-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SablhAB59ahlHHoozyMu4qsaiGmhWlDnQxaMVBREH4RYM3NvgjSHz3S9+NwYHuhb hrBjXTLGoNTPQAxLGXpC+A== 0000937965-97-000003.txt : 19970501 0000937965-97-000003.hdr.sgml : 19970501 ACCESSION NUMBER: 0000937965-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970415 DATE AS OF CHANGE: 19970415 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ACCEPTANCE CORP /IN/ CENTRAL INDEX KEY: 0000937965 STANDARD INDUSTRIAL CLASSIFICATION: 6141 IRS NUMBER: 351739977 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25760 FILM NUMBER: 97581757 BUSINESS ADDRESS: STREET 1: 1025 ACUFF ROAD CITY: BLOOMINGTON STATE: IN ZIP: 47404 BUSINESS PHONE: 8128763555 MAIL ADDRESS: STREET 1: 1025 ACUFF ROAD CITY: BLOOMINGTON STATE: IN ZIP: 47404 10-K 1 24 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K Annual Report Under Section 13 or 15[d] of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 Commission File Number: 0-25760 GENERAL ACCEPTANCE CORPORATION (Exact name of Registrant as specified in its charter)
Indiana 35-1739977 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 1025 Acuff Road Bloomington, IN 47404 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: (812) 337-6000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, no par value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.. The aggregate market value of the 1,793,100 shares of the Registrant's common stock held by non-affiliates of the Registrant, as of April 10, 1997 was $5,828,000. The number of shares outstanding of the Registrant's common stock as of April 10, 1997, was 6,022,000. Documents Incorporated by Reference: Portions of the definitive Proxy Statement to be used in connection with the 1997 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. DOCUMENT - 8 1/2 X 11" PART I ITEM 1. BUSINESS BACKGROUND The Company is a specialized consumer finance company, principally engaged in servicing installment sale contracts ("Contracts") secured by used automobiles, which the Company purchases from automobile dealers with whom it has established a formal business relationship ("Third-Party Dealers") and from used car dealerships (the "Company Dealerships") operated by the Company. The Company has also generated revenues from: (i) the sale of purchased and trade vehicles at the Company Dealerships; (ii) the issuance by a third-party of Visa credit cards in conjunction with the sale by the Company to Non-Prime Consumers (defined as consumers who do not have access to traditional sources of financing, generally due to higher credit risk, resulting from various factors, including unfavorable past credit experience, low income and limited credit history) of various products; (iii) the providing of, as agent, extended warranty contracts and credit life and credit disability insurance in connection with Contracts purchased, and (iv) other miscellaneous fees and charges related to Contracts purchased and vehicles sold. As of December 31, 1996, the Company had a network of 1,386 Active Third-Party Dealers (defined as a Third-Party Dealer from whom the Company has purchased a Contract which is outstanding as of the end of a given period) and held 17,983 Contracts representing receivables, adjusted for unearned interest, unearned commissions, deferred acquisition costs and accrued interest on simple interest Contracts ("Contracts Receivable"), totaling approximately $117.1 million. In late 1996, as a result of continued financial and liquidity problems experienced by the Company, the Company decided to close finance operations in certain geographic areas and to refocus the majority of its resources on its three principal markets: Indiana, Ohio and Florida. The Company has sold or plans to sell substantially all of the Contracts Receivable presently serviced by branches located in other states. The total Contracts Receivable as of December 31, 1996, which have since been sold or are expected to be sold in connection with this realignment was $54.9 million. The number of Active Third Party Dealers serviced by the Company's operations in its three remaining principal markets was 639 as of December 31, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for further information. The Company's business strategy is to: (i) rebuild its portfolio of contracts by acquiring and originating Contracts from existing and new Third-Party Dealers primarily in its principal markets and from Company Dealerships subject to established underwriting standards and the availability of capital; (ii) increase revenues generated from the sale of purchased and trade vehicles by the Company Dealerships by, among other things, opening additional locations during 1997; (iii) diversify and increase revenues generated from other products offered to Non-Prime Consumers both in connection with the acquisition and origination of Contracts and on a stand-alone basis, and (iv) reduce operating costs at the Company's headquarters location to reflect the Company's reduced portfolio of Contracts. Management believes that profitable operations in 1997 will be dependent, among other things, on the successful implementation of its business strategy and on: (i) adhering to more stringent underwriting standards; (ii) emphasizing quality service to Third-Party Dealers and to customers at the Company Dealerships; (iii) maintaining strict cost control measures and (iv) using technology to maximize operational efficiency. The Company was organized in 1988 by the current Chairman and Chief Executive Officer, and President and Chief Operating Officer (the "Co-Founders") to acquire Contracts from eight automobile dealerships (the "Affiliated Dealers") then owned by the Co-Founders. At the present time, the Co-Founders still own one of the Affiliated Dealers. In 1991, the Company began acquiring Contracts from Third-Party Dealers. Contracts outstanding at December 31, 1996, by source, are set forth in the following table.
NUMBER OF CONTRACTS PERCENTAGE OF TOTAL SOURCE - - - ------------------- Third-Party Dealers 15,753 87.6% Company Dealerships 2,043 11.4 Affiliated Dealers 187 1.0 17,983 100.0% =================== ====================
INDUSTRY The used vehicle sales market has grown rapidly in recent years, reaching approximately $300 billion in 1995 representing 30.5 million vehicles. These sales generated approximately $185 billion in Contracts in 1995, of which an estimated $50 billion were to Non-Prime Consumers. The non-prime auto finance industry is primarily served by specialized consumer finance companies such as the Company, none of which are believed to have greater than a 5.0% share of the market. Despite perceived significant opportunities, many traditional financing sources, such as banks, savings and loans, credit unions, captive finance companies and leasing companies do not consistently provide financing to the Non-Prime Consumer finance market. The Company believes that market conditions, increased regulatory oversight and capital requirements imposed by governmental agencies have limited the activities of many financial institutions in this market. In many cases, those organizations electing to participate in the automobile finance business have focused on higher credit quality customers to reduce their collection and processing costs. As a result, the Non-Prime Consumer automobile finance market, primarily served by smaller finance organizations that solicit business when and as their capital resources permit, is highly fragmented. Rising consumer debt has caused personal bankruptcies in the U.S. to hit an all-time high. A number of companies in the non-prime auto finance industry as a result have reported increased delinquency and charge-off rates, and recently, several have encountered severe financial difficulties. These events, the Company believes, have made it more difficult recently for smaller companies who focus on Non-Prime Consumers to gain access to sufficient sources of capital. OPERATIONS Branch Network The Company conducts its operations through a network of branch offices. As of April 14, 1997, the Company had seven branch offices located in Indiana, Ohio (2), Florida (2), New Jersey and Pennsylvania. The Pennsylvania branch office is scheduled to be closed prior to April 30, 1997. The Company's branch offices are supervised by two regional managers and the Vice President of Finance Operations. Each branch office is a full service office which purchases Contracts from Third-Party Dealers and the Company Dealerships, performs all collection activities, and when necessary, arranges for the repossession and disposal of financed vehicles. The Company is required to obtain approval from its primary lender before opening new branch offices. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Products Contracts. A Contract is originated by a Third-Party Dealer at the time an automobile is acquired by a Non-Prime Consumer. The applicant enters into a Contract with the Third-Party Dealer on a standardized retail installment contract form previously supplied by the Company, which is then assigned on a non-recourse basis, along with the Third-Party Dealer's security interest in the automobile, by the Third-Party Dealer to the Company. As the Company is not obligated to accept Contracts originated by the Third-Party Dealer, the closing of the sale or the delivery of the automobile generally is coordinated to occur concurrently with the Company's review, processing and underwriting of the credit application. Contracts are typically purchased by the Company at an amount less than the principal amount of the Contract, the difference representing the discount. The discount is determined based upon a number of factors, including the credit risk of the borrower and the amount to be financed in relation to the automobile's wholesale value. Ancillary Products. The Company offers a number of other products to Non-Prime Consumers both in connection with the purchase or origination of Contracts and on a stand-alone basis. Applicants are not required to purchase the Ancillary Products as a condition to the Company purchasing a Contract. A warranty program offered by the Company protects Non-Prime Consumers from the financial risk of certain mechanical breakdowns, and enhances the value of the Company's collateral by increasing the likelihood that covered mechanical breakdowns will be properly corrected during the warranty period. The Company also offers credit life and credit disability insurance, as agent, and a guaranteed asset protection ("Gap") product, which is designed to relieve the borrower of the obligation to repay the difference between the Contract balance and the market value of the automobile in the event of its theft or complete destruction. To date, sales of the new Gap product have been minimal. During 1996 the Company marketed a product package consisting of a partially secured Visa credit card and a motor club program, via direct mail and telemarketing, to its existing auto loan customers who were in good standing on their loans with the Company. The Company's contract with the credit card issuer was terminated by the issuer in December 1996, and the Company is presently exploring programs available with alternative issuers. (The foregoing are collectively referred to as the "Ancillary Products"). Each of the Ancillary Products are provided and underwritten by a third party vendor, and are not obligations of the Company. With respect to the Visa credit card, the Company acted as co-brander and neither owned nor serviced any receivables generated by the issuer thereunder. The Company continues to explore additional profit opportunities from Ancillary Products that can be sold in connection with Contracts and as well as other products and services that can be marketed to Non-prime Consumers. Company Dealerships The Company Dealerships are operated to sell automobiles which are purchased by the Company primarily at auctions or taken in trade in connection with the sale of automobiles ("Purchased and Trade Inventory") or which are repossessed by the Company in connection with delinquent Contracts ("Repossession Inventory"). During 1996, approximately 60% of the retail vehicles sold at the Company Dealerships were Repossession Inventory units, with the balance being Purchased and Trade Inventory units. In early 1997, the Company decided to discontinue the sale of Repossession Inventory at the Company Dealerships, which will instead be disposed of at wholesale primarily through auto auctions. This decision is expected to result in quicker disposition of repossessed vehicles by the Company, and improved selection of vehicles available for sale at the Company Dealerships and a resulting increase in overall sales volume. The sale of Repossession Inventory at the Company Dealerships is expected to be phased out entirely by the end of the second quarter of 1997. As a significant portion of the sales at the Company Dealerships require financing, the Company benefits by developing an additional source of Contracts. Applications generated by the Company Dealerships are submitted to the Company's branch offices where credit investigations are completed and purchasing decisions are made. During 1996, the Company opened seven new Company Dealerships, bringing the total open as of December 31, 1996 to 14, located in the following states: Indiana (7), Florida (2), Illinois (2), Ohio, Pennsylvania and Missouri. A fifteenth Company Dealership was opened in Florida in March 1997. The Company expects to open approximately five to eight additional Company Dealerships in 1997. Underwriting Standards/ Contract Acceptance The Company purchases individual Contracts from Third-Party Dealers on a discounted, non-recourse basis through its network of branch offices. While each branch office evaluates the credit-worthiness of Contracts submitted to it, all Contracts approved for purchase are to be underwritten in accordance with the Company's credit policies and guidelines. These policies require a completed credit application, credit bureau report, verification of specific information and evaluation of the collateral value based on industry publications. During 1995, as discussed fully in "Management's Discussion and Analysis of Financial Condition and Results of Operations," some of the Company's branches purchased a significant number of Contracts which did not meet the Company's credit policies and guidelines. In January 1996, the Company instituted a policy whereby the purchase of a Contract not meeting the credit polices and guidelines requires the approval of a regional manager or headquarters personnel. Previously, a branch manager could authorize the purchase of Contracts not meeting the Company's credit policies and guidelines. Compliance with this policy is closely monitored by the Company through exception reports which are prepared by headquarters staff and reviewed by senior management. If a Third-Party Dealer agrees to sell a Contract to the Company, and the Company has approved it for purchase, the Third-Party Dealer assigns the Contract to the Company and forwards the signed Contract and other items specified in the Dealer Agreement to the Company. After verification that all documentation is in order, and after conducting a telephone interview with the applicant, when possible, to confirm key facts, such as the amount of down payment, the Contract is purchased and payment is remitted to the Third-Party Dealer. Servicing & Collections Under the terms of a Contract, obligors are required to remit payments on a monthly basis. If such payment is not received on a timely basis, a branch office collection specialist generally contacts the customer by telephone within three days of the due date, and obtains a promise to pay by a specific date. When it is determined that telephone and mail collection efforts will not be successful, the Company typically sends a collection specialist to visit the obligor's residence. If the Company has still been unsuccessful in collecting the amount due, it will generally repossess the vehicle. Repossessions require branch manager approval, and are carried out by collection specialists and outside agents retained by the Company. After the lapse of the applicable redemption period, Repossessed Inventory is sold at auction. The sale of repossession inventory at the Company Dealerships is expected to be phased out by mid-1997. Following the sale of a repossessed vehicle, the Company frequently files collection actions against obligors for any unpaid Contract balance. In mid-1997, the Company intends to install a predictive dialing system which will automate a portion of its outgoing telephone collection activities. The Company believes that this system will improve the efficiency and reduce the cost of the Company's collection efforts. Sales The Company's marketing efforts are directed at manufacturer-franchised Third-Party Dealers and selected used vehicle Third-Party Dealers. GAC markets its financing program and its Ancillary Products with the primary objectives of: (i) enrolling and training quality Dealers and encouraging those Dealers to increase the number of Contracts they offer to the Company and (ii) selling additional Ancillary Products offered by the Company with respect to such Contracts. Through September 1996, the Company conducted its sales efforts through a staff of professional salespeople, supervised by a Vice President of Sales and Marketing. During the fourth quarter of 1996, the volume of Contracts acquired was reduced by the Company in response to limitations on the Company's ability to fund such Contract acquisitions. Accordingly, responsibility for enrolling new Third-Party Dealers and selling additional Ancillary Products was largely transferred to the manager of each branch office. In early 1997, the Company began testing the concept of using origination offices through which to conduct its sales activities. Origination offices are designed to be staffed by two to three employees who solicit the submission of Contracts to the Company by Third-Party Dealers, perform credit investigations, and approve Contracts for purchase according to strict underwriting standards. All subsequent activities including funding of the Contract and all collection activities will be administered by one of the Company's branch offices. As of April 14, 1997, the Company had one origination office in Ohio. Depending on its financial condition in 1997, the Company will evaluate alternative strategies for its sales efforts including the use of origination offices and/or professional salespeople. The Company anticipates that Contracts originated at the Company Dealerships will be a more significant source of Contracts for the Company in 1997 than in 1996. The Company considers such Contracts to be a preferred source of Contracts because the Company has first opportunity to "purchase" all Contracts originated by the Company Dealerships. Dealer Selection As of December 31, 1996, the Company had 1,386 Active Third-Party Dealers located in Indiana, Ohio, Florida, Illinois, Missouri, Michigan, Pennsylvania, Kentucky, Georgia, Arizona, New Jersey, Colorado, Delaware, Iowa, Maryland, Nevada, New Mexico, North Carolina and Virginia. One Active Third-Party Dealer accounted for 3.2% of the total Contracts Receivable and 2.6% of total Contracts. No other Active Third-Party Dealer accounted for a greater percentage of the Company's total Contracts or Contracts Receivable as of December 31, 1996. As a result of continued financial and liquidity problems experienced by the Company, the Company decided to sell or has already sold substantially all of its Contract Receivable serviced by its branches located in states other than Indiana, Ohio and Florida. The number of Active Third-Party Dealers serviced by the Company's operations in Indiana, Ohio and Florida was 639 as of December 31, 1996. The Company markets to: (i) manufacturer-franchised Third-Party Dealers; and (ii) selected used vehicle Third-Party Dealers both of which the Company believes offer high quality used vehicles and superior customer service based upon the Third-Party Dealers' established reputations in their communities and inspections by Company personnel of the Third-Party Dealers' lots and automobile inventories. The Company may experience a higher delinquency rate with respect to Third-Party Dealers new to the Company's program than with Active Third-Party Dealers with which it has greater experience. The Company monitors overall Third-Party Dealer volume and tracks the performance of Contracts purchased from each Third-Party Dealer in an effort to identify problem Third-Party Dealers and take corrective actions against possible adverse trends in loss ratios with respect to particular Third-Party Dealers. The Company also monitors its Active Third-Party Dealers through the telephone calls it makes to each Non-prime Consumer as part of its Contract purchase process and through the collection process. The Company has entered into dealer agreements with all of the Third-Party Dealers from which it purchases Contracts ("Dealer Agreements"). The Dealer Agreement sets forth the general terms upon which Contracts will be purchased by the Company, but does not obligate the Third-Party Dealer to sell, or the Company to purchase, any particular Contract. In the Dealer Agreement, the Third-Party Dealer makes certain warranties as to each Contract and its compliance with certain laws and regulations and indemnifies the Company for any breach of the Dealer Agreement. REGULATION The Company's business is subject to regulation and licensing under various federal, state and local statutes, regulations and ordinances. The Company's business is currently conducted with Dealers located in Indiana, Ohio, Florida, Illinois, Missouri, Michigan, Pennsylvania, Kentucky, Georgia, Arizona, New Jersey, Colorado, Delaware, Iowa, Maryland, Nevada, New Mexico, North Carolina and Virginia, and, accordingly, the laws and regulations of such states govern the Company's operations. Most states where the Company operates: (i) limit the interest rate and other charges that may be imposed by, or prescribe certain other terms of, the Contracts that the Company purchases; (ii) regulate the sale and type of Ancillary Products offered by the Company and the insurers for which it acts as agent and (iii) define the Company's rights to repossess and sell collateral. In addition, the Company is required to be licensed to conduct its finance operations in a majority of the 19 states in which the Company has purchased Contracts, and in connection with the Company Dealerships, the Company is required to comply with state department of motor vehicle laws, rules and regulations. If the Company expands its operations into other states, it will be required to comply with the laws of such states. The Company's Dealer Agreement provides that the Third-Party Dealer shall indemnify the Company with respect to any loss or expense the Company incurs as a result of violations by the Third-Party Dealer of any federal, state or local consumer credit and insurance laws, regulations or ordinances. The Company is subject to numerous federal laws, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act and the rules and regulations promulgated thereunder, and certain rules of the Federal Trade Commission. These laws require the Company to provide certain disclosures to Applicants, prohibit misleading advertising and protect against discriminatory financing or unfair credit practices. The Truth in Lending Act and Regulation Z promulgated thereunder require disclosure of, among other things, the terms of repayment, the final maturity, the amount financed, the total finance charge and the annual percentage rate charged on each retail installment contract. The Equal Credit Opportunity Act prohibits creditors from discriminating against loan applicants (including retail installment contract obligors) on the basis of race, color, sex, age or marital status. Under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. The Fair Credit Reporting Act requires the company to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency. The rules of the Federal Trade Commission limit the types of property a creditor may accept as collateral to secure a consumer loan and its holder in due course rules provide for the preservation of the consumer's claims and defenses when a consumer obligation is assigned to a subject holder. With respect to used vehicles specifically, the Federal Trade Commission's Rule on Sale of Used Vehicles requires that all sellers of used vehicles prepare, complete and display a Buyer's Guide which explains any applicable warranty coverage for such vehicles. The Credit Practices Rule of the Federal Trade Commission imposes additional restrictions on loan provisions and credit practices. Several states and the federal government have enacted "lemon laws" and similar statutes containing protections for purchasers of automobiles. The application of these statutes may give rise to a claim or defense by an obligor against a Third-Party Dealer from or through whom such obligor purchased such automobile. These statues apply to Contracts purchased by the Company as well as to Contracts originated by the Company at a Company Dealership. The Company may be required to cancel Contracts with an obligor who successfully asserts such a claim or defense, and while the Company would have a claim against the Third-Party Dealer if the subject Contract had been purchased by the Company, the Company may not be made whole in every case in which the obligor successfully asserts such rights. The Company is also subject to state insurance regulations in connection with certain of the Ancillary Products. Among other things, state insurance regulations limit the permissible premiums and fees charged and commissions earned in connection with such products and require licensing of persons involved in the sale of insurance. EMPLOYEES As of December 31, 1996, the Company had 360 full time equivalent employees. None of the Company's employees is represented by a union and the Company considers employee relations to be satisfactory. ITEM 2. PROPERTIES The Company's headquarters, as well as the Indiana branch office, are located at 1025 Acuff Road, Bloomington, Indiana 47404. These operations occupy approximately 31,000 square feet under a lease with the Company's President and Chief Operating Officer expiring in 2016. Of the Company's seven branch offices, one origination office and 15 Company Dealerships, three Company Dealerships are leased from related parties. The remaining locations are leased from third parties under leases expiring through 2001. The Company believes that the locations leased from related parties are under terms no less favorable than could be obtained from unrelated lessors. The terms of all leases with related parties are approved by the Company's outside directors. ITEM 3. LEGAL PROCEEDINGS A lawsuit was filed in Monroe Circuit Court, State of Indiana on March 25, 1994, naming the Company and two of the Affiliated Dealers as defendants. The lawsuit, Henderson et al. V. General Acceptance Corporation, et al., alleges that the defendants violated the Truth in Lending Act and Federal Reserve Board Regulation Z and failed to give proper notices under state law in connection with the repossession of automobiles. The plaintiffs are seeking: (i) certification as representatives of a class of similarly situated plaintiffs; (ii) actual and statutory damages as provided by the Truth in Lending Act ("TILA"); (iii) actual damages for breach of the Indiana Commercial Code and (iv) attorney fees and expenses. Statutory damages under TILA are limited to $1,000 in case of an individual, and to the lesser of $500,000 or one percent of the net worth of the creditor, in the case of a class action. Actual damages under the Indiana Commercial Code are calculated as the sum of the "credit service charge" (as defined in the statute) plus ten percent of the principal amount of the debt, or the time price differential plus ten percent of the cash price. The Company believes the action is wholly without merit and intends to vigorously defend the action. The Company obtained a judgment on March 8, 1996 from the United States District Court for the Southern District of Indiana, Indianapolis Division, which requires the Affiliated Dealer's insurance carrier with respect to the above matter to defend the Company and to pay to the Company amounts due or which may become due pursuant to the applicable insurance policy. The Company regularly initiates legal proceedings as a plaintiff in connection with its routine collection activities. The Company is a defendant in several routine legal actions which are ordinary and incidental to the Company's business. The Company believes that none of those actions, either individually or in the aggregate, will have a material adverse effect on the results of operations or the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the Symbol GACC. The approximate number of shareholders of record of the Company's common stock was 47 and the Company estimates there were approximately 1,400 beneficial owners of the Company's stock as of March 24, 1997, based on securities position listings furnished to the Company. The high and low closing sale prices of the Company's common stock since the Company's initial public offering on April 6, 1995, through December 31, 1996, were as follows.
1996 1995 ----- ---- QUARTER ENDED HIGH LOW HIGH LOW - - - ------------- ----- ---- ----- ----- March 31 15.50 4.75 N/A N/A June 30 9.75 5.75 27.50 23.00 September 30 8.88 5.13 37.00 26.50 December 31 7.75 2.75 35.75 14.00
Other than S Corporation distributions paid related to periods prior to the date the Company completed its initial public offering of common stock, the Company has not paid any dividends and does not anticipate paying any dividends in the foreseeable future. Dividend payments are not permitted under the lending agreement related to the Company's line of credit as described in "Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources." ITEM 6. SELECTED FINANCIAL DATA
AS OF AND FOR YEARS ENDED DECEMBER 31 --------------------------------------- 1996 1995 (2) 1994 (2) 1993 1992 --------------------------------------- --------- --------- ------- ------ Results of Operations: Total net revenues $ 30,968 $ 25,639 $ 10,555 $ 3,989 $1,749 Net income (loss) (1) (9,081) 2,684 4,240 2,172 955 Net (loss) per share (1.51) Pro forma net income (loss) 717 2,544 Pro forma net income (loss) per share .13 .57 Financial Condition: Total debt 99,477 94,165 51,345 18,043 7,471 Total assets 123,646 124,380 57,188 21,880 9,407 (1) Prior to its initial public offering in April 1995, the Company was an S Corporation and therefore not subject to income taxes. In conjunction with its initial public offering the Company terminated its S Corporation status and from April 10, 1995 forward was subject to federal and state income taxes. Accordingly, the data presented for net (loss) for 1996 is not comparable to net income for 1995 and prior years. (2) Pro forma net income and pro forma net income per share assume a 40% combined income tax rate. Pro forma net income per share represents pro forma net income divided by actual weighted average shares outstanding, increased by the
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW In late 1995, the Company experienced sharply higher charge-offs and delinquencies associated with its portfolio of Contracts Receivable. The higher charge-offs and delinquencies were due to a number of factors, including: (i) the rapid growth of the Company during 1995; (ii) the decision by some of the Company's branch managers to purchase Contracts which did not meet the Company's stringent credit criteria; (iii) the Company's delay in detecting non-compliance with its credit guidelines due largely to the ongoing computer system conversion and the resulting lack of reliable and timely delinquency and charge-off information available to management; and (iv) an industry-wide increase in delinquencies and charge-offs. On January 17, 1996, as a result of the higher charge-offs and delinquencies, the Company was notified by 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. 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 as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". During 1996, the Company took a number of steps designed to reduce charge-offs and delinquencies and to expedite development of the Company's infrastructure, including: (i) hiring of a number of additional management personnel including a Vice President of Management Information Systems, a Director of Internal Audit and a Director of Human Resources, (ii) upgrading its management information systems capabilities to better enable the Company to monitor and control its portfolio of Contracts Receivable as well as its branch and Company Dealership operations, (iii) upgrading its internal credit underwriting controls and exception reporting, and (iv) forming a National Operations Support department to increase efficiency and quality by centralizing a number of functions previously handled at individual locations. These steps, as expected, significantly increased the Company's operating expenses in 1996 as compared to 1995. In 1996, despite the measures described above, the Company continued to experience higher than anticipated charge-offs, although delinquency was 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 December 1996, as a result of financial and liquidity problems experienced by the Company, the Company decided to close operations in certain geographic markets and to refocus the majority of its resources on three of its principal markets: Indiana, Ohio and Florida. The Company has a significant presence, has had good experience with credit quality and has long-standing relationships with Third-Party Dealers in each of these states. Management believes that operating on a more centralized basis, with fewer branch offices, will increase efficiency and reduce costs. The Company has sold or plans to sell substantially all of the Contracts in those markets where it has decided to close operations, and to transfer servicing of any retained Contracts to its remaining branch offices. In February 1997, the sale of substantially all of the Company's Illinois Contracts was completed. In April 1997, the sale of substantially all of the Contracts from the Michigan, Missouri, Virginia and Arizona branch offices was completed. No material gain or loss was recorded in connection with the sales. RESULTS OF OPERATIONS The following table sets forth the percentage relationship of certain items to total net revenues for the periods indicated.
FOR YEARS ENDED DECEMBER 31 ---------------------------- PERCENTAGE OF TOTAL NET REVENUES 1996 1995 1994 - - - ------------------------------------------ ---------------------------- ------ ------ Finance revenues: Interest and discount 87.1% 92.2% 90.9% Ancillary products 5.0 4.0 5.9 Other 1.7 2.2 3.2 ---------------------------- ------ ------ Total finance revenues 93.8 98.4 100.0 Net dealership revenues: Sale of purchased and trade vehicles 26.0 12.0 --- Cost of sales (21.6) (11.3) --- Other 1.8 0.9 --- ---------------------------- ------ ------ Total net dealership revenues 6.2 1.6 --- Total net revenues 100.0 100.0 100.0 Expenses: Interest 29.3 24.9 26.3 Salaries and employee benefits 28.4 20.1 16.9 Marketing 5.0 2.0 1.7 Provision for credit losses 37.2 26.9 1.0 System conversion loss --- 6.0 --- Other 23.2 15.4 13.9 Total expenses 123.1 95.3 59.8 ---------------------------- ------ ------ Income (loss) before income taxes (23.1) 4.7 40.2 Income tax (benefit) (1) 6.2 (5.8) --- Net income (loss) (29.3)% 10.5% 40.2% ============================ ====== ====== (1) The Company was an S Corporation until April 10, 1995, and as such, was not
The following table sets forth for the periods indicated, the percentage increase (decrease) of each statement of operations item over the prior year.
FOR YEARS ENDED DECEMBER 31 - - - ------------------------------------------ GROWTH RATES 1996 1995 1994 -------- -------- -------- Finance revenues: Interest and discount 14.2% 146.3% 151.1% Ancillary products 50.4 64.7 349.1 Other (12.1) 70.5 1,167.4 -------- -------- -------- Total finance revenues 15.1 139.0 164.6 Net dealership revenues: Sale of purchased and trade vehicles 161.8 NM --- Cost of sales 130.6 NM --- Other 147.2 NM --- -------- -------- -------- Total net dealership revenues 375.7 NM --- Total net revenues 20.8 142.9 164.6 Expenses: Interest 42.3 129.5 170.8 Salaries and employee benefits 70.6 188.9 323.5 Marketing 201.8 179.3 424.8 Provision for credit losses 67.1 6,532.5 NM System conversion loss NM NM --- Other 81.6 170.6 337.8 -------- -------- -------- Total expenses 56.0 287.1 247.5 Income (loss) before income taxes (699.9) (71.8) 95.2 Income tax (benefit) (1) (228.5) --- --- Net income (loss) (438.3)% (36.7)% 95.2% ======== ======== ======== (1) The Company was an S Corporation until April 10, 1995, and as such, was
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1996 Total Net Revenues Total finance revenues increased from $25.2 million in 1995 to $29.0 million in 1996, an increase of $3.8 million, or 15.1%. The increase was due primarily to an increase in interest and discount revenue as a result of an increase in the volume of Contracts purchased from Third-Party Dealers as well as the volume of Contracts originated by Company Dealerships. Total finance revenues are expected to be lower in 1997 than in 1996 due to the Company's decision to close operations and to sell substantially all of its Contracts Receivable in certain geographic areas. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". Interest and discount revenues were $23.6 million in 1995 compared to $27.0 million in 1996, an increase of $3.4 million, or 14.2%. The increase was primarily due to a higher average level of Contracts Receivable in 1996 than in 1995, partially offset by a lower average yield on Contracts accepted by the Company in 1996 compared to 1995. Average Contracts Receivable for 1995 was $100.1 million as compared to $123.5 million for 1996, an increase of 23.4%. The higher average level of Contracts Receivable in 1996 compared to 1995 was the result of Contracts Receivable growing rapidly during 1995 while remaining relatively level during 1996 due to funding constraints experienced by the Company. The average yield on Contracts Receivable in 1995 was 23.4% compared to 21.8% in 1996. The decrease was due primarily to the Company's decision during 1995 to enter into agreements with its Third-Party Dealers to apply the difference, if any, between the Contract interest rate and the rate determined by the Company as necessary to produce a satisfactory return on the Contract, to a dealer participation reserve against which losses can be charged. Ancillary products revenues were $1.0 million in 1995, compared to $1.6 million in 1996, an increase of $520,000, or 50.4%. The increase was due primarily to increased sales of a warranty program and the introduction in 1996 of a Visa credit card which was marketed in conjunction with a motor club program on a stand-alone basis as well as in connection with the acquisition and origination of Contracts, partially offset by decreases in revenues from both the Gap product and credit life and disability insurance. Other revenue decreased from $561,000 in 1995 to $493,000 in 1996, a decrease of $68,000, or 12.1%. The decrease was primarily due to a reduction in training fees charged to Third-Party Dealers in 1996 compared to 1995, partially offset by the reversal in 1996 of a special reserve for losses on receivables from a Third-Party Dealer as a result of the reduction of amounts owed to the Company by that Third-Party Dealer. Effective December 31, 1995, the training fee was discontinued. Beginning January 1, 1996, a $35 per contract processing fee was instituted, which is deferred and amortized into income over the estimated average life of the Contracts. The previous training fee, charged for new dealers in a $2,500 lump sum or $100 per contract for the first 35 contracts, was recognized as income upon receipt. Sales of purchased and trade vehicles increased from $3.1 million in 1995 to $8.1 million in 1996, an increase of $5.0 million, or 161.8%. The increase was due to an increase in the number of purchased and trade vehicles sold as a result of an increase in the number of Company Dealerships from seven as of December 31, 1995 to 14 as of December 31, 1996. Cost of sales of purchased and trade vehicles increased from $2.9 million in 1995 to $6.7 million in 1996, an increase of $3.8 million, or 130.6%. The gross margin percentage (defined as the difference between sales and cost of sales, divided by sales) increased from 5.8% in 1995 to 17.0% in 1996, due to a number of factors, including the decision to actively market purchased and trade inventory at the Company Dealerships in 1996 and the increased number of purchased and trade vehicles available for sale at each Company Dealership. Other revenue generated by the Company Dealerships increased from $229,000 in 1995 to $567,000 in 1996, an increase of $338,000, or 147.2%. This increase was due primarily to the introduction of the motor club program at the Company Dealerships during 1996. As a result of the foregoing, total net revenues increased from $25.6 million in 1995 to $31.0 million in 1996, an increase of $5.3 million, or 20.8%. Expenses Interest expense increased from $6.4 million in 1995 to $9.1 million in 1996, an increase of $2.7 million or 42.3%. The increase was due to higher average borrowings in 1996 under the Company's revolving line of credit necessary to fund higher average Contracts Receivable, as well as higher average borrowings in 1996 under the bank line of credit necessary to fund higher average repossessions and purchased and trade inventory. Total average borrowings were $67.2 million in 1995, compared to $98.9 million in 1996, an increase of $31.7 million, or 47.2%. The Company's total average interest rate was 9.0% for both 1995 and 1996. Although the spread over one-month LIBOR rate on the Company's revolving line of credit increased from 3.00% as of December 31, 1995 to 3.75% as of December 31, 1996, the average one-month LIBOR rate decreased from 5.83% as of December 31, 1995 to 5.40% as of December 31, 1996. The interest rate on the bank line of credit was 8.25% (the bank's prime rate) from the date the loan was made through December 31, 1996. Salaries and employee benefits increased from $5.2 million in 1995 to $8.8 million in 1996, an increase of $3.6 million, or 70.6%. This increase was due to: (i) an increase in the number of employees associated with the Company Dealerships as a result of an increase in the number of Company Dealerships in operation from seven as of December 31, 1995 to 14 as of December 31, 1996, and (ii) additional management personnel added during 1996 as part of the Company's stated objective of building infrastructure to support future growth, partially offset by a reduction in the number of branch offices operated by the Company from 13 as of December 31, 1995 to 10 as of December 31, 1996. The number of full time equivalent employees increased from 300 as of December 31, 1995 to 360 as of December 31, 1996. Marketing costs increased from $507,000 in 1995 to $1.5 million in 1996, an increase of $1.0 million, or 201.8%. The increase was due primarily to increased advertising associated with the higher number of Company Dealerships. The provision for credit losses increased from $6.9 million in 1995, to $11.5 million in 1996, an increase of $4.6 million, or 67.1%. The increase was due to (i) higher than anticipated net charge-offs in 1996 compared to 1995; (ii) an increase in amounts provided for Contracts originated by the Company Dealerships in 1996 compared to 1995, and (iii) amounts provided in 1996 related to the Company's fourth quarter initiative to dispose of approximately 30% of its repossession inventory through wholesale channels. The higher than anticipated net charge-offs were due to an industry-wide increase in delinquencies and charge-offs as well as to the lingering effects in 1996 of problems encountered by the Company in 1995 related to: (i) a difficult computer conversion; (ii) exceptions made by certain personnel to the Company's credit guidelines, and (iii) the Company's delay in detecting non-compliance with the guidelines as a result of the conversion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" for further discussion. The portion of the provision for credit losses related to Contracts originated by the Company Dealerships was $856,000 in 1995 compared to $2.3 million in 1996. As there is no discount associated with the origination of Contracts by the Company Dealerships, in order to develop a reserve for possible future credit losses, a charge directly to earnings is required. The increase in 1996 compared to 1995 was due to an increase in the volume of Contracts originated by the Company Dealerships from $4.9 million in 1995 to $14.8 million in 1996. Until the third quarter of 1996, it had been the Company's policy to maximize recoveries from its repossessed vehicles by selling the majority of the vehicles at retail through the Company Dealerships. It became apparent in the third quarter of 1996 that the Company Dealerships would not be able to quickly dispose of the vehicles repossessed earlier in 1996. In order to more quickly realize the value of that inventory and use the funds to purchase new Contracts, an initiative was undertaken to dispose of approximately 30% of the vehicle inventory through wholesale channels before the end of 1996. While this method achieved a more rapid disposition of the inventory, it reduced proceeds from sale. A loss provision was recorded which reflected the reduced amount recovered from repossession inventory that was disposed of through wholesale channels. Commencing in early 1997, the Company decided to begin selling substantially all of the vehicles it repossesses in connection with delinquent Contracts at auctions. System conversion loss was $1.5 million in 1995 compared to nil in 1996. In 1995, the Company recorded this one-time loss in connection with its inability to reconcile loan balances per its Contracts Receivable subsidiary ledger to the accounting records. The Company has experienced no further problems with reconciling these balances since completion of the conversion in late 1995. Other expense increased from $3.9 million in 1995, to $7.2 million in 1996, an increase of $3.2 million, or 81.6%. This increase was due to a number of factors, including: (i) increased rent and depreciation expense associated with the new corporate headquarters building and the opening of seven new Company Dealerships during 1996; (ii) the increased monthly charges for the computer system used by the Company to track its Contracts Receivable, and (iii) increased telephone, supply and insurance expenses related to the Company's new headquarters facility and the new Company Dealerships. As a result of the foregoing factors, the Company's income (loss) before taxes decreased from $1.2 million in 1995 to $(7.2) million in 1996. Income Taxes Income tax (benefit) was $(1.5) million for 1995 compared to $1.9 million for 1996. In conjunction with the initial public offering of its shares, the Company terminated its S Corporation status, and as a result, became subject to federal and state corporate income taxation from April 10, 1995, forward. The 1995 tax benefit was the result of recording a $2.3 million deferred tax asset, consisting of differences in the timing of recognition of Contract Receivable losses and other temporary differences, offset by a $770,000 current tax provision. Included in the $2.3 million deferred tax asset recorded in 1995 is $1.3 million which represents the net deferred tax assets for the cumulative temporary differences between financial reporting and tax reporting as of April 10, 1995, the date the Company terminated its S Corporation election. The income tax expense of $1.9 million in 1996 was the result of recording a $2.4 million deferred tax asset and a $345,000 current tax benefit, the total of which was more than offset by a $4.7 million valuation allowance for net deferred tax assets. The $2.4 million deferred tax asset consisted primarily of the Company's net operating loss carry forward. The valuation allowance recorded for the deferred tax asset in 1996 was based on management's assessment of the realizability of the deferred tax asset. Based on that assessment, the Company decided to fully reserve for the deferred tax asset in 1996. 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 reduce the valuation reserve, it would have the effect of reducing recorded tax expense. The 1996 income tax expense represents an effective tax rate of 26.7%, which differs from the statutory federal income tax rate of (34.0)%. The difference is due to a 65.0% effect of the change in the valuation allowance for net deferred tax assets, offset in part by a (4.3)% effect relating to state taxes and other items. YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1995 Total Net Revenues Total net revenues increased from $10.6 million in 1994 to $25.6 million in 1995, an increase of $15.0 million, or 142.9%. The increase was due primarily to an increase in interest and discount revenues resulting from an increase in the volume of Contracts purchased from Third-Party Dealers as well as the volume of Contracts originated by Company Dealerships, partially offset by lower average yields on the Contracts accepted by the Company. The higher volume of Contracts accepted by the Company was due to entry by the Company into new geographic markets, as well as increasing its presence in existing markets. As of December 31, 1995, the Company had Contracts Receivable of $129.9 million, a 109.0% increase over Contracts Receivable of $62.1 million as of December 31, 1994. The average yield on Contracts Receivable in 1994 was 24.5% compared to 23.4% for 1995. The decrease was due primarily to the Company's decision to enter into agreements with its Third-Party Dealers to apply the difference, if any, between the Contract interest rate and the rate determined by the Company as necessary to produce a satisfactory return on the Contract, to a dealer participation reserve against which losses can be charged. Ancillary products revenues were $627,000 in 1994, compared to $1.0 million in 1995, an increase of $406,000, or 64.7%. The increase was due primarily to the wide acceptance by Third-Party Dealers of a warranty program introduced late in 1994. Other revenues increased from $329,000 in 1994 to $561,000 in 1995, an increase of $232,000, or 70.5%. The increase was due primarily to an increase in the training fees charged to Dealers during 1995. Sales of purchased and trade vehicles was $3.1 million in 1995 and nil for 1994, as the Company Dealerships sold only vehicles which had been repossessed in connection with delinquent Contracts in 1994. Cost of sales of purchased and trade vehicles was $2.9 million in 1995 and nil for 1994 as the Company Dealerships did not sell purchased and trade vehicles until 1995. The gross margin percentage (defined as the difference between sales and cost of sales, divided by sales) was 5.8% in 1995. Other revenue generated by the Company Dealerships was $229,000 in 1995, which consisted primarily of sales of a warranty program introduced at the Company Dealerships in 1995. Expenses Interest expense increased from $2.8 million in 1994 to $6.4 million in 1995, an increase of $3.6 million, or 129.5%. The increase was due to higher average borrowings in 1995 under the Company's revolving line of credit to fund the higher volume of Contracts purchased. The average borrowings under the line were $34.8 million in 1994, compared to $67.2 million in 1995. Also contributing to the increase in interest expense was the higher interest rate environment in 1995, partially offset by a reduction on July 1, 1994, in the margin over 30 day average LIBOR paid by the Company from 5.0% to 3.0%. The Company's average borrowing cost was 8.0% in 1994, compared to 9.0% in 1995. Salaries and employee benefits increased from $1.8 million in 1994 to $5.2 million in 1995, an increase of $3.4 million, or 188.9%. This increase was primarily due to an increase in full time equivalent employees from 119 as of December 31, 1994, to 300 as of December 31, 1995. The increase in employees was primarily attributable to the development and staffing of the Company's network of branch offices and Company Dealerships. Marketing costs increased from $182,000 in 1994 to $507,000 in 1995, representing 1.7% of total revenue in 1994 compared to 2.0% in 1995, as the Company sought to establish itself in its new markets. The increase was due primarily to increased advertising for the Company Dealerships and to a lesser extent, to an increase in the number of salespeople employed by the Company from 18 as of December 31, 1994, to 20 as of December 31, 1995. The provision for credit losses increased from $104,000 in 1994, to $6.9 million in 1995, an increase of $6.8 million. In 1994, the provision for credit losses consisted entirely of amounts provided for Contracts originated at the Company Dealerships. As there is no discount associated with these contracts, in order to develop a reserve for possible future credit losses, a charge directly to earnings was required. In 1995, however, $6.0 million of the provision was to restore the allowance and discount available for credit losses on Contracts acquired from third Party Dealers to a level deemed appropriate by the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview." The one-time system conversion loss of $1.5 million in 1995 arose in connection with the systems conversion described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview." Upon completion of the conversion late in the fourth quarter of 1995, the Company was unable to reconcile the loan balance per the Contracts Receivable computer system to its accounting records, and, accordingly, recorded an adjustment to reduce the balance of Contracts Receivable by $1.5 million to bring it into agreement with the Contracts Receivable subsidiary ledger. Since completion of the conversion, the Company has reconciled Contracts Receivable monthly. Other expense increased from $1.5 million in 1994, to $4.0 million in 1995, an increase of $2.5 million, or 170.6%. The increase was due to a number of factors, including: (i) increased repossession costs associated with the Company's higher Contracts Receivable in 1995 compared to 1994, and with the higher incidence of repossessions in 1995 as compared to prior years, as previously discussed; (ii) increased costs to obtain credit bureau reports on applicants associated with the Company's higher volume of Contracts purchased in 1995; (iii) increased rent and depreciation expense due to opening and equipping eight branch offices and five Company Dealerships in 1995 and (iv) monthly usage charges incurred in 1995 for the new computer system used by the Company to track its Contracts Receivable. As a result of the foregoing factors, pre-tax net income in 1995 was $1.2 million, a decrease of $3.0 million, or 71.8%, from $4.2 million in 1994. Income Taxes Income tax expense was nil in 1994, because, since its inception, the Company had been an S Corporation. In conjunction with the initial public offering of its shares, the Company terminated its S Corporation status, and as a result, became subject to federal and state corporate income taxation from April 10, 1995, forward. For the year ended December 31, 1995, an income tax benefit of $1.5 million was recorded. This tax benefit was the result of recording a $2.3 million deferred tax asset, consisting of differences in the timing of recognition of Contract Receivable losses and other temporary differences, offset by a $770,000 current tax provision. Included in the $2.3 million deferred tax asset recorded in 1995 is $1.3 million which represents the net deferred tax assets for the cumulative temporary differences between financial reporting and tax reporting as of April 10, 1995, the date the Company terminated its S Corporation election. CREDIT LOSSES AND DELINQUENCIES Information on the Company's charge-off rate, total available for credit losses and delinquency ratio is presented below.
1996 1995 1994 ------ ------ ------ Net charge-offs to monthly average Contracts Receivable 24.73% 14.19% 8.58% Delinquency ratio (1) 1.82% 3.60% 1.03% Allocated portion of total available for credit losses as a percentage of Contracts Receivable (2): Held for sale 7.69% --- --- Held for investment 13.25% 16.46% 14.20% (1) 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. (2) Total available for credit losses is defined as the sum of allowance and discount available for credit losses and dealer participation reserves.
The increase in the Company's net charge-off rate from 14.19% in 1995 to 24.73% in 1996 is attributable to an industry-wide increase in delinquencies and charge-offs as well as to the lingering effects in 1996 of problems encountered by the Company in 1995 related to: (i) a difficult computer conversion; (ii) exceptions made by certain personnel to the Company's credit guidelines, and (iii) the Company's delay in detecting non-compliance with the guidelines as a result of the conversion. In addition, the Company experienced an expected increase in charge-offs associated with its decision to dispose of approximately 30% of its repossession inventory through wholesale channels during the fourth quarter of 1996. The delinquency ratio was 3.60% as of year end 1995, compared to 1.82% as of year end 1996. The ratio was particularly high at year end 1995 due to difficulties experienced in properly collecting accounts as a result of the computer conversion completed in the fourth quarter of 1995. The allocated portion of total available for credit losses as a percentage of Contracts Receivable held for sale was 7.69% as of year end 1996. In connection with the planned sale of a portion of the Company's portfolio of Contracts in 1997, the total available for credit losses has been allocated to Contracts Receivable held for sale based on completed sales and bids received. It is reasonably possible that a material change to this estimate could occur in the near term due to changes in the economy and other conditions beyond the Company's control that influence the amount realized on the anticipated sales. See "Management's Discussion and Analysis - Liquidity and Capital Resources". The allocated portion of total available for credit losses as a percentage of Contracts Receivable held for investment declined from 16.46% as of year end 1995 to 13.22% as of year end 1996. The 1996 allowance level, which reflects management's estimates of inherent credit losses, is based on historical loss experience, current economic conditions, operating policies and practices and other appropriate considerations. The decline in the allowance level in 1996 compared to 1995 is based on a number of factors taken into consideration by management, including: (i) the increase in the median number of months which Contracts have been on the books from 8.9 as of year end 1995 to 14.3 as of year end 1996; (ii) the reduction in the delinquency rate during 1996 from higher levels at year end 1995, and (iii) the completed and planned sales of portions of the Company's portfolio of Contracts primarily in outlying areas not considered to be the Company's core operations. The Company has historically experienced significantly higher delinquency and charge-off rates at certain of these branch offices. LIQUIDITY AND CAPITAL RESOURCES The Company's principal need for capital is to fund Contract acquisitions from Third-Party Dealers. Cash used for this purpose decreased from $95.3 million in 1995 to $76.7 million in 1996. The primary reason for the decrease was the Company's inability to obtain access to additional lines of credit. In 1996, 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. The Line permitted the Company to borrow up to the lesser of $100.0 million or 84% of the principal balance of Contracts Receivable, subject to certain limitations. Borrowings under the Line were $94.2 million as of year end 1995 and $94.0 million as of year end 1996. As discussed below, the terms of the Line in effect as of year end 1996 were amended and restated on April 11, 1997. The Company's secondary need for capital is to fund Repossession Inventory and Purchased and Trade Inventory (together, "Inventory"). As of year end 1995, Inventory was $6.0 million compared to $10.1 million as of year end 1996. During 1996, the Company obtained a $4.5 million bank line of credit. In 1996, the Company funded Inventory with borrowings under the bank line of credit, cash generated by the sale of Inventory which was not financed by the Company and cash generated from operations. 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, the Company's primary lender, 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 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. Of the $54.9 million in Contracts Receivable classified as of year end 1996 as held for sale, 75.0% have been sold to date. On December 2, 1996, the Company sold Contracts Receivable for 100.0% of contract balance of $2.6 million. 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. 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. The Company is exploring alternatives with several prospective buyers regarding the 25.0% of Contracts Receivable classified as held for sale as of year end 1996 which to date have not been sold. The Company borrowed money from certain principal stockholders and their relatives in the form of unsecured demand notes bearing interest at 12.00%. As of year end 1996, $1.0 million was outstanding under these notes. An additional $2.3 million was subsequently borrowed, bringing the total to $3.3 million to date. 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 stockholders 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 at 12.00%, 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 price 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 stockholders entered into an agreement whereby the principal stockholders 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 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 shall appoint one person to act in an operations capacity for the Company. Cash proceeds from issuance of the notes of $10 million were used to repay 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. 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 $3.3 million borrowed from certain principal stockholders, 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 year end 1996 to approximately $43.0 million as of April 14, 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. Maximum permitted borrowings under the New Line of $70.0 million are in excess of actual borrowings as of April 14, 1997 of approximately $43.0 million. The Company believes that the difference of approximately $27.0 million gives the Company 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, and based on its portfolio of Contracts Receivable, the Company has approximately $9.5 million of borrowing availability as of April 14, 1997. The bank line of credit permits the Company to borrow up to the lesser of $4.5 million or 50% of the value, as defined, of eligible Inventory, and has an interest rate equal to the bank's prime rate. Borrowings under the bank line of credit, whose term expires April 30, 1997, were $4.5 million as of year end 1996. The Company has begun exploring alternatives for replacing the $4.5 million bank line of credit whose term expires April 30, 1997. No assurances can be given that the Company will be successful in this effort. If the bank line of credit is not renewed by the lender, and assuming no other arrangements have been put in place, borrowings under the bank line of credit could be repaid from borrowing availability under the New Line described above. 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 this effort. The Company expects approximately $500,000 of capital spending in 1997 which consists of (i) a predictive dialing computer system to increase collection efficiency, (ii) new signs for the Company Dealerships and (iii) other equipment needs associated with the Company's plans to expand its network of Company Dealerships. IMPACT OF INFLATION Increases in the inflation rate generally result in increased interest rates and increases in the Company's operating expenses. As the Company borrows funds at a variable rate and generally purchases Contracts bearing interest at the maximum rates permitted by law, increased interest rates will increase the borrowing costs of the Company, and such increased borrowing costs may not be offset by increases in the rates with respect to Contracts purchased in most states in which the Company operates. During 1996, the Company entered into an interest rate protection agreement ("Cap") which limits the Company's exposure to increases in the LIBOR rate. The Cap is for a notional principal amount of $50.0 million and effectively limits the interest rate on $50.0 million of the Company's revolving line of credit to a maximum of 11.25% as of December 31, 1996. FORWARD LOOKING INFORMATION This report includes a number of forward-looking statements which reflect the Company's current views 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 factors 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors General Acceptance Corporation We have audited the accompanying balance sheets of General Acceptance Corporation as of December 31, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of General Acceptance Corporation at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Indianapolis, Indiana April 11, 1997
General Acceptance Corporation Balance Sheets DECEMBER 31 ------------- 1996 1995 ------------- ------------- ASSETS Contracts receivable (Notes 2, 4 and 10): Held for investment $ 62,263,129 $129,867,380 Held for sale 54,868,173 --- 117,131,302 129,867,380 Allowance and discount available for credit losses (10,611,268) (19,512,815) ------------- ------------- Contracts receivable, net 106,520,034 110,354,565 Cash and cash equivalents 1,683,429 557,206 Repossessions (Note 4) 7,534,045 5,223,623 Purchased and trade automobile inventory (Note 4) 2,518,069 811,820 Property and equipment, net (Notes 3 and 4) 2,539,135 1,672,475 Other assets 2,282,654 1,200,137 Taxes receivable 568,908 2,300,475 Deferred tax asset (Note 6) --- 2,260,000 Total assets $123,646,274 $124,380,301 ============= ============= LIABILITIES Debt (Notes 4, 8 and 10): Revolving line of credit $ 93,977,001 $ 94,165,243 Bank line of credit 4,500,000 --- Note payable to related party 1,000,000 --- ------------- ------------- Total debt 99,477,001 94,165,243 Accounts payable and accrued expenses 4,650,695 1,605,484 Dealer participation reserves available for credit losses (Note 2) 1,855,223 1,865,681 Total liabilities 105,982,919 97,636,408 STOCKHOLDERS' EQUITY (NOTE 5) 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) (Note 4) (12,129,218) (3,048,680) ------------- ------------- Total stockholders' equity 17,663,355 26,743,893 ------------- ------------- Total liabilities and stockholders' equity $123,646,274 $124,380,301 ============= ============= See accompanying notes.
General Acceptance Corporation Statements of Operations YEARS ENDED DECEMBER 31 ------------------------- 1996 1995 1994 ------------------------- ------------ ----------- Finance revenues: Interest and discount $ 26,986,564 $23,637,854 $ 9,598,816 Ancillary products 1,553,152 1,033,017 627,343 Other 493,386 561,121 329,054 ------------------------- ------------ ----------- Total finance revenues 29,033,102 25,231,992 10,555,213 Net dealership revenues: Sale of purchased and trade vehicles 8,054,515 3,077,035 --- Cost of sales (6,686,692) (2,899,703) --- Other 567,361 229,471 --- Total net dealership revenues 1,935,184 406,803 --- ------------------------- ------------ ----------- Total net revenues 30,968,286 25,638,795 10,555,213 Expenses: Interest 9,083,824 6,381,909 2,780,975 Salaries and employee benefits 8,804,958 5,160,223 1,785,973 Marketing 1,529,646 506,875 181,511 Provision for credit losses 11,525,252 6,897,843 104,000 System conversion loss --- 1,539,219 --- Other 7,190,144 3,958,298 1,462,642 Total expenses 38,133,824 24,444,367 6,315,101 ------------------------- ------------ ----------- Income (loss) before income tax (7,165,538) 1,194,428 4,240,112 Income tax (benefit) (Note 6) 1,915,000 (1,490,000) --- Net income (loss) $ (9,080,538) $ 2,684,428 $ 4,240,112 ========================= ============ =========== UNAUDITED ------------------------- HISTORICAL PRO FORMA PRO FORMA ------------------------- ------------ ----------- Income (loss) before income tax $ (7,165,538) $ 1,194,428 $ 4,240,112 Income tax 1,915,000 477,771 1,696,045 ----------- Net income (loss) $ (9,080,538) $ 716,657 $ 2,544,067 ========================= =========== Net income (loss) per share $ (1.51) $ .13 $ .57 ========================= =========== Weighted average shares outstanding 6,022,000 5,638,966 4,461,961 ========================= ============ =========== See accompanying notes.
General Acceptance Corporation Statements of Changes in Stockholders' Equity RETAINED EARNINGS (DEFICIT) COMMON SHARES COMMON STOCK ----------- Balance, January 1, 1994 4,064,000 $ 2,000 $ 1,806,446 S Corporation distributions --- --- (2,320,000) Net income --- --- 4,240,112 ------------- ----------- ---------------------------- Balance, December 31, 1994 4,064,000 2,000 3,726,558 S Corporation distributions --- --- (9,459,666) Issuance of common stock 1,955,000 29,739,573 --- Value of stock issued as director compensation 3,000 51,000 --- Net income --- --- 2,684,428 Balance, December 31, 1995 6,022,000 29,792,573 (3,048,680) Net loss --- --- (9,080,538) ------------- ----------- ---------------------------- Balance, December 31, 1996 6,022,000 $29,792,573 $ (12,129,218) ============= =========== ============================ See accompanying notes
General Acceptance Corporation Statements of Cash Flows YEARS ENDED DECEMBER 31 ------------------------- 1996 1995 1994 ------------------------- ------------- ------------- OPERATING ACTIVITIES Net income (loss) $ (9,080,538) $ 2,684,428 $ 4,240,112 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 664,436 332,396 125,070 Amortization of deferred discount and acquisition costs 190,439 (560,099) (629,136) Provision for credit losses 11,525,252 6,897,843 104,000 Deferred taxes 2,260,000 (2,260,000) --- Changes in operating assets and liabilities: Increase in other assets and taxes receivable 649,050 (2,833,792) (714,888) Increase in accounts payable and accrued expenses 3,045,211 198,110 1,302,284 Net cash provided by operating activities 9,253,850 4,458,886 4,427,442 INVESTING ACTIVITIES Cost of acquiring or originating contracts receivable (76,652,991) (95,321,449) (50,347,393) Principal collected on contracts receivable 64,744,702 29,421,227 15,447,119 Notes receivable from affiliates --- --- 300,000 Purchases of property and equipment (1,531,096) (1,406,288) (548,331) Net cash used in investing activities (13,439,385) (67,306,510) (35,148,605) FINANCING ACTIVITIES Borrowing on revolving line of credit 100,000,711 121,935,938 56,649,676 Repayments of revolving line of credit (100,188,953) (76,158,202) (24,418,304) Borrowing on bank line of credit 4,500,000 --- --- Borrowings on notes payable to related parties 1,500,000 --- 1,131,161 Repayment of notes payable to related parties (500,000) (2,956,998) (27,000) Proceeds from issuance of Common Stock --- 29,739,573 --- Dividends paid --- (9,459,666) (2,320,000) Net cash provided by financing activities 5,311,758 63,100,645 31,015,533 ------------------------- ------------- ------------- Net increase in cash and cash equivalents 1,126,223 253,021 294,370 Cash and cash equivalents at beginning of year 557,206 304,185 9,815 Cash and cash equivalents at end of year $ 1,683,429 $ 557,206 $ 304,185 ========================= ============= ============= See accompanying notes.
General Acceptance Corporation Notes to Financial Statements December 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS General Acceptance Corporation ("Company"), was incorporated in 1988, under laws of the State of Indiana. Until April 10, 1995, it operated as a closely held corporation subject to taxation under Subchapter S of the Internal Revenue Code of 1986, as amended ("S Corporation"). The Company is principally engaged in servicing high credit risk installment sales contracts (primarily collateralized by used automobiles) purchased from automobile dealers and originated by the Company in connection with the sale of automobiles. During 1994, the Company commenced operating automobile dealerships for the purpose of selling automobiles repossessed from customers and, in 1995, began also selling automobiles acquired at auctions. In 1995, the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission for an offering of 1,955,000 shares of Common Stock. This offering represented approximately 32% ownership of the Company. Net proceeds of the offering of $29,739,573 were used for the distribution of S Corporation earnings to existing stockholders (including amounts to repay indebtedness incurred for this purpose), repayment of notes payable to related parties and repayment of a portion of the revolving line of credit. REVENUE RECOGNITION Interest income from contracts receivable is recognized using the interest method. A portion of the discount arising from purchases of contracts receivable is intended to absorb anticipated credit losses (see discussion below). The remainder (deferred discount), if any, is accreted to income using a method approximating the interest method over 24 months, which is estimated by management to be the average life of the related contracts based upon prepayment and early termination experience. Late charges are recognized as income when received. Accrual of interest income continues until contracts are collected in full, become 90 days contractually delinquent, or are charged off (as discussed below) consistent with practices generally applied by consumer finance companies. The Company defers certain costs associated with the origination or acquisition of contracts receivable. Deferred origination/acquisition costs are amortized to interest and discount income using a method approximating the interest method over 24 months which is estimated by management to be the average life of the related receivables based upon prepayment and early termination experience. Insurance commissions from the sale of credit life and credit disability insurance are recognized as revenue using the interest method over 24 months, the estimated average life of the related contracts receivable as discussed above. Revenue from the sale of purchased and trade vehicles is recognized upon delivery and signing of sales contracts. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CREDIT LOSSES The Company purchases contracts receivable from dealers at a significant discount pursuant to a financing program that bases the discount on, among other things, the credit risk of the borrower and the amount to be financed in relation to the automobile's wholesale value. To a significantly lesser extent, the Company originates contracts receivable, primarily as a result of sales from its sales lots. For contracts purchased, any discount anticipated as necessary to absorb credit losses is allocated to discount available for credit losses, against which future credit losses will be charged. The remaining portion of the discount, if any, is deferred and accreted to income as discussed above. Also, for contracts purchased, an allowance is established by charging a provision for credit losses against earnings to the extent discount thereon and dealer participation reserves are not adequate to absorb anticipated losses. For contracts receivable that the Company originates, an allowance for credit losses is established by charging a provision for credit losses against earnings. The dealer participation reserves (see discussion below) are also available to absorb credit losses for certain contracts. The combined allowance, discount and dealer participation reserves available for credit losses are maintained at an amount considered by management adequate to absorb estimated credited losses inherent in the contracts receivables portfolio. Management's estimate of inherent credit losses is based on historical loss experience, current economic conditions, operating policies and practices and other appropriate considerations. It is the Company's policy to initially charge credit losses on purchased contracts receivable and related repossessions against the dealer participation reserves, to the extent available, then against discount available for credit losses and then against the allowance for credit losses. Credit losses on originated contracts receivable are charged to the allowance for credit losses. For contracts collateralized by automobiles, the automobile is generally repossessed prior to the contract becoming 90 days contractually delinquent. At the time of repossession, the automobile is recorded as an asset at estimated wholesale market value and any contract amount in excess of wholesale market value is charged off. The initial charge off is then adjusted for actual loss based on sales proceeds, net of the costs incurred in taking, storing, and disposing of the automobile. Any subsequent recovery of amounts charged off is restored to the discount available for credit losses or allowance for credit losses, as applicable. It is the Company's policy to charge off contracts no later than the last day of the month in which they become 120 days contractually past due. Exceptions are made to the 120-day charge-off policy when, in the opinion of management, such treatment is warranted. CONTRACTS RECEIVABLE HELD FOR SALE Contracts receivable are classified on the balance sheets in accordance with the Company's intention to sell certain contracts receivable in 1997, and to hold others for investment. Contracts held for sale net of related allowance and discount available for credit losses are carried at the lower of cost or fair value. PURCHASED AND TRADE AUTOMOBILE INVENTORY Purchased and trade automobile inventory is recorded at the lower of cost or market value. The cost of sales of purchased and trade automobiles is determined by the specific identification method. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment is recorded at cost, net of depreciation. Depreciation expense is computed using the straight-line method over each asset's estimated useful life, generally three to seven years. DEALER PARTICIPATION RESERVES AVAILABLE FOR CREDIT LOSSES As part of the Company's financing of contracts receivable, commencing in mid-1995, agreements were entered into with dealers whereby dealer participation reserves were established to protect the Company from potential losses associated with such contracts. Pursuant to the agreements, a liability is recorded for the difference, if any, between the contract interest rate and the rate determined by the Company as necessary to produce a satisfactory return on the Contract. Losses incurred by the Company are charged first against the dealer participation reserves, to the extent available, for the applicable dealer. Unused dealer participation reserves, as defined in the agreement, are remitted to the respective dealers. Prior to 1995, the Company had agreements to establish holdbacks from dealers. Like dealer participation reserves, these dealer holdbacks are available to charge losses against, and if unused, are refundable to dealers. CASH EQUIVALENTS The Company considers all short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. INTEREST RATE PROTECTION AGREEMENTS The Company has entered into an interest rate cap agreement to limit its exposure to rising interest rates on its revolving line of credit. The strike price exceeded the current market level at the time it was entered into and its net cost is included in interest expense ratably during the life of the agreement. Payments to be received as a result of the cap agreement are accrued as a decrease to interest expense. The total of fees and interest differential received as a result of entering into this agreement was not significant. The fair value of interest rate protection agreements is not recognized in the balance sheet. SHARE AND PER SHARE INFORMATION On July 1, 1994, the Company increased its authorized shares of Common Stock to 25 million, authorized five million shares of Preferred Stock and authorized a stock split of 4,500 to 1. During the first quarter of 1995, the Company effected two reverse stock splits resulting in 4,064,000 shares outstanding. All share and per share amounts have been adjusted to reflect these splits. Because the Company previously operated as a closely held S Corporation, historical net income per share data is not meaningful for 1995 and 1994 and therefore is not presented. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Company, with the consent of its stockholders, elected under the Internal Revenue Code, beginning June 1, 1988, to be treated as an S Corporation for federal income tax purposes until April 9, 1995. In lieu of corporation income taxes, the stockholders of the S Corporation were taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal or state income taxes has been included in the financial statements prior to 1995. The Company was required to adopt the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", on April 10, 1995, upon termination of its S Corporation election. This Statement requires the recognition of deferred tax assets and liabilities based on differences between financial reporting and tax basis of assets and liabilities measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The cumulative effect of adopting the Statement on April 10, 1995, was to increase 1995 net income by $1,300,000. STOCK BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock option grants. ADVERTISING EXPENSES Advertising and promotion expenses are charged to operations as incurred. The Company incurred advertising expenses of $1,162,000, $131,000 and $23,000 during 1996, 1995 and 1994, respectively. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRO FORMA DISCLOSURES The pro forma adjustment for income taxes for 1994 and 1995 was computed at an effective combined federal and state tax rate of 40% to recognize income taxes as if the Company had not been an S Corporation. The pro forma weighted average shares for these periods represent actual weighted average shares of common stock and dilutive common stock equivalent shares outstanding during each period increased by the number of shares whose proceeds were used to fund undistributed S Corporation earnings. Common stock equivalents represents outstanding stock options. Supplemental pro forma net income per share is computed by dividing supplemental net income by the sum of pro forma weighted average shares and the number of shares that would have been sold at the beginning of the period to cover the costs of the initial public offering, repay notes payable to related parties and repay borrowings under the Company's revolving line of credit. Supplemental net income represents pro forma net income increased by an assumed reduction in interest expense, net of the related tax benefit, as though common stock proceeds had been available at the beginning of the period to reduce debt. Supplemental pro forma net income per share for 1995 is $.17. RECLASSIFICATIONS Certain amounts in the 1995 and 1994 financial statements have been reclassified to conform to the 1996 presentation. 2. CONTRACTS RECEIVABLE Contracts receivable generally have terms of 24 to 48 months and do not exceed 60 months. At December 31, 1996, substantially all of the contracts receivable balances outstanding were collateralized by automobiles. In late 1996, the Company determined that it would exit certain markets in which it had previously acquired contracts receivable, and sell the contracts receivable in those markets during 1997. Accordingly, the majority of the contracts receivable in Missouri, Illinois, Arizona and Virginia, along with contracts receivable in several other states, are classified as "held for sale". The Company intends to remain active in a number of states, with concentrations in Indiana, Ohio and Florida. These contracts receivable are classified as "held for investment". The following is a summary of the Company's total contracts receivable.
DECEMBER 31, -------------- 1996 1995 -------------- ------------- Contractually scheduled payments $ 146,744,916 $166,340,561 Add (deduct): Unearned interest income (30,006,489) (36,920,628) Accrued interest income 354,333 298,059 Unearned insurance commissions (29,820) (128,718) Deferred acquisition costs 68,362 278,106 -------------- ------------- Contracts receivable 117,131,302 129,867,380 Allowance and discount available for credit losses (10,611,268) (19,512,815) Contracts receivable, net $ 106,520,034 $110,354,565 ============== =============
As of December 31, 1996, contractual maturities of contracts receivable were as follows:
1997 $ 58,437,956 1998 47,067,786 1999 27,136,140 2000 11,625,010 2001 and thereafter 2,478,024 ------------ $146,744,916 ============
It is the Company's experience that a substantial portion of the portfolio generally is prepaid before contractual maturity dates. The above tabulation, therefore, is not to be regarded as a forecast of future cash collections. 2. CONTRACTS RECEIVABLE (CONTINUED) Changes in the components of amounts available for credit losses were as follows:
DEALER PARTICIPATION RESERVES ALLOWANCE AND DISCOUNT TOTAL ------------- Balance at January 1, 1994 $ 1,098,491 $ 1,957,693 $ 3,056,184 Additions 8,956,071 173,913 9,129,984 Charge-offs, net (1,942,296) (1,423,609) (3,365,905) ------------------------ ------------------------------- ------------- Balance at December 31, 1994 8,112,266 707,997 8,820,263 Additions 22,172,739 4,582,165 26,754,904 Charge-offs, net (10,772,190) (3,424,481) (14,196,671) Balance at December 31, 1995 19,512,815 1,865,681 21,378,496 Additions 17,422,011 4,211,284 21,633,295 Charge-offs, net (26,323,558) (4,221,742) (30,545,300) ------------------------ ------------------------------- ------------- Balance at December 31, 1996 $ 10,611,268 $ 1,855,223 $ 12,466,491 ======================== =============================== =============
At December 31, 1996, the amounts available for credit losses included $4,218,000 allocated to contracts receivable held for sale. This allocation was based on completed sales and on bids received and was intended to reduce the carrying amount of these contracts receivable to fair value. To the extent that the allocation was based on bids received, it is reasonably possible that a material change to this estimate could occur in the near term due to changes in the economy and other conditions that influence the amount realized on the anticipated sales. 3. PROPERTY AND EQUIPMENT The following is a summary of the Company's property and equipment:
DECEMBER 31 ------------- 1996 1995 ------------- ----------- Automobiles $ 559,695 $ 674,671 Furniture, fixtures and leasehold improvements 743,077 394,288 Office and computer equipment 1,920,053 919,793 Shop equipment 278,412 181,032 ------------- ----------- 3,501,237 2,169,784 Accumulated depreciation (962,102) (497,309) $ 2,539,135 $1,672,475 ============= ===========
The Company leases its corporate office building from the Company's president and leases its branch facilities and sales lots from related parties (i.e. three sales lots) and third parties pursuant to non-cancelable operating leases expiring from 1997 through 2016. Future minimum lease payments pursuant to these leases total approximately: 1997, $1,381,000; 1998, $1,178,000; 1999, $783,000; 2000, $508,000; 2001, $437,000; 2002 and thereafter, $8,388,000. 4. DEBT REVOLVING LINE OF CREDIT (SEE NOTE 10) On April 11, 1997, the Company entered into a modification of its revolving line of credit agreement ("Agreement"). The modified 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. The Agreement includes certain restrictive covenants and prohibits the Company's payment of dividends. The revolving line of credit is collateralized by substantially all of the assets of the Company. The Company is required to remit all cash receipts from contracts receivable to the lender. These cash receipts are first applied to accrued interest and the remainder to principal. Interest is accrued daily at the average 30-day London Interbank Offered Rate (LIBOR) for the previous month plus a stated percentage. The rate was LIBOR plus 3.75% at December 31, 1996, and increased to LIBOR plus 4.00% effective January 16, 1997, and to LIBOR plus 4.50% effective April 11, 1997. The revolving line of credit has an annual commitment fee of .53%. The interest rate on the revolving line of credit was 9.15% and 8.83% as of December 31, 1996 and 1995, respectively. BANK LINE OF CREDIT The Company's bank line of credit debt as of December 31, 1996 is pursuant to an agreement that permits the Company to borrow up to the lesser of $4.5 million or 50% of the value, as defined, of eligible repossessions and purchased and trade automobile inventory. The term of the line expires April 30, 1997. Interest is charged monthly at the bank's prime rate, which at December 31, 1996, was 8.25%. NOTE PAYABLE TO RELATED PARTY The Company borrowed $1.0 million from a stockholder during 1996 on an unsecured basis. This note was exchanged for convertible subordinated debt on April 11, 1997, as further explained in Note 10. The interest rate on the note was 12.00%. INTEREST RATE PROTECTION AGREEMENTS The Company entered into an interest rate protection agreement ("Cap"), which limits the Company's exposure on its revolving line of credit to increases in the LIBOR rate. The strike price of this agreement exceeded the current market levels at the time it was entered into. The Cap is for a notional principal amount of $50 million and effectively limits the interest rate on $50 million of the Company's revolving line of credit to a maximum of 11.25%. The Cap expires in October 1997. 4. DEBT (CONTINUED) The Cap subjects the Company to the risk that the counter-party may fail to perform under the terms of the agreement. The Company does not expect the counter-party to fail to meet its obligation; however, non-performance would not have a material impact on the results of operations or financial position. INTEREST PAID Interest paid under all debt arrangements was approximately $9,113,000, $6,312,000 and $2,781,000 in 1996, 1995 and 1994, respectively. 5. STOCK OPTION PLANS On July 1, 1994, the Company adopted the General Acceptance Corporation Employee Stock Option Plan ("Employee Plan") and the General Acceptance Corporation Outside Director Stock Option Plan ("Outside Director Plan," and collectively with the Employee Plan, the "Plans"). The Plans were amended and restated in their entirety on February 9, 1995. A total of 600,000 shares of Common Stock are reserved for issuance upon exercise of options to be granted under the Plans. The total number of shares of Common Stock with respect to which options may be granted is 500,000 and 100,000 under the Employee Plan and the Outside Director Plan, respectively. Options granted pursuant to the Employee Plan may be incentive stock options ("ISOs') that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or nonqualified stock options ("NQSOs") that do not meet the requirements of Section 422 of the Code. The exercise price of an ISO or an NQSO will not be less than the fair market value per share of the Common Stock on the date of the grant in all cases other than for ISOs granted to holders of 10% or more of the Company's outstanding Common Stock ("10% Stockholders"). The exercise price of ISOs granted to 10% Stockholders will not be less than 110% of fair market value. The aggregate fair market value of the Common Stock for which any participant may be granted ISOs first exercisable in any year may not exceed $100,000. ISOs and NQSOs granted under the Employee Plan will become exercisable in increments of from one-half at each of the first two anniversaries of the date of grant to one-fifth at each of the first five anniversaries of the date of grant, and will remain exercisable for a term of not more than ten years (five years, in the case of ISOs issued to 10% Stockholders), as determined by a committee of the Board of Directors. Pursuant to the Outside Director Plan, each non-employee director was automatically granted options to purchase 5,000 shares of Common Stock, upon completion of the offering. On each anniversary of the effective date of the plan in February 1995, each non-employee director will be automatically granted options to purchase 5,000 additional shares. However, no director may receive any option if, upon exercise of such option, such individual would own 10% or more of the shares of Common Stock outstanding. The exercise price for shares issuable pursuant to options granted after 1995 will be the fair market value (as determined under the terms of the plan) at the effective date of the grant. Options granted under the Outside Director Plan are exercisable in one-third increments on the date of grant and the first and second anniversary thereof and expire ten years after grant. 5. STOCK OPTION PLANS (CONTINUED) Both plans provide for the automatic acceleration of the exercisability of option grants upon a "change in control." A "change in control" includes: (i) a change in ownership of a least 50% of the Company's outstanding voting stock; (ii) a change in the composition of a majority of the Board; or (iii) entering into an agreement for sale of all or substantially all of the Company's assets. Other terms, including when and how long an option under the Employee Plan is exercisable, are determined by a committee of the Board of Directors, in the case of the Employee Plan, or the employee directors of the Company, in the case of the Outside Director Plan. Information on stock options is shown in the following table.
WEIGHTED AVERAGE EXERCISE PRICE SHARES OUTSTANDING SHARES EXERCISABLE ------------------- ------------------- Balance at December 31, 1994 --- --- $ --- Granted 156,250 --- 18.92 Became exercisable --- 5,001 17.00 Canceled (18,250) --- 17.00 Balance at December 31, 1995 138,000 5,001 19.17 Granted 291,750 --- 10.77 Became exercisable --- 41,735 17.30 Canceled (150,000) (1,967) 14.31 ------------------- ------------------- -------------------------------- Balance at December 31, 1996 279,750 44,769 $ 13.04 =================== =================== ================================
The weighted-average fair value of options granted was $5.95 and $12.12 for 1996 and 1995, respectively. Exercise prices for options outstanding as of December 31, 1996, ranged from $7.25 to $27.00. The weighted average remaining contractual life of those options was 8.8 years. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of the Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996, respectively: risk-free interest rates of 6.7% in both years, a dividend yield of nil, volatility factors of the expected market price of the Company's common stock of .7 and 1.1, and a weighted-average expected life of the option of 5 years. 5. STOCK OPTION PLANS (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1996 1995 ------------ -------- Pro forma net income (loss) $(9,677,850) $430,885 Pro forma net income (loss) per share (1.61) .08
Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, pro forma net income and net income per share for 1995 and 1996 are not representative of the effects on reported amounts for future years. 6. INCOME TAXES Significant components of the provision for income taxes are as follows:
YEARS ENDED DECEMBER 31 1996 1995 ------------ ------------ Current: Federal $ (569,000) $ 620,000 State 224,000 150,000 ------------ ------------ (345,000) 770,000 Deferred: Federal (1,920,000) (1,910,000) State (480,000) (350,000) Change in valuation allowance 4,660,000 --- 2,260,000 (2,260,000) ------------ Income tax (benefit) $ 1,915,000 $(1,490,000) ============ ============
Included in the 1995 deferred income tax credit of $2,260,000 is a deferred tax credit of $1,300,000 which represents the net deferred tax assets for the cumulative temporary differences between financial reporting and tax reporting as of April 10, 1995, the date the Company terminated its S Corporation election. 6. INCOME TAXES (CONTINUED) The provision for income taxes as shown on the statement of operations differs from amounts computed by applying the statutory federal income tax rate of 34% to income before taxes as follows:
YEARS ENDED DECEMBER 31 1996 1995 ------- -------- Federal income tax expense (benefit) computed at statutory rate (34.0)% 34.0% Change in valuation allowance 65.0 --- S Corporation earnings --- (48.4) Net deferred tax assets recorded upon termination of S Corporation --- (108.9) State taxes, net of federal tax effect (2.4) (1.5) Other (1.9) --- ------- -------- Income tax (benefit) 26.7% (124.8)% ======= ========
The components of the Company's net deferred tax asset as of December 31 are as follows:
1996 1995 ------------ ---------- Recognition of contracts receivable losses $ 1,253,000 $2,110,000 Net operating loss carryforward 3,353,000 --- Other 54,000 150,000 ------------ ---------- Total deferred tax assets 4,660,000 2,260,000 Valuation allowance (4,660,000) --- Net deferred tax asset $ --- $2,260,000 ============ ==========
At December 31, 1996, the Company had net operating loss carryforwards of approximately $8,383,000 for income tax purposes that expire in 2011. The Company received net income tax refunds of approximately $2,077,000 during 1996 and made income tax payments of approximately $3,093,000 during 1995. The unaudited pro forma provisions for income taxes of $477,771 and $1,696,045 for 1995 and 1994, respectively, represent income taxes on the Company's income as if it had been taxed each period at an effective tax rate of 40%. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values disclosed below are based on estimates when quoted market prices are not available. These fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The fair value amounts presented can be misinterpreted, and care should be exercised in drawing conclusions from such data. The carrying amounts and estimated fair values of the Company's financial instruments as of December 31 are as follows.
1996 1995 - - - --------------------------- ---- CARRYING AMOUNT CARRYING AMOUNT FAIR VALUE FAIR VALUE ------------ ------------ ASSETS Contracts receivable, net $ 106,520,034 $106,520,034 $ 110,345,565 $110,354,565 Cash and cash equivalents 1,683,429 1,683,429 557,206 557,206 LIABILITIES Revolving line of credit 93,977,001 93,977,001 94,165,243 94,165,243 Bank line of credit 4,500,000 4,500,000 --- --- Note payable to related party 1,000,000 1,000,000 --- --- Accounts payable and accrued expenses 4,650,695 4,650,695 1,605,484 1,605,484 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Interest rate cap 12,000 --- --- ---
VALUATION METHODOLOGIES AND ASSUMPTIONS The following methods and assumptions were used in estimating the fair value of the Company's financial instruments. Contracts Receivable The fair value of net contracts receivable is estimated to approximate carrying amount less allowance and discount available for credit losses, since the contracts are of relatively short average remaining life and are at approximately current market rates of interest. Cash and Cash Equivalents The carrying amount reported in the balance sheet for cash and cash equivalents approximate their fair values. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Revolving Line of Credit and Bank Line of Credit Because the interest rate on the Company's revolving line of credit and bank line of credit are tied to floating market rates, the carrying amounts reported in the balance sheet approximate fair value. Note Payable to Related Party Because the note payable to related party is payable upon demand, the carrying amount reported in the balance sheet approximates the fair value. Accounts Payable and Accrued Expenses The carrying amount of accounts payable and accrued expenses approximates the fair value. Interest Rate Cap Fair value for the interest rate cap is based on estimates obtained from the individual counter-party of the cost or benefit of terminating the cap at the balance sheet date. 8. RELATED PARTY TRANSACTIONS The Company, in the ordinary course of business, purchases contracts receivable from automobile dealerships controlled by certain of the Company's management stockholders. Total cash disbursed to these dealerships for the purchase of contracts receivable 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 (see Note 4). 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 owned by certain management stockholders of the Company. 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 receivable purchased. The Company has made payments to a management stockholder or entities owned in part by certain management stockholders 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. 8. RELATED PARTY TRANSACTIONS (CONTINUED) The Company is obligated under non-cancelable leases with related parties, 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, certain management stockholders of the Company were also stockholders of an insurance company for which the Company acts as agent when selling credit related insurance products. 9. CONTINGENT LIABILITIES The Company is a party to various lawsuits and proceedings arising in the ordinary course of business. Based upon information presently available, the Company believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will have no material adverse effect on the Company's consolidated results of operations and financial position. 10. SUBSEQUENT EVENTS As of December 31, 1996, the Company continued to operate pursuant to the terms of a forbearance agreement that temporarily waived certain covenant violations of its $100 million revolving line of credit agreement. Also, at that date renewal or extension of the line of credit agreement was uncertain and that uncertainty presented a potential liquidity and funding problem for the Company. After December 31, 1996, the Company completed the actions described below to address its liquidity and funding needs for 1997. As discussed in Note 2, in late 1996 the Company decided to exit certain markets and focus on its better performing markets. Accordingly, in 1997 it commenced selling the contracts receivable that had been acquired in the certain markets and also commenced closing operations in those markets. On January 7, 1997, the Company sold contracts receivable for 102.0% of contract balance of $1,569,000. On February 19, 1997, the Company sold contracts receivable for 90.8% of contract balance of $14,504,000. On April 8, 1997, the Company sold contracts receivable for 92.7% of contracts balance of $24,669,000. 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 in exchange for cash. The remaining $3.3 million was issued to certain stockholders and relatives in exchange for a like amount of unsecured debt of the Company ($2.3 million of which was issued between January 1, 1997 and April 11, 1997) held by them. The debt is convertible at any time into approximately 4,417,000 shares of stock, has an interest rate of 12.00%, and matures in April 2000. The Company entered into a modification of its revolving line of credit agreement on April 11, 1997, concurrently with the issuance of the convertible subordinated debt described above. (See Note 4). 10. SUBSEQUENT EVENTS (CONTINUED) In early 1997 the Company decided to discontinue maintaining an auto repossession inventory for sale at its sales lots. Instead it began disposing of all repossessions more quickly primarily at auto auctions. This change is intended to accelerate the conversion of repossessions to cash and earning assets. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information contained under the caption "Matters to Come Before the Meeting" in the Company's Proxy Statement for the 1997 Annual Meeting is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information contained under the caption "Compensation of Executive Officers" in the Company's Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information contained under the caption "Certain Relationships and Transactions" in the Company's Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following financial statements of the Company and Report of Independent Auditors are included in Item 8: Report of Independent Auditors Financial Statements: Balance Sheets as of December 31, 1996 and 1995 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Statements of Stockholder's Equity for the years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements (2) The following financial statement schedules of the Company are included in Item 14(d): The schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have therefore been omitted. (3) Listing of Exhibits The exhibits filed in response to Item 601 of Regulation S-K are listed in the Index to Exhibits on pages 47 through 49. (b) The Company was not required to file a current report on Form 8-K during the quarter ended December 31, 1996, and none were filed during that period. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 15, 1997. GENERAL ACCEPTANCE CORPORATION by: /s/ Malvin L. Algood Malvin L. Algood Chairman of the Board and Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, this report has been signed by the following persons on April 15, 1997, on behalf of the Registrant and in the capacities indicated. Signature Title /s/ Malvin L. Algood Malvin L. Algood Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) /s/ Russell E. Algood Russell E. Algood President, Chief Operating Officer and Director /s/ Martin C. Bozarth Martin C. Bozarth Chief Financial Officer (Principal Financial Officer) /s/ David L. Musgrave David L. Musgrave Corporate Controller (Principal Accounting Officer) /s/ Rollin M. Dick Rollin M. Dick Director /s/ Eugene L. Henderson Eugene L. Henderson Director /s/ Donald E. Brown Donald E. Brown Director
PAGE NUMBER IN SEQUENTIAL NUMBERING SYSTEM EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - - - ------- ---------------------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation of General Acceptance Corporation (incorporated by reference to Exhibit 3.1 in the Company's Form S-1 Registration Statement, File No. 33-89520) 3.2 Bylaws of General Acceptance Corporation (incorporated by reference to Exhibit 3.2 in the Company's Form S-1 Registration Statement, File No. 33-89520) 4.1 See Exhibits 3.1 and 3.2 4.2 Specimen Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.2 in the Company's Form S-1 Registration Statement, File No. 33-89520) 4.3 Registration Rights Agreement, dated April 11, 1997, between Capitol American Life Insurance Company and General Acceptance Corporation 9.1 Stockholders' Agreement, dated April 11, 1997, between Capitol American Life Insurance Company and General Acceptance Corporation 10.21 Lease, dated May 16, 1994, between M. L. Algood, Janet Algood and Russell E. Algood and General Acceptance Corporation (incorporated by reference to Exhibit 19.21 in the Company's Form S-1 Registration Statement, File No. 33-89520) 10.23 Lease, dated October 31, 1994, between M. L. Algood, Janet Algood and General Acceptance Corporation (incorporated by reference to Exhibit 10.23 in the Company's Form S-1 Registration Statement, File No. 33-89520) 10.27 Forms of Dealer Retail Agreement and Amendment to Dealer Retail Agreement (incorporated by reference to Exhibit 10.27 in the Company's Form S-1 Registration Statement, File No. 33-89520) 10.31 Dealer Agreement, dated January 2, 1994, between Algood Chevrolet, Oldsmobile, Pontiac, Inc. and General Acceptance Corporation (incorporated by reference to Exhibit 10.31 in the Company's Form S-1 Registration Statement, File No. 33- 89520) 10.34 General Acceptance Corporation Employee Stock Option Plan (incorporated by reference to Exhibit 10.34 in the Company's Form S-1 Registration Statement, File No. 33-89520) 10.35 General Acceptance Corporation Outside Director Stock Option Plan (incorporated by reference to Exhibit 10.35 in the Company's Form S-1 Registration Statement, File No. 33- 89520) 10.36 Form of Tax Indemnification Agreement, dated as of ____, 1995, by General Acceptance Corporation and Malvin L. Algood, Russell E. Algood, Shirley A. Cook and John G. Algood, (incorporated by reference to Exhibit 10.36 in the Company's Form S-1 Registration Statement, File No. 33-89520) PAGE NUMBER IN SEQUENTIAL NUMBERING SYSTEM EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - - - ------- ---------------------------------------------------------------- 10.38 Agreement, dated September 6, 1994, between Norwest Financial Information Services Group, Inc. and General Acceptance Corporation (incorporated by reference to Exhibit 10.38 in the Company's Form S-1 Registration Statement, File No. 33- 89520) 10.40 Letter confirmation of warranty program between Wynn's and General Acceptance Corporation (incorporated by reference to Exhibit 10.40 in the Company's Form S-1 Registration Statement, File No. 33-89520) 10.66 Revolving Loan & Security Agreement, dated August 27, 1996, between Fifth Third Bank of Central Indiana and General Acceptance Corporation (incorporated by reference to Exhibit 10.66 in the Company's Form 10-Q for the quarter ended September 30, 1996) 10.67 Promissory Note, dated October 15, 1996, payable to Malvin L. Algood by General Acceptance Corporation (incorporated by reference to Exhibit 10.67 in the Company's Form 10-Q for the quarter ended September 30, 1996) 10.69 Guaranty, dated November 14, 1996, between General Electric Capital Corporation and General Acceptance Corporation Reinsurance Limited 10.70 Promissory Note, dated January 3, 1997, payable to Janet Algood by General Acceptance Corporation 10.71 Promissory Note, dated January 6, 1997, payable to John G. Algood by General Acceptance Corporation 10.72 Promissory Note, dated March 6, 1997, payable to Russell E. Algood by General Acceptance Corporation 10.73 Securities Purchase Agreement, dated April 11, 1997, between Capitol American Life Insurance Company and General Acceptance Corporation 10.74 12% Subordinated Convertible Note, dated April 11, 1997, payable by General Acceptance Corporation to Capitol American Life Insurance Company 10.75 Employment Agreement and Agreement Not to Compete, dated April 11, 1997, between Malvin L. Algood and General Acceptance Corporation 10.76 Employment Agreement and Agreement Not to Compete, dated April 11, 1997, between Russell E. Algood and General Acceptance Corporation 10.77 12% Subordinated Convertible Note, dated April 11, 1997, payable by General Acceptance Corporation to Malvin L. Algood 10.78 12% Subordinated Convertible Note, dated April 11, 1997, payable by General Acceptance Corporation to Russell E. Algood PAGE NUMBER IN SEQUENTIAL NUMBERING SYSTEM EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - - - ------- ---------------------------------------------------------------- 10.79 12% Subordinated Convertible Note, dated April 11, 1997, payable by General Acceptance Corporation to John G. Algood 10.80 12% Subordinated Convertible Note, dated April 11, 1997, payable by General Acceptance Corporation to Janet Algood 10.81 Amended and Restated Motor Vehicle Installment Contract Loan and Security Agreement, dated April 11, 1997, between General Electric Capital Corporation and General Acceptance Corporation 11.1 Statement Re: Computation of Per Share Earnings 21.1 Subsidiaries of Registrant 27.0 Financial Data Schedule
EX-27 2
5 The schedule contains summary financial information extracted from the company's audited financial statements as of and for the year ended December 31, 1996, and is qualified in its entirety by reference to such statements. 12-MOS DEC-31-1996 DEC-31-1996 1,683,429 0 117,131,302 (10,611,268) 10,052,114 0 2,539,135 0 123,646,274 0 99,477,001 0 0 29,792,573 (12,129,218) 123,646,274 0 30,968,286 0 0 17,524,748 11,525,252 9,083,824 (7,165,538) (1,915,000) (9,080,538) 0 0 0 (9,080,538) (1.51) (1.51)
EX-1 3 Exhibit 4.3 REGISTRATION RIGHTS AGREEMENT DATED AS OF APRIL 11, 1997 BY AND AMONG GENERAL ACCEPTANCE CORPORATION AND CAPITOL AMERICAN LIFE INSURANCE COMPANY G:\LEGAL\AGREEMNT\MISC\GAC-REG.3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this AAgreement@) is made as of April 11, 1997 by and between GENERAL ACCEPTANCE CORPORATION, an Indiana corporation (the ACompany@) and CAPITOL AMERICAN LIFE INSURANCE COMPANY, an Arizona life insurance corporation (the AHolder@). WHEREAS, the Company and the Holder, entered into a Securities Purchase Agreement dated as of the date hereof pursuant to which the Holder purchased 12% Subordinated Convertible Debentures in the aggregate amount of $10,000,000 (the ANote@); and WHEREAS, the Note is convertible at the option of the Holder into shares of common stock of the Company (the AConverted Stock@); and WHEREAS, it is a condition precedent to the Holder purchasing the Note (pursuant to the Securities Purchase Agreement) that this Agreement be entered into; and WHEREAS, certain capitalized terms used herein are used as defined in the Securities Purchase Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEMAND REGISTRATION 1.1. Requests for Registration. At any time, a holder of the Note or Converted Stock may demand registration under the Securities Act of all or any portion of the Registrable Securities owned by such holder. In order to accomplish such demand, a holder shall send written notice of the demand to the Company, and such notice shall specify the number of Registrable Securities sought to be registered. The Company shall proceed with any demand registration requested by a holder of the Note or Converted Stock if the number of Registrable Securities which the Holder shall have elected to include in such Demand Registration pursuant to this Section 1.1 shall be at least 51% of the Converted Stock issued or issuable upon conversion of the Note. The minimum share amounts specified in this Section 1.1 shall be appropriately adjusted to account for any stock dividend, stock split, recapitalization, merger, consolidation, reorganization or other action as a result of which additional shares of common stock of the Company are issued on account of, in conversion of or in exchange for shares of outstanding common stock. 1.2. Maximum Number of Demand Registrations. In no event shall the total number of Demand Registrations exceed two. 1.3. Procedure. Within 10 days after receipt of a demand pursuant to Section 1.1 hereof, the Company shall give written notice of such requested registration to all other Persons who have registration rights and will include in such registration, subject to the allocation provisions below, all other Registrable Securities with respect to which the Company has received written requests for inclusion within 20 days after the Company=s mailing of such notice, plus any securities of the Company that the Company chooses to include on its own behalf. 1.4. Expenses. The Company will pay the Registration Expenses of any demand registration, but the Underwriting Commissions, if such demand registration is underwritten, will be paid by the Holder in proportion to any Registrable Securities to be included on their behalf. 1.5. Priority on Demand Registrations. If a demand registration is underwritten and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities requested to be included exceeds the number that can be sold in such offering, at a price reasonably related to the fair value, the Company will allocate the Registrable Securities to be included in such demand registration, first, to the Holder of Registrable Securities pro rata on the basis of the number of Registrable Securities (collectively, the "Selling Stockholders") for which the Company has received written requests for inclusion, and, second, to the Company. 1.6. Selection of Underwriters. Any demand registration may be underwritten, at the election of the Selling Stockholders, and the selection of investment banker(s) and manager(s) and the other decisions regarding the underwriting arrangements for any such offering will be made by the Selling Stockholders; provided, however, that the selection of investment banker(s) and manager(s) shall be subject to the consent of the Company, such consent not to be unreasonably withheld. 2. PIGGYBACK REGISTRATIONS 2.1. Right to Piggyback. Whenever the Company proposes to register the offer, sale or offer and sale of any of its securities for its own behalf under the Securities Act (other than a demand registration), and the registration form to be used may be used for the registrations of Registrable Securities to be sold in the manner proposed by the Holder ("Piggyback Registration@"), the Company will give prompt written notice to the Holder and will include in such Piggyback Registration, subject to the allocation provisions below, all Registrable Securities with respect to which the Company has received written requests for inclusion within 20 days after the Company=s mailing of such notice. The Company shall not select a Restricted Form that would preclude registration of the Registrable Securities that the Company has been requested to include in such registration if the Company could use another available form of registration statement which is not a Restricted Form and the use of which would not give rise to added Registration Expenses. 2.2. Piggyback Expenses. In all Piggyback Registrations, the Company will pay the Registration Expenses related to the Registrable Securities of the Holder, but the Underwriting Commissions will be paid by the Selling Stockholders in proportion to any Registrable Securities included on their behalf. 2.3. Priority on Primary Registrations. If a Piggyback Registration is an underwritten registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in such offering, at a price reasonable related to fair value, the Company will allocate the securities to be included as follows: first, the securities the Company proposes to sell on its own behalf; and, second, Registrable Securities requested to be included in such registration, pro rata on the basis of the number of Registrable Securities owned, among the Selling Stockholders. 2.4. Withdrawal or Abandonment. Nothing contained in this Section 2 shall be construed as limiting or otherwise interfering with the right of the Company to withdraw or abandon in its sole discretion any registration statement filed by it in connection with a Piggyback Registration notwithstanding the inclusion therein of Registrable Securities. 3. HOLDBACK AGREEMENTS Both the Holder and the Company agree not to effect any public sale or public distribution of equity securities of the Company of any securities convertible into or exchangeable or exercisable for such securities during the 7 days prior to and the 180 days after any underwritten registration of equity securities of the Company becomes effective (except as part of such underwritten registration or except in connection with obligations of the Company existing on the effective date of the registration statement relating to such underwritten offering). 4. REGISTRATION PROCEDURES Whenever the Holder has requested that any Registrable Securities be registered pursuant to Section 1 of this Agreement, the Company will, as expeditiously as possible, or whenever the Holder has requested that any Registrable Securities be registered pursuant to Section 2 of this Agreement, the Company will, to the extent applicable: (a) Preparation and Filing of Registration Statement. Prepare and file with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish the Holder with copies of all such documents proposed to be filed). (b) Preparation and Filing of Amendments and Supplements. Prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the greater of (x) a period of not less than 120 days or (y) until the Registrable Securities included therein have been sold. (c) Copies of Documents. Furnish to the Holder such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus), and such other documents as the Holder may reasonably request in order to facilitate the disposition of the Registrable Securities included therein owned by the Holder. (d) Blue Sky Qualifications. Use its best efforts to register or quality such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the Holder or managing underwriters may reasonably request; provided, however, that in connection with any such registration or qualification the Company shall not be obligated to file a general consent to service of process, or to qualify to do business as a foreign corporation, or otherwise subject itself to taxation in connection with such qualification or compliance. (e) Notification of Effectiveness; Amendments. Notify the Holder at any time when a prospectus relating to the Registrable Securities included therein is required to be delivered under the Securities Act within the period that the Company is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement as theretofore amended or supplemented contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein not misleading, and, at the request of the Holder, the Company will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. (f) Listing. Cause all such Registrable Securities to be listed or included on securities exchanges on which similar securities issued by the Company are then listed or included. (g) Transfer Agent and Registrar. Provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement. (h) Other Agreements. Enter into such customary agreement (including an underwriting agreement containing customary terms and conditions, including usual and customary indemnification provisions, in form reasonably acceptable to the Company) and take such other customary actions as may be reasonable necessary to expedite or facilitate the disposition of such Registrable Securities. (i) Letters from Independent Accountants. Obtain a Acold comfort@ letter addressed to the Company from its independent accountants in such form and covering such matters of the type customarily covered by Acold comfort@ letters delivered by such public accountants. (j) Inspection of Records. Make available for inspection by the Holder, and, upon execution of a confidentiality agreement mutually acceptable to all parties, by any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by the Holder or any underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company=s officers, directors and employees to supply all information reasonably requested by the Holder or any underwriter, attorney, accountant or agent in connection with such registration statement. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Holder: 5.1. Due Organization and Good Standing. The Company is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation and is duly qualified as a foreign corporation in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a material adverse effect on the Company. 5.2. Due Authorization; Binding Effect. The execution and delivery of this Agreement by the Company has been duly authorized by all necessary corporate action and this Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 5.3. No Violation or Default. The execution and delivery by the Company of this Agreement does not, and the performance by the Company of its obligations hereunder will not, violate any provisions of its charter or by-laws or constitute a default under any other agreement to which the Company is a party or by which it or its assets may be bound. 6. REPRESENTATIONS AND WARRANTIES OF THE HOLDER The Holder represents and warrants to the Company: 6.1. Due Organization and Good Standing. The Holder is a corporation duly organized and validly existing under the laws of the state of its incorporation and is duly qualified as a foreign corporation in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a material adverse effect on the Holder. 6.2. Due Authorization; Binding Effect. The execution and delivery of this Agreement by the Holder has been duly authorized by all necessary action and this Agreement constitutes the legal, valid and binding obligation of the Holder enforceable against each of the Holder in accordance with its terms. 6.3. No Violation. The execution and delivery of this Agreement by the Holder does not, and the performance by the Holder of its obligations hereunder will not, violate any provision of the organizational documents of the Holder. 6.4. No Default. The execution and delivery of this Agreement by the Holder does not, and the performance by the Holder of its obligations hereunder will not, violate any other agreement to which the Holder is a party or by which any of its assets may be bound. 7. INFORMATION REGARDING HOLDER The Holder shall provide to the Company such information as may be reasonably requested by the Company for use in the preparation and filing of any registration statement covering Registrable Securities owned by the Holder, and the obligation of the Company to include Registrable Securities in any registration statement on behalf of the Holder shall be subject to the Holder's providing such information as promptly as practicable. 8. INDEMNIFICATION 8.1. Indemnification by the Company. The Company hereby indemnifies, to the extent permitted by law, the Holder, its officers and directors, and each person who controls such Holder (within the meaning of the Securities Act), against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading except insofar as the same occurs in reliance upon and in conformity with any information furnished in writing to the Company by the Holder expressly for use therein or is caused by the Holder=s failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished the Holder with copies of the same. 8.2. Indemnification by the Holder. In connection with any registration statement in which the Holder is participating, the participating Holder will furnish to the Company in writing such information as is reasonably requested by the Company for use in such registration statement or prospectus and will indemnify, to the extent permitted by law, the Company, its directors and officers and each person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission or such alleged untrue statement or alleged omission occurs in reliance upon and in conformity with information so furnished in writing by the Holder specifically for use in the registration statement. 8.3. Procedures as to Indemnification. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it may seek indemnification and (ii) unless in such indemnified party=s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonable satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 8.4. Contribution. If the indemnification provided for in this Section 8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense (including legal fees or expenses) as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The Company and each holder of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 8.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8, an indemnified holder shall not be required to contribute any amount in excess of the net proceeds received by the indemnified holder from the sale of the Registrable Securities. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 9. CONDITION TO THE COMPANY=S OBLIGATIONS In connection with an underwritten offering, it shall be a condition to the Company=s obligations to include Registrable Securities on behalf of the Holder that the underwriters agree to indemnify the Company, its directors and officers and each person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission or such alleged untrue statement or alleged omission is contained in information furnished in writing by such underwriters on their own behalf specifically for use in preparing the registration statement. 10. Definitions 10.1 Converted Stock. The term AConverted Stock@ means any common stock of the Company issued upon conversion of the Notes. 10.2. Registrable Securities. The term ARegistrable Securities@ means any common stock of the Company issued or issuable upon exercise of any convertible notes, warrant, or similar instruments and any securities issued or to be issued with respect to such securities by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been (i) effectively registered under the Securities Act or disposed of in accordance with the registration statement covering them or (ii) transferred pursuant to Rule 144 under the Securities Act (or any similar rule then in force). 10.3. Registration Expenses. The term ARegistration Expenses@ means all expenses incident to the Company=s performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, expenses and fees for listing the securities to be registered on exchanges or trading system on which similar securities issued by the Company are then listed or included, and fees and disbursements of counsel for the Company. 10.4. Restricted Form. The term "Restricted Form" shall mean a form of registration statement under the Securities Act which imposes for its use a limitation on the maximum value or number of securities to be included therein. 10.5. Securities Act. The term "Securities Act" shall mean the Securities Act of 1933, as amended. 10.6. Underwriting Commissions. The term AUnderwriting Commissions@ means all underwriting discounts or commissions relating to the sale of securities of the Company, but excludes any expenses reimbursed to underwriters. 11. MISCELLANEOUS 11.1. Notices. Any notices required hereunder shall be sent by certified or registered mail or telecopied and confirmed by telecopy answer back and, until changed by notice to the Holder, to the Company at 1025 Acuff Road, Bloomington, Indiana 47404, Attention Chief Financial Officer, Facsimile (812) 337-6029, and until changed by notice to the Company, to the Holder at 11825 North Pennsylvania Street, Carmel, Indiana 46032, Attention Lawrence W. Inlow, Facsimile (317) 817-6327. 11.2. Amendments and Waivers. The provisions of this Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company has obtained the prior written consent of the Holder. 11.3. Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of their respective transferees and successors. The rights to cause the Company to register Registrable Securities pursuant to this Agreement shall follow the Note or Converted Stock, and shall be exercisable by Holder of any Note or Converted Stock including any transferees of the Note or Converted Stock. 11.4. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Indiana. 11.5. Jurisdiction. The parties hereto agree to submit to personal jurisdiction and to waive any objection as to venue in the federal or state courts in the County of Hamilton or Marion, State of Indiana. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if mailed to such party at the address listed in Section 11.1 hereof. 11.6. Arbitration. If a dispute arises as to interpretation of this Agreement, it shall be decided finally by three arbitrators in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration. The arbitrators shall be appointed as follows: one by the Company, one by the Holder, and one by the two other arbitrators. The arbitration shall take place in Carmel, Indiana. The decision of a majority of the arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. Each party shall pay the fees and expenses of the arbitrator appointed by it, its counsel and its witnesses. The parties shall share equally the fees and expenses of the impartial arbitrator. 11.7. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be considered to be an original instrument and to be effective as of the date first written above. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. GENERAL ACCEPTANCE CORPORATION By /s/ Russell E. Algood Name: Russell E. Algood Title: President & COO CAPITOL AMERICAN LIFE INSURANCE COMPANY By /s/ Donald S. Gongaware Name: Donald S. Gongaware Title: President Exhibit 9.1 STOCKHOLDERS= AGREEMENT THIS STOCKHOLDERS= AGREEMENT entered into as of April 11, 1997, among GENERAL ACCEPTANCE CORPORATION (the ACompany@), CONSECO, INC. (AConseco@) and CAPITOL AMERICAN LIFE INSURANCE COMPANY (the APurchaser@), and each of the AStockholders@ listed on the signature page hereof. Capitalized terms used herein are defined in paragraph 7 hereof. The parties hereto desire to enter into this Agreement for the purposes, among others, of (i) establishing the composition of the Company=s Board of Directors (the ABoard@), (ii) limiting the manner and terms by which the Stockholders= stock may be transferred, (iii) establishing the terms of an acceptable tender offer by Conseco, and (iv) certain related matters. The execution and delivery of this Agreement is a condition to the Purchaser=s acquisition of the Company=s securities pursuant to a Securities Purchase Agreement entered into on even date herewith. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Board of Directors (a) Conseco Designee. Until such time as the Debentures are no longer outstanding, each Stockholder shall vote all of his or her Securities which are voting shares and any other voting securities of the Company over which such Stockholder has voting control and shall take all other necessary or desirable actions within his or her control (whether in his or her capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise, and including attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary or desirable actions within its control (including calling special board and stockholder meetings), so that: (i) two (2) persons designated by Conseco (individually, the AConseco Designee@ and collectively, the AConseco Designees@) shall be nominated and elected or appointed to serve on the Board; (ii) at least one (1) of the Conseco Designees shall be appointed to serve on each of the audit committee and the compensation committee of the Company; (iii) the Board shall at all times consist of six (6) directors; and A:\STOCK.3 (iv) one (1) person designated by Conseco shall be appointed in an operations capacity for the Company and such person shall be granted full rights to observe the daily operations of the Company with access to all operations information and data of the Company. In the event that any of the Conseco Designees for any reason ceases to serve as a member of the Board during his or her term of office, the resulting vacancy on the Board shall be filled by an alternative representative designated by Conseco as provided hereunder so long as the Debentures are still outstanding. Each of the Conseco Designees (or replacements thereof) shall offer to tender their resignations to the Board effective as of the date that the Debentures are no longer outstanding. (b) Stockholders= Representative So long as the Stockholders collectively own more than 10% of the issued and outstanding Common Stock, the Purchaser shall vote all of its Securities which are voting shares and any other voting securities of the Company over which the Purchaser has voting control and shall take all necessary or desirable actions within its control so that: (i) one (1) person designated by a majority in interest of the Stockholders (the AStockholders= Designee@) shall be nominated and elected or appointed to serve on the Board; (ii) the Board shall at all times consist of six (6) directors. In the event that the Stockholders= Designee for any reason ceases to serve as a member of the Board during his or her term of office, the resulting vacancy on the Board shall be filled by an alternative representative designated by the Stockholders as provided hereunder so long as the Stockholders continue to collectively own more than 10% of the issued and outstanding Common Stock. The Stockholders= Designee shall offer to tender his or her resignation to the Board effective as of the date that the Stockholders do not collectively own more than 10% of the issued and outstanding Common Stock. 2. Restrictions on Transfer of Stockholders= Securities: (a) Transfer of Stockholders= Securities. Except for Permitted Transfers (as defined in paragraph 2(b) below), no Stockholder shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law)(a ATransfer@) (i) any Securities until April 11, 1998, and (ii) so long as any of the Debentures are still outstanding, Securities which would result in the Stockholders holding in aggregate less than 51% of the Common Stock from April 12, 1998 to April 11, 2000. (b) Permitted Transfers. The restrictions set forth in paragraph 2(a) shall not apply with respect to any Transfer of Securities by any Stockholder (i) pursuant to applicable laws of descent and distribution or among the Stockholder=s Family Group or (ii) approved in advance in writing by Conseco (which approval shall be at Conseco=s sole discretion) (a APermitted Transfer@); provided that the restrictions contained in paragraph 2(a) shall continue to be applicable to the Securities after any such Transfer and provided further that the transferees of such Securities shall have agreed in writing to be bound by the provisions of this Agreement affecting the Securities so transferred. For purposes of this Agreement, AFamily Group@ means a Stockholder=s spouse and descendants (whether natural or adopted) and any trust solely for the benefit of the Stockholder and/or the Stockholder=s spouse and/or descendants. 3. Tender Offer. If Conseco makes a tender offer to all holders of Common Stock within one year from the date hereof at a price per share of Common Stock equal to or above the Market Price (as defined below), but not less than $4.00 per share of Common Stock, which is accepted by stockholders holding not less than 25% of the issued and outstanding Common Stock held by all stockholders other than the Stockholders, the Stockholders shall tender a quantity of shares of Common Stock so that their ownership interest will be less than 20% of the total shares of Common Stock issued and outstanding (including the shares of Underlying Common Stock). AMarket Price@ shall mean the average of the closing prices of a share of Common Stock, as reported by the principal stock exchange or the NASDAQ System upon which shares of Common Stock are traded, for the 20 trading days prior to the tender offer; provided, however, if the Common Stock is not listed for trading on a nationally recognized stock exchange or on the NASDAQ System on the day before the tender offer, the AMarket Price@ shall be determined by a recognized appraisal or investment banking firm selected by the Board. 4. Approval at Stockholders= Meeting. Each Stockholder shall vote all of his or her Securities which are voting shares and any other voting securities of the Company over which such Stockholder has voting control and shall take all other necessary or desirable actions within his or her control (whether in his or her capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise, and including attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary or desirable actions within its control (including calling special board or stockholder meetings), so that the issuance and sale of the Debentures to the Purchaser, including but not limited to and the conversion feature of the Debentures, is approved and ratified at the next meeting of the stockholders of the Company. 5. Legend. Each certificate evidencing Securities subject to this Agreement and each certificate issued in exchange for or upon the transfer of any such Securities shall be stamped or otherwise imprinted by the Company with a legend in substantially the following form: AThe securities represented by this certificate are subject to a Stockholders= Agreement dated as of April 11, 1997, among General Acceptance Corporation (the ACompany@), certain of the Company=s stockholders, Conseco, Inc. and Capitol American Life Insurance Company, as amended and modified from time to time. A copy of such Stockholders= Agreement shall be furnished without charge by the Company to the holder hereof upon written request.@ 6. Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Securities in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Securities as the owner of such shares for any purpose. 7. Representations and Warranties. (a) Each Stockholder and Purchaser represents and warrants for himself, herself or itself, severally and not jointly, that: (i) such Stockholder or Purchaser is the record or beneficial owner of the Securities set forth opposite his, her or its name on Exhibit A attached hereto (subject to adjustment in the case of the Purchaser), (ii) this Agreement has been duly authorized, executed and delivered by such Stockholder or Purchaser and constitutes the valid and binding obligation of such Stockholder or Purchaser enforceable in accordance with its terms, and (iii) such Stockholder or Purchaser has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates any provisions of this Agreement. (b) No party to this Agreement shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. 8. Definitions. AAlgood Debentures@ shall collectively mean those 12% Subordinated Convertible Notes of like tenor and effect as the Debentures in the aggregate sum of up to $3,250,000 issued to J.G. Algood, M.L. Algood, Janet Algood, and R.E. Algood in exchange for 12% demand promissory notes dated October 15, 1996, January 3, 1997, January 6, 1997 and March 6, 1997 in such aggregate principal amount. ABoard@ has the meaning set forth in the preamble. ACommon Stock@ means the Company=s Common Stock, no par value. ACompany@ has the meaning set forth in the preamble. AConseco@ has the meaning set forth in the preamble. AConseco Designee(s)@ has the meaning set forth in paragraph 1(a)(i). ADebentures@ means the 12% Subordinated Convertible Notes of the Company purchased by the Purchaser pursuant to the Securities Purchase Agreement. APermitted Transfer@ has the meaning set forth in paragraph 2(b). APerson@ means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. APurchaser@ has the meaning set forth in the preamble. ARegistration Rights Agreement@ means the registration rights agreements by and between the Company and the Purchaser dated as of the date hereof. ASecurities Act@ means the Securities Act of 1933, as amended from time to time. ASecurities@ means (i) any Common Stock, preferred stock or other equity securities of the Company, (ii) any options, warrants or other rights to acquire equity securities of the Company, including any convertible debentures and (iii) any direct or indirect interest in any of the above. ASecurities Purchase Agreement@ means the Securities Purchase Agreement dated as of an even date herewith by and between the Company and the Purchaser. AStockholders@ has the meaning set forth in the preamble. AStockholders= Designee@ has the meaning set forth in paragraph 1(b)(i). ATransfer@ has the meaning set forth in paragraph 2(a). AUnderlying Common Stock@ means the shares of the Common Stock issued or issuable upon conversion of the Debenture purchased pursuant to the Securities Purchase Agreement or the Algood Debentures. 9. Amendment and Waiver. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement will be effective unless such modification, amendment or waiver is approved in writing by the Company, Conseco, the Purchaser and Stockholders owning at least 60% of the Securities owned by the Stockholders. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 10. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 11. Entire Agreement. Except as otherwise expressly set forth herein, this Agreement together with the Securities Purchase Agreement and the exhibits thereto (including, but not limited to, the Registration Rights Agreement) embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 12. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by each of the parties hereto and their respective successors and assigns and any permitted subsequent holders of the Securities, so long as they hold Securities subject to this Agreement. 13. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. 14. Remedies. The parties hereto shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that the parties hereto may in their sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. 15. Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) or telecopied and confirmed by telecopy answer back to the respective address set forth below and to any subsequent holder of Securities subject to this Agreement at such address as indicated by the Company=s records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices shall be deemed to have been given hereunder when delivered personally, three days after deposit in the U.S. mail, and upon receipt if the same shall have been telecopied and confirmed by telecopy answer back one day after deposit with a reputable overnight courier service. If to the Company, at: General Acceptance Corporation 1025 Acuff Road Bloomington, IN 47404 Attention: Chief Financial Officer Facsimile: (812) 337-6029 With copies to: Hackman, McClarnon, Hulett & Cracraft 2400 One Indiana Square Indianapolis, IN 46204 Attention: Marvin Hackman Facsimile: (317) 686-3288 and Mr. Russell Algood 2800 South Olcott Boulevard Bloomington, Indiana 47401 If to Conseco or the Purchaser, at: Conseco, Inc. 11825 N. Pennsylvania Street Carmel, IN 46214 Attention: Lawrence W. Inlow Facsimile: (317) 817-6327 If to the Stockholders, at: Mr. Russell Algood 2800 South Olcott Boulevard Bloomington, Indiana 47401 16. Governing Law. The laws of the State of Indiana shall govern this Agreement without giving effect to any choice of law or conflict of law rules or provisions. 17. Jurisdiction. The parties hereto agree to submit to personal jurisdiction and to waive any objection as to venue in the federal or state courts in the County of Hamilton or Marion, State of Indiana. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if mailed to such party at the address listed in paragraph 14 hereof. 18. Arbitration. If a dispute arises as to interpretation of this Agreement, it shall be decided finally by three arbitrators in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration. The arbitrators shall be appointed as follows: one by the Stockholders, one by Conseco, and one by the two other arbitrators. The arbitration shall take place in Carmel, Indiana. The decision of a majority of the arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. Each party shall pay the fees and expenses of the arbitrator appointed by it, its counsel and its witnesses. The parties shall share equally the fees and expenses of the impartial arbitrator. 19. Descriptive Headings. The descriptive headings and captions of this Agreement and the Exhibits attached hereto are inserted for convenience only and do not constitute a part of this Agreement. A:\STOCK.3 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. GENERAL ACCEPTANCE CORPORATION By: /s/ Russell E. Algood CONSECO, INC. By: /s/ Stephen C. Hilbert CAPITOL AMERICAN LIFE INSURANCE COMPANY By: /s/ Donald S. Gongaware ASTOCKHOLDERS@ /s/ Malvin L. Algood Malvin L. Algood /s/ Russell E. Algood Russell E. Algood /s/ John G. Algood John G. Algood /s/ Janet Algood Janet Algood /s/ Shirley Cook Shirley Cook Exhibit 10.69 GUARANTY As an inducement to General Electric Capital Corporation ("Lender") to provide financing to General Acceptance Corporation ("Borrower"), but without in any way binding Lender to do so, the undersigned ("Guarantor") hereby guaranties to Lender the due, regular and punctual payment and prompt performance of all debts and other obligations of any kind or character which Borrower now owes Lender or which Borrower shall at any time or from time to time hereafter owe Lender, regardless of any change in Borrower's name, entity, or ownership. Guarantor also agrees to pay to Lender all costs incurred by Lender in the collection and enforcement of the debts and obligations of Borrower to Lender. The liability of Guarantor hereunder is direct, unconditional, absolute and may be enforced without requiring Lender first to resort to any right or remedy Lender has as to Borrower or any third parties with regard to Borrower's debts and obligations to Lender or to foreclose or exhaust any security therefor. Guarantor shall not have any right of reimbursement, indemnity, subrogation or security enforceable against Borrower, nor otherwise be a creditor of Borrower, with respect to payments to Lender to the extent such rights or creditor status would make payments to Lender a preference recoverable from Lender. Nothing shall discharge or satisfy the liability of Guarantor hereunder except the full payment and performance of all of Borrower's debts and obligations to Lender. Any and all present and future debts and obligations of Borrower to Guarantor are hereby postponed in favor of and subordinated to the full payment and performance of all present and future debts and obligations of Borrower to Lender. Guarantor has made an independent investigation of the financial condition and affairs of Borrower prior to entering into this Guaranty and has not relied upon any representation made by Lender as to the financial condition, operation or creditworthiness of Borrower. Guarantor further agrees that Lender shall have no duty or responsibility now or hereafter to make any investigation or appraisal of Borrower, or the security for Borrower's debts and obligations to Lender, on behalf of Guarantor or to provide Guarantor with any information which may come to Lender's attention now or hereafter, whether or not such information could materially increase the risk of Guarantor hereunder. Notice of acceptance of this Guaranty, of any default by Borrower, and of any adverse change in Borrower's financial condition or of any other fact which might materially increase the risk of Guarantor hereunder is hereby waived. Presentment, protest and demand, and notice of protest and demand are hereby waived. Guarantor authorizes Lender without notice or demand and without affecting the obligations of Guarantor hereunder, with respect to any debt or obligation of Borrower to Lender, to extend the time of payment (without limit as to the number or term of extensions) or waive strict compliance of any other term thereof, to renew or otherwise modify the terms thereof, to waive or release any security therefor, to release a guarantor or other party liable therefor, and to enter or grant any settlement, release, compromise, composition, account stated or agreed balance with or to Borrower or any third party, and Guarantor agrees that the foregoing actions shall not diminish Guarantor's obligations hereunder. GUARANTOR WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS GUARANTY. To the extent allowed by law, Guarantor hereby confesses judgment, and acknowledges to be indebted unto and in favor of Lender, for the full amount of all obligations due to Lender by Borrower, and consents to Lender filing this Guaranty as evidence of judgment. This Guaranty remains fully enforceable irrespective of any defenses which Borrower could assert on the underlying debt, including but not limited to failure of consideration, breach of warranty, fraud, payment, accord and satisfaction, strict foreclosure, statute of frauds, bankruptcy, infancy, statute of limitations, lender liability, and usury. If Borrower or Guarantor should at any time become insolvent or make a general assignment, or a petition in bankruptcy or any insolvency or reorganization proceedings shall be filed or commenced by or against Borrower or Guarantor, any and all obligations of Guarantor pursuant to this Guaranty shall not be lessened by such petitions, assignments or filings and shall, at Lender's option, forthwith become due and payable without notice. In the event of default in the performance of this Guaranty, Guarantor agrees to pay all reasonable court costs, attorney's fees and other expenses paid or incurred by Lender in the enforcement hereof. This Guaranty is a continuing guaranty which shall remain effective until terminated as provided herein. Guarantor may terminate this Guaranty upon at least sixty (60) days prior written notice received by Lender and sent by registered or certified mail, return receipt requested. Notwithstanding such termination, however, this Guaranty shall remain effective as to all financing provided, or committed to be provided, by Lender to or for the benefit of Borrower prior to the effective date of termination and this Guaranty shall be continuing and unconditional until the same are fully paid, performed and discharged. This Guaranty supersedes all prior writings, and all prior and contemporaneous oral understandings, regarding this Guaranty. Without Lender's prior written consent, no assignment or delegation of any rights or duties by Guarantor shall be effective to relieve Guarantor of its obligations hereunder. Lender can at any time assign or delegate any rights or duties arising under this Guaranty. This Guaranty shall inure to the benefit of Lender's successors and assigns. Guarantor agrees to provide financial statements for Guarantor when requested by Lender. This Guaranty shall be governed by and construed in accordance with the laws of the State of Illinois. The undersigned hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Illinois and of the United States of America located in the State of Illinois for any action, suit or proceeding arising out of or relating to this Guaranty and the transactions contemplated hereby this Agreement, and further agrees that service of any process, summons, notice or document by U.S. registered mail to its address set forth below shall be effective service of process for any action, suit or proceeding brought in connection with this Agreement in any such court. Signatures to follow on next page Guarantor acknowledges that Guarantor has read this Guaranty, has consulted with counsel to the extent Guarantor deemed advisable, understands this Guaranty and desires to be bound by it. Dated: November 14, 1996 General Acceptance Corporation Witness: /s/ Martin C. Bozarth Reinsurance, Ltd. By: /s/ Russell E. Algood Martin C. Bozarth Print Witness Name Title: President & COO Russell E. Algood Print Witness Address and Phone No. Print Name of Person Signing 1025 Acuff Road Bloomington, IN 47404 812-337-6023 Exhibit 10.70 PROMISSORY NOTE Date: January 3, 1997 Due: Demand Amount: up to $1,000,000 For Value Received, the undersigned, General Acceptance Corporation, an Indiana Corporation (Borrower) promises to pay to the order of Janet Algood at Bloomington, Indiana, or such other place as the holder hereof may designate in writing, the principal sum of up to five hundred thousand dollars or so much thereof as may be advanced and outstanding from time to time, together with interest on the unpaid principal balance existing from time to time: (1) From the date of delivery hereof until maturity, whether by acceleration or otherwise at the rate of 12%. Accrued interest shall be due and payable on the first day of each month commencing February 1, 1997. In any and all events the entire remaining unpaid principal balance of this Note, together with any remaining accrued but unpaid interest thereon shall be due and payable on demand. Interest shall accrue on the basis of a three hundred sixty (360) day year and be paid for the actual number of days outstanding. Borrower may prepay the outstanding principal of this Note in whole or in part without premium or penalty. If default is made in the payment of any installment or installments of interest or principal and interest, as herein provided, when due, or in the performance of any of the terms, agreements, covenants or conditions contained in the Note or under any other agreement Borrower has then in any of such events, or at any time thereafter, the entire principal of this Note, irrespectively of the maturity date specified herein, together with attorney=s fees incurred in collection or enforcing payment or performance hereof and interest from the date of such default on the unpaid principal balance hereof at the default rate hereinabove specified, shall at the election of the holder hereof, and without relief from valuation or appraisement laws, become immediately due and payable. The rights and remedies of the holder hereof as provided in this Note shall be cumulative and concurrent, and may be pursued singly, successively or together. The failure to exercise any such right or remedy on any one or more occasions shall in no event be constructed as a waiver of the right to the later exercise thereof, or as the release thereof. Borrower waives demand, presentment for payment, notice of dishonor, protest and notice of protest, and expressly agrees that this Note and any payment coming due under it may be extended or otherwise modified, from time to time without in any way affecting its liability hereunder. This note shall be construed according to and governed by the laws of the State of Indiana. IN WITNESS WHEREOF, Borrower has executed this Note as of the date first hereinabove written. General Acceptance Corporation BY: /s/ Martin C. Bozarth Martin C. Bozarth CFO Printed Name Title Exhibit 10.71 PROMISSORY NOTE Date: January 6, 1997 Due: Demand Amount: up to $500,000.00 For Value Received, the undersigned, General Acceptance Corporation, an Indiana Corporation (Borrower) promises to pay to the order of J. G.. Algood at Bloomington, Indiana, or such other place as the holder hereof may designate in writing, the principal sum of up to five hundred thousand dollars or so much thereof as may be advanced and outstanding from time to time, together with interest on the unpaid principal balance existing from time to time: (1) From the date of delivery hereof until maturity, whether by acceleration or otherwise at the rate of 12%. Accrued interest shall be due and payable on the first day of each month commencing February 1, 1997. In any and all events the entire remaining unpaid principal balance of this Note, together with any remaining accrued but unpaid interest thereon shall be due and payable on demand. Interest shall accrue on the basis of a three hundred sixty (360) day year and be paid for the actual number of days outstanding. Borrower may prepay the outstanding principal of this Note in whole or in part without premium or penalty. If default is made in the payment of any installment or installments of interest or principal and interest, as herein provided, when due, or in the performance of any of the terms, agreements, covenants or conditions contained in the Note or under any other agreement Borrower has then in any of such events, or at any time thereafter, the entire principal of this Note, irrespectively of the maturity date specified herein, together with attorney=s fees incurred in collection or enforcing payment or performance hereof and interest from the date of such default on the unpaid principal balance hereof at the default rate hereinabove specified, shall at the election of the holder hereof, and without relief from valuation or appraisement laws, become immediately due and payable. The rights and remedies of the holder hereof as provided in this Note shall be cumulative and concurrent, and may be pursued singly, successively or together. The failure to exercise any such right or remedy on any one or more occasions shall in no event be constructed as a waiver of the right to the later exercise thereof, or as the release thereof. Borrower waives demand, presentment for payment, notice of dishonor, protest and notice of protest, and expressly agrees that this Note and any payment coming due under it may be extended or otherwise modified, from time to time without in any way affecting its liability hereunder. This note shall be construed according to and governed by the laws of the State of Indiana. IN WITNESS WHEREOF, Borrower has executed this Note as of the date first hereinabove written. General Acceptance Corporation BY: /s/ Martin C. Bozarth Martin C. Bozarth CFO Printed Name Title Exhibit 10.72 PROMISSORY NOTE Date: March 6, 1997 Due: Demand Amount: up to $750,000.00 For Value Received, the undersigned, General Acceptance Corporation, an Indiana Corporation (Borrower) promises to pay to the order of R. E. Algood at Bloomington, Indiana, or such other place as the holder hereof may designate in writing, the principal sum of up to five hundred thousand dollars or so much thereof as may be advanced and outstanding from time to time, together with interest on the unpaid principal balance existing from time to time: (1) From the date of delivery hereof until maturity, whether by acceleration or otherwise at the rate of 12%. Accrued interest shall be due and payable on the first day of each month commencing April 1, 1997. In any and all events the entire remaining unpaid principal balance of this Note, together with any remaining accrued but unpaid interest thereon shall be due and payable on demand. Interest shall accrue on the basis of a three hundred sixty (360) day year and be paid for the actual number of days outstanding. Borrower may prepay the outstanding principal of this Note in whole or in part without premium or penalty. If default is made in the payment of any installment or installments of interest or principal and interest, as herein provided, when due, or in the performance of any of the terms, agreements, covenants or conditions contained in the Note or under any other agreement Borrower has then in any of such events, or at any time thereafter, the entire principal of this Note, irrespectively of the maturity date specified herein, together with attorney=s fees incurred in collection or enforcing payment or performance hereof and interest from the date of such default on the unpaid principal balance hereof at the default rate hereinabove specified, shall at the election of the holder hereof, and without relief from valuation or appraisement laws, become immediately due and payable. The rights and remedies of the holder hereof as provided in this Note shall be cumulative and concurrent, and may be pursued singly, successively or together. The failure to exercise any such right or remedy on any one or more occasions shall in no event be constructed as a waiver of the right to the later exercise thereof, or as the release thereof. Borrower waives demand, presentment for payment, notice of dishonor, protest and notice of protest, and expressly agrees that this Note and any payment coming due under it may be extended or otherwise modified, from time to time without in any way affecting its liability hereunder. This note shall be construed according to and governed by the laws of the State of Indiana. IN WITNESS WHEREOF, Borrower has executed this Note as of the date first hereinabove written. General Acceptance Corporation BY: /s/ Martin C. Bozarth Martin C. Bozarth CFO Printed Name Title Exhibit 10.73 SECURITIES PURCHASE AGREEMENT Dated as of April 11, 1997 between GENERAL ACCEPTANCE CORPORATION and CAPITOL AMERICAN LIFE INSURANCE COMPANY iii G:\LEGAL\AGREEMNT\SECPUR\GENERAL.3 TABLE OF CONTENTS Section Page 1. Definitions 1 2. The Purchase of Securities 2.1. Sale and Purchase of Securities 8 2.2. Use of Proceeds 9 3. Conditions Precedent 3.1. Conditions to the Purchase 9 4. Representations and Warranties of the Purchaser 4.1. Organization 11 4.2. Due Execution, Delivery and Performance of the Agreement 11 4.3. Investment Representation 11 5. Representations and Warranties of the Company 5.1. Corporate Existence; Compliance with Law 12 5.2. Executive Offices 13 5.3. Subsidiaries 13 5.4. Corporate Power; Authorization; Enforceable Obligations 13 5.5. SEC Documents 14 5.6. Absence of Certain Changes or Events 14 5.7. Interim Financial Statements; Absence of Undisclosed Liabilities 15 5.8. Projections 16 5.9. Ownership of Property 16 5.10. No Default 16 5.11. Employment Matters 17 5.12. Other Ventures 17 5.13. Taxes 17 5.14. ERISA 18 5.15. No Litigation 20 5.16. Employment and Labor Agreements 20 5.17. Other Contracts 20 5.18. Patents, Trademarks, Copyrights and Licenses 20 5.19. Licenses 21 5.20. Capital Structure of the Company 21 5.21. Investment Company Act 22 5.22. Underwriting Guidelines 22 5.23. Broker=s or Finder=s Fee 22 5.24. Disclosure 22 6. Financial Statements and Information 6.1. Reports and Notices 22 6.2. Certificates; Other Information 25 Section Page 7. Affirmative Covenants 7.1. Maintenance of Existence and Conduct of Business 26 7.2. Payment of Obligations 26 7.3. Books and Records 26 7.4. Litigation 27 7.5. Insurance 27 7.6. Compliance with Law 27 7.7. Agreements 27 7.8. Employee Plans 27 7.9. Access 29 7.10. Board Representation; Board Observer 29 8. Negative Covenants 8.1. Mergers, Etc. 30 8.2. Amendment of Certificate of Incorporation 30 8.3. Investments; Loans and Advances 30 8.4. Indebtedness 30 8.5. Employee Loans 31 8.6. Transactions with Affiliates 31 8.7. Liens 31 8.8. Capital Expenditures 31 8.9. Sales of Assets 31 8.10. Cancellation of Indebtedness 32 8.11. ERISA 32 8.12. Tax Sharing 32 9. Events of Default; Rights and Remedies 9.1. Events of Default 32 9.2. Remedies 35 10. Triggering Events 10.1. Events 35 10.2. Payment Acceleration 35 10.3. Redemption 35 10.4. Funds Unavailable 36 10.5. Notice 36 11. Right of First Refusal 36 12. Securities Law Matters 37 13. Miscellaneous 13.1. Press Releases 37 13.2. Expenses 37 13.3. Indemnification 37 Section Page 13.4. Assignment 38 13.5. Remedies 38 13.6. Waiver of Jury Trial 38 13.7. Arbitration 39 13.8. Severability 39 13.9. Parties 39 13.10. Conflict of Terms 39 13.11. Governing Law 39 13.12. Notices 40 13.13. Survival 41 13.14. Section Titles 41 13.15. Counterparts 41 13.16. Algood Debentures 41 EXHIBIT A - FORM OF DEBENTURE EXHIBIT B - FORM OF REGISTRATION RIGHTS AGREEMENT EXHIBIT C - FORM OF STOCKHOLDERS' AGREEMENT EXHIBIT D - FORM OF OPINION OF COUNSEL EXHIBIT E - FORM OF EMPLOYMENT AGREEMENT FOR MALVIN ALGOOD EXHIBIT F - FORM OF EMPLOYMENT AGREEMENT FOR RUSSELL ALGOOD SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT, dated as of April 11, 1997 by and among GENERAL ACCEPTANCE CORPORATION, an Indiana corporation (the "Company") and CAPITOL AMERICAN LIFE INSURANCE COMPANY, an Arizona life insurance corporation (the APurchaser@). W I T N E S S E T H: WHEREAS, upon the terms and conditions hereinafter provided, the Company has agreed to issue and sell to the Purchaser, and the Purchaser has agreed to purchase from the Company, $10,000,000 of 12% Subordinated Convertible Notes of the Company in substantially the form attached hereto as Exhibit A (the "Debentures") convertible into shares of Common Stock, no par value, of the Company (the "Common Stock") (the Debentures and the Common Stock are together referred to herein as the "Securities"). NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows: I. DEFINITIONS In addition to the defined terms appearing above, capitalized terms used in this Agreement shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings when used herein: "Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether of record or beneficially, or as a trustee, guardian or other fiduciary, 5 percent or more of the Stock having ordinary voting power in the election of directors of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, or (iii) each of such Person's officers, directors and general partners. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. For purposes of this definition the Purchaser shall not be deemed to be an Affiliate of the Company or any of the Affiliates of the Company by reason of the purchase of the Debentures. "Agreement" shall mean this Securities Purchase Agreement, including all amendments, modifications and supplements hereto and any appendices, exhibits or schedules to any of the foregoing, and shall refer to this Securities Purchase Agreement as the same may be in effect at the time such reference becomes operative. AAlgood Debentures@ shall collectively mean those 12% Subordinated Convertible Notes of like tenor and effect as the Debentures in the aggregate sum of up to $3,250,000 issued to J.G. Algood, M.L. Algood, Janet Algood, and R.E. Algood in exchange for 12% demand promissory notes dated October 15, 1996, January 3, 1997, January 6, 1997 and March 6, 1997 in such aggregate principal amount. "Ancillary Agreements" shall mean any supplemental agreement, undertaking, instrument, document or other writing executed by the Company or any of its Subsidiaries or by any of their Stockholders as a condition to purchasing any of the Securities under this Agreement or otherwise in connection herewith, including, without limitation, the Stockholders' Agreement and the Registration Rights Agreement. "Board" shall mean the Company's Board of Directors. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Indiana. "Capital Lease" shall mean any obligation that is required to be classified and accounted for as a capital lease on the face of a balance sheet of such person prepared in accordance with generally accepted accounting principles; and the amount of such obligations shall be the capitalized amount thereof, determined in accordance with generally accepted accounting principles. "Capital Expenditures" shall mean all payments for any fixed assets or improvements (whether paid in cash or accrued as liabilities, and including in all events all amounts expended or capitalized under capital leases and any expenditures financed by anybody during that period), including, without limitation, computer software and computer software licenses, or for replacements, substitutions or additions thereto, that have a useful life of more than one year and which are required to be capitalized under GAAP. "Charges" shall mean all Federal, state, county, city, municipal, local, foreign or other governmental taxes at the time due and payable, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) the Obligations, (ii) the Company or any of its Subsidiaries' employees, payroll, income or gross receipts, (iii) the Company or any of its Subsidiaries' ownership or use of any of its assets, or (iv) any other aspect of the Company or any of its Affiliates' business, in each case including any and all interest and penalties. "Closing Date" shall mean that date upon which the Closing occurs and shall be a date agreed upon between the Company and the Purchaser and "Closing" shall mean the moment on the Closing Date on which the purchase and sale of the Securities is made. "Company=s Stock Option Plan" shall mean the General Acceptance Corporation Employee Stock Option Plan and the General Acceptance Corporation Outside Directors= Stock Option Plan, collectively. AConseco Directors@ shall mean the individuals designated by Conseco, Inc. pursuant to the Stockholders= Agreement to be elected to the Board. "Default" shall mean any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time. "ERISA Affiliate" shall mean, with respect to the Company, any trade or business (whether or not incorporated) under common control with the Company and which, together with the Company, are treated as a single employer under Section 414(b), (c), (m) or (o) of the IRC. "ERISA Event" shall mean, with respect to the Company or any ERISA Affiliate, (i) a Reportable Event with respect to a Title IV Plan or a Multiemployer Plan; (ii) the withdrawal of the Company, any of its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal of the Company, any of its Subsidiaries or any ERISA Affiliate from any Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (v) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (vi) the failure to make required contributions to a Qualified Plan; or (vii) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA. "Event of Default" shall have the meaning assigned to it in Section 9.1 hereof. "Financials" shall mean the financial statements referred to in Section 6.1(a) and (b) hereof. "Financing Agreements" shall mean the following agreements, together with the related documents thereto, in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, refunding, replacing or otherwise restructuring all or any portion of the indebtedness under such agreement or any successor or replacement agreement: Amended and Restated Motor Vehicle Installment Contract Loan and Security Agreement by and between the Company and General Electric Capital Corporation (AGECC@) dated as of April 11, 1997; and Revolving Loan and Security Agreement by and between the Company and Fifth Third Bank of Central Indiana dated as of August 27, 1996. "Fiscal Year" shall mean the calendar year. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured), but not including accounts payable and other obligations to trade creditors and normal operating expenses characterized as liabilities incurred in the ordinary course of business, (ii) all obligations evidenced by notes, bonds, debentures or similar instruments (except where such instruments evidence repayment of amounts referred to in subparagraph (i)), (iii) all Capital Lease Obligations, and (iv) in the case of the Company, the Debentures. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "Licenses" shall have the meaning assigned to such term in Section 5.19; individually a "License." "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, Charge, claim, security interest, easement or encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any Capital Lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction). "Material Adverse Effect" shall mean any material adverse effect on the business, assets, operations, or financial or other condition or prospects of the Company or any of its Subsidiaries. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which the Company, any of its Subsidiaries or any ERISA Affiliate is obligated to make, or has made or been obligated to make, contributions on behalf of participants who are employed by any of them. "Obligations" shall mean any principal, interest, premium, penalties, fees and other liabilities and obligations due under the documentation governing any Indebtedness (including interest after the commencement of any bankruptcy, insolvency, rehabilitation, liquidation, conservation, supervision or similar proceedings). "Other Taxes" shall mean any present or future stamp or documentary taxes or any other sales, transfer, excise or property taxes, charges or similar levies that arise from any payment made with respect to this Agreement or the Ancillary Agreements and any other agreements and instruments contemplated thereby. "Parent" shall mean, as to any corporate entity, the Person who owns 100 percent of the capital stock of such entity. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" shall mean an employee pension benefit plan, as defined in Section (3)(2) of ERISA (other than a Multiemployer Plan), which is not an individual account plan, as defined in Section 3(34) of ERISA, and which the Company, any of its Subsidiaries or, if a Title IV Plan, any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for taxes or assessments or other governmental charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of this Agreement; (ii) pledges or deposits securing obligations under worker's compensation, unemployment insurance, social security or public liability laws or similar legislation; (iii) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which the Company or any of its Subsidiaries is a party as lessee made in the ordinary course of business; (iv) deposits securing public or statutory obligations of the Company or any of its Subsidiaries; (v) workers', mechanics, suppliers', carriers', warehousemen's or other similar liens arising in the ordinary course of business and securing indebtedness aggregating not in excess of $50,000 at any time outstanding, not yet due and payable; (vi) deposits securing or in lieu of surety, appeal or customs bonds in proceedings to which the Company or any of its Subsidiaries is a party, provided that such deposits could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect; (vii) pledges or deposits effected by the Company or any of its Subsidiaries as a condition to obtaining or maintaining any License of such Person; (viii) any attachment or judgment lien, unless the judgment it secures shall not, within 90 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 90 days after the expiration of any such stay; (ix) all Liens securing Senior Indebtedness; and (x) zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real property, leases or leasehold estates. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Plan" shall mean an employee benefit plan, as defined in Section 3(3) of ERISA, which the Company or any of its Subsidiaries maintains or makes or is obligated to make contributions to on behalf of participants who are or were employed by any of them. "Qualified Plan" shall mean an employee pension benefit plan, as defined in Section 3(2) of ERISA, which is intended to be tax-qualified under Section 401(a) of the IRC, and which the Company, any of its Subsidiaries or any ERISA Affiliate maintains or makes or is obligated to make contributions to on behalf of participants who are or were employed by any of them. "Registration Rights Agreement" shall mean the Registration Rights Agreement by and among the Company and the Purchaser dated as of the date hereof and in substantially the form attached hereto as Exhibit B. "SEC" shall mean the Securities and Exchange Commission. "SEC Documents" shall mean all reports, schedules, forms, statements and other documents required to be filed with the SEC. "Securities Act" shall mean the Securities Act of 1933, as amended. "Senior Indebtedness" shall mean all Indebtedness under the Financing Agreements whether or not existing or hereinafter incurred and whether fixed or contingent. "Stock" shall mean all shares, options, warrants, general or limited partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). "Stockholders" shall mean, with respect to any Person, all of the holders of Stock of such Person immediately following the Closing Date. AStockholders= Agreement@ shall mean that certain Stockholders= Agreement dated as of the date hereof by and among the Company, certain Stockholders of the Company, the Purchaser and Conseco, Inc., substantially in the form attached hereto as Exhibit C. "Subsidiary" shall mean, with respect to any Person, (a) any corporation of which an aggregate of 50 percent or more of the outstanding Stock (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, and (b) any partnership in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of 50 percent or more. "Taxes" shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of the Purchaser by the jurisdictions under the laws of which the Purchaser are organized or is engaged in business (other than by reason of the transactions contemplated by this Agreement or the Ancillary Agreements) or any political subdivision thereof. "Title IV Plan" shall mean a Pension Plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA. "Transactions" shall mean the purchase and sale of the Securities as described in the recitals to this Agreement, and all transactions related or incidental thereto. "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (i) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions in effect under such Title IV Plan, and (ii) for a period of five (5) years following a transaction reasonably likely to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by the Company, any of its Subsidiaries or any ERISA Affiliate as a result of such transaction. "Withdrawal Liability" shall mean, at any time, the aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in contributions pursuant to Section 4243 of ERISA with respect to all Multiemployer Plans. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied and consistent with the Financials. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented and not to any particular section, subsection or clause contained in this Agreement. As used herein, the word "or" is not exclusive. AThe knowledge of the Company@ shall mean the knowledge of the chairman of the Board, the president of the Company or the chief financial officer of the Company. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. II. THE PURCHASE OF SECURITIES 2.1. Sale and Purchase of Securities. (a) Subject to the terms and conditions herein, on the Closing Date, the Purchaser agrees to purchase from the Company, and the Company agrees to issue and sell to the Purchaser, Debentures for an aggregate purchase price of $10,000,000. The Debentures shall be in the form attached hereto as Exhibit A. The Closing shall take place in Indianapolis, Indiana on the Closing Date. On the Closing Date, the Company will deliver to the Purchaser the Debentures sold by the Company, against delivery by the Purchaser of the purchase price to the Company in immediately available funds. 2.2. Use of Proceeds. The Company shall use the proceeds of the sale of the Securities to purchase and originate automobile loans and leases and to purchase automobiles and fund working capital needs in connection with such purchases and originations and for other purposes set forth in the Company's projections which have been delivered to the Purchaser. III. CONDITIONS PRECEDENT 3.1. Conditions to the Purchase. Notwithstanding any other provision of this Agreement and without affecting in any manner the rights of the Purchaser hereunder, the Company shall have no rights under this Agreement (but shall have all applicable obligations hereunder), and the Purchaser shall not be obligated to make the purchases of the Securities hereunder, unless and until each of the following conditions precedent shall have been fulfilled or waived by the Purchaser, and the Company shall have delivered, where applicable, in form and substance satisfactory to the Purchaser, and (unless otherwise indicated) each dated the Closing Date: (a) All of the representations and warranties of the Company contained in this Agreement or in any of the Ancillary Agreements shall be correct in all material respects as though made on and as of the Closing Date, except to the extent that any such representation or warranty expressly relates to an earlier date. (b) The Purchaser shall have received a written certification by the chief financial officer of the Company as to the matters set forth in Section 3.1(a) hereof. (c) A favorable opinion of counsel for the Company substantially in the form attached hereto as Exhibit D, it being understood that to the extent that such opinion of counsel shall rely upon any other opinion of counsel, each such other opinion shall be in form and substance satisfactory to the Purchaser and shall provide that the Purchaser may rely thereon. (d) Resolutions of the Board certified by the Secretary or Assistant Secretary of the Company, to be dated, duly adopted and in full force and effect as of the Closing Date, authorizing (i) the consummation of the Transactions, (ii) specific officers to execute and deliver the Ancillary Agreements and (iii) appointing the Conseco Directors to the Board. (e) Certificates of the secretary or an assistant secretary of the Company, dated the Closing Date, as to the incumbency and signatures of the officers or representatives of such entity executing this Agreement and the Ancillary Agreements and any other certificates or other documents to be delivered pursuant hereto or thereto, together with evidence of the incumbency of such secretary or assistant secretary. (f) Certificate of Existence from the Indiana Secretary of State, dated the most recent practicable date prior to the Closing Date, showing that the Company is organized and in good standing in the State of Indiana. (g) Each consent, license and approval required in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the Ancillary Agreements, and the consummation of the Transactions; such consents, licenses and approvals shall be in full force and effect and be satisfactory in form and substance to the Purchaser. (h) A copy of the certificate of incorporation and all amendments thereto of each of the Company, General Acceptance Corporation Reinsurance, Limited and copies of their respective by-laws all of which shall be certified by the secretary or assistant secretary of each respective corporation as true and correct as of the Closing Date. (i) The Purchaser shall have received the Financials, projections and such other financial and other information regarding the Company and its Subsidiaries as the Purchaser deems appropriate. (j) A certificate of the Chief Executive Officer of the Company, satisfactory in form and substance to the Purchaser, stating that, as of the Closing Date, no change has occurred in the business, assets, operating properties, operations, prospects, financial or other condition of the Company or any of its Subsidiaries since December 31, 1996 which would result in a Material Adverse Effect, except the sale of approximately $44,000,000 of accounts receivable previously disclosed to the Purchaser and as set forth on Schedule 3.1(j). (k) The Stockholders' Agreement. (l) The Registration Rights Agreement. (m) The Debentures. (n) Employment Agreements for Malvin Algood and Russell Algood, substantially in the form of Exhibits E and F, respectively. (o) Agreement by General Electric Capital Corporation to extend at least $70 million of Senior Indebtedness to the Company through January 1, 1998; (p) Unqualified opinion of Ernst & Young, LLP with respect to the Company=s annual audited consolidated financial statements for the Fiscal Year ended December 31, 1996; (q) Copies of the Algood Debentures, together with evidence that the holders of the promissory notes to be exchanged for the Algood Debentures have accepted the Algood Debentures in exchange therefor; (r) Such additional information and materials as the Purchaser may request. IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser makes the following representations and warranties to the Company, each and all of which shall survive the execution and delivery of this Agreement and the Closing until the Securities are no longer held by the Purchaser: 4.1 Organization. The Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of the state of its respective incorporation and it has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The Purchaser is a wholly owned subsidiary of Conseco, Inc. 4.2 Due Execution, Delivery and Performance of the Agreement. The execution, delivery, and performance of this Agreement (i) have been duly authorized by all requisite corporate action by the Purchaser, and (ii) will not violate the Certificate or Articles of Incorporation or Bylaws of the Purchaser or any provision of any material indenture, mortgage, agreement, contract, or other instrument to which it is a party or by which it or any of its material properties or assets are bound, or be in conflict with, result in a breach of or constitute (upon notice or lapse of time or both) a default under any such indenture, mortgage, agreement, contract, or other instrument. This Agreement is a legal, valid, and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms. 4.3 Investment Representation. The Purchaser represents and warrants that it is purchasing the Securities for its own account, for investment purposes and not with a view to the distribution thereof. The Purchaser agrees that it will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any of the Securities (or solicit any offers to buy, purchase, or otherwise acquire or take a pledge of any of the Securities), except in compliance with the Securities Act of 1933, as amended (the "Act"), the rules and regulations thereunder and any applicable state securities laws. The Purchaser recognizes that investing in the Securities involves a high degree of risk, and the Purchaser is in a financial position to hold the Securities indefinitely and is able to bear the economic risk and withstand a complete loss of its investment in the Securities. The Purchaser is a sophisticated investor and is capable of evaluating the merits and risks of investing in the Company. The Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management, has been given full and complete access to information concerning the Company, and has utilized such access to its satisfaction for the purpose of obtaining information or verifying information and has had the opportunity to inspect the Company's operation. The Purchaser has had the opportunity to ask questions of, and receive answers from the management of the Company concerning the Securities and the terms and conditions of this Agreement and the agreements and transactions contemplated hereby, and to obtain any additional information as the Purchaser may have requested in making its investment decision. The Purchaser is an "accredited investor", as defined by Regulation D promulgated under the Act. The Purchaser understands that the Securities have not been, and will not be registered under the Securities Act by reason of their issuance by the Company in a transaction exempt from the registration requirements of the Act; and that the Securities must be held by the Purchaser indefinitely unless a subsequent disposition thereof is registered under the Act or is exempt from registration. Notwithstanding anything to the contrary in this Agreement, no investigation by the Purchaser shall affect the representations and warranties of the Company under this Agreement or contained in any document, certificate or other writing furnished or to be furnished to the Purchaser in connection with the transactions contemplated hereby. V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY To induce the Purchaser to purchase the Securities as herein provided, the Company makes the following representations and warranties to the Purchaser, each and all of which shall survive the execution and delivery of this Agreement and the Closing: 5.1. Corporate Existence; Compliance with Law. Each of the Company and its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its state or country of incorporation; (ii) is duly qualified to do business and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all material licenses, permits, consents or approvals from or by, and has made all material filings with, and given all material notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct (including, without limitation, the consummation of the Transactions) (v) is in compliance with its certificate or articles of incorporation, as applicable, and by-laws; and (vi) is in compliance with all applicable provisions of law where the failure to comply would have a Material Adverse Effect. 5.2. Executive Offices. The current location of the Company's and each of its Subsidiaries' executive offices and principal place of business is set forth on Schedule 5.2 hereto. 5.3. Subsidiaries. There currently exist, and upon consummation of the Transactions there shall exist, no Subsidiaries of the Company other than as set forth on Schedule 5.3 hereto, which sets forth such Subsidiaries, together with their respective jurisdictions of organization, and the authorized and outstanding capital Stock of each such Subsidiary, by class and number and percentage of each class legally owned by the Company or a Subsidiary of the Company or any other Person, or to be owned on the Closing Date. There are no options, warrants, rights to purchase or similar rights covering capital Stock of any such Subsidiary. 5.4. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance by the Company of this Agreement and the Ancillary Agreements and all instruments and documents to be delivered by the Company: (i) are within the Company's corporate power; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of any provision of the Company's articles of incorporation or by-laws; (iv) will not violate any law or regulation, including any and all Federal and state securities laws, or any order or decree of any court or governmental instrumentality; (v) except as set forth on Schedule 5.4, will not, in any material respect, conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their property is bound (including, but not limited to, the Financing Documents); and (vi) will not result in the creation or imposition of any Lien upon any of the property of the Company or any of its Subsidiaries. Except as set forth on Schedule 5.4, no consent, waiver or authorization of, or filing with, any Person (including, without limitation, any Governmental Authority), which has not been obtained as of the Closing Date is required in connection with the execution, delivery, performance by, or validity of this Agreement or the Ancillary Agreements. All such consents, waivers, authorizations and filings, except as set forth on Schedule 5.4, have been obtained or made. On or prior to the Closing Date, each of this Agreement and the Ancillary Agreements shall have been duly executed and delivered of the Company and each shall then constitute a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent that (a) enforcement may be limited by or subject to the principles of public policy and any bankruptcy and insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or limited to creditors= rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court or other similar entity before which any proceeding thereafter may be brought. 5.5. SEC Documents. (i) The Company has filed all required reports, schedules, forms, statements and other documents with the SEC (such reports, schedules, forms, statements and other documents are hereinafter referred to as the "SEC Documents") or has filed adequate extensions therefor; (ii) as of their respective dates, the SEC Documents complied with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents as of such dates contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iii) the consolidated financial statements of the Company included in the SEC Documents comply with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved and fairly present the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments). 5.6. Absence of Certain Changes or Events. Absence of Certain Changes or Events. Absence of Certain Changes or Events Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement (the "Filed SEC Documents") or in Schedule 5.6 attached hereto, since the date of the most recent audited financial statements included in the Filed SEC Documents, the Company and its subsidiaries have conducted their business only in the ordinary course, and there has not been (i) any change which would have a Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's outstanding capital stock, (iii) any split, combination or reclassification of any of its outstanding capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its outstanding capital stock, (iv) (x) any granting by the Company or any of its subsidiaries to any executive officer or other employee of the Company or any of its subsidiaries of any increase in compensation, except in the ordinary course of business consistent with prior practice or as was required under employment agreements in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents, (y) any granting by the Company or any of its subsidiaries to any such executive officer or other employee of any increase in severance or termination pay, except in the ordinary course of business consistent with prior practice or as was required under any employment, severance or termination agreements in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents or (z) any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such executive officer or other employee or (v) any change in accounting methods, principles or practices by the Company or any of its subsidiaries materially affecting its assets, liability or business, except insofar as may have been required by a change in generally accepted accounting principles. 5.7. Interim Financial Statements; Absence of Undisclosed Liabilities. (a) The Company has delivered to Purchaser a true and complete copy of the unaudited balance sheet of the Company on February 28, 1997 and related statement of income for the period then ended (the "Interim Financial Statement"). The Interim Financial Statement has been prepared in accordance with GAAP consistently applied throughout the period involved, except for the disclosure of footnotes. The balance sheet included in the Interim Financial Statement fairly presents the financial position, assets and liabilities (whether accrued, absolute, contingent or otherwise) of the Company at the date indicated, and the statement of income fairly presents the results of operations of the Company for the period indicated. The Interim Financial Statement contains all adjustments, which are solely of a normal recurring nature, necessary to present fairly the financial position and results of operations for the period then ended. To the best knowledge of the Company, the draft unaudited consolidated balance sheet and income statement of the Company for the month ending February 28, 1997 delivered by the Company at Closing pursuant to the Agreement present fairly in accordance with GAAP (subject to normal quarterly adjustments), the consolidated financial position, the consolidated quarterly results of operations of the Company as at the end of such periods and for the period then ended based upon management's review and analysis to date. (b) Except for those Obligations disclosed on the Interim Financial Statements or set forth in Schedule 5.7, the Company has no Obligations, fixed or contingent, choate or inchoate, in the individual amount of $25,000 or more. 5.8. Projections. The financial projections delivered to the Purchaser are attached hereto as Schedule 5.8. No facts to the best knowledge of the Company exist which would result in any change in any of such projections. The projections are based upon good faith estimates derived from reasonable expectations at the time such projections were made, all of which were fair in light of current conditions at the time they were made, reflect the assumptions stated therein, and reflect the reasonable estimate of the Company of the results of operations and other information projected therein on a GAAP basis. 5.9. Ownership of Property. (a) Except as disclosed in Schedule 5.9(a), the Company and its Subsidiaries do not own any real property. (b) All real property leased by the Company or any of its Subsidiaries is set forth on Schedule 5.9(b). Each of such leases is valid and enforceable in accordance with its terms and is in full force and effect. Neither the Company nor the applicable Subsidiary, to the knowledge of the Company, nor any other party to any such lease is in material default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the giving of notice, the passage of time or both, would constitute a material default under any such lease. (c) The Company has good and marketable title to all of its assets and properties (or interests therein), real or personal, tangible or intangible, that it owns or leases, free and clear of all Liens, except Permitted Encumbrances and those set forth in Schedule 5.9(c). Except as set forth in Schedule 5.9(c), the assets and properties of the Company are in a condition suitable and necessary for its operations and no condition exists that interferes with the use of the Company=s assets or properties in the ordinary course of business. 5.10. No Default. Neither the Company nor any of its Subsidiaries is in default, nor to the best knowledge of any of the Company or any of its Subsidiaries is any third party in default, under or with respect to any contract, agreement, lease or other instrument, including, but not limited to, the Financing Agreements, to which any of the Company or its Subsidiaries is a party, except for any default which (either individually or collectively with other defaults arising out of the same event or events) would not have a Material Adverse Effect or which has been waived. No Default or Event of Default exists on the date hereof. 5.11. Employment Matters. Hours worked by and payments made to employees of the Company or any of its Subsidiaries are not in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters which would have a Material Adverse Effect. All payments due from the Company or any of its Subsidiaries on account of employee health and welfare insurance which would have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of the Company or such Subsidiary. 5.12. Other Ventures. Except as set forth in the Filed SEC Documents or on Schedule 5.12 hereto, neither the Company nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person. 5.13. Taxes. Except as set forth on Schedule 5.13 hereto, all Federal, state, local and foreign tax returns, reports and statements required to be filed (including, for all purposes of this Section 5.13, any filed or to be filed on a consolidated, combined or unitary basis with any other company) by each of the Company or any of its Subsidiaries have been timely filed with the appropriate Governmental Authority and such returns, reports and statements were true, correct and complete in all respects to the knowledge of the Company. All Charges and other impositions shown to be due and payable have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest or late charge has been paid. Proper and accurate amounts have been withheld by each of the Company and its Subsidiaries from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable Federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. The Federal income tax returns of each of the Company and its Subsidiaries have been examined by the IRS or the period covered by such tax returns has been closed by applicable statute of limitations, for all periods prior to 1995. The state income or franchise tax returns of each of the Company and its subsidiaries have not been examined by any relevant Governmental Authority and no examinations are noticed or in process. Except as set forth on Schedule 5.13 hereto, all deficiencies asserted as a result of such examinations or otherwise have been paid, fully settled or adequately provided for in the Financials and no issue has been raised by a Federal, state, local or foreign Governmental Authority in any such examination which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent taxable period. No other deficiency for any Charges has been proposed, asserted or assessed against any of the Company or its Subsidiaries by any Federal, state, local or foreign Governmental Authority. Except as set forth on Schedule 5.13 hereto, no Federal, state, local or foreign tax audits or other administrative proceedings or court proceedings are presently pending with regard to any Charges or tax returns of any of the Company or its Subsidiaries. Except as described in Schedule 5.13 hereto, none of the Company or its Subsidiaries has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period of time within which to file a tax return, report or statement which has not since been filed or the period for assessment or collection of any Charges. None of the Company or its subsidiaries has agreed or has been requested to or has an application pending to make any adjustment under IRC Section 481(a) by reason of a change in accounting method or otherwise. Except as set forth on Schedule 5.13 hereto, neither the Company nor any of its Subsidiaries is a party to, bound by or has any obligation under any tax sharing or similar agreement or arrangement. 5.14. ERISA. (a) Schedule 5.14 lists all Plans maintained or contributed to by the Company or any of its Subsidiaries and all Qualified Plans maintained or contributed to by any ERISA Affiliate, and of those plans listed separately identifies the Title IV Plans, Multiemployer Plans, unfunded Pension Plans and welfare plans, as defined in Section 3(l) of ERISA. (b) Each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and to the best knowledge of the Company nothing has occurred which would cause the loss of such qualification or tax-exempt status. (c) Each Plan set forth on Schedule 5.14 is in compliance in all material respects with the applicable provisions of ERISA and the IRC, including the filing of reports required under the IRC or ERISA which are true and correct in all material respects as of the date filed, and with respect to each Plan, other than a Qualified Plan, all required contributions and benefits, have been paid in accordance with the provisions of each such Plan. (d) None of the Company, its Subsidiaries or any ERISA Affiliate, with respect to any Qualified Plan, has failed to make any contribution or pay any amount due as required by Section 412 of the IRC or Section 302 of ERISA or the terms of any such plan. (e) Except as set forth on Schedule 5.14, no Title IV Plan has any Unfunded Pension Liability. (f) Except as set forth on Schedule 5.14, with respect to all Plans which are welfare plans, as defined in Section 3(1) of ERISA, providing retiree benefits the present value of future anticipated expenses pursuant to the latest actuarial projections of liabilities does not exceed $100,000. (g) Except as set forth on Schedule 5.14, with respect to Pension Plans, other than Qualified Plans, the present value of the liabilities for current participants thereunder using reasonable interest assumptions does not exceed $50,000. (h) Except as set forth on Schedule 5.14, there has been no, nor is there reasonably expected to occur any, ERISA Event or event described in Section 4068 of ERISA with respect to any Title IV Plan. (i) Except as set forth on Schedule 5.14, there are no pending, or to the knowledge of the Company or any of its Subsidiaries, threatened claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against (i) any Plan or its assets, (ii) any fiduciary with respect to any Plan or (iii) the Company, any of its Subsidiaries or any ERISA Affiliate with respect to any Plan. (j) Except as set forth on Schedule 5.14, none of the Company, any of its Subsidiaries or any ERISA Affiliate has incurred or reasonably expects to incur any Withdrawal Liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multiemployer Plan. (k) Except as set forth in Schedule 5.14, none of the Company, any of its Subsidiaries or any ERISA Affiliate has engaged in a transaction which resulted or could result in any liability under Section 4069 of ERISA. (l) Except as set forth on Schedule 5.14, no plan which is a welfare benefit plan, as defined in Section 3(1) of ERISA, provides for continuing benefits or coverage for any participant or any beneficiary of a participant after such participant's termination of employment (except as may be required by Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant) which would result in a liability in an amount which would have a Material Adverse Effect. The Company, its Subsidiaries and each ERISA Affiliate have complied with the notice and continuation coverage requirements of Section 4980B of the IRC and the regulations thereunder, except where the failure to comply would not result in any Material Adverse Effect. (m) Neither the Company nor any of its Subsidiaries has engaged in a prohibited transaction, as defined in Section 4975 of the IRC or Section 406 of ERISA, in connection with any Plan, which would subject the Company or any of its Subsidiaries (after giving effect to any exemption) to a material tax on prohibited transactions imposed by Section 4975 of the IRC or any other material liability. 5.15. No Litigation. Except as set forth on Schedule 5.15 hereto, no material action, claim or proceeding is now pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against any of the Company or any of its Subsidiaries, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any Federal, state, local or foreign government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators nor to the knowledge of any of the Company or any of its Subsidiaries does a state of facts exist which is reasonably likely to give rise to such proceedings. None of the matters set forth therein questions the validity of any of this Agreement or the Ancillary Documents or any action taken or to be taken pursuant thereto, or would have either individually or in the aggregate a Material Adverse Effect. 5.16. Employment and Labor Agreements. Except as set forth on Schedule 5.16 hereto, there are no employment, consulting, servicing or management agreements with respect to management of the Company or any of its Subsidiaries and there are no collective bargaining agreements or other labor agreements covering any employees of the Company or any of its Subsidiaries. A true and complete copy of each such agreement has been furnished to the Purchaser. 5.17. Other Contracts. Schedule 5.17 attached hereto lists each agreement, contract, lease, sublease, promissory note or evidence of indebtedness (whether written or oral) that involves the payment or potential payment by or to the Company or any of its Subsidiaries of more than One Hundred Thousand Dollars ($100,000) or that is otherwise individually material to the business of the Company or such Subsidiary. Each of the agreements, contracts, commitments, leases, plans and other instruments, documents and undertakings listed in Schedule 5.17 is valid and enforceable in accordance with its terms, except to the extent that (a) enforcement may be limited by or subject to the principles of public policy and any bankruptcy and insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or limited to creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court or other similar entity before which any proceeding therefor may be brought. To the knowledge of the Company, there does not exist any default by any third party to any such agreement, contract, commitment, lease, plan or other instrument, document or undertaking which default would have a Material Adverse Effect. 5.18. Patents, Trademarks, Copyrights and Licenses. Each of the Company and its Subsidiaries own all material licenses, patents, patent applications, copyrights, service marks, service mark applications, trademarks, trademark applications, and trade names necessary to continue to conduct its business as heretofore conducted, now conducted and proposed to be conducted, each of which is listed on Schedule 5.18 hereto. To the knowledge of the Company, the Company and its Subsidiaries conduct their respective businesses without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others, except where such infringement or claim of infringement would not have a Material Adverse Effect. There is no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of the Company or any of its Subsidiaries. 5.19. Licenses. Schedule 5.19 attached hereto lists all of the jurisdictions in which the Company or any of its Subsidiaries hold active licenses, permits or authorizations to transact business (collectively, the "Licenses"). Except as set forth on Schedule 5.19, no such License is the subject of a proceeding for suspension or revocation or any similar proceedings and to the Company's knowledge no such suspension or revocation has been threatened by any licensing authority. 5.20. Capital Structure of the Company. The entire authorized capital stock of the Company consists solely of 25,000,000 shares of common stock, no par value, of which 6,022,000 shares are issued and outstanding, and 5,000,000 shares of preferred stock, no par value, none of which are outstanding. All of the issued and outstanding shares of capital stock of the Company have been duly authorized, are not subject to preemptive rights and were issued in full compliance with all federal, state and local laws, rules and regulations. Except for options to purchase Common Stock and warrants to purchase Common Stock as set forth on Schedule 5.20 hereto and the options issuable under the Company's Stock Option Plan to purchase 600,000 shares of Common Stock, there are no outstanding or authorized subscriptions, options, warrants, calls, commitments, agreements or arrangements of any kind relating to the issuance, transfer, delivery or sale of any additional shares of capital stock or other securities of the Company, including, but not limited to, any right of conversion or exchange under any outstanding security, agreement or other instrument. None of the options and warrants to purchase Common Stock will have their vesting period accelerated as a result of this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby (other than any subsequent tender offer by Conseco, Inc.). Except as set forth on Section 5.20, there are no authorized or outstanding voting agreements, voting trusts, proxies, stockholder agreements, rights to purchase, transfer restrictions, or other similar arrangements with respect to any of the capital stock of the Company of which the Company has knowledge. There are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the capital stock of the Company. The Company has no indebtedness for dividends, interest or other distributions declared or accumulated but unpaid with respect to any securities of the Company. No Person has a claim arising out of a violation of any preemptive rights of a stockholder of the Company, nor any claim based upon ownership, repurchase or redemption of any shares of the Company's capital stock. 5.21. Investment Company Act. The Company is not, and is not directly or indirectly controlled by or acting on behalf of any Person which is, required to register as an "investment company" under the Investment Company Act of 1940, as amended. 5.22. Underwriting Guidelines. Each automobile loan originated or purchased by the Company, which is reflected on the balance sheet, was originated or purchased in accordance with the Company's underwriting guidelines in effect at that time with such exceptions which, in the aggregate, do not have a Material Adverse Effect. The Company's current underwriting guidelines effective March 5, 1997 are contained in Schedule 5.22. 5.23. Broker=s or Finder=s Fee. No agent, broker, investment banker, person or firm acting on behalf of or under the authority of the Company is or will be entitled to any broker=s or finder=s fee or any other commission or similar fee directly or indirectly from the Company in connection with any of the transactions contemplated by this Agreement. 5.24. Disclosure. The Company has not withheld from the Purchaser any material facts relating to the assets, properties, operations, financial condition, or prospects of the Company. No representation or warranty of the Company in this Agreement or the Ancillary Agreements, and no statement contained in any certificate or other instrument delivered by the Company in connection with the transactions contemplated by this Agreement or the Ancillary Agreements contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. VI. FINANCIAL STATEMENTS AND INFORMATION 6.1. Reports and Notices. The Company covenants and agrees that from and after the Closing Date until such time as no amounts are owing under the Debentures, it shall deliver to the Purchaser: (a) GAAP Financial Statements: (i) As soon as possible and in any event within 45 days after the end of the first three quarterly fiscal periods of each Fiscal Year commencing the quarter ending June 30, 1997 and within 30 days after the end of each month commencing with May 1997 a copy of the unaudited consolidated balance sheet of the Company as of the close of each period and the related consolidated statements of income and cash flows (with respect to cash flows, on a quarterly basis only) for the period from the beginning of such fiscal year to the end of such period, all prepared in accordance with GAAP (subject to normal quarterly adjustments) and accompanied by a certification of the chief financial officer of the Company that all such financial statements are complete and correct and present fairly in accordance with GAAP (subject to normal quarterly adjustments) the consolidated financial position, the consolidated results of operations and cash flows of the Company as at the end of such period and for the period then ended, and a certification of the chief financial officer of the Company that there was no Event of Default or to the best of his knowledge, an event that with the passage of the grace or cure periods specified in Section 9.1 hereof would result in an Event of Default in existence as of such time. Each such statement shall set forth in comparative form the figures for the corresponding periods of the preceding fiscal year and for the corresponding current period reflected in the annual budget of the Company, if any, and its Subsidiaries and shall include a brief management report discussing all material variances from budget and recent developments which management believes may in the future result in material variances from its budget. (ii) Within 45 days after the close of each Fiscal Year commencing with the Fiscal Year ending December 31, 1997, a copy of the respective unaudited consolidated financial statements of the Company, consisting of consolidated balance sheets and consolidated statements of income and retained earnings and cash flows, as the case may be, and where applicable setting forth in comparative form in each case the consolidated figures for the previous fiscal year, which statements shall be prepared in accordance with GAAP (subject to year end adjustments), accompanied by a certification of the chief financial officer of the Company that all such financial statements are complete and correct and present fairly in accordance with GAAP the consolidated financial position, the consolidated results of operations and cash flows of the Company as at the end of such year and for the period then ended and a certification of the chief financial officer of the Company that there was no Event of Default or, to the best of his knowledge, an event that with the passage of the grace or cure periods specified in Section 9.1 hereof would result in an Event of Default in existence as of such time. Each such statement shall set forth in comparative form the figures for the corresponding periods of the preceding fiscal year and for the corresponding periods reflected in the annual budget of the Company, if any, and its Subsidiaries and shall include a brief management report discussing all material variances from budget and recent developments which management believes may in the future result in material variances from its budget. (iii) Within 90 days after the close of each Fiscal Year commencing with the Fiscal Year ending December 31, 1997, a copy of the respective annual audited consolidated financial statements of the Company, consisting of consolidated balance sheet and consolidated statements of income and retained earnings and cash flows, as the case may be, and where applicable setting forth in comparative form in each case the consolidated figures for the previous fiscal year, which financial statements shall be prepared in accordance with GAAP (only with respect to the consolidated financial statements) without qualification by a firm of independent certified public accountants of recognized national standing selected by the Company with respect to the financial statements of the Company, and accompanied by a certification of the chief financial officer of the Company that all such financial statements are complete and correct and present fairly in accordance with GAAP the consolidated financial position, the consolidated results of operations and cash flows of the Company as at the end of such year and for the period then ended that there was no Event of Default, or to the best of his knowledge, an event that with the passage of the grace or cure periods specified in 9.1 hereof would result in an Event of Default in existence as of such time. Each such statement shall set forth in comparative form the figures for the corresponding periods of the preceding fiscal year and shall include a brief management report discussing all materials variances from its annual budget, if any, and recent developments which management believes may in the future result in material variances from its annual budget, if any. (b) SEC Documents; Reports; Notices: (i) Immediately after the Company's issuance or receipt thereof, copies of (v) the preliminary prospectus and the effective prospectus contained in any registration statement filed with the SEC or any state securities law authority; (x) any annual or periodic report filed with the SEC; (y) any listing application filed with any stock exchange or amendment thereof; and (z) each annual report and all other reports or information, including proxy solicitations, which the Company shall from time to time send to any of its shareholders. In addition, except for the 10-K report due April 15, 1997, draft copies of any such reports to be filed by the Company shall be submitted to the Purchaser for review and approval at least five (5) days before filing. (ii) Within thirty (30) days after month end commencing May 1997, a copy of the Management Report summarizing the operations of the Company in all material respects. (iii) Upon request, a copy of weekly origination and delinquency reports and such otherother reports otherwise prepared for the Company's internal use. (iv) Within two Business Days, a copy of all other information or notices delivered to the Company's Senior Indebtedness. (c) As soon as practicable, but in any event within two Business Days after the Company becomes aware of the existence of any Event of Default, telephonic or telegraphic notice specifying the nature of such Event of Default or development or information, including the expected effect thereof, which notice shall be promptly confirmed in writing within five Business Days. (d) Budgets. On or before June 1, 1997, the Company shall prepare and present to the Purchaser budgets for the quarters ending September 30, 1997 and December 31, 1997. On or before November 15 of each year, the Company shall prepare and present to the Purchaser quarterly budgets for the following fiscal year. 6.2. Certificates; Other Information. The Company covenants and agrees that it shall deliver: (a) to the Purchaser, (x) not later than thirty (30) days prior to the end of each Fiscal Year of the Company commencing with December 31, 1997, a copy of the preliminary projections of the Company and its Subsidiaries of (i) the monthly operating budget including, but not limited to, balance sheets, statements of cash flow, statements of income, a detailed listing of material assumptions made in preparing such budget, cost budgets by department and a detail of receivable composition, and (ii) new business plans, such projections and business plan to be acceptable to the Purchaser and to be accompanied by a certificate of the chief financial officer of the Company to the effect that such projections have been prepared on the basis of sound financial planning and that such projections are based upon reasonable estimates and assumptions (which estimates and assumptions shall be acceptable to the Purchaser), all of which are fair in light of current conditions, have been prepared on the basis of the assumptions stated therein, and reflect the reasonable estimate of the Company of the results of operations and other information projected therein and (y) not later than January 31 of each Fiscal Year a final form of the projections delivered pursuant to Section 6.2(a)(x) hereof or a letter from the chief financial officer of the Company certifying that the projections delivered pursuant to Section 6.2(a)(x) hereof shall be treated as the final projections for such Fiscal Year and have been presented to the Board; (b) to the Purchaser, immediately, notice of actual or threatened suspension, termination or revocation of any material License of the Company or any of its Subsidiaries by any Governmental Authority; and (c) such other information respecting the Company's or any of its Subsidiaries' business, prospects or financial condition or prospects as the Purchaser may, from time to time, reasonably request. VII. AFFIRMATIVE COVENANTS The Company covenants and agrees that, unless the Purchaser shall otherwise consent in writing, from and after the date hereof and until no amounts are owing under the Debentures: 7.1. Maintenance of Existence and Conduct of Business. The Company shall and shall cause each of its Subsidiaries to (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, including, without limitation, all Licenses or similar qualifications required by them to engage in their business in all jurisdictions in which they are at the time so engaged; (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; and (c) at all times maintain, preserve and protect all of its trademarks and tradenames (if any), and preserve all the remainder of its material property, in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all needful and proper repairs, renewals and replacements, betterments and improvements thereto consistent with industry practices, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. The Company shall give written notice to the Purchaser prior to the Company's or any of its Subsidiaries' ceasing to conduct business in any country or state. 7.2. Payment of Obligations. (a) Subject to subsection (b) below, the Company shall and shall cause each of its Subsidiaries to pay and discharge or cause to be paid and discharged all its Indebtedness, as and when due and payable (including any applicable grace period). (b) Notwithstanding subsection (a) above, the Company and its Subsidiaries shall not be required to pay Indebtedness so long as (i) it is in good faith and by appropriate proceedings diligently contesting such Indebtedness, (ii) any reserve required by GAAP shall have been made therefor, and (iii) the contest will not result in the forfeiture or loss of any asset or property of the Company or its Subsidiaries other than cash or its equivalent. 7.3. Books and Records. The Company shall and shall cause each of its Subsidiaries to keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of their financial transactions, are made in accordance with GAAP and on a basis consistent with the Financials. 7.4. Litigation. The Company shall notify the Purchaser in writing, promptly upon learning thereof, of any material litigation or administrative proceeding commenced or threatened against the Company or any of its Subsidiaries. 7.5. Insurance. Schedule 7.5 lists in summary form all insurance maintained by the Company and its Subsidiaries. The Company shall and shall cause each of its Subsidiaries to continue to maintain such insurance. The Company shall and shall cause each of its Subsidiaries to pay all insurance premiums payable by them. 7.6. Compliance with Law. The Company shall and shall cause each of its Subsidiaries to comply with all Federal, state and local laws and regulations applicable to it, including, without limitation, ERISA, those regarding the collection, payment and deposit of employees' income, unemployment and social security taxes and those relating to insurance or environmental matters, where the failure to comply would have a Material Adverse Effect. 7.7. Agreements. The Company shall and shall cause each of its Subsidiaries to perform, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under each material agreement to which it is a party. The Company shall not and shall cause each of its Subsidiaries not to terminate or modify in any manner adverse to any such party any provision of any such material agreement to which it is a party except in the ordinary course of business, consistent with past practice. 7.8. Employee Plans. (a) With respect to other than a Multiemployer Plan, for each Qualified Plan hereafter adopted or maintained by the Company, any of its Subsidiaries or any ERISA Affiliate, the Company shall (i) be in possession of, or cause its Subsidiaries or ERISA Affiliates to be in possession of, determination letters from the IRS to the effect that such Qualified Plan is qualified within the meaning of Section 401(a) of the IRC; and (ii) from and after the adoption of any such Qualified Plan, cause such plan to be qualified within the meaning of Section 401(a) of the IRC and to be administered in all material respects in accordance with the requirements of ERISA and Section 401(a) of the IRC. (b) With respect to each welfare benefit plan, as defined in Section 3(1) of ERISA, hereafter adopted or maintained by the Company, any of its Subsidiaries or any ERISA Affiliate, the Company shall comply, in all material respects, or cause its Subsidiaries or ERISA Affiliates to comply, in all material respects with the notice and continuation coverage requirements of Section 4980B of the IRC and the regulations thereunder. (c) (i) Promptly and in any event within thirty (30) days after the Company, any of its Subsidiaries or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred, and (ii) promptly and in any event within ten (10) days after the Company, any of its Subsidiaries or any ERISA Affiliate knows or has reason to know that a request for a minimum funding waiver under Section 412 of the IRC has been filed with respect to any Qualified Plan, the Company shall furnish to the Purchaser a written statement of the chief financial officer or other appropriate officer of the Company describing such ERISA Event or waiver request and the action, if any, which the Company, any of its Subsidiaries or any ERISA Affiliate proposes to take with respect thereto and a copy of any notice filed with the PBGC or the IRS pertaining thereto. (d) Promptly and in any event within thirty (30) days after the filing thereof by the Company, any of its Subsidiaries or any ERISA Affiliate, the Company shall furnish to the Purchaser a copy of each annual report (Form 5500 Series, including Schedule B thereto) with respect to each Pension Plan, and upon request by the Purchaser, with respect to any other Plan. (e) Promptly and in any event within thirty (30) days after receipt thereof, the Company shall furnish to the Purchaser a copy of any adverse notice, determination letter, ruling or opinion the Company, any of its Subsidiaries or any ERISA Affiliate received from the PBGC, DOL or IRS with respect to any Qualified Plan. (f) Promptly and in any event within ten (10) Business Days after receipt thereof, the Company shall furnish to the Purchaser a copy of any correspondence the Company, any of its Subsidiaries or any ERISA Affiliate receives from the plan sponsor (as defined by Section 4001(a)(10) of ERISA) of any Multiemployer Plan concerning potential withdrawal liability of the Company, any of its Subsidiaries or any ERISA Affiliate, or notice of any reorganization, with respect to any Multiemployer Plan, together with a written statement of the chief financial officer or other appropriate officer of the Company of the action which the Company, any of its Subsidiaries or any ERISA Affiliate proposes to take with respect thereto. (g) Promptly and in any event within thirty (30) Business Days after the adoption thereof, the Company shall furnish to the Purchaser notice of (i) any amendment to a Title IV Plan which results in an increase in benefits or the adoption of any new Title IV Plan, (ii) any amendment to a, or adoption of a new, welfare benefit plan, as defined in Section 3(1) of ERISA, which the Company or any of its Subsidiaries maintains, contributes or has an obligation to contribute to, and which results in an increase in benefits for retirees or new benefits for retirees, and (iii) any amendment to terminate a Title IV Plan or treatment of a plan amendment as a termination under Section 4041 of ERISA. (h) Promptly and in any event after receipt of written notice of commencement thereof, the Company shall furnish to the Purchaser notice of any action, suit or proceeding before any court or other governmental authority affecting the Company, any of its Subsidiaries or any ERISA Affiliate with respect to any Plan, except those which, in the aggregate, if adversely determined could not have a Material Adverse Effect. (i) Promptly and in any event within thirty (30) days after notice or knowledge thereof, the Company shall furnish to the Purchaser notice that the Company or any of its Subsidiaries, has become or may become subject to a material tax on prohibited transactions imposed by Section 4975 of the IRC, together with a copy of Form 5330. 7.9. Access. (a) The Company shall and shall cause each of its Subsidiaries to allow the Purchaser and any of its officers, employees and/or agents, upon reasonable notice (unless a Default or Event of Default has occurred and is continuing, in which case no notice shall be required), exercisable as frequently as the Purchaser (or representative thereof) reasonably determines to be appropriate, during normal business hours (or at such other times as may reasonably be requested by the Purchaser or representative), to inspect the properties and facilities of the Company or any of its Subsidiaries and, at its own expense, to inspect, audit and make extracts from all of the Company's or any of its Subsidiaries' records, files and books of account. The Company shall obtain and deliver any document or instrument reasonably necessary for the Purchaser (or representative), as any of them may reasonably request, to obtain records from any service bureau maintaining records for the Company or any of its Subsidiaries as the Purchaser may reasonably request. The Company shall also maintain duplicate computer tapes and discs owned by the Company or any of its Subsidiaries. (b) The Purchaser (or representative) shall use reasonable efforts to keep confidential any non-public information obtained pursuant to this Agreement except (i) as may be required in connection with the administration of matters relating to this Agreement, (ii) as may be required in connection with the enforcement of any rights of the Purchaser pursuant to this Agreement or any of the Ancillary Agreements, or (iii) as may otherwise be required by law. The Purchaser shall endeavor to give the Company not less than ten (10) days prior written notice of any disclosure of non-public information pursuant to this subparagraph. 7.10. Board Representation; Board Observer. The Company shall use its best efforts to cause and maintain the election to the Board the Conseco Directors. In the event that any Conseco Director is unable to attend any meeting of the Board of Directors of the Company, the Company will permit any authorized representative of the Purchaser to attend any such meeting as an observer. VIII. NEGATIVE COVENANTS The Company covenants and agrees that, without the Purchaser=s prior written consent, from and after the date hereof and until no amounts are owing under the Debentures: 8.1. Mergers, Etc. Neither the Company nor any Subsidiary thereof, shall directly or indirectly, by operation of law or otherwise, merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with, any Person or form or acquire any Subsidiary. 8.2 Amendment of Certificate of Incorporation. The Company and each of its Subsidiaries shall not amend their respective articles or certificate of incorporation or organization without the consent of the Board and the Conseco Directors and shall not amend their certificate or articles of incorporation or by-laws in any manner which would adversely affect the rights of the Purchaser. 8.3. Investments; Loans and Advances. (a) Except in connection with its purchases and originations of sub-prime automobile loans and leases, the Company shall not and shall not permit any of its Subsidiaries to make any investment in, or make or accrue loans or advances of money to, any Person, through the direct or indirect holding of securities or otherwise; provided, however, that the Company and its Subsidiaries may make and own investments in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within thirty days from the date of acquisition thereof; (ii) commercial paper maturing no more than thirty days from the date of creation thereof and at the time of their acquisition having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; and (iii) certificates of deposit, maturing no more than thirty days from the date of creation thereof, issued by commercial banks incorporated under the laws of the United States of America, each having at the time of the acquisition of any such certificate of deposit combined capital, surplus and undivided profits of not less than $200,000,000 and a rating of "A" or better by a nationally recognized rating agency. 8.4. Indebtedness. Except as otherwise expressly permitted by this Section 8.4 or upon approval of the Company's Board of Directors including all of the Conseco Directors, the Company shall not, nor shall it permit any of its Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, whether recourse or nonrecourse, and whether superior, pari passu or junior, except (i) Senior Indebtedness; (ii) the Algood Debentures; (iii) deferred Charges; (iv) unfunded pension fund and other employee benefit plan obligations and liabilities but only to the extent they are permitted to remain unfunded under applicable law; and (v) Capital Leases having aggregate obligations not in excess of $100,000. 8.5. Employee Loans. Except automobile loans or leases and travel advances entered into in the ordinary course of business consistent with past practice, the Company shall not and shall not permit any of its Subsidiaries to make or accrue any loans or other advances of money to any employee of the Company or any such Subsidiary. 8.6. Transactions with Affiliates. (a) The Company shall not, except as provided in Schedule 8.6 or as disclosed in the SEC Filed Documents and except for compensation arrangements entered into with the consent of the Conseco Directors, and shall not permit any of its Subsidiaries to, enter into or be a party to any transaction with any Affiliates of the Company except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms that are no less favorable to the Company or such Subsidiary than would be obtained at the time of such transaction in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary and in any event only if such transaction is effected in accordance with all applicable laws and regulations and except for previously approved transactions with Algood Chevrolet Olds and Pontiac, Inc. and Algood Body Shop, Inc., is not in an amount in excess of $100,000 or is approved by the Board and the Conseco Directors. The agreements referred to in Schedule 8.6, if any, shall not be amended, assigned (by either party thereto), extended or terminated by the Company or any of its Subsidiaries, nor shall they grant any waivers thereunder, without the consent of the Purchaser. 8.7. Liens. The Company shall not and shall not permit any of its Subsidiaries to create or permit any Lien on any of its properties or assets which would have a Material Adverse Effect except Permitted Encumbrances. 8.8. Capital Expenditures. The Company shall not and shall not permit any of its Subsidiaries to make Capital Expenditures that, in the aggregate, exceed the amounts of such expenditures provided for in the business plan or projections of the Company for any Fiscal Year, or individually, exceed $50,000, which are not approved by the Board or otherwise approved in advance in writing by the Purchaser. 8.9. Sales of Assets. The Company shall not and shall not permit any of its Subsidiaries to sell, transfer, or otherwise dispose of any assets or properties; provided, however, that the foregoing shall not prohibit (i) the sale of assets in the ordinary course of business, consistent with past practice; (ii) the sale of surplus or obsolete equipment and fixtures; and (iii) transfers resulting from any casualty or condemnation of assets or properties. 8.10. Cancellation of Indebtedness. The Company shall not and shall not permit any of its Subsidiaries to cancel any claim or debt owing to it, except for reasonable consideration and in the ordinary course of business, consistent with past practice. 8.11. ERISA. The Company shall not, directly or indirectly, and shall not permit its Subsidiaries or any ERISA Affiliate to directly or indirectly by reason of an amendment or amendments to, or the adoption of, one or more Title IV Plans, permit the present value of all benefit liabilities, as defined in Title IV of ERISA (using the actuarial assumptions utilized by the PBGC upon termination of a plan), to exceed the fair market value of assets allocable to such benefits, all determined as of the most recent valuation date for each such Title IV Plan, by more than $100,000, or to increase such benefit liabilities to the extent security must be provided to any Title IV Plan under Section 401(a)(29) of the IRC. Neither the Company nor any of its Subsidiaries shall establish or become obligated to any new welfare benefit plan, as defined in Section 3(1) of ERISA, or modify any existing welfare benefit plan, for retirees, which would result in the present value of future liabilities under any such plans to increase by more than $100,000. Except as set forth on Schedule 5.14, neither the Company nor any of its Subsidiaries shall establish or become obligated to any new unfunded Pension Plan, which would result in the present value of future liabilities under any such plans to increase by more than $100,000. 8.12. Tax Sharing. The Company shall not make any tax sharing or similar payment to any Affiliate in excess of: (a) its separate state, local and/or foreign income tax liability; plus (b) its pro rata share of the consolidated Federal income tax liability as determined under Treas. Reg. ' 1.1552-1(a)(1); plus (c) its pro rata share of any consolidated, combined or unitary state, local and/or foreign income tax computed similarly as under subparagraph (b). IX. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 9.1. Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder until no amounts are owing under the Debentures: (a) The Company shall fail or neglect to perform, keep or observe any of the provisions of Sections 7 or 8 of this Agreement and the same shall remain unremedied for a period ending on the first to occur of ten (10) days after the Company shall receive written notice of any such failure from the Purchaser or fifteen (15) days after the Company shall have knowledge thereof. (b) The Company shall fail or neglect to perform, keep or observe any other provision of this Agreement or of any of the other Ancillary Agreements and the same shall remain unremedied for a period ending on the first to occur of thirty (30) days after the Company shall receive written notice of any such failure from the Purchaser or thirty (30) days after the Company shall have knowledge thereof. (c) A default shall occur under any other agreement, document or instrument to which the Company or any Subsidiary thereof is a party or by which the Company or such Subsidiary or any of the Company's or such Subsidiary's property is bound, and such default (i) involves the failure to make any payment (whether of principal, interest or otherwise) due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in respect of any Indebtedness of the Company or such Subsidiary in an aggregate amount exceeding $100,000, or (ii) causes (or permits any holder of such Indebtedness of a trustee to cause) such Indebtedness or a portion thereof in an aggregate amount exceeding $100,000, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment. (d) Any representation or warranty herein or in this Agreement or any Ancillary Agreement or in any written statement pursuant thereto or hereto, report, financial statement or certificate made or delivered to the Purchaser by the Company or any of its Subsidiaries shall be untrue or incorrect in any material respects, as of the date when made or deemed made, and the same shall remain unremedied for a period ending on the first to occur of ten (10) days after the Company shall receive written notice of any such failure from the Purchaser or fifteen (15) days after the Company shall have knowledge thereof. (e) The Company shall fail to make any principal or interest payment with respect to any Senior Indebtedness when the same shall be due and payable (including any applicable grace period), or any maturity date under the Senior Indebtedness is accelerated. (f) Any of the material assets of the Company or any of its Subsidiaries thereof shall be attached, seized, levied upon or subject to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of the Company or any of its Subsidiaries and shall remain unstayed or undismissed for thirty (30) consecutive days; or any Person other than the Company or such Subsidiary shall apply for the appointment of a receiver, trustee or custodian for any of the assets of the Company or such Subsidiary and such application shall remain unstayed or undismissed for thirty (30) consecutive days; or the Company or such Subsidiary shall have concealed, removed or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent conveyance or other similar law. (g) A case or proceeding shall have been commenced against the Company or any of its Subsidiaries in a court having competent jurisdiction seeking a decree or order in respect of the Company or such Subsidiary (i) under title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law; (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of the Company or such Subsidiary or of any substantial part of its or their properties; or (iii) ordering the winding-up or liquidation of the affairs of the Company or such Subsidiary and such case or proceeding shall remain undismissed or unstayed for sixty (60) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding. (h) The Company or any of its Subsidiaries shall (i) file a petition seeking relief under title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law; (ii) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of the Company or such Subsidiary or of any substantial part of its properties; (iii) fail generally to pay its debts as such debts become due; or (iv) take any corporate action in furtherance of any such action. (i) Final judgment or judgments (after the expiration of all times to appeal therefrom) for the payment of money in excess of $100,000 in the aggregate shall be rendered against the Company or any of its Subsidiaries and the same shall not be (i) fully covered by insurance in accordance with Section 7.5 hereof, or (ii) vacated, stayed, bonded, paid or discharged for a period of thirty (30) days. (j) Any other event shall have occurred and be continuing, including the revocation of any License or other material suspension of the authority of the Company to conduct its business, which would have a Material Adverse Effect and the Purchaser shall have given the Company at least thirty (30) days' notice thereof. (k) With respect to any Plan, (i) a prohibited transaction within the meaning of Section 4975 of the IRC or Section 406 of ERISA occurs which in the reasonable determination of the Purchaser could result in direct or indirect liability to the Company or any of its Subsidiaries, (ii) with respect to any Title IV Plan, the filing of a notice to voluntarily terminate any such plan in a distress termination, (iii) with respect to any Multiemployer Plan, the Company, any of its Subsidiaries or any ERISA Affiliate shall incur any Withdrawal Liability, (iv) with respect to any Qualified Plan, the Company, any of its Subsidiaries or any ERISA Affiliate shall incur an accumulated funding deficiency or request a funding waiver from the IRS, or (v) with respect to any Title IV Plan or Multiemployer Plan which has an ERISA Event not described in clauses (ii) - (iv) hereof, in the reasonable determination of the Purchaser there is a reasonable likelihood for termination of any such plan by the PBGC; provided, however, that the events listed in clauses (i) - - - - (v) hereof shall constitute Events of Default only if the liability, deficiency or waiver request of the Company, any of its Subsidiaries or any ERISA Affiliate, whether or not assessed, exceeds $50,000, in any case set forth in (i) through (v) above, or exceeds $100,000, in the aggregate for all such cases. 9.2. Remedies. If any Event of Default specified in Section 9.1 shall have occurred and be continuing, the Purchaser shall have the right to require full payment of the principal amount of the Debentures together with all accrued and unpaid interest. X. TRIGGERING EVENT 10.1. Events. The following event shall be considered a triggering event under this Agreement ("Triggering Event"): Upon the earlier of the optional conversion or maturity date of the Debentures, the Company fails or refuses to register shares of Common Stock issued or issuable to the Purchaser pursuant to the terms and provisions of the Registration Rights Agreement. 10.2. Payment Acceleration. From and after the occurrence of a Triggering Event, the Purchaser shall be entitled to accelerate the maturity date of the Debentures and to receive immediate payment in full of all amounts owing thereunder. 10.3. Redemption. From and after the occurrence of a Triggering Event, the Purchaser shall be entitled to cause the Company to redeem the Debentures in such amount as may be specified by the Purchaser in a request delivered to the Company by the Purchaser, and the Company shall redeem such Debentures, by paying to the holder thereof an amount equal to the market value of the greatest number of shares of Common Stock into which the Debentures are convertible. The market value and the maximum number of shares of Common Stock into which the Debentures are convertible shall be determined using the higher of the average of the closing prices of a share of Common Stock, as reported by the principal stock exchange upon which shares of Common Stock are traded, for the 20 trading days prior to (i) the day of the public announcement of a Triggering Event or (ii) the day of the event giving rise to the to the Triggering Event. If the Common Stock is not listed for trading on a nationally recognized stock exchange or on the NASDAQ System on the day before the Triggering Event, for purposes of determining the number of shares of Common Stock issuable upon conversion of the Debentures and the redemption price provided for in this Section 10.3, the market value of a share of Common Stock shall be determined by a recognized appraisal or investment banking firm selected by the Board. 10.4. Funds Unavailable. If sufficient funds are not legally available for repayment of all of the Debentures under Section 10.2 hereof or payment of the redemption amount under Section 10.3 hereof following the occurrence of a Triggering Event, the Company and its Subsidiaries will take all lawful action necessary to enable the Company to make such payment to the fullest extent possible, including without limitation, (i) the sale of additional equity securities, (ii) any necessary action under applicable law to reduce the Company's surplus or other funds legally available, (iii) additional borrowing by, or a refinancing of, the Company, (iv) asset sales and (v) a sale of the Company or Subsidiaries to a third party. The Company will retain, at the Company's expense and with the consent of the Purchaser, an investment banking firm to assist the Company in taking the action referred to in the preceding sentence; such investment banking firm shall provide its service to the Company under the direction of a committee which will have two members, one of whom will be a representative of the Company and the other will be a representative of the Purchaser. Except as provided in the following paragraph, the foregoing shall not preclude the holders of Debentures from availing themselves of any other remedy available at law or equity at any time to collect amounts due and payable to them by the Company. 10.5. Notice. When a Triggering Event has occurred, the Company shall immediately give written notice thereof to the Purchaser. The Company shall also promptly notify the Purchaser of any event which could reasonably become a Triggering Event with the lapse of time or otherwise promptly after obtaining knowledge thereof. XI. RIGHT OF FIRST REFUSAL Until such time as no amounts are owing under the Debentures, upon any offer, sale or issuance, for cash or other property, of subordinated indebtedness of the Company, then the Purchaser shall have the right to subscribe to and purchase such notes and evidences of subordinated indebtedness (the "New Indebtedness") at a price and on such other terms and conditions as are no less favorable to the Purchaser than those on which the New Indebtedness will be offered, sold or issued to other persons. The Purchaser shall have the option to purchase up to such portion of the New Indebtedness as shall be equal to the Purchaser's pro rata investment in the Company of the entire amount of investments made in the Company by the Purchaser at such date. The Company shall give written notice to the Purchaser of any and each opportunity for exercise of its rights under this Article XI, setting forth the price of such New Indebtedness and the amount of such New Indebtedness that the Purchaser is entitled to purchase. Such notice shall be delivered to the Purchaser at the address then shown in the records of the Company, and the Purchaser may exercise its rights to purchase such New Indebtedness by written notice thereof delivered to the Company at its principal office not later than 10 business days following the date on which notice of such rights was received by the Purchaser. In the event the Purchaser does not elect to purchase the offered New Indebtedness, any other Affiliate of the Purchaser that is a wholly owned subsidiary of Conseco, Inc. shall be given notice thereof and shall have five business days thereafter to elect to purchase such unpurchased allotment. XII. SECURITIES LAW MATTERS Each certificate or instrument representing the Securities shall bear a legend substantially in the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER PURSUANT TO A SECURITIES PURCHASE AGREEMENT DATED APRIL 11, 1997 BY AND BETWEEN GENERAL ACCEPTANCE CORPORATION AND CAPITOL AMERICAN LIFE INSURANCE COMPANY, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, UNDER THE ACT, BASED ON AN OPINION LETTER OF COUNSEL REASONABLE SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION." XIII. MISCELLANEOUS 13.1. Press Releases. Except as required by applicable law, the Purchaser and the Company will not give notice to third parties or otherwise make any public statement or releases concerning this Agreement or the transactions contemplated hereby except for such written information as shall have been approved in writing as to form and content by the other party, which approval shall not be unreasonably withheld. 13.2. Expenses. The Company will pay its own costs and expenses and the costs and expenses of the Purchaser incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby. 13.3. Indemnification. (a) The Company shall indemnify and hold harmless the Purchaser against and from any losses, claims, damages, liabilities or expenses (ALosses@) insofar as the Losses (or actions in respect thereof) arise out of or are based upon (i) the falsity or incorrectness as of the Closing Date of any representation or warranty of the Company contained in or made pursuant to this Agreement or any of the Ancillary Agreements, or (ii) the existence of any condition, event or fact constituting, or which with notice or passage of time, or both, would constitute a default in the observance of any of the Company=s undertakings or covenants under or pursuant to the Articles of Incorporation. The Company shall also pay all reasonable attorneys= and accountants= fees and costs and court costs incurred by the Purchaser in enforcing the indemnification provided for in this Section 13.3(a). Notwithstanding the foregoing, the Company expressly agrees and acknowledges that the right of indemnification granted herein to the Purchaser shall not be deemed to be the exclusive remedy available to the Purchaser for any of the matters described in this Section 13.3(a). (b) The Purchaser shall indemnify and hold harmless the Company against and from any Losses insofar as the Losses (or actions in respect thereof) arise out of or are based upon the falsity or incorrectness as of the Closing Date of any representation or warranty of the Purchaser contained in or made pursuant to this Agreement or any of the Ancillary Agreements. The Purchaser shall also pay all reasonable attorneys= and accountants= fees and costs and court costs incurred by the Company in enforcing the indemnification provided for in this Section 13.3(b).13.4. Notwithstanding the foregoing, the Purchaser expressly agrees and acknowledges that the right of indemnification granted herein to the Company shall not be deemed to be the exclusive remedy available to the Company for any of the matters described in this Section 13.3(b). 13.4. Assignment. Neither party may assign any of its rights, title, interest, remedies, powers and duties hereunder without prior written consent of the other parties hereto. However, the Company hereby consents to the Purchaser's assignments, at any time or times, of any of the Purchaser's rights, title, interests, remedies, powers and duties hereunder, whether evidenced by a writing or not, to any of the Affiliates of the Purchaser that are Subsidiaries of Conseco, Inc. The Company agrees that it will use its best efforts to assist and cooperate with the Purchaser in any manner reasonably requested by the Purchaser to effect such assignments. 13.5. Remedies. TrialThe Purchaser' rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which the Purchaser may have under any other agreement, including without limitation, the Ancillary Agreements, by operation of law or otherwise. 13.6. Waiver of Jury Trial. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights under this Agreement or the Ancillary Agreements. 13.7. Arbitration. If a dispute arises as to interpretation of this Agreement, it shall be decided finally by three arbitrators in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration. The arbitrators shall be appointed as follows: one by the Company, one by the Purchaser and the third by the said two arbitrators, or, if they cannot agree, then the third arbitrator shall be appointed by the American Arbitration Association. The third arbitrator shall be chairman of the panel and shall be impartial. The arbitration shall take place in Carmel, Indiana. The decision of a majority of the Arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. Each party shall pay the fees and expenses of the arbitrator appointed by it, its counsel and its witnesses. The parties shall share equally the fees and expenses of the impartial arbitrator. 13.8. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 13.9. Parties. This Agreement and the other Ancillary Agreements shall be binding upon, and inure to the benefit of, the successors of the Company, and the successors and assigns of the Purchaser. 13.10. Conflict of Terms. Except as otherwise provided in this Agreement or any of the Ancillary Agreements by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any of the Ancillary Agreements, the provision contained in this Agreement shall govern and control. 13.11. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN ANY OF THE ANCILLARY AGREEMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF INDIANA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE PURCHASER AND THE COMPANY AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION AS TO VENUE IN THE FEDERAL OR STATE COURTS IN THE COUNTY OF MARION, STATE OF INDIANA. SERVICE OF PROCESS ON THE COMPANY OR THE PURCHASER IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY AT THE ADDRESS LISTED IN SECTION 13.9 HEREOF. NOTHING HEREIN SHALL PRECLUDE THE PURCHASER OR THE COMPANY FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. 13.12. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, or telecopied and confirmed by telecopy answer back, addressed as follows: (a) If to the Purchaser at: 11825 North Pennsylvania Street Carmel, Indiana 46032 Attention: Lawrence W. Inlow Facsimile: (317) 817-6327 (b) If to the Company at: 1025 Acuff Road Bloomington, Indiana 47404 Attention: Chief Financial Officer Facsimile: (812) 337-6029 With copies to: Mr. Russell Algood 2800 South Olcott Boulevard Bloomington, Indiana 47401 and Hackman McClarnon Hulett & Cracraft Suite 2400 One Indiana Square Indianapolis, Indiana 46204 Attention: Marvin L. Hackman Facsimile: (317) 686-3288 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or upon receipt if the same shall have been telecopied and confirmed by telecopy answer back or three (3) Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 13.13. Survival. The representations and warranties of the Company in this Agreement shall survive the execution, delivery and acceptance hereof by the parties hereto and the Closing for a period ending on the date no amounts are owing under the Debenture. 13.14. Section Titles. The Section titles and Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 13.15. Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. 13.16. Algood Debentures. Purchaser acknowledge and agree that the Algood Debentures shall be on a parity with the rights of the Purchaser under the Debentures without priority or distinction, and that no payments of principal or interest on the Debentures shall be made by the Company unless a pro rata payment of principal and interest is paid to the holders of the Algood Debentures outstanding from time to time. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. CAPITOL AMERICAN LIFE INSURANCE COMPANY As the Purchaser By: /s/ Donald S. Gongaware GENERAL ACCEPTANCE CORPORATION As the Company By: /s/ Russell E. Algood Exhibit 10.74 THIS SUBORDINATED CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR ASSIGNED EXCEPT (I) PURSUANT TO REGISTRATIONS THEREOF UNDER SUCH LAWS, OR (II) IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO GENERAL ACCEPTANCE CORPORATION THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT SUCH REGISTRATIONS. THIS SUBORDINATED CONVERTIBLE NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT DATED APRIL 11, 1997, IN FAVOR OF GENERAL ELECTRIC CAPITAL CORPORATION. 12% SUBORDINATED CONVERTIBLE NOTE $10,000,000 Dated: April 11, 1997 For value received, General Acceptance Corporation, an Indiana corporation with its principal offices at 1025 Acuff Road, Bloomington, Indiana 47404 (AMaker@), hereby promises to pay to the order of CAPITOL AMERICAN LIFE INSURANCE COMPANY, an Arizona life insurance company with its principal offices at 11825 North Pennsylvania Street, Carmel, Indiana 46032, or its assigns (collectively, the AHolder@), at its principal office or at such other place as the Holder may direct in writing to the Maker, in lawful money of the United States of America, the principal amount of Ten Million Dollars ($10,000,000) and interest, as provided herein, all without relief from valuation or appraisement laws. This Note is being delivered in connection with the Securities Purchase Agreement by and among the Maker and the Holder, dated as of April 11, 1997 (ASecurities Purchase Agreement@). The terms and provisions of the Securities Purchase Agreement shall govern the terms and provisions of this Note and any conflict between this Note and the Securities Purchase Agreement shall be resolved by the Securities Purchase Agreement. 1. Payment of Principal. Subject to acceleration as provided for elsewhere in this 12% Subordinated Convertible Note (ANote@), the Maker shall pay to the Holder the principal balance of this Note on April 11, 2000, plus all accrued and unpaid interest on the full principal balance of this Note as of that date. 2. Interest. Interest on the unpaid principal balance hereof existing from time to time shall accrue at the rate of 12% per annum; provided, however, interest shall accrue at the rate of 15% per annum so long as an AEvent of Default,@ as specified in Section 4(a), exists hereunder. Interest shall be calculated on the basis of actual daily balances of outstanding principal for the exact number of days the principal remains outstanding and shall be computed on the basis of a 360-day year. Interest shall be due and payable on a quarterly basis, on March 31, June 30, September 30 and December 31. 3. Prepayment. The Maker may not prepay all or any portion of the unpaid principal balance hereof or accrued interest without the consent of Holder. G:\LEGAL\KSK\MISC\GACC-REV.3 4. Default and Remedy. (a) An AEvent of Default@ under this Note shall mean the occurrence of any of the following events: (i) the Maker defaults in the payment of principal of or interest on this Note when due and the Maker does not cure that default within 5 days after the due date; (ii) the Maker defaults in the performance of any obligation under this Note (other than the payment described in the immediately preceding clause) and the does not cure that default within 30 days after receipt by the Maker of written notice from the Holder; (iii) an AEvent of Default@ or a ATriggering Event@, both as defined in the Securities Purchase Agreement, shall occur; or (iv) the Maker commences proceedings in any court under the United States Bankruptcy Code, or any other debtors' relief or insolvency act, whether state or federal (the ABankruptcy Laws@), or any other person commences proceedings under the Bankruptcy Laws against the Maker and those proceedings are not stayed or dismissed within 60 days. (b) If any Event of Default occurs and is continuing, then the Holder shall have the right and option to declare, by notice in writing sent by registered or certified mail to the Maker, the full unpaid principal balance hereof, together with all accrued and unpaid interest thereon, immediately due and payable without further demand, notice, or presentment for payment. Alternatively, if a Triggering Event occurs, the Holder shall have the right and option to cause the Company to redeem this Note pursuant to the procedure set forth in Section 10.3 of the Securities Purchase Agreement. (c) If this Note is collected or attempted to be collected by the initiation or prosecution of any suit or through any bankruptcy court, or by any judicial proceeding, or is placed in the hands of attorneys for collection, then the Maker shall pay, in addition to all other amounts owing hereunder, all court costs and reasonable attorney's fees incurred by the Holder. 5. Subordination. (a) Subordination to Senior Debt. Notwithstanding anything to the contrary contained in this Note, the Maker covenants and agrees, and the Holder by acceptance of this Note likewise covenants and agrees, that the Maker's indebtedness under this Note shall be junior and subordinate to the Senior Indebtedness (as hereafter defined) to the extent and in the manner set forth in this Section 5, except to the extent otherwise agreed to in writing by the Holder and any Senior Lender (as hereinafter defined) with respect to the Senior Indebtedness held by or payable to that Senior Lender. Each subsection of this Section 5 shall be given independent effect so that if a particular payment or action is prohibited by any one of these subsections, it shall be prohibited although it otherwise would not be prohibited by another subsection. (b) Payment Default on Senior Indebtedness. If at any time a default occurs in the payment when due (whether at maturity or upon acceleration or mandatory prepayment, or on any principal installment payment date or interest payment date, or otherwise) (APayment Default@) of any Senior Indebtedness, then at all times thereafter until (i) the Payment Default has been cured, (ii) the Payment Default or the benefits of this sentence have been waived in writing by or on behalf of the Senior Lenders holding that Senior Indebtedness, or (iii) payment in full of all affected Senior Indebtedness, the Maker shall not, directly or indirectly, make any Distribution of Assets (as hereinafter defined) or Payment (as hereinafter defined) with respect to this Note. (c) Dissolution, Liquidation or Reorganization of Maker. In the event of any insolvency, bankruptcy or receivership case or proceeding or any dissolution, winding up, liquidation, reorganization or other similar proceeding relating to the Maker, its property or its operations (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings or otherwise), upon an assignment for the benefit of creditors, or any other marshaling of the assets of the Maker, then payment in full of all Senior Indebtedness then or thereafter to become due shall occur before the Holder shall be entitled to receive or retain any Distribution of Assets or Payment with respect to this Note. In any such proceedings, any Distribution of Assets or Payment to which the Holder would be entitled if this Note were not subordinated to the Senior Indebtedness shall be paid by the Maker or the agent or other person making such payment or distribution, or by the Holder if received by the Holder, directly to each Senior Lender, pro forma, to the extent necessary to make payment in full of all Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (d) Subrogation. No Distribution of Assets or Payment to which the Holder would have been entitled except for the provisions of this Section 5 and which are received by or paid over to the Senior Lenders or their Representative (as hereinafter defined) shall, as between the Maker and its creditors other than the Senior Lenders and the Holder, be deemed to be a payment by the Maker to the Senior Lenders or on account of the Senior Indebtedness, and the Holder shall be subrogated (without any duty on the part of the Senior Lenders to warrant, create, effectuate, preserve or protect such subrogation) to the then or thereafter existing rights of the Senior Lenders to receive Distributions of Assets or payments made on the Senior Indebtedness until this Note shall be paid in full. (e) Payments Held in Trust. If the Holder receives any Distribution of Assets or Payment which the Holder is not entitled to retain under the provisions of this Section 5, any such Distribution of Assets or Payment so received shall be held in trust for the Senior Lenders, shall not be commingled with any other assets of the Holder, and shall be paid to the Senior Lenders, pro rata, to the extent necessary to make payment in full, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (f) Changes in Senior Indebtedness. Any Senior Lender may at any time and from time to time with notice to the Holder: (i) extend, renew, modify, waive or amend the terms of the Senior Indebtedness; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any guarantor or any other person liable in any manner for the Senior Indebtedness or amend or waive the terms of the Senior Indebtedness; (iv) exercise or refrain from exercising any rights against the Maker or any other persons; (v) apply in any order any sums by whomever paid or however to the Senior Indebtedness; and (vi) take any other action which otherwise might be deemed to impair the Holder's rights. Any and all of such actions may be taken by the Senior Lenders without incurring responsibility to the Holder and without impairing or releasing the Holder's obligations to the Senior Lenders. (g) Third-Party Beneficiary, Etc.. The foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of the Senior Lenders on the one hand and the Holder on the other hand. Such provisions are for the benefit of the Senior Lenders (and their successors and assigns) and shall be enforceable by them directly against the Holder except to the extent otherwise agreed to in writing by the Holder and any other Senior Lender. (h) Definitions. As used in this Section 5 (or as elsewhere used in this Note) the following terms shall have the meanings indicated: ADistribution of Assets@ means any distribution of assets of the Maker or any of its subsidiaries of any kind or character, whether a payment, purchase or other acquisition or retirement for cash, property, or securities, with respect to the Maker's obligations under this Note. APayment@ means payment of any obligation now or hereafter existing under this Note (as it may hereafter be amended, supplemented, or otherwise modified from time to time), whether created directly or acquired by assignment or otherwise, and interest and premiums, if any, thereon and all other amounts payable in respect thereof or in connection therewith. ARepresentative@ means, with respect to any Senior Indebtedness, the trustee, agent, or other representative for one or more of the Senior Lenders, if any, designated in the indenture, agreement or document creating, evidencing or governing such Senior Indebtedness or pursuant to which it was issued, or otherwise designated by the holders of such Senior Indebtedness. ASenior Indebtedness@ shall have the meaning specified in the Securities Purchase Agreement. ASenior Lender@ or ASenior Lenders@ means one or more of the holders of Senior Indebtedness. 6. Conversion. (a) The Holder may, at the Holder=s option, at any time, and from time to time, prior to payment in full of this Note, convert the outstanding Principal Amount of this Note and any accrued but unpaid interest due pursuant to Section 2 above (the AConversion Amount@), in whole or in part (but only into full shares), into fully paid and non-assessable shares of the common stock, no par value of the Maker (the ACommon Shares@), at a rate equal to the amount of $3.00 per Common Share (subject to adjustment as set forth in Section 7) (the AConversion Rate@). In order to exercise this conversion right, the Holder must send written notice of the conversion to the Maker at least 10 days prior to the specified conversion date. On the conversion date (or as soon thereafter as is reasonably practicable), the Maker shall issue to the Holder a share certificate for the Common Shares acquired upon conversion. (c) Notwithstanding any other provisions of this Section 6 to the contrary, the conversion rights of the Holder shall be subject to compliance with all applicable federal and state securities laws, and the Holder agrees to execute all required agreements and documents required by the Maker to establish compliance with such laws. (d) The Maker shall at all times reserve and keep available and free of preemptive rights out of its authorized but unissued Common Shares, solely for the purpose of issuance upon conversion of the Note, the number of Common Shares as shall from time to time be sufficient to effect the conversion of the Note, and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of the Note, the Maker shall take the corporate action necessary to increase the number of its authorized Common Shares to a number sufficient for this purpose. Maker further covenants that all shares that may be issued upon the conversion of this Note and payment of the Conversion Price, all as set forth herein, will be free from all taxes, liens and charges in respect of the issue thereof. Maker agrees that its issuance of this Note shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the shares upon the conversion of this Note. 7. Adjustments. (a) Reorganization, Merger or Sale of Assets If at any time while this Note, or any portion thereof, is outstanding there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation with or into another corporation in which the Maker is not the surviving entity, or a reverse triangular merger in which the Maker is the surviving entity but the shares of the Maker=s capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (iii) a sale or transfer of the Maker=s properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Note shall thereafter be entitled to receive upon conversion of the Notes the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this Section 7(a) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. If the per-share consideration payable to Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Maker=s Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Maker=s Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. (b) Reclassification. If the Maker, at any time while this Note, or any portion thereof, remains outstanding, by reclassification of securities or otherwise, shall change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change and the Conversion Price or number of shares received upon such conversion shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (c) Split, Subdivision or Combination of Shares. If the Maker at any time while this Note, or any portion thereof, remains outstanding shall split, subdivide or combine the securities as to which conversion rights under this Note exist, into a different number of securities of the same class, the number of shares issuable upon conversion shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. (d) Adjustments for Dividends in Stock or Other Securities or Property. If while this Note, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which conversion rights under this Note exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Maker by way of dividend, then and in each case, this Note shall represent the right to acquire upon conversion, in addition to the number of shares of the security receivable upon conversion of this Note, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Maker that such holder would hold on the date of such conversion had it been the holder of record of the security receivable upon conversion of this Note on the date hereof and had thereafter, during the period from the date hereof to and including the date of such conversion, retained such shares and/all other additional stock, other securities or property available by this Note as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 7. (e) Issuance of Shares Below Conversion Price. (1) If while this Note, or any portion hereof, remains outstanding, the Maker shall offer and sell Additional Shares of Common Stock (as hereinafter defined) for consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Shares of Common Stock (except upon the exercise of stock options granted pursuant to the Company=s Stock Option Plan approved by the Board), the Conversion Price in effect immediately prior to each such issuance shall forthwith be adjusted upon such issuance to a price equal to the price paid per share for such Additional Shares of Common Stock. (2) For the purpose of the calculations provided in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of, or stock or other securities convertible into, Additional Shares of Common Stock (such Common Stock or securities being hereinafter referred to as AConvertible Securities@), then, and in each case, if the Effective Price (as hereinafter defined) of such rights, options or Convertible Securities shall be less than the Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, payable to the Maker upon exercise or conversion of such options or rights. AEffective Price@ shall mean the quotient determined by dividing the total of all of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. In the case of Convertible Securities which have a conversion price which is based, in whole or in part, upon a discount to the market price or value of the Common Stock, then for the purposes of calculating the Effective Price, the consideration shall be deemed to include the minimum conversion price payable to the Maker. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire prior to the Maturity hereof without having been exercised, the adjustment to the number of shares available hereunder upon the issuance of such rights, options or Convertible Securities shall be readjusted to the number of shares that would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Maker for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted plus the consideration, if any, actually received by the Maker on the conversion of such Convertible Securities. (3) For the purpose of the calculations provided for in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of Convertible Securities, then, in each such case, if the Effective Price thereof is less than the then Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options the maximum number of Additional Shares of Common Stock issuable upon conversion of the total amount of Convertible Securities covered by such rights or options and to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Maker for the issuance of such rights or options, plus the consideration, if any, payable to the Maker upon the conversion of such Convertible Securities. AEffective Price@ shall mean the quotient determined by dividing the total amount of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment of such Conversion Price adjusted upon the issuance of such rights or options shall be made as a result of the actual issuance of the Convertible Securities upon the exercise of such rights or options or upon the actual issuance of Additional Shares of Common Stock upon the conversion of such Convertible Securities. (4) The term AAdditional Shares of Common Stock@ as used herein shall mean all shares of Common Stock issued or deemed issued by the Maker after the date hereof, other than (i) securities issued pursuant to or in connection with the terms of the Securities Purchase Agreement; (ii) shares of Common Stock issued upon conversion of convertible securities or the exercise of common stock purchase warrants outstanding as of the date hereof; (iii) shares of Common Stock issuable to employees, officers or directors pursuant to the Maker=s stock option plan; (iv) shares of Common Stock issued or issuable to directors in connection with their service as directors; (v) shares of Common Stock issued or issuable to directors, officers or employees for services rendered or to be rendered pursuant to arrangements approved by the Board of Directors; and (vii) shares of Common Stock issued in connection with a business combination, merger, consolidation, asset acquisition or the acquisition of the business of another corporation (through the purchase of stock or assets) approved by the Board of Directors and all of the Conseco Directors (as defined in the Securities Purchase Agreement). (f) No Impairment. Maker will not, by any voluntary action, avoid or seek to avoid the observance or performance or any of the terms to be observed or performed hereunder by Maker, but will at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 8. Notices. (a) Whenever the number of shares issuable or the Conversion Price hereunder shall be adjusted pursuant to Section 7 hereof, the Maker shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Conversion Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid) to Holder. (b) All notices, requests, demands, or other communications that are required or may be given pursuant to the terms of this Note shall be in writing and delivery shall be deemed sufficient and to have been duly given on the date of service if delivered personally or by facsimile transmission if receipt is confirmed to the party to whom notice is to be given or on the third day after mailing if mailed by first-class mail, return receipt requested, and properly addressed as follows: If to the Maker, to: 1025 Acuff Road Bloomington, Indiana 47404 Attention: Chief Financial Officer Fax: (812) 337-6029 Copies to: Mr. Russell Algood 2800 South Olcott Boulevard Bloomington, Indiana 47401 and Hackman McClarnon Hulett & Cracraft Suite 2400 One Indiana Square Indianapolis, Indiana 46204 Attention: Marvin L. Hackman Fax: (317) 686-3288 If to the Holder, to: 11825 North Pennsylvania Street Carmel, Indiana 46032 Attention: Lawrence W. Inlow Fax: (317) 817-6327 or to such other address as may be specified in writing by any of the above. 9. Remedies. The remedies provided by this Note shall be cumulative, and shall be in addition to and not exclusive of other remedies available under or pursuant to the Share Purchase Agreement, at law, or in equity. The exercise or waiver by the Holder of any right or remedy available under this Note shall not be deemed to be a waiver of any other right or remedy available under this Note, the Share Purchase Agreement, at law, or in equity. 10. Miscellaneous. (a) Whenever used herein, the singular includes the plural and the plural includes the singular. The term AMaker@ means the corporation named in the opening paragraph hereof and its successors and assigns. (b) Indiana law shall govern this interpretation, construction, and enforcement of this Note and all transactions contemplated hereby, notwithstanding any state's choice of law rules to the contrary. Any litigation related to this Note may be maintained only in the federal district court for the Southern District of Indiana, Indianapolis Division (or any successor jurisdiction) or in an Indiana state court in Hamilton County or one of the counties immediately contiguous to Hamilton County, and each party hereby irrevocably consents and submits to the jurisdiction of that federal or state court and irrevocably waives any objection the party may have based upon improper venue, forum non conveniens, or other similar doctrines or rules. (c) Maker and any other party now or hereafter liable for the payment of this Note in whole or in part, hereby severally (i) waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notice, filing of suit and diligence in collecting this Note, (ii) agree to the release of any party primarily or secondarily liable hereon, (iii) agree that the Holder shall not be required first to institute suit or exhaust its remedies hereon against Maker or others liable or to become liable hereon or to enforce its rights against them, and (iv) consent to any extension or postponement of time of payment of this Note and to any other indulgence with respect hereto without notice thereof to any of them. (d) Holder, by acceptance hereof, acknowledges that this Note and the shares to be issued upon conversion hereof are being acquired solely for Holder=s own account and not as a nominee for any other party, and for investment, and that Holder will not offer, sell or otherwise dispose of this Note or any shares to be issued upon conversion hereof except under circumstances that will not result in a violation of applicable federal and state securities laws. Upon exercise of this Note, Holder shall, if requested by Maker, confirm in writing, in a form satisfactory to Maker, that the shares so purchased are being acquired solely for Holder=s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. All shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED UPON CONVERSION THEREOF MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. Holder shall be entitled to the registration rights set forth in a certain Registration Rights Agreement of even date herewith by and between Maker and Holder. (e) The captions of the sections of this Note are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any provision of this Note. IN WITNESS WHEREOF, the Maker has executed, acknowledged, and delivered this Note as of the day and year first above written. GENERAL ACCEPTANCE CORPORATION By: /s/ Russell E. Algood Accepted and agreed to this 11th day of April, 1997: CAPITOL AMERICAN LIFE INSURANCE COMPANY By: /s/ Donald S. Gongaware Exhibit 10.75 EMPLOYMENT AGREEMENT AND AGREEMENT NOT TO COMPETE THIS AGREEMENT, is entered into this 11th day of April, 1997, by and between General Acceptance Corporation, an Indiana corporation, with principal offices at 1025 Acuff Road, Bloomington, Indiana 47404 (hereinafter referred to as the "Corporation") and Malvin L. Algood, residing at 3810 Easy Street, Bloomington, Indiana 47404 (hereinafter referred to as the "Employee"). RECITALS A. The Corporation is principally engaged in (i) the business of financing non-prime automobile loans in the United States originated by non-affiliated dealers and company operated retail sales lots, and (ii) the business of selling automobiles and operating retail automobile sales lots (collectively the "Business"). B. Employee has been the Chairman of the Board of Directors and Chief Executive Officer of the Corporation for several years. C. Concurrently herewith, the Corporation is issuing $10,000,000 12% Subordinated Convertible Notes to Capitol American Life Insurance Company as purchaser pursuant to a Securities Purchase Agreement, Registration Rights Agreement, and Stockholders Agreement each of even date herewith (hereinafter the "Financing Documents"). D. The Financing Documents require that the Corporation enter into this Employment Agreement and Agreement Not to Compete with the Employee. AGREEMENT NOW, THEREFORE, in consideration of the recitals, and the mutual covenants and undertakings herein contained, the parties hereto mutually agree as follows: 1. Employment and Term. The Corporation agrees to continue the employment of the Employee as the Chairman of the Board of Directors and Chief Executive Officer of the Corporation until the earlier to occur of April 11, 1999, the voluntary retirement of Employee, the permanent disability of Employee, or the death of Employee. Unless the Corporation gives the Employee not less than ninety (90) days prior written notice of its intention not to renew this Agreement, this Agreement shall be automatically renewed for an additional twelve (12) months commencing at the expiration of the original term upon the same terms and conditions herein set forth. 2. Employee's Duties. During the term of this Agreement, the Employee, while employed by the Corporation, shall continue to occupy his present offices and shall have such responsibilities and perform such duties as are commensurate with the duties of a Chairman of the Board of Directors and Chief Executive Officer in accordance with past practice. 3. Compensation. As compensation for Employee's services, the Corporation shall pay to Employee the following: (a) A base salary of One Hundred Twenty Five Thousand Dollars ($125,000) per year payable in twenty-six (26) by-weekly installments, less applicable withholding for income and employment taxes as required by law. (b) An annual bonus payable within seventy-five (75) days following the end of each fiscal year of the Corporation in an amount equal to 3-1/2% of the consolidated net income of the Corporation for the preceding fiscal year before taxes and bonuses in excess of Five Million Dollars ($5,000,000), which shall be computed each year on a non-cumulative basis. The bonus payable for the partial year during which this Agreement expires shall be a pro rata amount based upon the consolidated net income of the Corporation for the entire year. (c) A qualified stock option pursuant to the Corporation's Employee Stock Option Plan to purchase 30,000 shares of the Corporation's capital stock to be granted to the Employee each year commencing January 1, 1998, at a price equal to the fair market value of such shares determined in accordance with the Plan if the shares of the Corporation are publicly traded, and if not, at the book value of such shares as of the date of the grant of option. Such options shall vest in the Employee one (1) year following the date the options are granted provided the Employee remains employed by the Corporation or is a member of the Corporation's Board of Directors. Vested options may be exercised by the Employee for a period of ten (10) years from the date of grant. 4. Fringe Benefits. In addition to the compensation provided for in paragraph 3 above, Employee shall be entitled to retain his present company car (or comparable replacement) without expense to the Employee during the term of this Agreement, and shall receive all other fringe benefits which the Corporation provides to its executive officers from time to time, including health, disability, group life insurance, sick pay and paid vacations and shall be eligible to participate in any pension or profit sharing plan hereafter established by the Corporation for the benefit of its executive officers. In addition, the Company shall continue to pay the premiums on the life insurance policy in effect on Employee's life with beneficiaries' rights as now in existence. 5. Restrictive Covenant During the Term of this Agreement. From the date hereof until April 11, 1999 (or April 11, 2000 if this Agreement is renewed pursuant to paragraph 1 hereof): (a) Employee shall not, directly or indirectly, whether as an employee, owner, consultant, agent or in any other capacity, engage in the Business or compete in any manner with the Corporation or any of its subsidiaries or affiliates in the Business or aid or render services to any person or entity engaging in any such activity anywhere; (b) Employee shall not solicit, directly or indirectly, on his own behalf or on behalf of any person or entity that competes with the Corporation or any of its subsidiaries or affiliates in the Business, customers of the Business to whom any sales were or are made; (c) Employee shall not, directly or indirectly, on his own behalf or on behalf of any person or entity that competes with the Corporation or any subsidiaries or affiliates of the Corporation, solicit for employment or employ, or otherwise seek to establish any contractual relationship with, any employees, agents or representatives of, or other persons having a contractual relationship with, the Corporation or any of its subsidiaries or affiliates. Notwithstanding the foregoing, the Employee shall be permitted to continue to engage in the Business as an owner, agent or employee of Algood Chevrolet-Oldsmobile-Pontiac, Inc. and Algood Body Shop, Inc., and shall be permitted to operate retail sales lots except in cities in which the Corporation at any time has a retail sales operation or within a sixty (60) mile radius of such cities. 6. Disclosure of Information. For purposes of this Section 6, the term "Confidential Information" shall mean any knowledge or information, written or oral, with respect to the Business of the Corporation and any of its subsidiaries or affiliates, with the following exceptions: (i) knowledge or information ascertainable or obtainable from public sources; and (ii) knowledge or information which is or becomes known to the public other than through a breach of this Agreement by the Employee. The Employee acknowledges that as a result of his association with and employment by the Corporation, he has had and will continue to have access to the Confidential Information, which has a special and unique nature and value to the Corporation. As a material inducement to the Corporation to enter into this Agreement and to pay the Employee the compensation and other benefits provided herein, the Employee covenants and agrees that he shall not, directly or indirectly, divulge or disclose to any third party for any purpose whatsoever, any Confidential Information without the consent of the Corporation and that he will surrender to the Corporation all such Confidential Information in his possession or control upon the termination of his employment with the Corporation. 7. Termination of Employment. Nothing contained in this Agreement shall require the Corporation to continue the employment of the Employee; provided, however, that if such employment is terminated by the Corporation, except for Employee's fraud, other willful misconduct in connection with his employment, or willful breach of this Agreement, the Corporation shall continue to pay the compensation to the Employee provided for in paragraph 3 hereof in consideration of Employee's covenant not to compete contained in paragraph 5 hereof until April 11, 1999 (or April 11, 2000 if this Agreement is renewed pursuant to paragraph 1 hereof). In the event of Employee's death or permanent disability during the term of this Agreement, the Employee's compensation shall continue to be paid by the Corporation for a period of three (3) months, or until the earlier expiration of the term of this Agreement pursuant to paragraph 1 hereof, to his surviving spouse, and if none, to the Employee's estate. 8. Remedies. Employee recognizes that a violation of the restrictive covenant contained in this Agreement will irreparably damage Corporation, that money damages are not likely to be an adequate remedy and that for a breach of said covenant, the Corporation shall be entitled to an injunction to prevent the continuation of such breach. 9. Attorneys' Fees and Other Litigation Costs. If the Corporation or the Employee violates any term of this Agreement, the defaulting party shall reimburse the non-defaulting party for all reasonable attorneys' fees and litigation costs incurred to enforce, or recover damages for the breach of, this Agreement. 10. Survival of Obligations. The obligations of this Agreement shall survive the termination of Employee's employment with Corporation. 11. No Prior Contrary Representations or Agreements. This Agreement supersedes any and all prior proposals, representations, or agreements, oral or written, insofar as any such proposal, representation or agreement might be determined to be inconsistent with or to limit the terms or applications of this Agreement. 12. Waiver, Modification and Amendment. A failure to insist upon or enforce compliance with any term of this Agreement shall not constitute a waiver or relinquishment of any such term, and the term shall remain in full force and effect. This Agreement may not be waived, changed, modified, abandoned, or terminated, in whole or in part, except by a written instrument signed by a duly authorized representative of the Corporation and accepted by Employee. 13. Successors. This Agreement shall be binding upon the Corporation and the Employee's successors, assigns, executors, administrators, and personal representatives, but may not be assigned by Employee. 14. Headings. The headings in this Agreement are for convenience only and shall not be deemed to limit the content of or to interpret the meaning of this Agreement. 15. Governing Law. This Agreement and its performance shall be subject to and governed by the laws of the State of Indiana. 16. Severability. If any word or other term of this Agreement, or if any construction or application of any term of this Agreement, is held to be unenforceable or invalid for any reason, then the validity of any remaining construction or application of that term shall not be affected, and the rights or obligations of each of the parties shall be construed and enforced as if the contract did not contain such invalid term, or as the case may be, invalid construction or application of such term; provided, however, that such resulting construction and enforcement shall be generally consistent with the basic purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. GENERAL ACCEPTANCE CORPORATION By:_/s/ Malvin L. Algood______ Title:_Chief Executive Officer____ ______________________________ Malvin L. Algood AGREEMENT OF PURCHASER The terms and provisions of this Agreement are approved this 11th day of April, 1997. CAPITOL AMERICAN LIFE INSURANCE COMPANY By: /s/ Michael A. Colliflower Exhibit 10.76 EMPLOYMENT AGREEMENT AND AGREEMENT NOT TO COMPETE THIS AGREEMENT, is entered into this 11th day of April, 1997, by and between General Acceptance Corporation, an Indiana corporation, with principal offices at 1025 Acuff Road, Bloomington, Indiana 47404 (hereinafter referred to as the "Corporation") and Russell E. Algood, residing at 2800 South Olcott Boulevard, Bloomington, Indiana 47401 (hereinafter referred to as the "Employee"). RECITALS A. The Corporation is principally engaged in (i) the business of financing non-prime automobile loans in the United States originated by non-affiliated dealers and company operated retail sales lots, and (ii) the business of selling automobiles and operating retail automobile sales lots (collectively the "Business"). B. Employee is the President and Chief Operating Officer of the Corporation. C. Concurrently herewith, the Corporation is issuing $10,000,000 12% Subordinated Convertible Notes to Capitol American Life Insurance Company as purchaser pursuant to a Securities Purchase Agreement, Registration Rights Agreement, and Stockholders Agreement each of even date herewith (hereinafter the "Financing Documents"). D. The Financing Documents require that the Corporation enter into this Employment Agreement and Agreement Not to Compete with the Employee. AGREEMENT NOW, THEREFORE, in consideration of the recitals, and the mutual covenants and undertakings herein contained, the parties hereto mutually agree as follows: 1. Employment and Term. The Corporation agrees to continue the employment of the Employee as the President and Chief Operating Officer of the Corporation until the earlier to occur of April 11, 1999, the permanent disability of Employee, or the death of Employee. Unless the Corporation gives the Employee not less than ninety (90) days prior written notice of its intention not to renew this Agreement, this Agreement shall be automatically renewed for an additional twelve (12) months commencing at the expiration of the original term upon the same terms and conditions herein set forth. 2. Employee's Duties. During the term of this Agreement, the Employee, while employed by the Corporation, shall continue to occupy his present offices and shall have such responsibilities and perform such duties as are commensurate with the duties of a President and Chief Operating Officer in accordance with past practice. 3. Compensation. As compensation for Employee's services, the Corporation shall pay to Employee the following: (a) A base salary of Two Hundred Thousand Dollars ($200,000) per year payable in twenty-six (26) bi-weekly installments, less applicable withholding for income and employment taxes as required by law. (b) An annual bonus payable within seventy-five (75) days following the end of each fiscal year of the Corporation in an amount equal to 3-1/2% of the consolidated net income of the Corporation for the preceding fiscal year before taxes and bonuses in excess of Five Million Dollars ($5,000,000), which shall be computed each year on a non-cumulative basis. The bonus payable for the partial year during which this Agreement expires shall be a pro rata amount based upon the consolidated net income of the Corporation for the entire year. (c) A qualified stock option pursuant to the Corporation's Employee Stock Option Plan to purchase 30,000 shares of the Corporation's capital stock to be granted to the Employee each year commencing January 1, 1998, at a price equal to the fair market value of such shares determined in accordance with the Plan if the shares of the Corporation are publicly traded, and if not, at the book value of such shares as of the date of the grant of option. Such options shall vest in the Employee at the rate of 20% per year of employment commencing in the years the options are granted for so long as the Employee remains employed by the Corporation or is a member of the Corporation's Board of Directors. Vested options may be exercised by the Employee for a period of ten (10) years from the date of grant. 4. Fringe Benefits. In addition to the compensation provided for in paragraph 3 above, Employee shall be entitled to retain his present company car (or comparable replacement) without expense to the Employee during the term of this Agreement, and shall receive all other fringe benefits which the Corporation provides to its executive officers from time to time, including health, disability, group life insurance, sick pay and paid vacations and shall be eligible to participate in any pension or profit sharing plan hereafter established by the Corporation for the benefit of its executive officers. 5. Restrictive Covenant During the Term of this Agreement. From the date hereof until April 11, 1999 (or April 11, 2000 if this Agreement is renewed pursuant to paragraph 1 hereof): (a) Employee shall not, directly or indirectly, whether as an employee, owner, consultant, agent or in any other capacity, engage in the Business or compete in any manner with the Corporation or any of its subsidiaries or affiliates in the Business or aid or render services to any person or entity engaging in any such activity anywhere; (b) Employee shall not solicit, directly or indirectly, on his own behalf or on behalf of any person or entity that competes with the Corporation or any of its subsidiaries or affiliates in the Business, customers of the Business to whom any sales were or are made; (c) Employee shall not, directly or indirectly, on his own behalf or on behalf of any person or entity that competes with the Corporation or any subsidiaries or affiliates of the Corporation, solicit for employment or employ, or otherwise seek to establish any contractual relationship with, any employees, agents or representatives of, or other persons having a contractual relationship with, the Corporation or any of its subsidiaries or affiliates. Notwithstanding the foregoing, the Employee shall be permitted to continue to engage in the Business as an owner, agent or employee of Algood Chevrolet-Oldsmobile-Pontiac, Inc. and Algood Body Shop, Inc., and shall be permitted to operate retail sales lots except in cities in which the Corporation at any time has a retail sales operation or within a sixty (60) mile radius of such cities. 6. Disclosure of Information. For purposes of this Section 6, the term "Confidential Information" shall mean any knowledge or information, written or oral, with respect to the Business of the Corporation and any of its subsidiaries or affiliates, with the following exceptions: (i) knowledge or information ascertainable or obtainable from public sources; and (ii) knowledge or information which is or becomes known to the public other than through a breach of this Agreement by the Employee. The Employee acknowledges that as a result of his association with and employment by the Corporation, he has had and will continue to have access to the Confidential Information, which has a special and unique nature and value to the Corporation. As a material inducement to the Corporation to enter into this Agreement and to pay the Employee the compensation and other benefits provided herein, the Employee covenants and agrees that he shall not, directly or indirectly, divulge or disclose to any third party for any purpose whatsoever, any Confidential Information without the consent of the Corporation and that he will surrender to the Corporation all such Confidential Information in his possession or control upon the termination of his employment with the Corporation. 7. Termination of Employment. Nothing contained in this Agreement shall require the Corporation to continue the employment of the Employee; provided, however, that if such employment is terminated by the Corporation, except for Employee's fraud, other willful misconduct in connection with his employment, or willful breach of this Agreement the Corporation shall continue to pay the compensation to the Employee provided for in paragraph 3 hereof in consideration of Employee's covenant not to compete contained in paragraph 5 hereof until April 11, 1999 (or April 11, 2000 if this Agreement is renewed pursuant to paragraph 1 hereof. In the event of Employee's death or permanent disability during the term of this Agreement, the Employee's compensation shall continue to be paid by the Corporation for a period of three (3) months, or until the earlier expiration of the term of this Agreement pursuant to paragraph 1 hereof, to his surviving spouse, and if none, to the Employee's estate. 8. Remedies. Employee recognizes that a violation of the restrictive covenant contained in this Agreement will irreparably damage Corporation, that money damages are not likely to be an adequate remedy and that for a breach of said covenant, the Corporation shall be entitled to an injunction to prevent the continuation of such breach. 9. Attorneys' Fees and Other Litigation Costs. If the Corporation or the Employee violates any term of this Agreement, the defaulting party shall reimburse the non-defaulting party for all reasonable attorneys' fees and litigation costs incurred to enforce, or recover damages for the breach of, this Agreement. 10. Survival of Obligations. The obligations of this Agreement shall survive the termination of Employee's employment with Corporation. 11. No Prior Contrary Representations or Agreements. This Agreement supersedes any and all prior proposals, representations, or agreements, oral or written, insofar as any such proposal, representation or agreement might be determined to be inconsistent with or to limit the terms or applications of this Agreement. 12. Waiver, Modification and Amendment. A failure to insist upon or enforce compliance with any term of this Agreement shall not constitute a waiver or relinquishment of any such term, and the term shall remain in full force and effect. This Agreement may not be waived, changed, modified, abandoned, or terminated, in whole or in part, except by a written instrument signed by a duly authorized representative of the Corporation and accepted by Employee. 13. Successors. This Agreement shall be binding upon the Corporation and the Employee's successors, assigns, executors, administrators, and personal representatives, but may not be assigned by Employee. 14. Headings. The headings in this Agreement are for convenience only and shall not be deemed to limit the content of or to interpret the meaning of this Agreement. 15. Governing Law. This Agreement and its performance shall be subject to and governed by the laws of the State of Indiana. 16. Severability. If any word or other term of this Agreement, or if any construction or application of any term of this Agreement, is held to be unenforceable or invalid for any reason, then the validity of any remaining construction or application of that term shall not be affected, and the rights or obligations of each of the parties shall be construed and enforced as if the contract did not contain such invalid term, or as the case may be, invalid construction or application of such term; provided, however, that such resulting construction and enforcement shall be generally consistent with the basic purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. GENERAL ACCEPTANCE CORPORATION By:_/s/ Russell E. Algood_______ Title:_President and COO_______ ______________________________ Russell E. Algood AGREEMENT OF PURCHASER The terms and provisions of this Agreement are approved this 11th day of April, 1997. CAPITOL AMERICAN LIFE INSURANCE COMPANY By: /s/ Michael A. Colliflower Exhibit 10.77 THIS SUBORDINATED CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR ASSIGNED EXCEPT (I) PURSUANT TO REGISTRATIONS THEREOF UNDER SUCH LAWS, OR (II) IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO GENERAL ACCEPTANCE CORPORATION THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT SUCH REGISTRATIONS. THIS SUBORDINATED CONVERTIBLE NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT DATED APRIL 11, 1997, IN FAVOR OF GENERAL ELECTRIC CAPITAL CORPORATION. 12% SUBORDINATED CONVERTIBLE NOTE $1,000,000 Dated: April 11, 1997 For value received, General Acceptance Corporation, an Indiana corporation with its principal offices at 1025 Acuff Road, Bloomington, Indiana 47404 ("Maker"), hereby promises to pay to the order of Malvin L. Algood, residing at 3810 Easy Street, Bloomington, Indiana 47404, or assigns (collectively, the "Holder"), at its principal office or at such other place as the Holder may direct in writing to the Maker, in lawful money of the United States of America, the principal amount of One Million Dollars ($1,000,000) and interest, as provided herein, all without relief from valuation or appraisement laws. This Note is one of a series of 12% Subordinated Convertible Notes in the aggregate principal amount of $13,250,000, of which $10,000,000 is being issued to Capitol American Life Insurance Company pursuant to a Securities Purchase Agreement dated as of April 11, 1997 ("Securities Purchase Agreement") and the balance are being issued to the Holder and other stockholders of the Maker in exchange for the surrender of certain promissory notes payable to them by the Maker. Purchaser acknowledges and agrees that the Note purchased by Capitol American Life Insurance Company shall be on a parity with the rights of the Holder under this Note and the other Notes without priority or distinction, and that no payments of principal or interest on this Note shall be made by the Company unless a pro rata payment of principal and interest is paid to the holders of all Notes outstanding from time to time. The terms and provisions of the Securities Purchase Agreement shall govern the terms and provisions of this Note and any conflict between this Note and the Securities Purchase Agreement shall be resolved by the Securities Purchase Agreement. 1. Payment of Principal. Subject to acceleration as provided for elsewhere in this 12% Subordinated Convertible Note ("Note"), the Maker shall pay to the Holder the principal balance of this Note on April 11, 2000, plus all accrued and unpaid interest on the full principal balance of this Note as of that date. 2. Interest. Interest on the unpaid principal balance hereof existing from time to time shall accrue at the rate of 12% per annum; provided, however, interest shall accrue at the rate of 15% per annum so long as an "Event of Default," as specified in Section 4(a), exists hereunder. Interest shall be calculated on the basis of actual daily balances of outstanding principal for the exact number of days the principal remains outstanding and shall be computed on the basis of a 360-day year. Interest shall be due and payable on a quarterly basis, on March 31, June 30, September 30 and December 31. 3. Prepayment. The Maker may not prepay all or any portion of the unpaid principal balance hereof or accrued interest without the consent of Holder. 4. Default and Remedy. (a) An "Event of Default" under this Note shall mean the occurrence of any of the following events: (i) the Maker defaults in the payment of principal of or interest on this Note when due and the Maker does not cure that default within 5 days after the due date; (ii) the Maker defaults in the performance of any obligation under this Note (other than the payment described in the immediately preceding clause) and the does not cure that default within 30 days after receipt by the Maker of written notice from the Holder; (iii) an "Event of Default" or a "Triggering Event", both as defined in the Securities Purchase Agreement, shall occur; or (iv) the Maker commences proceedings in any court under the United States Bankruptcy Code, or any other debtors' relief or insolvency act, whether state or federal (the "Bankruptcy Laws"), or any other person commences proceedings under the Bankruptcy Laws against the Maker and those proceedings are not stayed or dismissed within 60 days. (b) If any Event of Default occurs and is continuing, then the Holder shall have the right and option to declare, by notice in writing sent by registered or certified mail to the Maker, the full unpaid principal balance hereof, together with all accrued and unpaid interest thereon, immediately due and payable without further demand, notice, or presentment for payment. Alternatively, if a Triggering Event occurs, the Holder shall have the right and option to cause the Maker to redeem this Note pursuant to the procedure set forth in Section 10.3 of the Securities Purchase Agreement. (c) If this Note is collected or attempted to be collected by the initiation or prosecution of any suit or through any bankruptcy court, or by any judicial proceeding, or is placed in the hands of attorneys for collection, then the Maker shall pay, in addition to all other amounts owing hereunder, all court costs and reasonable attorney's fees incurred by the Holder. 5. Subordination. (a) Subordination to Senior Debt. Notwithstanding anything to the contrary contained in this Note, the Maker covenants and agrees, and the Holder by acceptance of this Note likewise covenants and agrees, that the Maker's indebtedness under this Note shall be junior and subordinate to the Senior Indebtedness (as hereafter defined) to the extent and in the manner set forth in this Section 5, except to the extent otherwise agreed to in writing by the Holder and any Senior Lender (as hereinafter defined) with respect to the Senior Indebtedness held by or payable to that Senior Lender. Each subsection of this Section 5 shall be given independent effect so that if a particular payment or action is prohibited by any one of these subsections, it shall be prohibited although it otherwise would not be prohibited by another subsection. (b) Payment Default on Senior Indebtedness. If at any time a default occurs in the payment when due (whether at maturity or upon acceleration or mandatory prepayment, or on any principal installment payment date or interest payment date, or otherwise) ("Payment Default") of any Senior Indebtedness, then at all times thereafter until (i) the Payment Default has been cured, (ii) the Payment Default or the benefits of this sentence have been waived in writing by or on behalf of the Senior Lenders holding that Senior Indebtedness, or (iii) payment in full of all affected Senior Indebtedness, the Maker shall not, directly or indirectly, make any Distribution of Assets (as hereinafter defined) or Payment (as hereinafter defined) with respect to this Note. (c) Dissolution, Liquidation or Reorganization of Maker. In the event of any insolvency, bankruptcy or receivership case or proceeding or any dissolution, winding up, liquidation, reorganization or other similar proceeding relating to the Maker, its property or its operations (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings or otherwise), upon an assignment for the benefit of creditors, or any other marshaling of the assets of the Maker, then payment in full of all Senior Indebtedness then or thereafter to become due shall occur before the Holder shall be entitled to receive or retain any Distribution of Assets or Payment with respect to this Note. In any such proceedings, any Distribution of Assets or Payment to which the Holder would be entitled if this Note were not subordinated to the Senior Indebtedness shall be paid by the Maker or the agent or other person making such payment or distribution, or by the Holder if received by the Holder, directly to each Senior Lender, pro forma, to the extent necessary to make payment in full of all Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (d) Subrogation. No Distribution of Assets or Payment to which the Holder would have been entitled except for the provisions of this Section 5 and which are received by or paid over to the Senior Lenders or their Representative (as hereinafter defined) shall, as between the Maker and its creditors other than the Senior Lenders and the Holder, be deemed to be a payment by the Maker to the Senior Lenders or on account of the Senior Indebtedness, and the Holder shall be subrogated (without any duty on the part of the Senior Lenders to warrant, create, effectuate, preserve or protect such subrogation) to the then or thereafter existing rights of the Senior Lenders to receive Distributions of Assets or payments made on the Senior Indebtedness until this Note shall be paid in full. (e) Payments Held in Trust. If the Holder receives any Distribution of Assets or Payment which the Holder is not entitled to retain under the provisions of this Section 5, any such Distribution of Assets or Payment so received shall be held in trust for the Senior Lenders, shall not be commingled with any other assets of the Holder, and shall be paid to the Senior Lenders, pro rata, to the extent necessary to make payment in full, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (f) Changes in Senior Indebtedness. Any Senior Lender may at any time and from time to time with notice to the Holder: (i) extend, renew, modify, waive or amend the terms of the Senior Indebtedness; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any guarantor or any other person liable in any manner for the Senior Indebtedness or amend or waive the terms of the Senior Indebtedness; (iv) exercise or refrain from exercising any rights against the Maker or any other persons; (v) apply in any order any sums by whomever paid or however to the Senior Indebtedness; and (vi) take any other action which otherwise might be deemed to impair the Holder's rights. Any and all of such actions may be taken by the Senior Lenders without incurring responsibility to the Holder and without impairing or releasing the Holder's obligations to the Senior Lenders. (g) Third-Party Beneficiary, Etc.. The foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of the Senior Lenders on the one hand and the Holder on the other hand. Such provisions are for the benefit of the Senior Lenders (and their successors and assigns) and shall be enforceable by them directly against the Holder except to the extent otherwise agreed to in writing by the Holder and any other Senior Lender. (h) Definitions. As used in this Section 5 (or as elsewhere used in this Note) the following terms shall have the meanings indicated: "Distribution of Assets" means any distribution of assets of the Maker or any of its subsidiaries of any kind or character, whether a payment, purchase or other acquisition or retirement for cash, property, or securities, with respect to the Maker's obligations under this Note. "Payment" means payment of any obligation now or hereafter existing under this Note (as it may hereafter be amended, supplemented, or otherwise modified from time to time), whether created directly or acquired by assignment or otherwise, and interest and premiums, if any, thereon and all other amounts payable in respect thereof or in connection therewith. "Representative" means, with respect to any Senior Indebtedness, the trustee, agent, or other representative for one or more of the Senior Lenders, if any, designated in the indenture, agreement or document creating, evidencing or governing such Senior Indebtedness or pursuant to which it was issued, or otherwise designated by the holders of such Senior Indebtedness. "Senior Indebtedness" shall have the meaning specified in the Securities Purchase Agreement. "Senior Lender" or "Senior Lenders" means one or more of the holders of Senior Indebtedness. 6. Conversion. (a) The Holder may, at the Holder's option, at any time, and from time to time, prior to payment in full of this Note, convert the outstanding Principal Amount of this Note and any accrued but unpaid interest due pursuant to Section 2 above (the "Conversion Amount"), in whole or in part (but only into full shares), into fully paid and non-assessable shares of the common stock, no par value of the Maker (the "Common Shares"), at a rate equal to the amount of $3.00 per Common Share (subject to adjustment as set forth in Section 7) (the "Conversion Rate"). In order to exercise this conversion right, the Holder must send written notice of the conversion to the Maker at least 10 days prior to the specified conversion date. On the conversion date (or as soon thereafter as is reasonably practicable), the Maker shall issue to the Holder a share certificate for the Common Shares acquired upon conversion. (c) Notwithstanding any other provisions of this Section 6 to the contrary, the conversion rights of the Holder shall be subject to compliance with all applicable federal and state securities laws, and the Holder agrees to execute all required agreements and documents required by the Maker to establish compliance with such laws. (d) The Maker shall at all times reserve and keep available and free of preemptive rights out of its authorized but unissued Common Shares, solely for the purpose of issuance upon conversion of the Note, the number of Common Shares as shall from time to time be sufficient to effect the conversion of the Note, and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of the Note, the Maker shall take the corporate action necessary to increase the number of its authorized Common Shares to a number sufficient for this purpose. Maker further covenants that all shares that may be issued upon the conversion of this Note and payment of the Conversion Price, all as set forth herein, will be free from all taxes, liens and charges in respect of the issue thereof. Maker agrees that its issuance of this Note shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the shares upon the conversion of this Note. 7. Adjustments. (a) Reorganization, Merger or Sale of Assets If at any time while this Note, or any portion thereof, is outstanding there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation with or into another corporation in which the Maker is not the surviving entity, or a reverse triangular merger in which the Maker is the surviving entity but the shares of the Maker's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (iii) a sale or transfer of the Maker's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Note shall thereafter be entitled to receive upon conversion of the Notes the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this Section 7(a) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. If the per-share consideration payable to Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Maker's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Maker's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. (b) Reclassification. If the Maker, at any time while this Note, or any portion thereof, remains outstanding, by reclassification of securities or otherwise, shall change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change and the Conversion Price or number of shares received upon such conversion shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (c) Split, Subdivision or Combination of Shares. If the Maker at any time while this Note, or any portion thereof, remains outstanding shall split, subdivide or combine the securities as to which conversion rights under this Note exist, into a different number of securities of the same class, the number of shares issuable upon conversion shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. (d) Adjustments for Dividends in Stock or Other Securities or Property. If while this Note, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which conversion rights under this Note exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Maker by way of dividend, then and in each case, this Note shall represent the right to acquire upon conversion, in addition to the number of shares of the security receivable upon conversion of this Note, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Maker that such holder would hold on the date of such conversion had it been the holder of record of the security receivable upon conversion of this Note on the date hereof and had thereafter, during the period from the date hereof to and including the date of such conversion, retained such shares and/all other additional stock, other securities or property available by this Note as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 7. (e) Issuance of Shares Below Conversion Price. (1) If while this Note, or any portion hereof, remains outstanding, the Maker shall offer and sell Additional Shares of Common Stock (as hereinafter defined) for consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Shares of Common Stock, except pursuant to the Maker's Stock Option Plan approved by the Board of Directors, the Conversion Price in effect immediately prior to each such issuance shall forthwith be adjusted upon such issuance to a price equal to the price paid per share for such Additional Shares of Common Stock. (2) For the purpose of the calculations provided in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of, or stock or other securities convertible into, Additional Shares of Common Stock (such Common Stock or securities being hereinafter referred to as "Convertible Securities"), then, and in each case, if the Effective Price (as hereinafter defined) of such rights, options or Convertible Securities shall be less than the Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, payable to the Maker upon exercise or conversion of such options or rights. "Effective Price" shall mean the quotient determined by dividing the total of all of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. In the case of Convertible Securities which have a conversion price which is based, in whole or in part, upon a discount to the market price or value of the Common Stock, then for the purposes of calculating the Effective Price, the consideration shall be deemed to include the minimum conversion price payable to the Maker. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire prior to the Maturity hereof without having been exercised, the adjustment to the number of shares available hereunder upon the issuance of such rights, options or Convertible Securities shall be readjusted to the number of shares that would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Maker for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted plus the consideration, if any, actually received by the Maker on the conversion of such Convertible Securities. (3) For the purpose of the calculations provided for in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of Convertible Securities, then, in each such case, if the Effective Price thereof is less than the then Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options the maximum number of Additional Shares of Common Stock issuable upon conversion of the total amount of Convertible Securities covered by such rights or options and to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Maker for the issuance of such rights or options, plus the consideration, if any, payable to the Maker upon the conversion of such Convertible Securities. "Effective Price" shall mean the quotient determined by dividing the total amount of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment of such Conversion Price adjusted upon the issuance of such rights or options shall be made as a result of the actual issuance of the Convertible Securities upon the exercise of such rights or options or upon the actual issuance of Additional Shares of Common Stock upon the conversion of such Convertible Securities. (4) The term "Additional Shares of Common Stock" as used herein shall mean all shares of Common Stock issued or deemed issued by the Maker after the date hereof, other than (i) securities issued pursuant to or in connection with the terms of the Securities Purchase Agreement; (ii) shares of Common Stock issued upon conversion of convertible securities or the exercise of common stock purchase warrants outstanding as of the date hereof; (iii) shares of Common Stock issuable to employees, officers or directors pursuant to the Maker's stock option plan; (iv) shares of Common Stock issued or issuable to directors in connection with their service as directors; (v) shares of Common Stock issued or issuable to directors, officers or employees for services rendered or to be rendered pursuant to arrangements approved by the Board of Directors; and (vii) shares of Common Stock issued in connection with a business combination, merger, consolidation, asset acquisition or the acquisition of the business of another corporation (through the purchase of stock or assets) approved by the Board of Directors and all of the Conseco Directors (as defined in the Securities Purchase Agreement). (f) No Impairment. Maker will not, by any voluntary action, avoid or seek to avoid the observance or performance or any of the terms to be observed or performed hereunder by Maker, but will at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 8. Notices. (a) Whenever the number of shares issuable or the Conversion Price hereunder shall be adjusted pursuant to Section 7 hereof, the Maker shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Conversion Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid) to Holder. (b) All notices, requests, demands, or other communications that are required or may be given pursuant to the terms of this Note shall be in writing and delivery shall be deemed sufficient and to have been duly given on the date of service if delivered personally or by facsimile transmission if receipt is confirmed to the party to whom notice is to be given or on the third day after mailing if mailed by first-class mail, return receipt requested, and properly addressed as follows: If to the Maker, to: 1025 Acuff Road Bloomington, Indiana 47404 Attention: Chief Financial Officer Fax: (812) 337-6029 If to the Holder, to: Russell E. Algood 2800 South Olcott Road Bloomington, Indiana 47401 or to such other address as may be specified in writing by any of the above. 9. Remedies. The remedies provided by this Note shall be cumulative, and shall be in addition to and not exclusive of other remedies available at law, or in equity. The exercise or waiver by the Holder of any right or remedy available under this Note shall not be deemed to be a waiver of any other right or remedy available under this Note, at law, or in equity. 10. Miscellaneous. (a) Whenever used herein, the singular includes the plural and the plural includes the singular. The term "Maker" means the Corporation named in the opening paragraph hereof and its successors and assigns. (b) Indiana law shall govern this interpretation, construction, and enforcement of this Note and all transactions contemplated hereby, notwithstanding any state's choice of law rules to the contrary. Any litigation related to this Note may be maintained only in the federal district court for the Southern District of Indiana, Indianapolis Division (or any successor jurisdiction) or in an Indiana state court in Hamilton County or one of the counties immediately contiguous to Hamilton County, and each party hereby irrevocably consents and submits to the jurisdiction of that federal or state court and irrevocably waives any objection the party may have based upon improper venue, forum non conveniens, or other similar doctrines or rules. (c) Maker and any other party now or hereafter liable for the payment of this Note in whole or in part, hereby severally (i) waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notice, filing of suit and diligence in collecting this Note, (ii) agree to the release of any party primarily or secondarily liable hereon, (iii) agree that the Holder shall not be required first to institute suit or exhaust its remedies hereon against Maker or others liable or to become liable hereon or to enforce its rights against them, and (iv) consent to any extension or postponement of time of payment of this Note and to any other indulgence with respect hereto without notice thereof to any of them. (d) Holder, by acceptance hereof, acknowledges that this Note and the shares to be issued upon conversion hereof are being acquired solely for Holder's own account and not as a nominee for any other party, and for investment, and that Holder will not offer, sell or otherwise dispose of this Note or any shares to be issued upon conversion hereof except under circumstances that will not result in a violation of applicable federal and state securities laws. Upon exercise of this Note, Holder shall, if requested by Maker, confirm in writing, in a form satisfactory to Maker, that the shares so purchased are being acquired solely for Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. All shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED UPON CONVERSION THEREOF MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. (e) The captions of the sections of this Note are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any provision of this Note. IN WITNESS WHEREOF, THE MAKER HAS EXECUTED, ACKNOWLEDGED, AND DELIVERED THIS NOTE AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN. GENERAL ACCEPTANCE CORPORATION BY: /s/ Martin C. Bozarth PRINTED: _Martin C. Bozarth TITLE: __Chief Financial Officer Exhibit 10.78 THIS SUBORDINATED CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR ASSIGNED EXCEPT (I) PURSUANT TO REGISTRATIONS THEREOF UNDER SUCH LAWS, OR (II) IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO GENERAL ACCEPTANCE CORPORATION THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT SUCH REGISTRATIONS. THIS SUBORDINATED CONVERTIBLE NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT DATED APRIL 11, 1997, IN FAVOR OF GENERAL ELECTRIC CAPITAL CORPORATION. 12% SUBORDINATED CONVERTIBLE NOTE $750,000 Dated: April 11, 1997 For value received, General Acceptance Corporation, an Indiana corporation with its principal offices at 1025 Acuff Road, Bloomington, Indiana 47404 ("Maker"), hereby promises to pay to the order of Russell E. Algood, residing at 2800 South Olcott Boulevard, Bloomington, Indiana 47401, or assigns (collectively, the "Holder"), at its principal office or at such other place as the Holder may direct in writing to the Maker, in lawful money of the United States of America, the principal amount of Seven Hundred Fifty Thousand Dollars ($750,000) and interest, as provided herein, all without relief from valuation or appraisement laws. This Note is one of a series of 12% Subordinated Convertible Notes in the aggregate principal amount of $13,250,000, of which $10,000,000 is being issued to Capitol American Life Insurance Company pursuant to a Securities Purchase Agreement dated as of April 11, 1997 ("Securities Purchase Agreement") and the balance are being issued to the Holder and other stockholders of the Maker in exchange for the surrender of certain promissory notes payable to them by the Maker. Purchaser acknowledges and agrees that the Note purchased by Capitol American Life Insurance Company shall be on a parity with the rights of the Holder under this Note and the other Notes without priority or distinction, and that no payments of principal or interest on this Note shall be made by the Company unless a pro rata payment of principal and interest is paid to the holders of all Notes outstanding from time to time. The terms and provisions of the Securities Purchase Agreement shall govern the terms and provisions of this Note and any conflict between this Note and the Securities Purchase Agreement shall be resolved by the Securities Purchase Agreement. 1. Payment of Principal. Subject to acceleration as provided for elsewhere in this 12% Subordinated Convertible Note ("Note"), the Maker shall pay to the Holder the principal balance of this Note on April 11, 2000, plus all accrued and unpaid interest on the full principal balance of this Note as of that date. 2. Interest. Interest on the unpaid principal balance hereof existing from time to time shall accrue at the rate of 12% per annum; provided, however, interest shall accrue at the rate of 15% per annum so long as an "Event of Default," as specified in Section 4(a), exists hereunder. Interest shall be calculated on the basis of actual daily balances of outstanding principal for the exact number of days the principal remains outstanding and shall be computed on the basis of a 360-day year. Interest shall be due and payable on a quarterly basis, on March 31, June 30, September 30 and December 31. 3. Prepayment. The Maker may not prepay all or any portion of the unpaid principal balance hereof or accrued interest without the consent of Holder. 4. Default and Remedy. (a) An "Event of Default" under this Note shall mean the occurrence of any of the following events: (i) the Maker defaults in the payment of principal of or interest on this Note when due and the Maker does not cure that default within 5 days after the due date; (ii) the Maker defaults in the performance of any obligation under this Note (other than the payment described in the immediately preceding clause) and the does not cure that default within 30 days after receipt by the Maker of written notice from the Holder; (iii) an "Event of Default" or a "Triggering Event", both as defined in the Securities Purchase Agreement, shall occur; or (iv) the Maker commences proceedings in any court under the United States Bankruptcy Code, or any other debtors' relief or insolvency act, whether state or federal (the "Bankruptcy Laws"), or any other person commences proceedings under the Bankruptcy Laws against the Maker and those proceedings are not stayed or dismissed within 60 days. (b) If any Event of Default occurs and is continuing, then the Holder shall have the right and option to declare, by notice in writing sent by registered or certified mail to the Maker, the full unpaid principal balance hereof, together with all accrued and unpaid interest thereon, immediately due and payable without further demand, notice, or presentment for payment. Alternatively, if a Triggering Event occurs, the Holder shall have the right and option to cause the Maker to redeem this Note pursuant to the procedure set forth in Section 10.3 of the Securities Purchase Agreement. (c) If this Note is collected or attempted to be collected by the initiation or prosecution of any suit or through any bankruptcy court, or by any judicial proceeding, or is placed in the hands of attorneys for collection, then the Maker shall pay, in addition to all other amounts owing hereunder, all court costs and reasonable attorney's fees incurred by the Holder. 5. Subordination. (a) Subordination to Senior Debt. Notwithstanding anything to the contrary contained in this Note, the Maker covenants and agrees, and the Holder by acceptance of this Note likewise covenants and agrees, that the Maker's indebtedness under this Note shall be junior and subordinate to the Senior Indebtedness (as hereafter defined) to the extent and in the manner set forth in this Section 5, except to the extent otherwise agreed to in writing by the Holder and any Senior Lender (as hereinafter defined) with respect to the Senior Indebtedness held by or payable to that Senior Lender. Each subsection of this Section 5 shall be given independent effect so that if a particular payment or action is prohibited by any one of these subsections, it shall be prohibited although it otherwise would not be prohibited by another subsection. (b) Payment Default on Senior Indebtedness. If at any time a default occurs in the payment when due (whether at maturity or upon acceleration or mandatory prepayment, or on any principal installment payment date or interest payment date, or otherwise) ("Payment Default") of any Senior Indebtedness, then at all times thereafter until (i) the Payment Default has been cured, (ii) the Payment Default or the benefits of this sentence have been waived in writing by or on behalf of the Senior Lenders holding that Senior Indebtedness, or (iii) payment in full of all affected Senior Indebtedness, the Maker shall not, directly or indirectly, make any Distribution of Assets (as hereinafter defined) or Payment (as hereinafter defined) with respect to this Note. (c) Dissolution, Liquidation or Reorganization of Maker. In the event of any insolvency, bankruptcy or receivership case or proceeding or any dissolution, winding up, liquidation, reorganization or other similar proceeding relating to the Maker, its property or its operations (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings or otherwise), upon an assignment for the benefit of creditors, or any other marshaling of the assets of the Maker, then payment in full of all Senior Indebtedness then or thereafter to become due shall occur before the Holder shall be entitled to receive or retain any Distribution of Assets or Payment with respect to this Note. In any such proceedings, any Distribution of Assets or Payment to which the Holder would be entitled if this Note were not subordinated to the Senior Indebtedness shall be paid by the Maker or the agent or other person making such payment or distribution, or by the Holder if received by the Holder, directly to each Senior Lender, pro forma, to the extent necessary to make payment in full of all Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (d) Subrogation. No Distribution of Assets or Payment to which the Holder would have been entitled except for the provisions of this Section 5 and which are received by or paid over to the Senior Lenders or their Representative (as hereinafter defined) shall, as between the Maker and its creditors other than the Senior Lenders and the Holder, be deemed to be a payment by the Maker to the Senior Lenders or on account of the Senior Indebtedness, and the Holder shall be subrogated (without any duty on the part of the Senior Lenders to warrant, create, effectuate, preserve or protect such subrogation) to the then or thereafter existing rights of the Senior Lenders to receive Distributions of Assets or payments made on the Senior Indebtedness until this Note shall be paid in full. (e) Payments Held in Trust. If the Holder receives any Distribution of Assets or Payment which the Holder is not entitled to retain under the provisions of this Section 5, any such Distribution of Assets or Payment so received shall be held in trust for the Senior Lenders, shall not be commingled with any other assets of the Holder, and shall be paid to the Senior Lenders, pro rata, to the extent necessary to make payment in full, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (f) Changes in Senior Indebtedness. Any Senior Lender may at any time and from time to time with notice to the Holder: (i) extend, renew, modify, waive or amend the terms of the Senior Indebtedness; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any guarantor or any other person liable in any manner for the Senior Indebtedness or amend or waive the terms of the Senior Indebtedness; (iv) exercise or refrain from exercising any rights against the Maker or any other persons; (v) apply in any order any sums by whomever paid or however to the Senior Indebtedness; and (vi) take any other action which otherwise might be deemed to impair the Holder's rights. Any and all of such actions may be taken by the Senior Lenders without incurring responsibility to the Holder and without impairing or releasing the Holder's obligations to the Senior Lenders. (g) Third-Party Beneficiary, Etc.. The foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of the Senior Lenders on the one hand and the Holder on the other hand. Such provisions are for the benefit of the Senior Lenders (and their successors and assigns) and shall be enforceable by them directly against the Holder except to the extent otherwise agreed to in writing by the Holder and any other Senior Lender. (h) Definitions. As used in this Section 5 (or as elsewhere used in this Note) the following terms shall have the meanings indicated: "Distribution of Assets" means any distribution of assets of the Maker or any of its subsidiaries of any kind or character, whether a payment, purchase or other acquisition or retirement for cash, property, or securities, with respect to the Maker's obligations under this Note. "Payment" means payment of any obligation now or hereafter existing under this Note (as it may hereafter be amended, supplemented, or otherwise modified from time to time), whether created directly or acquired by assignment or otherwise, and interest and premiums, if any, thereon and all other amounts payable in respect thereof or in connection therewith. "Representative" means, with respect to any Senior Indebtedness, the trustee, agent, or other representative for one or more of the Senior Lenders, if any, designated in the indenture, agreement or document creating, evidencing or governing such Senior Indebtedness or pursuant to which it was issued, or otherwise designated by the holders of such Senior Indebtedness. "Senior Indebtedness" shall have the meaning specified in the Securities Purchase Agreement. "Senior Lender" or "Senior Lenders" means one or more of the holders of Senior Indebtedness. 6. Conversion. (a) The Holder may, at the Holder's option, at any time, and from time to time, prior to payment in full of this Note, convert the outstanding Principal Amount of this Note and any accrued but unpaid interest due pursuant to Section 2 above (the "Conversion Amount"), in whole or in part (but only into full shares), into fully paid and non-assessable shares of the common stock, no par value of the Maker (the "Common Shares"), at a rate equal to the amount of $3.00 per Common Share (subject to adjustment as set forth in Section 7) (the "Conversion Rate"). In order to exercise this conversion right, the Holder must send written notice of the conversion to the Maker at least 10 days prior to the specified conversion date. On the conversion date (or as soon thereafter as is reasonably practicable), the Maker shall issue to the Holder a share certificate for the Common Shares acquired upon conversion. (c) Notwithstanding any other provisions of this Section 6 to the contrary, the conversion rights of the Holder shall be subject to compliance with all applicable federal and state securities laws, and the Holder agrees to execute all required agreements and documents required by the Maker to establish compliance with such laws. (d) The Maker shall at all times reserve and keep available and free of preemptive rights out of its authorized but unissued Common Shares, solely for the purpose of issuance upon conversion of the Note, the number of Common Shares as shall from time to time be sufficient to effect the conversion of the Note, and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of the Note, the Maker shall take the corporate action necessary to increase the number of its authorized Common Shares to a number sufficient for this purpose. Maker further covenants that all shares that may be issued upon the conversion of this Note and payment of the Conversion Price, all as set forth herein, will be free from all taxes, liens and charges in respect of the issue thereof. Maker agrees that its issuance of this Note shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the shares upon the conversion of this Note. 7. Adjustments. (a) Reorganization, Merger or Sale of Assets If at any time while this Note, or any portion thereof, is outstanding there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation with or into another corporation in which the Maker is not the surviving entity, or a reverse triangular merger in which the Maker is the surviving entity but the shares of the Maker's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (iii) a sale or transfer of the Maker's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Note shall thereafter be entitled to receive upon conversion of the Notes the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this Section 7(a) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. If the per-share consideration payable to Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Maker's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Maker's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. (b) Reclassification. If the Maker, at any time while this Note, or any portion thereof, remains outstanding, by reclassification of securities or otherwise, shall change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change and the Conversion Price or number of shares received upon such conversion shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (c) Split, Subdivision or Combination of Shares. If the Maker at any time while this Note, or any portion thereof, remains outstanding shall split, subdivide or combine the securities as to which conversion rights under this Note exist, into a different number of securities of the same class, the number of shares issuable upon conversion shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. (d) Adjustments for Dividends in Stock or Other Securities or Property. If while this Note, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which conversion rights under this Note exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Maker by way of dividend, then and in each case, this Note shall represent the right to acquire upon conversion, in addition to the number of shares of the security receivable upon conversion of this Note, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Maker that such holder would hold on the date of such conversion had it been the holder of record of the security receivable upon conversion of this Note on the date hereof and had thereafter, during the period from the date hereof to and including the date of such conversion, retained such shares and/all other additional stock, other securities or property available by this Note as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 7. (e) Issuance of Shares Below Conversion Price. (1) If while this Note, or any portion hereof, remains outstanding, the Maker shall offer and sell Additional Shares of Common Stock (as hereinafter defined) for consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Shares of Common Stock, except pursuant to the Maker's Stock Option Plan approved by the Board of Directors, the Conversion Price in effect immediately prior to each such issuance shall forthwith be adjusted upon such issuance to a price equal to the price paid per share for such Additional Shares of Common Stock. (2) For the purpose of the calculations provided in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of, or stock or other securities convertible into, Additional Shares of Common Stock (such Common Stock or securities being hereinafter referred to as "Convertible Securities"), then, and in each case, if the Effective Price (as hereinafter defined) of such rights, options or Convertible Securities shall be less than the Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, payable to the Maker upon exercise or conversion of such options or rights. "Effective Price" shall mean the quotient determined by dividing the total of all of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. In the case of Convertible Securities which have a conversion price which is based, in whole or in part, upon a discount to the market price or value of the Common Stock, then for the purposes of calculating the Effective Price, the consideration shall be deemed to include the minimum conversion price payable to the Maker. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire prior to the Maturity hereof without having been exercised, the adjustment to the number of shares available hereunder upon the issuance of such rights, options or Convertible Securities shall be readjusted to the number of shares that would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Maker for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted plus the consideration, if any, actually received by the Maker on the conversion of such Convertible Securities. (3) For the purpose of the calculations provided for in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of Convertible Securities, then, in each such case, if the Effective Price thereof is less than the then Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options the maximum number of Additional Shares of Common Stock issuable upon conversion of the total amount of Convertible Securities covered by such rights or options and to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Maker for the issuance of such rights or options, plus the consideration, if any, payable to the Maker upon the conversion of such Convertible Securities. "Effective Price" shall mean the quotient determined by dividing the total amount of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment of such Conversion Price adjusted upon the issuance of such rights or options shall be made as a result of the actual issuance of the Convertible Securities upon the exercise of such rights or options or upon the actual issuance of Additional Shares of Common Stock upon the conversion of such Convertible Securities. (4) The term "Additional Shares of Common Stock" as used herein shall mean all shares of Common Stock issued or deemed issued by the Maker after the date hereof, other than (i) securities issued pursuant to or in connection with the terms of the Securities Purchase Agreement; (ii) shares of Common Stock issued upon conversion of convertible securities or the exercise of common stock purchase warrants outstanding as of the date hereof; (iii) shares of Common Stock issuable to employees, officers or directors pursuant to the Maker's stock option plan; (iv) shares of Common Stock issued or issuable to directors in connection with their service as directors; (v) shares of Common Stock issued or issuable to directors, officers or employees for services rendered or to be rendered pursuant to arrangements approved by the Board of Directors; and (vii) shares of Common Stock issued in connection with a business combination, merger, consolidation, asset acquisition or the acquisition of the business of another corporation (through the purchase of stock or assets) approved by the Board of Directors and all of the Conseco Directors (as defined in the Securities Purchase Agreement). (f) No Impairment. Maker will not, by any voluntary action, avoid or seek to avoid the observance or performance or any of the terms to be observed or performed hereunder by Maker, but will at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 8. Notices. (a) Whenever the number of shares issuable or the Conversion Price hereunder shall be adjusted pursuant to Section 7 hereof, the Maker shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Conversion Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid) to Holder. (b) All notices, requests, demands, or other communications that are required or may be given pursuant to the terms of this Note shall be in writing and delivery shall be deemed sufficient and to have been duly given on the date of service if delivered personally or by facsimile transmission if receipt is confirmed to the party to whom notice is to be given or on the third day after mailing if mailed by first-class mail, return receipt requested, and properly addressed as follows: If to the Maker, to: 1025 Acuff Road Bloomington, Indiana 47404 Attention: Chief Financial Officer Fax: (812) 337-6029 If to the Holder, to: Russell E. Algood 2800 South Olcott Road Bloomington, Indiana 47401 or to such other address as may be specified in writing by any of the above. 9. Remedies. The remedies provided by this Note shall be cumulative, and shall be in addition to and not exclusive of other remedies available at law, or in equity. The exercise or waiver by the Holder of any right or remedy available under this Note shall not be deemed to be a waiver of any other right or remedy available under this Note, at law, or in equity. 10. Miscellaneous. (a) Whenever used herein, the singular includes the plural and the plural includes the singular. The term "Maker" means the Corporation named in the opening paragraph hereof and its successors and assigns. (b) Indiana law shall govern this interpretation, construction, and enforcement of this Note and all transactions contemplated hereby, notwithstanding any state's choice of law rules to the contrary. Any litigation related to this Note may be maintained only in the federal district court for the Southern District of Indiana, Indianapolis Division (or any successor jurisdiction) or in an Indiana state court in Hamilton County or one of the counties immediately contiguous to Hamilton County, and each party hereby irrevocably consents and submits to the jurisdiction of that federal or state court and irrevocably waives any objection the party may have based upon improper venue, forum non conveniens, or other similar doctrines or rules. (c) Maker and any other party now or hereafter liable for the payment of this Note in whole or in part, hereby severally (i) waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notice, filing of suit and diligence in collecting this Note, (ii) agree to the release of any party primarily or secondarily liable hereon, (iii) agree that the Holder shall not be required first to institute suit or exhaust its remedies hereon against Maker or others liable or to become liable hereon or to enforce its rights against them, and (iv) consent to any extension or postponement of time of payment of this Note and to any other indulgence with respect hereto without notice thereof to any of them. (d) Holder, by acceptance hereof, acknowledges that this Note and the shares to be issued upon conversion hereof are being acquired solely for Holder's own account and not as a nominee for any other party, and for investment, and that Holder will not offer, sell or otherwise dispose of this Note or any shares to be issued upon conversion hereof except under circumstances that will not result in a violation of applicable federal and state securities laws. Upon exercise of this Note, Holder shall, if requested by Maker, confirm in writing, in a form satisfactory to Maker, that the shares so purchased are being acquired solely for Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. All shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED UPON CONVERSION THEREOF MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. (e) The captions of the sections of this Note are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any provision of this Note. IN WITNESS WHEREOF, THE MAKER HAS EXECUTED, ACKNOWLEDGED, AND DELIVERED THIS NOTE AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN. GENERAL ACCEPTANCE CORPORATION BY: __/s/ Martin C. Bozarth____ PRINTED :_Martin C. Bozarth____ TITLE: __Chief Financial Officer_ Exhibit 10.79 THIS SUBORDINATED CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR ASSIGNED EXCEPT (I) PURSUANT TO REGISTRATIONS THEREOF UNDER SUCH LAWS, OR (II) IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO GENERAL ACCEPTANCE CORPORATION THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT SUCH REGISTRATIONS. THIS SUBORDINATED CONVERTIBLE NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT DATED APRIL 11, 1997, IN FAVOR OF GENERAL ELECTRIC CAPITAL CORPORATION. 12% SUBORDINATED CONVERTIBLE NOTE $500,000 Dated: April 11, 1997 For value received, General Acceptance Corporation, an Indiana corporation with its principal offices at 1025 Acuff Road, Bloomington, Indiana 47404 ("Maker"), hereby promises to pay to the order of John G. Algood, residing at 1805 Isleworth Court, Oldsmar, Florida 34677, or assigns (collectively, the "Holder"), at its principal office or at such other place as the Holder may direct in writing to the Maker, in lawful money of the United States of America, the principal amount of Five Hundred Thousand Dollars ($500,000) and interest, as provided herein, all without relief from valuation or appraisement laws. This Note is one of a series of 12% Subordinated Convertible Notes in the aggregate principal amount of $13,250,000, of which $10,000,000 is being issued to Capitol American Life Insurance Company pursuant to a Securities Purchase Agreement dated as of April 11, 1997 ("Securities Purchase Agreement") and the balance are being issued to the Holder and other stockholders of the Maker in exchange for the surrender of certain promissory notes payable to them by the Maker. Purchaser acknowledges and agrees that the Note purchased by Capitol American Life Insurance Company shall be on a parity with the rights of the Holder under this Note and the other Notes without priority or distinction, and that no payments of principal or interest on this Note shall be made by the Company unless a pro rata payment of principal and interest is paid to the holders of all Notes outstanding from time to time. The terms and provisions of the Securities Purchase Agreement shall govern the terms and provisions of this Note and any conflict between this Note and the Securities Purchase Agreement shall be resolved by the Securities Purchase Agreement. 1. Payment of Principal. Subject to acceleration as provided for elsewhere in this 12% Subordinated Convertible Note ("Note"), the Maker shall pay to the Holder the principal balance of this Note on April 11, 2000, plus all accrued and unpaid interest on the full principal balance of this Note as of that date. 2. Interest. Interest on the unpaid principal balance hereof existing from time to time shall accrue at the rate of 12% per annum; provided, however, interest shall accrue at the rate of 15% per annum so long as an "Event of Default," as specified in Section 4(a), exists hereunder. Interest shall be calculated on the basis of actual daily balances of outstanding principal for the exact number of days the principal remains outstanding and shall be computed on the basis of a 360-day year. Interest shall be due and payable on a quarterly basis, on March 31, June 30, September 30 and December 31. 3. Prepayment. The Maker may not prepay all or any portion of the unpaid principal balance hereof or accrued interest without the consent of Holder. 4. Default and Remedy. (a) An "Event of Default" under this Note shall mean the occurrence of any of the following events: (i) the Maker defaults in the payment of principal of or interest on this Note when due and the Maker does not cure that default within 5 days after the due date; (ii) the Maker defaults in the performance of any obligation under this Note (other than the payment described in the immediately preceding clause) and the does not cure that default within 30 days after receipt by the Maker of written notice from the Holder; (iii) an "Event of Default" or a "Triggering Event", both as defined in the Securities Purchase Agreement, shall occur; or (iv) the Maker commences proceedings in any court under the United States Bankruptcy Code, or any other debtors' relief or insolvency act, whether state or federal (the "Bankruptcy Laws"), or any other person commences proceedings under the Bankruptcy Laws against the Maker and those proceedings are not stayed or dismissed within 60 days. (b) If any Event of Default occurs and is continuing, then the Holder shall have the right and option to declare, by notice in writing sent by registered or certified mail to the Maker, the full unpaid principal balance hereof, together with all accrued and unpaid interest thereon, immediately due and payable without further demand, notice, or presentment for payment. Alternatively, if a Triggering Event occurs, the Holder shall have the right and option to cause the Maker to redeem this Note pursuant to the procedure set forth in Section 10.3 of the Securities Purchase Agreement. (c) If this Note is collected or attempted to be collected by the initiation or prosecution of any suit or through any bankruptcy court, or by any judicial proceeding, or is placed in the hands of attorneys for collection, then the Maker shall pay, in addition to all other amounts owing hereunder, all court costs and reasonable attorney's fees incurred by the Holder. 5. Subordination. (a) Subordination to Senior Debt. Notwithstanding anything to the contrary contained in this Note, the Maker covenants and agrees, and the Holder by acceptance of this Note likewise covenants and agrees, that the Maker's indebtedness under this Note shall be junior and subordinate to the Senior Indebtedness (as hereafter defined) to the extent and in the manner set forth in this Section 5, except to the extent otherwise agreed to in writing by the Holder and any Senior Lender (as hereinafter defined) with respect to the Senior Indebtedness held by or payable to that Senior Lender. Each subsection of this Section 5 shall be given independent effect so that if a particular payment or action is prohibited by any one of these subsections, it shall be prohibited although it otherwise would not be prohibited by another subsection. (b) Payment Default on Senior Indebtedness. If at any time a default occurs in the payment when due (whether at maturity or upon acceleration or mandatory prepayment, or on any principal installment payment date or interest payment date, or otherwise) ("Payment Default") of any Senior Indebtedness, then at all times thereafter until (i) the Payment Default has been cured, (ii) the Payment Default or the benefits of this sentence have been waived in writing by or on behalf of the Senior Lenders holding that Senior Indebtedness, or (iii) payment in full of all affected Senior Indebtedness, the Maker shall not, directly or indirectly, make any Distribution of Assets (as hereinafter defined) or Payment (as hereinafter defined) with respect to this Note. (c) Dissolution, Liquidation or Reorganization of Maker. In the event of any insolvency, bankruptcy or receivership case or proceeding or any dissolution, winding up, liquidation, reorganization or other similar proceeding relating to the Maker, its property or its operations (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings or otherwise), upon an assignment for the benefit of creditors, or any other marshaling of the assets of the Maker, then payment in full of all Senior Indebtedness then or thereafter to become due shall occur before the Holder shall be entitled to receive or retain any Distribution of Assets or Payment with respect to this Note. In any such proceedings, any Distribution of Assets or Payment to which the Holder would be entitled if this Note were not subordinated to the Senior Indebtedness shall be paid by the Maker or the agent or other person making such payment or distribution, or by the Holder if received by the Holder, directly to each Senior Lender, pro forma, to the extent necessary to make payment in full of all Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (d) Subrogation. No Distribution of Assets or Payment to which the Holder would have been entitled except for the provisions of this Section 5 and which are received by or paid over to the Senior Lenders or their Representative (as hereinafter defined) shall, as between the Maker and its creditors other than the Senior Lenders and the Holder, be deemed to be a payment by the Maker to the Senior Lenders or on account of the Senior Indebtedness, and the Holder shall be subrogated (without any duty on the part of the Senior Lenders to warrant, create, effectuate, preserve or protect such subrogation) to the then or thereafter existing rights of the Senior Lenders to receive Distributions of Assets or payments made on the Senior Indebtedness until this Note shall be paid in full. (e) Payments Held in Trust. If the Holder receives any Distribution of Assets or Payment which the Holder is not entitled to retain under the provisions of this Section 5, any such Distribution of Assets or Payment so received shall be held in trust for the Senior Lenders, shall not be commingled with any other assets of the Holder, and shall be paid to the Senior Lenders, pro rata, to the extent necessary to make payment in full, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (f) Changes in Senior Indebtedness. Any Senior Lender may at any time and from time to time with notice to the Holder: (i) extend, renew, modify, waive or amend the terms of the Senior Indebtedness; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any guarantor or any other person liable in any manner for the Senior Indebtedness or amend or waive the terms of the Senior Indebtedness; (iv) exercise or refrain from exercising any rights against the Maker or any other persons; (v) apply in any order any sums by whomever paid or however to the Senior Indebtedness; and (vi) take any other action which otherwise might be deemed to impair the Holder's rights. Any and all of such actions may be taken by the Senior Lenders without incurring responsibility to the Holder and without impairing or releasing the Holder's obligations to the Senior Lenders. (g) Third-Party Beneficiary, Etc.. The foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of the Senior Lenders on the one hand and the Holder on the other hand. Such provisions are for the benefit of the Senior Lenders (and their successors and assigns) and shall be enforceable by them directly against the Holder except to the extent otherwise agreed to in writing by the Holder and any other Senior Lender. (h) Definitions. As used in this Section 5 (or as elsewhere used in this Note) the following terms shall have the meanings indicated: "Distribution of Assets" means any distribution of assets of the Maker or any of its subsidiaries of any kind or character, whether a payment, purchase or other acquisition or retirement for cash, property, or securities, with respect to the Maker's obligations under this Note. "Payment" means payment of any obligation now or hereafter existing under this Note (as it may hereafter be amended, supplemented, or otherwise modified from time to time), whether created directly or acquired by assignment or otherwise, and interest and premiums, if any, thereon and all other amounts payable in respect thereof or in connection therewith. "Representative" means, with respect to any Senior Indebtedness, the trustee, agent, or other representative for one or more of the Senior Lenders, if any, designated in the indenture, agreement or document creating, evidencing or governing such Senior Indebtedness or pursuant to which it was issued, or otherwise designated by the holders of such Senior Indebtedness. "Senior Indebtedness" shall have the meaning specified in the Securities Purchase Agreement. "Senior Lender" or "Senior Lenders" means one or more of the holders of Senior Indebtedness. 6. Conversion. (a) The Holder may, at the Holder's option, at any time, and from time to time, prior to payment in full of this Note, convert the outstanding Principal Amount of this Note and any accrued but unpaid interest due pursuant to Section 2 above (the "Conversion Amount"), in whole or in part (but only into full shares), into fully paid and non-assessable shares of the common stock, no par value of the Maker (the "Common Shares"), at a rate equal to the amount of $3.00 per Common Share (subject to adjustment as set forth in Section 7) (the "Conversion Rate"). In order to exercise this conversion right, the Holder must send written notice of the conversion to the Maker at least 10 days prior to the specified conversion date. On the conversion date (or as soon thereafter as is reasonably practicable), the Maker shall issue to the Holder a share certificate for the Common Shares acquired upon conversion. (c) Notwithstanding any other provisions of this Section 6 to the contrary, the conversion rights of the Holder shall be subject to compliance with all applicable federal and state securities laws, and the Holder agrees to execute all required agreements and documents required by the Maker to establish compliance with such laws. (d) The Maker shall at all times reserve and keep available and free of preemptive rights out of its authorized but unissued Common Shares, solely for the purpose of issuance upon conversion of the Note, the number of Common Shares as shall from time to time be sufficient to effect the conversion of the Note, and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of the Note, the Maker shall take the corporate action necessary to increase the number of its authorized Common Shares to a number sufficient for this purpose. Maker further covenants that all shares that may be issued upon the conversion of this Note and payment of the Conversion Price, all as set forth herein, will be free from all taxes, liens and charges in respect of the issue thereof. Maker agrees that its issuance of this Note shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the shares upon the conversion of this Note. 7. Adjustments. (a) Reorganization, Merger or Sale of Assets If at any time while this Note, or any portion thereof, is outstanding there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation with or into another corporation in which the Maker is not the surviving entity, or a reverse triangular merger in which the Maker is the surviving entity but the shares of the Maker's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (iii) a sale or transfer of the Maker's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Note shall thereafter be entitled to receive upon conversion of the Notes the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this Section 7(a) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. If the per-share consideration payable to Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Maker's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Maker's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. (b) Reclassification. If the Maker, at any time while this Note, or any portion thereof, remains outstanding, by reclassification of securities or otherwise, shall change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change and the Conversion Price or number of shares received upon such conversion shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (c) Split, Subdivision or Combination of Shares. If the Maker at any time while this Note, or any portion thereof, remains outstanding shall split, subdivide or combine the securities as to which conversion rights under this Note exist, into a different number of securities of the same class, the number of shares issuable upon conversion shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. (d) Adjustments for Dividends in Stock or Other Securities or Property. If while this Note, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which conversion rights under this Note exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Maker by way of dividend, then and in each case, this Note shall represent the right to acquire upon conversion, in addition to the number of shares of the security receivable upon conversion of this Note, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Maker that such holder would hold on the date of such conversion had it been the holder of record of the security receivable upon conversion of this Note on the date hereof and had thereafter, during the period from the date hereof to and including the date of such conversion, retained such shares and/all other additional stock, other securities or property available by this Note as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 7. (e) Issuance of Shares Below Conversion Price. (1) If while this Note, or any portion hereof, remains outstanding, the Maker shall offer and sell Additional Shares of Common Stock (as hereinafter defined) for consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Shares of Common Stock, except pursuant to the Maker's Stock Option Plan approved by the Board of Directors, the Conversion Price in effect immediately prior to each such issuance shall forthwith be adjusted upon such issuance to a price equal to the price paid per share for such Additional Shares of Common Stock. (2) For the purpose of the calculations provided in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of, or stock or other securities convertible into, Additional Shares of Common Stock (such Common Stock or securities being hereinafter referred to as "Convertible Securities"), then, and in each case, if the Effective Price (as hereinafter defined) of such rights, options or Convertible Securities shall be less than the Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, payable to the Maker upon exercise or conversion of such options or rights. "Effective Price" shall mean the quotient determined by dividing the total of all of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. In the case of Convertible Securities which have a conversion price which is based, in whole or in part, upon a discount to the market price or value of the Common Stock, then for the purposes of calculating the Effective Price, the consideration shall be deemed to include the minimum conversion price payable to the Maker. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire prior to the Maturity hereof without having been exercised, the adjustment to the number of shares available hereunder upon the issuance of such rights, options or Convertible Securities shall be readjusted to the number of shares that would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Maker for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted plus the consideration, if any, actually received by the Maker on the conversion of such Convertible Securities. (3) For the purpose of the calculations provided for in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of Convertible Securities, then, in each such case, if the Effective Price thereof is less than the then Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options the maximum number of Additional Shares of Common Stock issuable upon conversion of the total amount of Convertible Securities covered by such rights or options and to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Maker for the issuance of such rights or options, plus the consideration, if any, payable to the Maker upon the conversion of such Convertible Securities. "Effective Price" shall mean the quotient determined by dividing the total amount of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment of such Conversion Price adjusted upon the issuance of such rights or options shall be made as a result of the actual issuance of the Convertible Securities upon the exercise of such rights or options or upon the actual issuance of Additional Shares of Common Stock upon the conversion of such Convertible Securities. (4) The term "Additional Shares of Common Stock" as used herein shall mean all shares of Common Stock issued or deemed issued by the Maker after the date hereof, other than (i) securities issued pursuant to or in connection with the terms of the Securities Purchase Agreement; (ii) shares of Common Stock issued upon conversion of convertible securities or the exercise of common stock purchase warrants outstanding as of the date hereof; (iii) shares of Common Stock issuable to employees, officers or directors pursuant to the Maker's stock option plan; (iv) shares of Common Stock issued or issuable to directors in connection with their service as directors; (v) shares of Common Stock issued or issuable to directors, officers or employees for services rendered or to be rendered pursuant to arrangements approved by the Board of Directors; and (vii) shares of Common Stock issued in connection with a business combination, merger, consolidation, asset acquisition or the acquisition of the business of another corporation (through the purchase of stock or assets) approved by the Board of Directors and all of the Conseco Directors (as defined in the Securities Purchase Agreement). (f) No Impairment. Maker will not, by any voluntary action, avoid or seek to avoid the observance or performance or any of the terms to be observed or performed hereunder by Maker, but will at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 8. Notices. (a) Whenever the number of shares issuable or the Conversion Price hereunder shall be adjusted pursuant to Section 7 hereof, the Maker shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Conversion Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid) to Holder. (b) All notices, requests, demands, or other communications that are required or may be given pursuant to the terms of this Note shall be in writing and delivery shall be deemed sufficient and to have been duly given on the date of service if delivered personally or by facsimile transmission if receipt is confirmed to the party to whom notice is to be given or on the third day after mailing if mailed by first-class mail, return receipt requested, and properly addressed as follows: If to the Maker, to: 1025 Acuff Road Bloomington, Indiana 47404 Attention: Chief Financial Officer Fax: (812) 337-6029 If to the Holder, to: Russell E. Algood 2800 South Olcott Road Bloomington, Indiana 47401 or to such other address as may be specified in writing by any of the above. 9. Remedies. The remedies provided by this Note shall be cumulative, and shall be in addition to and not exclusive of other remedies available at law, or in equity. The exercise or waiver by the Holder of any right or remedy available under this Note shall not be deemed to be a waiver of any other right or remedy available under this Note, at law, or in equity. 10. Miscellaneous. (a) Whenever used herein, the singular includes the plural and the plural includes the singular. The term "Maker" means the Corporation named in the opening paragraph hereof and its successors and assigns. (b) Indiana law shall govern this interpretation, construction, and enforcement of this Note and all transactions contemplated hereby, notwithstanding any state's choice of law rules to the contrary. Any litigation related to this Note may be maintained only in the federal district court for the Southern District of Indiana, Indianapolis Division (or any successor jurisdiction) or in an Indiana state court in Hamilton County or one of the counties immediately contiguous to Hamilton County, and each party hereby irrevocably consents and submits to the jurisdiction of that federal or state court and irrevocably waives any objection the party may have based upon improper venue, forum non conveniens, or other similar doctrines or rules. (c) Maker and any other party now or hereafter liable for the payment of this Note in whole or in part, hereby severally (i) waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notice, filing of suit and diligence in collecting this Note, (ii) agree to the release of any party primarily or secondarily liable hereon, (iii) agree that the Holder shall not be required first to institute suit or exhaust its remedies hereon against Maker or others liable or to become liable hereon or to enforce its rights against them, and (iv) consent to any extension or postponement of time of payment of this Note and to any other indulgence with respect hereto without notice thereof to any of them. (d) Holder, by acceptance hereof, acknowledges that this Note and the shares to be issued upon conversion hereof are being acquired solely for Holder's own account and not as a nominee for any other party, and for investment, and that Holder will not offer, sell or otherwise dispose of this Note or any shares to be issued upon conversion hereof except under circumstances that will not result in a violation of applicable federal and state securities laws. Upon exercise of this Note, Holder shall, if requested by Maker, confirm in writing, in a form satisfactory to Maker, that the shares so purchased are being acquired solely for Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. All shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED UPON CONVERSION THEREOF MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. (e) The captions of the sections of this Note are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any provision of this Note. IN WITNESS WHEREOF, THE MAKER HAS EXECUTED, ACKNOWLEDGED, AND DELIVERED THIS NOTE AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN. GENERAL ACCEPTANCE CORPORATION BY: /s/Martin C. Bozarth PRINTED: _Martin C. Bozarth____ TITLE: Chief Financial Officer Exhibit 10.80 THIS SUBORDINATED CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR ASSIGNED EXCEPT (I) PURSUANT TO REGISTRATIONS THEREOF UNDER SUCH LAWS, OR (II) IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO GENERAL ACCEPTANCE CORPORATION THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT SUCH REGISTRATIONS. THIS SUBORDINATED CONVERTIBLE NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT DATED APRIL 11, 1997, IN FAVOR OF GENERAL ELECTRIC CAPITAL CORPORATION. 12% SUBORDINATED CONVERTIBLE NOTE $1,000,000 Dated: April 11, 1997 For value received, General Acceptance Corporation, an Indiana corporation with its principal offices at 1025 Acuff Road, Bloomington, Indiana 47404 ("Maker"), hereby promises to pay to the order of Janet Algood, residing at 3810 Easy Street, Bloomington, Indiana 47404, or assigns (collectively, the "Holder"), at its principal office or at such other place as the Holder may direct in writing to the Maker, in lawful money of the United States of America, the principal amount of One Million Dollars ($1,000,000) and interest, as provided herein, all without relief from valuation or appraisement laws. This Note is one of a series of 12% Subordinated Convertible Notes in the aggregate principal amount of $13,250,000, of which $10,000,000 is being issued to Capitol American Life Insurance Company pursuant to a Securities Purchase Agreement dated as of April 11, 1997 ("Securities Purchase Agreement") and the balance are being issued to the Holder and other stockholders of the Maker in exchange for the surrender of certain promissory notes payable to them by the Maker. Purchaser acknowledges and agrees that the Note purchased by Capitol American Life Insurance Company shall be on a parity with the rights of the Holder under this Note and the other Notes without priority or distinction, and that no payments of principal or interest on this Note shall be made by the Company unless a pro rata payment of principal and interest is paid to the holders of all Notes outstanding from time to time. The terms and provisions of the Securities Purchase Agreement shall govern the terms and provisions of this Note and any conflict between this Note and the Securities Purchase Agreement shall be resolved by the Securities Purchase Agreement. 1. Payment of Principal. Subject to acceleration as provided for elsewhere in this 12% Subordinated Convertible Note ("Note"), the Maker shall pay to the Holder the principal balance of this Note on April, 2000, plus all accrued and unpaid interest on the full principal balance of this Note as of that date. 2. Interest. Interest on the unpaid principal balance hereof existing from time to time shall accrue at the rate of 12% per annum; provided, however, interest shall accrue at the rate of 15% per annum so long as an "Event of Default," as specified in Section 4(a), exists hereunder. Interest shall be calculated on the basis of actual daily balances of outstanding principal for the exact number of days the principal remains outstanding and shall be computed on the basis of a 360-day year. Interest shall be due and payable on a quarterly basis, on March 31, June 30, September 30 and December 31. 3. Prepayment. The Maker may not prepay all or any portion of the unpaid principal balance hereof or accrued interest without the consent of Holder. 4. Default and Remedy. (a) An "Event of Default" under this Note shall mean the occurrence of any of the following events: (i) the Maker defaults in the payment of principal of or interest on this Note when due and the Maker does not cure that default within 5 days after the due date; (ii) the Maker defaults in the performance of any obligation under this Note (other than the payment described in the immediately preceding clause) and the does not cure that default within 30 days after receipt by the Maker of written notice from the Holder; (iii) an "Event of Default" or a "Triggering Event", both as defined in the Securities Purchase Agreement, shall occur; or (iv) the Maker commences proceedings in any court under the United States Bankruptcy Code, or any other debtors' relief or insolvency act, whether state or federal (the "Bankruptcy Laws"), or any other person commences proceedings under the Bankruptcy Laws against the Maker and those proceedings are not stayed or dismissed within 60 days. (b) If any Event of Default occurs and is continuing, then the Holder shall have the right and option to declare, by notice in writing sent by registered or certified mail to the Maker, the full unpaid principal balance hereof, together with all accrued and unpaid interest thereon, immediately due and payable without further demand, notice, or presentment for payment. Alternatively, if a Triggering Event occurs, the Holder shall have the right and option to cause the Maker to redeem this Note pursuant to the procedure set forth in Section 10.3 of the Securities Purchase Agreement. (c) If this Note is collected or attempted to be collected by the initiation or prosecution of any suit or through any bankruptcy court, or by any judicial proceeding, or is placed in the hands of attorneys for collection, then the Maker shall pay, in addition to all other amounts owing hereunder, all court costs and reasonable attorney's fees incurred by the Holder. 5. Subordination. (a) Subordination to Senior Debt. Notwithstanding anything to the contrary contained in this Note, the Maker covenants and agrees, and the Holder by acceptance of this Note likewise covenants and agrees, that the Maker's indebtedness under this Note shall be junior and subordinate to the Senior Indebtedness (as hereafter defined) to the extent and in the manner set forth in this Section 5, except to the extent otherwise agreed to in writing by the Holder and any Senior Lender (as hereinafter defined) with respect to the Senior Indebtedness held by or payable to that Senior Lender. Each subsection of this Section 5 shall be given independent effect so that if a particular payment or action is prohibited by any one of these subsections, it shall be prohibited although it otherwise would not be prohibited by another subsection. (b) Payment Default on Senior Indebtedness. If at any time a default occurs in the payment when due (whether at maturity or upon acceleration or mandatory prepayment, or on any principal installment payment date or interest payment date, or otherwise) ("Payment Default") of any Senior Indebtedness, then at all times thereafter until (i) the Payment Default has been cured, (ii) the Payment Default or the benefits of this sentence have been waived in writing by or on behalf of the Senior Lenders holding that Senior Indebtedness, or (iii) payment in full of all affected Senior Indebtedness, the Maker shall not, directly or indirectly, make any Distribution of Assets (as hereinafter defined) or Payment (as hereinafter defined) with respect to this Note. (c) Dissolution, Liquidation or Reorganization of Maker. In the event of any insolvency, bankruptcy or receivership case or proceeding or any dissolution, winding up, liquidation, reorganization or other similar proceeding relating to the Maker, its property or its operations (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings or otherwise), upon an assignment for the benefit of creditors, or any other marshaling of the assets of the Maker, then payment in full of all Senior Indebtedness then or thereafter to become due shall occur before the Holder shall be entitled to receive or retain any Distribution of Assets or Payment with respect to this Note. In any such proceedings, any Distribution of Assets or Payment to which the Holder would be entitled if this Note were not subordinated to the Senior Indebtedness shall be paid by the Maker or the agent or other person making such payment or distribution, or by the Holder if received by the Holder, directly to each Senior Lender, pro forma, to the extent necessary to make payment in full of all Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (d) Subrogation. No Distribution of Assets or Payment to which the Holder would have been entitled except for the provisions of this Section 5 and which are received by or paid over to the Senior Lenders or their Representative (as hereinafter defined) shall, as between the Maker and its creditors other than the Senior Lenders and the Holder, be deemed to be a payment by the Maker to the Senior Lenders or on account of the Senior Indebtedness, and the Holder shall be subrogated (without any duty on the part of the Senior Lenders to warrant, create, effectuate, preserve or protect such subrogation) to the then or thereafter existing rights of the Senior Lenders to receive Distributions of Assets or payments made on the Senior Indebtedness until this Note shall be paid in full. (e) Payments Held in Trust. If the Holder receives any Distribution of Assets or Payment which the Holder is not entitled to retain under the provisions of this Section 5, any such Distribution of Assets or Payment so received shall be held in trust for the Senior Lenders, shall not be commingled with any other assets of the Holder, and shall be paid to the Senior Lenders, pro rata, to the extent necessary to make payment in full, after giving effect to any concurrent payment or distribution to or for the benefit of the Senior Lenders. (f) Changes in Senior Indebtedness. Any Senior Lender may at any time and from time to time with notice to the Holder: (i) extend, renew, modify, waive or amend the terms of the Senior Indebtedness; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any guarantor or any other person liable in any manner for the Senior Indebtedness or amend or waive the terms of the Senior Indebtedness; (iv) exercise or refrain from exercising any rights against the Maker or any other persons; (v) apply in any order any sums by whomever paid or however to the Senior Indebtedness; and (vi) take any other action which otherwise might be deemed to impair the Holder's rights. Any and all of such actions may be taken by the Senior Lenders without incurring responsibility to the Holder and without impairing or releasing the Holder's obligations to the Senior Lenders. (g) Third-Party Beneficiary, Etc.. The foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of the Senior Lenders on the one hand and the Holder on the other hand. Such provisions are for the benefit of the Senior Lenders (and their successors and assigns) and shall be enforceable by them directly against the Holder except to the extent otherwise agreed to in writing by the Holder and any other Senior Lender. (h) Definitions. As used in this Section 5 (or as elsewhere used in this Note) the following terms shall have the meanings indicated: "Distribution of Assets" means any distribution of assets of the Maker or any of its subsidiaries of any kind or character, whether a payment, purchase or other acquisition or retirement for cash, property, or securities, with respect to the Maker's obligations under this Note. "Payment" means payment of any obligation now or hereafter existing under this Note (as it may hereafter be amended, supplemented, or otherwise modified from time to time), whether created directly or acquired by assignment or otherwise, and interest and premiums, if any, thereon and all other amounts payable in respect thereof or in connection therewith. "Representative" means, with respect to any Senior Indebtedness, the trustee, agent, or other representative for one or more of the Senior Lenders, if any, designated in the indenture, agreement or document creating, evidencing or governing such Senior Indebtedness or pursuant to which it was issued, or otherwise designated by the holders of such Senior Indebtedness. "Senior Indebtedness" shall have the meaning specified in the Securities Purchase Agreement. "Senior Lender" or "Senior Lenders" means one or more of the holders of Senior Indebtedness. 6. Conversion. (a) The Holder may, at the Holder's option, at any time, and from time to time, prior to payment in full of this Note, convert the outstanding Principal Amount of this Note and any accrued but unpaid interest due pursuant to Section 2 above (the "Conversion Amount"), in whole or in part (but only into full shares), into fully paid and non-assessable shares of the common stock, no par value of the Maker (the "Common Shares"), at a rate equal to the amount of $3.00 per Common Share (subject to adjustment as set forth in Section 7) (the "Conversion Rate"). In order to exercise this conversion right, the Holder must send written notice of the conversion to the Maker at least 10 days prior to the specified conversion date. On the conversion date (or as soon thereafter as is reasonably practicable), the Maker shall issue to the Holder a share certificate for the Common Shares acquired upon conversion. (c) Notwithstanding any other provisions of this Section 6 to the contrary, the conversion rights of the Holder shall be subject to compliance with all applicable federal and state securities laws, and the Holder agrees to execute all required agreements and documents required by the Maker to establish compliance with such laws. (d) The Maker shall at all times reserve and keep available and free of preemptive rights out of its authorized but unissued Common Shares, solely for the purpose of issuance upon conversion of the Note, the number of Common Shares as shall from time to time be sufficient to effect the conversion of the Note, and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of the Note, the Maker shall take the corporate action necessary to increase the number of its authorized Common Shares to a number sufficient for this purpose. Maker further covenants that all shares that may be issued upon the conversion of this Note and payment of the Conversion Price, all as set forth herein, will be free from all taxes, liens and charges in respect of the issue thereof. Maker agrees that its issuance of this Note shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the shares upon the conversion of this Note. 7. Adjustments. (a) Reorganization, Merger or Sale of Assets If at any time while this Note, or any portion thereof, is outstanding there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation with or into another corporation in which the Maker is not the surviving entity, or a reverse triangular merger in which the Maker is the surviving entity but the shares of the Maker's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (iii) a sale or transfer of the Maker's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Note shall thereafter be entitled to receive upon conversion of the Notes the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this Section 7(a) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. If the per-share consideration payable to Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Maker's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Maker's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. (b) Reclassification. If the Maker, at any time while this Note, or any portion thereof, remains outstanding, by reclassification of securities or otherwise, shall change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change and the Conversion Price or number of shares received upon such conversion shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (c) Split, Subdivision or Combination of Shares. If the Maker at any time while this Note, or any portion thereof, remains outstanding shall split, subdivide or combine the securities as to which conversion rights under this Note exist, into a different number of securities of the same class, the number of shares issuable upon conversion shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. (d) Adjustments for Dividends in Stock or Other Securities or Property. If while this Note, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which conversion rights under this Note exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Maker by way of dividend, then and in each case, this Note shall represent the right to acquire upon conversion, in addition to the number of shares of the security receivable upon conversion of this Note, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Maker that such holder would hold on the date of such conversion had it been the holder of record of the security receivable upon conversion of this Note on the date hereof and had thereafter, during the period from the date hereof to and including the date of such conversion, retained such shares and/all other additional stock, other securities or property available by this Note as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 7. (e) Issuance of Shares Below Conversion Price. (1) If while this Note, or any portion hereof, remains outstanding, the Maker shall offer and sell Additional Shares of Common Stock (as hereinafter defined) for consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Shares of Common Stock, except pursuant to the Maker's Stock Option Plan approved by the Board of Directors, the Conversion Price in effect immediately prior to each such issuance shall forthwith be adjusted upon such issuance to a price equal to the price paid per share for such Additional Shares of Common Stock. (2) For the purpose of the calculations provided in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of, or stock or other securities convertible into, Additional Shares of Common Stock (such Common Stock or securities being hereinafter referred to as "Convertible Securities"), then, and in each case, if the Effective Price (as hereinafter defined) of such rights, options or Convertible Securities shall be less than the Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, payable to the Maker upon exercise or conversion of such options or rights. "Effective Price" shall mean the quotient determined by dividing the total of all of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. In the case of Convertible Securities which have a conversion price which is based, in whole or in part, upon a discount to the market price or value of the Common Stock, then for the purposes of calculating the Effective Price, the consideration shall be deemed to include the minimum conversion price payable to the Maker. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire prior to the Maturity hereof without having been exercised, the adjustment to the number of shares available hereunder upon the issuance of such rights, options or Convertible Securities shall be readjusted to the number of shares that would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Maker for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted plus the consideration, if any, actually received by the Maker on the conversion of such Convertible Securities. (3) For the purpose of the calculations provided for in this Section 7(e), if at any time or from time to time after the date hereof the Maker shall issue any rights or options for the purchase of Convertible Securities, then, in each such case, if the Effective Price thereof is less than the then Conversion Price, the Maker shall be deemed to have issued at the time of the issuance of such rights or options the maximum number of Additional Shares of Common Stock issuable upon conversion of the total amount of Convertible Securities covered by such rights or options and to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Maker for the issuance of such rights or options, plus the consideration, if any, payable to the Maker upon the conversion of such Convertible Securities. "Effective Price" shall mean the quotient determined by dividing the total amount of such consideration by such maximum number of Additional Shares of Common Stock. No further adjustment of such Conversion Price adjusted upon the issuance of such rights or options shall be made as a result of the actual issuance of the Convertible Securities upon the exercise of such rights or options or upon the actual issuance of Additional Shares of Common Stock upon the conversion of such Convertible Securities. (4) The term "Additional Shares of Common Stock" as used herein shall mean all shares of Common Stock issued or deemed issued by the Maker after the date hereof, other than (i) securities issued pursuant to or in connection with the terms of the Securities Purchase Agreement; (ii) shares of Common Stock issued upon conversion of convertible securities or the exercise of common stock purchase warrants outstanding as of the date hereof; (iii) shares of Common Stock issuable to employees, officers or directors pursuant to the Maker's stock option plan; (iv) shares of Common Stock issued or issuable to directors in connection with their service as directors; (v) shares of Common Stock issued or issuable to directors, officers or employees for services rendered or to be rendered pursuant to arrangements approved by the Board of Directors; and (vii) shares of Common Stock issued in connection with a business combination, merger, consolidation, asset acquisition or the acquisition of the business of another corporation (through the purchase of stock or assets) approved by the Board of Directors and all of the Conseco Directors (as defined in the Securities Purchase Agreement). (f) No Impairment. Maker will not, by any voluntary action, avoid or seek to avoid the observance or performance or any of the terms to be observed or performed hereunder by Maker, but will at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 8. Notices. (a) Whenever the number of shares issuable or the Conversion Price hereunder shall be adjusted pursuant to Section 7 hereof, the Maker shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Conversion Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid) to Holder. (b) All notices, requests, demands, or other communications that are required or may be given pursuant to the terms of this Note shall be in writing and delivery shall be deemed sufficient and to have been duly given on the date of service if delivered personally or by facsimile transmission if receipt is confirmed to the party to whom notice is to be given or on the third day after mailing if mailed by first-class mail, return receipt requested, and properly addressed as follows: If to the Maker, to: 1025 Acuff Road Bloomington, Indiana 47404 Attention: Chief Financial Officer Fax: (812) 337-6029 If to the Holder, to: Russell E. Algood 2800 South Olcott Road Bloomington, Indiana 47401 or to such other address as may be specified in writing by any of the above. 9. Remedies. The remedies provided by this Note shall be cumulative, and shall be in addition to and not exclusive of other remedies available at law, or in equity. The exercise or waiver by the Holder of any right or remedy available under this Note shall not be deemed to be a waiver of any other right or remedy available under this Note, at law, or in equity. 10. Miscellaneous. (a) Whenever used herein, the singular includes the plural and the plural includes the singular. The term "Maker" means the Corporation named in the opening paragraph hereof and its successors and assigns. (b) Indiana law shall govern this interpretation, construction, and enforcement of this Note and all transactions contemplated hereby, notwithstanding any state's choice of law rules to the contrary. Any litigation related to this Note may be maintained only in the federal district court for the Southern District of Indiana, Indianapolis Division (or any successor jurisdiction) or in an Indiana state court in Hamilton County or one of the counties immediately contiguous to Hamilton County, and each party hereby irrevocably consents and submits to the jurisdiction of that federal or state court and irrevocably waives any objection the party may have based upon improper venue, forum non conveniens, or other similar doctrines or rules. (c) Maker and any other party now or hereafter liable for the payment of this Note in whole or in part, hereby severally (i) waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notice, filing of suit and diligence in collecting this Note, (ii) agree to the release of any party primarily or secondarily liable hereon, (iii) agree that the Holder shall not be required first to institute suit or exhaust its remedies hereon against Maker or others liable or to become liable hereon or to enforce its rights against them, and (iv) consent to any extension or postponement of time of payment of this Note and to any other indulgence with respect hereto without notice thereof to any of them. (d) Holder, by acceptance hereof, acknowledges that this Note and the shares to be issued upon conversion hereof are being acquired solely for Holder's own account and not as a nominee for any other party, and for investment, and that Holder will not offer, sell or otherwise dispose of this Note or any shares to be issued upon conversion hereof except under circumstances that will not result in a violation of applicable federal and state securities laws. Upon exercise of this Note, Holder shall, if requested by Maker, confirm in writing, in a form satisfactory to Maker, that the shares so purchased are being acquired solely for Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. All shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED UPON CONVERSION THEREOF MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. (e) The captions of the sections of this Note are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any provision of this Note. IN WITNESS WHEREOF, THE MAKER HAS EXECUTED, ACKNOWLEDGED, AND DELIVERED THIS NOTE AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN. GENERAL ACCEPTANCE CORPORATION BY:_ /s/ Janet Algood__________ PRINTED:__Janet Algood_________ TITLE:________________________ Exhibit 10.81 AMENDED AND RESTATED MOTOR VEHICLE INSTALLMENT CONTRACT LOAN AND SECURITY AGREEMENT This Amended and Restated Loan and Security Agreement ("Agreement") is entered into by and between GENERAL ACCEPTANCE CORPORATION, an Indiana corporation (hereinafter referred to as "Borrower"), and General Electric Capital Corporation, a New York corporation (hereinafter referred to as "Lender"). In consideration of the mutual covenants and agreements contained herein, Borrower and Lender agree as follows: RECITALS A. Borrower and Lender are parties to that certain Motor Vehicle Installment Contract Loan and Security Agreement dated as of May 1, 1992 as amended (the Original Agreement ) pursuant to which Lender made certain loans to Borrower which loans were secured by, among other things, Borrower s motor vehicle installment contracts; B. Borrower and Lender have agreed to enter into this Agreement in order to (i) amend and restate the Original Agreement in its entirety; (ii) incorporate such terms of the Forbearance Agreement executed between Borrower and Lender dated March 18, 1996, as amended on May 10, 1996 and as further amended effective January 31, 1997 and March 31, 1997 as the parties agree should be contained in this Agreement; (iii) waive all existing defaults under the Original Agreement; and (iv) document such other changes in the lending relationship between the parties as have occurred since the Original Agreement. C. It is the intent of Borrower and Lender that the execution and delivery of this amendment and restatement of the Original Agreement shall not effectuate a novation of the indebtedness outstanding under the Original Agreement, but rather as it pertains to the indebtedness outstanding under the Original Agreement, shall constitute a substitution of certain of the terms governing the payment and performance of such indebtedness and a waiver of past defaults. ARTICLE I. DEFINITIONS. Section 1.0 DEFINITIONS. Capitalized terms used in this Agreement shall have the meanings given to such terms in Section 16 of this Agreement. When such defined terms are used in this Agreement in the plural, the terms shall have the plural of such meanings. All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are defined therein. ARTICLE II. LOAN: GENERAL TERMS Section 2.0. REVOLVING CREDIT; LOAN AMOUNT. Subject to all of the terms and conditions of this Agreement, Lender agrees to loan funds to Borrower against Eligible Contracts from time to time in a series of Advances during the term of this Agreement. Funds may be borrowed, repaid and reborrowed on a revolving basis subject to the terms and conditions set forth in this Agreement, provided that the Loan shall not at any time exceed the Borrowing Base. Borrower's obligation to pay the Loan is evidenced by this Agreement. Borrower shall pay Lender when due all Obligations in accordance with the terms of this Agreement whether or not Borrower has executed a promissory note. The actual amount Borrower is obligated to pay Lender hereunder shall be determined by this Agreement and the records of Lender, regardless of the terms of any promissory note. Any promissory note executed in connection with the Indebtedness need not be amended to reflect changes made to this Agreement. Section 2.1. SINGLE LOAN. All Advances by Lender to Borrower shall constitute one loan and all indebtedness and obligations of Borrower to Lender under the Loan Documents shall constitute an obligation secured by Lender's security interest in all of the Collateral. Section 2.2. GENERAL INTEREST RATE. Except as modified by Sections 2.4 and 15.1, the average daily balance of the Loan shall bear interest, calculated daily on the basis of a 365-day year, at a per annum rate equal to 450 basis points (4.5%) plus the LIBOR Rate. Section 2.3. LOAN TERM; RIGHT TO TERMINATE. Unless sooner terminated as hereinafter provided, this Agreement shall terminate on January 1, 1998. If an Event of Default has occurred, Lender may without prior notice to Borrower, immediately terminate this Agreement. A prepayment in full of the Loan shall be a termination of this Agreement. Notwithstanding termination of this Agreement in any manner, the Indebtedness shall be payable in accordance with this Agreement, and all rights and remedies granted to Lender hereunder or pursuant to applicable law shall continue until all obligations of Borrower to Lender have been fully paid and performed. Section 2.4. MAXIMUM LAWFUL RATE. (A) INTEREST RATE. Notwithstanding any provision in this Agreement, or in any other document, if at any time before the payment in full of the Indebtedness, any of the rates of interest specified in this Agreement (the "Stated Rates") exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in such event and so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the Stated Rates shall be less than the Maximum Lawful Rate, then, subject to (B) below, Borrower shall continue to pay interest at the Maximum Lawful Rate until such time as the total interest received by Lender is equal to the total interest which Lender would have received had the Stated Rates been (but for the operation of this Section 2.4(A)) the interest rates payable; thereafter, the interest rates payable shall be the Stated Rates unless and until any of the Stated Rates shall again exceed the Maximum Lawful Rate, in which event this Section 2.4(A) shall again apply. In the event interest payable hereunder is calculated at the Maximum Lawful Rate, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. (B) AMOUNT OF INTEREST. In no event shall the total interest contracted for, charged, received or owed pursuant to the terms of this Agreement exceed the amount which Lender may lawfully receive. In the event that a court of competent jurisdiction, notwithstanding the provisions of this Section 2.4, shall make a final determination that Lender has received, charged, collected, or contracted for interest hereunder in excess of the amount which Lender could lawfully have, Lender shall, to the extent permitted by law, promptly apply such excess first to any interest due (calculated at the Maximum Lawful Rate if applicable) and not yet paid, then to the prepayment of principal, and any excess remaining thereafter and after application to any other amounts Borrower owes Lender shall be refunded to Borrower. In determining whether the interest exceeds the Maximum Lawful Rate or the maximum amount which Lender could lawfully have received, the total amount of interest shall, to the extent allowed by law, be spread over the term of the Loan. Any provisions of this Agreement regarding the time during which interest accrues on Advances are only elements of the formula for calculating interest on the total Loan and are not intended to cause interest to be applied to specific Advances for usury determination purposes. Section 2.5. LINE AND UNDERUTILIZATION FEE. Borrower shall pay to the Lender the Line Fee upon closing. The Line Fee shall be deemed fully earned and nonrefundable at the time of closing. Borrower shall pay to Lender the Underutilization Fee immediately upon the end of an Accounting Period. ARTICLE III. LOAN DISBURSEMENTS Section 3.0. LOAN - BORROWING BASE. Provided that there does not then exist an Event of Default, and provided that Lender has not taken over all or some of the administration of the Contracts, Lender shall, upon written request of Borrower and subject to all of the terms and conditions of this Agreement, make Advances to Borrower pursuant to Section 3.2. Section 3.1. ELIGIBLE CONTRACTS. Borrower shall from time to time deliver to Lender Eligible Contracts which Borrower desires to be included in the Borrowing Base. Along with the Contracts Borrower shall also deliver a List of Contracts. An Eligible Contract shall be included in the Borrowing Base only when and for so long as, in Lender's sole determination, each of the requirements in the definition of Eligible Contracts continues to be satisfied. If a Contract is determined by Lender to be, or is treated by Lender as, an Eligible Contract, Lender reserves the right to change its determination or treatment and to remove the Contract from the Borrowing Base if it later determines that the Contract is not or was not an Eligible Contract. A determination by Lender that a Contract is an Eligible Contract is not a waiver by Lender of, or an admission by Lender of the truth of, any of Borrower's representations and warranties in this Agreement. Section 3.2. PROCEDURE FOR BORROWING. (A) The first Advance shall not exceed the Borrowing Base. Subsequent Advances can be requested on any Business Day. Each subsequent Advance shall not exceed the Loan Availability determined at Lender's election either as of the end of the most recent Accounting Period for which Lender has received the monthly reports required by Section 5.1 (C), or, as of such other date thereafter designated by Lender. Lender is not obligated to make an Advance if the amount available or requested is less than One Hundred Thousand Dollars ($100,000.00). Lender is not obligated to make an Advance unless Borrower provides Lender with sufficient information to calculate the Loan Availability. Lender's use of the information provided by Borrower to determine the amount available for Advances is not an admission by Lender as to the accuracy of the information, and Lender reserves the right to verify the information and redetermine the amount available for Advances. (B) Lender shall disburse each Advance requested in writing by Borrower on the same day if PROVIDED BY 1:30 P.M EASTERN STANDARD TIME (WHEN POSSIBLE, OTHERWISE, ADVANCE SHALL BE MADE BY THE NEXT BUSINESS DAY), after receipt of Borrower's written request for the Advance. Lender shall disburse each Advance requested by Borrower by means of a draft, or, upon the request of Borrower, Lender shall wire transfer the funds to Borrower. ARTICLE IV. LOANS: PAYMENTS Section 4.0. PAYMENTS BY BORROWER. (A) All payments by Borrower to Lender shall be deposited in the Depository Account; or shall be sent to such other location as shall be specified by Lender to Borrower, from time to time. (B) Upon the effective date of termination of this Agreement, Borrower shall pay to Lender the entire Indebtedness. If there is an Event of Default, Borrower shall pay the entire Indebtedness on demand if the Indebtedness is accelerated pursuant to Section 15.2. (C) Interest shall accrue on the Loan daily and be paid from the Remittances as provided in Section 4.2. If at the end of an Accounting Period there is more than one Business Day of accrued unpaid interest, Borrower shall pay the more-than- one-day accrued interest to Lender within five (5) calendar days after the end of the Accounting Period. Accrued interest shall not be added to the Loan balance and bear interest, unless the interest is past due and paid with an Advance requested by Borrower and approved by Lender; provided that, such an approval by Lender shall not constitute a waiver of the Event of Default consisting of the failure to pay the interest except to the extent provided in Section 17.9. (D) Whenever Lender shall notify Borrower, with a Statement of Borrowing Base or otherwise, that the Loan exceeds the Borrowing Base, Borrower shall within one (1) Business Day after receipt of such notice, either pay down the Loan by the amount of such excess, or, if Lender consents, deliver additional Eligible Contracts to Lender which are sufficient to increase the Borrowing Base above the Loan. (E) The payment of all elements of the Indebtedness not covered by Subsections (B), (C), or (D) of Section 4.0 shall be payable by Borrower to Lender as and when provided in the Loan Documents, and, if not specified, then on demand. Section 4.1. CONTRACT PAYMENTS. Borrower shall direct all Contract Debtors for Pledged Contracts, and all other Persons (including Contract Rights Payors) who make payments to Borrower relating to Pledged Contracts, to make, when paying by mail, all payments directly to the Lock Box. In the event Borrower receives any Remittances, Borrower shall, as soon as possible but no later than the one (1) Business Day following receipt, deposit the Remittances in kind in the Depository Account. Borrower shall hold Remittances in trust for Lender until delivery to Lender or deposit in the Depository Account. Borrower shall pay all expenses associated with the Lock Box. Section 4.2. APPLICATION OF PAYMENTS. All Remittances received by Lender shall be applied by Lender to the Indebtedness within one (1) Business Day after the Remittance has been deposited in Lender's account. No Remittance other than cash shall be treated as a final payment to Lender unless and until such item has actually been collected by Lender's bank and such collection has been finally credited to Lender's account; provided, further that if a Remittance applied to the Indebtedness is charged back to Lender's bank, Lender can retroactively remove the application of the Remittance to the Indebtedness and accrue any interest not accrued because of the application of the Remittance to the Indebtedness. Each Remittance shall be applied by Lender to the Indebtedness (i) first to accrued interest, and, if sufficient to pay accrued interest, (ii) then to the Indebtedness, other than the Advances, and (iii) then to the Loan. Lender reserves the right to use a different order of application if there is an Event of Default or Lender has given prior written notice to Borrower of a different order. All Remittances received by Lender may be applied to the Indebtedness even though no portion of the Indebtedness is otherwise then due and even though Lender has not sent Borrower a demand, notice or request for payment of the Indebtedness. Payments shall be deemed to be due by Borrower when received by Lender unless they are due sooner by the terms of the Loan Documents. ARTICLE V. CONTRACT ADMINISTRATION Section 5.0. LENDER ADMINISTRATION. Lender shall have no liability to Borrower with respect to Remittances received by Lender, the Lock Box, or the Depository Account, other than to: (i) apply the Remittances pursuant to Section 4.2 of this Agreement and (ii) upon termination of this Agreement and Borrower's satisfaction of all of its obligations under this Agreement, to assign the Lock Box and its contents to Borrower. Lender shall have no liability to Borrower with respect to any interest or other earnings which are earned, or could have been earned, on the Remittances while they are in the Lock Box, the Depository Account, or otherwise. Section 5.1. BORROWER ADMINISTRATION. (A) Borrower shall perform all aspects of servicing, administering, collecting, liquidating, accounting for and managing (collectively, "administering", "administer", or "administration") the Pledged Contracts it customarily performs in accordance with Borrower's current practices for contract administration, which practices are in accordance with applicable law and have been disclosed to Lender prior to the date hereof. Borrower shall provide such administration in a reasonable and prudent way that does not, in Lender's determination, adversely affect the value of the Collateral to Lender. If in Lender's opinion, Borrower fails to administer the Pledged Contracts in accordance with Borrower's practices as existing under the Original Agreement through the date hereof, Lender shall notify Borrower of the deficiencies in Borrower's administration and Borrower shall have ten (10) Business Days to cure any such deficiencies. If Borrower fails to cure such deficiency within such ten (10) Business Day period, Lender may thereafter, in its sole discretion, take over all or part of the administration of the Pledged Contracts. The administration provided by Borrower shall include but not be limited to all servicing currently provided by Borrower, and Financed Vehicle titling and lien perfection, customer service, insurance claim tracking and collection, insurance maintenance, Contract enforcement, Contract billing, payment processing, portfolio and Contract accounting, portfolio management, delinquency collection, repossession, foreclosure, resale, and maintaining current Contract Debtor and Financed Vehicle location information (name, address and phone number), as set forth in Exhibit 5.1(A). Borrower shall maintain current, accurate, and complete records of activity and comments regarding collection, insurance, payments, and other material events. The records regarding collection history, payments, Contract accounting, customer service notes, Contract Debtor names and addresses and Outstanding Principal Balance shall be computerized. Borrower shall require Contract Debtors to maintain Required Contract Debtor Insurance. Borrower shall administer and otherwise deal with the Contracts in compliance with all applicable laws. Borrower shall conduct foreclosure sales in a commercially reasonable manner and take the steps necessary to preserve the deficiency liability of the Contract Debtors. (B) Borrower shall administer the Pledged Contracts at its existing service centers as set forth more fully in Exhibit 5.1(B), or at such other locations that Borrower provides prior notice of to Lender and Lender approves for Contract administration, which approval shall not be unreasonably withheld. (C) Borrower shall furnish to Lender such reports in such form that Lender determines are necessary for it to track and monitor the Pledged Contracts, Remittances, Financed Vehicles, and insurance. Such reports shall be in a format and on a medium readable by Lender's computer software, or such other format or medium acceptable to Lender. Lender acknowledges that the present format and medium used by Borrower is acceptable and Borrower agrees to advise Lender prior to any system or software changes so that such reports continue to be provided in an acceptable format and medium. The reports shall include but not be limited to those reports set forth on Exhibit 5.1(C) attached hereto and made a part hereof, and shall be delivered to Lender in accordance with such Exhibit. (D) Notwithstanding anything herein to the contrary, (i) Borrower shall remain liable under all Contracts, and any other contracts and agreements with Contract Rights Payors or otherwise included in or related to the Collateral, to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, and (ii) the exercise by Lender of any rights under any of the Loan Documents shall not release Borrower from any of its duties or obligations under the Contracts, or the other contracts and agreements, and (iii) Lender shall not have any obligation or liability under the Contracts, or the other contracts and agree-ments, nor shall Lender be obligated to perform any of the obligations or duties of Borrower thereunder or to take any action to collect or enforce any rights thereunder. (E) Borrower shall administer the Contracts at its own expense. In the event that Borrower fails to administer the Contracts in accordance with Section 5.1(A) or there is an Event of Default, Lender may in Lender's or Borrower's name take over all or part of the Contract administration Borrower is required by this Agreement to perform. If Lender takes over all or part of such administration, Borrower shall pay to Lender on demand all out-of-pocket costs incurred by Lender in the performance of Borrower's administration obligations, and Borrower shall pay Lender for the administration performed by Lender an administration fee in the amount of $25 per Contract per month (exclusive of out-of-pocket costs) established by Lender, and until so paid such costs and fee shall be part of the Loan. ARTICLE VI. COLLATERAL: GENERAL TERMS Section 6.0. SECURITY INTEREST. To secure the performance and payment of the Indebtedness and all of Borrower's existing and future obligations to Lender whether arising under or related to this Agreement or otherwise, Borrower hereby grants to Lender a continuing security interest in and to all of the following property of Borrower, whether now owned or existing or hereafter arising or acquired and regardless of where located: (i) Contracts; Contract Debtor Documents; Contract Rights; payments from Contract Debtor bank accounts; chattel paper; leases; installment sale contracts; installment loan contracts; payments from chattel paper obligors; security deposits; Motor Vehicles (including but not limited to cars, trucks and motorcycles); certificates of title; contract purchase discounts; accounts; general intangibles; security interests; collateral securing chattel paper; dealer agreements; dealer reserves and rate participation; rights of Debtor related to chattel paper, installment contracts, motor vehicles, and collateral securing chattel paper; documents; instruments; deposit accounts; electronic funds transfers; equipment; inventory; parts and accessories for motor vehicles; payments from account debtor bank accounts; reserve accounts; tax refunds; insurance policies, and benefits and rights under insurance policies, which Borrower is solely or jointly the owner of, insured under, the lienholder or loss payee under, or the beneficiary of; and all payments and property of any kind, now or at any time or times hereafter, in the possession or under the control of Secured Party, or a bailee of Secured Party; (ii) accessions to, substitutions for and all replacements, products and proceeds of, any of the foregoing property; and (iii) books and records (including, without limitation, financial statements, accounting records, customer lists, credit files, computer programs, electronic data, print-outs and other computer materials and records) of Borrower pertaining to any of the foregoing property. Section 6.1. DISCLOSURE OF SECURITY INTEREST. Borrower shall make appropriate entries upon its financial statements and its books and records disclosing Lender's security interest in the Collateral. Upon the request of Lender, Borrower shall stamp all original, duplicates and reproductions of Pledged Contracts with an assignment to Lender. Section 6.2. ADDITIONAL ACTS. Borrower shall perform all other acts requested by Lender for the purpose of perfecting, protecting, maintaining and enforcing Lender's security interest in the Collateral and the priority of such security interest. Borrower agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. Borrower, upon request of Lender, shall either pay or reimburse Lender for all costs, filing fees, and taxes associated with the perfection of Lender's security interest. Section 6.3. INSPECTION AND ACCESS. Lender and its agents shall have the right, at any time, to (i) during Borrower's usual business hours, inspect the Collateral and the premises upon which any of the Collateral is located; (ii) during Borrower's usual business hours, inspect, audit and make copies or extracts from any of Borrower's records, computer systems, files, and books of account; (iii) during Borrower's usual business hours, monitor Borrower's performance of its obligations with respect to this Agreement; and (iv) obtain information about Borrower's affairs and finances from any Person; and (v) verify, in Lender's name or in the name of Borrower, the validity, amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral including but not limited to verifying Contract information with Contract Debtors. Borrower shall, upon Lender's request from time to time, instruct its vendors, banking and other financial institutions and its accountants to make available to Lender and discuss with Lender such information and records as Lender may request. Borrower authorizes Lender, if requested by a Person other than a credit reporting agency and without request if the Person is a credit reporting agency, to provide that Person with information about the Indebtedness, Collateral and Borrower's performance of this Agreement. If Borrower maintains or stores any data with respect to Collateral on a computer data system, Borrower shall upon request of Lender provide Lender with (a) on-line access to such computer data system and (b) deliver to Lender duplicate copies of the requested data in machine readable form acceptable to Lender along with a printout or other hard copy of such data. Borrower shall, on request of Lender, provide to Lender (at the location designated by Lender) the Contract Debtor Documents. Section 6.4. RIGHT TO NOTIFY AND ENDORSE. Borrower hereby irrevocably authorizes Lender to notify any or all Contract Debtors and Contract Rights Payors that Lender has a security interest in Contracts, Contract Rights, and other items of Collateral at any time (i) prior to the occurrence of an Event of Default, in the name of Borrower, and (ii) after the occurrence of an Event of Default, in Lender's or Borrower's name. Any such notice shall, at Lender's election, be signed by Borrower and may be sent on Borrower's stationery. Section 6.5. LENDER APPOINTED ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints Lender (and all Persons designated by Lender for that purpose) as Borrower's true and lawful attorney-in-fact to act in Borrower's place in Borrower's or Lender's name (i) to endorse Borrower's name on any Remittance; (ii) to sign Borrower's name on any assignment or termination of a security interest in a Financed Vehicle, on any application for a Certificate of Title for a Financed Vehicle, or on any UCC financing statement related the Collateral, and on any other public records regarding the Collateral; (iii) to send requests for verification to Contract Debtors and (iv) to execute an assignment to Lender of any Pledged Contract for which Lender has made an Advance which was delivered to Lender without such assignment. Borrower ratifies and approves all acts of Lender as Borrower's attorney-in-fact. Lender shall not, when acting as attorney-in-fact, be liable for any acts or omissions or for any error of judgment or mistake of fact or law, except for actions taken in bad faith or resulting from Lender's gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable until all payment and performance obligations of Borrower to Lender have been fully satisfied. Borrower shall upon request of Lender execute powers of attorney to separately evidence the foregoing powers granted to Lender. After an Event of Default has occurred, all costs, fees and expenses thereafter incurred by Lender, or for which Lender becomes obligated, in connection with exercising any of the foregoing powers shall be payable to Lender by Borrower on demand by Lender and until paid shall be part of the Loan. Section 6.6. CHANGE OF COLLATERAL, LOCATION, OFFICE OR STRUCTURE. Borrower shall keep the Collateral, other than Collateral delivered to Lender and Financed Vehicles, at Borrower's address set forth in Section 17.1 or its locations listed in Section 5.1(B). Borrower shall not change its name, tradename, principal place of business and chief executive office, unless Borrower gives Lender at least sixty (60) days prior written notice of such change and prior thereto has taken all action Lender requires to maintain the priority and perfection of its security interest in, and access to, the Collateral. Borrower shall not change any service center or sales outlet, unless Borrower gives Lender at least fifteen (15) days prior written notice of such change and prior thereto has taken all action Lender requires to maintain the priority and perfection of its security interest in, and access to, the Collateral. Section 6.7. LENDER'S PAYMENT OF CLAIMS ASSERTED AGAINST BORROWER. Lender may, at any time, in its sole discretion and without obligation to do so and without waiving or releasing any obliga-tion, liability or duty of Borrower under the Loan Documents or any Event of Default, pay, acquire or accept an assignment of any security interest, lien, claim or encumbrance asserted by any Person against the Collateral; provided that Lender shall first give Borrower writ-ten notice of its intent to do the same, and Borrower does not, within five (5) days of such notice, pay such claim and/or obtain to Lender's reasonable satisfaction the release of the security interests, liens, claims or encumbrances to which such notice relates. All sums paid by Lender in respect thereof and all costs, fees and expenses, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, which are incurred by Lender on account thereof, shall be payable by Borrower to Lender on demand by Lender and until paid shall be part of the Loan. Section 6.8. TERMINATION OF SECURITY INTEREST. Lender's security interest in the Collateral shall continue until performance and payment in full of all of Borrower's obligations to Lender in accordance with the terms of agreements creating such obligations; and if, at any time, all or part of a payment or transfer made by Borrower or any other Person and applied by Lender to Borrower's obligations to Lender is rescinded or otherwise must be returned by Lender for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorgani-zation of Borrower or such other Person), the security interest granted hereunder or under any other present or future agreement between Borrower and Lender, and all rights of Lender, shall be reinstated as to the obligations which were satisfied by the payment or transfer rescinded or returned, all as though such payment or transfer had not been made, and Borrower shall take the action requested by Lender to reperfect all terminated security interests and to reinstate all satisfied obligations. Lender shall release its security interest in Contracts which are sold or pledged to other Persons in accordance with Section 14.8. Section 6.9. RETURN OF CONTRACT DELIVERY DOCUMENTS. Lender shall return to Borrower within two (2) Business Days of Borrower's request any Contract Delivery Document originals for Contracts paid in full. In addition, provided that there is no Event of Default and the removal of the Contract will not result in the Loan exceeding the Borrowing Base, Lender shall return Contract Delivery Document originals for other Contracts requested by Borrower for the time and to the extent necessary for Borrower to make corrections or to enforce the Contracts or the obligations of the Contracts Rights Payors. Whenever Borrower is in possession or control of Contract Delivery Documents for Contracts not paid in full, Borrower shall hold them in trust for Lender. ARTICLE VII. COLLATERAL: CONTRACTS Section 7.0. NOTICE REGARDING CONTRACTS. (A) In the event any amounts due and owing in excess of One Thousand Dollars ($1,000) on a Pledged Contract become disputed between the Contract Debtor and Borrower, or in the event a Contract Debtor for a Pledged Contract asserts a claim, offset, or defense, or in the event a Person other than Borrower or a Contract Debtor makes a claim of ownership or other interest in a Financed Vehicle or Contract, then Borrower shall provide Lender with written notice thereof within Ten (10) Business Days of learning of the same, explaining in detail the nature of the matter and the amount in controversy. Borrower shall promptly, but in no event later than ten (10) Business Days after learning thereof, inform Lender of all material adverse information relating to the financial condition of any Contract Debtor, or the value of any Pledged Contract or Financed Vehicle. (B) After an Eligible Contract is included in the Borrowing Base, in the event that Borrower becomes aware that one of the requirements in the definition of Eligible Contracts or one of the conditions in Section 9.1 are no longer being satisfied with respect to the Contract, Borrower shall state such ineligibility on the next monthly applicable reports submitted after Borrower becomes aware thereof. (C) Upon request of Lender, Borrower shall to the extent authorized by law obtain current credit bureau reports on Contract Debtors. ARTICLE VIII. COLLATERAL: REMITTANCES AND INSURANCE Section 8.0. ASSIGNMENT OF LIEN IN FINANCED VEHICLES. In addition to the security interest granted in Section 6.0, Borrower hereby assigns absolutely to Lender Borrower's rights of foreclosure as lienholder of the Financed Vehicles for Pledged Contracts delivered to Lender. This assignment is solely for the purpose of Lender foreclosing on the liens following an Event of Default. Until an Event of Default, Borrower has the right to foreclose on a Financed Vehicle. In the event Lender exercises the right to foreclose, Lender shall be the owner of the foreclosure sale proceeds and shall apply them to the Indebtedness. Section 8.1. ABSOLUTE ASSIGNMENT OF REMITTANCES. In addition to the security interest granted in Section 6.0, Borrower hereby absolutely assigns to Lender Borrower's interest in and right to all Remittances arising on or after the date of this Agreement, and such Remittances shall be the property solely of Lender. Section 8.2. INSURANCE. In addition to the security interest granted in Section 6.0, Borrower hereby assigns absolutely to Lender Borrower's right to refunds and benefits under Required Contract Debtor Insurance, and Optional Contract Debtor Insurance for Pledged Contracts. This assignment is evidenced by Exhibit 8.2. In the event Lender uses this assignment to collect insurance benefits or refunds, Lender shall be the owner of the benefits and refunds and shall apply them to the Indebtedness. ARTICLE IX. CONDITIONS TO ADVANCES Section 9.0. CONDITIONS TO INITIAL ADVANCE. Notwithstanding any other provision of this Agreement and without affecting in any manner the rights of Lender hereunder, Lender shall not be obligated to make the initial Advance hereunder unless and until Borrower shall have delivered to Lender, in form and substance satisfactory to Lender each of the Supplemental Documents listed on Exhibit 9.0 attached hereto and made a part hereof, and such additional information and materials as Lender may reasonably request. Such Supplemental Documents shall include, but are not limited to, Guaranty Agreements or Reaffirmations of existing Guaranties, and Debt Subordination Agreements or Amendments thereto. Section 9.1. CONDITIONS TO EACH ADVANCE. Notwithstanding any other provision of this Agreement and without affecting in any manner the rights of Lender hereunder, Lender shall not be obligated to make any Advances (including the initial Advance) unless at the time of the Advance, all of the following conditions shall, in Lender's sole determination, be satisfied: (A) For each Eligible Contract, Borrower shall have included the Eligible Contract on a List of Contracts delivered to Lender and shall have delivered to Lender the Contract Delivery Documents; except that, if a Certificate of Title has not been issued, then the Certificate of Title must be delivered to Lender within one hundred twenty (120) days of the Contract date. (B) All of the representations and warranties of Borrower in all of the Loan Documents shall be true and correct on and as of the date of such Advance as though they were made on and as of such date and Borrower shall have performed all of its obligations contained in the Loan Documents required to be performed as of such date; (C) The making of the Advance will not constitute an Event of Default; (D) There shall have been no material adverse change in the financial condition of Borrower or Guarantor, after the Closing Date; (E) No claim has been asserted or proceeding commenced challenging this Agreement or Lender's rights under this Agreement, and no claim has been asserted which if true would be a breach of a representation and warranty in the Loan Documents; (F) No Event of Default shall have occurred and still be in existence; (G) Lender has a first priority perfected security interest in the Collateral except to the extent otherwise allowed by this Agreement or Lender in writing; (H) An event has not occurred which entitles Lender pursuant to Section 5.1 (E) to take over administration of the Pledged Contracts; (I) Lender's most recent inspection of the Collateral or Borrower's records or operations has been satisfactory to Lender in all material respects; (J) Borrower shall have provided such additional information and documents as Lender may reasonably request; (K) In the event a Certificate of Title with respect to any Financed Vehicle has been sent from Lender to Borrower, Borrower has returned said Certificate of Title to Lender within 120 days of Lender s initial sending of Certificate to Borrower; (L) The amount financed for each Eligible Contract does not exceed: (i) 160% of N.A.D.A. (National Automobile Dealer s Association) trade value for used Motor Vehicles or, (ii) 160% of Dealer Invoice on new Motor Vehicles, on average for all the Contracts delivered to Lender, and (M) None of the actions taken or documents executed to satisfy the conditions in Section 9.0 have been revoked, rescinded, terminated, or canceled without Lender's prior consent. ARTICLE X. REPRESENTATIONS AND WARRANTIES OF BORROWER Section 10.0. REPRESENTATIONS OF BORROWER. Borrower hereby makes the following representations and warranties. The representations and warranties are made as of the execution and delivery of the Agreement, and each time Borrower delivers Pledged Contracts to Lender or requests an Advance the representations and warranties are deemed to be made again at that time. Lender's knowledge of any breach of the representations and warranties contained herein shall not void any of the representations or warranties or affect Lender's rights with respect to the breach. (a) ORGANIZATION, GOOD STANDING, NAME, AND LOCATION. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana, with power and authority to own its properties and to conduct its business, and, at all relevant times, has the power, authority and legal right to acquire, own, and pledge the Pledged Contracts. Borrower has, is in good standing under, and is in compliance with, all governmental approvals, licenses, permits, certificates, inspections, consents and franchises necessary to conduct its business, to enter into and perform this Agreement, and to own and operate its business. Borrower's principal place of business and chief executive office is the Borrower address set forth in Section 17.1. During the preceding five (5) years, Borrower has not been known by or used any other corporate, trade or fictitious name, except as disclosed in Exhibit 10(a). Borrower has no subsidiaries, except as disclosed on Exhibit 10(a). (b) DUE QUALIFICATION. Borrower has, and is in good standing under, all licenses, permits, and approvals in all jurisdictions which are required for Borrower's initial acquisition of the Pledged Contracts and for Borrower's performance of this Agreement. (c) POWER AND AUTHORITY. Borrower has the power and authority to execute this Agreement and carry out its terms, and the execution and performance of the Agreement have been duly authorized by all necessary corporate action. The execution and performance of this Agreement by Borrower does not require the consent or approval of any Person. (d) VALID AND BINDING OBLIGATIONS. The Agreement constitutes a valid loan obligation of Borrower and a valid granting of a security interest in the Collateral to Lender, enforceable against creditors of and purchasers from Borrower; and is a legal, valid and binding obligation of Borrower enforceable in accordance with its terms. The Guaranties are valid and binding obligations of the Guarantors enforceable according to their terms. Borrower's use of the Advances is a legal and proper corporate use. Borrower has not used Advances to give any preference to any creditor or to make a fraudulent transfer. (e) NO VIOLATION. Borrower's execution and performance of this Agreement does not conflict with, result in any breach of, nor constitute (with or without notice or lapse of time) a default under, (i) the articles of incorporation or bylaws of Borrower, (ii) any indenture, instrument, agreement, or court order by which it is bound; or (iii) nor does it result in the creation or imposition of any lien upon any of Borrower's properties other than that granted to Lender. (f) NO PROCEEDINGS. There are no proceedings or investigations pending, or to the best of Borrower's knowledge, threatened, before any court, regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Borrower or its properties, which (i) assert the invalidity of the Agreement, (ii) seek to prevent the consummation of any of the transactions contemplated by the Agreement, (iii) seek any determination or ruling that, if determined adversely to Borrower, would materially and adversely affect the Collateral, Borrower's ability to perform its obligations under the Agreement, the validity or enforceability of the Agreement, Lender's rights under the Agreement, or Borrower's financial condition or business, or (iv) allege that Borrower is in violation of any statute, regulation, rule or ordinance of any governmental entity, including, without limitation, the United States of America, any state, city, town, municipality, county or of any other jurisdiction, or of any agency thereof. (g) COLLATERAL. Borrower has good and marketable ownership of the Collateral, and the Collateral is free and clear of all liens, claims, charges, defenses, counterclaims, offsets, encumbrances and security interests of any kind or nature, except the Permitted Liens. The security interests granted to Lender pursuant hereto are perfected first priority security interests, assuming delivery to Lender of any Collateral as to which possession is the only method of perfecting a security interest, notation on motor vehicle titles when necessary and assuming the filing of a UCC financing statement with the collateral description in Exhibit 10.0(g) with the office of Secretary of State of Indiana; and no claim of ownership or other interest has been asserted which would be a breach of this Section 10.0(g). (h) TAXES. All required federal, state and local tax returns of Borrower have been accurately prepared and duly and timely filed (within the initial or extended time period allowed therefor) and all federal, state and local taxes required to be paid with respect to the periods covered by such returns have been paid. Borrower has not been delinquent in the payment of any tax, assessment or other governmental charge which could adversely affect in any way the Collateral. (i) BROKERS. Except as otherwise disclosed on Exhibit 10(i) attached hereto, no person has, or as a result of the transactions contemplated hereby will have by reason of any Borrower conduct or any agreement to which Borrower is a party, any right, interest or claim against Borrower, Lender or the Collateral for any commission, fee or other compensation as a finder or broker or in any similar capacity. (j) STATUS AND CONDITION. Borrower is solvent, in stable financial condition and is able to and does pay its liabilities as they mature. Except as otherwise disclosed on Exhibit 10(j) attached hereto, Borrower is not a party to any labor dispute or any collective bargaining contract. (k) DISCLOSURE. There is no fact known to Borrower which Borrower has not disclosed to Lender in writing with respect to the Collateral or the assets, liabilities, financial condition or activities of Borrower or its Subsidiaries which would or may be likely to have a material adverse effect upon the Collateral or Borrower's ability to perform its obligations under the Agreement. All information and documents prepared by Borrower and provided to Lender at any time are true and accurate at the time of delivery. Borrower does not have knowledge that any information or documents, not prepared by Borrower but delivered by Borrower to Lender were not true and accurate at the time of delivery. (l) ARTICLES OF INCORPORATION AND CERTIFICATES OF EXISTENCE. The Borrower's Articles of Incorporation received by Lender pursuant to Section 9.0 have not been modified. Borrower has not taken or allowed any action which would result in it not being in legal existence. Borrower has not received notice of any actual or threatened action to revoke its articles of incorporation or legal existence. (m) FINANCIAL STATEMENTS. All financial statements of Borrower, and Subsidiaries or any Guarantor delivered to Lender fairly present the assets, liabilities and financial condition and income as of the dates thereof. There are no material omissions from the financial statements and there has been no adverse change in the assets, liabilities or financial condition since the date of the most recently delivered financial statements. There exists no equity or long-term investments in, or outstanding advances to, or guaranties of, any Person except such equity, investment, advances, or guaranties disclosed in the financial statements. The financial statements accurately disclose all transactions with Subsidiaries. (n) CONDITIONS. Each time Borrower requests an Advance, the Conditions in Section 9.1 have been met. (o) CHARACTERISTICS OF CONTRACTS. Each Pledged Contract delivered to Lender as an Eligible Contract meets all of the requirements listed in the definition of Eligible Contract, except that Borrower makes no representation or warranty as to whether (i) the Contract meets such requirements to Lender's satisfaction, or (ii) the Contract presents a credit, collateral, or documentation risk unacceptable to Lender. No selection procedures adverse to Lender have been utilized in selecting the Eligible Contracts delivered to Lender. (p) NO DEFAULTS. No condition exists which would, upon the execution and delivery of this Agreement or Borrower s performance hereunder, constitute an Event of Default. Borrower is not in default, and no event has occurred and no condition exists which constitutes, or with the passage of time or the giving of notice or both, would constitute, a default under any material agreement between Borrower and any Person, including the payment of any debt or other obligation permitted under this Agreement to any Person for borrowed funds. ARTICLE XI. REPRESENTATIONS AND WARRANTIES OF THE LENDER Section 11.0. REPRESENTATIONS OF LENDER. The Lender hereby makes the following representations and warranties: (a) DUE ORGANIZATION. The Lender is a corporation, duly organized, validly existing and in good standing under the laws of the State of New York, and has the power to own its assets and to transact the business in which it is presently engaged with regard to this Agreement; (b) REQUISITE POWER. The Lender has the power to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance of this Agreement; and (c) BINDING AGREEMENT. This Agreement has been duly executed and delivered by the Lender and constitutes the legal, valid and binding obligation of the Lender, enforceable in accordance with its terms. ARTICLE XII. INDEMNITIES Section 12.0. INDEMNITY. Borrower shall indemnify and hold Lender harmless from any and all losses, claims, damages, costs, good faith settlements, expenses, taxes, reasonable attorneys' fees or other liabilities, including but not limited to costs of investigation, litigation fees and expenses, and costs in successfully asserting the right to indemnification hereunder, (collectively, "Losses") incurred by Lender at any time and pertaining to (i) facts which are, or allegations which if true would be, a breach of any representation, warranty, obligation, agreement or covenant of Borrower contained in the Loan Documents, or (ii) Lender entering into the Loan Documents or making Advances or handling Remittances or administering Pledged Contracts in accordance with this Agreement, (iii) an Event of Default or, (iv) activities, operations or conduct of Borrower, Guarantor, or Subsidiaries. ARTICLE XIII. AFFIRMATIVE COVENANTS The following covenants shall remain in effect until the full payment and performance of all of Borrower's obligations to Lender: Section 13.0. FINANCING STATEMENTS. At the request of Lender, Borrower shall execute such financing statements as Lender determines may be required by law to perfect, maintain and protect the interest of Lender in the Collateral and in the proceeds thereof. Section 13.1. BOOKS AND RECORDS. Borrower shall maintain accurate and complete books and records with respect to the Collateral, Borrower's business, and Borrower's administration of the Pledged Contracts. All accounting books and records shall be maintained in accordance with generally accepted accounting principles consistently applied. Section 13.2. CONTINUITY OF BUSINESS AND COMPLIANCE WITH AGREEMENT. Borrower shall continue in business in a prudent, reasonable and lawful manner with all necessary licenses, permits, and qualifications necessary to perform this Agreement. Borrower shall regularly and properly train its employees to comply with all applicable laws governing the administration and purchase of Contracts. Borrower shall take the steps necessary for the representations and warranties in Article X to be true at all times. In the event that Borrower learns that a representation and warranty in Article X is no longer true, it shall notify Lender within three (3) Business Days after learning thereof. Section 13.3. FINANCIAL STATEMENTS AND ACCESS TO RECORDS. Borrower shall provide Lender with monthly audited or unaudited financial statements within thirty (30) days of the end of each of Borrower s Accounting Period, with quarterly statements (10Q) within forty-five (45) days of the end of each quarter, and with audited annual financial statements within ninety (90) days of Borrower's fiscal year-end audited by Ernst & Young LLP or an independent certified public accounting firm acceptable to Lender. Borrower shall deliver to Lender with each financial statement a certificate by Borrower's chief financial officer in the form of Exhibit 13.3. Borrower shall provide Lender with audited or unaudited annual financial statements of any Guarantor within ninety (90) days after the end of each calendar year. The Borrower shall permit the Lender or its agents to have access to and the ability to inspect and make copies of the records of the Borrower wherever located, including but not limited to the locations set forth on Exhibit 10.0(a), provided such access is requested during the Borrower s regular business hours. Section 13.4. SUBSEQUENT ACTIONS. At the request of Lender, Borrower shall execute and deliver to Lender after execution of this Agreement such documents or take such action as Lender deems necessary to carry out the Agreement. Section 13.5. FINANCIAL CONDITION. The Borrower shall observe each of the following financial covenants and shall notify Lender in writing promptly upon its learning of any violation of the following or any material adverse change in its financial condition or the financial condition of the Guarantor: A. Debt Ratio -- Borrower shall not allow its Debt Ratio to exceed 3.5:1 at all times, measured as of the end of each Accounting Period. B. Net Worth -- Borrower shall maintain a Net Worth of at least Twenty-Eight Million Dollars ($28,000,000) at all times, measured as of the end of each Accounting Period. C. Interest Coverage -- From the date hereof through June 30, 1997, the Borrower shall maintain Interest Coverage of at least .8:1; at July 1, 1997 through September 30, 1997 of at least 1:1; and at October 1, 1997 through December 31, 1997 of at least 1.2:1 and at all times thereafter, measured at the end of each calendar quarter. D. Rolling Average Delinquency -- From the date hereof through June 30, 1997, Borrower's Rolling Average Delinquency shall not exceed 9%, and at July 1, 1997 and at all times thereafter shall not exceed 8%, measured as of the end of each Accounting Period. E. Rolling Average Charge Offs -- From the date hereof through June 30, 1997, Borrower's Rolling Average Charged-Off Losses shall not exceed 2.50%; at July 1, 1997 through September 30, 1997, such Losses shall not exceed 1.50% and at October 1, 1997 and at all times thereafter, such Losses shall not exceed 1.25%, measured as of the end of each Accounting Period. F. Reserve Requirement -- The Borrower shall maintain its Reserve for Losses at 10% at all times, measured as of the end of each Accounting Period. G. Repossession Inventory -- From the date hereof through June 30, 1997, the Borrower's Repossession Inventory shall not exceed 10%, and at July 1, 1997 and at all times thereafter, such Inventory shall not exceed 5%, measured as of the end of each Accounting Period. Section 13.6. LITIGATION MATTERS. Borrower shall notify Lender in writing, promptly upon its learning thereof, of any litigation, arbitration or administrative proceeding which may materially and adversely affect the operations, financial condition or business of Borrower or Borrower's ability to perform this Agreement or which in any way involve Lender's security interest in the Collateral or other rights under the Loan Documents. Section 13.7. VALUE OF COLLATERAL. If in Lender's judgment the Collateral has materially decreased in value, other than the ordinary depreciation of Financed Vehicles, Borrower shall either provide enough addi-tional Collateral to satisfy Lender or reduce the Loan by an amount sufficient to satisfy Lender. Section 13.8 PAYMENT OF OBLIGATIONS. Borrower shall pay and perform, as and when due, all of its obligations, including, without limitation, all of its obligations to Lender. Section 13.9. BORROWER INSURANCE. Borrower shall maintain customary amounts of insurance covering, without limitation, fire, theft, burglary, public liability, property damage, product liability, workers' compensation, and liability arising from Borrower's collection of Contracts and sale of motor vehicles. Borrower shall pay all insurance premiums payable for such coverage and shall upon request of Lender deliver a copy of the policies of such insurance to Lender, together with evidence of payment of all premiums therefor. Section 13.10. CERTIFICATES OF TITLE. Borrower shall promptly obtain Certificates of Title for all Financed Vehicles. Borrower shall promptly deliver to Lender all Certificates of Title it receives for Financed Vehicles for Pledged Contracts. Section 13.11. INTEREST RATE CAP/COLLAR. Borrower shall maintain an interest rate cap/collar issued by a financial institution acceptable to Lender and keep such cap/collar in place. The cap/collar shall cover a principal amount of at least fifty million dollars ($50,000,000.00), and should be on substantially the same terms and conditions as the cap/collar presently in effect between the Borrower and LaSalle National Bank dated October 1, 1996. Section 13.12. PAYMENT OF FEES AND EXPENSES. Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower, or any other Person on behalf of Borrower, by Lender of Advances pursuant to this Agreement and (ii) the return of payments deposited for collection by Lender, including but not limited to payments by Borrower and payments by Contract Debtors. ARTICLE XIV. NEGATIVE COVENANTS Borrower covenants and agrees that hereafter, without Lender's prior written consent, which shall not be unreasonably withheld, in its sole discretion, until all of Borrower's obligations to Lender with respect to this Agreement are performed and paid in full: Section 14.0. MERGERS, ETC. Borrower shall not merge with, consolidate with, acquire or otherwise combine with any Person, transfer any division or segment of its operations to any Person or form any subsidiary. Section 14.1. INVESTMENTS. Borrower shall not make any investment in any Person through the direct or indirect holding of securities or otherwise. Section 14.2 DIVIDENDS. Borrower shall not declare or pay dividends. Section 14.3. LOANS AND ADVANCES. Except for routine and customary salary advances, Borrower shall not make any unsecured loans or other advances of money to officers, directors, employees, stockholders or Subsidiaries in excess of $25,000 in total. Borrower shall not incur any long term or working capital debt (other than the Indebtedness) secured by Contracts, and shall not create, incur, assume or suffer to exist any short term indebtedness which is not Subordinated Debt. Section 14.4. CAPITAL STRUCTURE. Borrower shall not (i) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock, or (ii) make any change in Borrower's capital structure, or (iii) make any change in any of its business objectives, purposes and operations which might in any way adversely affect the payment or performance of, or Borrower's ability to pay and perform, its obligations to Lender with respect to this Agreement. Borrower shall not allow a transfer of ownership involving management shareholders that have greater than a ten percent (10%) ownership interest in Borrower provided, however, that with prior written notice to the Lender, Capitol American Life Insurance Company may convert its Subordinated Debt into shares of common stock of the Borrower, provided that Capitol American Life Insurance Company is in compliance with the terms of its Debt Subordination Agreement with the Lender. Section 14.5. TRANSACTIONS WITH SUBSIDIARY. Borrower shall not enter into, or be a party to, any transaction with any Subsidiary, or stockholder of Borrower, except, consistent with Borrower's practice before entering into this Agreement, in the ordinary course of, and pursuant to the reasonable requirements of, Borrower's business and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable to Lender than would obtain in a comparable arm's length transaction with a Person not a Subsidiary or stockholder of Borrower. Section 14.6 ADVERSE TRANSACTIONS. Borrower shall not enter into any trans-action which adversely affects the Collateral or Borrower's ability to perform this Agreement or Lender's rights under the Loan Documents; or permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Pledged Contract, including any of the terms thereof or the amounts due thereunder except for customary payment extensions of Pledged Contracts done, in accordance with Borrower's policies and routines in existence on the Closing Date, as contained in Exhibit 5.1(A). Section 14.7. GUARANTIES. Borrower shall not guaranty or otherwise in any way, become liable with respect to the obligations or liabilities of any other Person except (i) any Subsidiary's or Guarantor's obligations to Lender, and (ii) by customary endorsement of instruments or items of payment for deposit to the general account of Borrower or for delivery to Lender. Section 14.8. COLLATERAL. Except as otherwise expressly permitted in the Loan Documents, Borrower shall not convey or allow any ownership, security, or other, interest in the Collateral other than Borrower's ownership interest and Lender's security interest. Borrower shall not interfere with or countermand Lender's instructions to any Person to send Remittances to the Lock Box, the Depository Account or Lender. Borrower can grant purchase money security interests in its equipment to Persons other than Lender. Borrower can lease, as lessee, equipment it uses. ARTICLE XV. EVENTS OF DEFAULT Section 15.0. EVENTS OF DEFAULT. An Event of Default means the occurrence or existence of one or more of the following events or conditions (whatever the reason for the Event of Default and whether voluntary, involuntary or caused by operation of law) which is not waived in writing by Lender or cured to the extent a cure is applicable: (A) A breach by Borrower of any representation, warranty or obligation contained herein or in the other Loan Documents or in any other agreement with Lender. (B) A breach by a Subsidiary, a Guarantor or a Person which holds any Subordinated Debt of the Borrower, of any representation, warranty, or obligation contained in any other agreement with Lender. (C) Any default by Borrower (including but not limited to a default due to non-payment) under any material agreement, document or instrument to which Borrower is a party or by which Borrower or any of its property is bound, creating or relating to any debt or other obligation (other than the Loan or the Subordinated Debt), if the payment or maturity of such debt or obligation is accelerated as a consequence of such default or demand for payment thereof is made. (D) The Collateral or any other of Borrower's, a Subsidiary's or Guarantor's assets are attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not dissolved within thirty (30) days thereafter; an application is made by any Person other than Borrower for the appointment of a receiver, trustee, or custodian for the Collateral or any other of Borrower's, a Subsidiary's or a Guarantor s assets and the same is not dismissed within thirty (30) days after the application therefor; or Borrower, a Subsidiary or a Guarantor shall have concealed, removed or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or made or suffered a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or other similar law. (E) An application is made by Borrower, a Subsidiary or a Guarantor for the appointment of a receiver, trustee or custodian for the Collateral or any other of Borrower's, a Subsidiary's or a Guarantor s assets; a petition under any section or chapter of the Bankruptcy Code or any similar federal or state law or regulation shall be filed by Borrower, a Subsidiary or a Guarantor; Borrower, a Subsidiary or a Guarantor shall make an assignment for the benefit of its creditors or any case or proceeding is filed by Borrower, a Subsidiary or a Guarantor for its dissolution, liquidation, or termination; Borrower ceases to conduct its Contract purchase and servicing business. (F) Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs, or a petition under any section or chapter of the Bankruptcy Code or any similar federal or state law or regulation is filed against Borrower, or an Affiliate, or a Guarantor or any case or proceeding is filed against Borrower, or an Affiliate or a Guarantor for its dissolution or liquidation, and such injunction, restraint, petition, case or proceeding is not dismissed within thirty (30) days after the entry or filing thereof. (G) A notice of lien, levy or assessment is filed of record with respect to all or any of Borrower's, a Subsidiary's or a Guarantor s assets by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency and it is not released within thirty (30) days after the filing; or if any taxes or debts become a lien or encumbrance upon the Collateral or any other of Borrower's, a Subsidiary's or a Guarantor s assets, and the same is not released within thirty (30) days after the same becomes a lien or encumbrance. (H) Borrower, a Subsidiary or a Guarantor becomes insolvent or admits in writing to its inability to pay its debts as they mature. (I) An event has occurred which entitles Lender pursuant to Section 5.1(E) to take over administration of the Pledged Contracts. (J) There occurs or exists any situation which leads Lender to believe, in good faith, that Borrower may not, or may be unable to, pay in the normal course one or more payment obligations to Lender, and Lender has given Borrower at least ten (10) days' notice thereof. (K) A financial statement of Borrower, a Subsidiary or a Guarantor reveals that its financial condition has materially adversely deteriorated after the execution of this Agreement. (L) An audited financial statement of Borrower is not unqualified. (M) Any other event occurs which will, in Lender's reasonable opinion, have a material adverse effect on the Collateral, Lender's rights under the Loan Documents, or on Borrower's financial or business condition, operations or prospects, including, without limitation, any change in the due diligence procedures used by Borrower to qualify Contract Debtors for Contracts, and Lender has given Borrower at least ten (10) days' notice thereof. (N) Guarantor fails to immediately repay the Loan to Lender upon notice from Lender pursuant to the terms of the Guaranty. (O) Any Guarantor shall revoke or attempt to revoke its Guaranty, or shall repudiate its liability thereunder or be in default of the terms of such Guaranty. Section 15.1. DEFAULT RATE OF INTEREST. Upon and after an Event of Default and subject to Section 2.4, Borrower's obligations to Lender shall continue to bear interest, calculated daily on the basis of a 365-day year at the per annum rate set forth in Section 2.2, plus additional post-default interest of two percent (2%) per annum until paid in full. Section 15.2. LENDER'S REMEDIES. Whenever an Event of Default has occurred and whenever Lender is entitled to take over Contract administration, Lender may without prior notice immediately suspend making Advances. Upon and after an Event of Default, Lender shall have the following rights and remedies. The rights and remedies shall be cumulative, and none exclusive, except to the extent required by law. Lender's exercise of any right, remedy, or attorney-in-fact appointment shall not relieve Borrower of any of its obligations to Lender. (A) The right, at Lender's discretion and without notice, (i) to immediately cease further Advances and/or terminate this Agreement, and (ii) to declare Borrower's obligations to Lender immediately due and payable, whereupon Borrower's obligations shall become and be due and payable, without presentment, demand, protest or further notice or process of any kind, all of which are expressly waived by Borrower. Borrower's obligations to Lender shall be immediately due and payable without declaration by Lender if the Event of Default consists of a petition filed under the Bankruptcy Code or any similar federal or state law. (B) All of the rights and remedies of a secured party under the UCC and other applicable laws, including the right to appoint a receiver. (C) The right at any time to (i) enter through self-help and without judicial process, upon the premises of Borrower, without any obligation to pay rent to Borrower, or to enter any other place or places where the Collateral is located and kept, and remove the Collateral or remain on and use the premises for the purpose of collecting or disposing of the Collateral, and (ii) require Borrower to assemble the Collateral and make it available to Lender at a place to be designated by Lender. (D) The right to sell or otherwise dispose of all or any of the Collateral at public or private sale, as Lender in its sole discretion may deem advisable, with such notice as may be required by law; and such sales may be adjourned from time to time with or without notice. Lender shall have the right to conduct such sales on Borrower's premises without charge for such time and Collateral as Lender may see fit. Lender is hereby granted a license or other applicable right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit for this purpose. Lender shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against Borrower's obligations to Lender. Without excluding other methods of disposition which may be commercially reasonable, it shall be a commercially reasonable disposition of the Pledged Contracts and Contract Rights for Lender to collect and enforce the Contracts and Contract Rights in the same manner that it collects and enforces similar Contracts and Contract Rights for its own account or for the account of other Persons. If any deficiency shall arise from the disposition of Collateral, Borrower shall remain liable to Lender therefor. (E) The right at any time and from time to time thereafter, at Lender's sole discretion and without notice to Borrower, (i) to enforce payment of the Contract Debtor's and Contract Rights Payor's obligations, and to collect and foreclose, by legal proceedings or otherwise, the Collateral in the name of Lender or Borrower and (ii) to take control, in any manner, of any item of payment for or proceeds of the Collateral. Lender is not obligated to pursue the Collateral or the Guarantors or any other Person in order to enforce Borrower's obligations to Lender. (F) The right to take over in Lender's or Borrower's name all or part of the administration of the Contracts. (G) The right to carry out the actions within the scope of Borrower's appointment of Lender as attorney-in-fact. (H) The right to offset or apply the funds in the Depository Account. Section 15.3. INJUNCTIVE RELIEF. Borrower recognizes that if there is an Event of Default then, depending on the nature of the Event of Default, it may be that no remedy at law will provide complete or adequate relief to Lender, and Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. The injunctive relief shall not be a waiver of Lender's rights to other relief and remedies. Section 15.4. NOTICE. Any notice required to be given by Lender of a sale, lease, or other disposition of the Collateral which is given pursuant to Section 17.1 at least five (5) days prior to such proposed action, shall constitute commercially reasonable and fair notice thereof to Borrower. Notice of less duration shall not be presumed to be commercially unreasonable or unfair. Section 15.5. APPOINTMENT OF LENDER AS BORROWER'S LAWFUL ATTORNEY. Borrower irrevocably appoints Lender (and all persons designated by Lender) as Borrower's true and lawful attorney-in-fact to act in Borrower's place in Borrower's or Lender's name, upon an Event of Default, to: (i) demand payment of the Pledged Contracts, other Collateral consisting of payment obligations and Contract Rights; (ii) enforce payment of the Pledged Contracts, other Collateral consisting of payment obligations and Contract Rights, by legal proceedings or otherwise; (iii) exercise all of Borrower's rights and remedies with respect to the collection and enforcement of the Pledged Contracts, other Collateral consisting of payment obligations, and Contract Rights; (iv) settle, adjust, compromise, discharge, release, extend or renew the Pledged Contracts, other Collateral consisting of payment obligations, and Contract Rights; (v) if permitted by applicable law, sell or assign the Collateral upon such terms, for such amounts and at such time or times as Lender deems advisable; (vi) take control, in any manner, of any item of payment or proceeds with respect to the Collateral; (vii) prepare, file and sign Borrower's name on any proof of claim in Bankruptcy or similar document against any Contract Debtor or Contract Rights Payor; (viii) prepare, file and sign Borrower's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Collateral; (ix) do all acts and things necessary, in Lender's sole discretion, to exercise Lender's rights granted in or referred to in Section 15.2 of this Agreement; (x) endorse the name of Borrower upon any item of payment or proceeds consisting of or relating to the Collateral and deposit the same to the account of Lender for application to the Indebtedness; (xi) use the information recorded on or con-tained in any data processing equipment and computer hardware and software relating to the Collateral to which Borrower has access; (xii) open Borrower's mail to collect Collateral and direct the Post Office to deliver Borrower's mail to an address designated by Lender; and (xiii) do all things necessary to carry out and enforce this Agreement which Borrower has failed to do. Borrower ratifies and approves all acts of Lender as Borrower's attorney-in-fact. Lender shall not, when acting as attorney-in-fact, be liable for any acts or omissions as or for any error of judgment or mistake of fact or law, except for actions taken in bad faith. This power, being coupled with an interest, is irrevocable until all payment and performance obligations of Borrower to Lender have been fully satisfied. Borrower shall upon request of Lender execute powers of attorney to separately evidence the foregoing powers granted to Lender. All costs, fees and expenses incurred by Lender, or for which Lender becomes obligated, in connection with exercising any of the foregoing powers shall be payable to Lender by Borrower on demand by Lender and until paid shall be part of the Loan. Section 15.6. LENDER'S DEFAULT. In the event of any default of the Loan Documents by Lender or any claim by Borrower related to the Loan Documents, Borrower's sole and exclusive remedy against Lender shall be a cause of action sounding in contract with damages limited to actual and direct damages incurred. Lender shall in no event be liable for ordinary negligence, delay in performance or any consequential, special, punitive, incidental or indirect damages, including without limitation, loss of profit or goodwill. Lender shall in no event be liable for any loss or damage directly or indirectly resulting from the furnishing of services or reports under this Agreement. With respect to any goods and services provided by Lender, LENDER MAKES NO WARRANTIES, whether expressed or implied, including, without limitation, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Borrower shall have no cause of action against Lender for a default under the Loan Documents unless Borrower first gives notice to Lender of the default and allows Lender a reasonable time of at least fifteen (15) Business Days to cure the default and Lender fails to commence action within such period to cure the default. ARTICLE XVI. DEFINITIONS Section 16.0 DEFINED TERMS. Whenever used in this Agreement with the initial letter capitalized, the following terms shall have the respective meanings set forth below. When the terms are used in the plural, the plural forms of the meanings shall apply. ACCOUNTING DATE: The last day of an Accounting Period. ACCOUNTING PERIOD: a calendar month, beginning with the month during which this Agreement is executed and ending with the calendar month during which the Indebtedness has been paid in full following termination of this Agreement. ADVANCE: each of the Loan advances described in Article III of this Agreement. AVERAGE CHARGED-OFF LOSSES: the Accounting Period average of the Charged-Off Losses for any six consecutive Accounting Periods. BORROWING BASE: the amount equal to the lesser of (i) Seventy Million Dollars ($70,000,000) or (ii) seventy-eight percent (78%) of the Outstanding Principal Balance of all Eligible Contracts during the time they are included in the Borrowing Base pursuant to Section 3.1. BUSINESS DAY: any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of Indiana are required by law to be closed. CERTIFICATE OF TITLE: with respect to each Financed Vehicle, the certificate of title (or other evidence of ownership) issued by the department of motor vehicles, or other appropriate governmental body, of the state in which the Financed Vehicle is to be registered showing the Contract Debtor as owner, with either notation of the Borrower's first lien or such other status indicated thereon which is necessary to perfect Borrower's security interest in the Financed Vehicle as a first priority interest, and showing no other actual or possible lien interest in the Financed Vehicle. CHARGED-OFF CONTRACT: a Pledged Contract (i) for which any Scheduled Payment is delinquent (not paid by the due date) more than one hundred twenty (120) days as of the end of an Accounting Period, (ii) for which the Financed Vehicle has been surrendered, repossessed, or unable to be located, or (iii) which has been settled for less than the Outstanding Principal Balance. CHARGED-OFF LOSSES: as of the end of an Accounting Period, the Net Credit Losses recorded during the Accounting Period, divided by the Outstanding Principal of all Contracts owned by Borrower, which are not Charged-Off Contracts, expressed as a percentage. CLOSING DATE: the date on which the first Advance is made. COLLATERAL: any and all real and personal, tangible and intangible, property, whether now owned or hereafter acquired, in which Lender is granted a security interest now or hereafter, in this Agreement or otherwise, to secure Borrower's obligations to Lender. CONTRACT: an installment or conditional sale contract, with any amendments, owned or acquired by Borrower pursuant to which a Contract Debtor has: (i) purchased a new or used Motor Vehicle, (ii) granted a security interest in the Motor Vehicle to secure the Contract Debtor's payment obligations, and (iii) agreed to pay the unpaid purchase price and a finance charge in periodic installments no less frequently than monthly. CONTRACT DEBTOR: the Person that has executed a Contract as a purchaser, and any Guarantor, co-signer or other Person obligated to make payments under the Contract. CONTRACT DEBTOR DOCUMENTS: those documents as are identified on the attached Exhibit 6.3 attached hereto and made apart hereof. CONTRACT DELIVERY DOCUMENTS: the original Certificate of Title, and the original executed Contract with original Contract Debtor and Dealer signatures and bearing on its front or back surface an assignment to Lender. CONTRACT RIGHTS: with respect to Pledged Contracts, (i) Borrower's interest in the Financed Vehicle; (ii) all rights of Borrower regarding the Contract and Financed Vehicle, including but not limited to rights to electronic funds transfers and rights under all dealer agreements and purchase agreements pursuant to which the Contract was acquired by Borrower; (iii) all rights of Borrower with respect to Optional Contract Debtor Insurance, Required Contract Debtor Insurance, and any other policies of fire, theft or comprehensive insurance, collision insurance, public liability insurance or property damage insurance maintained with respect to the Financed Vehicle, the Contract, or the Contract Debtor; (iv) all rights of Borrower, if any, to prepaid dealer rate participation in connection with the Contract; (v) Remittances, and (vi) all rights of Borrower to the originals of all books, records (including electronic data), reports, files, and documents relating to the Contracts, including, but not limited to, Contract Debtor Documents, financial statements of Contract Debtors, and all payment reports or records relating to the Contracts. CONTRACT RIGHTS PAYORS: Persons, other than Contract Debtors, against whom Contract Rights can be asserted. CREDIT LINE: the dollar component in the definition of Borrowing Base (which is $70,000,000). DEALER: the seller of the Financed Vehicle to the Contract Debtor. DEALER INVOICE: as to new Financed Vehicles, the invoice prepared by the manufacturer showing the net cost; and, as to used Financed Vehicles, the Black Book wholesale average used to establish wholesale value as of the date of the contract. DEBT RATIO: the debt-to-equity ratio of Borrower, calculated on a consolidated basis and in accordance with generally accepted accounting principles, by comparing total liabilities, other than Subordinated Debt, to Net Worth. DELINQUENCY MEASUREMENT: as of the end of an Accounting Period, the sum of the Gross Outstanding Balances of all Delinquency Measurement Contracts which have at least two (2) due and partially or completely unpaid Scheduled Payments, divided by the sum of the Gross Outstanding Balances of all Delinquency Measurement Contracts; expressed as a percentage. DELINQUENCY MEASUREMENT CONTRACTS: all Pledged Contracts which do not constitute Charged-Off Contracts. DEPOSITORY ACCOUNT: a bank account owned by Lender at a bank designated by Lender for the purpose of receiving Remittances made payable to it or Borrower. ELIGIBLE CONTRACT: each Contract delivered by Borrower to Lender which is listed on a List of Contracts delivered to Lender at the same time, and which in Lender's sole determination satisfies each of the requirements set forth on Exhibit 3.1 at the time of delivery and thereafter except to the extent expressly stated in Exhibit 3.1 to apply only at delivery or only thereafter. EVENT OF DEFAULT: this term has the meaning provided in Section 15.0 of this Agreement. FINANCED VEHICLE: the new or used Motor Vehicle purchased by a Contract Debtor pursuant to a Contract, or any substituted vehicle which is properly documented and approved by Lender. GAAP: Generally Accepted Accounting Principles. GROSS CREDIT LOSSES: For any Accounting Period, the sum of all Charged-Off Contracts reflected on Borrower s general ledger, calculated in accordance with GAAP. GROSS OUTSTANDING BALANCE: the total of all remaining payments due under a Contract plus any other amount due thereunder. GUARANTORS: GENERAL ACCEPTANCE CORPORATION REINSURANCE, LTD., and any other Person who guaranties Borrower's obligations to Lender. INDEBTEDNESS: the Loan and all other amounts, including but not limited to interest, that Borrower owes Lender in connection with this Agreement. INTEREST COVERAGE: the sum of Borrower's pre-tax income plus Borrower's interest expense, compared to Borrower's interest expense, expressed as a ratio each fiscal quarter. LIBOR RATE: the average of the "one month" London Interbank Offered Rates ("LIBOR") published in the Money Rates column of the Wall Street Journal during the calendar month immediately preceding the calendar month for which interest is being calculated, or published in such other publication as Lender may designate. LINE FEE: the fee payable by Borrower to Lender at closing equal to one half of one percent (.50%) times the Credit Line. LIST OF CONTRACTS: the list delivered to Lender by Borrower with each Contract or group of Contracts which: (i) identifies each Contract being delivered by account number, the name of the Contract Debtor, the Outstanding Principal Balance, and the year, make, model, and VIN of the Financed Vehicle, and (ii) shows the total number of Contracts and the total of the Outstanding Principal Balances. LOAN: the outstanding principal amount of the Advances, plus all other amounts advanced, expended or applied by Lender under this Agreement to or for the benefit of Borrower or to perform or enforce Borrower's covenants in this Agreement. LOAN AVAILABILITY: the amount by which the Borrowing Base exceeds the Loan. LOAN DOCUMENTS: this Agreement, the Note, the guaranties signed by the Guarantors, and the Supplemental Documentation. LOCK BOX: the arrangement established by Lender at Fifth Third Bank of Central Indiana for the receipt and identification of remittances. MEASUREMENT PERIOD: each consecutive period, without overlap, of three (3) consecutive Accounting Periods beginning with the first Accounting Period. MOTOR VEHICLE: A passenger motor vehicle, van, or light duty truck which is not manufactured for a particular commercial purpose and which can be registered for use on public highways and is not a "grey market" vehicle. NET CREDIT LOSSES: For any Accounting Period, the difference between Gross Credit Losses and Recoveries, calculated in accordance with GAAP. NET WORTH: the total of shareholders' equity (including capital stock, additional paid-in capital, and retained earnings) plus Subordinated Debt, less (i) the total amount of loans and debts due from Subsidiaries, shareholders or officers, and (ii) the total amount of any intangible assets, including without limitation, goodwill. OPTIONAL CONTRACT DEBTOR INSURANCE: any insurance, other than Required Contract Debtor Insurance which insures a Financed Vehicle or a Contract Debtor's obligations under a Contract, including but not limited to credit life, credit health, credit disability, unemployment insurance; and any service contract, mechanical breakdown coverage, warranty, or extended warranty for a Financed Vehicle. OUTSTANDING PRINCIPAL BALANCE: the outstanding principal balance of a Contract calculated by subtracting the unearned finance charge from the Gross Outstanding Balance, where applicable. PERMITTED LIEN: (i) any security interest or lien at any time granted in favor of Lender; (ii) liens securing claims of materialmen, mechanics, carriers, warehousemen, landlords and other similar Persons for labor, materials, supplies or rentals incurred in the ordinary course of Borrower's business; (iii) liens resulting from deposits made in the ordinary course of business in connection with workers compensation, unemployment insurance, social security and other similar laws; (iv) liens in favor of Fifth Third Bank of Central Indiana, provided, that such liens remain subject to the terms and conditions of that certain Intercreditor Agreement dated August 26, 1996 between Fifth Third Bank of Central Indiana and the Lender, as the same may be amended from time to time; and (v) liens in favor of any lender for the sole purpose of securing the purchase price of vehicles to be used by Borrower and/or its employees in the ordinary course of Borrower s business, provided that the collective amount of the loans secured by such liens shall at no time exceed Two Hundred Thousand Dollars ($200,000.00). PERSON: any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party, or govern-ment (including, any instrumentality or division thereof). PLEDGED CONTRACT: a Contract owned on the Closing Date or in the future by Borrower which is subject to the security interest granted in Section 6.0. RECOVERIES: For any Accounting Period, the sum of all amounts received on account of previously Charged-Off Contracts, calculated in accordance with GAAP. REMITTANCES: all payments made with respect to Pledged Contracts, including, but not limited to, Scheduled Payments, full and partial prepayments, liquidation proceeds, insurance proceeds and refunds, late charges, fees (including but not limited to NSF fees and extension fees), and payments from Contract Rights Payors. REPOSSESSION INVENTORY: Motor Vehicles which have been repossessed by Borrower or any of its agents calculated at the end of each Accounting Period as the sum of all Repossession Contracts divided by the sum of all Contracts which do not constitute Charged-Off Contracts, expressed as a percentage. REQUIRED CONTRACT DEBTOR INSURANCE: insurance for physical damage to, and theft or loss of, the Financed Vehicle, having a deductible no higher than $500 and providing coverage at least equal to the actual cash value of the Financed Vehicle. RESERVE FOR LOSSES: calculated at the end of each Accounting Period as the sum of the reserve available for credit losses divided by the Outstanding Principal Balances as stated on the financial statements, expressed as a percentage. ROLLING AVERAGE CHARGED-OFF LOSSES: the weighted average of the Charged-Off Losses for any six consecutive Accounting Periods. ROLLING AVERAGE DELINQUENCY: the weighted average of the Delinquency Measurements for any six consecutive Accounting Periods. SCHEDULE OF PAYMENTS: the schedule of payments disclosed on a Contract. SCHEDULED PAYMENT: the periodic installment payment amount disclosed in the Schedule of Payments for the Contract. SKIP LOSS INVESTIGATION: an investigation initiated by Borrower of the whereabouts of a Financed Vehicle or a Contract Debtor. STATEMENT OF BORROWING BASE: a statement issued by Lender which contains the amount of the Borrowing Base, the amount of the Loan or Indebtedness, and either the amount available for Advances or the amount by which the Loan or Indebtedness exceeds the Borrowing Base. SUBORDINATED DEBT: a debt obligation of Borrower which is subordinated to Lender pursuant to a subordination agreement which is in the form of Exhibit 16 or pursuant to some other agreement approved in writing by Lender, including, but not limited to, a Debt Subordination Agreement with Malvin L. Algood, Janet Algood, Russell E. Algood and John A. Algood and with Capitol American Life Insurance Company, as the same may be amended from time to time. SUBSIDIARY: any Person, now or in the future, over which the Borrower exercises control, provided that it shall be conclusively presumed that the Borrower exercises control over any such Person 51% or more of the equity interest in which is owned by the Borrower, directly or indirectly. SUPPLEMENTAL DOCUMENTATION: all agreements, instruments, documents, certificates of title, financing statements, notices of assignment, Lists of Contracts, chattel mortgages, powers of attorney, subordination agreements, and other written matter necessary or reasonably requested by Lender to perfect and maintain perfected Lender's security interest in the Collateral or to consummate the transactions contemplated by this Agreement. UCC: Uniform Commercial Code. UNDERUTILIZATION FEE: the fee payable on a monthly basis by Borrower to Lender equal to .25% on an annualized basis, times the unused portion of the Credit Line during an Accounting Period, with the unused portion being equal to the amount by which the average daily balance of the outstanding Advances in each Accounting Period is less than the Credit Line for the Accounting Period. Section 16.1 OTHER TERMS: All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings provided in the UCC to the extent the same are defined therein. Section 16.2 ACCOUNTING TERMS. Any accounting terms used in this Agreement which are not specifically defined shall have the meanings customarily given them in accordance with GAAP. ARTICLE XVII. GENERAL TERMS AND CONDITIONS Section 17.0. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Indiana. Section 17.1. NOTICES. Any notice, request, demand, instruction or other communication to be given any party hereto in writing shall be effective upon delivery during regular business hours at the offices of Borrower and Lender hereinafter set forth or at such other offices that either party notifies the other of in writing. The failure to deliver a copy as set forth below shall not affect the validity of the notice to the Borrower or Lender. Such communications shall be given by telecopy, commercial delivery service, or sent by certified mail, postage prepaid and return receipt requested, as follows: If to Borrower: General Acceptance Corporation 1025 Acuff Road Bloomington, IN 47404 Electronic FAX (812) 337-6040 ATTN: Malvin L. Algood or Russell E. Algood If to Lender: General Electric Capital Corporation 1000 Hart Road Barrington, IL 60010 Electronic FAX (847) 304-3456 Attention: Manager, Asset Based Financing with a copy to: General Electric Capital Corporation 600 Hart Road Barrington, IL 60010 Electronic FAX (847) 304-3444 Attention: Counsel, Auto Financial Services Section 17.2. HEADINGS. Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only. The paragraph headings shall not be used in the interpretation of this Agreement. Section 17.3. SEVERABILITY. If any one or more of the provisions of this Agreement are held to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provision in every other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Section 17.4. OFFSET. Lender has the right to offset, apply, or recoup any obligation of Borrower to Lender, arising under the Loan Documents or otherwise, against any obligations or payments Lender owes to Borrower, arising under the Loan Documents or otherwise, or against any property of Borrower held by Lender. Borrower waives any right to offset, apply, or recoup against any obligation it owes to Lender. Lender is not obligated to collect any of the Contracts or pursue any of the other Collateral or any of Lender's rights at any time as a condition to payment and performance by Borrower. Section 17.5. INDEPENDENT CONTRACTOR. Borrower is an independent contractor in all matters relating to this Agreement and the Collateral and is not an agent or representative of Lender. Borrower has no authority to act on behalf of or bind Lender. Section 17.6. EXPENSES. Each party shall bear the expenses of its own performance of this Agreement. Section 17.7. MODIFICATION OF LOAN DOCUMENTS; SALE OF INTEREST. This Agreement or any exhibit attached hereto may not be modified, altered or amended, except by an agreement in writing signed by Borrower and Lender. The rights of Lender granted in or referred to in this Agreement shall apply to any modification of or supplement to the Loan Documents. Borrower may not without Lender's prior written permission sell, assign or transfer any of the Loan Documents, or any portion thereof, including, without limitation, Borrower's rights, title, interests, remedies, powers and duties thereunder. Any sale, assignment, or transfer by Borrower without Lender's permission shall be void ab initio. Borrower hereby consents to Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of any of the Loan Documents, or of any portion thereof, including, without limitation, Lender's rights, title, interests, remedies, powers and duties thereunder. The Loan Documents shall be binding upon and inure to the benefit of the permitted successors and assigns of Borrower and Lender. Section 17.8. ATTORNEYS' FEES AND LENDER'S EXPENSES. The Borrower, and/or the Guarantors to the extent not paid by the Borrower, shall reimburse the Lender on demand for all out-of-pocket costs and expenses of the Lender (including but not limited to all attorneys fees, paralegal fees and legal expenses) incurred by the Lender in connection with the drafting, negotiation, execution or enforcement of this Agreement or any other Loan Documents. Further, if, following an Event of Default, Lender shall employ counsel for advice or other representation or shall incur other costs and expenses in connection with (A) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreements executed or delivered in connection herewith, (B) any attempt to enforce, or enforcement of, any rights of Lender against Borrower or any other Person, including, without limitation, Contract Debtors, that may be obligated to Lender by virtue of any of the Loan Documents, or (C) any actual or attempted inspection, audit, monitoring, verification, protection, collection, sale, liquidation or other disposition of the Collateral; then, in any such event, the attorneys' fees arising from such services and all expenses, costs, charges and other fees (including expert's fees) incurred by Lender in any way arising from or relating to any of the events or actions described in this Section shall be payable to Lender by Borrower on demand by Lender and until paid shall be part of the Loan. All obligations provided for in this Section shall survive termination of this Agreement. Section 17.9. WAIVER BY LENDER. Lender's failure, at any time or times hereafter, to require strict performance by Borrower of any provision of this Agreement or any of the other Loan Documents shall not waive, affect or diminish any right of Lender thereafter to demand strict performance therewith. Any suspension or waiver by Lender of an Event of Default by Borrower under the Loan Documents shall not suspend, waive or affect any other Event of Default by Borrower under the Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in the Loan Documents and no Event of Default by the Borrower under the Loan Documents shall be deemed to have been suspended or waived by Lender unless such suspension or waiver is by an instrument in writing signed by a manager of Lender and identifies the matter waived or suspended. Any consent or approval by Lender pursuant to this Agreement is not a waiver by Lender of, or an admission by Lender of the truth of, any of Borrower's representations and warranties in this Agreement. Section 17.10. WAIVERS BY BORROWER. Except as otherwise provided for in this Agreement, Borrower waives (i) notice and consummation of presentment, demand, protest, dishonor, intent to accelerate, acceleration; (ii) all rights to notice and a hearing prior to taking possession or control of, or Lender's replevy, attachment or levy upon, the Collateral; (iii) any bond or security in a judicial proceeding as a condition to Lender exercising any of Lender's remedies; (iv) the benefit of all valuation, appraisement and exemption laws; and (v) TRIAL BY JURY in any dispute with Lender arising out of or related to any of the Loan Documents. The failure or delay of Borrower to strictly enforce the terms of this Agreement shall not be a waiver of Borrower's right to do so. Section 17.11. COUNTERPARTS. This Agreement may be executed in two or more counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. Section 17.12. ENTIRE AGREEMENT. This Agreement contains the entire agreement among the parties regarding the Loan by Lender to Borrower based on Contracts and supersedes all prior agreements, whether written or oral, with respect thereto. Section 17.13. STATEMENTS OF ACCOUNT. Each report, billing statement, Statement of Borrowing Base, and payment transcript which is prepared by Lender shall, except for manifest errors, be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein, and shall constitute an account stated between Borrower and Lender, unless thereafter waived in writing by Lender or unless, within thirty (30) days after Borrower's receipt of such document, Borrower delivers to Lender notice of a written objection thereto specifying the claimed error. In the event of such an error, only those items expressly objected to in such notice shall be deemed to be disputed by Borrower and Lender's only liability to Borrower shall be to issue a corrected document. Section 17.14. PUBLICITY. Borrower shall not (i) issue any press release or make any public announcement or otherwise publicize the consummation of this Agreement with Lender, or (ii) make a public disclosure of any kind regarding the subject matter hereof, or (iii) make use of Lender's name, tradename, logo or trademark without the express written consent of Lender, except that Borrower may publicly disclose information relating to this Agreement if Borrower gives Lender advance written notice prior to releasing any disclosure. Section 17.15. CONTRACT DOCUMENTS. After Lender reviews a Contract form or any other form used in connection with a Contract (collectively, the "Form") Lender may inform Borrower that the Form may not comply with certain laws or that the Form is not acceptable to Lender as an Eligible Contract form unless certain changes are made. Borrower is responsible for its use of the Forms and for any changes Borrower makes to the Forms in response to Lender's comments. Lender shall have no liability to Borrower arising from Borrower's use of, or changes to, any Form regardless of whether Lender approved the Form or the changes or whether Lender conditioned the use of the Form as an Eligible Contract form upon the changes being made. Regardless of Lender's approval of a Form or Lender's comments regarding a Form, Borrower remains obligated to Lender to conduct its business in a lawful manner, including the use of Forms which comply with applicable laws. Section 17.16. FAXED DOCUMENTS. In order to expedite the acceptance and execution of this Agreement and any of the Supplemental Documents, each of the parties hereto agrees that a faxed copy of any original executed document shall have the same binding effect on the party so executing the faxed document as an original handwritten executed copy thereof. Entered into as of: April 11, 1997 GENERAL ACCEPTANCE CORPORATION By: /s/ Russell E. Algood Print Name: Russell E. Algood Title: President & COO GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ W. Jerome McDermott Print Name: W. Jerome McDermott Title: Account Executive STATE OF ______________________ ) ) SS: COUNTY OF ____________________ ) Before me, a Notary Public in and for said County and State, personally appeared ________________________________, the duly authorized representative of General Acceptance Corporation, who acknowledged execution of the foregoing for and on behalf of said Corporation. Witness my hand and Notarial Seal this _____ day of _________________, 19____. _____________________________________ Signature _____________________________________ Printed Name My Commission Expires: _____________ Residing in ____________________ County SS-111146-5 Exhibit 11.1 GENERAL ACCEPTANCE CORPORATION Statement Re: Computation of Per Share Earnings
YEAR ENDED DECEMBER 31 ---------------------- 1996 1995 1994 ------------ ---------- ---------- HISTORICAL PRO FORMA PRO FORMA ------------ ---------- ---------- Primary: Weighted average shares outstanding 6,022,000 5,485,562 4,064,000 Net affect of dilutive stock options - based on the treasury stock method using the average market price --- 29,856 --- Adjustment for shares required to pay undistributed S Corporation earnings using the initial public offering price --- 123,548 397,961 Total weighted average shares 6,022,000 5,638,966 4,461,961 ============ ========== ========== Net income (loss) $(9,080,538) $ 716,657 $2,544,067 ============ ========== ========== Per share amount $ (1.51) $ 0.13 $ 0.57 ============ ========== ========== Fully diluted: Weighted average shares outstanding 6,022,000 5,485,562 4,064,000 Net effect of dilutive stock options - based on the treasury stock method using the period- end market price, if greater than average market price --- 29,856 --- Adjustment for shares required to pay undistributed S Corporation earnings using the initial public offering price --- 123,548 397,961 Total weighted average shares outstanding 6,022,000 5,638,966 4,461,961 ============ ========== ========== Net income (loss) $(9,080,538) $ 716,657 $2,544,067 ============ ========== ========== Per share amount $ (1.51) $ 0.13 $ 0.57 ============ ========== ========== Supplemental: Weighted average shares outstanding 4,064,000 Net effect of dilutive stock options - based on the treasury stock method using the average market price 29,856 Adjustment for shares required to pay undistributed S Corporation earnings using the initial public offering price 556,577 Adjustment for shares required to pay initial public offering costs and debt of $20,673,198 1,398,423 Unregistered shares issued as director compensation at time of initial public offering 3,000 Total weighted average shares 6,051,856 ========== Net Income $ 716,657 Reduction of interest expense, net of the related income tax benefit, because of the assumed payment, as of January 1, 1995, of a portion of borrowings under the revolving line of credit 315,028 Total $1,031,684 Per share amount $ 0.17 ==========
Exhibit 21.1 SUBSIDIARIES OF REGISTRANT SUBSIDIARY % OWNED DOMICILED IN General Acceptance Corporation Reinsurance Limited 100% Turks and Caicos Islands -----END PRIVACY-ENHANCED MESSAGE-----