UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Commission File Number: 0-25760
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the
Quarterly Period ended March 31, 1997.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the
Transition Period From ______ to _____.
GENERAL ACCEPTANCE CORPORATION
(Exact name of Registrant as specified in its charter)
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Indiana 35-1739977
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1025 Acuff Road
Bloomington, Indiana 47404
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number: (812) 337-6000
Indicate by check mark whether the Registrant (1) has filed all reports
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value, 25,000,000 shares authorized, 6,022,000
shares issued and outstanding as of March 31, 1997.
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FORM 10-Q
TABLE OF CONTENTS
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Page
----
PART I Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
8
Revenues 9
Expenses 10
Liquidity and Capital Resources 11
Forward-Looking Statements 15
PART II. Other Information 16
Item 1. Legal Proceedings 16
Item 2. Changes In Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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PART I
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ITEM 1. FINANCIAL STATEMENTS
General Acceptance Corporation
Consolidated Balance Sheets
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MARCH 31, 1997 DECEMBER 31, 1996
---------------- -------------------
(UNAUDITED) (NOTE 1)
ASSETS
Contracts receivable:
Held for investment $ 61,279,013 $ 62,263,129
Held for sale 34,951,540 54,868,173
---------- -------------------
96,230,553 117,131,302
Allowance and discount available for credit losses (9,877,766) (10,611,268)
---------------- -------------------
Contracts receivable, net 86,352,787 106,520,034
Cash and cash equivalents 1,859,756 1,683,429
Repossessions 2,782,217 7,534,045
Purchased and trade automobile inventory 5,112,126 2,518,069
Property and equipment, net 2,393,409 2,539,135
Taxes receivable 452,825 568,908
Other assets 1,484,360 2,282,654
--------- ---------
Total assets $ 100,437,480 $ 123,646,274
================ ===================
LIABILITIES
Debt:
Revolving line of credit $ 74,878,686 $ 93,977,001
Bank line of credit 4,500,000 4,500,000
Notes payable to related parties 3,305,000 1,000,000
---------------- -------------------
Total debt 82,683,686 99,477,001
Accounts payable and accrued expenses 6,339,146 4,650,695
Dealer participation reserves available
for credit losses 1,495,420 1,855,223
--------- ---------
Total liabilities 90,518,252 105,982,919
STOCKHOLDERS' EQUITY
Preferred stock; no par value; authorized
shares - 5,000,000; no shares issued or outstanding --- ---
Common stock; no par value;
authorized shares - 25,000,000;
issued and outstanding shares - 6,022,000 29,792,573 29,792,573
Retained earnings (deficit) (19,873,345) (12,129,218)
---------------- -------------------
Total stockholders' equity 9,919,228 17,663,355
---------------- -------------------
Total liabilities and stockholders' equity $ 100,437,480 $ 123,646,274
================ ===================
<FN>
See accompanying notes.
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General Acceptance Corporation
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Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED MARCH 31,
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1997 1996
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Finance revenues:
Interest and discount $ 5,291,869 $6,736,994
Ancillary products 87,391 248,395
Other 89,355 198,962
------------ -----------
Total finance revenues 5,468,615 7,184,351
Net dealership revenues:
Sale of purchased and trade vehicles 5,417,422 863,607
Cost of sales (5,107,035) (655,242)
Other 204,032 134,954
----------- --------
Total net dealership revenues 514,419 343,319
------------ -----------
Total net revenues 5,983,034 7,527,670
Expenses:
Interest 2,203,354 2,148,430
Salaries and employee benefits 2,086,419 2,282,212
Marketing 589,808 177,214
Provision for credit losses 6,363,808 1,233,503
Other 2,483,772 1,313,902
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Total expenses 13,727,161 7,155,261
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Income (loss) before income tax (7,744,127) 372,409
Income tax --- 148,964
------------ ----------
Net income (loss) $(7,744,127) $ 223,445
============ ===========
Net income (loss) per share $ (1.28) $ .04
============ ===========
Weighted average shares outstanding 6,042,069 6,022,000
============ ===========
<FN>
See accompanying notes.
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General Acceptance Corporation
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Consolidated Statements of Cash Flows
(Unaudited)
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THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1996
------------- ------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (7,744,127) $ 223,445
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation of property and equipment 183,170 140,732
Amortization of deferred costs and revenues,
net 73,975 169,139
Provision for credit losses 6,363,808 1,233,503
Changes in operating assets and liabilities:
Increase in other assets and
taxes receivable 914,377 (1,027,642)
Increase in accounts payable
and accrued expenses 1,688,451 (292,481)
Increase in purchased and trade inventory (2,594,057) (260,731)
------------- ------------------------------
Net cash (used in) provided by operating activities (1,114,403) 185,965
INVESTING ACTIVITIES
Cost of acquiring or originating contracts receivable (7,992,012) (17,885,411)
Principal collected on contracts receivable 11,266,961 15,096,356
Proceeds from sales of contracts receivable 14,846,540 ---
Purchases of property and equipment (37,444) (352,603)
---------- -----------
Net cash provided by (used in) investing activities 18,084,045 (3,141,658)
FINANCING ACTIVITIES
Borrowings on revolving line of credit 12,362,633 25,268,122
Repayments of revolving line of credit (31,460,948) (22,185,896)
Borrowings on bank line 1,000,000 ---
Repayments of bank line (1,000,000) ---
Borrowings on notes payable to related parties 2,305,000 ---
------------- ----------
Net cash (used in) provided by financing activities (16,793,315) 3,082,226
------------- ------------------------------
Net increase in cash and cash equivalents 176,327 126,533
Cash and cash equivalents at beginning of period 1,683,429 557,206
------------ ------------------------------
Cash and cash equivalents at end of period $ 1,859,756 $ 683,739
============= ==============================
<FN>
See accompanying notes.
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General Acceptance Corporation
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1997
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. The balance sheet as of
December 31, 1996 has been derived from the audited financial statements as of
that date but does not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
For further information, refer to the financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended
December 31, 1996.
Note 2. Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of primary and fully diluted earnings per
share for the quarter ended March 31, 1997 and March 31, 1996 is not material.
Note 3. Subsequent Events
In late 1996, the Company decided to exit certain markets and focus on
its better performing markets. In 1997, the Company commenced selling
contracts receivable that had been acquired in the certain markets, and
commenced closing operations in those markets. On April 8, 1997, the Company
sold contracts receivable for 92.7% of contract balance of $24.7 million. On
April 17, 1997, the Company sold contracts receivable for 95.5% of contract
balance of $4.3 million. No material gain or loss was recorded by the Company
in connection with these sales.
On April 11, 1997, the Company issued $13.3 million of convertible
subordinated debt. Of this amount, $10.0 million was issued to an affiliate
of Conseco, Inc. The remaining $3.3 million was issued to certain
shareholders and relatives in exchange for a like amount of unsecured debt of
the Company held by them. The debt is convertible at any time into
approximately 4,417,000 shares of stock, has an interest rate of 12.0% and
matures in April 2000.
On April 11, 1997, the Company entered into a modification of its
revolving line of credit agreement ("Agreement"). The Agreement provides for
an extension of the maturity of the line to January 1, 1998, and for a
reduction in the maximum permitted indebtedness under the line from $100
million to $70 million. Borrowings are further limited to no more than 78% of
eligible contracts receivable.
On April 30, 1997, the Company renewed its $4.5 million bank line of
credit as a reducing line of credit maturing August 31, 1997. The interest
rate on the bank line of credit is charged monthly at the bank's prime rate
plus 1.5%.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Information regarding the components of contracts receivable, net is
presented below:
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MARCH 31, DECEMBER 31,
1997 1996
------------- --------------
Contractually scheduled payments $120,079,974 $ 146,744,916
Add (deduct):
Unearned interest income (24,109,938) (30,006,489)
Accrued interest income 245,583 354,333
Unearned insurance commissions (38,611) (29,820)
Net deferred acquisition costs 53,545 68,362
------------- --------------
Contracts receivable 96,230,553 117,131,302
Allowance and discount available
for credit losses (9,877,766) (10,611,268)
------------ -------------
Contracts receivable, net $ 86,352,787 $ 106,520,034
============= ==============
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Changes in the components of amounts available for credit losses during the three month period ended March
31, 1997 are presented below:
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DEALER PARTICIPATION RESERVES
ALLOWANCE AND DISCOUNT
TOTAL
------------
Balance December 31, 1996 $ 10,611,268 $ 1,855,223 $12,466,491
Additions 7,018,651 665,373 7,684,024
Charge-offs, net (6,498,671) (978,462) (7,477,133)
Allocated to contracts receivable sold (1,253,482) (46,714) (1,300,196)
------------------------ ------------------------------- ------------
Balance March 31, 1997 $ 9,877,766 $ 1,495,420 $11,373,186
======================== =============================== ============
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Information on the Company's charge-off rate, total available for credit
losses and delinquency ratio is presented below:
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MARCH 31, 1997 DECEMBER 31, 1996
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Net charge-offs to monthly average contracts
receivable (1) 28.75% 24.73%
Delinquency ratio (2) 1.81% 1.82%
Allocated portion of total available for credit losses
as a percentage of contracts receivable (3):
Held for sale 7.32% 7.69%
Held for investment 14.39% 13.25%
<FN>
(1) Ratio of net charge-offs to average contracts receivable for the quarter ended March
31, 1997 and the year ended December 31, 1996, stated on an annualized basis.
(2) Contracts receivable, gross relating to Contracts which were contractually past due
60 days or more, as a percentage of total contracts
receivable, gross as of the end of the period indicated.
(3) Total available for credit losses is defined as the sum of allowance and discount
available for credit losses and dealer participation reserves.
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THREE MONTH PERIOD ENDED MARCH 31, 1997, COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1996
Revenues
Total finance revenues decreased from $7.2 million in the first quarter
of 1996 to $5.5 million in the first quarter of 1997, a decrease of $1.7
million or 23.9%. The decrease was due to a decrease in interest and discount
revenues, and to a lesser extent, a decrease in ancillary products revenues.
Interest and discount revenues decreased from $6.7 million in the first
quarter of 1996 to $5.3 million in the first quarter of 1997, a decrease of
$1.4 million or 21.5%. The decrease was due primarily to a decrease in
average contracts receivable from $124.7 million at the end of the first
quarter of 1996 to $104.8 million at the end of the first quarter of 1997, a
decrease of $19.9 million, or 16.0%, and to a lower average yield on contracts
receivable in the first quarter of 1997. The decrease in average contracts
receivable was due to the sale by the Company of $18.7 million of contracts
receivable during the fourth quarter of 1996 and the first quarter of 1997 as
well as to lower volume of contracts acquired in the first quarter of 1997 due
to funding constraints under the Company's revolving line of credit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources". The average yield on contracts
receivable during the first quarter of 1996 was 21.5% compared to 19.8% for
the first quarter of 1997. The decrease was due primarily to an increase in
the portion of the contract interest rate representing dealer participation
reserves against which losses can be charged.
Ancillary products revenue decreased from $248,000 in the first quarter
of 1996 to $87,000 in the first quarter of 1997. The decrease was due
primarily to decreased sales of a warranty program, a motor club program, and
life and disability insurance commissions. Decreased sales of these ancillary
products are due to the decrease in the volume of contracts receivable
acquired from $17.9 million in the first quarter of 1996 to $8.0 million in
the first quarter of 1997.
Other revenue decreased from $199,000 in the first quarter of 1996 to
$89,000 in the first quarter of 1997. The decrease was primarily due to a
reversal in the first quarter of 1996 of a special reserve for losses on
receivables from a third-party dealer as a result of the reduction in amounts
owed to the Company by that dealer.
Sales of purchased and trade vehicles increased from $864,000 in the
first quarter of 1996 to $5.4 million in the first quarter of 1997, an
increase of $4.6 million, or 527.3%. This was due primarily to the increase in
the number of purchased and trade vehicles sold as a result of an increase in
the number of Company dealerships from eight as of March 31, 1996 to 15 as of
March 31, 1997, and the Company's decision in early 1997 not to maintain an
auto repossession inventory at the Company dealerships, thereby allowing the
Company dealerships to concentrate on the sale of purchased and trade
vehicles.
Cost of sales of purchased and trade vehicles increased from $655,000 in
the first quarter of 1996 to $5.1 million in the first quarter of 1997. The
gross margin percentage (defined as the difference between sales and cost of
sales, divided by sales) decreased from 24.1% in the first quarter of 1996 to
5.7% in the first quarter of 1997, due to increased losses on purchased and
trade vehicles sold wholesale at auctions.
Other revenue generated by the Company dealerships increased from
$135,000 for the first quarter of 1996 to $204,000 for the first quarter of
1997, an increase of $69,000, or 51.2%.
As a result of the foregoing, total net revenues decreased from $7.5
million for the first quarter of 1996 to $6.0 million for the first quarter of
1997, a decrease of $1.5 million, or 20.5%.
Expenses
Interest expense increased from $2.1 million in the first quarter of 1996
to $2.2 million in the first quarter of 1997, an increase of $55,000 or 2.6%.
The increase was due primarily to a higher average borrowing cost in 1997.
The Company's average borrowing cost was 8.8% for the first quarter of 1996
and 9.5% for the first quarter of 1997. Total average borrowings were $95.7
million for the first quarter of 1996, compared to $90.1 million for the first
quarter of 1997. Higher borrowing costs in the first quarter of 1997, as
compared to the first quarter of 1996, were due primarily to an increase in
the spread over LIBOR on the Company's revolving line of credit of 1.0%
effective March 15, 1996. As of March 31, 1996 and March 31, 1997 the spread
over LIBOR was 4.0%, although for most of the first quarter of 1996 the spread
was 3.0%. In the first quarter of 1997 the Company's borrowings under the
bank line of credit and borrowings from principal shareholders and relatives
increased borrowing costs as compared to the first quarter of 1996 as the only
borrowings during the first quarter of 1996 were under the revolving line of
credit. Unsecured demand notes from certain principal shareholders and their
relatives carried an interest rate of 12.0%.
Salaries and employee benefits decreased from $2.3 million in the first
quarter of 1996 to $2.1 million in the first quarter of 1997, a decrease of
$196,000, or 8.6%. This decrease was primarily due to a decrease in full time
equivalent employees from 329 as of March 31, 1996 to 299 as of March 31,
1997. The decrease in full time equivalent employees was due primarily to
headcount reductions associated with the closing of five branch offices during
the period from March 31, 1996 to March 31, 1997 and reductions in staff at
Company headquarters partially offset by increased employment due to the
opening of seven Company dealerships during the same period.
Marketing costs increased from $177,000 in the first quarter of 1996 to
$590,000 in the first quarter of 1997, an increase of $413,000, or 232.8%.
The increase was due primarily to increased advertising associated with the
higher number of Company dealerships. The Company expects to continue to
advertise at a higher rate in 1997 to generate additional sales volume at the
Company dealerships.
The provision for credit losses increased from $1.2 million for the first
quarter of 1996, to $6.4 million for the first quarter of 1997. The first
quarter of 1997 provision was primarily due to recent experience in
liquidating the Company's repossession inventory at auctions at prices less
than had been previously received. As a result of lower auction proceeds the
Company decided to further strengthen its reserves. The Company attributes
the adverse trend in auction prices to seasonal factors and the general
softness in used vehicle prices.
The total available for credit losses was $11.4 million as of March 31, 1997.
Of this amount, $2.6 million has been allocated to contracts receivable held
for sale. The remainder, $8.8 million, is allocated to contracts receivable
retained by the Company. For contracts receivable to be retained by the
Company, the total available for credit losses as a percentage of contracts
receivable was 14.4% as of March 31, 1997 compared to 13.3% as of December 31,
1996. The Company's 60-day contractual delinquency rate was 1.8% as of both
March 31, 1997 and December 31, 1996.
Other expense increased from $1.3 million for the first quarter of 1996,
to $2.5 million for the first quarter of 1997, an increase of $1.2 million or
89.0 %. This increase was due to a number of factors, including: (i)
increased rent, utility, depreciation and tax expense due to operating seven
additional Company dealerships and occupying new corporate offices in the
first quarter 1997 as compared to first quarter 1996; (ii) increased computer
support fees and monthly charges associated with the computer system used by
the Company dealerships; (iii) increased legal fees incurred by the deficiency
department, created in third quarter 1996, in the process of collecting
charged-off contracts receivable, and (iv) a $461,000 increase in the reserve
connected with the Visa credit card program.
As a result of the foregoing factors, the Company's income before taxes
decreased from $372,000 for first quarter of 1996 to a loss of $(7.7) million
for the first quarter of 1997.
Income taxes
In the first quarter of 1996, income tax expense was $149,000,
representing a combined federal and state income tax rate of 40.0%. In the
first quarter of 1997, income tax benefit was $3.1 million which was fully
offset by an increase of a like amount to the valuation allowance against
deferred tax assets. In the fourth quarter of 1996, management assessed the
realizability of the deferred tax assets, and based on that assessment,
decided to fully reserve for it. That assessment remains unchanged as of the
end of the first quarter of 1997. In future periods, management will review
the valuation allowance in light of the then current situation. To the extent
the Company generates taxable income in such future periods, and the decision
is made to reverse the valuation reserve, it would have the effect of reducing
recorded tax expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for cash is to fund contract acquisitions
from third-party dealers. Cash used for this purpose decreased from $17.9
million in the first quarter of 1996 to $8.0 million in the first quarter of
1997. The primary reason for the decrease was the Company's decision,
consistent with its business strategy, to exit certain markets. In 1996 and
1997, the Company funded its contract purchases with borrowings under a
revolving line of credit (the "Line") with General Electric Capital
Corporation (GE Capital), cash payments received from obligors and cash
generated from operations. Borrowings under the Line were $97.2 million as of
March 31, 1996 and $74.9 million as of March 31, 1997.
The Company's secondary need for capital is to fund repossession
inventory and purchased and trade inventory (together "Inventory"). As of
March 31, 1996, Inventory was $10.7 million compared to $7.9 million as of
March 31, 1997. During third quarter 1996, the Company obtained a $4.5
million bank line of credit to fund Inventory. In first quarter 1997, as this
bank line of credit was drawn to the maximum amount, the Company funded
Inventory with borrowings on notes payable to certain principal shareholders
and their relatives.
During the first quarter of 1997, as a result of higher than anticipated
charge-offs, the Company continued 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 first quarter of 1997 and the month of April 1997 to deal
with this situation as outlined below.
The Company reduced the volume of contracts acquired from third-party
dealers. This reduction limited the need for cash to make advances to
third-party 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. On January 7, 1997, the Company sold contracts
receivable for 102.0% of contract balance of $1.6 million. On February 19,
1997, the Company sold contracts receivable for 90.8% of contract balance of
$14.5 million. On April 8, 1997, the Company sold contracts receivable for
92.7% of contract balance of $24.7 million. On April 17, 1997 the Company
sold contracts receivable for 95.5% of contract balance of $4.3 million. No
material gain or loss was recorded in connection with these sales. Proceeds
from the sales were used to reduce borrowings under the Line. Because the
sale proceeds were in excess of the amounts borrowed against these contracts
under the Line, additional liquidity was created for the Company. Of the
$35.0 million in contracts receivable classified as of March 31, 1997 as held
for sale, approximately 85.0% have been sold to date. The Company is
exploring alternatives with several prospective buyers regarding the
approximately 15.0% of contracts receivable classified as held for sale as of
March 31, 1997, which to date have not been sold.
The Company borrowed money from certain principal shareholders and their
relatives in the form of unsecured demand notes bearing interest at 12.00%.
During the first quarter of 1997, $2.3 million was borrowed bringing the total
borrowed to $3.3 million as of March 31, 1997. Proceeds were used by the
Company to repay borrowings under the Line and to fund the acquisition of
purchased and trade inventory.
On April 11, 1997, the Company issued $10.0 million of 12.00% convertible
subordinated notes to an affiliate of Conseco, Inc. ("Conseco") in exchange
for cash. On the same date, the Company also issued $3.3 million of such
notes to certain principal shareholders of the Company and their relatives in
exchange for a like amount of 12.00% unsecured demand notes held by them. The
two issues of notes have identical terms. The notes require payments of
interest only, mature on the third anniversary of issuance, and are unsecured.
The conversion feature is subject to approval by shareholders at the
Company's 1997 annual meeting. Subject to such approval, the notes are
convertible at any time while they are outstanding into common stock of the
Company at a conversion rate of $3.00 per share. In conjunction with the
issuance of the convertible subordinated debt, the Company, Conseco and
certain of the Company's principal shareholders entered into an agreement
whereby the principal shareholders will vote in favor of the election of two
of Conseco's director nominees and Conseco will vote all of its voting shares
in favor of the election of one 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 tender and acceptance of 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 20% of the issued
and outstanding shares of common stock, including shares to be issued under
the convertible subordinated notes, of the Company upon the completion of the
tender offer. Conseco also has appointed one person to act in an operations
capacity for the Company. Cash proceeds from issuance of the notes of $10.0
million were used to repay borrowings under the Line.
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
also provided cash during the fourth quarter of 1996 and the first quarter of
1997.
As a result of the reduction in the volume of contracts acquired from
third-party dealers, the sale of a portion of the Company's portfolio of
contracts receivable, the $2.3 million borrowed from certain principal
shareholders, the issuance of the $10.0 million convertible subordinated debt
and the wholesaling of repossession inventory, all as described above,
borrowings under the Line were reduced from $94.0 million as of December 31,
1996 to $74.9 million as of March 31, 1997 and approximately $43.1 million as
of May 8, 1997.
Also on April 11, 1997, the Company entered into an Amended and Restated
Motor Vehicle Installment Contract Loan and Security Agreement ("Restated
Agreement") with GE Capital. 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 between the Company and GE Capital.
As a result of the provision for credit losses and the increase in the
valuation allowance against deferred tax assets in the first quarter of 1997,
the Company failed to comply with the minimum net worth covenant under the
Restated Agreement. The Company is in discussions with GE Capital in an
effort to remedy the out-of-compliance situation.
Maximum permitted borrowings under the New Line of $70.0 million are in
excess of actual borrowings as of May 8, 1997 of approximately $43.1 million.
The Company believes that the difference of approximately $26.9 million
provides the Company with adequate available lines of credit to implement its
business strategy through the end of 1997. Furthermore, the Company believes
that it has sufficient liquidity to acquire Contracts and purchased and trade
automobile inventory, as well as to meet its daily operating requirements both
at present and through the end of 1997. Under the New Line, based on its
portfolio of contracts receivable, the Company has approximately $5.6 million
of borrowing availability as of May 8, 1997.
The bank line of credit which permitted the Company to borrow up to the
lesser of $4.5 million or 50% of the value, as defined, of eligible Inventory,
and which had an interest rate equal to the bank's prime rate, expired April
30, 1997. Borrowings under the line of credit were $4.5 million as of March
31, 1997. As of April 30, 1997, the bank line of credit was renewed as a
reducing line of credit maturing August 31, 1997. Required monthly principal
reductions under the bank line of credit will be made from availability under
the New Line.
The Company has begun exploring alternatives for replacing the bank line of
credit. The Company's strategy is to acquire and originate contracts
consistent with maximum permitted indebtedness under the New Line. The
Company is evaluating various alternative funding strategies including
additional lines of credit and securitization which would permit additional
growth in the Company's portfolio of contracts receivable. However, no
assurance can be given that the Company will be successful in its efforts to
replace the bank line of credit or implementing any of the various funding
strategies currently being explored.
<PAGE>
FORWARD-LOOKING STATEMENTS
This report includes a number of forward-looking statements which reflect
the Company's current view with respect to future events and financial
performance. Such forward-looking statements include statements about
borrowings under the Restated Agreement, the Company's ability to purchase
contracts in the future, the Company's financial ability to maintain or
replace its financing sources, the Company's continued expansion of Company
dealerships and other statements indicated by the words "believes", "plans",
"expects" or similar expressions. These forward-looking statements are
subject to certain risks and uncertainties, including risks and uncertainties
outside the Company's control, that could cause actual results to differ
materially from historical or anticipated results. Some of these risks
include, but are not limited to, general economic conditions, the Company's
ability to maintain its underwriting policies and guidelines and the Company's
ability to open additional Company dealerships and to operate them on a
profitable basis.
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any litigation that is expected to have a
material adverse effect on the Company. The Company regularly initiates legal
proceedings as a plaintiff in connection with its routine collection
activities.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the first
quarter of 1997.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.82 Amended and Restated Revolving Loan & Security Agreement
between Fifth Third
Bank of Central Indiana and General Acceptance Corporation, dated April
30, 1997.
11.1 Statement Re: Computation of Per Share Earnings.
27.0 Financial Data Schedule.
b) On February 19, 1997, the Company filed a report on Form 8-K reporting,
pursuant to Item 5, the sale of $18.6 million of contracts receivable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL ACCEPTANCE CORPORATION
Date May 15, 1997 /s/ Russell E. Algood
Russell. E. Algood
President and
Chief Operating Officer
Date May 15, 1997 /s/ Martin C. Bozarth
Martin C. Bozarth
Chief Financial Officer
13
Exhibit 10.82
AMENDED & RESTATED REVOLVING LOAN & SECURITY AGREEMENT
This Revolving Loan & Security Agreement ("Agreement") is entered into as
of the 30th day of April, 1997 by and between GENERAL ACCEPTANCE CORPORATION,
an Indiana corporation ("GAC"), and FIFTH THIRD BANK OF CENTRAL INDIANA, an
Indiana banking corporation ("Bank").
Recitals
A. GAC and Bank are parties to that certain Revolving Loan and Security
Agreement dated as of August 27, 1996 (the AOriginal Facility@), pursuant to
which Bank made certain loans to GAC, which loans were secured by, among other
things, GAC=s motor vehicle inventory.
B. GAC and Bank have agreed to enter into this Agreement in order to (I)
amend and restate the terms of Original Facility; (ii) permit GAC to retire
and extinguish the outstanding indebtedness under the Original Facility in an
orderly fashion over a period of approximately four (4) months; (iii) waive
all existing defaults under the terms of the Original Facility; and (iv)
document such other changes in the lending relationship between the parties as
have occurred since the Original Facility.
C. It is the intent of GAC and Lender that the execution and delivery of
this amendment and restatement of the terms of the Original Facility shall not
effectuate a novation of the indebtedness outstanding under the Original
Facility, but rather as it pertains to the indebtedness outstanding under the
Original Facility, shall constitute a substitution of the terms governing the
payment and performance of such indebtedness and a waiver of past defaults.
Agreement
1. Definitions. Certain capitalized terms have the meanings set forth
on Exhibit A hereto. All financial terms used in this Agreement but not
defined in Exhibit A or in this Agreement have the meanings given to them by
generally accepted accounting principles. All other undefined terms have the
meanings given to them in the Indiana Uniform Commercial Code.
2. Revolving Credit Loans.
1.
2. (a) In General. Subject to the terms and conditions hereof,
Bank hereby extends to GAC a reducing line of credit facility (the "Facility")
under which Bank may make loans (each, a "Revolving Loan," and collectively,
the "Revolving Loans") to GAC at GAC's request, from time to time, during the
term of the Facility in a principal amount not to exceed (i) $3,500,000 from
the date hereof to May 30, 1997, (ii) $2,500,000 from May 31, 1997 to June 29,
1997, (iii) $1,500,000 from June 30, 1997 to July 30, 1997, or (iv) $500,000
from July 31,
<PAGE>
1997 to August 30, 1997, (the "Limit"). However, Bank will have discretion at
all times as to whether or not to make any Revolving Loan. Bank may create
and maintain reserves, from time to time, based on such credit and collateral
considerations as Bank may deem appropriate. GAC may borrow, prepay (without
penalty or charge), and reborrow under the Facility so long as the Limit is
not exceeded, GAC is not in Default hereunder, and the other terms and
conditions hereof are satisfied. If the amount of Revolving Loans outstanding
at any time under the Facility exceeds the Limit, GAC will immediately pay the
amount of such excess to Bank in cash.
(b) Borrowing Base Formula. On the tenth day of each calendar month
during the term of the Facility (or the next Business Day, if such day falls
on other than a Business Day), GAC shall complete and submit to Bank and GECC
a Borrowing Base Certificate in the form of Exhibit B1 hereto indicating,
among other things, the aggregate average "Black Book" wholesale value of its
Eligible Inventory and the number of units comprising such inventory. Subject
at all times to the unused portion of Limit, GAC may request Revolving Loans
under the Facility according to a borrowing base advance formula that limits
any requested Revolving Loan to a maximum amount equal to fifty percent (50%)
of the aggregate average "Black Book" wholesale value of such Eligible
Inventory plus $400 per unit for reconditioning expense.
(c) Term of Facility. The maturity date of the Facility is August 31,
1997, unless such maturity date is accelerated by reason of an Event of
Default.
(d) Interest Rate. Interest on the outstanding principal balance of the
Facility will accrue at a rate per annum equal to the Prime Rate as in
effect from time to time plus 150 basis points. The interest rate charged
will change automatically upon each change in the Prime Rate. Interest will
be calculated on the basis of a year of 360 days and charged for the actual
number of days elapsed. Interest will be payable in immediately available
funds at the principal office of Bank on the first day of each calendar month.
After maturity, whether by acceleration or otherwise, and after the
occurrence of an Event of Default (with or without notice to GAC), interest
will accrue at a rate per annum equal to the Default Rate (computed and
adjusted in the same manner as the Prime Rate).
(e) Repayment. Accrued and unpaid interest will be due and payable on the
first day of the second calendar month following execution and delivery of
this Agreement by GAC and continuing on the first day of each calendar month
thereafter during the term of the Facility. Principal payments in the amount
necessary to reduce the unpaid principal balance of the Facility to the
applicable reducing Limit stated in Section 2(a) of this Agreement will be due
and payable on the respective dates such Limit is to be reduced as provided in
Section 2(a) of
<PAGE>
this Agreement. The unpaid principal balance of the Facility and accrued and
unpaid interest will be due and payable on the maturity date of the Facility.
Bank may, at its option, charge any interest payments to GAC's account with
Bank. Interest that is not paid when due shall thereupon become principal
hereunder and shall thereafter accrue interest as provided in this Agreement.
If any scheduled payment hereunder becomes due and payable on a day other than
a Business Day, the maturity thereof will be extended to the next Business
Day, and interest will be payable at the rate provided in this Agreement
during the extension period.
(f) Application of Payments. All payments received by Bank will be
applied first to Advances, second to accrued interest, and third to principal.
(g) Revolving Loan Requests. GAC may request a Revolving Loan by
written or telephone notice to Bank. If such request is by telephone notice
to Bank, GAC shall promptly follow-up the telephone notice by completing and
delivering to Bank an Advance Request Confirmation Certificate in the form of
Exhibit B2 hereto. Eligibility of GAC for any Revolving Loan will be made
on the basis of the then current Borrowing Base Certificate submitted by GAC
pursuant to Section 2(a) of this Agreement and the amount, if any, of the
unused portion of the Limit at the time the request is made. Bank may make
Revolving Loans by crediting the amount thereof to GAC's account at Bank.
3. Collateral. In order to secure the performance of the covenants
and agreements contained herein and the payment and performance of all amounts
owed by GAC to Bank hereunder, whether now existing or hereinafter arising
(collectively, the "Obligations"), GAC hereby grants to Bank a continuing
security interest in the collateral described in Exhibit C hereto
(collectively, the "Collateral").
4. Financial Statements. GAC agrees to maintain a standard and
modern system for accounting and will furnish to Bank:
(a) Within 90 days after the end of each fiscal year, a copy of GAC's
consolidated financial statement for that year audited by Ernst & Young, LLP
or any other firm of independent certified public accountants acceptable to
Bank (which acceptance will not be unreasonably withheld), and accompanied by
a standard audit opinion of such accountants without significant
qualification;
(b) Within 30 days after the end of each calendar month, a copy of GAC's
monthly interim consolidated financial statements prepared in accordance with
generally accepted accounting principles;
(c) With the statements submitted under (a) and (b) above, a certificate
signed by the principal financial officer of GAC, (i) stating he is familiar
with all documents relating to Bank and that no Event of Default specified in
this Agreement, nor any event which upon notice or lapse of time, or both
would constitute such an Event of Default, has occurred, or if any such
condition or event existed or exists, specifying it and describing what action
GAC has taken or proposes to take with respect thereto, and (ii) setting
forth, in summary form, figures showing the financial status of GAC in respect
of the financial restrictions contained in this Agreement;
(d) Forthwith upon any officer of GAC obtaining knowledge of any
condition or event which constitutes or, after notice or lapse of time or
both, constitute an Event of Default, a certificate of such person specifying
the nature and period of the existence thereof, and what action GAC has taken
or is taking or proposes to take in respect thereof;
(e) As soon as practicable, but in any event within 10 days after the
filing with the Securities and Exchange Commission, or any successor thereto,
or any state securities governmental authority, copies of all registration
statements and all periodic and special reports required or permitted to be
filed under federal or state securities laws and regulations; and
(f) Upon request, copies of all federal, state and local income tax
returns and such other information as Bank may reasonably request.
If at any time GAC acquires subsidiaries which have financial statements that
could be consolidated with those of GAC under generally accepted accounting
principles, the financial statements required by subsections (a) and (b) above
will be the financial statements of GAC and all such subsidiaries prepared on
a consolidated and consolidating basis.
5. Insurance. GAC agrees to insure its Motor Vehicle Inventory
against loss or damage of the kinds and amounts customarily insured against by
corporations with established reputations engaged in the same or similar
business as GAC. All such policies will (a) be issued by financially sound
and reputable insurers (such insurers having, in any case, an overall rating
of at least "A" according to A.M. Best), (b) name Bank as an additional
insured and, where applicable, as loss payee under a lender loss payable
endorsement satisfactory to Bank, and (c) will provide for thirty (30) days
written notice to Bank before such policy is altered or canceled all of which
will be evidenced by a certificate of insurance delivered to Bank by GAC on
the date of execution of this Agreement.
6. Taxes. GAC agrees to pay when due all taxes, assessments and
other governmental charges imposed upon it or its assets, franchises,
business, income or profits before any penalty or interest accrues thereon,
and all claims (including, without limitation, claims for labor, services,
materials and supplies) for sums which by law might be a lien or charge upon
any of its assets, provided that (unless any material item or property would
be lost, forfeited or materially damaged as a result thereof) no such charge
or claim need be paid if it is being diligently contested in good faith, if
Bank is notified in advance of such contest, and if GAC establishes an
adequate reserve or other appropriate provision required by generally accepted
accounting principles and deposits with Bank cash or bond in an amount
acceptable to Bank.
7. Financial Covenants. During the term of the Facility, GAC
hereby agrees to maintain the following ratios, percentages, or minimum dollar
amounts, as applicable, on a consolidated basis:
(a) (Minimum) Net Worth: $28,000,000
(b) (Maximum) Debt Ratio: 3.5 to 1.0
(c) (Maximum) Rolling Average Delinquency: 9.0% (8.0% effective
July 1, 1997)
(d) (Maximum) Rolling Average Charge-Off: 2.5% (1.5% effective
July 1, 1997)
The respective meanings of the foregoing financial terms shall be interpreted
in conformity with those terms as used in the GECC Facility.
8. Existence/Qualification. Borrower agrees to maintain its
corporate existence and at all times to be qualified to transact business in
all jurisdictions in which it presently transacts business and such
qualification is required.
9. Compliance with Laws. GAC agrees to comply with all federal,
state and local laws, rules, ordinances, regulations and orders applicable to
GAC or its assets (collectively, "Laws"), including but not limited to all
Laws regulating the environment, health, safety, securities, and the sales and
financing of motor vehicles in all respects material to GAC's business, assets
or prospects, and immediately notify Bank of any violation of any such Laws or
any complaint or notifications received by GAC regarding any such Laws.
10. Depository Services. So long as any Obligations are
outstanding, GAC agrees to maintain with Bank its retail lockbox account
established in connection with the Indebtedness in favor of GECC under the
GECC Facility.
11. Indebtedness. Except for the Indebtedness in favor of GECC
under the GECC Facility, any Indebtedness that is unsecured, or any
Indebtedness incurred in the ordinary course of business for small leases and
loans in individual amounts not exceeding $50,000 and in the aggregate not
exceeding $500,000, GAC agrees not to incur, create, assume or permit to exist
any additional Indebtedness for borrowed money (other than the Obligations).
12. Pledge or Encumbrance of Assets. Other than the Permitted
Liens, GAC agrees not to create, incur, assume or permit to exist, arise or
attach any Lien in any present or future Motor Vehicle Inventory.
13. Guarantees and Loans. GAC agrees that it will not enter into
any direct or indirect guarantees other than by endorsement of checks for
deposit or other than in the ordinary course of business nor make any advance
or loan other than in the ordinary course of business as presently conducted,
including, without limitation, loans and advances to employees of GAC.
14. Merger Disposition of Assets; Sale of Stock. GAC agrees that
it will not (a) change its capital structure, (b) merge or consolidate with
any corporation, (c) amend or change its Articles of Incorporation or Code of
Regulations/Bylaws, (d) sell, transfer or otherwise dispose of all or any
substantial part of its assets, whether now owned or hereafter acquired, (e)
permit the direct or indirect sale or transfer of a majority of the voting
stock of GAC, or (f) permit GAC to purchase its own stock; provided,
however, the foregoing prohibitions shall not prohibit GAC from undertaking
the securitization and sale of its portfolio of retail installment sales
contracts evidencing the sale of motor vehicles.
15. Management. GAC agrees that either Russell E. Algood or Malvin
L. Algood will remain actively employed by GAC and actively engaged in the
management of GAC.
16. Representations on Schedule I. GAC states that the
representations and warranties contained in Schedule I hereto entitled the
"Specific Representation Schedule" are true and correct as of the date hereof.
Further, by making a request for a Revolving Loan hereunder, GAC shall be
deemed to have reaffirmed the truth and correctness of the representations and
warranties contained in Schedule I as of the date of such request.
17. Provisions Concerning Motor Vehicle Inventory. GAC agrees
that:
(a) the Motor Vehicle Inventory subject to Bank's Lien hereunder will be
held by GAC for the sole purpose of storing and exhibiting the same for sale
or resale in the ordinary course of GAC's business.
(b) GAC will keep its Motor Vehicle Inventory subject to inspection by Bank
at all reasonable times, and to pay Bank for any and all out-of-pocket
expenses incurred by Bank in connection with periodic unannounced audits of
GAC's Motor Vehicle Inventory, such payment to be made by GAC within 10 days
after written demand therefor by Bank.
(c) if any of the Motor Vehicle Inventory is evidenced or represented by
a document of title, Bank may, at its discretion, require GAC to deliver that
document of title to Bank.
(d) prior to the occurrence of an Event of Default, GAC may use,
consume, and sell the Motor Vehicle Inventory in any lawful manner in the
ordinary course of its business (which shall not include sales subject to bulk
transfer laws or transfers in partial or total satisfaction of a debt).
(e) GAC will keep accurate records pertaining to each unit of the Motor
Vehicle Inventory in accordance with generally accepted accounting principles
and to furnish Bank, from time to time, upon Bank's request, a true and
complete itemization thereof and/or report of all sales of any and all of
GAC's Motor Vehicle Inventory. Bank shall have the right, at any time and
from time to time, to examine the books and records of GAC, copy, make
abstracts from any such books and records and such other information which
might be helpful to Bank in evaluating the status of the Revolving Loans and
to verify GAC's financial condition or existence.
(f) the risk of loss or damage to GAC's Motor Vehicle Inventory shall at
all times be on GAC, who agrees to hold Bank harmless from any loss resulting
therefrom. Insurance proceeds may be applied by Bank towards payment of the
Obligations, whether or not due, in such order of application as Bank may
determine, and no insurance coverage or payment of proceeds thereof shall
otherwise relieve GAC from any of the Obligations.
18. Filing. GAC agrees to execute and deliver such financing
statements, amendments thereto, supplements thereto or other instruments as
Bank may, from time to time, require in order to preserve, protect, and
enforce the Lien of Bank in the Collateral and to reimburse Bank for any and
all fees and taxes advanced by Bank in connection therewith.
19. Powers. Bank is hereby appointed GAC's attorney-in-fact, and
in connection therewith, the following powers are given to Bank, are coupled
with an interest, are irrevocable until the Obligations are paid and satisfied
in full and the Facility is terminated, and may be exercised by Bank, in its
sole discretion, from time to time and at any time, whether or not GAC is in
Default hereunder:
(a) To perform any obligation of GAC hereunder in GAC's name or
otherwise, including obligations to prepare, execute, file, and deliver
financing statements, amendments thereto, supplements thereto or other
instruments; to endorse and deliver insurance claims; to release security; to
resort to security in any order; and to do all acts and things and execute all
documents in the name of GAC as deemed by Bank to be necessary, proper and
convenient in connection with the preservation, perfection, or enforcement of
its rights hereunder.
(b) Bank may, upon the occurrence of an Event of Default, to protect the
Collateral: obtain insurance, pay taxes, assessments, liens, fees, charges or
encumbrances; or order and pay for repairs or spend any amounts necessary to
maintain the Collateral in GAC's exclusive possession and in good condition.
All amounts so extended by Bank shall be added to the Obligations, with
interest to accrue thereon at the Default Rate, from the date of expenditure
until paid.
(c) Subject to Section 2(f) of this Agreement, all amounts received by
Bank may be applied on such of the Obligations and in such order as Bank, in
its sole discretion, shall determine.
20. Miscellaneous Fees and Charges Due Bank. GAC agrees to pay
Bank, in addition to those specified hereinabove, the following fees and
charges, as specified hereinbelow:
(a) a one-time non-refundable commitment renewal fee of $10,000, payable
upon the execution and delivery hereof by GAC;
(b) legal fees for outside counsel retained by Bank in the preparation
and negotiation of this Agreement and related documents and to represent the
Bank at the closing of the transactions contemplated hereby, payable upon the
execution and delivery hereof by GAC; and
(c) all reasonable expenses of any kind whatsoever, including attorneys'
fees, incurred by Bank in the preservation, realization, enforcement or
exercise of its rights, remedies, or powers hereunder or under applicable
law, payable upon demand by Bank.
21. Conditions Precedent.
21.1 Conditions to Closing. As conditions precedent to Bank's
offering of the Facility or permitting the making of any Revolving Loans under
this Agreement:
(a) Bank shall have received from GAC on or before April 30, 1997,
sufficient monies to pay down the principal balance of the Original Facility
to $3,500,000, and to pay any accrued but unpaid interest on such facility to
and including April 30, 1997;
(b) GAC may not be in Default under any other Indebtedness (excluding,
however, any default that has been addressed in a written forbearance
agreement between GAC and GECC in effect as of the date hereof and as such
forbearance agreement may be amended from time to time);
(c) GAC shall have paid to Bank the sums described in Section 20(a) and
20(b) hereof;
(d) GAC shall have delivered to Bank a favorable opinion of counsel, in
form and substance satisfactory to Bank, addressing those matters reasonably
requested by Bank;
(e) GAC shall have delivered to Bank the certificates of insurance
referenced in Section 5 hereof;
(f) GAC shall have delivered to Bank (i) appropriate corporate
resolutions approving, in all respects, the execution, delivery, and
performance of this Agreement (ii) copies of its current articles of
incorporation and bylaws, and (iii) a recent Certificate of Existence issued
by the Secretary of State of the State of Indiana;
(g) Bank shall have received from GECC satisfactory written confirmation
that the Intercreditor Agreement between Bank and GECC dated as of August
26th, 1996, remains in full force and effect; and
(h) GAC shall have delivered to Bank such additional information,
materials, and documents as Bank may reasonably request.
21.2 Conditions to Each Revolving Loan. As conditions precedent to
the making of each Revolving Loan under this Agreement:
(a) GAC shall be in compliance with each and all of its covenants and
agreements herein as of the date each such Revolving Loan is requested;
(b) GAC shall not be in Default under any other Indebtedness (excluding,
however, any default that has been addressed in a written forbearance
agreement between GAC and GECC in effect as of the date hereof and as such
forbearance agreement may be amended from time to time);
(c) All of the representations and warranties contained herein are true,
accurate, and correct in all material respects as of the date each such
Revolving Loan is requested; and
(d) The aggregate outstanding principal balance of the Facility after
giving effect to such Revolving Loan will not exceed the lesser of the Limit
or the borrowing base formula contained in Section 2(b) hereof.
By requesting a Revolving Loan under this Agreement, GAC will be deemed to
have certified the occurrence or existence of each of the foregoing conditions
precedent.
22. Payment Obligations. GAC agrees to pay to Bank or to its order
the sums specified herein at the times specified herein, all without relief
from any otherwise applicable valuation and appraisement laws. GAC hereby
waives presentment for payment, demand, notice of dishonor, protest, notice of
protest, and all other demands and notices in connection with the delivery,
performance, and enforcement of this Agreement and any extensions,
modifications, or renewals of this Agreement.
23. Rights and Remedies. Upon the occurrence of an Event of
Default and at any time thereafter, Bank may, at its option and without notice
to GAC, declare all of the Obligations to be immediately due and payable
and/or cease making Revolving Loans hereunder, and Bank shall have the rights,
options, duties and remedies of a secured party, and GAC shall have the rights
and duties of a debtor under the Uniform Commercial Code. Without limitation
thereto, Bank shall have the following specific rights; Bank may:
(a) enter any premises of GAC, with or without legal process, and take
possession of the Collateral and remove it and any records pertaining thereto
and/or remain on such premises and use it for the purpose of collecting,
preparing and disposing of the Collateral;
(b) take immediate possession of the Collateral without notice or resort
to legal process, or at its option to render such Collateral unusable;
(c) require GAC to assemble the Collateral or any part thereof and make it
available to Bank at a place, to then be designated by Bank, which is
reasonably convenient to both parties;
(d) at its sole option, retain the Collateral in satisfaction of the
obligations secured hereunder by sending written notice of such election to
GAC; but unless
<PAGE>
such written notice is sent by Bank as aforesaid, retention of said Collateral
shall not be in satisfaction of any Obligations hereunder;
(e) apply the proceeds realized from disposition of the Collateral
according to law and to payment of costs of collection, including reasonable
attorneys' fees and legal expenses incurred by Bank, whether or not suit be
filed. If the proceeds realized from disposition of the Collateral shall fail
to satisfy all the Obligations in full, GAC shall forthwith pay any deficiency
balance to Bank;
(f) ship, reclaim, recover, finish, maintain and repair the Collateral
or any part thereof; and
(g) sell the Collateral or any part thereof at public or private sale,
and GAC will be credited with the net proceeds of such sale only when they are
actually received by Bank, any requirement of reasonable notice of any
disposition of such Collateral will be satisfied if such notice is sent to GAC
10 days prior to such disposition.
GAC will, upon request, assemble the Collateral and any records pertaining
thereto and make them available at a place designated by Bank. No remedy set
forth herein is exclusive of any other available remedy or remedies, but each
is cumulative and in addition to every other remedy given under this Agreement
or now or hereafter existing at law or in equity or by statute. Bank may
proceed to protect and enforce its rights by an action at law, in equity or by
any other appropriate proceedings. No failure on the part of Bank to enforce
any of the rights hereunder shall be deemed a waiver of such rights or of any
Event of Default and no waiver of any Event of Default hereunder will be
deemed to be a waiver of any subsequent Event of Default. Any written notice
required to be given to GAC, if mailed by ordinary mail postage prepaid to
GAC's mailing address given below shall be deemed reasonable notification.
24. Miscellaneous Provisions:
(a) All rights of Bank shall inure to the benefit of its successors and
assigns and all obligations of GAC shall bind the heirs, executors,
administrators, successors and assigns of GAC.
(b) Excepted as may be restricted in any Intercreditor Agreement between
GECC and Bank, GAC acknowledges and agrees that, in addition to the security
interests granted herein, Bank has a banker's lien and common law right of
set-off in and to GAC's deposits, accounts and credits held by Bank and Bank
may apply or set-off such deposits or other sums against the Obligations upon
the occurrence
<PAGE>
of an Event of Default; provided, however, such rights may not be
exercised against any Subsidiary Account.
(c) This Agreement contains the entire Agreement of the parties and no
oral Agreement whatsoever, whether made contemporaneously herewith or
hereafter, shall amend, modify or otherwise affect the terms of this
Agreement.
(d) This Agreement and all rights and liabilities hereunder shall be
governed and limited by and construed in accordance with the internal laws of
the State of Indiana, except to the extent laws governing perfection and the
effect of perfection or nonperfection and remedies against Collateral located
outside of the State of Indiana may be mandatorily effective.
(e) Any provision herein which may prove limited or unenforceable under
any law or judicial ruling shall not affect the validity or enforceability of
the remainder of this Agreement.
(f) All representations, warranties, covenants and agreements made by
GAC herein will survive the execution and delivery of this Agreement.
(g) GAC agrees that the state and federal courts in the County of Bank's
principal place of Business, or any other court in which Bank initiates
proceedings have exclusive jurisdiction over all matters arising out of this
Agreement, and that service of process in any such proceeding will be
effective if mailed to GAC at its mailing address given below. BANK AND GAC
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, GAC and Bank have executed this Agreement by their
duly authorized officers as of the date first above written.
FIFTH THIRD GENERAL ACCEPTANCE
BANK OF CENTRAL INDIANA CORPORATION
251 North Illinois Street, Suite 1000 1025 Acuff Road,
Suite 400
Indianapolis, Indiana 46204 Bloomington, Indiana 47404
By: /s/ Jonathan O. Speers By: /s/ Martin
C. Bozarth
Jonathan O. Speers, Vice President Martin C. Bozarth,
Chief Financial
Officer
<PAGE>
STATE OF INDIANA )
) SS:
COUNTY OF MARION )
Before me, a Notary Public, in and for said County and State, personally
appeared Martin C. Bozarth, Chief Financial Officer of General Acceptance
Corporation, who executed the foregoing instrument in my presence, this
day of , 1997.
Witness my hand and Notarial Seal this day of
, 1997.
, Notary Public
residing in County, Indiana
My Commission Expires:
INDS01 EAK 199668
-4-
EXHIBIT "A"
DEFINITIONS
As used in this Agreement and/or herein, the following terms will have
the meanings set forth below:
"Advances" means those sums designated in Sections 18, 19, and 20 of this
Agreement as well as those other fees and charges due Bank from GAC under this
Agreement, except interest.
"Borrowing Base Certificate" means a report required to be submitted
monthly to GECC and Bank in the form of Exhibit B to this Agreement.
"Business Day" means a day on which Bank is open to conduct substantially
all of its business.
"Default" means any Event of Default or the occurrence of any event which
would be an Event of Default upon the passage of time and the failure to cure
within any applicable cure period.
"Default Rate" means a rate of interest equal to 550 basis points above
the Prime Rate, as established from time to time.
"Eligible Inventory" means the Motor Vehicle Inventory of GAC that has
been in possession of GAC or its designee(s) for less than six months.
"Event of Default" means any of the following events:
(a) any representation or warranty herein by GAC is incorrect when made
or reaffirmed;
(b) GAC fails to keep its Motor Vehicle Inventory insured as required in
this Agreement or a material uninsured damage to or loss, theft or destruction
of the Collateral;
(c) GAC fails to make any required payment of principal and/or interest
within seven (7) days of its scheduled due date;
(d) GAC fails to observe or perform any covenant, condition, or
agreement in the Agreement and the failure or inability of GAC to cure such
failure within 30 days of the occurrence thereof, provided that such 30 day
grace period will not apply to (i) a breach of any covenant which in Bank's
good faith judgment is incapable of cure, (ii) any failure to maintain
insurance or permit
<PAGE>
inspection of the Motor Vehicle Inventory or GAC's books and records, (iii) a
payment default described in clause (c), or (iv) any breach of any covenant
that has already occurred;
(e) the occurrence of an Event of Default under the GECC Facility;
(f) the modification of or the amendment to the GECC Facility as in
effect on the date hereof, without prior written notice to and the consent of
Bank (which consent shall not unreasonably be withheld);
(g) the providing of misleading, untruthful or materially inaccurate
information on any Borrowing Base Certificate;
(h) the failure of GECC to provide Bank with an executed original of
the Intercreditor Agreement between Bank and GECC referenced in Section
21.1(g) of this Agreement within three days after the date of this Agreement;
or
(i) the occurrence of a Material Adverse Change in GAC's business
operations, financial condition, or financing activities.
"GECC" means General Electric Capital Corporation.
"GECC Facility" means the "Amended and Restated Motor Vehicle Installment
Contract Loan and Security Agreement" between GECC and GAC Credit Corporation
dated on or about April 11, 1997, as such may be amended or modified from time
to time, and includes any replacement to such loan facility entered into
between GECC and GAC.
"Indebtedness" means (a) all items (except items of capital stock, of
capital surplus, of general contingency reserves or of retained earnings,
deferred income taxes, and amount attributable to minority interests, if any)
which in accordance with generally accepted accounting principles would be
included in determining total liabilities on a consolidated basis as shown on
the liability side of a balance sheet as of the date on which Indebtedness is
to be determined, (b) all indebtedness secured by any mortgage, pledge, lien
or conditional sale or other title retention agreement to which any property
or asset owned or held is subject, whether or not the indebtedness secured
thereby will have been assumed (excluding non-capitalized leases which may
amount to title retention agreements but including capitalized leases), and
(c) all indebtedness of others which GAC or any subsidiary had directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which GAC or any subsidiary has agreed to apply or advance funds
(whether by way of loan, stock purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable; provided, however, such
term excludes any indebtedness of
<PAGE>
GAC under that certain existing lease of GAC's corporate headquarters between
Russell E. Algood as lessor and GAC as lessee.
"Lien" means any security interest, mortgage, pledge, assignment, lien or
other encumbrances of any kind, whether consensual or nonconsentual, including
interests of vendors or lessors under conditional sales contracts and
capitalized leases.
"Loanable Vehicle" means a Repossessed Vehicle, a Purchased Vehicle, or a
Trade-In Vehicle which is designated as a "Loanable Vehicle" by GAC in a
Borrowing Base Certificate submitted to GECC and Bank.
"Material Adverse Change" means a change which Bank, in good faith,
determines will or might have a material adverse impact on GAC's ability to
meet and satisfy the Obligations.
"Motor Vehicle Inventory" means all vehicles of GAC held or acquired for
ultimate sale or resale, whether now owned or hereinafter acquired, that are
Repossessed Vehicles, Purchased Vehicles or Trade-In Vehicles.
"Permitted Liens" mean the Lien of GECC under the GECC Facility against
the Motor Vehicle Inventory and the unexpired right of redemption by an
existing customer of GAC, in the case of a Repossessed Vehicle.
"Prime Rate" means the rate of interest per annum announced to be its
prime rate from time to time by Bank at its principal office in Indianapolis,
Indiana, whether or not Bank will at times lend to borrowers at lower rates of
interest., or, if there is no such prime rate, then its base rate or such
other rate as may be substituted by Bank for the prime rate.
"Purchased Vehicle" means a vehicle which is acquired by GAC for resale,
other than a Repossessed Vehicle or a Trade-In Vehicle.
"Repossessed Vehicle" means a vehicle previously sold and financed by GAC
(or a vehicle whose sale was financed by GAC but sold by a third party) the
possession of which has been reacquired or acquired, as applicable, by GAC
pursuant to voluntary or involuntary repossession (whether or not the
applicable redemption period with respect to such vehicle has expired).
"Subsidiary Account" means any account maintained at Bank under the name
of a subsidiary of GAC.
"Trade-In Vehicle" means a vehicle which is acquired by GAC on trade in
connection with the sale to a customer of a Repossessed Vehicle or a Purchased
Vehicle or any vehicle which is acquired by GAC on trade.
"Vehicle Report" means a report, in form and substance satisfactory to
Bank, that is to be attached to each Borrowing Base Certificate.
EXHIBIT "C"
DESCRIPTION OF COLLATERAL
This Amended and Restated Revolving Loan & Security Agreement covers the
following property of GAC whether now owned or existing or hereafter acquired
or arising regardless of where it is located (collectively referred to herein
as the "Collateral").
(a) all accounts, accounts receivable, contract rights, instruments,
documents, chattel paper, and all obligations in any form including but not
limited to those arising out of the sale or lease of goods or the rendition of
services by GAC; all guaranties, letters of credit, and other security for any
of the above; all merchandise returned to or reclaimed by GAC, and all books
and records (including computer programs, tapes and data processing software)
evidencing an interest in or relating to the above.
(b) all equipment, machinery, machine tools, fixtures, office equipment,
furniture, furnishings, motors, motor vehicles, tools, dies, parts, jigs,
goods (including, without limitation, each of the items of equipment set forth
on any schedule which is either now or in the future attached to Bank's copy
of this Agreement), and all attachments, accessories, accessions,
replacements, substitutions, additions and improvements thereto, and all
supplies used or useful in connection therewith.
(c) all general intangibles, choses in action, causes of action,
obligations or indebtedness owed to GAC from any source whatsoever, and all
other intangible personal property of every kind and nature (other than
Accounts) including without limitation patents, trademarks, trade names,
service marks, copyrights and applications for any of the above, and goodwill,
trade secrets, licenses, franchises, rights under agreement, tax refund
claims, and all books and records including all computer programs, disks,
tapes, printouts, customer lists, credit files and other business and
financial records, and the equipment containing any such information.
(d) all inventory (including motor vehicle inventory wherever located),
goods, supplies, wares, merchandises and other tangible personal property,
including raw materials, work in progress, supplies and components, and
finished goods, whether held for sale or lease, or furnished or to be
furnished under any contract for service, and also including products of and
accessions to inventory, packing and shipping materials, and all documents of
title, whether negotiable or non-negotiable representing any of the foregoing.
(e) all proceeds and products of the Collateral and all additions and
accessions to, replacements of, insurance or condemnation proceeds of, and
documents covering the Collateral, all tort or other claims against third
parties arising out of damage or destruction of Collateral, all property
received wholly or partly in trade or exchange for Collateral, all fixtures,
all leases of Collateral and all rents, revenues, issues, profits and proceeds
arising from the sale, lease, license, encumbrance, collection, or any other
temporary or permanent disposition, of the Collateral or any interest therein.
(f) all instruments, chattel paper, documents, investment property
(including, securities whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts, and commodity
accounts), money, cash, letters of credit, warrants, dividends, distributions,
contracts, agreements, contract rights or other property, owned by GAC or in
which GAC has an interest, including but not limited to, those which now are
or at any time hereafter will be in the possession or control of Bank or in
transit by mail or carrier to or in the possession of any third party acting
on behalf of Bank, without regard to whether Bank received the same in pledge,
for safekeeping, as agent for collection or transmission or otherwise or
whether Bank had conditionally released the same, and the proceeds thereof,
all rights to payment from, and all claims against Bank, and any deposit
accounts of GAC with Bank, including all demand, time, savings, passbook or
other accounts (excluding, however, any Subsidiary Account) and all deposits
therein.
INDS01 EAK 199668
Exhibit 11.1
<PAGE>
<TABLE>
<CAPTION>
GENERAL ACCEPTANCE CORPORATION
Statement Re: Computation of Per Share Earnings
Exhibit 11.1
THREE MONTHS
ENDED MARCH 31,
- ----------------------------------------------------------
<S> <C> <C>
1997 1996
------------ ----------
Primary:
Weighted average shares outstanding 6,022,000 6,022,000
Net effect of dilutive stock options - based on the
treasury stock method using the average
market price 20,069 ---
----------- ----------
Total weighted average shares outstanding 6,042,069 6,022,000
=========== ==========
Net income (loss) $(7,744,127) $ 223,445
============ ==========
Per share amount $ (1.28) $ 0.04
============ ==========
Fully diluted:
Weighted average shares outstanding 6,022,000 6,022,000
Net effect of dilutive stock options - based on the
treasury stock method using the period-end
market price, if greater than average market
price 20,069 ---
--------- ---------
Total weighted average shares outstanding 6,042,069 6,022,000
============ ==========
Net income (loss) $(7,744,127) $ 223,445
============ ==========
Per share amount $ (1.28) $ 0.04
============ ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the company's
unaudited financial statements as of and for the three months ended
March 31, 1997, and is qualified in its entirety by reference to such
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,859,756
<SECURITIES> 0
<RECEIVABLES> 96,230,553
<ALLOWANCES> (9,877,766)
<INVENTORY> 7,894,343
<CURRENT-ASSETS> 0
<PP&E> 2,393,409
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,437,480
<CURRENT-LIABILITIES> 0
<BONDS> 82,683,686
0
0
<COMMON> 29,792,573
<OTHER-SE> (19,873,345)
<TOTAL-LIABILITY-AND-EQUITY> 100,437,480
<SALES> 0
<TOTAL-REVENUES> 5,537,084
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,714,049
<LOSS-PROVISION> 6,363,808
<INTEREST-EXPENSE> 2,203,354
<INCOME-PRETAX> (7,744,127)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,744,127)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,744,127)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> (1.29)
</TABLE>
