dollar Equivalent of any such
Advance outstanding in any Alternative Currency) of the Revolving Credit, plus
the aggregate principal amount of Swing Line Advances outstanding hereunder
(using the Current Dollar Equivalent of any such Advance outstanding in an
Alternative Currency), plus the aggregate undrawn amount of outstanding Letters
of Credit (using the Current Dollar Equivalent thereof for any Letters of Credit
denominated in any Alternative Currency), plus the unreimbursed amount of any
draws under any Letters of Credit (determined as aforesaid), exceeds the amount
of the Revolving Credit Maximum Amount as so reduced, together with interest
thereon to the date of prepayment; (iv) if the termination or reduction of the
Revolving Credit Maximum Amount requires the prepayment of a Eurocurrency-based
Advance or a Quoted Rate Advance, the termination or reduction may be made only
on the last Business Day of the then current Interest Period applicable to such
Eurocurrency-based Advance or such Quoted Rate Advance; and (v) no reduction
shall reduce the Revolving Credit Maximum Amount to an amount which is less than
the aggregate undrawn amount of any Letters of Credit outstanding at such time.
Reductions of the Revolving Credit Maximum Amount and any accompanying
prepayments of the Revolving Credit Notes shall be distributed by Agent to each
Bank in accordance with such Bank's Percentage thereof, and will not be
available for reinstatement by or readvance to the Company or any Permitted
Borrower, and any accompanying prepayments of the Swing Line Note shall be
distributed by Agent to the Swing Line Bank and will not be available for
reinstatement by or readvance to the Company. Any reductions of the Revolving
Credit Maximum Amount hereunder shall reduce each Bank's portion thereof
proportionately (based on the applicable Percentages), and shall be permanent
and irrevocable. Any payments made pursuant to this Section shall be applied
first to outstanding Prime-based Advances under the Revolving Credit, next to
Swing Line Advances carried at the Prime-based Rate, next to Eurocurrency-based
Advances of the Revolving Credit and then to Swing Line Advances carried at the
Eurocurrency-based Rate or the Quoted Rate.
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ATTACHMENT 4
"Selected Sections -- Section 7"
<PAGE> 55
7. AFFIRMATIVE COVENANTS
Company and each of the Permitted Borrowers covenants and agrees that
it will, and, as applicable, it will cause its Subsidiaries (but excluding, for
purposes of Sections 7.3 through 7.10, 7.19, 7.20 and 7.22 hereof, any Special
Purpose Subsidiary) to, so long as any of the Banks are committed to make any
Advances under this Agreement and thereafter so long as any Indebtedness remains
outstanding under this Agreement:
7.1 Preservation of Existence, Etc. Subject to the terms of this
Agreement: (i) preserve and maintain its existence and such of its rights,
licenses, and privileges as are material to the business and operations
conducted by it; (ii) qualify and remain qualified to do business in each
jurisdiction in which such qualification is material to its business and
operations or ownership of its properties; (iii) continue to conduct and operate
its businesses substantially as conducted and operated during the present and
preceding fiscal years; (iv) at all times maintain, preserve and protect all of
its franchises and trade names and preserve all the remainder of its property
and keep the same in good repair, working order and condition; and (v) from time
to time make, or cause to be made, all necessary or appropriate repairs,
replacements, betterments and improvements thereto such that the businesses
carried on in connection therewith may be properly and advantageously conducted
at all times.
7.2 Keeping of Books. Keep proper books of record and account in which
full and correct entries shall be made of all of its financial transactions and
its assets and businesses so as to permit the presentation of financial
statements prepared in accordance with GAAP.
7.3 Reporting Requirements. Furnish Agent with:
(a) as soon as possible, and in any event within three
calendar days after becoming aware of the occurrence of each Default or Event of
Default, a written statement of the chief financial officer of the Company (or
in his absence, a responsible senior officer) setting forth details of such
Default or Event of Default and the action which the Company or such Permitted
Borrower has taken or has caused to be taken or proposes to take or cause to be
taken with respect thereto;
(b) as soon as available, and in any event within one hundred
twenty (120) days after and as of the end of each of Company's fiscal years, (i)
a detailed Consolidated audit report of Company certified to by independent
certified public accountants satisfactory to Banks together with an unaudited
Consolidating report of Company and its Subsidiaries certified by an authorized
officer of Company as to consistency (with prior financial reports and
accounting periods), accuracy and fairness of presentation; and (ii) a Covenant
Compliance Report;
(c) as soon as available, and in any event within sixty (60)
days after and as of the end of each quarter, excluding the last quarter, of
each fiscal year, (i) a Consolidated and
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Consolidating balance sheet, income statement, statement of cash flows and
statement of shareholder's equity of Company and its Subsidiaries certified by
an authorized officer of Company as to consistency (with prior financial reports
and accounting periods), accuracy and fairness of presentation; (ii) a Covenant
Compliance Report; and (iii) a "static pool analysis" substantially in the form
of Exhibit L attached hereto and in any event satisfactory in form and substance
to the Majority Banks, which analyzes the performance of Company's and each
Permitted Borrower's Installment Contracts (segregated between the Company's
North American operations and its UK operations) on a quarterly basis, and, for
quarters beginning with the quarter ended September 30, 1999, a "static pool
analysis" substantially in the form of Exhibit L attached hereto and in any
event and satisfactory in form and substance to the Majority Banks, which
analyzes the performance of the Company's and each Permitted Borrower's Leases
on a quarterly basis (segregated between the Company's North American operations
and its UK operations), in each case certified by an authorized officer of the
Company as to consistency with prior such analyses, accuracy and fairness of
presentation;
(d) as soon as possible, and in any event within three
calendar days after becoming aware (i) of any material adverse change in the
financial condition of the Company, any of its Subsidiaries or any of the
Permitted Borrowers, a certificate of the chief financial officer of Company (or
in his absence, a responsible senior officer) setting forth the details of such
change, (ii) of the taking by the Internal Revenue Service or any foreign taxing
jurisdiction of a tax position (verbal or written) which could have a materially
adverse effect upon the Company, any of its Subsidiaries or any of the Permitted
Borrowers (or any such tax position taken by the Company or any of its
Subsidiaries or any of the Permitted Borrowers) setting forth the details of
such position and the financial impact thereof or (iii) of any change in the
Rating Level of which Company has actual knowledge;
(e) as soon as available (and with copies for each of the
Banks), the Company's 8-K, 10-Q and 10-K Reports filed with the federal
Securities and Exchange Commission, and in any event, with respect to the 10-Q
Report, within sixty (60) days of the end of each of the first three fiscal
quarters of each of Company's fiscal years, and with respect to the 10-K Report,
within one hundred twenty (120) days after and as of the end of each of
Company's fiscal years; and as soon as available, copies of all filings, reports
or other documents filed by the Company or any of its Subsidiaries with the
federal Securities and Exchange Commission or other federal regulatory or taxing
agencies or authorities in the United States, or comparable agencies or
authorities in foreign jurisdictions, or any stock exchanges in such
jurisdictions;
(f) promptly as issued (and with copies for each of the
Banks), all press releases, notices to shareholders and all other material
communications transmitted by the Company or any of its Subsidiaries; and,
concurrently with each incurrence thereof written notice that new Future Debt
has been incurred, accompanied by copies of the material documents governing
such Debt and a certification that, both before and after giving effect thereto,
no Default or Event of Default shall have occurred and be continuing and the
Company is otherwise in compliance with this Agreement;
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(g) on not less than an annual basis, a copy of the standard
form of Company's Dealer Agreement then in effect;
(h) on or before ninety (90) days after the commencement of
each fiscal year, a Consolidated plan and financial projections and which shall
reflect any Future Debt or Permitted Securitizations contemplated to be incurred
or made for the succeeding two years of the Company and its Significant
Subsidiaries including, without limitation, a Consolidated and Consolidating
balance sheet and a Consolidated and Consolidating statement of projected income
and cash flow of the Company for each of the succeeding two fiscal years and
including a statement in reasonable detail specifying all material assumptions
underlying the projections;
(i) promptly upon the request of Agent or the Majority Banks
(acting through Agent) from time to time, a "static pool analysis" which
analyzes the performance of any Installment Contracts or Leases transferred or
encumbered pursuant to a Permitted Securitization comparable to the static pool
analysis required to be delivered pursuant to subparagraph (c) of this Section
7.3; and
(j) promptly, and in form to be satisfactory to Agent and the
requesting Bank or Banks, such other information as Agent or any of the Banks
(acting through Agent) may reasonably request from time to time.
7.4 Maintain Total Debt Level. On a Consolidated basis, maintain as of
the end of each fiscal quarter, Consolidated Total Debt at a level equal to or
less than each of the following tests:
(a) Two Hundred Seventy-Five Percent (275%) of Company's
Consolidated Tangible Net Worth; provided, however, that for the purposes of
this subparagraph (a), Consolidated Total Debt shall be calculated by
including all Debt incurred by a Special Purpose Subsidiary, whether or not
included therein under GAAP;
(b) Seventy Five Percent (75%) of the sum of (i) Advances to
Dealers and (ii) Leased Vehicles; provided, however, that for the purposes of
this subparagraph (b), Consolidated Total Debt shall be calculated by excluding
all Debt incurred by a Special Purpose Subsidiary, whether or not included
therein under GAAP; and
(c) Sixty Percent (60%) of the sum of (i) Gross Current
Installment Contract Receivables and (ii) Gross Current Leased Vehicles;
provided, however, that for the purposes of this subparagraph (c), Consolidated
Total Debt shall be calculated by excluding all Debt incurred by a Special
Purpose Subsidiary, whether or not included therein under GAAP.
7.5 Maintain Senior Funded Debt Level. On a Consolidated basis,
maintain as of the end of each fiscal quarter Consolidated Senior Funded Debt
(excluding in the calculation thereof, for purposes of this Section 7.5, all
Debt incurred by a Special Purpose Subsidiary, whether or not included therein
under GAAP) at a level equal to or less than Two Hundred Percent (200%) of
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the Company's Consolidated Tangible Net Worth and in an amount not in excess of
the sum of (i) Net Installment Contract Receivables less Net Dealer Holdbacks
and (ii) Leased Vehicles less Net Leased Vehicle Dealer Holdbacks, divided by
1.10.
7.6 Maintain Subordinated Funded Debt Level. On a Consolidated basis,
maintain as of the end of each fiscal quarter the Consolidated Subordinated
Funded Debt (excluding in the calculation thereof, for purposes of this Section
7.6, all Debt incurred by a Special Purpose Subsidiary, whether or not included
therein under GAAP) at a level equal to or less than One Hundred Fifty Percent
(150%) of the Company's Consolidated Tangible Net Worth.
7.7 Minimum Tangible Net Worth. On a Consolidated basis, maintain
Consolidated Tangible Net Worth of not less than Two Hundred Eighteen Million
Seven Hundred Twenty Five Thousand Dollars ($218,725,000.00), plus the sum of
(i) seventy-five percent (75%) of Consolidated Net Income for each fiscal
quarter of the Company (A) beginning on or after January 1, 1999, (B) ending on
or before the applicable date of determination thereof, and (C) for which
Consolidated Net Income as determined above is a positive amount and (ii) the
Equity Offering Adjustment.
7.8 Maintain Gross Dealer Advances to Net Installment Contract
Receivables Level. On a Consolidated Basis, maintain as of the end of each
fiscal quarter Gross Advances to Dealers at a level not to exceed Seventy
Percent (70%) of Net Installment Contract Receivables.
7.9 Maintain Fixed Charge Coverage Ratio. On a Consolidated basis,
maintain as of the end of each fiscal quarter a Fixed Charge Coverage Ratio of
not less than 2.25 to 1.0.
7.10 Inspections. Permit Agent and each Bank, through their authorized
attorneys, accountants and representatives to examine (and make copies of)
Company's and each of the Subsidiaries' books, accounts, records, ledgers and
assets and properties (including without limitation, any Collateral) of every
kind and description including, without limitation, all promissory notes,
security agreements, customer applications, vehicle title certificates, chattel
paper, Uniform Commercial Code filings, wherever located at all reasonable times
during normal business hours, upon oral or written request of Agent or such
Bank; and permit Agent and each Bank or their authorized representatives, at
reasonable times and intervals, to visit all of its offices, discuss its
financial matters with its officers and independent certified public
accountants, and by this provision Company authorizes such accountants to
discuss the finances and affairs of Company and its Subsidiaries (provided that
Company is given an opportunity to participate in such discussions) and examine
any of its or their books and other corporate records. An examination of the
records or properties of Company or any of its Subsidiaries may require
revealment of proprietary and/or confidential data and information, and the
Agent and each of the Banks agrees upon request of the inspected party to
execute a confidentiality agreement (satisfactory to Agent or the inspecting
Bank, as the case may be, and such party) on behalf of the Agent or such
inspecting Bank and all parties making such inspections or examinations under
its authorization; provided however that such
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confidentiality agreement shall not prohibit Agent from revealing such
information to Banks or prohibit the inspecting Bank from revealing such
information to Agent or another Bank. Notwithstanding the foregoing, all
information furnished to the Banks hereunder shall be subject to the undertaking
of the Banks set forth in Section 13.13 hereof.
7.11 Taxes. Pay and discharge all taxes and other governmental charges,
and all material contractual obligations calling for the payment of money,
before the same shall become overdue, unless and to the extent only that such
payment is being contested in good faith by appropriate proceedings and is
reserved for, as required by GAAP on its balance sheet, or where the failure to
pay any such matter could not have a material adverse effect on the Company and
its Subsidiaries, taken as a whole.
7.12 Further Assurances. Execute and deliver or cause to be executed
and delivered to Agent within a reasonable time following Agent's request, and
at the Company's and the Permitted Borrowers' expense, such other documents or
instruments as Agent may reasonably require to effectuate more fully the
purposes of this Agreement or the other Loan Documents, including without
limitation any Collateral Documents required under Section 7.23 hereof.
7.13 Insurance. Maintain, with financially sound and reputable
insurers, insurance with respect to its material property and business against
such casualties and contingencies, of such types (including, without limitation,
insurance with respect to losses arising out of such property loss or damage,
public liability, business interruption, larceny, workers' compensation,
embezzlement or other criminal misappropriation) and in such amounts as is
customary in the case of corporations of established reputations engaged in the
same or similar business and similarly situated (and including such lender loss
payee clauses and/or endorsements as Agent or the Majority Banks may request
following the delivery of the Collateral Documents under Section 7.23 hereof),
provided that such insurance is commercially available, it being understood that
the Company and its Subsidiaries may self-insure against hazards and risks with
respect to which, and in such amounts as, the Company in good faith determines
to be prudent and consistent with sound financial and business practice.
7.14 Indemnification. With respect to the Company, indemnify and save
Agent and each of the Banks harmless from all reasonable loss, cost, damage,
liability or expenses, including reasonable attorneys' fees and disbursements,
incurred by Agent and each of the Banks by reason of an Event of Default or
enforcing the obligations of the Company or the Permitted Borrowers under this
Agreement or the other Loan Documents, or in the prosecution or defense of any
action or proceeding concerning any matter growing out of or connected with this
Agreement or any of the other Loan Documents other than resulting from the gross
negligence or willful misconduct of Agent or such Bank or Banks, as the case may
be; and, with respect to each of the Permitted Borrowers, indemnify and save
Agent and each of the Banks harmless from all reasonable loss, cost, damage,
liability or expenses, including reasonable attorneys' fees and disbursements,
incurred by Agent and each of the Banks with respect to such Permitted Borrower
by reason of an Event of Default or enforcing the obligations of such Permitted
Borrower under this Agreement or the other Loan
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Documents or in the prosecution or defense of any action or proceeding
concerning any matter growing out of or connected with this Agreement or any of
the other Loan Documents, other than resulting from the gross negligence or
willful misconduct of Agent or such Bank or Banks, as the case may be.
7.15 Governmental and Other Approvals. Apply for, obtain and/or
maintain in effect, as applicable, all material authorizations, consents,
approvals, licenses, qualifications, exemptions, filings, declarations and
registrations (whether with any court, governmental agency, regulatory
authority, securities exchange or otherwise) which are necessary in connection
with the execution, delivery and performance of this Agreement, the other Loan
Documents, or any other documents or instruments to be executed and/or delivered
by the Company or any of the Permitted Borrowers or Guarantors, as the case may
be, in connection therewith or herewith.
7.16 Compliance with Contractual Obligations and Laws.
(a) Comply in all material respects with all Contractual
Obligations, and with all applicable laws, rules, regulations and orders of any
governmental authority, whether federal, state, local or foreign (including
without limitation Hazardous Materials Laws and any consumer protection, truth
in lending, disclosure and other similar laws and regulations governing the
provision of financing to consumers), in effect from time to time, except to the
extent that failure to comply therewith could not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, operations, property or financial or other condition of the Company or
any of the Permitted Borrowers and their respective Subsidiaries, taken as a
whole, and could not reasonably be expected to materially adversely affect the
ability of the Company or any of the Permitted Borrowers or Guarantors to
perform their respective obligations under any of the Loan Documents to which
they are a party.
(b) Comply in all material respects with all applicable
federal, state and/or foreign laws and regulations in effect from time to time
governing the due and proper creation of installment sales contracts, motor
vehicle leases or similar indebtedness or obligations and of the creation,
perfection and/or protection, as applicable, of first priority security
interests or lessor's interests in motor vehicles being financed and/or sold
and/or leased pursuant thereto, as applicable.
7.17 ERISA. Comply in all material respects with all requirements
imposed by ERISA as presently in effect or hereafter promulgated or the Internal
Revenue Code (or comparable laws in applicable jurisdictions outside the United
States of America relating to foreign Pension Plans) and promptly notify Banks
upon the occurrence of any of the following events:
(a) the termination of any Pension Plan pursuant to Subtitle C
of Title IV of ERISA or otherwise (other than any defined contribution plan not
subject to Section 412 of the Internal Revenue Code and any Multiemployer Plan);
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(b) the appointment of a trustee by a United States District
Court to administer any Pension Plan pursuant to ERISA;
(c) the commencement by the PBGC, or any successor thereto, of
any proceeding to terminate any Pension Plan;
(d) the failure of the Company or any ERISA Affiliate to make
any payment in respect of any Pension Plan required under Section 412 of the
Internal Revenue Code;
(e) the withdrawal of the Company or any ERISA Affiliate from
any Multiemployer Plan;
(f) the occurrence of an accumulated funding deficiency (as
defined in Section 6.18 hereof) or a Reportable Event; or
(g) the occurrence of a Prohibited Transaction which could
have a material adverse effect upon the Company and its Subsidiaries, taken as a
whole.
7.18 Environmental Matters.
(a) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions necessary to clean up
and remove all Hazardous Materials on or affecting any premises owned or
occupied by Company or any of its Subsidiaries, whether resulting from conduct
of Company or any of its Subsidiaries or any other Person, if required by
Hazardous Material Laws, all such actions to be taken in accordance with such
laws, and the orders and directives of all applicable federal, state and local
governmental authorities; and
(b) Defend, indemnify and hold harmless Agent and each of the
Banks, and their respective employees, agents, officers and directors from and
against any and all claims, demands, penalties, fines, liabilities, settlements,
damages, costs or expenses of whatever kind or nature arising out of or related
to (i) the presence, disposal, release or threatened release of any Hazardous
Materials on, from or affecting any premises owned or occupied by Company or any
of its Subsidiaries, (ii) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to such Hazardous
Materials, (iii) any lawsuit or other proceeding brought or threatened,
settlement reached or governmental order or decree relating to such Hazardous
Materials, (iv) the cost of removal of all Hazardous Materials from all or any
portion of any premises owned by Company or its Subsidiaries, (v) the taking of
necessary precautions to protect against the release of Hazardous Materials on
or affecting any premises owned by Company or any of its Subsidiaries, (vi)
complying with all Hazardous Material Laws and/or (vii) any violation by Company
or any of its Subsidiaries of Hazardous Material Laws, including without
limitation, reasonable attorneys and consultants fees, investigation and
laboratory fees, environmental studies required by Agent or any Bank (whether
before or after the occurrence of any Default or Event of
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Default), court costs and litigation expenses; and, if so requested by Agent or
any Bank, Company shall execute, and shall cause the Permitted Borrowers to
execute, separate indemnities covering the foregoing matters. The obligations of
Company and Permitted Borrowers under this Section 7.18 shall be in addition to
any and all other obligations and liabilities the Company or any of the
Permitted Borrowers may have to Agent or any of the Banks at common law or
pursuant to any other agreement.
7.19 Maintain Debt Rating. Cause Fitch on an ongoing basis, but not
less than once during each calendar year, to maintain a Debt Rating for
Company's long term, non-credit enhanced senior debt.
7.20 Installment Contract Standards. (a) Cause each Installment
Contract included in Gross Installment Contract Receivables and each Lease
purchased and/or entered into by or on behalf of Company or any Subsidiary to
satisfy the following requirements:
(i) Such Installment Contract or Lease (and the
interest of Company or its Subsidiaries thereunder) has not
been sold, transferred or otherwise assigned or encumbered by
the Company or its Subsidiaries to any Person, other than to
the Lenders pursuant to the Collateral Documents;
(ii) The Installment Contract obligor or lessee under
such Lease thereunder is not an Affiliate of the Company; and
(iii) It is owned by Company or a Subsidiary, or
Company or a Subsidiary has a valid first priority perfected
security interest therein; and
(b) Exercise its best efforts to enforce the provisions of its
Dealer Agreements relating to the eligibility criteria for Installment Contracts
included in Gross Installment Contract Receivables and for Leases, including
without limitation:
(i) it has not been rescinded and it is a valid,
binding and enforceable obligation of the applicable
Installment Contract obligor or lessee under such Lease;
(ii) it is enforceable against the applicable
Installment Contract obligor or lessee under such Lease for
the amount shown as owing in the contract and in any related
records;
(iii) it complied at the time it was originated or
made, and is currently in compliance in all respects, with all
requirements of applicable federal, state and local laws, and
regulations thereunder, including, usury laws, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Billing
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Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, Federal Reserve Board Regulations
B, M and Z, state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code and any other consumer
credit or equal opportunity disclosure;
(iv) it is not subject to any material offset,
credit, allowance or adjustment;
(v) the Company or a Subsidiary has a first and prior
perfected security interest or ownership interest (subject
only to the applicable Lease) (received directly or by
assignment) in the financed or leased vehicle securing the
performance of the applicable Installment Contract obligor or
lessee under such Lease;
(vi) the financed vehicle has been delivered to the
applicable Installment Contract obligor or lessee under such
Lease and, on the date of delivery, satisfied all warranties,
expressed or implied, made to such Installment Contract
obligor or lessee under such Lease; and
(vii) the applicable Installment Contract obligor or
lessee under such Lease owns or leases the motor vehicle free
of all liens or encumbrances, except the security interest
granted to Company or a Subsidiary or the lessor's interest
held by Company or a Subsidiary (received in each case
directly or by assignment) in the applicable Installment
Contract or Lease.
7.21 Financial Covenant Amendments. In the event that, at any time
while this Agreement is in effect, the Company shall issue any indebtedness for
borrowed money which is not by its terms subordinate and junior to other
indebtedness of Company for borrowed money and such indebtedness shall include,
or be issued pursuant to a trust indenture or other agreement which includes,
financial covenants which are not substantially identical to the financial
covenants set forth in this Agreement, the Company shall so advise the Agent in
writing. Such notice shall be accompanied by a copy of the applicable agreement
containing such financial covenants. The Agent shall promptly furnish a copy of
such notice and the applicable agreement to each of the Banks. If the Majority
Banks determine in their sole discretion that some or all of the financial
covenants set forth in such agreement are more favorable to the lender
thereunder than the financial covenants set forth in this Agreement ("More
Favorable Terms") and that the Majority Banks desire that this Agreement be
amended to incorporate the More Favorable Terms, then the Agent shall give
written notice of such determination to the Company. Thereupon, and in any event
within thirty (30) days following the date of notice by Agent to the Company,
Company and the Banks shall enter into an amendment to this Agreement
incorporating, on terms and conditions acceptable to the Majority Banks, the
More Favorable Terms.
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7.22 Subsidiaries; Guaranties. With respect to each Person which
becomes a Significant Subsidiary of the Company subsequent to the effective date
hereof, within thirty days of the date of Company's delivery of the financial
statements required under Section 7.3(b) or 7.3(c) which establish that such
Person is or has become a Significant Subsidiary (but in any event, in the case
of a Permitted Borrower, prior to the time such Permitted Borrower shall be
entitled to request any Advances hereunder), cause such Subsidiary to execute
and deliver to Agent, for and on behalf of each of the Banks, a Joinder
Agreement whereby such Significant Subsidiary becomes obligated as a Guarantor
under the Domestic Guaranty or the Foreign Guaranty, as applicable, together
with such supporting documentation, including without limitation corporate
authority items, certificates and opinions of counsel, as reasonably required by
Agent and the Majority Banks.
7.23 Special Covenants for Leasing Program and Other Covenants. (a)
on or before November 30, 1999, enter into (i) amendments to the Note Purchase
Agreements, if then outstanding, on substantially the terms set forth herein
with respect to the funding and/or securitization of Leased Vehicles, and (ii)
amendments to the Collateral Documents necessary (in the reasonable
determination of the Agent, acting in its capacity as collateral agent under the
Intercreditor Agreement) to confirm the encumbrance thereunder of Leases and, to
the extent applicable, Leased Vehicles; and
(b) Other than (i) Leases with respect to motor vehicles
located outside the United States of America and its territories and possessions
or (ii) Leases originated by CAC Leasing prior to the date hereof or (iii)
Leases originated by AutoNet.net Finance Company to the extent applicable state
law prohibits the Company from originating Leases in such state using an assumed
name, the Company will originate and hold all Leases in its own name or by using
the assumed name, CAC Leasing; and
(c) Promptly upon the Company's creation or acquisition of any
Significant Domestic Subsidiary, (i) grant a security interest and lien to the
Agent, for the benefit of the Banks, in the Collateral owned by such Significant
Domestic Subsidiary substantially on the terms set forth in the Security
Agreement, and (ii) pledge to the Agent, for the benefit of the Banks, all of
the outstanding capital stock of such Significant Domestic Subsidiary which is
owned by the Company or its Subsidiaries in a form satisfactory to the Agent,
acting in its capacity as collateral agent under the Intercreditor Agreement, in
its reasonable discretion, all to secure the Indebtedness.
7.24 Year 2000 Requirement. The Company and its Subsidiaries shall
review the areas in their business and operations which could be materially
adversely affected by, and develop a program to address on a timely basis the
risk that, computer applications used by the Company and its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999. Any reprogramming
required to permit the proper functioning, in and following the year 2000,
computer systems and equipment containing embedded microchips owned or leased by
the Company or any of its Subsidiaries and the testing of all such systems and
equipment, as so reprogrammed, will be completed by June 30, 1999. The cost
to the Company and its Subsidiaries of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Company and its
Subsidiaries (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
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<PAGE> 65
ATTACHMENT 5
"Selected Sections -- Section 8"
<PAGE> 66
8. NEGATIVE COVENANTS
Company and each of the Permitted Borrowers covenant and agree that, so
long as any of the Banks are committed to make any Advances under this Agreement
and thereafter so long as any Indebtedness remains outstanding, it will not, and
it will not allow its Subsidiaries (but excluding, for purposes of Sections
8.10, 8.13, 8.14 hereof, any Special Purpose Subsidiary), without the prior
written consent of the Majority Banks, to:
8.1 Capital Structure and Redemptions. Purchase, acquire or redeem any
of its capital stock, except for a Permitted Repurchase; or make any material
change in its capital structure, provided however that the issuance of (i)
additional common stock or (ii) (if issued as part of or in connection with an
underwritten public offering) shares of other classes of capital stock of
Company or its Subsidiaries, or (iii) securities issued by a Special Purpose
Subsidiary pursuant to a Permitted Securitization, shall not constitute material
changes in capital structure.
8.2 Business Purposes. Engage in, or make any investment in any
business engaged in, the provision of property and casualty insurance unless the
Company or such Subsidiary shall maintain reinsurance of its underwriting risk
with a third party(ies) rated "A-" or better by S&P or "A3" or better by Moody's
for all of the Company's or such Subsidiary's exposure in excess of one hundred
percent (100%) of the premiums written by the Company or such Subsidiary; or
engage in any business if, after giving effect thereto, the general nature of
the businesses of the Company and its Subsidiaries, taken as a whole, would no
longer be the provision of financing programs for the purchase or lease of used
motor vehicles, motor vehicle service protection programs, credit life, accident
and health insurance programs and other programs related to the foregoing (it
being understood that, in the course of the provision of such programs, the
Company may be obligated to remit monies held by it in connection with dealer
holdbacks, claims or refunds under insurance policies, or claims or refunds
under service contracts, and to make deposits in trust or otherwise as required
under reinsurance agreements or pursuant to state regulatory requirements);
provided however that the Company and its Subsidiaries shall manage and operate
such businesses in substantially the same manner that they are managed and
operated as of the date hereof.
8.3 Mergers or Dispositions. Enter into any merger or consolidation,
except for any Permitted Merger OR Permitted Transfer under clause (iv)(z) of
the definition thereof, or sell, lease, transfer, relocate or dispose of all,
substantially all, or any material part of its assets, except for Permitted
Transfers and Permitted Securitization(s).
8.4 Guaranties. Guarantee, endorse, or otherwise become liable for or
upon the obligations of others, except by endorsement of cash items for deposit
in the ordinary course of business and except for the Guaranties and the
Permitted Guaranties.
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8.5 Debt. Become or remain obligated for any indebtedness for borrowed
money, or for any indebtedness incurred in connection with the acquisition of
any property, real or personal, tangible or intangible, or for any other Debt,
except for:
(a) Indebtedness to Banks hereunder;
(b) current unsecured trade, utility or non-extraordinary
accounts payable arising in the ordinary course of Company's or any Subsidiary's
businesses;
(c) purchase money debt for fixed assets (including
capitalized leases or other non-cancelable leases having a term of twelve months
or longer) not to exceed an aggregate amount, for the Company and its
Subsidiaries incurred while in compliance with this Agreement and the other Loan
Documents, of Three Million Dollars ($3,000,000) (or the Alternative Currency
equivalent thereof) at any one time outstanding and mortgage debt incurred (by
assumption or otherwise) by Arlington Investment Company, a Subsidiary of the
Company, in an aggregate principal amount not to exceed $1,000,000.00 at any
time outstanding;
(d) the Senior Debt, Future Debt, Permitted CAC UK Debt, the
Subordinated Debt, unsecured overdraft lines of credit or similar credit
arrangements maintained by the Permitted Borrowers in the ordinary course of
business in the countries of their formation, in an amount not to exceed, in the
case of CAC UK, (pound)2,000,000 and in the case of each of the other Permitted
Borrowers, $1,500,000, or the equivalent thereof in an Alternative Currency,
lines of credit maintained by Arlington Investment Company, in the ordinary
course of business, in an aggregate amount not to exceed $5,000,000.00 at any
time outstanding, and such other debt set forth in Schedule 8.5 attached hereto,
if any (in addition to any other matters set forth in this Section 8.5), and any
renewals or refinancing of such indebtedness in amounts not exceeding the
scheduled amounts (less any required amortization according to the terms
thereof) on substantially the same terms and otherwise in compliance with this
Agreement;
(e) non-recourse Debt incurred by a Special Purpose Subsidiary
pursuant to a Permitted Securitization, whether or not attributable to the
Company under GAAP; and
(f) debt consisting of interest rate protection agreements
(including interest rate caps, collars or swaps) or foreign currency exchange
agreements (including foreign currency hedges and swaps) entered into by the
Company and/or a Permitted Borrower, to manage existing or anticipated interest
rate or foreign exchange rate risk and not for speculative purposes (copies of
which shall be provided to the Agent promptly upon the execution thereof), and
other Debt for borrowed money in an amount not to exceed in the aggregate for
the Company and its Subsidiaries at any time outstanding, the sum of Five
Million Dollars ($5,000,000) (or the Alternative Currency equivalent thereof),
which Debt shall be unsecured except to the extent of any Lien permitted under
Section 8.6(d) hereof.
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8.6 Liens. Permit or suffer any Lien to exist on any of its properties,
real, personal or mixed, tangible or intangible, whether now owned or hereafter
acquired, except:
(a) in favor of Agent, as security for the Indebtedness and
any Liens granted to the holders of Senior Debt (and, to the extent applicable,
Future Debt under clause (x) of the definition thereof) pursuant to Collateral
Documents, on an equal and ratable basis with comparable Liens granted to Agent,
for and on behalf of the Banks;
(b) purchase money security interests in fixed assets to
secure the purchase money indebtedness permitted in Section 8.5(c) hereof,
provided that each such security interest is created substantially
contemporaneously with the acquisition of such fixed assets and does not extend
to any property other than the fixed asset so financed and provided further that
the sum of all such purchase money indebtedness outstanding at any time shall
not exceed the aggregate amount set forth in Section 8.5(c) hereof and mortgage
debt identified in Section 8.5(c) encumbering that certain land and building
currently leased to Arlington Investment Company by MP Developers;
(c) Permitted Liens and any Lien encumbering property
interests, rights or proceeds which are the subject of a transfer or encumbrance
pursuant to a Permitted Securitization; and
(d) Liens on the property of Company or any of its
Subsidiaries other than Advances to Dealers, Leased Vehicles, Installment
Contracts, Leases or property related thereto, not otherwise permitted under
subparagraphs (a) through (c) of this Section 8.6 if the obligations secured by
such Liens do not exceed, in an aggregate amount from time to time outstanding,
the difference between (i) Twenty Percent (20%) of Consolidated Tangible Net
Worth of Company and (ii) the sum of (w) the aggregate obligations secured by
Liens permitted under subparagraph (b) of this Section 8.6, (x) the aggregate
obligations secured by Permitted Liens disclosed on Schedule 8.6 attached
hereto, and (y) the aggregate amount of Debt of the Subsidiaries of Company
(other than Special Purpose Subsidiaries), all as of the applicable date of
determination.
8.7 Acquisitions. Other than any Permitted Acquisition or any
acquisition of any rights or property pursuant to a Permitted Securitization,
purchase or otherwise acquire or become obligated for the purchase of all or
substantially all of the assets or business interests of any Person, firm or
corporation, or any shares of stock (or other ownership interests) of any
corporation, trusteeship or association, or any business or going concern, or in
any other manner effectuate or attempt to effectuate an expansion of present
business by acquisition.
8.8 Investments. Make or allow to remain outstanding any Investment in,
or any loans or advances to, any Person, firm, corporation or other entity or
association, other than:
(a) any loan or other advance by Company or a Subsidiary, as
the case may be, to any and all of its officers or employees, as the case may
be, in the normal course of business, so
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long as the aggregate of all such loans or advances by the Company and its
Subsidiaries does not exceed One Million Five Hundred Thousand Dollars
($1,500,000) (or the equivalent thereof in an Alternative Currency) at any time
outstanding, plus reasonable, reimbursable business and travel expenses;
(b) Permitted Investments at any time outstanding or in
effect;
(c) Investments in Company's Subsidiaries existing as of the
date of this Agreement;
(d) Investments from and after the date hereof in any
Subsidiary or any Person that concurrently with such Investment becomes a
Subsidiary, in an aggregate amount for all such Investments at any time
outstanding, not to exceed in the aggregate twenty five percent (25%) of
Company's Consolidated Tangible Net Worth (it being understood that loans and
advances to any Subsidiary by any Person other than the Company or any other
Subsidiary, regardless of whether such loans and advances are guaranteed by the
Company or any other Subsidiary, shall not be taken into account in determining
the aggregate amount of investments made pursuant to this clause (d));
(e) Floor Plan Receivables and Notes Receivable in an
aggregate amount at any time outstanding not to exceed ten percent (10%) of
Consolidated Total Assets;
(f) Advances to Dealers, Leased Vehicles and, subject to the
limitation contained in subparagraph (e) of this Section 8.8, receivables
arising from the sale or lease of goods and services by the Company or its
Subsidiaries, in each case in the ordinary course of business of Company and its
Subsidiaries;
(g) Permitted Acquisition(s), to the extent any such
acquisition shall be deemed to constitute an Investment;
(h) Those Investments set forth on the attached Schedule 8.8;
(i) Investments in any Subsidiary (including, without
limitation, any Special Purpose Subsidiary) from and after the date hereof,
consisting of (w) dispositions of specific Advances to Dealers, Leased Vehicles,
Installment Contracts (whether assigned outright or related to Advances to
Dealers) or Leases (whether assigned outright or related to Leased Vehicles)
made pursuant to a Permitted Securitization and the resultant Debt issued by a
Special Purpose Subsidiary to another Subsidiary as part of a Permitted
Securitization, in each case to the extent constituting Investments hereunder;
(x) advances by Company (as servicer) which are permitted under the definition
of Permitted Guaranties; (y) the repurchase or replacement from and after the
date hereof of an aggregate amount not to exceed $5,000,000 in Advances to
Dealers, Leased Vehicles, Installment Contracts (whether assigned outright or
related to Advances to Dealers) or Leases (whether assigned outright or related
to Leased Vehicles) subsequently determined not to satisfy the
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<PAGE> 70
eligibility standards contained in the applicable Securitization Documents
relating to a Permitted Securitization, so long as (i) such replacement is
accompanied by the repurchase of or release of encumbrances on such financial
assets previously transferred or encumbered pursuant to such securitization and
in the amount thereof, (ii) any replacement Advances to Dealers, Leased
Vehicles, Installment Contracts (whether assigned outright or related to
Advances to Dealers) or Leases (whether assigned outright or related to Leased
Vehicles) are selected by Company according to the requirements set forth in
clause (a) of the definition of Permitted Securitization and (iii) such
replacements are made at a time when (both before and after giving effect
thereto) no Default or Event of Default has occurred and is continuing; (z)
amounts required to fund any Cleanup Call under the terms of such Permitted
Securitization, and (zz) the disposition to the Company or any Subsidiary
(other than a Special Purpose Subsidiary) of the capital stock of any Special
Purpose Subsidiary; and
(j) Investments, other than those set forth in subparagraphs
(a) through (h) above, in an aggregate amount at any time outstanding not to
exceed Two Million Five Hundred Thousand Dollars ($2,500,000), or the equivalent
thereof in an Alternative Currency.
In valuing any Investments for the purpose of applying the limitations set forth
in this Section 8.8 (except as otherwise expressly provided herein), such
Investment shall be taken at the original cost thereof, without allowance for
any subsequent write-offs or appreciation or depreciation, but less any amount
repaid or recovered on account of capital or principal.
8.9 Accounts Receivable. Except to Agent on behalf of the Banks or
pursuant to a Permitted Securitization, sell or assign any account, note or
trade acceptance receivable, if the sum of (i) the face value of the account,
note or trade acceptance receivables proposed to be transferred, plus (ii) the
face value of account, note or trade acceptance receivables transferred by the
Company and its Subsidiaries during the then current fiscal year of the Company
would exceed five percent (5%) of the face value of the account, note and trade
acceptance receivables of the Company and its Subsidiaries determined on a
Consolidated basis as of the end of the most recently concluded fiscal year of
the Company prior to giving effect to any such transfer.
8.10 Transactions with Affiliates. Enter into any transaction with any
of its stockholders or officers or its Affiliates (including without limitation
affiliated Dealers), except in the ordinary course of business and on terms not
materially less favorable than would be usual and customary in similar
transactions between Persons dealing at arm's length.
8.11 No Further Negative Pledges. Enter into or become subject to any
agreement (other than loan documents evidencing or otherwise related to the
Senior Debt, the Future Debt, the Permitted CAC UK Debt, lines of credit
maintained by Arlington Investment Company and permitted under Section 8.5(d)
hereof (but limited to Arlington Investment Company or the property and assets
of Arlington Investment Company) or unsecured overdraft lines of credit or
similar credit arrangements maintained by the Permitted Borrowers in the
ordinary course of
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business in the countries of their formation (but limited to the applicable
Permitted Borrower or the property and assets of the applicable Permitted
Borrower)or any purchase money Debt permitted under this Agreement or the other
Loan Documents, but only to the extent of the property acquired with the
proceeds of such purchase money Debt, and other than pursuant to any of the
Securitization Documents, but only to the extent of the Advances to Dealers,
Leased Vehicles, Installment Contracts or Leases, and the other rights and
property transferred or encumbered in connection with the Permitted
Securitization covered by such Securitization Documents) (i) prohibiting the
guaranteeing by the Company or any Subsidiary of any obligations, (ii)
prohibiting the creation or assumption of any lien or encumbrance upon the
properties or assets of the Company or any Subsidiary, whether now owned or
hereafter acquired, or (iii) requiring an obligation to become secured (or
further secured) if another obligation is secured or further secured. [Changes
in this Section to be given retroactive effect to 7/1/98].
8.12 Prepayment of Debts. Except for Permitted Prepayments and the
Permitted Senior Note Prepayment, prepay, purchase, redeem or defease any Debt
for money borrowed, excluding, subject to the terms hereof, the Indebtedness,
and excluding paydowns from time to time of permitted working capital facilities
or other revolving debt and mandatory payments, prepayments or redemptions for
which Company or any Subsidiary is obligated as of the date hereof or, with
respect only to the Senior Debt or for any Future Debt, for which Company or any
Subsidiary becomes obligated after the date hereof or, with respect only to
Permitted Securitizations, any payment pursuant to a Cleanup Call.
8.13 Amendment of Senior Debt or Future Debt Documents. Except with the
prior written approval of Agent and the Majority Banks, amend, modify or
otherwise alter (or suffer to be amended, modified or altered) or waive (or
permit to be waived) in any material respect, any documents or instruments
evidencing or otherwise related to Senior Debt or Future Debt so as to shorten
the original maturity date or amortization schedule thereof, or amend, modify or
otherwise alter (or suffer to be amended, modified or altered) any documents or
instruments evidencing or otherwise related to Senior Debt or Future Debt to
include (or enter into any Future Debt Documents which include) any covenants or
other provisions, other than a provision not more onerous to the Company than
Section 6.18 of the note purchase agreements governing the Senior Debt as in
effect on the date hereof, that require, for the amendment of any term or
provision of this Agreement, or the waiver of any term or provision hereof, the
approval or consent of any other creditor of the Company.
8.14 Amendment of Subordinated Debt Documents. Amend, modify or
otherwise alter (or suffer to be amended, modified or altered) any of the
material terms and conditions of those documents or instruments evidencing or
otherwise related to Subordinated Debt or waive (or permit to be waived) any
such provision thereof in any material respect, without the prior written
approval of Agent and the Majority Banks. For purposes of those documents and
instruments evidencing or otherwise related to the Subordinated Debt, any
increase in the original interest rate or principal amount, any shortening of
the original amortization, any change in any default, remedial or other
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repayment terms, any change in or waiver of conditions contained therein which
are required under or necessary for compliance with this Agreement or the other
Loan Documents or any change in the subordination provisions contained therein,
shall (without reducing the scope of this Section 8.14) be deemed to be
material.
8.15 Limitation on Dividends. Declare, make or otherwise set apart,
directly or indirectly, any funds or other property for, or incur any liability
to make any dividend or other distribution, direct or indirect and whether
payable in cash or property, on account of any capital stock or other equity
interest of the Company or any of its Subsidiaries, except to the extent that
any such dividend or distribution (i) is payable to the Company or any of its
Subsidiaries or (ii) is payable solely in capital stock or other equity
interests of the Company or any such Subsidiary (other than any Special Purpose
Subsidiary), unless, at the time of such action (and giving effect thereto) such
dividend or distribution is permitted under Section 2.5 of each of the
amendments to the note agreements which constitute Senior Debt Documents
executed concurrently with the execution of the Second Amendment to this
Agreement (the "December 1997 Note Agreement Amendments"), as such note
agreements are presently in effect (after giving effect to the December 1997
Note Agreement Amendments) without giving effect to any subsequent amendments,
modifications or waivers thereof, except to the extent expressly provided in
Section 2.6 of the December 1997 Note Agreement Amendments.
8.16 Securitization Transaction; Amendments to Securitization
Documents. Engage in a Securitization Transaction, other than a Permitted
Securitization and once executed and delivered pursuant to a Permitted
Securitization, amend, modify or otherwise alter any of the material terms and
conditions of any Securitization Documents or waive (or permit to be waived) any
such provision thereof in any material respect, adverse to the Company or any
Subsidiary, without the prior written approval of Agent and the Majority Banks.
For purposes of such documents and instruments, "material" and "materially"
shall be deemed to relate solely to recourse, Cleanup Calls or any change in or
waiver of conditions contained therein which are required under or necessary for
compliance with this Agreement. For purposes of the Securitization Documents,
the "material terms and conditions" thereof shall be deemed solely those terms
or conditions with respect to servicer fees, servicer expenses, defaults, events
of default, recourse to the Company or any Subsidiary (other than a Special
Purpose Subsidiary), Cleanup Calls or conditions contained therein which are
required under or necessary for compliance with this Agreement.
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<PAGE> 1
EXHIBIT 4(E)(5)
FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENT
RE:
CREDIT ACCEPTANCE CORPORATION
FIRST AMENDED AND RESTATED 8.02% SENIOR NOTES DUE OCTOBER 1, 2001
Dated as of December 1, 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 $30,792,613.68 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, the Second Amendment to
Note Purchase Agreement, dated as of July 1, 1998, and the Third Amendment to
Note Purchase Agreement, dated as of April 13, 1999, 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.
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 Fourth Amendment to Note
Purchase Agreement (this "Fourth Amendment") in the following respects:
2.1 SECTION 1.1. Section 1.1 is hereby amended and restated in its
entirety as set forth below.
<PAGE> 2
"1.1 AUTHORIZATION OF NOTES.
(a) On March 28, 1997, the Company issued Seventy-One
Million Seven Hundred Fifty Thousand Dollars ($71,750,000) in
aggregate principal amount of its 7.77% Senior Notes due
October 1, 2001 (the "Original Notes," such term to include
each Original Note delivered from time to time prior to the
effectiveness of the Second Amendment in accordance with any
of the Note Purchase Agreements), each:
(i) bearing interest (computed on the basis
of a 360-day year of twelve 30-day months) on the
unpaid principal balance thereof from the date of
such Original Note at the rate of seven and
seventy-seven one-hundredths percent (7.77%) per
annum, payable semi-annually on the first (1st) day
of April and the first (1st) day of October in each
year commencing on the later of October 1, 1997 or
the payment date next succeeding the date of such
Original Note;
(ii) bearing interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) nine and seventy-seven
one-hundredths percent (9.77%) per annum;
(iii) maturing on October 1, 2001; and
(iv) in the form of the Original Note set
out in Exhibit A, as in effect on the Closing Date.
(b) Pursuant to the Second Amendment, the Company and
the holders of the Original Notes have agreed to amend and
restate in full the Original Notes substantially in the form
attached to the Second Amendment as Attachment 1 thereto (the
"First Amended and Restated Notes," such term to include each
Original Note, as amended and restated pursuant to the Second
Amendment, and each First Amended and Restated Note delivered
from time to time on or after the effectiveness of the Second
Amendment in accordance with any of the Note Purchase
Agreements). Each First Amended and Restated Note will:
(i) be designated a "First Amended and
Restated 8.02% Senior Note Due October 1, 2001";
(ii) bear interest (computed on the basis of
a 360-day year of twelve 30-day months) on the unpaid
principal balance thereof from the date
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<PAGE> 3
of such Note at the rate of seven and seventy-seven
one-hundredths percent (7.77%) per annum through (but
not including) July 1, 1998, and at the rate of eight
and two one-hundredths percent (8.02%) per annum from
and after July 1, 1998 through, but not including,
December 1, 1999, payable semi-annually on the first
(1st) day of April and the first (1st) day of October
in each year commencing on the payment date next
succeeding the date of such First Amended and
Restated Note;
(iii) bear interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) (I) nine and seventy-seven
one-hundredths percent (9.77%) per annum if
such time is prior to July 1, 1998, or (II)
ten and two one-hundredths percent (10.02%)
per annum if such time is on or after July
1, 1998 and prior to December 1, 1999;
(iv) mature on October 1, 2001; and
(v) be in the form of the First Amended and
Restated Note set out in Exhibit A (as in effect upon
the effectiveness of the Second Amendment).
(c) Pursuant to the Fourth Amendment, the Company and
the holders of the Notes have agreed to amend and restate in
full the First Amended and Restated Notes which remain
outstanding at and after December 1, 1999 substantially in the
form attached to the Fourth Amendment as Attachment 4 thereto
(the "Second Amended and Restated Notes," such term to include
each Original Note, as amended and restated pursuant to the
Second Amendment, each First Amended and Restated Note
delivered from time to time on or after the effectiveness of
the Second Amendment in accordance with any of the Note
Purchase Agreements, and each Second Amended and Restated Note
delivered from time to time on or after December 1, 1999 in
accordance with any of the Note Purchase Agreements). Each
Second Amended and Restated Note will:
(i) (A) from and including December 1, 1999
through, but not including, January 15, 2000 be
designated a "Second Amended and Restated 8.77%
Senior Note Due October 1, 2001" and (B) from and
after January 15, 2000 be designated a "Second
Amended and Restated 9.27% Senior Note Due October 1,
2001";
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(ii) bear interest (computed on the basis of
a 360-day year of twelve 30-day months) on the unpaid
principal balance thereof from the date of such Note
at the rate of eight and seventy-seven one-hundredths
percent (8.77%) per annum from and including December
1, 1999 through, but not including, January 15, 2000,
and at the rate of nine and twenty-seven
one-hundredths percent (9.27%) per annum from and
after January 15, 2000 to and including the date of
maturity thereof, payable semi-annually on the first
(1st) day of April and the first (1st) day of October
in each year commencing on the payment date next
succeeding the date of such Second Amended and
Restated Note;
(iii) bear interest, payable on demand, on
any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if
any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at a rate
equal to the lesser of
(A) the highest rate allowed by
applicable law, or
(B) (I) ten and seventy-seven
one-hundredths percent (10.77%) per annum if
such time is from and including December 1,
1999 through, but not including, January 15,
2000, or (II) eleven and twenty-seven
one-hundredths percent (11.27%) per annum if
such time is on or after January 15, 2000;
(iv) mature on October 1, 2001; and
(v) be in the form of the Second Amended and
Restated Note set out in Exhibit A (as in effect upon
the effectiveness of the Fourth Amendment).
(d) The Original Notes, the First Amended and
Restated Notes and the Second Amended and Restated Notes are
referred to herein, collectively, as the "Notes". The term
"Notes" as used herein shall include each Note delivered
pursuant to the Note Purchase Agreements and each Note
delivered in substitution or exchange for any such Note
pursuant to Section 5.2 or Section 5.3, and shall be deemed
(i) when reference is made to a date prior to the effective
date of the Second Amendment, to be a reference to the
Original Notes, (ii) when reference is made to a date on or
after the effective date of the Second Amendment, to be a
reference to the First Amended and Restated Notes, and (iii)
when reference is made to a date on or after December 1, 1999,
to be a reference to the Second Amended and Restated Notes."
2.2 ARTICLE 6. Article 6 is hereby amended and restated in its entirety
as set forth below.
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"6. COVENANTS
The Company covenants that on and after the Closing Date and so long as
any of the Notes shall be outstanding:
6.1 DEBT AND ADVANCES.
(A) TOTAL DEBT. The Company will not at any time permit
Consolidated Total Debt to exceed any of the following:
(i)(A) two hundred seventy-five percent (275%) of
Consolidated Tangible Net Worth prior to the effective date of
the Second Amendment, and (B) two hundred percent (200%) of
Consolidated Tangible Net Worth from the effective date of the
Second Amendment until such time (but in no event prior to
December 31, 1998) as the Company has maintained a ratio of
(A) Consolidated Income Available for Fixed Charges for the
four consecutive fiscal quarters of the Company most recently
ended at such time to (B) Consolidated Fixed Charges for such
period of not less than 2.25 to 1.0 for two consecutive fiscal
quarters, then two hundred seventy-five percent (275%) of
Consolidated Tangible Net Worth, provided however, that for
the purposes of this test, Consolidated Total Debt shall be
calculated by including all Debt incurred by a Special Purpose
Subsidiary, whether or not included therein under GAAP;
(ii) Seventy-Five Percent (75%) of the sum of (A)
Advances and (B) Leased Vehicles; and
(iii) Sixty Percent (60%) of the sum of (A) Gross
Current Installment Contract Receivables and (B) Gross Current
Leased Vehicles.
(B) SENIOR FUNDED DEBT. The Company will not at any time
permit Consolidated Senior Funded Debt to exceed either
(i) two hundred percent (200%) of Consolidated
Tangible Net Worth at such time, or
(ii) (A) the sum of (I) Net Installment Contract
Receivables less Net Dealer Holdbacks and (II) Leased Vehicles
less Net Leased Vehicle Dealer Holdbacks, in each case at such
time, divided by
(B) 1.10.
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(C) SUBORDINATED FUNDED DEBT. The Company will not at any time
permit Consolidated Subordinated Funded Debt to exceed one hundred
fifty percent (150%) of Consolidated Tangible Net Worth at such time.
(D) RESTRICTED SUBSIDIARY DEBT. The Company will not at any
time permit the sum of (i) Total Restricted Subsidiary Debt at such
time plus, without duplication, (ii) the aggregate amount of all Debt
and other obligations outstanding at such time secured by Liens
permitted by clause (v), clause (vi) and clause (vii) of Section 6.6(a)
to exceed (A) on or before July 31, 1997, fifteen percent (15%) of
Consolidated Tangible Net Worth or (B) on or after August 1, 1997,
twenty percent (20%) of Consolidated Tangible Net Worth.
(E) COMMERCIAL PAPER. The Company will not, and will not
permit any Restricted Subsidiary to, issue commercial paper unless the
obligations of the Company or such Restricted Subsidiary with respect
to such commercial paper are backed by a Letter of Credit Facility.
(F) GROSS ADVANCES. The Company will not at any time permit
Gross Advances to exceed seventy percent (70%) of Net Installment
Contract Receivables; provided, however, that at any time at which the
Credit Agreement (as from time to time amended, restated, refinanced,
replaced or supplemented) does not permit the amount of Gross Advances
to exceed 65% of Net Installment Contract Receivables, the Company
shall not permit Gross Advances to exceed sixty-five percent (65%) of
Net Installment Contract Receivables.
6.2 FIXED CHARGE COVERAGE.
The Company will not at any time permit the ratio of
(a) Consolidated Income Available for Fixed Charges
for the period of four (4) consecutive fiscal quarters of the
Company most recently ended at such time to
(b) Consolidated Fixed Charges for such period
to be less than (i) 2.5 to 1.0 for any period of four fiscal
quarters ended on or prior to September 30, 1997, (ii) 1.9 to
1.0 for the four fiscal quarters ended December 31, 1997,
(iii) 1.7 to 1.0 for the four fiscal quarters ended March 31,
1998, (iv) 1.6 to 1.0 for the four fiscal quarters ended June
30, 1998, (v) 2.0 to 1.0 for the four fiscal quarters ended
September 30, 1998 and (vi) 2.25 to 1.0 for any four fiscal
quarters ended on or after December 31, 1998.
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6.3 CONSOLIDATED TANGIBLE NET WORTH.
The Company will not at any time permit Consolidated Tangible Net
Worth, determined at such time, to be less than the result of
(a) Two Hundred Eighteen Million Seven Hundred Twenty Five
Thousand Dollars ($218,725,000), plus
(b) the sum of (i) seventy-five percent (75%) of Consolidated
Net Income for each fiscal year ended during the period beginning on
January 1, 1999 and ending on such date (unless Consolidated Net Income
shall be a loss in any such fiscal year, in which event the amount
determined pursuant to this clause (b)(i) for such fiscal year shall be
zero) and (ii) 100% of the proceeds of each Equity Offering conducted
on and after July 1, 1998 by the Company or any of its Restricted
Subsidiaries, net of related costs of issuance payable to third
parties, on a cumulative basis.
6.4 SALE AND LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into, at any time, any Sale and Leaseback Transaction unless,
(a) after giving effect thereto,
(i) the sale of Property in connection with such Sale
and Leaseback Transaction is permitted pursuant to Section 6.8
and
(ii) the Debt to be secured by a Lien on the Property
to be leased in connection with such Sale and Leaseback
Transaction is permitted pursuant to the provisions of Section
6.1 and Section 6.6, and
(b) the lease of such Property constitutes a Capital Lease.
6.5 RESTRICTED INVESTMENTS.
The Company will not, and will not permit any Restricted Subsidiary to,
make any Restricted Investment.
6.6 LIENS.
(A) NEGATIVE PLEDGE. The Company will not, and will not permit
any Restricted Subsidiary to, cause or permit to exist, or agree or
consent to cause or permit to exist in the future (upon the happening
of a contingency or otherwise), any of their Property, whether now
owned or hereafter acquired, to be subject to any Lien except:
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(i) (A) Liens securing Property taxes, assessments or
governmental charges or levies or the claims or demands of
materialmen, mechanics, carriers, warehousemen, vendors,
landlords and other like Persons, provided that the payment
thereof is not at the time required by Section 6.12, (B) any
Lien encumbering Securitization Property which is the subject
of a Transfer pursuant to a Permitted Securitization, and (C)
any Lien granted in favor of the "Collateral Agent" (as
defined in the Intercreditor Agreement) for the benefit of the
Banks, the holders of Notes and "Future Debt Holders" (as
defined in the Intercreditor Agreement) and subject to the
Intercreditor Agreement;
(ii) Liens
(A) arising from judicial attachments and
judgments,
(B) securing appeal bonds or supersedeas
bonds, and
(C) arising in connection with court
proceedings (including, without limitation, surety
bonds and letters of credit or any other instrument
serving a similar purpose),
provided that (1) the execution or other enforcement of such
Liens is effectively stayed, (2) the claims secured thereby
are being contested in good faith and by appropriate
proceedings, (3) adequate book reserves in accordance with
GAAP shall have been established and maintained and shall
exist with respect thereto, (4) such Liens do not in the
aggregate detract from the value of such Property and (5) the
title of the Company or the Restricted Subsidiary, as the case
may be, to, and its right to use, such Property, is not
materially adversely affected thereby;
(iii) Liens incurred or deposits made in the ordinary
course of business
(A) in connection with workers'
compensation, unemployment insurance, social security
and other like laws, and
(B) to secure the performance of letters of
credit, bids, tenders, sales contracts, leases,
statutory obligations, surety and performance bonds
(of a type other than set forth in Section
6.6(a)(ii)) and other similar obligations not
incurred in connection with the borrowing of money,
the obtaining of advances or the payment of the
deferred purchase price of Property;
(iv) Liens in the nature of reservations, exceptions,
encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real Property, provided
that (1) such
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<PAGE> 9
exceptions and encumbrances do not in the aggregate materially
detract from the value of such Property and (2) title of the
Company or the Restricted Subsidiary, as the case may be, to,
and the right to use, such Property, is not materially
adversely affected thereby;
(v) Liens in existence on the Closing Date securing
Debt, provided that such Liens are described in Part 6.6(a)(v)
of Annex 3;
(vi) Purchase Money Liens, if, after giving effect
thereto and to any concurrent transactions:
(A) each such Purchase Money Lien secures
Debt in an amount not exceeding the cost of
acquisition or construction of the particular
Property to which such Debt relates; and
(B) immediately after giving effect thereto,
no Default or Event of Default would exist; and
(vii) Liens on Property not otherwise permitted under
clause (i) through clause (vi) of this Section 6.6(a) if the
obligations secured by such Liens, when added to (A) the
obligations secured by Liens pursuant to clause (v) and clause
(vi) of this Section 6.6(a) plus, without duplication, (B)
Total Restricted Subsidiary Debt at such time, do not exceed
(1) on or before July 31, 1997, fifteen percent (15%) of
Consolidated Tangible Net Worth or (2) on or after August 1,
1997, twenty percent (20%) of Consolidated Tangible Net Worth.
(B) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any
Property shall be subjected to a Lien in violation of this Section 6.6,
the Company will immediately make or cause to be made, to the fullest
extent permitted by applicable law, provision whereby the Notes will be
secured equally and ratably with all other obligations secured thereby
pursuant to such agreements and instruments as shall be approved by the
Required Holders, and the Company will cause to be delivered to each
holder of a Note an opinion, satisfactory in form and substance to the
Required Holders, of independent counsel to the effect that such
agreements and instruments are enforceable in accordance with their
terms, and in any such case the Notes shall have the benefit, to the
fullest extent that, and with such priority as, the holders of Notes
may be entitled thereto under applicable law, of an equitable Lien on
such Property securing the Notes (provided that, notwithstanding the
foregoing, each holder of Notes shall have the right to elect at any
time, by delivery of written notice of such election to the Company, to
cause the Notes held by such holder not to be secured by such Lien or
such equitable Lien). A violation of this Section 6.6 will constitute
an Event of Default, whether or not any such provision is made pursuant
to this Section 6.6(b).
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(C) FINANCING STATEMENTS. The Company will not, and will not
permit any Restricted Subsidiary to, sign or file a financing statement
under the Uniform Commercial Code of any jurisdiction that names the
Company or such Restricted Subsidiary as debtor, or sign any security
agreement authorizing any secured party thereunder to file any such
financing statement, except, in any such case, a financing statement
filed or to be filed to perfect or protect a security interest that the
Company or such Restricted Subsidiary is permitted to create, assume or
incur, or permit to exist, under the foregoing provisions of this
Section 6.6 or to evidence for informational purposes a lessor's
interest in Property leased to the Company or any such Restricted
Subsidiary.
6.7 MERGER AND CONSOLIDATION; COVENANT TO MERGE CAC INTERNATIONAL.
(A) MERGER AND CONSOLIDATION. The Company will not, and will
not permit any Restricted Subsidiary to, merge or consolidate with or
into, or sell, lease, transfer or otherwise dispose of all or
substantially all of its Property to, any other Person or permit any
other Person to merge or consolidate with or into it (the Company, the
Restricted Subsidiary or such other Person that is the surviving
corporation or transferee being herein referred to as the "Surviving
Corporation"), provided that the foregoing restrictions shall not apply
to:
(i) the merger or consolidation of the Company with
or into, or the sale of all or substantially all of the
Property of the Company to, another corporation, if:
(A) the Surviving Corporation is solvent and
is organized under the laws of the United States of
America or any state thereof;
(B) the due and punctual payment of the
principal of and Make-Whole Amount, if any, and
interest on all of the Notes, according to their
tenor, and the due and punctual performance and
observance of all the covenants in the Notes and this
Agreement to be performed or observed by the Company,
are expressly assumed or acknowledged by the
Surviving Corporation in a manner satisfactory to the
Required Holders, and the Company causes to be
delivered to each holder of Notes an opinion of
independent counsel, in form, scope and substance
satisfactory to the Required Holders, to the effect
that such assumption or acknowledgment is enforceable
in accordance with its terms; and
(C) immediately prior to, and immediately
after the consummation of the transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist;
(ii) the merger or consolidation of a Restricted
Subsidiary with or into, or the sale of all or substantially
all of the Property of such Restricted Subsidiary to, the
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Company, another Restricted Subsidiary or any other Person
that concurrently with such merger, consolidation or sale
becomes a Restricted Subsidiary, if:
(A) the Surviving Corporation is organized
under the laws of the United States of America or any
state thereof; and
(B) immediately prior to, and immediately
after the consummation of the transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist;
(iii) the Transfer of Securitization Property to any
Special Purpose Subsidiary in connection with a Permitted
Securitization; and
(iv) a merger, consolidation or Transfer of a
Restricted Subsidiary or Restricted Subsidiaries pursuant to
the Montana Disposition or the Arlington Disposition.
(B) COVENANT TO MERGE CAC INTERNATIONAL. The Company covenants
and agrees that it shall merge CAC International with and into the
Company (with the Company being the survivor) on or before May 15,
1997, in accordance with Section 6.7(a).
6.8 TRANSFERS OF PROPERTY; SUBSIDIARY STOCK.
(A) TRANSFERS OF PROPERTY. Except as permitted under Section
6.7(a), the Company will not, and will not permit any Restricted
Subsidiary to, sell, lease as lessor, transfer or otherwise dispose of
any Property (including, without limitation, Restricted Subsidiary
Stock) (collectively, "Transfers"), except:
(i) Transfers from a Restricted Subsidiary to the
Company or to a Wholly-Owned Restricted Subsidiary;
(ii) any other Transfer at any time of any Property
to a Person, other than an Affiliate, for an Acceptable
Consideration, if each of the following conditions would be
satisfied with respect to such Transfer:
(A) the result of
(1) the sum of
(aa) the current book value
of such Property, plus
(bb) the aggregate book
value of all other Property of the
Company and the Restricted
Subsidiaries, determined
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on a consolidated basis, Transferred
(other than in Transfers referred to
in clauses (i), (iii), (iv), (v) and
(vi) of this Section 6.8(a) (the
"Excluded Transfers"), but including
Transfers pursuant to Section 6.8(b)
other than in connection with the
Montana Disposition or the Arlington
Disposition) during the twelve (12)
month period ended immediately prior
to the date of such Transfer, minus
(2) the aggregate cost of all
Capital Assets acquired by the Company and
the Restricted Subsidiaries, determined on a
consolidated basis, during such twelve (12)
month period,
would not exceed ten percent (10%) of Consolidated
Net Tangible Assets determined as at the end of the
most recently ended fiscal year of the Company prior
to giving effect to such Transfer, and
(B) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default would
exist;
(iii) Transfers of Securitization Property to a
Restricted Subsidiary or a Special Purpose Subsidiary pursuant
to a Permitted Securitization if, immediately before and after
the consummation of such Transfer, and after giving effect
thereto, no Default or Event of Default would exist;
(iv) Transfers of the capital stock of a Special
Purpose Subsidiary to the Company or a Restricted Subsidiary
if, immediately before and after the consummation of such
Transfer, and after giving effect thereto, no Default or Event
of Default would exist;
(v) any Transfer made pursuant to the Montana
Disposition (including without limitation the transfer by the
Company of its intellectual property rights to the name
Tele-Track, Inc.) or the Arlington Disposition if, immediately
before and after the consummation of such Transfer, and after
giving effect thereto, no Default or Event of Default would
exist; and
(vi) any Transfer of Installment Contracts or Leases
made to a Dealer due to the termination of a Dealer Agreement,
for which Transfer the Company or any of its Restricted
Subsidiaries receives an Acceptable Consideration.
(b) TRANSFERS OF SUBSIDIARY STOCK. The Company will not, and
will not permit any Restricted Subsidiary to, Transfer any shares of
the stock (or any warrants, rights or options to purchase stock or
other Securities exchangeable for or convertible into stock) of a
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Restricted Subsidiary (such stock, warrants, rights, options and other
Securities herein called "Restricted Subsidiary Stock"), nor will any
Restricted Subsidiary issue, sell or otherwise dispose of any shares of
its own Restricted Subsidiary Stock, provided that the foregoing
restrictions do not apply to:
(i) the issuance by a Restricted Subsidiary of shares
of its own Restricted Subsidiary Stock to the Company or a
Wholly-Owned Restricted Subsidiary;
(ii) Transfers by the Company or a Restricted
Subsidiary of shares of Restricted Subsidiary Stock to the
Company or a Wholly-Owned Restricted Subsidiary;
(iii) the issuance by a Restricted Subsidiary of
directors' qualifying shares; and
(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 the Arlington Disposition or if:
(A) such Transfer satisfies the requirements
of Section 6.8(a)(ii);
(B) in connection with such Transfer the
entire Investment (whether represented by stock,
Debt, claims or otherwise) of the Company and the
other Restricted Subsidiaries in such Restricted
Subsidiary is Transferred to a Person other than the
Company or a Restricted Subsidiary not simultaneously
being disposed of;
(C) the Restricted Subsidiary being disposed
of has no continuing Investment in any other
Restricted Subsidiary not simultaneously being
disposed of or in the Company; and
(D) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default would
exist.
For purposes of determining the book value of Property constituting
Restricted Subsidiary Stock being Transferred as provided in clause
(iv) above, such book value shall be deemed to be the aggregate book
value of all assets of the Restricted Subsidiary that shall have issued
such Restricted Subsidiary Stock. Any Transfer of Restricted Subsidiary
Stock pursuant to clause (iv) above shall be deemed to be a Transfer of
the accounts receivable of such Restricted Subsidiary which must
satisfy the requirements of Section 6.8(c).
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(c) ACCOUNTS RECEIVABLE. Notwithstanding the provisions of
Section 6.8(a), except in connection with a Permitted Securitization or
in connection with the Montana Disposition or the Arlington
Disposition, neither the Company nor any Restricted Subsidiary will
Transfer any accounts receivable if the sum of
(i) the face value of the accounts receivable
proposed to be Transferred, plus
(ii) the face value of accounts receivable
Transferred by the Company and all Restricted Subsidiaries
during the then current fiscal year of the Company,
would exceed five percent (5%) of the face value of the accounts
receivable of the Company and the Restricted Subsidiaries determined on
a consolidated basis as at the end of the most recently ended fiscal
year of the Company prior to giving effect to such Transfer (but
excluding for purposes of such calculation accounts receivable
attributable to assets the title to which is held by a Special Purpose
Subsidiary pursuant to a Permitted Securitization).
6.9 LINE OF BUSINESS.
The Company will not, and will not permit any Restricted Subsidiary to,
engage in, or make any Investment in any business engaged in, the provision of
property and casualty insurance unless the Company or such Restricted Subsidiary
shall maintain reinsurance of its underwriting risk, with one or more reinsurers
rated "A-" or better by Standard & Poor's Ratings Group or "A3" or better by
Moody's Investors Service, Inc., for all of the Company's or such Restricted
Subsidiary's exposure in excess of one hundred percent (100%) of the premiums
written by the Company or such Restricted Subsidiary. In addition to the
foregoing, the Company will not, and will not permit any Restricted Subsidiary
to, engage in any business if, after giving effect thereto, the general nature
of the businesses of the Company and the Restricted Subsidiaries, taken as a
whole, would no longer be the provision of financing programs for the purchase
or lease of used motor vehicles, motor vehicle service protection programs,
credit life, accident and health insurance programs and other programs related
to the foregoing (it being understood that, in the course of the provision of
such programs, the Company may be obligated to remit monies held by it in
connection with dealer holdbacks, claims or refunds under insurance policies,
claims or refunds under service contracts, and to make deposits in trust or
otherwise as required under reinsurance agreements or pursuant to state
regulatory requirements). The Company shall manage and operate such businesses
in substantially the same manner that they are managed and operated as of the
date hereof.
6.10 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any transaction, including, without limitation, the purchase, sale or
exchange of Property or the rendering of any service, with any Affiliate, except
(a) a Permitted Securitization or (b) in the ordinary course of and pursuant to
the reasonable requirements of the Company's or such Restricted Subsidiary's
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business and upon fair and reasonable terms no less favorable to the Company or
such Restricted Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
6.11 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC.
The Company will, and will cause each Restricted Subsidiary to:
(a) PROPERTY -- maintain, preserve and keep its Property in
good condition and working order, ordinary wear and tear excepted, and
make all necessary repairs, renewals, replacements, additions,
betterments and improvements thereto, except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect;
(b) INSURANCE -- maintain, with financially sound and
reputable insurers, insurance with respect to its Property and business
against such casualties and contingencies, of such types (including,
without limitation, insurance with respect to losses arising out of
Property loss or damage, public liability, business interruption,
larceny, workers' compensation, embezzlement or other criminal
misappropriation) and in such amounts as is customary in the case of
corporations of established reputations engaged in the same or a
similar business and similarly situated, provided that such insurance
is commercially available, it being understood that the Company and the
Restricted Subsidiaries may self-insure against hazards and risks with
respect to which, and in such amounts as, the Company in good faith
determines to be prudent and consistent with sound financial and
business practice;
(c) FINANCIAL RECORDS -- keep accurate and complete books of
records and accounts in which accurate and complete entries shall be
made of all its business transactions and that will permit the
provision of accurate and complete financial statements in accordance
with GAAP;
(d) CORPORATE EXISTENCE AND RIGHTS --
(i) do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises,
except where the failure to do so, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, and
(ii) to maintain each Subsidiary as a Subsidiary,
in each case except as permitted or required by Section 6.7(a) and
Section 6.8(b); and
(e) COMPLIANCE WITH LAW -- not be in violation of any law,
ordinance or governmental rule or regulation to which it is subject
(including, without limitation, any Environmental Protection Law and
OSHA) and not fail to obtain any license, certificate,
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permit, franchise or other governmental authorization necessary to the
ownership of its Properties or to the conduct of its business if such
violations or failures to obtain, in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
6.12 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, pay before they
become delinquent:
(a) all taxes, assessments and governmental charges or levies
imposed upon it or its Property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if
unpaid, might result in the creation of a Lien upon its Property;
provided, that items of the foregoing description need not be paid
(i) while being contested in good faith and by
appropriate proceedings as long as adequate book reserves have
been established and maintained and exist with respect
thereto, and
(ii) so long as the title of the Company or the
Subsidiary, as the case may be, to, and its right to use, such
Property, is not materially adversely affected thereby.
6.13 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of
and interest (and Make-Whole Amount, if any) on, the Notes, as and when the same
shall become due according to the terms hereof and of the Notes, and will
maintain an office at the address of the Company set forth in Section 10.1 where
notices, presentations and demands in respect hereof or of the Notes may be made
upon it. Such office will be maintained at such address until such time as the
Company shall notify the holders of the Notes in writing of any change of
location of such office, which will in any event be located within the United
States of America.
6.14 PENSION PLANS.
(a) COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times with respect to each Pension Plan, make
timely payment of contributions required to meet the minimum funding
standard set forth in ERISA or the IRC with respect thereto, and to
comply with all other applicable provisions of ERISA and the IRC.
(b) RELATIONSHIP OF VESTED BENEFITS TO PENSION PLAN ASSETS.
The Company will not at any time permit the present value of all
employee benefits vested under each Pension
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Plan to exceed the assets of such Pension Plan allocable to such vested
benefits at such time, in each case determined pursuant to Section
6.14(c).
(c) VALUATIONS. All assumptions and methods used to determine
the actuarial valuation of vested employee benefits under Pension Plans
and the present value of assets of Pension Plans will be reasonable in
the good faith judgment of the Company and will comply with all
requirements of law.
(d) PROHIBITED ACTIONS. The Company will not, and will not
permit any ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as
defined in section 406 of ERISA or section 4975 of the IRC)
that would result in the imposition of a material tax or
penalty;
(ii) incur with respect to any Pension Plan any
"accumulated funding deficiency" (as defined in section 302 of
ERISA), whether or not waived;
(iii) terminate any Pension Plan in a manner that
could result in the imposition of a Lien on the Property of
the Company or any Subsidiary pursuant to section 4068 of
ERISA or the creation of any liability under section 4062 of
ERISA;
(iv) fail to make any payment required by section 515
of ERISA; or
(v) at any time be an "employer" (as defined in
section 3(5) of ERISA) required to contribute to any
Multiemployer Plan or a "substantial employer" (as defined in
section 4001 of ERISA) required to contribute to any Multiple
Employer Pension Plan if, at such time, it could reasonably be
expected that the Company or any Subsidiary will incur
withdrawal liability in respect of such Multiemployer Plan or
Multiple Employer Pension Plan and such liability, if
incurred, together with the aggregate amount of all other
withdrawal liability as to which there is a reasonable
expectation of incurrence by the Company or any Subsidiary
under any one or more Multiemployer Plans or Multiple Employer
Pension Plans, could reasonably be expected to have a Material
Adverse Effect.
6.15 PRO-RATA OFFERS; MANDATORY PURCHASE.
(a) GENERAL. Except as provided in Section 6.15(b), the
Company will not, and will not permit any Subsidiary or any Affiliate
to, directly or indirectly, acquire or make any offer to acquire any
Notes unless the Company or such Subsidiary or Affiliate shall have
offered to acquire Notes, pro rata, from all holders of the Notes and
upon the same terms. In case the Company acquires any Notes pursuant to
this Section 6.15, such Notes will immediately thereafter be canceled
and no Notes will be issued in substitution therefor. Each
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purchase of the Notes pursuant to this Section 6.15 shall be applied to
reduce ratably each of the Mandatory Principal Amortization Payments
remaining after the date of such purchase.
(b) MANDATORY PURCHASE OF NOTES. The Company shall, on or
before January 15, 2000, acquire from the holders thereof the Notes
listed on Attachment 6 to the Fourth Amendment (the "Repurchased
Notes") for a price equal to the outstanding principal amount of such
Repurchased Notes at such time as set forth on Attachment 6, plus
interest accrued but unpaid to, but not including, the date of such
purchase. The Company shall give written notice to the holders of the
Repurchased Notes, no later than the second Business Day prior to such
payment, of the date on which such payment is to be made. It is
understood and acknowledged by the parties to this Agreement that (i)
compliance by the Company with the obligations in this Section 6.15(b)
shall not be deemed a breach of any of the Company's obligations under
Section 4 of this Agreement; (ii) upon payment of the price provided in
this Section 6.15(b) to the holders of the Repurchased Notes, the
Company shall immediately cancel the Repurchased Notes and no Notes
will be issued in substitution therefor (except that a substitute Note
shall be issued for the balance outstanding if less than the full
amount of the Note is to be repurchased pursuant hereto); and (iii) the
Company's failure to comply with the obligation to make any payment
required by this Section 6.15(b) on or before the required payment date
shall be considered a failure to make a principal payment when due for
purposes of Section 8.1(a) of this Agreement. The purchase of
Repurchased Notes pursuant to this Section 6.15(b) shall be applied to
reduce ratably each of the Mandatory Principal Amortization Payments
remaining after the date of such purchase.
6.16 PRIVATE OFFERING.
The Company will not, and will not permit any Person acting on its
behalf to, offer the Notes or any part thereof or any similar Securities for
issuance or sale to, or solicit any offer to acquire any of the same from, any
Person so as to bring the issuance and sale of the Notes within the provisions
of section 5 of the Securities Act.
6.17 DESIGNATION OF SUBSIDIARIES.
(a) RIGHT OF DESIGNATION. Subject to the satisfaction of the
requirements of Section 6.17(c), the Company shall have the right to
designate any newly acquired or formed Subsidiary as an Unrestricted
Subsidiary by delivering to each holder of Notes a writing, signed by a
Vice President or the President of the Company, so designating such
Subsidiary within thirty (30) days of the acquisition or formation of
such Subsidiary by the Company or any Restricted Subsidiary. Any such
Subsidiary so designated within such thirty (30) day period shall be
deemed to have been an Unrestricted Subsidiary as of the date of such
acquisition or formation and any such Subsidiary not so designated
within such thirty (30) day period shall be deemed to have been a
Restricted Subsidiary as of the date of such acquisition or formation.
For all purposes of this Agreement, each Subsidiary designated as an
Unrestricted Subsidiary in Part 6.17(a) of Annex 3 shall, subject to
Section 6.17(b), be an
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Unrestricted Subsidiary and all other Subsidiaries, if any, listed in
Part 2.3 of Annex 3 shall be Restricted Subsidiaries.
(b) RIGHT OF REDESIGNATION. No Restricted Subsidiary shall be
redesignated as an Unrestricted Subsidiary. Subject to the satisfaction
of the requirements of Section 6.17(c), the Company may at any time
designate any Unrestricted Subsidiary as a Restricted Subsidiary by
delivering a written notice to such effect, signed by a Vice President
or the Chairman, President or Treasurer of the Company, to each holder
of Notes.
(c) DESIGNATION CRITERIA.
(i) No corporation acquired or formed after the
Closing Date shall be designated as a Restricted Subsidiary
(including deemed designation pursuant to Section 6.17(a))
unless:
(A) such Subsidiary at such time meets all
of the requirements of a "Restricted Subsidiary" as
set forth in the definition thereof; and
(B) immediately before and after, and after
giving effect to such designation, no Default or
Event of Default exists or would exist.
(ii) No Subsidiary shall at any time after the
Closing Date be designated as an Unrestricted Subsidiary
pursuant to Section 6.17(a) unless:
(A) immediately before and after, and after
giving effect to such designation, no Default or
Event of Default exists or would exist; and
(B) such Subsidiary does not own, directly
or indirectly, any Funded Debt or capital stock of
any Restricted Subsidiary.
(d) EFFECTIVENESS. Any designation under Section 6.17(b) that
satisfies all of the conditions set forth in Section 6.17(c) shall
become effective, for purposes of this Agreement, on the day that
notice thereof shall have been mailed (postage prepaid, by registered
or certified mail, return receipt requested) by the Company to each
holder of Notes at the addresses as provided in Section 10.1.
6.18 AMENDMENT OF BANK TERM DEBT OR SUBORDINATED DEBT DOCUMENTS;
TERMINATION OF RESTRICTION ON BANK TERM DEBT AMENDMENTS; NO
FURTHER RESTRICTIONS ON AMENDMENTS OF THIS AGREEMENT.
(a) AMENDMENT OF BANK TERM DEBT OR SUBORDINATED DEBT
DOCUMENTS. The Company will not amend, modify or otherwise alter (or
suffer to be amended, modified or
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altered), or waive (or permit to be waived), in any material respect,
any of the terms or provisions of any document or instrument:
(i) evidencing or otherwise relating to any Bank Term
Debt so as to shorten the maturity or original amortization of
such Bank Term Debt, or
(ii) evidencing or otherwise relating to any
Subordinated Debt so as to increase the original interest rate
on, or the principal amount of, such Subordinated Debt,
shorten the original amortization of such Subordinated Debt,
change any other repayment terms or any default or remedial
provisions in any such document or instrument, or change the
subordination provisions contained in any such document or
instrument,
in each case without the prior written approval of the Required Holders.
(b) TERMINATION OF RESTRICTION ON BANK TERM DEBT AMENDMENTS.
Subject to Section 6.18(c), the provisions of Section 6.18(a), insofar
as such provisions relate to amendments, modifications, alterations or
waivers of Bank Term Debt, will terminate and be of no further force or
effect at such time as the Company causes to be delivered to each
holder of Notes a duly executed copy of an amendment or modification of
the Credit Agreement (or any new agreement contemplated by Section
6.18(c)(ii) below) deleting Section 8.13 of the Credit Agreement (or
the comparable provision in such new agreement) effective on or prior
to the date of such delivery.
(c) NO FURTHER RESTRICTIONS ON AMENDMENTS OF THIS AGREEMENT.
The Company will not:
(i) amend, modify or otherwise alter (or suffer to be
amended, modified or altered) the Credit Agreement (including,
without limitation, Section 8.13 thereof) or any document or
instrument relating thereto to include any covenant or other
provision (other than Section 8.13 of the Credit Agreement as
in effect on the Closing Date) that requires, as a condition
to the amendment of any term or provision of this Agreement,
or the waiver of any term or provision herein, the approval or
consent of any other creditor of the Company; or
(ii) enter into any other agreement (or suffer to be
amended, modified or altered any other agreement to which the
Company is a party) that requires, as a condition to the
amendment of any term or provision of this Agreement, or the
waiver of any term or provision herein, the approval or
consent of any other creditor of the Company; provided that if
(A) any such agreement is entered into to replace, refinance
or supplement the Credit Agreement and (B) Section 8.13 of the
Credit Agreement (as in effect on the Closing Date) shall not
have been deleted from the Credit Agreement as of the time
such new agreement is to be entered into, such new
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agreement may include a covenant substantially the same as
(and not more onerous on the Company than) Section 8.13 of the
Credit Agreement (as in effect on the Closing Date).
6.19 AMENDMENT OF SECURITIZATION DOCUMENTS. Once executed and delivered
pursuant to a Permitted Securitization, the Company covenants that it will not
permit the "pertinent terms, conditions or provisions" of the Securitization
Documents to be waived, amended, modified or otherwise altered in any material
respect adverse to the Company or any Restricted Subsidiary or Special Purpose
Subsidiary without the prior written approval of the Required Holders. For
purposes of the Securitization Documents, the "pertinent terms, conditions or
provisions" thereof shall be deemed solely those terms, conditions or provisions
with respect to servicer fees, servicer expenses, defaults, events of default,
recourse to the Company or any Restricted Subsidiary, Cleanup Calls or
conditions contained therein which are required under or necessary for
compliance with this Agreement.
6.20 RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, declare, make, set apart any
funds or other property for, or incur any liability to make any
Restricted Payment unless, at the time of such action, at least two of
the following four organizations shall have assigned an Investment
Grade Rating to the Company, the Notes or any other senior unsecured
debt obligation of the Company: Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group, the National Association of Insurance
Commissioners (the "NAIC"), or Fitch Investors Services, Inc.
(b) The parties hereto specifically acknowledge that the NAIC
is not in any way a rating agency with functions such as those
performed by Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, or Fitch Investors Services, Inc. Further, the parties hereto
specifically acknowledge that any rating given to the Notes by the NAIC
is not to be interpreted as an expression by the NAIC with respect to
the suitability of an investment in the Notes or the likelihood of any
payment in respect thereof. In addition, the signatories hereto
specifically affirm that the holders of the Notes will not obtain any
benefit from satisfaction of the requirement set forth in Section
6.20(a).
(c) If the NAIC makes specific reference to Section 6.20(a)
and states that it will withdraw any rating or designation of the
Notes, or will take any other action adverse to any one or more of the
holders of the Notes, as a result of the agreement set forth in Section
6.20(a), the parties hereto hereby agree that:
(i) Section 6.20(a) shall, in lieu of the requirement
set forth therein, be deemed to require an Investment Grade
Rating from at least two of the following three organizations:
Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, or Fitch Investors Services, Inc.; and
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(ii) Clause (iii) of the definition of "Investment
Grade Rating" shall be deemed to have been deleted.
Such changes shall take effect upon delivery of written notice to the
Company by the Required Holders referring to such proposed withdrawal
or other action and stating that the condition set forth in this
Section 6.20(c) has occurred.
6.21 NO SECURITIZATIONS OTHER THAN PERMITTED SECURITIZATIONS. The
Company will not, and will not permit any Restricted Subsidiary to, engage in
any Securitization Transaction other than a Permitted Securitization."
2.3 SECTION 7.1. Section 7.1 is hereby amended and restated in its
entirety as set forth below.
"7.1 Financial and Business Information.
The Company will deliver to each holder of Notes:
(A) QUARTERLY STATEMENTS -- as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year),
and in any event within sixty (60) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and
its consolidated subsidiaries and consolidated and
consolidating balance sheets of the Company and the Restricted
Subsidiaries, as at the end of such quarter, and
(ii) consolidated statements of income and cash flows
of the Company and its consolidated subsidiaries and
consolidated and consolidating statements of income and cash
flows of the Company and the Restricted Subsidiaries, for such
quarter and (in the case of the second and third quarters) for
the portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the immediately preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and accompanied by the
certificate required by Section 7.2, and, in the case of the financial
statements relating to the Company and its Restricted Subsidiaries,
certified as complete and correct, subject to changes resulting from
year-end adjustments, by a Senior Financial Officer, and, in the case
of the financial statements relating to the Company and its
consolidated subsidiaries at any time when a Quarterly Report on Form
10-Q is not filed by the Company with the Securities and Exchange
Commission and delivered to the holders of the Notes pursuant to clause
(d) of
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this Section 7.1, certified as complete and correct, subject to changes
resulting from year-end adjustments, by a Senior Financial Officer;
(B) ANNUAL STATEMENTS -- as soon as practicable after the
end of each fiscal year of the Company, and in any event within one
hundred twenty (120) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and
its consolidated subsidiaries and consolidated and
consolidating balance sheets of the Company and the Restricted
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, shareholders'
equity and cash flows of the Company and its consolidated
subsidiaries and consolidated and consolidating statements of
income, shareholders' equity and cash flows of the Company and
the Restricted Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
immediately preceding fiscal year, all in reasonable detail, prepared
in accordance with GAAP, and accompanied by
(A) in the case of the financial statements
relating to the Company and its consolidated
subsidiaries, an opinion of independent certified
public accountants of recognized national standing,
which opinion shall, without qualification, state
that such financial statements present fairly, in all
material respects, the financial position of the
companies being reported upon and their results of
operations and cash flows and have been prepared in
conformity with GAAP, and that the examination of
such accountants in connection with such financial
statements has been made in accordance with generally
accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the
circumstances, and
(B) in the case of the financial statements
relating to the Company and its Restricted
Subsidiaries, certified as complete and correct by a
Senior Financial Officer, and
(C) the certificate required by Section 7.2
and, in the case of the financial statements relating
to the Company and its consolidated subsidiaries, the
certificate required by Section 7.3;
(C) AUDIT REPORTS -- promptly upon receipt thereof, a
copy of each other report submitted to the Company or any Restricted
Subsidiary by independent accountants in connection with any
management report, special audit report or comparable analysis prepared
by them with respect to the books of the Company or any Restricted
Subsidiary;
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<PAGE> 24
(D) SEC AND OTHER REPORTS -- promptly upon their becoming
available, a copy of each financial statement, report (including,
without limitation, each Quarterly Report on Form 10-Q, each Annual
Report on Form 10-K and each Current Report on Form 8-K), notice or
proxy statement sent by the Company or any Subsidiary to stockholders
generally and of each regular or periodic report and any registration
statement, prospectus or written communication (other than transmittal
letters), and each amendment thereto, in respect thereof filed by the
Company or any Subsidiary with, or received by, such Person in
connection therewith from, the National Association of Securities
Dealers, any securities exchange or the Securities and Exchange
Commission or any successor agency;
(E) ERISA --
(i) immediately upon becoming aware of the occurrence
of any
(A) "reportable event" (as defined in
section 4043 of ERISA), excluding, however, such
events as to which the PBGC by regulation shall have
waived the requirement of section 4043(a) of ERISA
that it be notified within thirty (30) days of the
occurrence of such event (provided that a failure to
meet the minimum funding standard of section 412 of
the IRC and of section 302 of ERISA shall not be so
excluded regardless of the issuance of any such
waiver of the notice requirement in accordance with
either section 4043(a) of ERISA or section 412(d) of
the IRC), or
(B) "prohibited transaction" (as defined in
section 406 of ERISA or section 4975 of the IRC),
in connection with any Pension Plan or any trust created
thereunder, a written notice specifying the nature thereof,
what action the Company is taking or proposes to take with
respect thereto and, when known, any action taken by the IRS,
the DOL or the PBGC with respect thereto, and
(ii) prompt written notice of and, where applicable, a
description of
(A) any notice from the PBGC in respect of the
commencement of any proceedings pursuant to section 4042 of
ERISA to terminate any Pension Plan or for the appointment of
a trustee to administer any Pension Plan,
(B) any distress termination notice delivered to the
PBGC under section 4041 of ERISA in respect of any Pension
Plan, and any determination of the PBGC in respect thereof,
(C) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA,
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(D) any Multiemployer Plan becoming "insolvent" (as
defined in section 4245 of ERISA) under Title IV of ERISA, and
(E) the whole or partial withdrawal of the Company
or any ERISA Affiliate from any Multiemployer Plan or Multiple
Employer Pension Plan and the withdrawal liability incurred in
connection therewith;
(F) ACTIONS, PROCEEDINGS -- promptly after the commencement
thereof, notice of any action or proceeding relating to the Company or
any Subsidiary in any court or before any Governmental Authority or
arbitration board or tribunal as to which there is a reasonable
possibility of an adverse determination and that, if adversely
determined, would have a Material Adverse Effect;
(G) CERTAIN ENVIRONMENTAL MATTERS -- prompt written notice of
and a description of any event or circumstance that, had such event or
circumstance occurred or existed immediately prior to the Closing Date,
would have been required to be disclosed as an exception to any
statement set forth in Section 2.13;
(H) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- immediately upon
becoming aware of the existence of any condition or event that
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company is taking or proposes to take with respect thereto;
(I) NOTICE OF CLAIMED DEFAULT -- immediately upon becoming
aware that the holder of any Note, or of any Debt or any Security of
the Company or any Subsidiary, shall have given notice or taken any
other action with respect to a claimed Default, Event of Default,
default or event of default, a written notice specifying the notice
given or action taken by such holder and the nature of the claimed
Default, Event of Default, default or event of default and what action
the Company is taking or proposes to take with respect thereto; and
(J) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information as from time to time may be reasonably
requested by any holder of Notes, including, without limitation,
(i) copies of any statement, report or certificate
furnished to any holder of any Debt or any Security of the
Company or any Subsidiary,
(ii) information requested to comply with any request
of the National Association of Insurance Commissioners in
respect of the designation of the Notes, and
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(iii) information requested to comply with 17 C.F.R.
ss.230.144A, as amended from time to time;
provided that any such request with respect to any of the data and
information referred to in the foregoing clauses (i), (ii) and (iii)
shall be deemed to be reasonable for purposes of this Section 7.1(j).
In addition to the foregoing, the Company will also deliver to each
holder of Notes:
(1) as soon as available, and in any event within
sixty (60) days of the end of each fiscal quarter, (A) a
"static pool analysis" substantially in the form of Exhibit F
attached hereto and in any event satisfactory in form and
substance to the Required Holders, which analyzes the
performance of the Company's and each Restricted Subsidiary's
Installment Contracts (segregated between the Company's North
American operations and its UK operations) on a quarterly
basis, and (B) for quarters beginning with the quarter ended
September 30, 1999, a comparable "static pool analysis" which
analyzes the performance of the Company's and each Restricted
Subsidiary's Leases on a quarterly basis (segregated between
the Company's North American operations and its UK
operations), in each case, with respect to clauses (A) and (B)
above, certified by an authorized officer of the Company as to
consistency with prior such analyses, accuracy and fairness of
presentation;
(2) promptly upon the request of the Required Holders
from time to time (but no more often than semi-annually), a
"static pool analysis" which analyzes the performance of any
Installment Contracts or Leases transferred or encumbered
pursuant to a Permitted Securitization comparable to the
static pool analysis required to be delivered pursuant to
clause (1) of this Section 7.1(j); and
(3) within five (5) Business Days after the execution
and delivery thereof, a copy of any amendment to, or waiver of
any provisions of, the Credit Agreement or Securitization
Documents (in each case, as from time to time amended,
restated, refinanced, replaced or supplemented)."
2.4 SECTION 9.1. Section 9.1 is hereby amended and restated in its
entirety as set forth below.
"9.1 Terms Defined.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ACCEPTABLE CONSIDERATION -- means, with respect to any Transfer of any
Property of the Company or a Restricted Subsidiary, cash consideration,
promissory notes or such other
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consideration (or any combination of the foregoing) received by such Person in
connection with such Transfer as is, in each case, determined by the Board of
Directors, in its good faith opinion, to be in the best interests of the Company
and to reflect the Fair Market Value of such Property. It is understood that the
Company's or such Restricted Subsidiary's acceptance of any such consideration
in connection with such Transfer will constitute an Investment and may,
depending upon the form of such consideration, constitute a Restricted
Investment made by the Company or such Restricted Subsidiary.
ADVANCES -- means, at any time, the dollar amount of advances in
respect of Installment Contracts, as such amount would appear in the footnotes
to the financial statements of the Company and the Restricted Subsidiaries
prepared in accordance with GAAP (if such amount would not appear net of
reserves, then net of any reserves established by the Company as an allowance
for credit losses related to such advances not expected to be recovered),
provided that Advances shall not include (a) any such advances (and the related
Installment Contracts) transferred or encumbered pursuant to a Permitted
Securitization (whether or not attributable to the Company under GAAP) unless
and until such advances (and the related Installment Contracts) are reassigned
to the Company or a Restricted Subsidiary or such encumbrances are discharged,
or (b) Charged-Off Advances to the extent that such Charged-Off Advances exceed
the portion of the Company's allowance for credit losses related to reserves
against such advances not expected to be recovered, as such allowance would
appear in the footnotes to the financial statements of the Company and the
Restricted Subsidiaries prepared in accordance with GAAP.
AFFILIATE -- means, at any time, a Person (other than a Restricted
Subsidiary):
(a) that directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common
Control with, the Company;
(b) that beneficially owns or holds five percent (5%) or more
of any class of the Voting Stock of the Company;
(c) five percent (5%) or more of the Voting Stock (or in the
case of a Person that is not a corporation, five percent (5%) or more
of the equity interest) of which is beneficially owned or held by the
Company or a Subsidiary; or
(d) that is an officer or director (or a member of the
immediate family of an officer or director) of the Company or any
Subsidiary;
at such time.
As used in this definition:
CONTROL -- means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
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AGREEMENT, THIS -- means this agreement, as it may be amended and
restated from time to time.
ALLOWANCES FOR CREDIT LOSSES -- means those allowances or reserves
established by the Company or its Restricted Subsidiaries in arriving at
installment contracts receivable, net or Leased Vehicles, as the case may be, on
its Consolidated balance sheets, as specifically identified in such financial
statements or as disclosed in the footnotes thereto, provided that Allowances
for Credit Losses shall not include allowances or reserves attributable to
retail installment contracts or leases which are not at such time "Installment
Contracts" or "Leases", as the case may be, due to the proviso in the definition
of such terms in this Agreement.
ARLINGTON DISPOSITION -- means the sale of the business of Arlington
Investment Company and/or any of its subsidiaries for net proceeds totaling at
least $4,000,000 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 Arlington Investment Company and/or any of
its subsidiaries or divisions, (ii) the sale of all of the capital stock of
Arlington Investment Company and/or any of its subsidiaries or (iii) the merger
of Arlington Investment Company and/or any of its subsidiaries 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.
BACK-END DEALER AGREEMENT(S) -- means Dealer Agreements referred to in
clause (a) of the definition of Dealer Agreements.
BANK TERM DEBT -- means term Debt of the Company or any Restricted
Subsidiary owed to banks and having an initial maturity of more than one (1)
year and a fixed amortization schedule, but in any event excluding any Debt
which by its terms is permitted to be readvanced or reborrowed, whether or not
subject to mandatory reductions or stepdowns in the availability thereof.
BANKS -- means the Banks that are parties to the Credit Agreement.
BOARD OF DIRECTORS -- means the board of directors of the Company or
any committee thereof that, in the instance, shall have the lawful power to
exercise the power and authority of such board of directors.
BUSINESS DAY -- means, at any time, a day other than a Saturday, a
Sunday or a day on which the bank designated by the holder of a Note to receive
(for such holder's account) payments on such Note is required by law (other than
a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
CACI GUARANTY -- Section 2.17(c).
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CAC INTERNATIONAL -- means CAC International, Inc., a wholly-owned
Subsidiary of the Company.
CAC LIFE -- means Credit Acceptance Corporation Life Insurance Company,
a Wholly-Owned Restricted Subsidiary of the Company.
CAC UK -- means Credit Acceptance Corporation UK Limited, a
wholly-owned Subsidiary of the Company incorporated under the laws of England
for the purpose of acquiring substantially all of the assets of CAC
International.
CAPITAL ASSETS -- means all assets of a Person other than Intangible
Assets, inventories, accounts receivable and Investments (as defined in clause
(a) of the definition of such term) in and Securities of any other Person.
CAPITAL LEASE -- means, at any time, a lease with respect to which the
lessee is required by GAAP to recognize the acquisition of an asset and the
incurrence of a liability at such time.
CHANGE IN CONTROL -- means, at any time, either
(a) the failure of Donald A. Foss, his wife and children, or
trusts for his or their benefit, to beneficially own, in the aggregate,
at least thirty-five percent (35%) (by number of votes) of the Voting
Stock of the Company outstanding at such time (excluding for such
purpose Persons who own shares through any employee benefit plan of the
Company or any trust established in connection therewith), or
(b) except for the individuals and trusts identified in the
foregoing clause (a), the acquisition, holding or control (whether
directly or indirectly) by
(i) any "person" (as such term is used in section
13(d) and section 14(d)(2) of the Exchange Act as in effect on
the Closing Date), or
(ii) related Persons constituting a "group" (as such
term is used in Rule 13d-5 under the Exchange Act as in effect
on the Closing Date),
of beneficial ownership of more than twenty-five percent (25%) (by
number of votes) of the Voting Stock of the Company outstanding at such
time (excluding for such purpose Persons who own shares through any
employee benefit plan of the Company or any trust established in
connection therewith), or
(c) all or substantially all of the assets of the Company are
sold or otherwise transferred, in a single transaction or in a series
of related transactions, to any "person" or "group of persons" (as such
terms are used in section 13(d)(3) of the Exchange Act as in effect on
the Closing Date).
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CHARGED-OFF ADVANCES -- means those Advances which the Company or any
of its Restricted Subsidiaries has determined, based on the application of a
static pool analysis or otherwise are completely or partially impaired, to the
extent of such impairment.
CHARGED-OFF LEASE ADVANCES -- means those Leased Vehicles which the
Company or any of its Subsidiaries has determined, based on the application of a
static pool or comparable analysis or otherwise, are completely or partially
impaired, to the extent of such impairment.
CLEANUP CALL(S) -- means
(a) in the case of an optional cleanup call, a cleanup call to
be exercised at the option of the Company or a Special Purpose
Subsidiary under the terms of the applicable Permitted Securitization
(provided that, both before and after giving effect thereto, no Default
or Event of Default has occurred and is continuing when such option is
exercised), in an amount not in excess of (i) Fifteen Percent (15%) of
the initial amount received by the Company or the Special Purpose
Subsidiary pursuant to such Permitted Securitization (before fees and
other deductions), it being understood that, for purposes of this
clause (a)(i) of this definition, each tranche of a multi-tranche
Permitted Securitization shall be considered a separate Permitted
Securitization or (ii) in the case of any Securitization Transaction
structured on a revolving basis, Fifteen Percent (15%) of the maximum
aggregate availability at any time to the Company or a Special Purpose
Subsidiary, and
(b) in the case of a mandatory cleanup call, a mandatory
cleanup call to be exercised at the option of the investors under the
terms of the applicable Permitted Securitization(s), in an amount not
in excess of (i) Two and One-Half Percent (2 1/2%) of the aggregate
amount received by the Company or the Special Purpose Subsidiary
pursuant to the Permitted Securitization (before fees and other
deductions), it being understood that, for purposes of this clause
(b)(i) of this definition, all tranches of a multi-tranche Permitted
Securitization shall be together be considered one Permitted
Securitization, or (ii) in the case of any Securitization Transaction
structured on a revolving basis, Two and One-Half Percent (2 1/2%) of
the maximum aggregate availability at any time to the Company or a
Special Purpose Subsidiary,
in either case, such Cleanup Call being accompanied by the repurchase of or
release of encumbrances on Advances, Leased Vehicles, Installment Contracts
(whether assigned outright or related to Advances) or Leases (whether assigned
outright or related to Leased Vehicles), as the case may be, previously
transferred or encumbered pursuant to such Permitted Securitization in at least
the amount of such cleanup call.
CLOSING -- Section 1.2(b).
CLOSING DATE -- Section 1.2(b).
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COMPANY -- introductory paragraph hereof.
CONSOLIDATED CURRENT LIABILITIES -- means, at any time, the aggregate
amount of current liabilities of the Company and the Restricted Subsidiaries,
determined at such time after eliminating inter-company transactions among the
Company and the Restricted Subsidiaries and liabilities incurred solely by a
Special Purpose Subsidiary pursuant to a Permitted Securitization but
attributable to the Company or a Restricted Subsidiary under GAAP.
CONSOLIDATED FIXED CHARGES -- means, for any period, the sum of
(a) Consolidated Interest Expense for such period, plus
(b) the amount payable in respect of such period with respect
to Operating Rentals payable by the Company and the Restricted
Subsidiaries, determined after eliminating intercompany transactions
among the Company and the Restricted Subsidiaries.
CONSOLIDATED INCOME AVAILABLE FOR FIXED CHARGES -- means, for any
period, the sum of
(a) Consolidated Net Income, plus
(b) the aggregate amount of income taxes, depreciation,
amortization (including the amortization of any excess servicing asset)
and Consolidated Fixed Charges (to the extent, and only to the extent,
that such aggregate amount was reflected in the computation of
Consolidated Net Income for such period), plus
(c) with respect to the periods ending September 30, 1997,
December 31, 1997, March 31, 1998 and June 30, 1998, $30,000,000
representing the portion of the non-cash charge recorded by the Company
during the period ended September 30, 1997 attributable to the present
valuing of future cash flows consistent with Statement of Financial
Accounting Standards No. 114 `Accounting by Creditors for Impairment of
a Loan', plus
(d) with respect to the periods ending September 30, 1999,
December 31, 1999, March 31, 2000 and June 30, 2000, $47,300,000
representing the accounting adjustment to the Company's reserve against
advances recorded by the Company during the period ended September 30,
1999,
in each case accrued for such period by the Company and the Restricted
Subsidiaries, determined on a consolidated basis for such Persons.
CONSOLIDATED INTEREST EXPENSE -- means, for any period, the amount of
interest accrued or capitalized on, or with respect to, Consolidated Total Debt
for such period, including, without limitation, amortization of debt discount,
imputed interest on Capital Leases and interest on the Notes.
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CONSOLIDATED NET INCOME -- means, for any period, net earnings (or
loss) after income taxes of the Company and the Restricted Subsidiaries,
determined on a consolidated basis for such Persons, but excluding:
(a) net earnings (or loss) of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(b) any gain or loss (net of tax effects applicable thereto)
resulting from the sale, conversion or other disposition of Capital
Assets other than in the ordinary course of business;
(c) any extraordinary or nonrecurring gains or losses
(including, without limitation, any gain on sale generated by a
Permitted Securitization, except to the extent the Company has received
a cash benefit therefrom in the applicable reporting period); and any
interest income generated by a Permitted Securitization, except to the
extent the Company has received a cash benefit therefrom in the
applicable reporting period;
(d) any gain arising from any reappraisal or write-up of
assets;
(e) any portion of the net earnings of any Restricted
Subsidiary that for any reason is unavailable for payment of dividends
to the Company or a Restricted Subsidiary, provided that the net
earnings of CAC Life that are unavailable (due to regulatory
requirements applicable to CAC Life) for the payment of dividends to
the Company may be included in the determination of Consolidated Net
Income, to the extent that such unavailable net earnings do not exceed
five percent (5%) of Consolidated Net Income (determined without giving
effect to this proviso), and provided, further that so long as the net
earnings of CAC Life shall be included in Consolidated Net Income
pursuant to the preceding proviso, CAC Life shall not have outstanding
any Debt, regardless of whether any other Restricted Subsidiary may be
permitted to have Debt outstanding at such time by reason of a waiver
of or an amendment to Section 6.1(d);
(f) any gain or loss (net of tax effects applicable thereto)
during such period resulting from the receipt of any proceeds of any
insurance policy;
(g) any earnings of any Person acquired by the Company or any
Restricted Subsidiary through purchase, merger or consolidation or
otherwise, or earnings of any Person substantially all of whose assets
have been acquired by the Company or any Restricted Subsidiary, for any
period prior to the date of acquisition;
(h) net earnings of any Person (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary shall
have an ownership interest unless such net
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earnings shall have actually been received by the Company or such
Restricted Subsidiary in the form of cash distributions; and
(i) any restoration during such period to income of any
contingency reserve, except to the extent that provision for such
reserve
(i) was made during such period out of income accrued
during such period,
(ii) was made in connection with the Company's
program of financing Installment Contracts or Leases
(A) to provide for warranty claims
for which the Company may be responsible, or
(B) to cover credit losses in
connection with Advances, Installment
Contracts, Leased Vehicles or Leases,
or
(iii) is required by applicable law with respect to
reserves for claims related to the operation of CAC Life,
provided that the aggregate restoration to income during any period
from reserves described in clause (ii) and clause (iii) above shall not
exceed ten percent (10%) of Consolidated Net Income for such period,
prior to giving effect to such restoration.
CONSOLIDATED NET TANGIBLE ASSETS -- means, at any time, the remainder
of
(a) Consolidated Total Assets at such time minus
(b) the sum of
(i) Consolidated Current Liabilities at such time,
plus
(ii) Intangible Assets of the Company and the
Restricted Subsidiaries as would be reflected on a
consolidated balance sheet of such Persons at such time.
CONSOLIDATED SENIOR FUNDED DEBT -- means, at any time, Funded Debt of
the Company and the Restricted Subsidiaries, other than Subordinated Funded
Debt, determined on a consolidated basis for such Persons at such time.
CONSOLIDATED SUBORDINATED FUNDED DEBT -- means, at any time, the
aggregate amount of Subordinated Funded Debt of the Company and the Restricted
Subsidiaries, determined on a consolidated basis for such Persons at such time.
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CONSOLIDATED TANGIBLE NET WORTH -- means, at any time, the result of
(a) the shareholders' equity of the Company and its
Subsidiaries, minus
(b) the retained earnings of the Unrestricted Subsidiaries,
minus
(c) all Intangible Assets of the Company and the Subsidiaries,
minus
(d) without duplication, (i) any excess servicing asset
resulting from the Transfer, pursuant to a Permitted
Securitization, of Advances, Leased Vehicles, Installment
Contracts (whether assigned outright or related to
Advances) or Leases (whether assigned outright or related
to Leased Vehicles) and (ii) the equity interest in any
Special Purpose Subsidiary to the extent such equity
interest is included in Consolidated Net Worth,
in each case as would be reflected on a consolidated balance sheet of such
Persons at such time. As used in this definition, "Consolidated Net Worth"
means, at any time, the amount of "consolidated total assets" less the amount of
"consolidated total liabilities", as each would be reflected on a consolidated
balance sheet of the Company and its Subsidiaries at such time, prepared in
accordance with GAAP.
CONSOLIDATED TOTAL ASSETS -- means, at any time, all assets of the
Company and the Restricted Subsidiaries, determined on a consolidated basis for
such Persons at such time (but excluding from the determination thereof, without
duplication, (a) any excess servicing asset resulting from the Transfer,
pursuant to a Permitted Securitization, of Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or related to Advances) or
Leases (whether assigned outright or related to Leased Vehicles) and (b) the
equity interest in any Special Purpose Subsidiary to the extent such equity
interest is included in the assets of the Company and the Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP for
such Persons at such time).
CONSOLIDATED TOTAL DEBT -- means, at any time, the aggregate amount of
Funded Debt and Current Debt of the Company and the Restricted Subsidiaries,
determined on a consolidated basis for such Persons at such time.
CONTROL EVENT -- means the execution of any written agreement that,
when fully performed by the parties thereto, would result in a Change in
Control.
CONTROL PREPAYMENT DATE -- Section 4.3(a).
CREDIT AGREEMENT -- means the Credit Agreement described in Part 2.2(b)
of Annex 3, as may be amended, restated, refinanced, replaced, supplemented or
otherwise modified from time to time.
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CURRENT DEBT -- means, with respect to any Person, at any time, all
Debt of such Person other than Funded Debt.
DEALER -- means a Person engaged in the business of the retail sale or
lease of new or used motor vehicles, including businesses exclusively selling or
leasing used motor vehicles and businesses principally selling or leasing new
motor vehicles, but having a used vehicle department, including any such Person
which constitutes an Affiliate of the Company.
DEALER AGREEMENTS -- means the sales and/or servicing agreements
between the Company or its Subsidiaries and a participating Dealer which sets
forth the terms and conditions under which the Company or its Subsidiaries (a)
accepts, as nominee for such Dealer, the assignment of Installment Contracts or
Leases for purposes of administration, servicing and collection and under which
the Company or its Subsidiary may make advances to such Dealers included in
Advances or Leased Vehicles and (b) accepts outright assignments of Installment
Contracts or Leases from Dealers or funds Installment Contracts or Leases
originated by such Dealer in the name of the Company or any of its Subsidiaries,
in each case as such agreements may be in effect from time to time.
DEBT -- means, with respect to any Person, without duplication:
(a) its liabilities for borrowed money (whether or not
evidenced by a Security);
(b) any liabilities secured by any Lien existing on Property
owned by such Person (whether or not such liabilities have been
assumed);
(c) its liabilities in respect of Capital Leases;
(d) the present value of all payments due under any
arrangement for retention of title or any conditional sale agreement
(other than a Capital Lease) discounted at the implicit rate, if known,
with respect thereto or, if unknown, at eight and eighty-seven
one-hundredths percent (8.87%) per annum; and
(e) its Guaranties of any liabilities of another Person
constituting liabilities of a type set forth above.
Except as provided in Section 6.1(a)(i), neither Debt of any Special Purpose
Subsidiary which is an Unrestricted Subsidiary incurred pursuant to a Permitted
Securitization (whether or not such Debt is reflected on the consolidated
balance sheet of the Company and its Restricted Subsidiaries prepared in
accordance with GAAP) nor dealer holdbacks shall be considered Debt of the
Company or any Restricted Subsidiary.
DEFAULT -- means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.
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DOL -- means the Department of Labor and any successor agency.
DOLLARS or $ -- means United States of America dollars.
ENVIRONMENTAL PROTECTION LAWS -- means any federal, state, county,
regional or local law, statute or regulation (including, without limitation,
CERCLA, RCRA and SARA) enacted in connection with or relating to the protection
or regulation of the environment, including, without limitation, those laws,
statutes and regulations regulating the disposal, removal, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Substances, and any regulations issued or promulgated in connection with such
statutes by any Governmental Authority, and any orders, decrees or judgments
issued by any court of competent jurisdiction in connection with any of the
foregoing.
As used in this definition:
CERCLA -- means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended from time to time
(by SARA or otherwise), and all rules and regulations promulgated in
connection therewith.
RCRA -- means the Resource Conservation and Recovery Act of
1976, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
SARA -- means the Superfund Amendments and Reauthorization Act
of 1986, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
EQUITY OFFERING -- means the issuance and sale for cash by the Company
or any of its Restricted Subsidiaries of additional capital stock or other
equity interests, other than upon the exercise of employee and dealer stock
options pursuant to stock option plans maintained or offered by the Company or
its Restricted Subsidiaries in the ordinary course of business and not in
anticipation of any sale of capital stock or equity interests to the general
public.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA AFFILIATE -- means any corporation or trade or business that:
(a) is a member of the same controlled group of corporations
(within the meaning of section 414(b) of the IRC) as the Company; or
(b) is under common control (within the meaning of section
414(c) of the IRC) with the Company.
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EVENT OF DEFAULT -- Section 8.1.
EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended.
EXCLUDED TRANSFERS -- Section 6.8(a).
FAIR MARKET VALUE -- means, at any time, with respect to any Property,
the sale value of such Property that would be realized in an arm's-length sale
at such time between an informed and willing buyer and an informed and willing
seller under no compulsion to buy or sell, respectively.
FIRST AMENDED AND RESTATED NOTES -- Section 1.1(b).
FOREIGN PENSION PLAN -- means any plan, fund or other similar program
(a) established or maintained outside of the United States of
America by any one or more of the Company or the Subsidiaries primarily
for the benefit of the employees (substantially all of whom are aliens
not residing in the United States of America) of the Company or such
Subsidiaries which plan, fund or other similar program provides for
retirement income for such employees or results in a deferral of income
for such employees in contemplation of retirement, and
(b) not otherwise subject to ERISA.
401(K) PLAN -- Section 2.12(a).
FOURTH AMENDMENT -- means the Fourth Amendment, dated as of December 1,
1999, to this Agreement.
FUNDED DEBT -- means, at any time of determination, with respect to any
borrower, all Debt of such borrower that is expressed to mature more than one
(1) year from the date of the creation thereof or that is extendible or
renewable at the option of such borrower to a time more than one (1) year after
the date of the creation thereof (whether or not at such time of determination
such Debt is payable within one (1) year).
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
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GOVERNMENTAL AUTHORITY -- means:
(a) the government of
(i) the United States of America and any state or
other political subdivision thereof, or
(ii) any other jurisdiction (y) in which the Company
or any Subsidiary conducts all or any part of its business or
(z) that asserts jurisdiction over the conduct of the affairs
or Properties of the Company or any Subsidiary; and
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
GROSS ADVANCES -- means, as of any applicable date of determination,
the dollar amount of Advances, plus any reserves established by the Company as
an allowance for credit losses related to such advances not expected to be
recovered, plus Charged-Off Advances to the extent such Charged-Off Advances
exceed the amount of such reserves.
GROSS CURRENT INSTALLMENT CONTRACT RECEIVABLES -- means, as of any
applicable date of determination, the aggregate amount of Gross Installment
Contract Receivables, less the amount of such receivables which are classified
as being on "non-accrual" in the financial statements of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
GROSS CURRENT LEASED VEHICLES -- means, as of any applicable date of
determination, the aggregate amount of Gross Leased Vehicles, less the amount of
Leased Vehicles in respect of which the underlying Leases are classified as
being on "non-accrual" in the financial statements of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
GROSS DEALER HOLDBACKS -- means the aggregate amount, as of any
applicable date of determination, of dealer holdbacks utilized in arriving at
"Dealer holdbacks, net" on the consolidated balance sheet of the Company and its
Restricted Subsidiaries, as disclosed in the footnotes thereto, provided that
Gross Dealer Holdbacks shall not include the amount of dealer holdbacks
attributable to retail installment contracts which are not at such time
"Installment Contracts" due to the proviso in the definition of such term in
this Agreement.
GROSS INSTALLMENT CONTRACT RECEIVABLES -- means, as of any applicable
date of determination, the aggregate amount of installment contract receivables
utilized in arriving at "Installment contract receivables, net" on the
consolidated balance sheet of the Company and its Restricted Subsidiaries, as
determined in the footnotes thereto, provided that Gross Installment Contract
Receivables shall not include receivables attributable to retail installment
contracts which are not at such time "Installment Contracts" due to the proviso
in the definition of such term in this Agreement.
GROSS LEASED VEHICLES -- means, as of any applicable date of
determination, the dollar amount of Leased Vehicles, plus any reserves
established by the Company as an allowance for credit
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losses related to such Leased Vehicles not expected to be recovered, plus
Charged-Off Lease Advances to the extent such Charged-Off Lease Advances exceed
the amount of such reserves, provided that Gross Leased Vehicles shall not
include the dollar amount of Leased Vehicles attributable to leases which are
not at such time "Leases" due to the proviso in the definition of such term in
this Agreement.
GUARANTY -- means, with respect to any Person (for the purposes of this
definition, the "Guarantor"), any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of the Guarantor guaranteeing or in effect guaranteeing (including, without
limitation, by means of a surety bond, letter of credit or other similar
instrument, whether or not designated as a "guaranty") any indebtedness,
dividend or other obligation of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, including, without limitation,
obligations incurred through an agreement, contingent or otherwise, by the
Guarantor:
(a) to purchase such indebtedness or obligation or any
Property constituting security therefor;
(b) to advance or supply funds
(i) for the purpose of payment of such indebtedness
or obligation, or
(ii) to maintain working capital or other balance
sheet (or statement of financial condition) condition or any
income statement condition of the Primary Obligor or otherwise
to advance or make available funds for the purchase or payment
of such indebtedness or obligation;
(c) to lease Property or to purchase Securities or other
Property or services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of the Primary Obligor
to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or
obligation of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty in connection with any
computation of indebtedness or other liability, it shall be assumed that the
indebtedness or other liabilities that are the subject of such Guaranty are
direct obligations of the issuer of such Guaranty. Without limiting the
generality of the foregoing, it is agreed and understood that each general
partner of a partnership shall be deemed to be a Guarantor of all indebtedness
and other obligations of such partnership and such partnership shall be deemed
to be the Primary Obligor in respect of such indebtedness and other obligations.
For purposes of the immediately preceding sentence, a Person shall be deemed to
be a general partner of any so-called "joint venture" or other arrangement
(whether or not constituting a partnership), and such joint venture or other
arrangement shall be deemed to be a partnership, if,
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pursuant to applicable law, by contract or otherwise, such Person is liable,
directly or indirectly, contingently or otherwise, either individually or
jointly with one or more other Persons, for the indebtedness or other
obligations of such joint venture or other arrangement.
HAZARDOUS SUBSTANCES -- means any and all pollutants, contaminants,
toxic or hazardous wastes and any other substances that might pose a hazard to
health or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage, seepage
or filtration of which is or shall be, in each of the foregoing cases,
restricted, prohibited or penalized by any applicable law.
INSTALLMENT CONTRACTS -- means retail installment contracts for the
sale of new or used motor vehicles assigned outright by Dealers to the Company
or a Restricted Subsidiary or written by Dealers in the name of the Company or a
Restricted Subsidiary (and funded by the Company or such Restricted Subsidiary)
or assigned by Dealers to the Company or a Restricted Subsidiary, as nominee for
the Dealer, for administration, servicing and collection, in each case pursuant
to an applicable Dealer Agreement; provided, however, that to the extent the
Company or any Restricted Subsidiary transfers or encumbers its interest in any
Installment Contracts (or any Advances related thereto) pursuant to a Permitted
Securitization, such Installment Contracts shall, from and after the date of
such transfer or encumbrance, cease to be considered Installment Contracts under
this Agreement (reducing the amount of Advances by the outstanding amount of
such advances, if any, attributable to such Installment Contracts) unless and
until such installment contracts are reassigned to the Company or a Restricted
Subsidiary or such encumbrances are discharged.
INSTITUTIONAL INVESTOR -- means the Purchasers, any affiliate of any of
the Purchasers and any holder or beneficial owner of Notes that is an
"accredited investor" as defined in section 2(15) of the Securities Act or a
"qualified institutional buyer" as defined in 17 C.F.R. ss.230.144A, as amended
from time to time.
INTANGIBLE ASSETS -- means any assets of a Person that would be
classified as "intangible assets" under GAAP, including, without limitation,
goodwill, trademarks, trade names, patents, copyrights, franchises and other
intangible assets of such Person.
INTERCREDITOR AGREEMENT -- means the Intercreditor Agreement, dated as
of December 15, 1998, by and among the Banks, the holders of Notes, the holders
of "Future Debt" (as defined in such agreement) and Comerica Bank, as collateral
agent, as such agreement may be amended from time to time.
INVESTMENT -- means any investment, made in cash or by delivery of
Property, by the Company or any Restricted Subsidiary:
(a) in any Person, whether by acquisition of stock,
indebtedness or other obligation or Security, or by loan, Guaranty,
advance, capital contribution or otherwise; or
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(b) in any Property.
Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon. Any designation
of a Subsidiary as an Unrestricted Subsidiary pursuant to Section 6.17 shall be
deemed to be an Investment, in an amount equal to the net worth of such
Subsidiary, at the time of such designation and any Investments of a Person
existing at the time it shall become a Restricted Subsidiary shall be deemed to
have been made immediately after such time.
INVESTMENT GRADE RATING -- means a rating of at least, but not lower
than:
(i) "Baa3" by Moody's Investors Service, Inc.,
(ii) "BBB-" by Standard & Poor's Ratings Group,
(iii) a category "1" or category "2" designation from the
National Association of Insurance Commissioners, and
(iv) "BBB-" by Fitch Investors Services, Inc.
IRC -- means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
IRS -- means the Internal Revenue Service and any successor agency.
LEASED VEHICLES -- means, as of any applicable date of determination,
the dollar amount of advances in respect of Leases, as such amount would appear
in the footnotes to the financial statements of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP or, if specifically identified,
elsewhere in such financial statements, net of depreciation on the motor
vehicles which are covered by Leases with respect to which such Leased Vehicles
are attributable (and if such amount is not shown net of such reserves, then net
of any reserves established by the Company as an allowance for credit losses
related to such advances not expected to be recovered), provided that Leased
Vehicles shall not include (a) the amount of any such advances attributable to
any Leases transferred or encumbered pursuant to a Permitted Securitization
(whether or not attributable to the Company under GAAP) unless and until such
advances (and the related Leases) are reassigned to the Company or a Restricted
Subsidiary or such encumbrances are discharged, or (b) Charged-Off Lease
Advances, to the extent that such Charged-Off Lease Advances (i) exceed the
portion of the allowance for credit losses related to reserves against such
advances not expected to be recovered, as such allowance would appear in the
footnotes to the financial statements of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP at such time or if specifically
identified, elsewhere in such financial statements and (ii) have not already
been eliminated in the determination of Leased Vehicles.
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LEASE(S) -- means the retail agreements for the lease of motor vehicles
assigned outright by Dealers to the Company or a Restricted Subsidiary or
written by a Dealer in the name of the Company or a Restricted Subsidiary (and
funded by the Company or such Restricted Subsidiary) or assigned by Dealers to
the Company or a Restricted Subsidiary, as nominee for the Dealer, for
administration, servicing and collection, in each case pursuant to an applicable
Dealer Agreement; provided, however, that to the extent the Company or any
Restricted Subsidiary transfers or encumbers its interest in any Leases pursuant
to a Permitted Securitization, such Leases shall, from and after the date of
such transfer or encumbrance, cease to be considered Leases under this Agreement
(reducing the amount of Leased Vehicles by the outstanding amount of Leased
Vehicles attributable to such Leases) unless and until such Leases are
reassigned to the Company or a Restricted Subsidiary or such encumbrances have
been discharged.
LETTER OF CREDIT FACILITY -- means a letter of credit issued by a
commercial bank for the account of the Company or a Restricted Subsidiary,
solely in support of the Company's or such Restricted Subsidiary's obligations
in respect of commercial paper issued by the Company or such Restricted
Subsidiary.
LIEN -- means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including, but not
limited to, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale, sale with recourse or a trust receipt, or a lease,
consignment or bailment for security purposes. The term "Lien" includes, without
limitation, reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property and includes, without limitation, with
respect to stock, stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements. For the purposes hereof, the Company
and each Subsidiary shall be deemed to be the owner of any Property that it
shall have acquired or holds subject to a conditional sale agreement, Capital
Lease or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes, and such
retention or vesting is deemed a Lien. The term "Lien" does not include negative
pledge clauses in agreements relating to the borrowing of money or the
obligation of the Company (a) to remit monies held by it in connection with
dealer holdbacks (including, without limitation, with respect to Leases or
Installment Contracts), claims or refunds under insurance policies, or claims or
refunds under service contracts or (b) to make deposits in trust or otherwise as
required under reinsurance agreements or pursuant to state regulatory
requirements, unless the Company has encumbered its interest in such monies or
deposits or in other Property of the Company to secure such obligations. The
term "Lien" also does not include the rights of the "Agent" (as defined in the
Credit Agreement) and the Banks to money, consisting either of net proceeds of
any "Permitted Securitization" (as defined in the Credit Agreement) or net
proceeds from the issuance of "Future Debt" (as defined in the Credit Agreement)
deposited by the Company or any Restricted Subsidiary in a cash collateral
account, in lieu of the Company's reduction of indebtedness outstanding under
the Credit Agreement, for the purpose of avoiding breakage charges in connection
with "Eurocurrency-based Advances" (as defined in the
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Credit Agreement) under the Credit Agreement, all in accordance with clause (d)
of the definition of "Permitted Securitization" and clause (d) of the definition
of "Funding Conditions" in the Credit Agreement, as applicable; it being also
understood and agreed that the holders of Notes shall have no rights to a
security interest in or Lien on the money so deposited.
MAKE-WHOLE AMOUNT -- means, with respect to any date (a "Prepayment
Date") and any principal amount ("Prepaid Principal") of Notes required for any
reason to be paid prior to the regularly scheduled maturity thereof on such
Prepayment Date, the greater of
(a) Zero Dollars ($0), and
(b) (i) the sum of the present values of the then remaining
scheduled payments of principal and interest that would be
payable in respect of such Prepaid Principal but for such
prepayment or acceleration, minus
(ii) the sum of
(1) the amount of such Prepaid Principal, plus
(2) the amount of interest accrued on such
Prepaid Principal since the scheduled interest payment
date immediately preceding such Prepayment Date.
In determining such present values, a discount rate equal to the Make-Whole
Discount Rate with respect to such Prepayment Date and Prepaid Principal divided
by two (2), and a discount period of six (6) months of thirty (30) days each,
shall be used.
As used in this definition:
Make-Whole Discount Rate -- means, with respect to any
Prepayment Date and Prepaid Principal, the sum of
(a) the per annum percentage rate (rounded to the
nearest three (3) decimal places) equal to the bond equivalent
yield to maturity derived from the Bloomberg Rate with respect
to such Prepaid Principal, or if such Bloomberg Rate is not
then available, the Applicable H.15 Rate, in either case,
determined as of the date that is two (2) Business Days prior
to such Payment Date, plus
(b) fifty one-hundredths percent (0.50%) per annum.
For purposes of clause (a) of the preceding sentence, if no United
States Treasury obligation with a Treasury Constant Maturity
corresponding exactly to the Weighted Average Life to Maturity of such
Prepaid Principal is listed, the yields for the two (2) published
United States
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Treasury obligations with Treasury Constant Maturities most closely
corresponding to such Weighted Average Life to Maturity (one (1) with a
longer maturity and one (1) with a shorter maturity, if available)
shall be calculated pursuant to the immediately preceding sentence and
the Make-Whole Discount Rate shall be interpolated or extrapolated from
such yields on a straight-line basis.
Applicable H.15 -- means, at any time, United States Federal
Reserve Statistical Release H.15(519) or its successor publication then
most recently published and available to the public or, if no such
successor publication is available, then any other source of current
information in respect of interest rates on securities of the United
States of America that is generally available and, in the judgment of
the Required Holders, provides information reasonably comparable to the
H.15(519) report.
Applicable H.15 Rate -- means, at any time with respect to any
Prepaid Principal, the then most current annual yield to maturity of
the hypothetical United States Treasury obligation listed in the
Applicable H.15 for the then most recently available day in such
Applicable H.15 with a Treasury Constant Maturity (as defined in such
Applicable H.15) equal to the Weighted Average Life to Maturity of such
Prepaid Principal determined as of such Prepayment Date. If no such
United States Treasury obligation with a Treasury Constant Maturity
corresponding exactly to such Weighted Average Life to Maturity is
listed, then the yields for the two (2) published United States
Treasury obligations with Treasury Constant Maturities most closely
corresponding to such Weighted Average Life to Maturity (one (1) with a
longer maturity and one (1) with a shorter maturity, if available)
shall be calculated pursuant to the immediately preceding sentence and
the Make-Whole Discount Rate shall be interpolated or extrapolated from
such yields on a straight-line basis.
Bloomberg Rate -- means, on any date, with respect to any
Prepaid Principal, the yields reported, as of 10:00 A.M. (New York City
time) on such date with respect to such Prepaid Principal, on the
display designated as "USD" on the Bloomberg Financial Market Service
(or such other display as may replace Page USD on the Bloomberg
Financial Market Service) for actively traded U.S. Treasury securities
having a maturity equal to the Weighted Average Life to Maturity of
such Prepaid Principal as of such date. If no such U.S. Treasury
security with a maturity corresponding exactly to the Weighted Average
Life to Maturity of such Prepaid Principal is reported, then the yields
for the two (2) U.S. Treasury securities with maturities most closely
corresponding to the Weighted Average Life to Maturity of such Prepaid
Principal (one (1) with a longer maturity and one (1) with a shorter
maturity, if available) shall be calculated pursuant to the immediately
preceding sentence and the Make-Whole Discount Rate shall be
interpolated or extrapolated from such yields on a straight-line basis.
Weighted Average Life to Maturity -- means, with respect to
any Prepayment Date and Prepaid Principal, the number of years obtained
by dividing the Remaining Dollar-Years of such Prepaid Principal
determined on such Prepayment Date by such Prepaid Principal.
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Remaining Dollar-Years -- means, with respect to any
Prepayment Date and Prepaid Principal, the result obtained by
(a) multiplying, in the case of each required payment
of principal (including payment at maturity) that would be
payable in respect of such Prepaid Principal but for such
prepayment,
(i) an amount equal to such required payment of
principal, by
(ii) the number of years (calculated to the
nearest one-twelfth (1/12)) that will elapse between
such Prepayment Date and the date such required
principal payment would be due if such Prepaid
Principal had not been so prepaid, and
(b) calculating the sum of each of the products
obtained in the preceding subsection (a).
MANDATORY PRINCIPAL AMORTIZATION PAYMENT -- Section 4.1.
MARGIN SECURITY -- means "margin stock" within the meaning of
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II, as amended from time to time.
MATERIAL ADVERSE EFFECT -- means a material adverse effect on the
business, profits, Properties or financial condition of the Company and the
Restricted Subsidiaries, taken as a whole, or on the ability of the Company to
perform its obligations set forth herein and in the Notes.
MONTANA DISPOSITION -- means the sale of Montana Investment Group, Inc.
and/or any of 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/or any of 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.
MULTIEMPLOYER PLAN -- means any "multiemployer plan" (as defined in
section 3 of ERISA) in respect of which the Company or any ERISA Affiliate is an
"employer" (as defined in section 3 of ERISA).
MULTIPLE EMPLOYER PENSION PLAN -- means any "employee benefit plan"
within the meaning of section 3(3) of ERISA (other than a Multiemployer Plan),
subject to Title IV of ERISA,
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constituting a "single-employer plan" (as defined in section 4001 of ERISA)
which has two (2) or more "contributing sponsors" (as defined in section 4001 of
ERISA), at least two (2) of which are not under "common control" (as defined in
section 4001 of ERISA) and to which the Company or any ERISA Affiliate
contribute.
NET DEALER HOLDBACKS -- means, at any time, (a) Gross Dealer Holdbacks
minus (b) Advances at such time.
NET INSTALLMENT CONTRACT RECEIVABLES -- means, at any time, the amount
computed as the result of (a) Gross Installment Contract Receivables minus (b)
Unearned Finance Charges minus (c) Allowances for Credit Losses relating to
Installment Contracts (but excluding any such allowances which are related to
Leases), at such time.
NET LEASED VEHICLE DEALER HOLDBACKS -- means, at any time, with respect
to Dealer Agreements relating to Leases, amounts due to Dealers at such time
from collections of Leased Vehicles by the Company or any Restricted Subsidiary
(other than with respect to Leases which have been transferred or encumbered
pursuant to a Permitted Securitization and (x) have not been reassigned to the
Company or a Restricted Subsidiary or (y) with respect to which such
encumbrances have not been discharged) pursuant to the applicable Dealer
Agreements.
1994 NOTE PURCHASE AGREEMENT -- means and includes the separate Note
Purchase Agreements, each dated as of October 1, 1994, between the Company and
each of the holders, from time to time, of the Company's 8.87% Senior Notes due
November 1, 2001 issued pursuant thereto, each as amended by the First Amendment
to Note Purchase Agreement dated as of November 15, 1995 and the Second
Amendment to Note Purchase Agreement dated as of August 29, 1996.
1996 NOTE PURCHASE AGREEMENT -- means and includes the separate Note
Purchase Agreements, each dated as of August 1, 1996, between the Company and
each of the holders, from time to time, of the Company's 7.99% Senior Notes due
July 1, 2001 issued pursuant thereto.
NON-RECOURSE DEBT -- means Debt of a partnership, joint venture or
similar entity in which the Company or a Restricted Subsidiary is a participant,
so long as the holder or holders of such Debt shall have no rights or recourse
against any Property of the Company or any Restricted Subsidiary, other than
Property used solely in connection with such partnership, joint venture or
similar entity.
NOTE PURCHASE AGREEMENTS -- Section 1.2(c).
NOTES -- Section 1.1.
OPERATING LEASE -- means, with respect to any Person, any lease other
than a Capital Lease.
OPERATING RENTALS -- means all fixed payments that the lessee is
required to make by the terms of any Operating Lease.
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ORIGINAL NOTES -- Section 1.1(a).
OSHA -- means the Occupational Safety and Health Act of 1970, together
with all rules, regulations and standards promulgated pursuant thereto, all as
amended from time to time.
OTHER PURCHASERS -- Section 1.2(c).
OUTRIGHT DEALER AGREEMENT(S) -- means Dealer Agreements referred to in
clause (b) of the definition of Dealer Agreements.
PBGC -- means the Pension Benefit Guaranty Corporation and any
successor corporation or governmental agency.
PENSION PLAN -- means, at any time, any "employee pension benefit plan"
(as defined in section 3 of ERISA) maintained at such time by the Company or any
ERISA Affiliate for employees of the Company or such ERISA Affiliate, excluding
any Multiemployer Plan, but including any Multiple Employer Pension Plan.
PERMITTED SECURITIZATION(S) -- means each transfer or encumbrance (each
a "disposition") of specific Advances or Leased Vehicles funded under Back-End
Dealer Agreements (and any interest in or lien on the Installment Contracts,
Leases, motor vehicles or other rights relating thereto) or of specific
Installment Contracts or Leases (and any interest in or lien on motor vehicles
or other rights relating thereto) arising under Outright Dealer Agreements, in
each case by the Company or one or more Restricted Subsidiaries to a Special
Purpose Subsidiary conducted in accordance with the following requirements:
(a) Each disposition shall identify with reasonable
certainty the specific Advances, Leased Vehicles,
Installment Contracts or Leases covered by such
disposition; and such Advances or Leased Vehicles
(and the Installment Contracts, Leases, motor
vehicles or other rights relating thereto) and the
Installment Contracts and Leases shall have
performance and other characteristics so that the
quality of such Advances, Leased Vehicles,
Installment Contracts or Leases, as the case may be,
is comparable to, but not materially better than, the
overall quality of the Company's Advances, Leased
Vehicles, Installment Contracts or Leases, as
applicable, as a whole, as determined in good faith
by the Company in its reasonable discretion;
(b) (i) The disposition of Advances, Leased Vehicles,
Installment Contracts or Leases will not result in
the aggregate principal amount of Debt at any time
outstanding, and (without duplication) of similar
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
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Permitted Securitizations exceeding $100,000,000,
which amount may be readvanced and reborrowed and
(ii) the Company or the Restricted Subsidiary
disposing of Advances, Leased Vehicles, Installment
Contracts or Leases 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 financial assets in
connection with any such Securitization Transaction
in an amount not less than Seventy-Five Percent (75%)
of the sum of (A) the amount of such Advances, (B)
the amount of Net Installment Contract Receivables in
respect of Installment Contracts arising under
Outright Dealer Agreements, and (C) the amount of
Leased Vehicles, in each case determined on the date
of such Securitization Transaction;
(c) Each such disposition shall be without recourse
(except to the extent of normal and customary
representations and warranties given as of the date
of each such disposition, and not as continuing
representations and warranties) and otherwise on
normal and customary terms and conditions for
comparable asset-based securitization transactions
which may include, without limitation, Cleanup Call
provisions;
(d) Each such Securitization Transaction shall be
structured on the basis of the issuance of
non-recourse Debt or other similar securities by the
Special Purpose Subsidiary; and
(e) Both immediately before and after giving effect to
such disposition, no Default or Event of Default
(whether or not related to such disposition) exists
or would exist.
In connection with each Permitted Securitization conducted
hereunder, not less than ten (10) Business Days prior to the
date of consummation thereof, the Company shall provide to
each holder of a Note (i) a schedule in the form attached
hereto as Exhibit E identifying the specific Installment
Contracts or Leases or the Advances or Leased Vehicles (and
providing collection information regarding the related
Installment Contracts or Leases) proposed to be covered by
such transaction (with evidence supporting its determination
under subparagraph (a) of this definition, including without
limitation a "static pool analysis" comparable to the static
pool analysis required to be delivered under Section 7.1(j)(1)
hereof with respect to such Installment Contracts or Leases)
and (ii) proposed drafts of the material Securitization
Documents covering the applicable securitization (and the term
sheet or commitment relating thereto). Within five (5)
Business Days following the consummation thereof, the Company
shall have provided to each holder of Notes copies of the
material Securitization Documents, as executed, including an
updated schedule, substantially in the form of the schedule
delivered under clause (i) above,
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identifying the financial assets actually covered by such
transaction (and, if such financial assets are materially
different, as reasonably determined by the Company, from those
shown in the schedule delivered under clause (i) above,
collection information and evidence supporting its
determination under subparagraph (a) of this definition,
including a comparable "static pool analysis," as aforesaid,
with respect to such financial assets).
PERSON -- means an individual, sole proprietorship, partnership,
corporation, limited liability company, trust, joint venture, unincorporated
organization, or a government or agency or political subdivision thereof.
PLACEMENT AGENT -- means William Blair & Company, L.L.C.
PLACEMENT MEMORANDUM -- Section 2.1.
PROPERTY -- means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
PURCHASE MONEY LIEN -- means a Lien held by any Person (whether or not
the seller of such Property) on tangible Property (or a group of related items
of Property the substantial portion of which is tangible) acquired or
constructed by the Company or any Restricted Subsidiary, which Lien secures all
or a portion of the related purchase price or construction costs of such
Property, provided that such Lien
(a) is created contemporaneously with, or within thirty (30)
days of, such acquisition or construction,
(b) encumbers only Property purchased or constructed after the
Closing Date and acquired with the proceeds of the Debt secured
thereby, and
(c) is not thereafter extended to any other Property.
PURCHASERS -- means you and the Other Purchasers.
REQUIRED HOLDERS -- means, at any time, the holders of at least
sixty-six and two-thirds percent (66-_%) in principal amount of the Notes at the
time outstanding (exclusive of Notes then owned by any one or more of the
Company, any Restricted Subsidiary and any Affiliate).
RESTRICTED INVESTMENT -- means, at any time, all Investments except the
following:
(a) Investments in Property to be used in the ordinary course
of business of the Company and the Restricted Subsidiaries;
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(b) subject to clause (k) of this definition, Investments in
receivables, advances, Leases and Leased Vehicles arising from the sale
or lease of goods and services, in each case in the ordinary course of
business of the Company and the Restricted Subsidiaries;
(c) Investments by the Company or any Restricted Subsidiary in
the ordinary course of its business in one or more Restricted
Subsidiaries or any corporation that concurrently with such Investment
becomes a Restricted Subsidiary, provided that the aggregate amount of
all Investments made pursuant to this paragraph (c) and paragraph (d)
of this definition (excluding Guaranties by the Company of Debt of
Restricted Subsidiaries) does not at any time exceed twenty-five
percent (25%) of Consolidated Tangible Net Worth (it being understood
that loans and advances to any Restricted Subsidiary by any Person
other than the Company or any other Restricted Subsidiary, regardless
of whether such loans and advances are guaranteed by the Company or any
other Restricted Subsidiary, shall not be taken into account in
determining the aggregate amount of Investments made pursuant to this
paragraph (c) and paragraph (d) of this definition);
(d) Investments consisting of loans by the Company or any
Restricted Subsidiary, and advances from the Company or any Restricted
Subsidiary, in each case to the Company or any Restricted Subsidiary in
the ordinary course of business of the Company and the Restricted
Subsidiaries, provided that the aggregate amount of all Investments
made pursuant to paragraph (c) of this definition and this paragraph
(d) (excluding Guarantees by the Company of Debt of Restricted
Subsidiaries) does not at any time exceed twenty-five percent (25%) of
Consolidated Tangible Net Worth (it being understood that loans and
advances to any Restricted Subsidiary by any Person other than the
Company or any other Restricted Subsidiary, regardless of whether such
loans and advances are guaranteed by the Company or any other
Restricted Subsidiary, shall not be taken into account in determining
the aggregate amount of Investments made pursuant to this paragraph (d)
and paragraph (c) of this definition);
(e) Investments in direct obligations of, or obligations
guarantied by, the United States of America or any agency of the United
States of America the obligations of which agency carry the full faith
and credit of the United States of America, provided that such
obligations (other than Investments by CAC Life in such obligations
made to match liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition thereof;
(f) Investments in any obligation of any state or municipality
thereof that at the time of acquisition thereof have an assigned rating
of "A" or higher by Standard & Poor's Ratings Group (or an equivalent
or higher rating by another credit rating agency of recognized national
standing in the United States of America), provided that such
obligations (other than Investments by CAC Life in such obligations
made to match liabilities incurred in the ordinary course of business)
mature within one (1) year from the date of acquisition thereof;
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(g) Investments in negotiable certificates of deposit issued
by commercial banks organized under the laws of the United States of
America or any state thereof, having capital, surplus and undivided
profits aggregating at least Fifty Million Dollars ($50,000,000) and
the long-term unsecured debt obligations of which are rated "A" or
higher by Standard & Poor's Ratings Group (or an equivalent or higher
rating by another credit rating agency of recognized national standing
in the United States of America), provided that such certificates of
deposit (other than Investments by CAC Life in such certificates of
deposit made to match liabilities incurred in the ordinary course of
business) mature within one (1) year from the date of acquisition
thereof;
(h) Investments in corporate debt obligations of corporations
organized under the laws of the United States of America or any state
thereof that at the time of acquisition thereof have an assigned rating
of "A" or higher by Standard & Poor's Ratings Group (or an equivalent
or higher rating by another credit rating agency of recognized national
standing in the United States of America);
(i) Investments in preferred stock of corporations organized
under the laws of the United States of America or any state thereof
that have an assigned rating of "A" or higher by Standard & Poor's
Ratings Group (or an equivalent or higher rating by another credit
rating agency of recognized national standing in the United States of
America);
(j) Investments in loans or advances, in the ordinary course
of business and necessary to carrying on the business of the Company or
any Restricted Subsidiary, to officers, directors and employees of the
Company and the Restricted Subsidiaries, provided that the aggregate
amount of all such Investments does not at any time exceed One Million
Dollars ($1,000,000);
(k) Investments in receivables arising from floor plan
receivables and note receivables due from dealers in the ordinary
course of business of the Company and the Restricted Subsidiaries,
provided that the aggregate amount of all such Investments does not at
any time exceed ten percent (10%) of Consolidated Total Assets;
(l) Investments by the Company or any Restricted Subsidiary in
the Company, any Restricted Subsidiary or any Special Purpose
Subsidiary from and after the effective date of the Second Amendment,
consisting of (i) dispositions of specific Advances, Leased Vehicles,
Installment Contracts (whether assigned outright or related to
Advances) or Leases (whether assigned outright or related to Leased
Vehicles) made pursuant to a Permitted Securitization and the resultant
Debt issued by a Special Purpose Subsidiary to another Subsidiary as
part of a Permitted Securitization, in each case to the extent
constituting Investments, (ii) advances by the Company, as servicer of
the Installment Contracts or Leases covered by a Permitted
Securitization, in an aggregate amount not to exceed $1,500,000
outstanding at any time, to cover the interest component of obligations
issued as
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part of a Permitted Securitization and payable from collections on such
Installment Contracts (such advances to be repayable to the Company on
a priority basis from such collections), (iii) the repurchase or
replacement from and after the date of the effectiveness of the Second
Amendment of an aggregate amount not to exceed $5,000,000 in Advances,
Leased Vehicles, Installment Contracts (whether assigned outright or
related to Advances) or Leases (whether assigned outright or related to
Leased Vehicles) subsequently determined not to satisfy the eligibility
standards contained in the applicable Securitization Documents relating
to a Permitted Securitization, so long as (x) such replacement is
accompanied by the repurchase of or release of encumbrances on such
financial assets previously transferred or encumbered pursuant to such
securitization and in the amount thereof, (y) any replacement Advances,
Leased Vehicles, Installment Contracts (whether assigned outright or
related to Advances) or Leases (whether assigned outright or related to
Leased Vehicles) are selected by the Company according to the
requirements set forth in clause (a) of the definition of Permitted
Securitization and (z) such replacements are made at a time when (both
before and after giving effect thereto) no Default or Event of Default
exists or would exist, (iv) amounts required to fund any Cleanup Call
under the terms of such Permitted Securitization, and (v) the
disposition of the capital stock of a Special Purpose Subsidiary; and
(m) Investments not otherwise included in clause (a) through
clause (l) of this definition, provided that the aggregate amount of
all such Investments does not at any time exceed Two Million Five
Hundred Thousand Dollars ($2,500,000).
RESTRICTED PAYMENT -- means (x) any dividend or other distribution,
direct or indirect and whether payable in cash or property, on account of any
capital stock or other equity interest of the Company or any of its Restricted
Subsidiaries and (y) any redemption, retirement, purchase, or other acquisition,
direct or indirect, of any capital stock or other equity interests of the
Company or any of its Restricted Subsidiaries now or hereafter outstanding, or
of any warrants, rights or options to acquire any such capital stock or other
equity interests or any securities convertible into such capital stock or other
equity interests, except to the extent that any such dividend or distribution,
or any such redemption, retirement, purchase or other acquisition (i) is payable
to the Company or any of its Restricted Subsidiaries or (ii) is payable solely
in capital stock or other equity interests of the Company or any such Restricted
Subsidiary.
RESTRICTED SUBSIDIARY -- means any Subsidiary (a) in respect of which
the Company owns, directly or indirectly, (i) at least eighty percent (80%) (by
number of votes) of each class of such Subsidiary's Voting Stock, or (ii) in the
case of CAC Insurance Agency of Ohio, Inc., at least 99% of the shares of
capital stock issued and outstanding of all classes in the aggregate, (b) that
is organized under the laws of the United States of America or any jurisdiction
thereof, the United Kingdom or any jurisdiction thereof (including, without
limitation, England, Scotland and Wales), Canada or any jurisdiction thereof or
the Republic of Ireland or any jurisdiction thereof, and that conducts all of
its business in, and has all of its Property located in, the United States of
America, the United Kingdom, Canada and/or the Republic of Ireland and (c) that
is not an Unrestricted Subsidiary. Any Restricted Subsidiary in compliance with
the requirements set forth in the first sentence of this definition and
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designated as a Restricted Subsidiary on the Closing Date shall be deemed to
have been a Restricted Subsidiary for all periods prior to the Closing Date.
Notwithstanding any provision in Section 6.17 to the contrary, CAC International
and CAC UK shall be deemed Restricted Subsidiaries as of October 1, 1995 and CAC
of Canada Limited and any Subsidiary formed by the Company to provide property
and casualty insurance shall each be deemed a Restricted Subsidiary as of the
date of its formation.
RESTRICTED SUBSIDIARY STOCK -- Section 6.8(b).
SALE AND LEASEBACK TRANSACTION -- means any transaction or series of
related transactions in which the Company or a Restricted Subsidiary sells or
transfers any of its Property to any Person (other than to the Company or to a
Restricted Subsidiary) and concurrently with such sale or transfer, or
thereafter, rents or leases such transferred Property or substantially similar
Property from any Person.
SECOND AMENDMENT -- means the Second Amendment, dated as of July 1,
1998, to this Agreement.
SECURITIES ACT -- means the Securities Act of 1933, as amended.
SECURITIZATION DOCUMENTS -- means any note purchase agreement (and any
notes issued thereunder), transfer or security documents, master trust or other
trust agreements, servicing agreement, indenture, pooling agreement,
contribution or sale agreement or other documents, instruments and certificates
executed and delivered, subject to the terms of this Agreement, to evidence or
secure (or otherwise relating to) a Permitted Securitization, as the same may be
amended from time to time (subject to the terms hereof) and any and all other
documents executed in connection therewith or replacement or renewal thereof.
SECURITIZATION PROPERTY -- means (i) amounts advanced by the Company or
a Restricted Subsidiary under a Dealer Agreement and payable from collections,
including servicing charges, insurance charges and service policies and all
related finance charges, late charges, and all other fees and charges charged to
customers and all monies due or to become due, and all monies received, with
respect thereto ("Loans"); (ii) all proceeds (including "proceeds" as defined in
the Uniform Commercial Code) thereof; (iii) all of the Company's or a Restricted
Subsidiary's interest in the Dealer Agreements and Installment Contracts
securing payment of Loans, all security interests or liens purporting to secure
payment of Loans and all other property obtained upon foreclosure of any
security interest securing payment of Loans or any related Installment Contract
and all guarantees, insurance (including insurance insuring the priority or
perfection of any lien) or other agreements or arrangements of any kind from
time to time supporting or securing payment of such Installment Contract whether
pursuant to such Installment Contract or otherwise; (iv) all records with
respect to Loans, (v) the Company's or a Restricted Subsidiary's right, title
and interest in and to business interruption insurance, and (vi) all payments
received by the Company in respect of Transferred Loans in the form of cash,
checks, wire transfers or other form of payment.
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SECURITIZATION TRANSACTION -- means a Transfer of, or grant of a Lien
on, Advances, Installment Contracts, Leased Vehicles, Leases, accounts
receivable and/or other financial assets by the Company or any Restricted
Subsidiary to a Special Purpose Subsidiary or other special purpose or limited
purpose entity and the issuance (whether by such Special Purpose Subsidiary or
other special purpose or limited purpose entity or any other Person) of Debt or
of any Securities secured directly or indirectly by interests in, or of trust
certificates or other Securities directly or indirectly evidencing interests in,
such Advances, Installment Contracts, Leased Vehicles, Leases, accounts
receivable and/or other financial assets.
SECURITY -- means "security" as defined in section 2(1) of the
Securities Act.
SENIOR FINANCIAL OFFICER -- means the chief financial officer, the
principal accounting officer, the controller or the treasurer of the Company.
SENIOR OFFICER -- means the chief executive officer, the president or
the chief financial officer of the Company.
SPECIAL PURPOSE SUBSIDIARY -- means any Unrestricted Subsidiary of the
Company, all of the capital stock of which is owned by the Company or a
Restricted Subsidiary, which Unrestricted Subsidiary is formed for the sole
purpose of conducting one or more Permitted Securitizations and is operated for
such purpose in accordance with customary industry practices.
STANDARD & POOR'S RATINGS GROUP -- means Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc.
SUBORDINATED DEBT -- means, at any time, unsecured Debt of the Company
that is junior and subordinate in right of payment to the Notes on terms and
conditions satisfactory to the Required Holders, as evidenced by their written
consent.
SUBORDINATED FUNDED DEBT -- means, at any time, Funded Debt of the
Company or any Restricted Subsidiary that is:
(a) junior and subordinate in right of payment to the Notes on
terms and conditions satisfactory to the Required Holders, as evidenced
by their written consent thereto,
(b) not subject to any sinking fund or required prepayment
provisions that would result in its having at any time an average life
to maturity, computed in accordance with accepted financial practice,
shorter than the Weighted Average Life to Maturity (as defined in the
definition of "Make-Whole Amount") of the Notes at such time or a final
maturity earlier than the stated final maturity of the Notes, and
54
<PAGE> 55
(c) not secured by a Lien on the Property of the Company or
any Restricted Subsidiary (whether or not such Funded Debt is recourse
to the Company or any Restricted Subsidiary).
SUBSIDIARY -- means, at any time, a corporation of which the Company
owns, directly or indirectly, more than fifty percent (50%) (by number of votes)
of each class of the Voting Stock at such time.
SURVIVING CORPORATION -- Section 6.7(a).
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, the holders of the
Notes at such time 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.
TRANSFERS -- Section 6.8(a).
UNEARNED FINANCE CHARGES -- means, as of any applicable date of
determination, the unearned finance charges utilized in deriving installment
contract receivables, net on the consolidated balance sheet of the Company and
its Restricted Subsidiaries, as disclosed in the footnotes thereto, provided
that Unearned Finance Charges shall not include unearned finance charges
attributable to retail installment contracts which are not at such time
"Installment Contracts" due to the proviso in the definition of such term in
this Agreement.
UNRESTRICTED SUBSIDIARY -- means any Subsidiary that, as of the date of
this Agreement, is designated in Part 6.17(a) of Annex 3 as an Unrestricted
Subsidiary or, after the date of this Agreement, has been designated as an
Unrestricted Subsidiary as provided in Section 6.17.
VOTING STOCK -- means capital stock of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect corporate directors (or Persons performing
similar functions).
55
<PAGE> 56
WHOLLY-OWNED RESTRICTED SUBSIDIARY -- means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity Securities
(except directors' qualifying shares) and voting Securities of which are owned
by, and all of the Debt of which is held by, any one or more of the Company and
the other Wholly-Owned Restricted Subsidiaries at such time."
2.5 AMENDMENT AND RESTATEMENT OF EXHIBIT A. The form of First Amended
and Restated Note set forth as Exhibit A to the Agreement is hereby amended and
restated, in its entirety, to be in the form of Attachment 4 attached to this
Fourth Amendment. All references to "Exhibit A" in the Note Purchase Agreements
shall, if in reference to a date on or after the date of the Fourth Amendment,
refer to the form of Second Amended and Restated 8.77% (or 9.27%, if on or after
January 15, 2000) Senior Note Due October 1, 2001, as amended and restated
hereby.
2.6 AMENDMENT OF FIRST AMENDED AND RESTATED NOTES. The forms of the
respective First Amended and Restated Notes are hereby amended in their entirety
to conform to the form of Second Amended and Restated Note attached to this
Fourth Amendment as Attachment 4. On the date of this Fourth Amendment, each of
the terms of each outstanding First Amended and Restated Note shall be deemed to
be amended to conform with such form, without any further action on the part of
the Company or any holder of any First Amended and Restated Note (including,
without limitation, any requirement that any holder surrender its outstanding
First Amended and Restated Notes to the Company). Upon surrender of any
outstanding First Amended and Restated Note, the Company shall deliver to the
registered holder thereof a Second Amended and Restated Note in the form
attached hereto as Attachment 4, dated the date of the last interest payment on
such surrendered First Amended and Restated Note and in an aggregate principal
amount equal to the unpaid principal amount of such surrendered First Amended
and Restated Note, all in accordance with the provisions of Section 5.2 of the
Agreement. Without limitation of the foregoing, the amendment and restatement of
the First Amended and Restated Notes provided for herein, including, without
limitation, the increase in the interest rate applicable to the Notes, shall be
effective with respect to any and all of the Notes irrespective of whether any
such Notes are surrendered to the Company for reissuance in the form attached to
this Fourth Amendment as Attachment 4.
SECTION 3. MISCELLANEOUS
3.1 COUNTERPARTS. This Fourth Amendment may be executed in any number
of counterparts, each executed counterpart constituting an original, but all
together only one Fourth Amendment.
3.2 HEADINGS. The headings of the sections of this Fourth 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 Fourth Amendment shall be governed by and
construed in accordance with the internal laws of the State of New York.
56
<PAGE> 57
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
Fourth Amendment and (b) the terms and provisions of the Agreement, as amended
by this Fourth Amendment, shall continue in full force and effect. The Company
hereby acknowledges and reaffirms all of its obligations and duties under the
Agreement, as modified by this Fourth 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 Fourth Amendment may refer to the Agreement without
making specific reference to this Fourth Amendment but nevertheless all such
references shall be deemed to include, to the extent applicable, this Fourth
Amendment unless the context shall otherwise require.
3.6 COMPLIANCE. The Company certifies that immediately before and after
giving effect to this Fourth Amendment, no Default or Event of Default exists or
would exist after giving effect hereto; provided that the Company may not be in
compliance with the covenant contained in Section 6.2 before giving effect to
this Fourth Amendment.
3.7 FULL DISCLOSURE. The Company warrants and represents to you that,
as of the effective date hereof, none of the written statements, documents or
other written materials furnished by, or on behalf of, the Company to you in
connection with the negotiation, execution and delivery of this Fourth Amendment
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances in which they were made. There is no fact of which
any of the Company's executive officers has actual knowledge which the Company
has not disclosed to you which materially affects adversely or, so far as the
Company can now reasonably foresee, will materially affect adversely the
business, prospects, profits, Properties or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or the ability of the
Company to perform its obligations set forth in the Agreement (after giving
effect to this Fourth Amendment) and the Notes.
3.8 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 (retroactive to September 30, 1999), 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 Fourth 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 Fourth 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%
57
<PAGE> 58
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.
(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 Bingham Dana LLP, your special counsel, presented
to the Company on or prior to the effective date of this Fourth
Amendment.
(e) The Company's legal counsel shall have delivered an opinion,
dated the effective date of this Fourth Amendment, substantially in the
form attached as Attachment 5 to this Fourth Amendment.
(f) The holders of Notes shall have received from the Company a
certificate of a Senior Officer, dated the effective date of this
Fourth Amendment, certifying as to the resolutions attached thereto and
other corporate proceedings relating to the authorization, execution
and delivery of this Fourth Amendment and the transactions contemplated
hereby.
3.9 AMENDMENT FEE. The Company shall pay a fee to all holders of
Notes, in consideration of the amendment set forth herein, in an amount equal to
0.20% of the outstanding principal amount of the Notes held by such holder as of
the date hereof. Such fee shall be paid no later than the fifth business day
after all of the Required Holders have executed this Fourth Amendment.
3.10 COMMITMENT TO SELL NOTES. Each of the holders listed on Attachment
6 to this Fourth Amendment hereby irrevocably commits to sell the Repurchased
Notes held by such holder upon payment therefor by the Company on or before
January 15, 2000 in accordance with, and in the amount provided in, Section
6.15(b) of the Agreement (as amended by this Fourth Amendment) and such
Attachment 6.
3.11 WAIVER OF DELIVERY REQUIREMENT. In order to facilitate the
Company's prompt compliance with its obligations under Section 6.15(b) of the
Agreement (as amended by this Fourth Amendment), each of the Note holders hereby
waives, with respect to the Securitization Transaction to be consummated in
connection with the fulfillment of the Company's obligations under Section
6.15(b), the requirement in the definition of Permitted Securitization that
certain deliveries be made by the Company not less than ten Business Days prior
to the date of the consummation of a Permitted Securitization; provided,
however, that the Company shall make such deliveries as
58
<PAGE> 59
promptly as reasonably practicable and, in any event, not less than five
Business Days prior to the consummation of such Securitization Transaction.
[Remainder of page intentionally blank. Next page is signature page.]
59
<PAGE> 60
ACCEPTED:
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By /S/ Thomas M. Dowshue
-------------------------------------
Name: Thomas M. Dowshue
Title: Vice President
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
60
<PAGE> 61
ACCEPTED:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By /S/ Richard E Spencer II
--------------------------------
Name: Richard E Spencer II
Title:
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
61
<PAGE> 62
ACCEPTED:
NATIONWIDE LIFE INSURANCE COMPANY
By /S/ Mark Poeppelman
----------------------------------
Name: Mark W. Poeppelman
Title: Authorized Signatory
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
62
<PAGE> 63
ACCEPTED:
AMERICAN BANKERS INSURANCE
COMPANY OF FLORIDA
By /S/ Gus Rodriguez
------------------------------------
Name: Gus Rodriguez
Title: Director of Investments
VOYAGER PROPERTY & CASUALTY INSURANCE CO.
By /S/ Gus Rodriguez
------------------------------------
Name: Gus Rodriguez
Title: Director of Investments
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
63
<PAGE> 64
ACCEPTED:
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR AMERICAN
PIONEER LIFE INSURANCE COMPANY OF
NEW YORK
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR AMERICAN
PROGRESSIVE LIFE AND HEALTH
INSURANCE COMPANY OF NEW YORK
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR FEDERATED
RURAL ELECTRIC INSURANCE CORP.
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR TOWER
LIFE INSURANCE COMPANY
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR MUTUAL
PROTECTIVE INSURANCE COMPANY
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
64
<PAGE> 65
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR PHYSICIANS
LIFE INSURANCE COMPANY VISTA 500
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR WORLD
INSURANCE COMPANY
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR UNITED
TEACHERS ASSOCIATES INSURANCE
COMPANY
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
ASSET ALLOCATION & MANAGEMENT
COMPANY AS AGENT FOR MEDICO
LIFE INSURANCE COMPANY
By /S/ K. Lange
-------------------------------------
Name: Kathy Lange
Title: Portfolio Manager
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
65
<PAGE> 66
ACCEPTED:
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
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
66
<PAGE> 67
If this Fourth 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 Fourth 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: Chief Financial Officer
[Signature Page to Fourth Amendment to Note Purchase Agreement in respect of
8.02% Senior Notes Due October 1, 2001 of Credit Acceptance Corporation]
67
<PAGE> 68
ATTACHMENT 4
EXHIBIT A
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). ANY RESALE OR TRANSFER OF THIS NOTE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT MAY ONLY BE MADE IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
CREDIT ACCEPTANCE CORPORATION
SECOND AMENDED AND RESTATED 8.77% SENIOR NOTE DUE OCTOBER 1, 2001
[FROM AND INCLUDING DECEMBER 1, 1999 TO, BUT NOT INCLUDING, JANUARY 15, 2000]
SECOND AMENDED AND RESTATED 9.27% SENIOR NOTE DUE OCTOBER 1, 2001
[FROM AND AFTER JANUARY 15, 2000]
NO. R-
----
$
------------
PPN: 225310 A# 8 [DATE]
CREDIT ACCEPTANCE CORPORATION, a Michigan corporation (the "Company"),
for value received, hereby promises to pay to or registered assigns
the principal sum of DOLLARS ($ ) on October 1, 2001 and
to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal balance thereof from the date of this Note (i)
at the rate of seven and seventy-seven one-hundredths percent (7.77%) per annum
through (but not including) July 1, 1998, (ii) at the rate of eight and two
one-hundredths percent (8.02%) per annum from and after July 1, 1998 through
(but not including) December 1, 1999, (iii) at the rate of eight and
seventy-seven one-hundredths percent (8.77%) per annum from (and including) and
after December 1, 1999 through (but not including) January 15, 2000, and (iv) at
the rate of nine and twenty-seven one-hundredths percent (9.27%) per annum from
and after January 15, 2000, payable semi-annually on the first (1st) day of
April and October in each year, commencing on the payment date next succeeding
the date hereof, until the principal amount hereof shall become due and payable;
and to pay on demand interest on any overdue principal (including any overdue
prepayment of principal) and Make-Whole Amount, if any, and (to the extent
permitted by applicable law) on any overdue installment of interest, at a rate
equal to the lesser of (a) the highest rate allowed by applicable law or (b)
nine and seventy-seven one-hundredths percent (9.77%) per annum if such
A-1
<PAGE> 69
time is prior to July 1, 1998, ten and two one-hundredths percent (10.02%) per
annum if such time is on or after July 1, 1998 but prior to December 1, 1999,
ten and seventy-seven one-hundredths percent (10.77%) per annum if such time is
on or after December 1, 1999 but prior to January 15, 2000 and eleven and
twenty-seven one-hundredths percent (11.27%) per annum if such time is on or
after January 15, 2000.
Payments of principal, Make-Whole Amount, if any, and interest shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts to the
registered holder hereof at the address shown in the register maintained by the
Company for such purpose, in the manner provided in the Note Purchase Agreement
(defined below).
This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to Seventy-One Million Seven Hundred Fifty
Thousand Dollars ($71,750,000) pursuant to the Company's separate Note Purchase
Agreements, each dated as of March 25, 1997 (collectively, as may be amended
from time to time, the "Note Purchase Agreement"), with the purchasers listed on
Annex 1 thereto. This Note is entitled to the benefits of the Note Purchase
Agreement and the terms thereof are incorporated herein by reference.
Capitalized terms used herein and not otherwise defined herein have the meanings
specified in the Note Purchase Agreement. As provided in the Note Purchase
Agreement, this Note is subject to prepayment, in whole or in part, in certain
cases without a Make-Whole Amount and in other cases with a Make-Whole Amount.
The Company agrees to make required prepayments on account of such Notes in
accordance with the provisions of the Note Purchase Agreement.
This Note is a registered Note and is transferable only by surrender
hereof at the principal office of the Company as specified in the Note Purchase
Agreement, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Note or its attorney duly authorized
in writing.
Under certain circumstances, as specified in the Note Purchase
Agreement, the principal of this Note (in certain cases together with any
applicable Make-Whole Amount) may be declared due and payable in the manner and
with the effect provided in the Note Purchase Agreement.
The Company's Second Amended and Restated [8.77%] [9.27%] Senior Notes
due October 1, 2001 (the "Second Amended and Restated Notes") amend and restate
the Company's First Amended and Restated 8.02% Senior Notes due October 1, 2001
(the "First Amended and Restated Notes") and its 7.77% Senior Notes due October
1, 2001 (the "Original Notes"). The obligations formerly evidenced by the First
Amended and Restated Notes and the Original Notes are continuing obligations
which are evidenced by the Second Amended and Restated Notes and nothing
contained in the Second Amended and Restated Notes shall be deemed to constitute
payment, settlement or a novation of such obligations.
A-2
<PAGE> 70
THIS NOTE AND THE NOTE PURCHASE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW.
CREDIT ACCEPTANCE CORPORATION
By
-----------------------------------
Name:
Title:
A-3
<PAGE> 71
ATTACHMENT 5
[FORM OF COMPANY COUNSEL LEGAL OPINION]
December 1, 1999
To each of the Persons
listed on Annex 1 hereto
Re: Credit Acceptance Corporation, a Michigan
corporation (the "Company")
Ladies and Gentlemen:
We have acted as special counsel to the Company and have provided this
opinion pursuant to the Fourth Amendment to Note Purchase Agreement, dated as of
December 1, 1999 (the "Fourth Amendment"), among the Company and the Persons
listed on Annex 1 thereto (the "Holders"), in respect of 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,
the Second Amendment to Note Purchase Agreement dated as of July 1, 1998 and the
Third Amendment to Note Purchase Agreement dated as of April 13, 1999, the
"Existing Note Agreement", and as further amended by the Fourth Amendment, the
"Amended Note Agreement"), between the Company and each of the Persons listed on
Annex 1 thereto (the "Purchasers"), pursuant to which the Company sold to the
Purchasers the Original Notes in the aggregate principal amount of $71,750,000.
The capitalized terms used herein and not defined herein have the meanings
specified in the Amended Note Agreement.
The law covered by the opinions expressed herein is limited to the
federal law of the United States and the laws of the State of Michigan. In
rendering the opinion in paragraph (2) below, we have assumed that the laws of
the State of New York as to the enforceability of the Amended Note Agreement and
the Notes are not different from the State of Michigan (excluding the choice of
law rules).
In our examination, we have assumed the genuineness of all signatures
(other than signatures of officers of the Company), the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals
or copies, the conformity with originals of all documents submitted to us as
copies and, as to documents executed by the Holders and Persons other than the
Company, that each such Person executing documents had the power to enter into
and perform its obligations under such documents, and that such documents have
been duly authorized, executed and delivered by, and are binding upon and
enforceable against, such Persons.
1
<PAGE> 72
In rendering our opinion, we have relied, without further investigation
or analysis, upon certificates of officers of the Company attached hereto;
warranties and representations as to certain factual matters made by the Company
and by the Holders in the Amended Note Agreement and in the certificate
delivered to the Holders pursuant to the Fourth Amendment.
In acting as such counsel, we have examined (a) the Existing Note
Agreement, (b) the Fourth Amendment, including the form of the Company's Second
Amended and Restated 8.77% Senior Note due October 1, 2001 attached to the
Fourth Amendment as Attachment 4, (c) the bylaws of the Company, (d) the records
of proceedings of the board of directors of the Company, (e) a certified copy of
the articles of incorporation of the Company, as in effect on the date hereof,
and (f) originals, or copies certified or otherwise identified to our
satisfaction, of such other documents, records, instruments and certificates of
public officials as we have deemed necessary or appropriate to enable us to
render this opinion. The First Amended and Restated Notes held by the Holders,
as amended and restated pursuant to the Fourth Amendment, are referred to herein
as the "Notes".
Based upon and subject to the foregoing and to the additional
assumptions, qualifications and limitations set forth herein, we are of the
opinion that:
1. The Fourth Amendment has been duly authorized by all necessary
corporate action on the part of the Company and has been executed and delivered
by a duly authorized officer of the Company.
2. Each of the Amended Note Agreement and the Notes constitute a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as (a) the enforceability thereof may be
limited by or subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws now or hereafter affecting creditors'
rights generally, and (b) rights or remedies (including, without limitation,
acceleration, specific performance and injunctive relief) may be limited by
equitable principles of general applicability (including, without limitation,
standards of materiality, good faith, fair dealing and reasonableness) whether
such principles are considered in a proceeding in equity or at law, and may be
subject to the discretion of the court before which any proceedings therefor may
be brought.
3. All consents, approvals and authorizations of Governmental
Authorities required on the part of the Company have been obtained in connection
with the execution and delivery of the Fourth Amendment.
4. The execution and delivery of the Amended Note Agreement in
accordance with, and subject to the terms and conditions of, the Amended Note
Agreement, by the Company and the performance by the Company of its obligations
thereunder and under the Notes do not violate any applicable statute, rule or
regulation to which the Company is subject.
2
<PAGE> 73
5. Under existing law, the amendment of the First Amended and Restated
Notes under the circumstances contemplated by the Fourth Amendment is an exempt
transaction under the Securities Act and neither the registration of the Notes
under the Securities Act, nor the qualification of an indenture with respect
thereto under the Trust Indenture Act of 1939, as amended, is required in
connection with such transaction.
In rendering this opinion, we assume no obligation to revise or
supplement this opinion should any law now in effect be changed by legislative
action, judicial decision or otherwise.
We acknowledge that this opinion is being issued at the request of the
Company pursuant to the Fourth Amendment and we agree that the parties listed on
Annex 1 thereto are relying hereon. Future holders of the Notes may rely on this
opinion as if it were addressed to them. Except as otherwise provided in this
paragraph, no one is entitled to rely on this opinion.
This opinion is solely for the information of the addressees hereof,
and is not to be quoted in whole or in part or otherwise referred to, nor is it
to be filed with any governmental agency or other person without our prior
written consent (except that you may furnish a copy hereof (i) to any one or
more of your employees, officers, directors, agents, attorneys, accountants or
professional consultants, (ii) to any state or federal authority or independent
insurance board or body having regulatory jurisdiction over any holder of a
Note, (iii) pursuant to order or legal process of any court or governmental
agency, (iv) in connection with any legal action in which you are a party
arising out of or in respect of the transactions contemplated under the Amended
Note Agreement, and (v) for informational and due diligence purposes only, to
prospective transferees of the Notes).
Very truly yours,
3
<PAGE> 74
ATTACHMENT 6
LIST OF HOLDERS OF NOTES WHOSE NOTES WILL BE PURCHASED
BY COMPANY PURSUANT TO SECTION 6.15(B)
<TABLE>
<CAPTION>
1997 Series Reg. No. Principal Outstanding
- ----------- -------- ---------------------
<S> <C> <C>
The Guardian Life Insurance Company of America R-1 $ 10,210,452.96
Massachusetts Mutual Life Insurance Company R-2 $ 5,105,226.48
Nationwide Life Insurance Company R-3 $ 5,105,226.48
Farm Bureau Life Insurance Company R-6 $ 1,531,567.95
Farm Bureau Mutual Insurance Company R-7 $ 1,021,045.30
American Bankers Insurance Company of Florida R-8 $ 1,531,567.95
Voyager Property & Casualty Insurance Co. R-9 $ 1,021,045.30
---------------
Subtotal $ 25,526,132.42
1996 Series
- -----------
Massachusetts Mutual Life Insurance Company R-1 $ 3,764,285.71
R-3 $ 1,217,857.14
R-4 $ 332,142.86
R-30 $ 1,328,571.43
Nationwide Life Insurance Company R-5 $ 5,535,714.29
Security Benefit Life Insurance Company R-17 $ 2,657,142.86
Combined Insurance Company of America R-29 $ 2,214,285.71
---------------
Subtotal $ 17,050,000.00
1994 Series
- -----------
Western Farm Bureau Life Insurance R-12 $ 1,095,833.34
FBL Insurance Company R-13 $ 2,410,833.34
Ohio Casualty Insurance Co. R-17 $ 1,315,000.00
Ohio Life Insurance Company R-18 $ 876,666.66
Washington National Insurance Company R-39 $ 258,497.17
William Blair & Company, L.L.C. R-40 $ 500,000.00*
Lincoln Life & Annuity Company of New York R-44 $ 317,951.52
R-45 $ 206,797.74
---------------
Subtotal $ 6,981,579.77
TOTAL $49,557,712.19
</TABLE>
*Represents a portion of Note which has a total of $646,242.92 principal amount
outstanding.
<PAGE> 1
Exhibit 4(F)(8)
AMENDMENT NO. 2 TO
NOTE PURCHASE AGREEMENT
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT (this "Amendment"),
dated as of December 15, 1999, among KITTY HAWK FUNDING CORPORATION, a Delaware
corporation, as a secured party (together with its successors and assigns, the
"Company"), CAC FUNDING CORP., a Nevada corporation, as issuer (together with
its successors and assigns, the "Issuer") and BANK OF AMERICA, N.A., a national
banking association ("Bank of America"), individually and as agent for the
Company and the Bank Investors (together with its successors and assigns in such
capacity, the "Agent"), amending that certain Note Purchase Agreement (as
amended to the date hereof, the "Note Purchase Agreement"), dated as of July 7,
1998, among the Company, the Issuer and Bank of America (known under the Note
Purchase Agreement as "NationsBank, N.A."), individually and as the Agent.
WHEREAS, on the terms and conditions set forth herein, the
parties thereto wish to amend the Note Purchase Agreement as provided herein.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment
capitalized terms have the same meanings assigned thereto in the Note Purchase
Agreement.
SECTION 2. Amendment of Certain Terms.
(1) Section 1.1 of the Note Purchase Agreement is hereby amended
by deleting the reference to "June 28, 2000" in the definition of "Commitment
Termination Date" and replacing such reference with "December 13, 2000".
(2) Section 1.1 of the Note Purchase Agreement is hereby amended
by deleting the definition of "Facility Limit" and replacing it with the
following:
"Facility Limit" shall mean, as of December 15, 1999,
$98,528,495.59, and at any time thereafter, 103% of the Net Investment;
provided, that at no time shall the Facility Limit exceed
$98,528,495.59."
1
<PAGE> 2
(3) Section 1.1 of the Note Purchase Agreement is hereby amended
by deleting the reference to "June 28, 2000" in clause (viii) of the definition
of "Termination Date" and replacing such reference with "December 13, 2000".
(4) Section 2.1(e)(i)(4) of the Note Purchase Agreement is hereby
amended by deleting the reference to "June 30" and replacing such reference with
"December 31".
SECTION 3. Representations and Warranties. The Issuer hereby
makes to the Agent, the Company and the Bank Investors, on and as of the date
hereof, all of the representations and warranties set forth in Section 4.1 of
the Note Purchase Agreement, except that to the extent that any of such
representations and warranties expressly relate to an earlier date, such
representations and warranties shall be true and correct as of such earlier
date.
SECTION 4. Effectiveness. This Amendment shall become
effective on December 15, 1999.
SECTION 5. Condition Precedent to Subsequent Funding. Prior to
the Subsequent Funding on or next succeeding the date hereof, the Debtor shall
obtain and, unless otherwise consented to by the Agent, have at all times in
effect, an interest rate cap agreement (the "Interest Rate Cap") with a
financial institution (the "Cap Counterparty"), which shall at all times during
the term of the Interest Rate Cap be acceptable to the Agent and shall have at
all times a rating of at least "A3" from Moody's and "A-" from Standard & Poor's
and which has irrevocably and unconditionally agreed that, prior to the date
which is one year and one day after the payment in full of all Commercial Paper
issued by the Company, it will not acquiesce, petition or otherwise invoke or
cause the Debtor to invoke the process of any Governmental Authority for the
purpose of commencing or sustaining a case against the Debtor under any Federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Debtor or any substantial part of its property or ordering the winding-up
or liquidation of the affairs of the Debtor. The Interest Rate Cap shall be in
form and substance acceptable to the Agent and shall provide (i) that all
amounts payable thereunder shall be paid by the Cap Counterparty directly to the
Collection Account, (ii) that the Debtor's rights thereunder have been
irrevocably assigned to, and a security interest therein has been granted to,
the Collateral Agent for the benefit of the Secured Parties, (iii) for a strike
rate of not more than 7.50% per annum, and (iv) that it covers a notional amount
corresponding to an amortization schedule provided by the Collateral Agent and
attached hereto as Exhibit A. Nothing in this Section shall be interpreted as
limiting in any way the other conditions to Funding in the Note Purchase
Agreement or the Security Agreement.
2
<PAGE> 3
SECTION 6. Costs and Expenses. The Issuer shall pay all of
the Company's, the Bank Investors' and the Agent's cost and expenses (including
out of pocket expenses and reasonable attorneys fees and disbursements) incurred
by them in connection with the preparation, execution and delivery of this
Amendment.
SECTION 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Severability; Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 9. Captions. The captions in this Amendment are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
SECTION 10. Ratification. Except as expressly affected by the
provisions hereof, the Note Purchase Agreement as amended shall remain in full
force and effect in accordance with its terms and ratified and confirmed by the
parties hereto. On and after the date hereof, each reference in the Note
Purchase Agreement to "this Agreement", "hereunder", "herein" or words of like
import shall mean and be a reference to the Agreement as amended by this
Amendment.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment No. 2 to the Note Purchase Agreement as of the date
first written above.
CAC FUNDING CORP., as Issuer
By: /S/ Doug W. Busk
------------------------------------
Name: Douglas W. Busk
KITTY HAWK FUNDING CORPORATION,
as Company
By: /S/ Richard L. Taiano
------------------------------------
Name: Richard L. Taiano
Title: Vice President
BANK OF AMERICA, N.A., Individually and
as Collateral Agent
By: /S/ Brian D Krum
------------------------------------
Name: Brian D. Krum
Title: Vice President
4
<PAGE> 1
EXHIBIT 4(F)(9)
AMENDMENT NO. 3 TO
SECURITY AGREEMENT
AMENDMENT NO.3 TO SECURITY AGREEMENT (this "Amendment"), dated as of
December 15, 1999, among KITTY HAWK FUNDING CORPORATION, a Delaware corporation,
as a secured party (together with its successors and assigns, the "Company"),
CAC FUNDING CORP., a Nevada corporation, as debtor (together with its successors
and assigns, the "Debtor"), CREDIT ACCEPTANCE CORPORATION, a Michigan
corporation, individually and as servicer (together with its successors and
assigns, the "Servicer"), and BANK OF AMERICA, N.A., a national banking
association ("Bank of America"), individually and as collateral agent (together
with its successors and assigns in such capacity, the "Collateral Agent"),
amending that certain Security Agreement (as amended to the date hereof, the
"Security Agreement"), dated as of July 7, 1998, between the Company, the
Debtor, the Servicer and Bank of America (known under the Security Agreement as
"NationsBank, N.A."), individually and as Collateral Agent.
WHEREAS, on the terms and conditions set forth herein, the parties to
the Security Agreement wish to amend the Security Agreement as provided herein.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment capitalized terms
have the same meanings assigned thereto in the Security Agreement.
SECTION 2. Amendment of Certain Terms.
(1) Section 1.1 of the Security Agreement is hereby amended by deleting
the definition of "Required Reserve Account Balance" and replacing it with the
following:
"Required Reserve Account Balance" shall mean an amount equal to the
sum of (A) the product of (i) 1.45% and (ii) the Net Investment related to
the Initial Funding (after application of funds pursuant to Section 5.1 on
the related Remittance Date), (B) the product of (i) 1.00% and (ii) the Net
Investment related to the sum of all Subsequent Fundings (after application
of funds pursuant to Section 5.1
1
<PAGE> 2
on the related Remittance Date), and (C) the Supplemental Reserve
Requirement."
(2) Section 1.1 of the Security Agreement is hereby amended by deleting
the word "and" appearing before clause (d) of the definition of "Servicer Event
of Default" and by adding the following to the end of such definition:
", (e) on a Consolidated basis, the Servicer's Consolidated Tangible
Net Worth is less than $205,000,000, plus the sum of (i) 75% of
Consolidated Net Income for each fiscal quarter of the Servicer (A)
beginning on or after January 1, 2000, (B) ending on or before the
applicable date of determination thereof, and (C) for which Consolidated
Net Income as determined above is a positive amount, and (ii) the Equity
Offering Adjustment, or (f) on a Consolidated basis, at the end of any
fiscal quarter, the Fixed Charge Coverage Ratio is less than 1.75 to 1.0."
(3) Section 1.1 of the Security Agreement is hereby amended by inserting
the following parenthetical before the period at the end of the definition of
"Collections":
"(including any additional amounts received from pools of contracts
for a given Dealer pursuant to a Dealer Agreement which are applied to
reduce the balance of the Loans)".
(4) Section 1.1 of the Security Agreement is hereby amended by inserting
the following definition after the definition of "Company":
"Consolidated Income Available for Fixed Charges" shall mean, for any
period, the sum of (i) Consolidated Net Income, plus (ii) the aggregate
amount of income taxes, depreciation, amortization and Consolidated Fixed
Charges (to the extent, and only to the extent, that such aggregate amount
was reflected in the computation of Consolidated Net Income for such
period), determined on a Consolidated basis for such Persons in accordance
with generally accepted accounting principles. "
(5) Section 1.1 of the Security Agreement is hereby amended by inserting
the following definition after the definition of "Consolidated Interest
Expense":
"Consolidated Tangible Net Worth" shall mean the total preferred
shareholders' investment and common shareholders' investment (common stock,
paid-in-capital and retained earnings) as computed
2
<PAGE> 3
under generally accepted accounting principles, less assets properly
classified as intangible assets according to generally accepted accounting
principles."
(6) Section 1.1 of the Security Agreement is hereby amended by inserting
the following definition after the definition of "Successor Servicer":
"Supplemental Reserve Requirement" shall mean an amount equal to (i)
as of December 15, 1999 through February 14, 2000, $800,000; (ii) as of
February 14, 2000 and any date thereafter, provided that the Net Investment
related to the Subsequent Funding taking place on December 15, 1999 is
equal to or less than $43,500,000, $0."
(7) Section 1.1 of the Security Agreement is hereby amended by inserting
the following definition after the definition of "Standard & Poor's":
"Structuring Agent" shall mean Banc of America Securities LLC.
(8) Section 5.3 of the Security Agreement is hereby amended by inserting
the following before the period at the end of paragraph (b) thereof:
";provided, that any such excess amounts attributable to a decrease in
the Supplemental Reserve Requirement shall be paid to the Structuring Agent
by wire transfer in immediately available funds to: Account #
1093601650000; ABA # 053000196: Reference:CAC Reserve Release."
(9) Article I of the Security Agreement is hereby amended by inserting the
following section at the end thereof
"SECTION 1.2 Additional Definitions. The following definitions shall
have the meanings assigned thereto in that certain Third Amended and
Restated Credit Agreement, dated as of June 15, 1999, between Credit
Acceptance Corporation, Comerica Bank, as administrative agent and
collateral agent, NationsBank, N.A., as syndication agent and Banc of
America Securities LLC, as sole lead arranger and sole book manager, as
amended to the date hereof: Consolidated; Consolidated Fixed Charges;
Consolidated Net Income; Equity Offering Adjustment; and Fixed Charge
Coverage Ratio.".
3
<PAGE> 4
SECTION 3. Representations and Warranties.
(a) The Debtor hereby makes to the Collateral Agent, the Company and the
Bank Investors, on and as of the date hereof, all of the representations and
warranties set forth in Sections 3.1 and 3.2 of the Security Agreement, except
that to the extent that any of such representations and warranties expressly
relate to an earlier date, such representations and warranties shall be true and
correct as of such earlier date.
SECTION 4. Effectiveness. This Amendment shall become effective on the
date hereof.
SECTION 5. Costs and Expenses. The Debtor shall pay all of the
Company's, the Bank Investors' and the Collateral Agent's cost and expenses
(including out of pocket expenses and reasonable attorneys fees and
disbursements) incurred by them in connection with the preparation, execution
and delivery of this Amendment.
SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Severability; Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 8. Captions. The captions in this Amendment are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
SECTION 9. Ratification. Except as expressly affected by the
provisions hereof, the Security Agreement as amended shall remain in full force
and effect in accordance with its terms and ratified and confirmed by the
parties hereto. On and after the date hereof, each reference in the Security
Agreement to "this Agreement", "hereunder", "herein" or words of like import
shall mean and be a reference to the Security Agreement as amended by this
Amendment.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment No. 3 to the Security Agreement as of the date first written
above.
CAC FUNDING CORP., as Debtor
By: /S/ Douglas W. Busk
------------------------------------
Name: Douglas W. Busk
Title: Vice President-Finance
CREDIT ACCEPTANCE CORPORATION,
Individually and as Servicer
By: /S/ Douglas W. Busk
------------------------------------
Name: Douglas W. Busk
Title: Vice President-Finance
KITTY HAWK FUNDING CORPORATION,
as Company
By: /S/ Richard L Taiano
------------------------------------
Name: Richard L Taiano
Title: Vice President
BANK OF AMERICA, N.A., Individually and
as Collateral Agent
By: /S/ Brian D Krum
------------------------------------
Name: Brian D. Krum
Title: Vice President
5
<PAGE> 1
EXHIBIT 4(F)(10)
AMENDMENT NO. 2 TO CONTRIBUTION AGREEMENT
This AMENDMENT NO. 2 TO CONTRIBUTION AGREEMENT ("Amendment No. 2"),
dated as of December 15, 1999, is made between CREDIT ACCEPTANCE CORPORATION, a
Michigan corporation ("CAC") and CAC FUNDING CORP., a Nevada corporation
("Funding").
On July 7, 1998, CAC and Funding entered into a Contribution Agreement
pursuant to which CAC did assign, transfer and convey to Funding a pool of Loans
constituting the Contributed Property, and Funding did use such loans as
collateral to obtain financing from unrelated parties. On June 30, 1999, CAC and
Funding entered into Amendment No. 1 to the Contribution Agreement to provide
for the transfer by CAC to Funding of additional Loans and related property.
Funding now desires to acquire additional Loans and related property from CAC
identified herein, including CAC's rights in the Dealer Agreements and Contracts
securing payment of such Loans and the Collections derived therefrom during the
full term of this Agreement, and CAC desires to transfer, convey and assign such
additional Loans and related property to Funding upon the terms and conditions
hereinafter set forth. CAC has agreed to service the Loans and related property
to be transferred, conveyed and assigned to Funding.
In consideration of the premises and the mutual agreements set forth
herein, it is hereby agreed by and between CAC and Funding as follows:
SECTION 1. Definitions. All capitalized terms used herein shall have
the meanings specified in the Contribution Agreement, as amended, or if not so
specified, the meaning specified in, or incorporated by reference into, the
Security Agreement or the Note Purchase Agreement, as the same may be amended
through the date hereof, and shall include in the singular number the plural and
in the plural number the singular. All accounting terms not specifically defined
herein or therein shall be construed in accordance with GAAP. All terms used in
Article 9 of the Relevant UCC, and not specifically defined herein, are used
herein as defined in such Article 9. In addition, the following capitalized
terms shall have the meanings shown in this Section:
"Additional Contributed Property" means (i) all Loans, including,
without limitation, all monies due or to become due, and all monies received,
with respect thereto on or after the Cut-Off Date and all Related Security
therefor (including all of CAC's right, title and interest in and to the vehicle
retail installment sales contracts identified on Exhibit A attached hereto),
(ii) all Collections and (v) and all proceeds (including "proceeds" as defined
in the UCC) of any of the foregoing.
"Closing Date" means December 15, 1999.
"Contribution Agreement" means the Contribution Agreement between CAC
and Funding dated July 7, 1998, as amended.
"Cut-Off Date" means December 1, 1999.
<PAGE> 2
"Loans" shall mean all amounts owing to CAC on account of advances made
by CAC pursuant to Dealer Agreements entered into between CAC and a new or used
automobile and/or light-duty truck dealer, including servicing charges,
insurance charges and service policies and all related finance charges, late
charges, and all other fees and charges charged to any such dealer, which Loans
are related to those vehicle retail installment sales contracts identified on
Exhibit A attached hereto and are payable from Collections.
SECTION 2. Contribution and Sale of Additional Contributed Property.
(a) Upon the terms and subject to the conditions set forth herein (i) CAC hereby
assigns, transfers and conveys to Funding, and Funding hereby accepts from CAC,
on the terms and subject to the conditions specifically set forth herein, all of
CAC's right, title and interest, in, to and under the Additional Contributed
Property conveyed on the Closing Date. Such sale, assignment, transfer and
conveyance does not constitute an assumption by Funding of any obligations of
CAC or any other Person to Obligors or to any other Person in connection with
the Loans or under any Related Security, Dealer Agreement or other agreement and
instrument relating to the Loans.
(b) In connection with any such foregoing conveyance, CAC agrees to
record and file on or prior to the Closing Date, at its own expense, a financing
statement or statements with respect to the Additional Contributed Property
conveyed by CAC hereunder meeting the requirements of applicable state law in
such manner and in such jurisdictions as are necessary to perfect and protect
the interests of Funding created hereby under the Relevant UCC (subject, in the
case of Related Security constituting returned inventory, to the applicable
provisions of Section 9-306 of the Relevant UCC) against all creditors of and
purchasers from CAC, and to deliver either the originals of such financing
statements or a file-stamped copy of such financing statements or other evidence
of such filings to Funding on the Closing Date.
(c) CAC agrees that from time to time, at its expense, it will promptly
execute and deliver all instruments and documents and take all actions as may be
necessary or as Funding may reasonably request in order to perfect or protect
the interest of Funding in the Loans and other Additional Contributed Property
purchased hereunder or to enable Funding to exercise or enforce any of its
rights hereunder. CAC shall, upon request of Funding, obtain such additional
search reports as Funding shall request. To the fullest extent permitted by
applicable law, Funding shall be permitted to sign and file continuation
statements and amendments thereto and assignments thereof without CAC's
signature. Carbon, photographic or other reproduction of this Agreement or any
financing statement shall be sufficient as a financing statement.
(d) It is the express intent of CAC and Funding that the conveyance of
the Loans and other Additional Contributed Property by CAC to Funding pursuant
to this Amendment No. 2 be construed as a complete transfer of such Loans and
other Additional Contributed Property by CAC to Funding. Further, it is not the
intention of CAC and Funding that such conveyance be deemed a grant of a
security interest in the Loans and other Additional Contributed Property by CAC
to Funding to secure a debt or other obligation of CAC. However, in the event
that, notwithstanding the express intent of the parties, the Loans and other
Additional Contributed Property are construed
2
<PAGE> 3
to constitute property of CAC, then (i) this Amendment No. 2 also shall be
deemed to be, and hereby is, a security agreement within the meaning of the
Relevant UCC; and (ii) the conveyance by CAC provided for in this Amendment No.
2 shall be deemed to be, and CAC hereby grants to Funding, a security interest
in, to and under all of CAC's right, title and interest in, to and under the
Additional Contributed Property, to secure the rights of Funding set forth in
this Amendment No. 2 or as may be determined in connection therewith by
applicable law. CAC and Funding shall, to the extent consistent with this
Amendment No. 2, take such actions as may be necessary to ensure that, if this
Amendment No. 2 were deemed to create a security interest in the Loans and other
Additional Contributed Property, such security interest would be deemed to be a
perfected security interest in favor of Funding under applicable law and will be
maintained as such throughout the term of this Agreement.
(e) In connection with such conveyance, CAC agrees to deliver to
Funding on the Closing Date, one or more computer files or microfiche lists
containing true and complete lists of all Dealer Agreements and Loans conveyed
to Funding on the Closing Date, and all Contracts securing all such Loans,
identified by account number, dealer number, and pool number and Outstanding
Balance as of the Cut-Off Date. Such file or list shall be marked as Exhibit A
to this Amendment No. 2, shall be delivered to Funding as confidential and
proprietary, and is hereby incorporated into and made a part of this Amendment
No. 2.
SECTION 3. Consideration. The consideration for the Loans and other
Additional Contributed Property conveyed on the Closing Date to Funding by CAC
under this Amendment No. 2 shall be reflected as by a credit on the books and
records of Funding of an amount of additional contributed capital in the form of
shareholders' equity with respect to the Shares previously issued to CAC, which
amount shall be equal to the aggregate principal amount of the Loans as of the
Cut-Off Date that are contributed by CAC to Funding on the Closing Date.
SECTION 4. Representations and Warranties. CAC represents and warrants
to Funding as of the Closing Date that:
(a) Corporate Existence and Power. CAC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all
material governmental licenses, authorizations, consents and approvals
required to carry on its business in each jurisdiction in which its
business is now conducted. CAC is duly qualified to do business in, and
is in good standing in, every other jurisdiction in which the nature of
its business requires it to be so qualified, except where the failure
to be so qualified or in good standing would not have a material
adverse effect.
(b) Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by CAC of this Amendment No. 2
are within its corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or
filing with, any Official Body or official thereof (except for the
filing by Seller of UCC financing statements as required by this
Amendment No. 2), and do not contravene,
3
<PAGE> 4
or constitute a default under, any provision of applicable law, rule or
regulation or of the Articles of Incorporation or Bylaws or of any
agreement, judgment, injunction, order, writ, decree or other
instrument binding upon CAC, or result in the creation or imposition of
any Adverse Claim on the assets of CAC or any of its subsidiaries
(except those created by this Agreement).
(c) Binding Effect. This Amendment No. 2 constitutes the
legal, valid and binding obligation of CAC, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of
creditors generally.
(d) Perfection. CAC is the owner of all of the Loans and the
other Additional Contributed Property, free and clear of all Adverse
Claims. On or prior to the Closing Date, all financing statements and
other documents required to be recorded or filed in order to perfect
and protect the ownership interest of Funding in and to the Loans and
the other Additional Contributed Property against all creditors of and
purchasers from CAC will have been duly filed in each filing office
necessary for such purpose and all filing fees and taxes, if any,
payable in connection with such filings shall have been paid in full.
(e) Accuracy of Information. All information heretofore
furnished by CAC to Funding, the Agent, Kitty Hawk and any Bank
Investor for purposes of or in connection with this Amendment No. 2 and
the Contribution Agreement or any transaction contemplated hereby or
thereby is, and all such information hereafter furnished by CAC to
Funding, the Agent, Kitty Hawk and any Bank Investor will be, true and
accurate in every material respect, on the date such information is
stated or certified.
(f) Tax Status. CAC has filed all material tax returns
(federal, state and local) required to be filed and has paid or made
adequate provision for the payment of all taxes, assessments and other
governmental charges.
(g) Action, Suits. There are no actions, suits or proceedings
pending, or to the knowledge of CAC, threatened against or affecting
CAC or any Affiliate of CAC or its properties, in or before any court,
arbitrator or other body, which may, individually or in the aggregate,
have a material adverse effect on CAC or the Additional Contributed
Property.
(h) Place of Business. The principal place of business and
chief executive office of CAC is in Southfield, Michigan, and the
office where CAC keeps all of its Records is at the address listed in
Section 9.3 of the Contribution Agreement, or such other locations
notified to Funding in accordance with the Contribution Agreement in
jurisdictions where all actions required by the terms of this Amendment
No. 2 and the Contribution Agreement have been taken and completed.
(i) Good Title. Upon the contribution of the Loans and related
property to
4
<PAGE> 5
Funding pursuant to this Amendment No. 2, Funding shall acquire all of
CAC's ownership and other interest in each Loan (and in the Related
Security, Collections and proceeds with respect thereto) and in the
Related Security, Collections and proceeds with respect thereto, in
each case free and clear of any Adverse Claim.
(j) Tradenames, Etc. As of the date hereof CAC has not, within
the last five (5) years, operated under any tradenames other than its
corporate name, nor has it changed its name, merged with or into or
consolidated with any other corporation or been the subject of any
proceeding under Title 11, United States Code (Bankruptcy).
(k) Nature of Loans, Contracts. Each Loan represented by CAC
to be an Eligible Loan, or included in the calculation of the Aggregate
Outstanding Eligible Loan Balance, at the time of such representation,
or at the time of such calculation, as applicable, in fact satisfies
the definition of "Eligible Loan" set forth in the Security Agreement.
Each Contract classified as an "Eligible Contract" (or included in any
aggregation of balances of "Eligible Contracts") by CAC satisfies at
the time of such classification the definition of "Eligible Contract"
set forth in the Security Agreement.
(l) Amount of Loans. As of the Cut-Off Date, as reported in
the loan servicing system of CAC, the Aggregate Outstanding Eligible
Loan Balance was not less than $111,500,000.00.
(m) Collection Guidelines. Since July 7, 1998, there have been
no material changes in the Collection Guidelines other than as
permitted hereunder and under the Security Agreement. Since such date,
no material adverse change has occurred in the overall rate of
collection of the Loans.
(n) Collections and Servicing. Since July 7, 1998, there has
been no material adverse change in the ability of the Servicer to
service and collect the Loans.
(o) Not an Investment Company. CAC is not, and is not
controlled by, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or each is exempt from all
provisions of such Act.
(p) ERISA. Each of CAC and its ERISA Affiliates is in
compliance in all material respects with ERISA and no lien exists in
favor of the Pension Benefit Guaranty Corporation on any of the Loans.
(q) Bulk Sales. No transaction contemplated by this Amendment
No. 2 requires compliance with any bulk sales act or similar law.
(r) Preference; Voidability. The transfer of the Loans,
Collections, Related Security and other Additional Contributed Property
by the Servicer to Funding, has not been
5
<PAGE> 6
made for or on account of an antecedent debt owed by Funding to CAC, or
by CAC to Funding, and neither of such transfers is or may be voidable
under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. ss.
ss. 101 et seq.), as amended. After giving effect to the transfer of
the Additional Contributed Property hereunder, CAC will not be
insolvent.
(s) Consents, Licenses, Approvals. With respect to each Dealer
Agreement and each Loan and Contract and all other Additional
Contributed Property, all consents, licenses, approvals or
authorizations of or registrations or declarations with any
Governmental Authority required to be obtained, effected or given by
CAC, in connection with the conveyance of such Loan, Contract or other
Additional Contributed Property to Funding have been duly obtained,
effected or given and are in full force and effect.
(t) Exhibit A. Exhibit A to this Amendment No. 2 is and will
be an accurate and complete listing of all Dealer Agreements and Loans
in all material respects and all Contracts securing such Loans on the
date each such Dealer Agreement, Contract and Loan was added to Exhibit
A, and the information contained therein with respect to the identity
of such Dealer Agreements and Loans and all Contracts securing such
Loans and the Outstanding Balances thereunder and under the related
Contracts is and will be true and correct in all material respects as
of each such date.
(u) Adverse Selection. No selection procedure believed by CAC
to be adverse to the interests of Funding has been or will be used in
selecting the Dealer Agreements or the Loans (it being expressly
understood that the Loans consist of closed pools of Loans under the
related Dealer Agreements).
(v) Use of Proceeds. No proceeds of any contribution hereunder
will be used for a purpose that violates, or would be inconsistent
with, Regulations T, U or X promulgated by the Board of Governors of
the Federal Reserve System.
The representations and warranties set forth in this Section 4 shall survive the
conveyance of the Additional Contributed Property to Funding, and termination of
the rights and obligations of Funding and CAC under this Amendment No. 2. Upon
discovery by Funding or CAC of a breach of any of the foregoing representations
and warranties, the party discovering such breach shall give prompt written
notice to the other within three Business Days of such discovery.
SECTION 5. Reaffirmation of Covenants, etc. CAC and Funding each
reaffirm to the other the covenants, undertakings, agreements and obligations
set forth in Articles V and VI of the Contribution Agreement as is the same were
set forth herein in full and made applicable to the Additional Contributed
Property.
SECTION 6. Effectiveness. This Amendment No. 2 shall become effective
on June 30, 1999.
6
<PAGE> 7
SECTION 7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN.
SECTION 8. Counterparts. This Amendment No. 2 may be executed in two or
more counterparts including telecopy transmission thereof (and by different
parties on separate counterparts), each of which shall be an original, but all
of which together shall constitute one and the same instrument.
SECTION 9. Headings. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
SECTION 10. Ratification. Except as expressly affected by the
provisions hereof, the Contribution Agreement, as amended hereby, shall remain
in full force and effect in accordance with its terms and is hereby ratified and
confirmed by the parties hereto. On and after the date hereof, each reference in
the Contribution Agreement to "this Agreement", "hereunder", "herein" or words
of like import shall mean and be a reference to the Contribution Agreement as
amended by this Amendment No. 2.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, Funding and CAC each have caused this Amendment No.
2 to the Contribution Agreement to be duly executed by their respective officers
as of the day and year first above written.
CAC FUNDING CORP.
By: /S/ DOUGLAS W. BUSK
-------------------------------
Name: Douglas W. Busk
Title: Vice President - Finance
CREDIT ACCEPTANCE CORPORATION,
individually and as Servicer
By: /S/ DOUGLAS W. BUSK
-------------------------------
Name: Douglas W. Busk
Title: Vice President - Finance
Acknowledged and agreed as
of the date first above written:
KITTY HAWK FUNDING CORPORATION
By: /S/ RICHARD L. TAIANO
- -------------------------------
Name: Richard L. Taiano
Title: Vice President
BANK OF AMERICA, N.A., as Agent
By: /S/ BRIAN D. KRUM
- -------------------------------
Name: Brian D. Krum
Title: Vice President
8
<PAGE> 1
EXHIBIT 10(d)(7)
For Office Use
Dealer Lot No.
[CAC LOGO]
CREDIT ACCEPTANCE CORPORATION
Silver Triangle Building
25505 West Twelve Mile Road, Suite 3000
Southfield, Michigan 48034-8339
(248) 353-2700
<PAGE> 2
[CAC LOGO]
<TABLE>
<CAPTION>
<S><C>
DEALERSHIP APPLICATION
Dealership Name:
----------------------------------------------------------------------------------------------
(Dealership name must agree with State issued license)
Organization Type (check one): [ ] Corporation [ ] Partnership [ ] Sole Proprietorship [ ] LLP [ ] LLC
Federal I. D. Number:
-----------------------------------------------------------------------------------------
Dealer Social Security Number:
--------------------------------------------------------------------------------
Dealer's License Number: Installment Seller's License # (if required by State):
------------------ --------------
Dealership Street Address:
------------------------------------------------------------------------------------
Mailing Address:
----------------------------------------------------------------------------------------------
City: County: State: Zip:
--------------------- ------------------- ----------------------- ----------
Phone #: Fax #:
------------------------------------------- -------------------------------------
Dealer Surety Bond Company:
-----------------------------------------------------------------------------------
Are You a Member of NIADA? [ ] Yes [ ] No. If Yes, Your Member Number is
-------------------------------
PERSONAL CONTACTS
Owner:
--------------------------------------------------------------------------------------------------------
Owner's Home Address:
-----------------------------------------------------------------------------------------
Home Phone Number:
--------------------------------------------------------------------------------------------
Spouse of Owner:
----------------------------------------------------------------------------------------------
CAC Contact at Dealership:
------------------------------------------------------------------------------------
General Manager:
----------------------------------------------------------------------------------------------
Used Car Manager:
---------------------------------------------------------------------------------------------
Finance & Insurance Manager:
----------------------------------------------------------------------------------
Office Manager:
----------------------------------------------------------------------------------------------
GENERAL INFORMATION
Bank Affiliation:
---------------------------------------------------------------------------------------------
Number of Stores:
---------------------------------------------------------------------------------------------
SALES VOLUME HISTORY
AVERAGE MONTH
New Retail Unit Volume: Used Retail Unit Volume:
---------------------------------------- ----------------------
Number of Salespeople: New: Used: Total:
---------------------- ------------------------ ---------------------
Dealer Referrals: 1 2 3
Contact Person
------------------------------ ----------------------------- -----------------------------
Dealership
------------------------------ ----------------------------- -----------------------------
City, State
------------------------------ ----------------------------- -----------------------------
Phone #
------------------------------ ----------------------------- -----------------------------
</TABLE>
<PAGE> 3
SERVICING AGREEMENT INSTRUCTIONS
To begin your association with Credit Acceptance Corporation, you need to
complete the enclosed Servicing Agreement (as explained below). Please attach
your check for the sign up fee ($4,500 for each store). This sign up fee is
non-refundable. Note: you will need to execute one Servicing Agreement and one
Dealer Application (first page) for each store entering the CAC Financing
Program.
YOU MUST ALSO ENCLOSE A COPY OF YOUR DEALER'S LICENSE, DEALER SURETY BOND (IF
REQUIRED IN YOUR STATE) AND INSTALLMENT SELLERS LICENSE WITH THIS SERVICING
AGREEMENT
COMPLETING THE SERVICING AGREEMENT
<TABLE>
<S> <C>
Page 1: There are four lines that need to be completed.
(1) Date you are completing Servicing Agreement.
(2) Legal name of Dealership.
(3) State of incorporation, or if not incorporated,
state in which you are registered to do business.
(4) Address of Dealership.
Page 5: There are three lines that need to be completed.
(1) Print the name of your Dealership on the line just above the word
"Dealership" (leave the other lines blank).
(2) Sign next to the word "By:"
(3) Print your title next to the word "Title:"
Page 6: (Complete only if incorporated.) There are six blanks to be completed.
(1) Name of corporate secretary. (4) Date of completion.
(2) Name of Dealership. (5) Date of completion.
(3) State of incorporation. (6) Secretary's signature (with seal if applicable).
Page 6: (Complete only if incorporated.) There are eight blanks to be completed.
(1) Name of President of Corporation. (5) State of Incorporation.
(2) Name of Vice President of Corporation. (6) Date of execution.
(3) Name of Secretary of Corporation. (7) Date of execution.
(4) Name of Corporation. (8) Signature of Secretary (with seal if applicable).
</TABLE>
SERVICING AGREEMENT
This Servicing Agreement, dated as of________, 19__ is made between Credit
Acceptance Corporation, a Michigan corporation (herein, together with its
successors and assigns, called "Servicer"), with offices at 25505 West Twelve
Mile Road, Southfield, Michigan 48034-8339 and ______________________________, a
_________________corporation, sole proprietorship, partnership, LLC, or LLP
(circle one) (herein, together with its permitted successors and assigns, called
"Dealer"), with its executive offices at ______________________________________.
In consideration of the premises and the mutual agreements contained herein
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
"ADMINISTRATIVE EXPENSES" means all costs, fees, charges, attorney fees and
expenses incurred by Servicer (other than Collection Costs and attorney
fees incurred in connection with the collection of a Receivable) pursuant
to Section 4.03.
"ADVANCE" means an amount advanced to the Dealer pursuant to Section 3.01.
"AGREEMENT" means this Servicing Agreement as executed by the parties and
all amendments and supplements hereto.
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or a holiday.
"COLLECTION COSTS" means all out-of-pocket costs incurred by Servicer in
the administration, servicing and collection of a Receivable, including the
cost of selling and preparing for sale any Financed Vehicle and the costs
of litigation. Collection Costs also include amounts expended by Servicer
to maintain any insurance upon a Financed Vehicle.
"COLLECTIONS" means all collections received by Servicer with respect to a
Receivable, less any payments required by law to be remitted to the
Obligor, less any NSF checks.
"CONFIDENTIAL INFORMATION" means all confidential and/or secret information
concerning Servicer including, but not limited to, customer lists, names of
customers and all information developed by and/or for Servicer and/or its
affiliates, whether now owned or hereafter obtained, concerning plans,
marketing and sales methods, customer relationships, materials, processes,
procedures, devices utilized by Servicer and/or its affiliates, business
forms, costs, prices, suppliers, information concerning past, present or
future contractors, representatives and past, present and/or future
customers of Servicer and/or its affiliates, plans for development of new
or existing products, services and expansion into new areas or markets,
internal operations and any variations, trade secrets, proprietary
information and other confidential information of any type together with
all written, graphic, video and other materials relating to all or any part
of the same.
"DISTRIBUTION DATE" means the 10th day of the month, or if such 10th day is
not a Business Day, the next Business Day.
"EVENT OF DEFAULT" means an event specified in Section 5.04.
"FINANCED VEHICLE" means an automobile or light truck, together with all
accessions thereto, securing an Obligor's indebtedness under a Receivable.
"NET DOWN PAYMENT" means the amount of "cash" or "trade" down payment paid
by the Obligor with respect to the purchase of the Financed Vehicle. Dealer
agrees to disclose on credit applications any and all rebates and source of
down payment, if known by the dealer. Dealer warrants not to purchase any
item, transfer funds, include any post dated checks, rebates or installment
notes to buyer for use as down payment or for any other reason related to
purchase, and that the down payment has been collected in full prior to
assignment to "CAC". Failure to disclose such information makes said
contracts full recourse to dealer and requires immediate payment in full of
said contracts.
"OBLIGOR" on a Receivable means the purchaser or the co-purchaser's of a
Financed Vehicle or any other Person who owes payments under the
Receivable.
"PERSON" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company,
trust, unincorporated organization, or government or any agency or
political subdivision thereof.
1
<PAGE> 4
"QUALIFYING RECEIVABLE" means a retail installment sale contract which meets the
Servicer's credit standards and the following specifications:
(i) it has not been rescinded and it is a valid, binding and enforceable
obligation of the Obligor;
(ii) it is not in default at the date of transfer to Servicer;
(iii) it is owned by the Dealer free and clear of all liens, claims,
options, encumbrances, security interests and other rights (other than
liens in favor of Servicer);
(iv) it is enforceable against the Obligor for the amount shown as owing
in the contract and in the records of the Dealer;
(v) it complied at the time it was originated or made, and is currently
in compliance in all respects, with all requirements of applicable federal,
state and local laws, and regulations thereunder, including, usury laws,
the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, Federal Reserve Board Regulations B, M and Z,
state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code and any other consumer credit or equal opportunity disclosure;
(vi) it is not subject to any offset, credit, allowance or adjustment nor
has the Obligor disputed his or her liability under the contract;
(vii) the Dealer has assigned to the Servicer a first and prior perfected
security interest in the Financed Vehicle securing the performance of the
Obligor and neither the Receivable nor the security interest in the
Financed Vehicle has been subordinated;
(viii) the Financed Vehicle is adequately insured with a policy or policies
covering damage, destruction and theft of the Financed Vehicle and such
policies name Servicer as a loss payee;
(ix) all representations and warranties contained in the assignment
section of the retail installment sale contract are true and correct as of
the date of transfer to the Servicer;
(x) the Dealer has complied with the procedures for approval of
Receivables and making of advances adopted by the Servicer from time to
time.
(xi) all signatures on it are genuine;
(xii) Dealer received the cash down payment or trade-in described in the
contract;
(xiii) neither Dealer nor, to Dealer's knowledge, any employee or
representative of the Dealer has lent the Obligor any part of the down
payment;
(xiv) the motor vehicle has never been used as a taxi-cab;
(xv) the Dealer delivered the motor vehicle and the motor vehicle
satisfied all warranties, expressed or implied, made to the Obligor;
(xvi) the Obligor owns the motor vehicle free of all liens or encumbrances
except the security interest granted in the contract; and
(xvii) all amounts indicated in the Itemization of the Amount Financed have
been paid.
"RECEIVABLE" means a Qualifying Receivable executed by the Obligor with respect
to a Financed Vehicle, which Receivable shall have been assigned to Servicer for
administration, servicing and collection.
"RECEIVABLE FILES" means all writings (including an executed copy of the retail
installment sale contract) and business records relating to a Receivable.
ARTICLE II
ADMINISTRATION AND SERVICING OF RECEIVABLES
2.01 ACCEPTANCE OF RECEIVABLES; DUTIES OF SERVICER
(a) The Dealer may submit retail installment sale contracts to the Servicer
for administration, servicing and collection under the terms of this
Agreement. Submission of such a contract to the Servicer constitutes a
representation and warranty by the Dealer that such contracts meets the
criteria set forth in the definition of Qualifying Receivable.
(b) If Servicer issues an approval number with respect to a Qualifying
Receivable, the Dealer shall deliver the Receivable Files to the Servicer
and assign such Receivable and Dealer's security interest in the Financed
Vehicle to the Servicer as nominee for the Dealer, which assignment shall
be for purposes of administration, servicing and collection of the
Receivable, as well as for security purposes as set forth in Section 2.07.
Upon the request of Servicer, the Dealer will furnish the Servicer with any
additional powers of attorney and other documents that the Servicer deems
necessary or appropriate to enable the Servicer to carry out its
administration, servicing and collection duties hereunder.
(c) Servicer's issuance of an approval number shall not be deemed to be
acceptance of a contract for Servicing hereunder. Acceptance of a
Qualifying Receivable shall occur only at such time as Servicer receives
and approves the related Receivable Files.
(d) If the Servicer accepts such Qualifying Receivable it shall be deemed a
Receivable under this Agreement and the Servicer will service and
administer such Receivable on behalf of the Dealer in accordance with the
terms of this Agreement. The Servicer's duties shall consist of collection
and posting of all payments; holding the Receivable Files; collecting
payments due under the Receivables as set forth in Section 2.02 and
reapplying the amounts so collected in the manner set forth in Section
3.03; responding to inquiries of Obligor on the Receivables; investigating
delinquencies; sending monthly payment books and/or receipts to Obligors;
and furnishing monthly statements to the Dealer. The Servicer is hereby
authorized and empowered to endorse the Dealer's name on any payments made
payable to the Dealer and execute and deliver, in the Servicer's own name,
on behalf of the Dealer, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Receivables or to the Financed
Vehicles.
(e) Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Servicer is acting as an independent contractor, and shall
have no duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with the Dealer, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise exist with respect to the
Servicer.
2.02 COLLECTION OF RECEIVABLE PAYMENTS
The Servicer shall use reasonable efforts to collect all payments called
for under the terms and provisions of the Receivables as and when the same
shall become due. If any payments of a Receivable are made to the Dealer
after such Receivable is accepted by the Servicer under this Agreement, the
Dealer will immediately forward such payment to the Servicer in the form
received. The Servicer may, in its discretion, waive any late payment
charge or any other fee that may be collected in the ordinary course of
servicing a Receivable.
2.03 REALIZATION UPON REPOSSESSION
On behalf of the Dealer, at the discretion of the Servicer, the Servicer
shall use reasonable efforts to repossess or otherwise convert the
ownership of the Financed Vehicle securing any Receivable, and sell or
otherwise liquidate the Financed Vehicle. In exercising reasonable efforts
to sell or otherwise liquidate the Financed Vehicle, the Servicer shall
follow such practices and procedures as it deems necessary or advisable in
its servicing of automotive receivables, which may include selling the
Financed Vehicle at public or private sale.
2.04 PHYSICAL DAMAGE INSURANCE
If required by the Servicer, the Dealer shall require that each Obligor
shall have obtained and shall maintain adequate insurance covering damage,
destruction and theft of the Financed Vehicle, at least in the minimum
amounts required by law. If the Servicer has required such insurance and
has determined that an Obligor has allowed any such insurance covering the
related Financed Vehicle to lapse, the Servicer may place such insurance
and pay the related premium for the account of the Obligor and the Dealer.
2.05 SECURITY INTERESTS IN FINANCED VEHICLES
The Dealer will take such steps as are necessary to perfect the security
interest in the Financed Vehicle in the name of the Servicer, including
placing the Servicer's name as lienholder on all titles to Financed
Vehicles.
2.06 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING RECEIVABLES
The Dealer shall provide to the Servicer all Receivable Files in its
possession; provided, however, that this Section 2.06 shall not require the
Dealer to violate any applicable law prohibiting disclosure of information
regarding an Obligor.
2.07 SECURITY INTEREST
The Dealer hereby grants the Servicer a security interest in all
Receivables now or hereafter transferred to the Servicer pursuant to this
Agreement and in the Dealer's interest in the Financed Vehicles connected
therewith, together with all proceeds, as security for the payment of all
indebtedness of the Dealer to the Servicer, including Advances, Collection
Costs, Administrative Expenses and any other amount due to the Servicer
hereunder. This grant of a security interest will survive the termination
of this Agreement until the Dealer has paid all its obligations to the
Servicer, including those due under this Agreement, including Advances and
Collection Costs, in full.
In addition to the security interest granted above, Dealer, upon demand by
the Servicer, will grant to Servicer a security interest in all Collateral
possessed by the Dealer, the term "Collateral" being defined to mean all
inventory and goods now or hereafter acquired or owned, including, but not
limited to, goods, tangible property, business records, stock and trade,
supplies, merchandise used in or sold in the ordinary course of business,
all machinery, equipment, furniture, ledgers, books, chattels, and all
other tangible personal property of every nature and description now
existing or hereafter acquired, together with all substitutions,
replacements and additions thereto, all contracts, patents, licensing
agreements, supplier lists, business records, and customer lists together
with all proceeds and product of all the foregoing.
Dealer agrees to execute UCC Financing Statements and to take such other
actions requested by Servicer in order to perfect such security interest of
Servicer.
ARTICLE III
ADVANCES, DISTRIBUTIONS AND SERVICING FEE
2
<PAGE> 5
3.01 ADVANCES
Upon the acceptance by the Servicer of a Qualifying Receivable under
Section 2.01, the Servicer may, in its discretion, make an Advance. The
amount of the Advance will be determined by the applicable advance program
currently in use by the Servicer in the Dealer's state of operation. Such
Advances shall be repaid to the Servicer as provided in Section 3.03, and
shall be repaid immediately upon the termination of this Agreement or upon
the occurrence of an Event of Default. Servicer may modify from time to
time its advance methodology upon written notice to the Dealer.
3.02 SERVICING FEE
As compensation for the services provided by the Servicer to the Dealer,
the Servicer will retain 20% of all Collections net of Collection Costs.
3.03 APPLICATION OF FUNDS
Collections received by the Servicer during a calendar month shall be
applied as follows:
FIRST, to reimburse Servicer for all Collection Costs;
SECOND, to pay to Servicer its servicing fee set forth in Section 3.02
above;
THIRD, to any outstanding Advances or any other indebtedness or
amounts owing from the Dealer to the Servicer, including, without
limitation, the Administrative Expenses and any indemnification
obligations of Dealer to Servicer pursuant to Section 4.02 of this
Agreement; and
FOURTH, to the Dealer.
All amounts due to the Dealer under this Section 3.03 with respect to
Collections made during the calendar month shall be paid to the Dealer no
later than the Distribution Date occurring in the following calendar month.
3.04 STATEMENT TO DEALER
The Servicer shall provide to the Dealer a statement containing the
following information:
(i) The amounts set forth in Section 3.03;
(ii) The amount of any distribution to the Dealer.
ARTICLE IV
THE DEALER
4.01 REPRESENTATIONS OF THE DEALER
The Dealer makes the following representations on which the Servicer is
relying in accepting the Receivables, and each request by the Dealer to the
Servicer to administer, service and collect a Receivable under Section 2.01
will act as a reaffirmation of each of the following representations as of
the date of such request:
(i) ORGANIZATION AND GOOD STANDING. The Dealer is duly organized
and is validly existing as a corporation in good standing under the
laws of state of its incorporation, with full power and authority to
own its properties and to conduct its business, and had at all
relevant times, and shall have power, authority, and legal right to
acquire and own the Receivables.
(ii) DUE QUALIFICATION. The Dealer is duly qualified to do business
and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the
conduct of its business requires such qualification.
(iii) POWER AND AUTHORITY. The Dealer has the power and authority to
execute and deliver this Agreement and to carry out its terms and the
execution, delivery, and performance of this Agreement has been duly
authorized by the Dealer by all necessary corporate action.
(iv) BINDING OBLIGATIONS. This Agreement constitutes a legal, valid,
and binding obligation of the Dealer enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights in general.
(v) NO VIOLATION. The consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof shall not
conflict with, result in any breach of any of the terms and provisions
of, nor constitute (with or without notice of lapse of time) a default
under any indenture, agreement, or other instrument to which the
Dealer is a party or by which it shall be bound; nor result in the
creation or imposition of any lien upon any of its properties pursuant
to the terms of any such indenture, agreement, or other instrument
(other than this Agreement); nor violate any law or any order, rule,
or regulation applicable to the Dealer of any court or of any federal
or state regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Dealer or its properties.
(vi) NO PROCEEDINGS. There are no proceedings or investigations
pending, or threatened, before any court, regulatory body,
administrative agency, or other governmental instrumentality having
jurisdiction over the Dealer or its properties: (a) asserting the
invalidity of this Agreement, (b) seeking to prevent any of the
transactions contemplated by this Agreement, or (c) seeking any
determination or ruling that might materially and adversely affect the
financial condition of the Dealer or the performance by the Dealer of
its obligations under, or the validity or enforceability of this
Agreement. Neither the Dealer nor any of its officers or employees is
operating under or subject to, or in default with respect to any
adjudicatory order, writ, injunction or decree of any court or
federal, state, municipal or governmental department, commission,
board, agency or instrumentality, domestic or foreign, related to the
conduct of the Dealer's business; and neither the Dealer nor any of
its directors, officers or employees is subject to any cease and
desist order, supervisory agreement or arrangement or disqualification
consensual or otherwise, with any regulatory authority, which is
material to the Receivables or the transactions contemplated hereby.
(vii) BROKERS AND FINDERS. Neither Dealer nor any person acting on
its behalf has employed any broker, agent or finder or incurred any
liability for any brokerage fees, agents' commissions or finders' fees
in connection with the transactions contemplated herein.
(viii) COMPLIANCE WITH LAWS. Dealer has complied with all federal,
state, local and foreign laws, ordinances, regulations and orders
applicable to it or the Receivables or the Financed Vehicles. All
licenses, permits, orders or approvals of any governmental or
regulatory body which are required in connection with Dealer's
business ("Permits"), are in full force and effect, no violations are
or have been recorded in respect to any such Permits and no
proceedings are pending or, to Dealer's knowledge, threatened to
terminate, revoke or limit any of such Permits.
(ix) CHARACTERISTICS OF RECEIVABLES. Each Receivable was originated
by Dealer for the sale of a Financed Vehicle in the ordinary course of
Dealer's business, was fully and properly executed by the parties
thereto, and contains customary and enforceable provisions for an
installment sale of a motor vehicle in the state in which the Obligor
is located.
(x) SOURCE OF DOWN PAYMENT. Dealer agrees to disclose on credit
applications any and all rebates and source of down payment, if known
by the dealer. Dealer warrants not to purchase any item, transfer
funds, include any post dated checks, rebates or installment notes to
buyer for use as down payment or for any other reason related to
purchase, and that the down payment has been collected in full prior
to assignment to "CAC". Failure to disclose such information makes
said contracts full recourse to dealer and requires immediate payment
in full of said contracts.
(xi) LAWFUL ASSIGNMENT. No Receivable has been originated in, or is
subject to the laws of, any jurisdiction under which the assignment of
such obligation as contemplated under this Agreement would be
unlawful, void or voidable.
(xii) ONE ORIGINAL. There is only one original executed copy of each
Receivable.
(xiii) DISCLOSURE OF MATERIAL FACTS. The representations and
warranties contained in this Agreement or in any other agreement,
schedule, exhibit or other document delivered pursuant hereto do not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein or
therein not misleading.
(xiv) NON-RELIANCE. The Dealer has independently and without reliance
upon the Servicer, and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation
into the financial condition and creditworthiness of each Obligor and
made its own decision to enter into a retail installment sale contract
with such Obligor.
4.02 INDEMNITIES
The Dealer will defend, indemnify, and hold harmless the Servicer from and
against any and all costs, expenses, losses, damages, claims and
liabilities arising out of or resulting from:
(i) the use, ownership, or operation by the Servicer or any
affiliate thereof of a Financed Vehicle or Servicer's performance of
this Agreement, including the administration, servicing and collection
of any Receivable; and
(ii) any claims by the Obligor with respect to the Receivable, the
Financed Vehicle or the purchase thereof, except to the extent of the
Servicer's gross negligence or willful misconduct in the performance
of duties hereunder;
(iii) any breach of any of the representations, warranties or
agreements made by Dealer in this Agreement; and
(iv) any taxes that may at any time be asserted against the Servicer
with respect to the transactions contemplated herein (other than taxes
measured by the net income of Servicer), including, without limitation
any sales, gross receipts, general corporation, tangible or intangible
personal property, privilege, or license taxes and costs and expenses
in defending against same.
Indemnification under this Section shall include reasonable attorneys' fees
and all expenses of litigation.
4.03 ADMINISTRATIVE EXPENSES
The Dealer agrees to reimburse Servicer, on demand, for all Administrative
Expenses incurred by Servicer in connection with (i) protecting Servicer's
interest in Qualifying Receivables and the Financed Vehicles; and (ii)
enforcement of the provisions of this Agreement, including, without
limitation, (a) to commence, defend or intervene in any litigation or to
file a petition, com-
3
<PAGE> 6
plaint, motion, answer or other pleadings; and (b) to take any other action
in or with respect to any suit or proceeding, including, without
limitation, any bankruptcy proceeding.
4.04 CONFIDENTIALITY
Except as required for Dealer to conduct its regular daily business with
Servicer, Dealer shall not at anytime, either during or for a period of two
years after termination of Dealer's relationship with Servicer, or in any
way, disclose, disseminate, transfer and/or use, or permit anyone else to
disclose, disseminate, transfer and/or use, any Confidential Information of
Servicer, and Dealer shall retain all such information in trust in a
fiduciary capacity for the sole use and benefit of Servicer and/or its
affiliates. Dealer acknowledges that the Confidential Information of
Servicer is valuable, special and unique to Servicer's business and on
which such business depends, and is proprietary to Servicer and its
affiliates, and that Servicer has protected and wishes to continue to
protect the confidential Information by keeping it secret and confidential
for the sole use and benefit of Servicer and its affiliates. Dealer will
take all steps necessary and all steps reasonably requested by Servicer, to
insure that all such Confidential Information is kept secret and
confidential for the sole use and benefit of Servicer and its affiliates.
In so doing, Dealer shall require and represents that each of its
employees, agents and representatives complies with each and every
provision of this Agreement. Upon termination of this Agreement without the
necessity of any request from Servicer, or at any other time Servicer may
in writing so request, Dealer shall promptly deliver to Servicer all
materials concerning any Confidential Information, copies thereof and any
other materials of Servicer and/ or its affiliates which are in Dealer's
possession or under Dealer's control, and Dealer shall not make or retain
any copy, draft or extract thereof which has been made at any time. Dealer
acknowledges that the foregoing provisions are necessary to protect the
special knowledge of Servicer's and its affiliates' trade secrets (which
are the result of a considerable amount of time, money and effort of
Servicer and its affiliates over a period of 20 years to increase and
maintain its sales, including product sales) which Dealer has acquired and
will acquire in carrying out Dealer's job responsibilities as well as
Servicer's goodwill and customer relationships to which Dealer has gained
access through Dealer's dealer relationship. Nothing contained herein shall
be construed or considered to vest in the Dealer any right, title or
interest of any kind in or to the information disclosed or made available
to it by the Servicer pursuant to this Agreement or otherwise. Accordingly,
Dealer acknowledges and agrees that all memoranda, notes, records,
agreements, documents and other materials, as well as copies and drafts
thereof, made and/or compiled by Dealer and/or made available to Dealer
during the course of his/her dealer relationship, which relate to the
Confidential Information (as stated above), is and shall remain the
property of Servicer. The obligations of Dealer under this Section 4.03
shall survive the termination (for any reason) or breach of this Agreement.
Dealer acknowledges and agrees that the covenants and undertakings in this
Section 4.04 relate to matters which are of a special, unique and
extraordinary character and that a violation of any of them will cause
irreparable injury to Servicer, the amount of which will be extremely
difficult, if not impossible to estimate or determine and which cannot be
completely and adequately compensated by monetary damages alone. Therefore,
Dealer agrees that Servicer shall be entitled, as a matter of course, and
as a matter of law, without the need to prove irreparable injury, to an
injunction, restraining order or other equitable relief from any court of
competent jurisdiction, restraining any violation or threatened violation
of any of such terms by Dealer and such other persons as the court shall
order. Dealer agrees to pay all costs and legal fees incurred by Servicer
in pursuing its remedies in any legal or equitable action. Dealer further
acknowledges that the restraints imposed upon it pursuant to the foregoing
are no greater than are reasonably necessary to preserve and protect
Servicer's legitimate business interests and that such restraints will not
impose an undue hardship upon Dealer.
ARTICLE V
TERMINATION AND ASSIGNMENT
5.01 MERGER OR CONSOLIDATION OF SERVICER
Any corporation (i) into which the Servicer may be merged or consolidated,
(ii) which may result from any merger, conversion, or consolidation to
which the Servicer shall be a party or (iii) which may succeed to the
business of the Servicer, shall be the successor to this Agreement without
any further act on the part of any of the parties to this Agreement.
5.02 RESIGNATION AS SERVICER
Regardless of whether there is an Event of Default or an event with the
lapse of time, giving of notice or both would become an Event of Default,
the Servicer may terminate this Agreement, at any time, upon 30 days
written notice to the Dealer.
5.03 TERMINATION BY THE DEALER
So long as there is no Event of Default or an event which with the lapse of
time, giving of notice or both would become an Event of Default, the Dealer
may terminate this Agreement with respect to all Receivables upon 30 days
prior written notice to the Servicer.
5.04 EVENTS OF DEFAULT
This Agreement shall terminate immediately, without further notice to
Dealer, and Servicer shall be entitled to immediate repayment of all
outstanding Advances and the other amounts specified in Section 5.05 upon
the occurrence of any one of the following events ("Events of Default"):
(i) failure on the part of the Dealer duly to observe or to perform
any covenant or agreement set forth in this Agreement, which failure
shall continue unremedied for a period of ten Business Days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Dealer by the Servicer; or
(ii) the breach by the Dealer of any representation or warranty set
forth in this Agreement, including any with respect to Qualifying
Receivables; or
(iii) the Dealer misrepresents in any respect any facts or
circumstances relating to an installment contract submitted to
Servicer or any Obligor or motor vehicle covered by such contract; or
(iv) the entry of a decree or order by a court or agency or
supervisory authority for the appointment of a conservator, receiver
or liquidator for the Dealer in any bankruptcy, readjustment of debt,
marshaling of assets and liabilities, or similar proceedings, or for
the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstated and in effect for a period of 60
consecutive days; or
(v) the consent by the Dealer to the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities, or similar proceedings of or
relating to the Dealer; or the Dealer, shall admit in writing its
inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable bankruptcy statute, make
an assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations.
(vi) the Dealer fails to place with the Servicer fifteen (15)
Qualifying Receivables per calendar quarter (which calendar quarter
shall begin with the signing date of this Agreement) for two
consecutive calendar quarters; or
(vii) any guaranty executed in connection with this Agreement is
revoked, terminated or becomes unenforceable in whole or in part, or
any guarantor fails to promptly perform under such a guaranty; or
(viii) any judgment is entered against the Dealer or any guarantor, or
any attachment, levy or garnishment is issued against any property of
the Dealer or any guarantor; or
(ix) the Dealer or any guarantor, without the Servicer's written
consent, (a) is dissolved; (b) merges or consolidates with any third
party; (c) leases, sells or otherwise conveys a material part of its
assets or business outside the ordinary course of business; (d) ceases
to operate its business; or (e) agrees to do any of the foregoing; or
(x) there is a substantial change in the existing or prospective
financial condition of the Dealer or any guarantor which the Servicer
in good faith determines to be materially adverse; or
(xi) the Servicer in good faith deems itself insecure.
5.05 EFFECT OF TERMINATION
Upon any termination of this Agreement pursuant to Section 5.03 or Section
5.04, the Dealer shall immediately pay to the Servicer the following
amounts:
(i) Any unreimbursed Collection Costs and Administrative Expenses;
(ii) Any unpaid Advances and all other amounts owed by the Dealer to
the Servicer; and
(iii) A termination fee equal to 20% of the then outstanding amount
of the Receivables.
Upon receipt in full of the amounts set forth in (i) through (iii) above,
Servicer shall deliver all Receivable Files to the Dealer and shall take
such action as may be requested by Dealer to terminate or assign to the
Dealer the Servicer's security interest in the Receivables and Financed
Vehicles. If the Dealer fails to promptly pay such amounts, the Servicer
may exercise any rights it has, including those under the Uniform
Commercial Code, and may, at its discretion, continue to collect the
Receivables and retain Collections in satisfaction of such amounts due
from the Dealer.
5.06 COLLECTION FOLLOWING TERMINATION
If this Agreement is terminated pursuant to Section 5.02, Servicer shall
continue to service and administer Receivables accepted for service and
administration hereunder prior to the date of termination unless (a) Dealer
pays to Servicer the amounts set forth in Section 5.05, at which time
Section 5.05 shall govern, or (b) an Event of Default occurs after the date
of termination, at which time the provisions of Section 5.05 shall apply.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Michigan and the obligations, rights, and remedies of the parties under
this Agreement shall be determined in accordance with such laws.
4
<PAGE> 7
6.02 NOTICES
All demands, notices, and communications under this Agreement shall be in
writing, personally delivered or mailed by first-class mail, and shall be
deemed to have been duly given upon receipt at the address specified on the
first page of this Agreement, or at such other address as shall be
designated in writing by a party.
6.03 SEVERABILITY OF PROVISIONS; UNENFORCEABILITY
If any one or more of the provisions of this Agreement shall be for any
reason whatsoever held invalid, then such provisions shall be deemed
severable from the remaining provisions of this Agreement or the rights of
the Dealer or the Servicer. If for any reason a court determines that any
part of any of the provisions of this Agreement is unreasonable in scope or
otherwise unenforceable, such provision(s) will be deemed modified and
fully enforceable, as so modified, to the extent determined by the court to
be reasonable under the circumstances.
6.04 ARBITRATION AND COSTS
Any disputes and differences arising between the parties in connection with
or relating to this Agreement or the parties relationship with respect
hereto shall be settled and finally determined by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitration shall take place in Southfield, Michigan and
shall be conducted by three arbitrators, one of whom shall be selected by
the Dealer, one selected by the Servicer and the third by the two
arbitrators so selected. Each party shall notify the other party of the
arbitrators selected by it within 30 days of a written request from one
party to the other for arbitration. In the event either party shall fail to
select an arbitrator or fail to notify the other party of the arbitrator
which it has selected within such time period, the arbitrator so selected
by the other party shall select a second arbitrator. The decision and award
of the arbitrators shall be in writing, and shall be final and binding upon
the parties hereto. Judgement upon the award may be entered in any court
having jurisdiction thereof or any application may be made to such court
for judicial acceptance of or award in order of enforcement, as the case
may be. In the event that the Servicer shall prevail under any dispute or
claim with respect to this Agreement, the Dealer shall pay any costs and
expenses incurred by the Servicer with respect to such dispute, including
court costs and attorneys' fees. Notwithstanding the foregoing, Servicer
shall be entitled to seek legal and equitable relief under this Agreement,
pursuant to Section 4.04 or otherwise, in any court of record in the State
of Michigan, County of Oakland, or in the United States District Court of
the Eastern District of Michigan, and Dealer consents to the jurisdiction
thereof.
To the extent Servicer and Dealer waive the right to arbitration pursuant
to this Section 6.04, the parties stipulate and agree that jurisdiction
shall exist exclusively in any court of competent jurisdiction in the State
of Michigan, County of Oakland or in the United States District Court of
the Eastern District of Michigan.
6.05 RIGHTS CUMULATIVE
All rights and remedies from time to time conferred upon or reserved to the
Servicer are cumulative, and none is intended to be exclusive of another.
No delay or omission is insisting upon the strict observance or performance
of any provision of this Agreement, or in exercising any right or remedy,
shall be construed as a waiver or relinquishment of such provision, nor
shall it impair such right or remedy.
6.06 USAGE OF TERMS
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the
other genders; references to agreements and other contractual instruments
include all subsequent amendments thereto or changes therein entered into
in accordance with their respective terms and not prohibited by this
Agreement; references to Persons include their permitted successors and
assigns; and the term "including" means "including without limitation".
6.07 ASSIGNMENT
This Agreement shall inure to the benefit of the Servicer and the Dealer
and each of their permitted successors and assigns. Notwithstanding
anything in this Agreement to the contrary, the Dealer may not assign its
rights under this Agreement to any Person without the prior written consent
of the Servicer.
6.08 SETOFF
The Servicer may, at any time and from time to time, at its option, setoff
and apply against any amounts due to the Servicer either hereunder or
otherwise any Dealer funds held by Servicer.
6.09 DELEGATION OF DUTIES; LIABILITY
The Servicer may execute any of its duties under this Agreement by or
through agents, nominees or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The
Servicer shall not be responsible for the negligence or misconduct of any
agents, nominees or attorneys-in-fact selected by it with reasonable care.
Neither the Servicer nor any of its officers, directors, employees,
nominees, attorneys-in-fact or affiliates shall be liable for any action
lawfully taken or omitted to be taken by it or any such person under or in
connection with this Agreement (except for its or such person's own gross
negligence or willful misconduct).
6.10 SECURITY
To the extent the Servicer has a good faith belief that it is insecure, the
Servicer shall have the right to escrow any and all funds which would
otherwise be payable to the Dealer until such time as Servicer is confident
that the risk is no longer present. Servicer shall have the right pursuant
to Section 6.08, to set off its losses out of this escrow account.
6.11 WAIVER OF JURY TRIAL
The Dealer, after consulting or having had the opportunity to consult with
counsel, knowingly, voluntarily and intentionally waives any right it may
have to a trial by jury in any litigation based upon or arising out of this
Agreement or any course of conduct, dealing, statements (whether oral or
written), or actions of Dealer or Servicer. Dealer shall not seek to
consolidate, by counterclaim or otherwise any such action in which a jury
trial cannot be or has not been waived.
6.12 NO WAIVER
No delay on the part of the Servicer in the exercise of any right or remedy
shall operate as a waiver. No single or partial exercise by the Servicer
shall preclude any other future exercise of it or the exercise of any other
right or remedy. No waiver or indulgence by Servicer shall be effective
unless in writing and signed by the Servicer, nor shall a waiver on one
occasion be construed as a bar to or waiver of that right on any future
occasion.
6.13 COMPLETE AGREEMENT
This Agreement contains the complete agreement of the parties hereto, and
supersedes any and all prior agreements (whether written or oral), with
respect to the subject matter hereof. This Agreement may not be altered or
amended without the written consent of both parties.
THIS AGREEMENT IS ACCEPTED AND AGREED TO BY EACH OF THE UNDERSIGNED, AFTER
EACH OF THE UNDERSIGNED HAS CONSULTED WITH LEGAL COUNSEL, AND EACH OF THE
UNDERSIGNED HAS CAREFULLY READ AND UNDERSTANDS ALL OF THE TERMS AND PROVISIONS
OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have caused the Servicing Agreement to be
duly executed by their respective officers as of the day and year written on
Page 1. This Agreement shall be deemed effective upon receipt by Servicer of a
duly executed Agreement along with the applicable sign up fee.
- --------------------------------------------------------------------------------
DEALERSHIP
By:
-----------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
(Must be Officer of Dealership)
CREDIT ACCEPTANCE CORPORATION
By:
-----------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
5
<PAGE> 8
COMPLETE BOTH RESOLUTIONS ONLY IF THE DEALERSHIP IS A CORPORATION
RESOLUTION OF BOARD OF DIRECTORS OF
__________________________
(Name of Dealership)
RESOLVED, That the president of this Corporation be and hereby is authorized and
empowered to enter into a contract for services with the Credit Acceptance
Corporation, in the name and in behalf of this Corporation, upon such terms and
conditions as may be agreed upon between him and said Credit Acceptance
Corporation.
I, ________________, do hereby certify that I am the duly elected and qualified
Secretary and the keeper of the records and corporate seal of _________________,
a corporation organized and existing under the laws of the State of ___________,
and that the above is true and correct copy of a resolution duly adopted at
a meeting of the Board of Directors thereof, convened and held in accordance
with law and the bylaws of said Corporation on ____________________, 19___, and
that such resolution is now in full force and effect.
IN WITNESS WHEREOF, I affixed my name as Secretary and have caused the corporate
seal of said Corporation to be hereunto affixed, this________ day of ________,
19____.
______________________________
Secretary
RESOLUTION OF BOARD OF DIRECTORS OF
__________________________
(Name of Dealership)
RESOLVED, That the proposed contracts between this Corporation and Credit
Acceptance Corporation submitted to this meeting, be and it hereby is accepted,
that ____________ _______________________, President, and _____________________,
Vice President, be and they hereby are authorized to execute in the name and in
behalf of this Corporation, a contract substantially in the form submitted to
this meeting.
I, ________________, do hereby certify that I am the duly elected and qualified
Secretary and the keeper of the records and corporate seal of _________________,
a corporation organized and existing under the laws of the State of ___________,
and that the above is a true and correct copy of a resolution duly adopted at a
meeting of the Board of Directors thereof, convened and held in accordance with
the law and bylaws of said Corporation on__________ day of ________, 19____.
______________________________
Secretary
6
<PAGE> 9
[CAC LOGO] CREDIT ACCEPTANCE CORPORATION
ADDENDUM NO. 1
(CAC/VOYAGER INSURANCE PROGRAM)
TO
SERVICING AGREEMENT
dated as of _________________ ,19________
between
CREDIT ACCEPTANCE CORPORATION ("The Servicer")
and
________________________________ ("Dealer")
By executing this addendum, Dealer agrees to participate in the credit life
and disability insurance program offered by Servicer in connection with Voyager
Insurance Companies ("Voyager"), as described herein (the "CAC/Voyager Insurance
Program"). When executed by Servicer and the Dealer, this addendum shall become
a part of the Servicing Agreement. All capitalized terms herein shall have the
meanings assigned to them in the Servicing Agreement.
1. Pursuant to the CAC/Voyager Insurance Program, Voyager will issue a group
policy of insurance for coverage of Dealer's customers. The terms of the
relationship between Dealer and Voyager shall be governed exclusively by
agreements to be executed by Dealer and Voyager. This Addendum does not, and
shall not be deemed to, alter or affect in any way the relationship between
Voyager and Dealer.
2. If the premium for coverage under the group policy of insurance is financed
by Dealer and becomes a part of a Receivable assigned to Servicer under the
Servicing Agreement, Servicer will add the premium (the "Premium Advance") to
the Advance otherwise payable to Dealer upon acceptance by Servicer of a
Qualifying Receivable. The Premium Advance will be paid by Servicer on behalf
of Dealer to Voyager, and will be considered a part of the Advance related to
the accepted Qualifying Receivable for all purposes under the Servicing
Agreement. Premiums refunded as a result of the surrender or cancellation of
coverages written by Dealer will, upon notification by Voyager or Dealer as
the case may be, be credited to Dealer's customer's account as a "credit
adjustment," thereby reducing the principal amount of the installment
contract by the aggregate amount of refunds received by the Servicer from
Voyager or the Dealer, as the case may be.
3. To participate in the CAC/Voyager Insurance Program, Dealer must include a
copy of the certificate of insurance under the group policy of insurance as a
part of the Receivables Files submitted to Servicer by Dealer in connection
with the acceptance by Servicer of installment contract under the Servicing
Agreement. Dealer-financed insurance premiums that are not presented under
the CAC/Voyager Insurance program will not be eligible for the Premium
Advance. Submission of the certificate of insurance by Dealer to the Servicer
is for Servicer's information only and shall not affect insurance coverage,
Dealer's relationship with its customer with respect to insurance or Dealer's
relationship with Voyager, and the Servicer shall have no liability to Dealer
or to Dealer's Customer as a result thereof or of issuing the Premium
Advance.
4. Participation in the CAC/Voyager Insurance Program by Dealer is conditioned
upon the following:
(a) Dealer must enter into all agreements and relationships with
Voyager as may be required by Voyager from time-to-time.
(b) Dealer must have all license and authorizations required under all
federal, state and local laws, ordinances, regulations and orders
applicable to participation in the CAC/Voyager Insurance Program; and
(c) Dealer must provide the Servicer with written evidence of
satisfaction of the foregoing conditions prior to eligibility to
participate in the CAC/Voyager Insurance Program and, for purposes of
continued eligibility, upon Servicer's request from time-to-time
during the term of the Servicing Agreement.
5. In addition to Dealer's representations and obligations set forth in the
Servicing Agreement, Dealer agrees with the Servicer, as follows:
(a) to familiarize itself with all state and federal laws and
regulations applicable to its participation in the CAC/Voyager
Insurance Program and to conduct itself in compliance therewith;
(b) to adhere to all rules, requirements, underwriting standards,
manuals, and procedures of the CAC/Voyager Insurance Program;
(c) to not engage in unlawful rebating, discrimination,
misrepresentation, twisting or any unfair trade practice prohibited by
applicable law;
(d) to not induce the lapse, cancellation, or termination of any
certificate issued under the Dealer's group policy prior to its
scheduled expiration;
(e) to notify the Servicer of the receipt of legal notices or service
of process affecting Servicer or the CAC/Voyager Insurance Program and
to immediately forward same to Servicer;
(f) to not negotiate or endorse any check or other negotiable
instrument made payable to the Servicer and to forward same
immediately to the Servicer;
(g) to not publish, circulate, or display any advertisements,
circulars, or other promotional materials relating to the CAC/Voyager
Insurance Program, or to print, replicate, display, or utilize in any
fashion the name, trademark, service mark, logo, or other identifying
emblem or insignia of Servicer, Voyager or any of their respective
affiliates unless the content or use thereof has received the prior
written approval of Servicer or Voyager, as the case may be;
(h) to be solely responsible for the payment of compensation to all
employees, agents and sub-agents utilized by Dealer and to indemnify
and defend Servicer from and against any claim for compensation by
said employees, agents, and sub-agents; and
(i) to perform all agreements and obligations of Dealer to Voyager.
<PAGE> 10
6. Servicer may discontinue the CAC/Voyager Insurance Program or terminate
Dealer's participation therein at any time, in its absolute and sole
discretion, and without advance notice to Dealer. Dealer may terminate its
participation in the CAC/Voyager Insurance Program upon 30 days written
notice to Servicer, provided that such termination will not terminate
Dealer's obligations and liabilities to Servicer hereunder for any matters
occurring prior to the date of such termination or for any inaccuracy or
breach by Dealer in any of the representations or agreements of Dealer
contained herein.
7. Servicer may terminate its relationship with Voyager and enter into a new
credit life and disability insurance program with another qualified life
insurance company upon thirty (30) days written notice to the Dealer. Should
Servicer make such a substitution, this Addendum shall remain in full force
and effect without any further act by Servicer or Dealer.
8. Nothing in this Addendum shall be deemed to effect Servicer's or Dealer's
rights or obligations under the Servicing Agreement, except as expressly set
forth herein.
Dealership:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(Street, City, State and Zip Code)
By:
----------------------------------------------------------------------------
(Signature)
By:
----------------------------------------------------------------------------
(Print Name)
Title:
--------------------------------------------------------------------------
(Must be an Officer of the Dealership)
Dated:
--------------------------------------------------------------------------
CREDIT ACCEPTANCE CORPORATION
By:
----------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Date:
---------------------------------------------------------------------------
2
<PAGE> 11
[CAC LOGO] CREDIT ACCEPTANCE CORPORATION]
ADDENDUM NO. 2
(BUYERS VEHICLE PROTECTION PLAN)
TO
SERVICING AGREEMENT
dated as of _________________ ,19________
between
CREDIT ACCEPTANCE CORPORATION ("The Servicer")
and
________________________________ ("Dealer")
By executing this addendum, Dealer agrees to participate in the vehicle
service contract financing program offered by Servicer in connection with its
wholly-owned subsidiary, Buyers Vehicle Protection Plan, Inc. ("Buyers"), as
described herein (the "Service Contract Program"). When executed by Servicer and
the Dealer, this addendum shall become a part of the Servicing Agreement. All
capitalized terms herein shall have the meanings assigned to them in the
Servicing Agreement.
1. If the purchase price for a vehicle service contract issued by Dealer under
Dealer's vehicle service contract program administered by Buyers is financed
by Dealer and becomes a part of a Receivable assigned to Servicer under the
Servicing Agreement, Servicer will add to the advance otherwise payable to
dealer upon acceptance by Servicer of a Qualifying Receivable, an amount
equal to the selling price of such vehicle service contract (the "Service
Contract Advance") up to a maximum of the suggested retail price. Dealer
authorizes the Servicer to disburse an amount equal to the net Dealer cost of
the subject vehicle service contract including any vehicle surcharge to
Buyers with the remainder (representing the difference between the net Dealer
cost of the subject vehicle service contract including any vehicle surcharge
and the purchase price up to the stated maximum therefor charged by Dealer to
its customer) to the Dealer. The Service Contract Advance will be considered
part of the Advance related to the accepted Qualifying Receivable for all
purposes under the Servicing Agreement. Any refunds payable to Dealer's
customer as a result of cancellation of a vehicle service contract will be
credited to Dealer's customer's account as a "credit adjustment," thereby
reducing the principal amount of the installment contract by the aggregate
amount of refunds due Dealer customer.
2. To participate in the Service Contract Program, Dealer must include a copy of
the fully executed limited Used Vehicle Service Contract supplied to Dealer
by Buyers as a part of the Receivables files submitted to Servicer by Dealer
in connection with the acceptance by Servicer of installment Contracts under
the Servicing Agreement. Dealer financed vehicle service contracts that are
not presented under the Service Contract Program will not be eligible for the
Service Contract Advance. Submission of a copy of the Limited Used Vehicle
Service Contract to Servicer is for Servicer's information only and shall not
effect coverage under any such contract, Dealer's relationship with its
customer under such contract or Dealer's relationship with Buyers, and
Servicer shall owe no liability to Dealer or Dealer's Customer as a result
thereof or of disbursing the Service Contract Advance.
3. Participation in the Service Contract Program is conditional upon the
following:
(a) Dealer must have in full force and effect a Dealer Agreement with
Buyers;
(b) Dealer must have all licenses and authorizations, if any, required
under all federal, state and local laws, ordinances, regulations and
orders applicable to participation in the Service Contract Program,
and the sale by Dealer of vehicle service contracts; and
(c) Dealer must provide Servicer with written evidence of satisfaction
of the foregoing conditions prior to eligibility to participate in the
Service Contract Program and, for purposes of continued eligibility,
upon Servicer's request from time-to-time during the term of this
Servicing Agreement.
4. In addition to Dealer's representations and obligations set forth in the
Servicing Agreement, Dealer makes the following representations to the
Servicer:
(a) to familiarize itself with all state and federal laws and
regulations applicable to its participation in the Service Contract
Program and shall conduct itself in compliance therewith;
(b) to adhere to all rules, requirements, underwriting standards,
manuals, and procedures of the Service Contract Program;
(c) to not engage in unlawful rebating, discrimination,
misrepresentation, twisting or any unfair trade practice prohibited by
applicable law;
(d) to not induce the cancellation, or termination of any vehicle
service contract sold by Dealer prior to its scheduled expiration;
(e) to notify Servicer of the receipt of legal notices of service of
process affecting Servicer or the Service Contract Program and to
immediately forward same to Servicer;
(f) to not negotiate or endorse any check or other negotiable
instrument made payable to the Servicer and to forward same
immediately to Servicer;
(g) to not publish, circulate, or display any advertisements,
circulars, or other promotional materials relating to the Service
Contract Program, or to print, replicate, display, or utilize in any
fashion the name, trademark, service mark, logo, or other identifying
emblem or insignia of Servicer, Buyers or any of their respective
affiliates unless the content or use thereof has received the prior
written approval of Servicer or Buyers, as the case may be;
(h) to be solely responsible for the payment of compensation to all
employees, agents and sub-agents utilized by Dealer and to indemnity
and defend the other party from and against any claim for compensation
by said employees, agents, and sub-agents; and
5. Servicer may discontinue the Service Contract Program or terminate Dealer's
participation therein at any time, in its absolute and sole discretion, and
without advance notice to Dealer. Dealer may terminate its participation in
the Service Contract Program upon 30 days written notice to Servicer,
provided that such termination will not terminate Dealer's obligations and
liabilities to Servicer hereunder to any matters occurring prior to the date
of such termination or for any inaccuracy or breach by Dealer in any of the
representations or agreements of Dealer contained herein.
6. Nothing in this Addendum shall be deemed to effect Servicer or Dealer's
rights or obligations under the Servicing Agreement, except as expressly set
forth herein.
<PAGE> 12
Dealership Name
-----------------------------------------------------------------
Address:
------------------------------------------------------------------------
(Street, City, State and Zip Code)
By:
-----------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
(Must be Officer of Dealership)
CREDIT ACCEPTANCE CORPORATION
By:
-----------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Date:
---------------------------------------------------------------------------
2
<PAGE> 1
EXHIBIT 21(l)
[CREDIT ACCEPTANCE CORPORATION LOGO]
CREDIT ACCEPTANCE CORPORATION
SCHEDULE OF CREDIT ACCEPTANCE CORPORATION SUBSIDIARIES
The following is a list of subsidiaries as of the date of this filing of Credit
Acceptance Corporation, other than subsidiaries which, considered in the
aggregate as a single subsidiary, would not constitute a significant
subsidiary, as defined by the Securities and Exchange Commission Regulation S-X.
Credit Acceptance Corporation Life Insurance Company
Buyers Vehicle Protection Plan, Inc.
AutoNet Finance Company.com, Inc.
CAC Funding Corp.
CAC Leasing, Inc.
CAC Reinsurance, Ltd.
Vehicle Remarketing Services, Inc.
Credit Acceptance Corporation UK Limited
CAC of Canada, Limited
Credit Acceptance Corporation Ireland Limited
<PAGE> 1
Exhibit 23 (1)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Credit Acceptance Corporation on Forms S-3 (File Nos. 33-75246 (as amended) and
333-18301) and Forms S-8 (File Nos. 33-64876 and 33-80339) of our report dated
January 26, 2000, appearing in this Annual Report on Form 10-K of Credit
Acceptance Corporation for the year ended December 31, 1999.
DELOITTE & TOUCHE
Detroit, Michigan
March 29, 2000
<PAGE> 1
Exhibit 23 (2)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 2, 1998 included in this Annual Report on Form 10-K of
Credit Acceptance Corporation for the year ended December 31, 1999, into Credit
Acceptance Corporation's previously filed Registration Statement on Forms S-3
(File Nos. 33-75246 (as amended) and 333-18301) and Forms S-8 (File Nos.
33-64876 and 33-80339). It should be noted that we have not audited any
financial statements of Credit Acceptance Corporation subsequent to December 31,
1997 or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Detroit, Michigan
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,122
<SECURITIES> 11,569
<RECEIVABLES> 573,120
<ALLOWANCES> 4,742
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 30,217
<DEPRECIATION> 11,974
<TOTAL-ASSETS> 660,240
<CURRENT-LIABILITIES> 0
<BONDS> 121,991
0
0
<COMMON> 461
<OTHER-SE> 262,514
<TOTAL-LIABILITY-AND-EQUITY> 660,240
<SALES> 0
<TOTAL-REVENUES> 116,055
<CGS> 0
<TOTAL-COSTS> 56,772
<OTHER-EXPENSES> 3,498
<LOSS-PROVISION> 69,590
<INTEREST-EXPENSE> 16,576
<INCOME-PRETAX> (15,727)
<INCOME-TAX> (5,041)
<INCOME-CONTINUING> (10,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,686)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
