- 14 -
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Paragraph 240.14a-11(c) or Paragraph
240.14a-12
GENERAL ACCEPTANCE CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
COMMENTCOMMENTDOCUMENT - 8 1/2 X 11" GENERAL ACCEPTANCE CORPORATION
1025 ACUFF ROAD
BLOOMINGTON, INDIANA 47404
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 8, 1997
The 1997 Annual Meeting of Shareholders of General Acceptance Corporation
(the "Company") will be held at the Holiday Inn, 1710 Kinser Pike,
Bloomington, Indiana, on July 8, 1997, at 1:00 p.m. local time for the
following purposes:
1. To elect two directors, each to serve for a term of three years;
2. To ratify the selection by the Board of Directors of Ernst & Young LLP
as certified public accountants for the Company for the fiscal year ending
December 31, 1997; and
3. To consider and act upon a proposal to grant conversion rights to
the holders of $13.25 million of subordinated notes issued by the Company;
and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Holders of common shares of record at the close of business on April 28,
1997 are entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors
Richard J. Corey, Secretary
June 15, 1997
Bloomington, Indiana
YOUR VOTE IS IMPORTANT. IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, OR
IF YOU DO PLAN TO ATTEND BUT WISH TO VOTE BY PROXY, PLEASE DATE, SIGN, AND
MAIL PROMPTLY THE ENCLOSED PROXY. A RETURN ENVELOPE HAS BEEN PROVIDED FOR
THIS PURPOSE.
<PAGE>
GENERAL ACCEPTANCE CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 8, 1997
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of General Acceptance Corporation (the
"Company") of proxies to be voted at the Annual Meeting of Shareholders to be
held at 1:00 p.m. local time, on July 8, 1997, and at any adjournment thereof.
The meeting will be held at the Holiday Inn, Bloomington, Indiana. This
proxy statement and the accompanying form of proxy were first mailed to
shareholders on or about June 15, 1997.
A shareholder signing and returning the enclosed proxy may revoke it at
any time before it is exercised by written notice to the Secretary of the
Company. The signing of a proxy does not preclude a shareholder from
attending the meeting in person. All proxies returned prior to the meeting
will be voted in accordance with the instructions contained therein. Any
proxy not specifying to the contrary will be voted according to the
recommendation of the Board of Directors on that proposal. That
recommendation is shown for each proposal on the proxy card. For the reasons
stated in more detail later in the Proxy Statement, the Board of Directors
recommends a vote FOR each of the two persons nominated to serve as a
Director, FOR ratification of the selection of Ernst & Young LLP, as certified
public accountants for the Company and FOR granting conversion rights to the
holders of $13.25 million of subordinated debt issued by the Company.
The Board of Directors knows of no other matters which are to be presented at
the meeting. However, if any other matters are properly presented for action,
the proxies named on the proxy card will be authorized by your proxy to vote
on them in their discretion.
As of the close of business on April 28, 1997, the record date for the
Annual Meeting, there were outstanding and entitled to vote 6,022,000 common
shares of the Company and the closing price on the NASDAQ National Market
System was $4.00 per share. Each outstanding common share is entitled to one
vote. The Company has no other voting securities. Shareholders do not have
cumulative voting rights.
A copy of the annual report of the Company including audited financial
statements and a description of operations for the fiscal year ended December
31, 1996, accompanies this proxy statement. The financial statements
contained in that report are not incorporated by reference herein.
All expenses in connection with solicitation of proxies will be borne by
the Company. The Company will provide copies of this proxy statement, the
accompanying form of proxy and the annual report to brokers, dealers, banks
and voting trustees, and their nominees, for mailing to beneficial owners and,
upon request therefor, will reimburse such record holders for their reasonable
expenses in forwarding solicitation material. The Company expects to solicit
proxies primarily by mail, but directors, officers and regular employees of
the Company may also solicit in person or by telephone.
On each matter properly brought before the meeting, shareholders will be
entitled to one vote for each share of common stock held. Under Indiana law
and the Company's Amended and Restated Articles of Incorporation and By-Laws,
if a quorum exists at the meeting, the two nominees for Directors who receive
the greatest number of votes cast in the election of Directors will be
elected. Ernst & Young LLP will be ratified as the Company's certified public
accountants for the fiscal year ending December 31, 1997 and the granting of
conversion rights to holders of $13.25 million of subordinated debentures
issued by the Company will be approved if holders of a majority of the shares
represented in person or by proxy at the meeting vote in favor of the
proposals.
Shareholders may abstain from voting for one or more of the nominees for
Director, may abstain from ratifying Ernst & Young LLP as the Company's
certified public accountants for the fiscal year ending December 31, 1997 and
may abstain from approving the granting of conversion rights to holders of
$13.25 million of subordinated debentures issued by the Company. Abstention
from voting for a nominee for Director will be disregarded in determining the
two nominees for Director who receive the greatest number of votes cast.
Abstention from voting on ratifying Ernst & Young LLP as the Company's
certified public accountants for the fiscal year ending December 31, 1997 and
abstaining from approving the granting of conversion rights to holders of
$13.25 million of subordinated debentures issued by the Company will have the
same effect as a vote against the proposal, since holders of a majority of the
shares represented at the meeting must vote in favor of each such proposal for
it to be approved.
Brokerage firms and other intermediaries holding shares of common stock
in street name for customers are generally required to vote such shares in the
manner directed by their customers. In the absence of timely directions,
brokerage firms and other intermediaries will generally have discretion to
vote their customer's shares in the election of Directors, the ratification of
Ernst & Young LLP as the Company's certified public accountants, and the
approval of the granting of conversion rights. If a brokerage firm or other
intermediary does not vote for a nominee for Director, this non-vote will be
disregarded in determining the two nominees for Director who receive the
greatest number of votes cast. Abstention from voting on the proposal to
ratify Ernst & Young LLP as the Company's certified public accountants and
approving the granting of conversion rights will have the same effect as a
vote against the proposal, since holders of a majority of shares represented
at the meeting must vote in favor or each such proposal for it to be approved.
If you execute a proxy, you may revoke it by taking one of the following
three actions: (i) by giving written notice of the revocation to the
Secretary of the Company at its principal executive offices prior to the
meeting; (ii) by executing a proxy with a later date and delivering it to the
Secretary of the Company at its principal executive offices prior to the
meeting; or (iii) by personally attending and voting at the meeting.
<PAGE>
Any eligible shareholder who desires to have a qualified proposal
considered for inclusion in the proxy statement prepared in connection with
the Company's 1998 Annual Meeting of Shareholders must deliver a copy of the
proposal to the Secretary of the Company, at the Company's principal executive
offices, no later than December 31, 1997. A shareholder must have been a
record or beneficial owner of at least one percent of the Company's
outstanding common stock, or shares of Common Stock having a market value of
at least $1,000, for a period of at least one year prior to submitting the
proposal, and the shareholder must continue to hold the shares through the
date on which the meeting is held.
The mailing address of the principal offices of the Company is 1025 Acuff
Road, Bloomington, Indiana, 47404.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 28, 1997, certain information
regarding beneficial ownership of the Company's common stock by: (i) each
person known to the Company to be the beneficial owner of more than five
percent of the outstanding common stock; (ii) each director of the Company;
(iii) the Chief Executive Officer and each executive officer named in the
Summary Compensation Table ("Named Executive Officer"); and (iv) all directors
and executive officers of the Company as a group. Except as otherwise
indicated in the notes to the table, each beneficial owner possesses sole
voting and investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF SHARES PERCENT OF CLASS
---------------- -----------------
Principal Shareholders
- ------------------------------------------------------------
Malvin L. Algood (6) 1,124,000 (1) 18.6%
Russell E. Algood (6) 1,068,000 (11) (2) 17.7%
John G. Algood (8) 956,000 15.9%
Shirley A. Cook (9) 966,000 16.0%
Directors and Executive Officers
- ------------------------------------------------------------
Malvin L. Algood 1,124,000 (1) 18.6%
Russell E. Algood 1,068,000 (2) 17.7%
Martin C. Bozarth 4,500 (10) *
Rollin M. Dick 139,334 (3) (4) 2.3%
Eugene L. Henderson 15,334 (3) *
Donald E. Brown 23,334 (7) *
James J. Larkin -0- *
All directors and executive officers as a group (10 persons)
2,392,002 (5) 39.2%
<FN>
* Less than 1%.
(1) Includes 24,000 shares subject to immediately exercisable options granted pursuant to the Company's
Employee Stock Option Plan.
(2) Includes 18,000 shares subject to immediately exercisable options granted pursuant to the Company's
Employee Stock Option Plan.
(3) Includes 13,334 shares subject to immediately exercisable options granted pursuant to the Company's
Outside Director Stock Option Plan.
(4) Includes 30,000 shares owned directly by the Rollin M. Dick Grantor Retained Annuity Trust of which Mr.
Dick is co-trustee.
(5) Includes in the aggregate 85,102 shares which may be acquired within 60 days upon the exercise of
outstanding stock options held by non-employee directors and executive officers.
(6) The business address for these principal shareholders is 1025 Acuff Road, Bloomington, IN 47404.
(7) Includes 8,334 shares subject to immediately exercisable options granted pursuant to the Company's
Outside Director Stock Option Plan.
(8) John G. Algood's address is 1805 Isleworth Court, Oldsmar, Florida 34677.
(9) Shirley A. Cook's address is 12455 Silver Bay Circle, Indianapolis, Indiana 46236.
(10) Includes 2,000 shares subject to immediately exercisable options granted pursuant to the Company's
Employee Stock Option Plan.
(11) Includes 9,000 shares owned directly by several irrevocable trusts for the benefit of Mr. Russell E.
Algood's children.
</TABLE>
<PAGE>
1. ELECTION OF DIRECTORS
NOMINEES
The Amended and Restated Articles of Incorporation (the "Articles") of
the Company provide for not less than three (3) nor more than fifteen (15)
directors, divided into three classes as equal in number as possible, each of
whom is to be elected for a three-year term. The terms of the following two
incumbent directors will expire at the annual meeting: Malvin L. Algood and
Donald E. Brown. The Board of Directors has nominated Malvin L. Algood and
Donald E. Brown for reelection to an additional three-year term each.
The Articles provide that in the event of a vacancy on the Board, the
remaining directors shall fill the director vacancy on the Board, which
director shall hold office for a term expiring at the Annual Meeting of
Shareholders at which the term of the class to which they had been elected
expires. Pursuant to the Securities Purchase Agreement with Conseco (as
defined herein), the Company expanded its Board of Directors to six members.
On April 10, 1997, the Board of Directors elected James J. Larkin to serve as
director of the Company with a term of office expiring in 1998, thereby
filling the vacant position on the board.
Unless authority to vote for such nominees is withheld, the accompanying
proxy will be voted FOR the election of Malvin L. Algood and Donald E. Brown.
However, the person designated as proxy reserves the right to cast votes for
another person designated by the Board of Directors in the event any nominee
is unable or unwilling to serve. The Board of Directors has no reason to
believe that any nominee will be unable or unwilling to serve. Proxies will
not be voted for more than two nominees assuming the presence of a quorum.
Those nominees receiving the most votes will be elected to the Board of
Directors.
The Board of Directors recommends a vote "FOR" the nominees named in proposal
1.
<PAGE>
The following table sets forth information with respect to each nominee for
election to the Board of Directors, and with respect to each director whose
term of office will continue.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Age Position Held With The Company Served as Director Since Term of Office Expires
Name
INSIDE DIRECTORS
- ------------------------
Malvin L. Algood 67 Chief Executive Officer 1988 1997
Russell E. Algood 40 President and Chief Operating Officer 1988 1998
OUTSIDE DIRECTORS
- ------------------------
Eugene L. Henderson 71 Director 1994 1999
Donald E. Brown 41 Director 1996 1997
CONSECO DIRECTORS
- ------------------------
Rollin M. Dick 65 Director 1994 1999
James J. Larkin 43 Director 1997 1998
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
Malvin L. Algood, the Chairman and Chief Executive Officer, is a
co-founder and has been a Director of the Company since it was formed in 1988.
Mr. Algood began his career in the automobile finance industry in 1952. From
1962 until 1980, he worked at General Finance Corporation in a number of
capacities, last serving as Vice President and General Manager of the
Automobile Finance Division. In this position he managed a network of 38
consumer finance offices, which purchased contracts from automobile dealers
located in ten midwestern and southeastern states. From 1980 through 1991,
Mr. Algood's primary business activity was the management of as many as five
automobile dealerships, in eight locations, owned in whole or substantial part
by Mr. Algood and Russell E. Algood. Mr. Algood continues to participate in
certain material business decisions with respect to one of these dealerships,
but no longer participates in the day-to-day management of this enterprise.
Mr. Algood is the father of Russell E. Algood.
Russell E. Algood, the President and Chief Operating Officer, is a
co-founder and has been a Director and the Chief Operating Officer of the
Company since it was formed in 1988. He was appointed President of the
Company in 1996. From 1976 through 1991, Mr. Algood's primary business
activity was management of as many as five automobile dealerships, in eight
locations, owned in whole or substantial part by Mr. Algood and Malvin L.
Algood. Mr. Algood continues to participate in certain material business
decisions with respect to one of these dealerships, but no longer participates
in the day-to-day management of this enterprise. Mr. Algood is the son of
Malvin L. Algood.
Rollin M. Dick has been a Director since April 1994. Mr. Dick has been
the Executive Vice President and Chief Financial Officer of Conseco, Inc.
since 1986 and of its affiliated insurance companies, Bankers Life Holding
Corporation since January 1996 and American Life Group, Inc. and its wholly
owned subsidiary, American Life Holding Corporation, since September 1994, and
is an officer of numerous affiliates of both companies. Prior to 1986, Mr.
Dick was a partner with Coopers & Lybrand, an international public accounting
firm. Mr. Dick is currently a director of Conseco, Inc., Bankers Life Holding
Corporation, American Life Group, Inc., American Life Holding Corporation, and
Brightpoint, Inc.
Eugene L. Henderson has been a Director since April 1994. Mr. Henderson
is an attorney and has been a senior partner with Henderson, Daily, Withrow &
DeVoe, a law firm located in Indianapolis, Indiana, since 1965. Mr.
Henderson's law firm has performed and may in the future perform services for
the Company.
Donald E. Brown is Chief Executive Officer of Interactive Intelligence,
Inc., a company he founded in 1994. Prior to that date he served as Chief
Executive Officer of Software Artistry, Inc., founded in 1988. In 1982 Dr.
Brown co-founded Dealership Programming, Inc., a company specializing in
computer software for automobile sales finance companies. Dealership
Programming, Inc. was sold to AFR, Inc. in 1986.
James J. Larkin is currently a Vice President of Conseco Services, LLC. Since
1991, he has served as an officer of various insurance companies affiliated
with Conseco, Inc. Prior to 1991, Mr. Larkin was a partner with Ernst & Young
LLP, an international public accounting firm.
FAMILY RELATIONSHIPS
Malvin L. Algood, Chairman and Chief Executive Officer, is the father of
Russell E. Algood, President and Chief Operating Officer and of principal
shareholders John G. Algood and Shirley A. Cook.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has established two Committees, a Compensation
Committee and an Audit Committee. The Compensation Committee is composed of
Eugene L. Henderson, Donald E. Brown and Rollin M. Dick. Mr. Henderson is the
Chairman of the Compensation Committee. The responsibilities of the
Compensation Committee include making recommendations to the Board of
Directors with respect to: compensation arrangements for the executive
officers of the Company; policies relating to salaries and job descriptions;
insurance programs; and benefit programs of the Company, including its
retirement plans. The Compensation Committee administers the Employee Stock
Option Plan. The Compensation Committee met four times in 1996.
<PAGE>
The Audit Committee, also comprised of Rollin M. Dick, Donald E. Brown and
Eugene L. Henderson, reviews with the auditors the scope of the audit work
performed, any questions arising in the course of such work and inquires as to
other pertinent matters such as internal accounting controls, financial
reporting, security and personnel staffing. Mr. Dick is the Chairman of the
Audit Committee. The audit committee met five times in 1996.
The Board of Directors has no nominating committee.
The Board of Directors met four times during fiscal year 1996. No
Director (except Donald E. Brown, who was appointed in April 1996) attended
fewer than 75% of the meetings of the Board of Directors or of any committee
of the Board of Directors of which he was a member.
COMPENSATION OF DIRECTORS
In 1996, members of the Board of Directors who are not employees of the
Company received $500 for each meeting of the Board of Directors or committee
thereof attended. Rollin M. Dick and Eugene L. Henderson each earned $5,500
in 1996 for their services. Donald E. Brown earned $1,500 in 1996 for his
services. Members of the Board of Directors who are employees of the Company
receive no separate remuneration for their service as directors.
Under the terms of the Outside Director Stock Option Plan (the "Outside
Director Plan"), each non-employee director was, upon effectiveness of the
Outside Director Plan, automatically granted an option to purchase 5,000
shares and will be automatically eligible for an additional grant of options
to purchase 5,000 shares upon each anniversary of the effectiveness of the
Outside Director Plan. The options are generally exercisable in 1/3
increments on the date of grant and each of the first two anniversaries
thereof and expire in ten years.
Effective April 10, 1997, Rollin M. Dick and James J. Larkin will cease
receiving compensation from the Company either in the form of director's fees
or stock options. Otherwise, the same compensation plan will be in effect for
1997.
During the year ended December 31, 1996, Mr. Dick, Mr. Henderson and Dr.
Brown each received 5,000 options to purchase shares of common stock pursuant
to the Outside Director Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Eugene L. Henderson, Donald E.
Brown and Rollin M. Dick. Neither Mr. Henderson, Dr. Brown nor Mr. Dick is
serving at this time, nor have they previously served, as an officer of the
Company, and none of the Company's executive officers serve as directors of,
or in any compensation-related capacity for, companies with which members of
the Compensation Committee are affiliated.
EXECUTIVE COMPENSATION
Executive Officer Compensation
The following table sets forth certain information with respect to the
dollar value for services rendered in all capacities of the Company for the
Named Executive Officers of the Company for the fiscal year ended December 31,
1996. No other executive officer of the Company received compensation in an
amount greater than or equal to $100,000 for the fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION
TABLE ANNUAL COMPENSATION
<S> <C> <C> <C> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER ANNUAL COMPEN- STOCK OPTIONS GRANTED
SATION (1)
-----------------------
Malvin L. Algood 1996 $250,000 250,000 $ 0 $ 5,688 48,000(3)
Chairman and Chief Executive Officer 1995 150,000 0 4,012 36,000
1994 0 1,549 0
Russell E. Algood 1996 200,000 0 4,777 80,000(3)
President and Chief Operating Officer 1995 150,000 0 4,489 30,000
1994 113,332 0 2,306 0
Martin C. Bozarth 1996 100,000 25,0000 5,804 20,000(3)
Chief Financial Officer (hired 12/11/95) 1995 3,486 0 0 0
1994 0 0 0
<S> <C>
NAME AND PRINCIPAL POSITION ALL OTHER COMPEN-
SATION
-------------------
Malvin L. Algood $ 9,591(2)
Chairman and Chief Executive Officer 9,591(2)
9,591(2)
Russell E. Algood 0
President and Chief Operating Officer 0
0
Martin C. Bozarth 0
Chief Financial Officer (hired 12/11/95) 0
0
<FN>
(1) These amounts represent the value of Company-provided life insurance and the use of Company-owned vehicles.
(2) Represents the value of payments by the Company for life insurance coverage, under which Mr. Algood's spouse is the
beneficiary. This policy had been assigned to GE Capital as security for the Company's indebtedness to GE Capital during
1994 and 1995.
(3) All options newly granted on January 2, 1996, were subsequently exchanged for a like amount of new options on April
4, 1996, with vesting to restart with the new date of issue. Malvin L. Algood, Russell E. Algood and Martin C. Bozarth
received a net of 24,000, 40,000 and 10,000 options during 1996, respectively. See "Election of Directors - Report of the
Compensation Committee".
Malvin L. Algood agreed to reduce his salary effective January 1, 1997 to $125,000 per year.
</TABLE>
<PAGE>
Stock Options
The following table shows the options granted to the Named Executive
Officers of the Company in 1996. The value of shares subject to options first
exercisable by Russell E. Algood in 1997 and 1998 will exceed the $100,000
limitation for qualifying as an incentive stock option ("ISO") under Section
422 of the Internal Revenue Code of 1986, as amended. As a result, Russell E.
Algood shall be deemed to have been granted (a) an ISO as to such number of
shares as would equal a value of $100,000 in 1997 and 1998, the exercise price
of which shall be 110% of the fair market value of the options on the date of
grant and the exercise period of which shall be five years and (b) a
nonqualified stock option as to all other shares, the exercise price of which
shall be 100% of the fair market value on the date of grant and the exercise
period of which shall be ten years.
OPTION GRANTS IN 1996
Individual Grants Potential Realizable Value at Assumed Annual Rates of
Stock Price Appreciation for Option Term (1)
EXERCISE PRICE (% OF MARKET PRICE OF $7.50 PER SHARE)
NUMBER OF SHARES UNDERLYING OPTIONS GRANTED (2) % OF TOTAL OPTIONS
GRANTED TO EMPLOYEES IN 1996
EXPIRATION DATE (FROM DATE OF GRANT)
NAME AND PRINCIPAL POSITION
5.0% 10.0%
Malvin L. Algood
Chairman and Chief Executive Officer
48,000 17.3% 100.0% 10 years $113,201 $286,874
Russell E. Algood
President and Chief Operating Officer 32,000 100.0% 10 years
75,467 191,249
48,000 110.0% 5 years 31,731 91,892
80,000 28.9%
Martin C. Bozarth
Chief Financial Officer 20,000 7.2% 100.0% 10 years 47,167
119,531
(1) Calculated by applying share prices assumed at 5.0% and 10.0%
appreciation through the expiration date, less value of outstanding shares at
the issue date with a market price of $7.50. The annual appreciation rates
set by the Securities and Exchange Commission are for illustrative purposes,
and therefore, are not intended to forecast future financial performance or
possible future appreciation, if any, in the market price of the Company's
common shares. Actual gains, if any, on stock options exercised will depend
on the future performance of the common shares and the date on which options
are exercised. This computation is based on the net options issued during
1996. See Footnote Number 2.
(2) All options newly granted on January 2, 1996, were subsequently
exchanged for a like amount of new options on April 4, 1996, with vesting to
restart with the new date of issue. Malvin L. Algood, Russell E. Algood and
Martin C. Bozarth each received a net of 24,000, 40,000 and 10,000 options
during 1996, respectively. See "Election of Directors - Report of the
Compensation Committee".
<PAGE>
The following table sets forth the number of unexercised options held as
of December 31, 1996, by each of the Company's Named Executive Officers and
the related values of such options on that date. The value of unexercised
options on December 31, 1996 is based upon the market value on that date of
$3.25 per common share.
<TABLE>
<CAPTION>
1996 YEAR END OPTION VALUES
Value of Unexercised In-the-Money Options as of
December 31, 1996
($)
Number of Shares
----------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
---------------- ------------------------------------------------ ------------ --------------
Malvin L. Algood 12,000 48,000 $ 0 $ 0
Russell E. Algood 10,000 60,000 0 0
Martin C. Bozarth 0 10,000 0 0
</TABLE>
No options were exercised by the Company's Named Executive Officers in
the fiscal year ended December 31, 1996.
EMPLOYMENT AGREEMENTS
Malvin L. Algood and Russell E. Algood have employment agreements (the
"Employment Agreements") with the Company. The Employment Agreements fix each
officer's base compensation, provide for an annual 3.5% bonus of the
consolidated net income before taxes and bonuses of the Company in excess of
$5 million and provide for the granting of stock options to each officer. The
Employment Agreements also provide each officer with a company car and certain
other fringe benefits provided to the Company's other executive officers. The
Employment Agreements have a term expiring on April 11, 1999, subject to an
automatic twelve-month extension unless the Company elects not to extend such
Employment Agreements. Absent fraud, willful breach of the Employment
Agreement or other willful misconduct on the part of each officer, in the
event the Company terminates an officer's employment, such officer is entitled
to severance pay equal to such officer's base salary at the time of
termination through the term of each Employment Agreement's covenant not to
compete (April 11, 1999 or April 11, 2000 if the Employment Agreement has been
extended). The Company would be obligated to pay the following amounts
(assuming no changes in current salaries) to the following individuals in the
event of termination: Malvin L. Algood, $250,000; Russell E. Algood, $400,000
plus applicable bonuses. The Employment Agreements currently provide for an
annual salary for Malvin L. Algood and Russell E. Algood of $125,000 and
$200,000, respectively.
<PAGE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation Committee of the Board of Directors has responsibility
for the Company's executive compensation program. The Committee is comprised
solely of non-employee directors. The Committee is chaired by Eugene L.
Henderson. The other Committee members are Rollin M. Dick and Donald E.
Brown. The following report is submitted by the members of the Compensation
Committee.
* * *
The Company's executive compensation program is designed to align executive
compensation with financial performance, business strategies and Company
values and objectives. The Company's compensation philosophy is to ensure
that the delivery of compensation, both in the short- and long-term, is
consistent with the sustained progress, growth and profitability of the
Company and acts as an inducement to attract and retain qualified individuals.
This program seeks to enhance the profitability of the Company, and thereby
enhance shareholder value, by linking the financial interests of the Company's
executives with those of its long-term shareholders.
The Company's executive compensation program is comprised of the following
fundamental three elements:
* a base salary that is determined by individual contributions and
sustained performance within an established competitive salary range. Pay for
performance recognizes the achievement of financial goals, accomplishment of
corporate and functional objectives, and performance of individual business
units of the Company.
* an annual cash bonus that is directly tied to corporate performance
measures.
* stock option grants which focus executives on managing the Company from
the
perspective of an owner with an equity position in the business.
Base Salary. The salary, and any periodic increase thereof, of officers
was and is determined by the Board of Directors based on recommendations made
by the Chief Executive Officer and the President and Chief Operating Officer,
and approved by the Compensation Committee. The compensation of the Chief
Executive Officer and the President and Chief Operating Officer is determined
by the employment agreements outlined above.
The Company, in establishing base salaries, levels of incidental and/or
supplemental compensation, and incentive compensation programs for its
officers and key executives, will assess periodic compensation surveys and
published data covering the non-prime automobile sales financing industry and
the financial services industry in general. The level of base salary
compensation for officers and key executives is determined by both their scope
and responsibility and the established salary ranges for officers and key
executives of the Company. Periodic increases in base salary are dependent on
the executive's proficiency of performance in the individual's position for a
given period, and on the executive's competency, skill and experience.
Bonus Program. The bonus compensation program for the Company's officers
is subject to annual review by the Compensation Committee and requires annual
approval of the Board of Directors.
Under the bonus plan for 1996, executive officers were eligible to
receive a cash bonus based upon achievement of certain returns on average
stockholders equity (AROAE@) for the period from January 1, 1996 through
December 31, 1996. No cash bonuses were paid under this plan for fiscal year
1996, because target returns were not met.
The bonus plan for 1997 has been finalized by the Compensation Committee
and the Board of Directors and is based on a percentage of income before taxes
and bonuses, but only after a minimum net income before bonus and taxes for
the Company of $3.0 million for some participants and $5.0 million for others.
Only certain officers of the Company participate in the bonus plan.
Stock Option Plan. The Company's Employee Stock Option Plan is intended to
align executive interest with the long-term interests of shareholders by
linking executive compensation with enhancement of shareholder value. In
addition, the program motivates executives to improve long-term stock market
performance by allowing them to develop and maintain a significant long-term
equity ownership position in the Company's common shares.
Report of the Compensation Committee on Repricing of Options. In April 1996,
the Compensation Committee considered the options held by the Company's
executive officers and employees and the fact that the broad decline in the
price of the common stock of the Company had resulted in the stock options
granted on January 2, 1996, pursuant to the Company's Employee Stock Option
Plan to have an exercise price well above the recent trading price for the
Common Stock. The Committee was advised that management believed increasing
turnover was partly due to the Company's total compensation package for
long-term employees, which included substantial options with exercise prices
well above the current trading price, and that the compensation package was
less attractive than compensation offered by other companies in the same
geographic location, because options granted to new hires at other companies
would be granted at current trading prices, providing more opportunity for
appreciation than the Company's options.
<PAGE>
The Committee believes that (i) the Company's success in the future will
depend in large part on its ability to retain a number of its highly skilled
technical, managerial and marketing personnel, (ii) competition for such
personnel is intense, (iii) the loss of key employees could have a significant
adverse impact on the Company's business, and (iv) it is important and
cost-effective to provide equity incentives to employees and executive
officers of the Company to improve the Company's performance and the value of
the Company for its shareholders. The Committee considered granting new
options to existing employees at fair market value, but recognized that the
size of the option grants required to offset the decline in market price would
result in significant additional dilution to shareholders. The Committee also
recognized that an exchange of existing options with exercise prices higher
than fair market value for options at fair market value would provide
additional incentive to employees because of the increased potential for
appreciation. On balance, considering all of these factors, the Committee
determined it to be in the best interest of the Company and its shareholders
to restore the incentive for employees and executive officers to remain with
the Company and to exert their maximum efforts on behalf of the Company by
granting replacement stock options under its Employee Stock Option Plan for
those options granted on January 2, 1996 with restarted vesting.
Accordingly, in April 1996 the Committee and the Board of Directors
approved a resolution to exchange the options granted on January 2, 1996 for
options with an exercise price equal to the current trading price, with
vesting commencing on the date of the exchange. All exchanged options will
terminate no later than ten (10) years from the date of exchange, except for
24,000 options issued to Russell E. Algood which qualify as ISO's and as such
will terminate no later than five (5) years from the date of exchange.
Accordingly, optionees who participated in the exchange received a lower
exercise price in exchange for their exchanged options.
The offer to exchange options on April 4, 1996 was applicable to options
previously granted on January 2, 1996. A total of 127,250 options with an
exercise price of $15.00 per share were exchanged for an equal number of
shares at an exercise price of $7.50 per share, which was the closing price of
the Company's stock on April 4, 1996, except that due to their status as an
ISO, 24,000 of the options originally issued to Russell E. Algood with an
exercise price of $16.50 per share were reissued with an exercise price of
$8.25 per share.
<PAGE>
<TABLE>
<CAPTION>
TEN YEAR OPTION REPRICING TABLE
<S> <C> <C> <C>
Name Date Number of Options Repriced Market Price of Stock at Time of Repricing
------ -------------------------- -------------------------------------------
Malvin L. Algood 4/4/96 24,000 $ 7.50
Russell E. Algood 4/4/96 16,000 7.50
Russell E. Algood 4/4/96 24,000 7.50
Martin C. Bozarth 4/4/96 10,000 7.50
<S> <C> <C> <C>
Name Exercise Price at Time of Repricing New Exercise Price Remaining Option Term at Date of Repricing
------------------------------------ ------------------- ------------------------------------------
Malvin L. Algood $ 15.00 $ 7.50 9 yrs. 9 mos.
Russell E. Algood 15.00 7.50 9 yrs. 9 mos.
Russell E. Algood 16.50 8.25 4 yrs. 9 mos.
Martin C. Bozarth 15.00 7.50 9 yrs. 9 mos.
</TABLE>
SUBMITTED BY THE COMPENSATION COMMITTEE
Mr. Eugene L. Henderson
Mr. Rollin M. Dick
Dr. Donald E. Brown
<PAGE>
STOCK PERFORMANCE GRAPH
The following chart compares the percentage change in the cumulative
total shareholder return on the Company's common shares with the cumulative
total return of the NASDAQ market composite (U.S. Companies) and the NASDAQ
Financial Stocks Index for the period April 6, 1995, the date of the initial
public offering of the Company's common shares, to December 31, 1996. The
comparison assumes that $100 was invested on April 6, 1995 in the Company's
common shares and in each of the foregoing indices and assumes reinvestment of
dividends.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN (1) (2)
<S> <C> <C> <C>
4/6/95 12/31/95 12/31/95
------ -------- --------
NASDAQ 100.00 130.40 160.43
NASDAQ Financial Stocks 100.00 130.42 167.21
GAC 100.00 91.20 19.12
<FN>
(1) Prior to April 6, 1995, the Company's Common Stock was not publicly
traded. Comparative data are provided only for the period since that date.
This graph is not "soliciting material", is not deemed filed with the
Securities and Exchange Commission, and is not to be incorporated by reference
in any filing of the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934 whether made before or after the date hereof
and irrespective of any general incorporation language in any filing.
(2) The stock price performance shown in the graph is not necessarily
indicative of future price performance. Information used for this graph was
obtained from the Monetary Values for CRSP Total Return Indexes published by
the NASDAQ Stock Market, a source believed to be reliable, but the Company is
not responsible for any error or omission in such information.
</TABLE>
CERTAIN TRANSACTIONS
The Company, in the ordinary course of business, purchases contracts
receivable from automobile dealerships controlled by Malvin L. Algood and
Russell E. Algood. Total cash disbursed to these dealerships for the purchase
of contracts was approximately $788,000, $576,000 and $1,079,000 in 1996, 1995
and 1994, respectively. The Company has also purchased automobiles from these
automobile dealerships. These purchases totaled approximately $115,000,
$272,000 and $323,000 for 1996, 1995 and 1994, respectively.
Certain stockholders and relatives have made working capital loans to the
Company. Interest paid to these stockholders and relatives pursuant to these
notes payable amounted to approximately $34,000, $80,000 and $223,000 during
1996, 1995 and 1994, respectively.
Dealer participation reserves of approximately $0 and $146,000 as of
December 31, 1996 and 1995, respectively, were the result of contracts
purchased by the Company from dealerships controlled by Malvin L. Algood and
Russell E. Algood. It is possible that some or all of these participation
reserves may eventually be paid to these dealerships, depending upon the loss
experience of the contracts purchased.
The Company has made payments to Malvin L. Algood and Russell E. Algood
or entities owned in part by them for leases of real estate, automobile
storage and automobile body work. Payments made for these services were
approximately $622,000, $151,000 and $158,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
The Company is obligated under non-cancelable leases with Malvin L.
Algood and Russell E. Algood, expiring through 2016, to make future minimum
lease payments as follows: 1997, $484,000; 1998, $488,000; 1999, $478,000;
2000, $395,000; 2001, $380,000; 2002 and thereafter, $8,388,000. Rent expense
incurred pursuant to these leases was $340,000, $74,000 and $24,000 in 1996,
1995 and 1994, respectively.
Prior to March 1995, Malvin L. Algood and Russell E. Algood were
stockholders of an insurance company for which the Company acted as agent when
selling credit related insurance products.
SECTION 16(A) OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
officers and directors of the Company to file initial reports of ownership and
reports of changes in ownership of the common shares of the Company. The
officers and directors are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms
filed by them.
<PAGE>
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
officers and directors were complied with on a timely basis during the year
ended December 31, 1996, except for a Form 3 and Form 4 required to report the
designation of Donald E. Brown as a director, and the subsequent award to him
of stock options, and the Form 3 required to report the designation of Martin
C. Bozarth as an executive officer. All required forms were filed by December
31, 1996.
2. RATIFICATION OF SELECTION OF
CERTIFIED PUBLIC ACCOUNTANTS
Subject to ratification by the shareholders, the Board of Directors has
selected Ernst & Young LLP as certified public accountants for the Company for
the fiscal year ending December 31, 1997. The Company has been advised by
such firm that neither it nor any of its associates has any direct or material
indirect financial interest in the Company. In order for Ernst & Young LLP to
be ratified as the certified public accountants for the Company for the fiscal
year ending December 31, 1997 a majority of the common shares represented and
entitled to vote at the Annual Meeting must be affirmatively voted for
approval of this proposal.
Ernst & Young LLP has acted as certified public accountants for the
Company since 1993. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting, will have the opportunity to make a statement
if they desire to do so, and will be available to respond to appropriate
questions concerning their audits.
The Board of Directors recommends a vote "FOR" the ratification of Ernst &
Young LLP as the Company's certified public accountants.
3. GRANT OF CONVERSION RIGHTS TO HOLDERS OF SUBORDINATED DEBT
PROPOSAL
In conjunction with the Securities Purchase Agreements (as defined
below), the Board of Directors has determined that it would be in the
Company's best interest to vote on the convertibility feature of the Notes (as
defined below). The discussion which follows concerns the background and the
terms of the Company's decision to issue and sell the Notes pursuant to the
Security Purchase Agreements.
<PAGE>
TERMS OF THE TRANSACTION
On April 11, 1997, the Company entered into agreements (the "Securities
Purchase Agreements") for the issuance and sale of an aggregate of $13.25
million of subordinated notes ("Notes"), which are for a term of three years,
bear interest at the rate of 12% per annum, and provide for the quarterly
payment of interest. Of this amount, $10 million of the Notes were issued to
Capitol American Life Insurance Company, an affiliate of Conseco, Inc.
("Conseco"), $1 million of the Notes were issued to Malvin L. Algood, the
Chairman, Chief Executive Officer and a significant shareholder of the
Company, $750,000 of the Notes were issued to Russell E. Algood, President,
Chief Operating Officer, Director and a significant shareholder of the
Company, $1 million of the Notes were issued to Janet Algood, the wife of
Malvin L. Algood, and $500,000 of the Notes were issued to John G. Algood, a
significant shareholder and the son of Malvin L. Algood and the brother of
Russell E. Algood.
The Securities Purchase Agreements provide that the holders of the Notes
may convert the principal and interest thereon into shares of the Company's
common stock at a conversion rate of $3.00 per share from time to time and at
anytime prior to maturity of the Notes. As of December 31, 1996, the per
share net book value of the Company's common stock was $2.93. On April 11,
1997, the reported last sale price of the Company's common stock on the NASDAQ
National Market System was $3.00. As of April 28, 1997, the Company had
6,022,000 shares of common stock issued and outstanding. Accordingly,
assuming no changes other than the conversion of the full principal amount of
the Notes as of April 28, 1997, such conversion would represent 42% of the
issued and outstanding shares of the Company's common stock.
As a condition to the Securities Purchase Agreements, the Company,
Conseco and Malvin L. Algood, Russell E. Algood, John G. Algood, Janet Algood
and Shirley A. Cook, who collectively own 4,072,000 shares of the Company's
common stock (68% of the issued and outstanding shares of common stock of the
Company as of April 28, 1997) (the "Principal Shareholders") entered into a
stockholders' agreement (the "Stockholders' Agreement") whereby the Principal
Shareholders will vote in favor of the election of two (2) of Conseco's
director nominees and Conseco will vote all of its voting shares in favor of
the election of one (1) of the Principal Shareholders' Director nominees. In
addition, in the event that Conseco makes a tender offer to all of the
Company's shareholders, the Principal Shareholders shall, under certain
circumstances including the acceptance of the tender offer by at least
twenty-five percent (25%) of the issued and outstanding shares of common stock
not held by the Principal Shareholders and a minimum tender offer price,
tender a quantity of shares of common stock so that the Principal
Shareholders' ownership will be less than twenty percent (20%) of the issued
and outstanding shares of common stock of the Company upon the completion of
the tender offer. The Stockholders' Agreement also requires the Principal
Shareholders to vote in favor of the convertibility feature of the Notes at
the 1997 Annual Meeting. Conseco also has the right to appoint one person to
act in an operations capacity for the Company.
In conjunction with the Securities Purchase Agreements, the Company also
granted certain registration rights to Note holders with respect to the shares
issuable upon the conversion of Conseco's Notes and the Company entered into
employment agreements with Malvin L. Algood and Russell E. Algood. See
"Executive Compensation - Employment Agreements".
BACKGROUND FOR THE TRANSACTION
On January 17, 1996, as a result of higher charge-offs and delinquencies,
the Company was notified by General Electric Capital Corporation ("GE
Capital"), its primary lender, of an event of default under the terms of its
loan and security agreement (the "Agreement") for the Company's revolving line
of credit (the "Line"). On March 20, 1996, the Company and GE Capital signed
a letter agreement (the "Forbearance Agreement") whereby GE Capital agreed to
forbear from exercising its rights under the Agreement. The Forbearance
Agreement, as amended, remained in effect until April 11, 1997, when it was
superseded by a new agreement as discussed below.
In 1996, despite upgrading its management information systems, hiring
additional support personnel and implementing other changes in operations, the
Company continued to experience higher than anticipated charge-offs, although
delinquencies were reduced to significantly lower levels. The higher than
anticipated charge-offs in 1996 were due primarily to the continuing effects
of contracts acquired by the Company during 1995, as well as to continuing
adverse charge-off trends in the industry.
During the fourth quarter of 1996, as a result of higher than anticipated
charge-offs, the Company began to experience tightening liquidity.
Charge-offs have the effect of reducing contracts receivable, and therefore
reducing permitted borrowings under the Line, without generating cash to repay
borrowings under the Line. As a result of tightening liquidity and the
Company's unprofitable operating results in the third and fourth quarter of
1996, GE Capital began to exert pressure on the Company to reduce borrowings
under the Line. As a result of such concerns, the Company took a number of
actions during the fourth quarter of 1996 and through April 1997 to deal with
this situation.
The Company reduced the volume of contracts acquired from dealers. This
reduction limited the need for cash to make advances to dealers and was
accomplished by a further tightening of the Company's credit guidelines. The
Company sold contracts receivable in a manner consistent with its business
strategy of exiting certain markets. Substantially all of the Company's
contracts receivable in Missouri, Michigan, Virginia, Illinois and Arizona
have been sold and proceeds from the sale were used to reduce borrowings under
the Line. Finally, the Company's decision at the end of the third quarter of
1996 to dispose of a significant portion of its repossession inventory through
wholesale channels provided cash during the fourth quarter of 1996 and in 1997
to help provide additional liquidity.
Such measures were not, however, sufficient. Accordingly, the Company
began to borrow funds from the Principal Shareholders on a short-term basis.
All of such loans were evidenced by promissory notes payable upon demand and
bearing interest at the rate of 12.00% per annum. The Company borrowed a
total of $3.25 million from the Principal Shareholders through April 11, 1997,
net of repayments.
<PAGE>
Prior to the Company's agreement with Conseco, the Company explored
various alternative financing sources for both an infusion of capital and a
replacement of the Line. However, in connection with the Securities Purchase
Agreements with Conseco, the Company was able to secure the New Line (as
defined below) pursuant to the Restated Agreement (as defined below). The
Company believes that the Securities Purchase Agreements with Conseco were the
best available to the Company given its time constraints and its ability to
obtain an infusion of capital while restructuring the Line.
Accordingly, the Company entered into the Securities Purchase Agreements
under which $10 million of subordinated notes were issued to Conseco.
Proceeds were used by the Company to repay borrowings under the Line.
As a condition to the Securities Purchase Agreement with Conseco, the
Company was required to place the indebtedness of the Principal Shareholders
on a parity with the rights of Conseco. As set forth above, the Company had
borrowed money from the Principal Shareholders and their relatives in the form
of unsecured demand notes bearing interest at 12.00%. As a consequence of the
Conseco agreement, all of the unsecured demand notes were exchanged for Notes.
As a result of the reduction in the volume of contracts acquired from
dealers, the sale of a portion of the Company's portfolio of contracts
receivable, the $3.25 million borrowed from Principal Stockholders and their
relatives, the issuance of the $10.0 million convertible subordinated debt to
Conseco and the wholesaling of repossession inventory, all as described above,
borrowings under the Line were reduced from $94.0 million as of year end 1996
to approximately $43.0 million as of April 14, 1997.
As indicated above, the Company also entered into an Amended and Restated
Motor Vehicle Installment Contract Loan and Security Agreement ("Restated
Agreement") with GE Capital in connection with the issuance of the Notes.
Under the terms of the Restated Agreement the Company is permitted to borrow
up to the lesser of $70.0 million or 78% of Contracts Receivable (the "New
Line"), subject to certain limitations. The Restated Agreement includes a
number of financial and operating covenants including a prohibition on the
payment of dividends and the requirement that any new branch offices to be
opened by the Company be approved in advance by GE Capital. The interest rate
on the New Line is one-month LIBOR plus 4.50%. A $350,000 line fee was paid
to GE Capital in connection with the New Line. The Restated Agreement waived
all defaults which had existed under the previous Agreement and Forbearance
Agreement between the Company and GE Capital.
<PAGE>
CONVERTIBILITY
Pursuant to the agreements under which the Notes were issued, the holders
of the Notes were granted the right to convert the same into shares of the
Company's common stock at a conversion rate of $3.00 per share from time to
time and at anytime prior to maturity of the Notes. The Notes transaction
contemplates the submission of the conversion feature of the Notes for
approval by the shareholders of the Company. The Company believes that the
issuance of the Notes, including the convertibility feature, is a key
component of the Company's business plan in that the issuance of the Notes was
instrumental in securing the New Line and providing operating capital.
BOARD RECOMMENDATION
Pursuant to the information set forth, the Board of Directors recommends
a vote "FOR" the granting of conversion rights to the holders of $13.25
million of subordinated notes issued by the Company.
4. OTHER BUSINESS
As of the date of this proxy statement, the Board of Directors of the
Company has no knowledge of any matters to be presented for consideration at
the meeting other than those referred to above. If (a) any matters not within
the knowledge of the Board of Directors as of the date of this proxy statement
should properly come before the meeting; or (b) a person not named herein is
nominated at the meeting for election as a director because a nominee named
herein is unable to serve or for good cause will not serve; or (c) any
proposals properly omitted from this proxy statement and the form of proxy
should come before the meeting; or (d) any matters should arise incident to
the conduct of the meeting; then the proxies will be voted in accordance with
the recommendations of the Board of Directors of the Company.
Form 10-K
A copy of the General Acceptance Corporation annual report on Form 10-K
filed with the Securities and Exchange Commission is available without charge
by writing to: General Acceptance Corporation, ATTN: Martin Bozarth, 1025
Acuff Road, Bloomington, Indiana 47404.
By Order of the Board of Directors
June 15, 1997
