SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-12
CREDIT ACCEPTANCE CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[CREDIT ACCEPTANCE LOGO]
CREDIT ACCEPTANCE CORPORATION
25505 WEST TWELVE MILE ROAD
SUITE 3000
SOUTHFIELD, MICHIGAN 48034-8339
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 2004
---------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Credit
Acceptance Corporation, a Michigan corporation, will be held at its headquarters
at 25505 West Twelve Mile Road, Southfield, Michigan 48034, on Thursday, May 13,
2004, at 9:00 a.m., local time, for the following purposes.
1. To elect six directors to serve until the 2005 Annual Meeting of
Shareholders;
2. To adopt the Credit Acceptance Corporation Incentive Compensation
Plan and approve the performance goals thereunder; and
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Shareholders of record on March 26, 2004 will be entitled to notice of and
to vote at this meeting. You are invited to attend the meeting. Whether or not
you plan to attend in person, you are urged to sign and return immediately the
enclosed Proxy in the envelope provided. No postage is required if the envelope
is mailed in the United States. The Proxy is revocable and will not affect your
right to vote in person if you are a shareholder of record and attend the
meeting.
By Order of the Board of Directors,
Charles A. Pearce
Corporate Secretary
Southfield, Michigan
April 16, 2004
[CREDIT ACCEPTANCE LOGO]
CREDIT ACCEPTANCE CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 13, 2004
---------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Credit Acceptance Corporation, a Michigan
corporation (the "Company"), to be used at the Annual Meeting of Shareholders of
the Company to be held on Thursday, May 13, 2004, for the purposes set forth in
the accompanying Notice of Annual Meeting of Shareholders and in this Proxy
Statement. This Proxy Statement and the enclosed form of Proxy were first sent
or given to security holders on or about April 16, 2004.
Only shareholders of record at the close of business on March 26, 2004 (the
"Record Date") will be entitled to vote at the meeting or any adjournment or
postponement thereof. Each holder of the 39,716,864 issued and outstanding
shares of the Company's common stock (the "Common Stock") on the Record Date is
entitled to one vote per share. The presence, either in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of Common
Stock is necessary to constitute a quorum at the Annual Meeting.
A proxy may be revoked at any time before it is exercised by giving a
written notice to the Secretary of the Company bearing a later date than the
proxy, by submitting a later-dated proxy or, if you are a shareholder of record
or hold legal authority from a shareholder of record, by voting the shares
represented by the proxy in person at the Annual Meeting. Unless revoked, the
shares represented by each duly executed, timely delivered proxy will be voted
in accordance with the specifications made. IF NO SPECIFICATIONS ARE MADE, SUCH
SHARES WILL BE VOTED FOR THE ELECTION OF DIRECTORS NAMED IN THIS PROXY STATEMENT
AND FOR THE ADOPTION OF THE INCENTIVE COMPENSATION PLAN. The Board of Directors
does not intend to present any other matters at the Annual Meeting. However,
should any other matters properly come before the Annual Meeting, it is the
intention of such proxy holders to vote the proxy in accordance with their best
judgment to the extent permitted by law.
If you withhold your vote with respect to the election of the directors or
abstain from voting on the adoption of the Incentive Compensation Plan, your
shares will be counted for purposes of determining a quorum. Withheld votes will
be excluded entirely from the vote on the election of directors and will
therefore have no effect on the election. Abstentions on the adoption of the
Incentive Compensation Plan are not treated as votes cast on the matter and
therefore will have no effect.
If you own shares through a bank or broker in street name, you may instruct
your bank or broker how to vote your shares. "Broker non-votes" occur when a
bank, broker or other nominee holder has not received voting instructions with
respect to a particular matter and the nominee holder does not have
discretionary power to vote on that matter. The election of directors is
considered a routine matter, so your bank or broker will have discretionary
authority to vote your shares held in street name on that proposal. The proposal
to approve the Incentive Compensation Plan is not considered a routine matter,
so your bank or broker will not have discretionary authority to vote your shares
held in street name on that proposal. A broker non-vote may also occur if your
broker fails to vote your shares for any reason. Broker non-votes will be
treated as shares present for quorum purposes, but not treated as votes cast at
the meeting, so they will have no effect on the outcome of any proposal.
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The expenses of soliciting proxies will be paid by the Company. In addition
to solicitation by mail, the officers and employees of the Company, who will
receive no extra compensation therefor, may solicit proxies personally or by
telephone. The Company will reimburse brokerage houses, custodians, nominees and
fiduciaries for their expense in mailing proxy materials to principals.
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 29, 2004
concerning beneficial ownership by all directors and nominees, by each of the
executive officers named in the Summary Compensation Table, by all directors and
executive officers as a group, and by all other beneficial owners of more than
5% of the outstanding shares of Common Stock. The number of shares beneficially
owned is determined under rules of the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as to
which the individual has sole or shared voting power or investment power and
also any shares which the individual has the right to acquire on February 29,
2004 or within 60 days thereafter through the exercise of any stock option or
other right. Unless otherwise indicated, each holder has sole investment and
voting power with respect to the shares set forth in the following table.
NUMBER
OF SHARES PERCENT OF
BENEFICIALLY OWNED OUTSTANDING SHARES
------------------ ------------------
Donald A. Foss...................................... 24,036,898(a) 60.8%
Brett A. Roberts.................................... 459,000(b) 1.2%
Steven M. Jones..................................... 6,000(c) *
Michael W. Knoblauch................................ 282,600(d) *
Keith P. McCluskey.................................. 83,166(e) *
Harry E. Craig...................................... 10,000(f) *
Glenda Flanagan..................................... 4,000(g) *
Daniel P. Leff...................................... -- *
Thomas N. Tryforos.................................. 4,394,682(h) 11.1%
All Directors and Executive Officers as a Group (12
persons).......................................... 29,506,355(i) 72.8%
Thomas W. Smith..................................... 4,811,300(h) 12.2%
Scott J. Vassalluzo................................. 4,140,350(h) 10.5%
Dimensional Fund Advisors, Inc. .................... 2,275,211(j) 5.8%
* Less than 1%.
(a) Shares are held by Donald A. Foss and Donald A. Foss Revocable Living Trust
dated January 26, 1984 as to which Mr. Foss is the trustee. Karol A. Foss
is the record owner of 11,968,587 of these shares of which Mr. Foss has
sole voting power and dispositive power of such shares pursuant to an
agreement dated December 6, 2001. In addition, Mr. Foss has shared voting
and dispositive power with respect to 83,166 shares which are owned by a
limited liability company in which he has a 20% interest. Mr. Foss'
business address is 25505 West Twelve Mile Road, Suite 3000, Southfield,
Michigan 48034-8339.
(b) Includes 395,000 shares which Mr. Roberts has the right to acquire upon
exercise of employee stock options.
(c) Includes 6,000 shares which Mr. Jones has the right to acquire upon
exercise of employee stock options.
(d) Includes 280,000 shares which Mr. Knoblauch has the right to acquire upon
exercise of employee stock options.
(e) Mr. McCluskey has shared voting and dispositive power with respect to
83,166 shares which are owned by a limited liability company in which he
has an 80% interest.
(f) Shares are held by the Craig Living Trust as to which Mr. Craig is the
trustee.
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(g) Ms. Flanagan became a director of the Company effective March 9, 2004.
(h) The number of shares is based on information contained in a Schedule 13-G
filed with the Securities and Exchange Commission by Mr. Thomas W. Smith,
Mr. Thomas N. Tryforos, and Mr. Scott J. Vassalluzo which reflect their
beneficial ownership of shares of Common Stock as of December 31, 2003. Mr.
Smith, Mr. Tryforos and Mr. Vassalluzo reported that they have shared
voting and dispositive power over 4,076,500 shares. Mr. Smith reported that
he has sole voting and dispositive power over 727,000 shares. Mr. Tryforos
reported that he has sole voting and dispositive power over 318,182 shares.
Mr. Vassalluzo reported that he has sole voting and dispositive power over
63,850 shares. Mr. Smith's, Mr. Tryforos', and Mr. Vassalluzo's business
address is 323 Railroad Avenue, Greenwich, Connecticut 06830. In addition,
Mr. Smith filed a Form 4 reflecting his indirect beneficial ownership of
7,800 shares of Common Stock as of February 29, 2004, which are owned by
Petra Capital Partners. Mr. Smith disclaims beneficial ownership of such
shares except to the extent of his interest in Petra Capital Partners.
(i) Includes a total of 991,000 shares which such persons have the right to
acquire upon exercise of employee stock options.
(j) The number of shares is based on information contained in a Schedule 13-G
filed with the Securities and Exchange Commission by Dimensional Fund
Advisors, Inc. ("Dimensional") which reflects its beneficial ownership of
shares of Common Stock as of December 31, 2003. Dimensional furnishes
investment advice to four investment companies and serves as investment
manager to certain other commingled group trusts and separate accounts
(collectively, the "funds"). In its role as investment advisor or manager,
Dimensional possesses voting and/or investment power over the shares and as
such may be deemed to be the beneficial owner of the shares; however, the
shares are owned by the funds and Dimensional expressly disclaims
beneficial ownership of such shares. Dimensional's business address is 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401.
MATTERS TO COME BEFORE THE MEETING
(1) ELECTION OF DIRECTORS
DESCRIPTION OF NOMINEES
Six directors, constituting the entire Board of Directors, are to be
elected at the Annual Meeting. Each director holds office until the next annual
meeting of shareholders and until his or her successor has been elected and
qualified. The nominees named below have been selected by the Board of Directors
of the Company. If, due to circumstances not now foreseen, any of the nominees
named below will not be available for election, the proxies will be voted for
such other person or persons as the Board of Directors may select. Each of the
nominees is currently a director of the Company.
The following sets forth information as to each nominee for election at the
Annual Meeting, including their age, present principal occupation, other
business experience during the last five years, directorships in other
publicly-held companies, membership on committees of the Board of Directors and
period of service as a director of the Company. The Board of Directors
recommends a vote FOR each of the nominees for election. EXECUTED PROXIES WILL
BE VOTED FOR THE ELECTION OF THE BOARD'S NOMINEES UNLESS SHAREHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES. The election of directors requires a plurality of
the votes cast.
DONALD A. FOSS; AGE 59; CHAIRMAN OF THE BOARD
Mr. Foss is the founder and principal shareholder of the Company, in
addition to owning and operating companies engaged in the sale of used vehicles.
He was formally named Chairman of the Board and Chief Executive Officer of the
Company in March 1992 and vacated the Chief Executive Officer position effective
January 1, 2002.
HARRY E. CRAIG; AGE 76; INDEPENDENT PERSONNEL CONSULTANT
Mr. Craig has been a self-employed consultant providing management training
services since 1986. Mr. Craig served in various managerial and other capacities
with Ford Motor Company for 30 years, most
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recently as Director, Personnel and Organization Office of Ford Aerospace &
Communications Corporation. Mr. Craig became a director of the Company in June
1992.
GLENDA FLANAGAN; AGE 50; EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, WHOLE FOODS MARKET, INC.
Ms. Flanagan is the Executive Vice President and Chief Financial Officer of
Whole Foods Market, Inc., the largest natural and organic foods supermarket
retailer in the United States. Ms. Flanagan joined Whole Foods Market in 1988 as
Chief Financial Officer, prior to which she held positions in public accounting,
retail and business consulting. Ms. Flanagan became a director of the Company in
March 2004.
DANIEL P. LEFF; AGE 45; MANAGING MEMBER, THE PLACID GROUP, LLC
Mr. Leff established The Placid Group, LLC in January 2004 and is its
Managing Member. Prior to establishing The Placid Group, Mr. Leff was Chief
Operating Officer of Invensys Energy Management. Prior to joining Invensys in
May 2002, Mr. Leff was Chairman and Chief Executive Officer of Enron Energy
Services, a role he was appointed to by new management following the Chapter 11
bankruptcy filing by Enron and its subsidiaries, including Enron Energy
Services, December 2001. From 1997 to 2001, Mr. Leff served in other management
capacities at Enron Energy Services, including Chief Operating Officer, Managing
Director and Vice President. Prior to 1997, Mr. Leff was President and Chief
Executive Officer of FMES, Incorporated, a company he founded in 1993 and sold
to Enron Energy Services in 1997. Mr. Leff became a director of the Company in
June 2001.
BRETT A. ROBERTS; AGE 37; CHIEF EXECUTIVE OFFICER
Mr. Roberts joined the Company in 1991 as Corporate Controller and was
named Assistant Treasurer in March 1992 and Vice President -- Finance in April
1993. He was named Chief Financial Officer and Treasurer in August 1995. He was
named Executive Vice President and Chief Financial Officer in January 1997,
Co-President in January 2000, Executive Vice President of Finance and Operations
in October 2000, Chief Operating Officer in January 2001, and to his present
position in January 2002. Mr. Roberts became a director of the Company in March
2002.
THOMAS N. TRYFOROS; AGE 44; GENERAL PARTNER OF PRESCOTT INVESTORS, INC.
Since May 1991, Mr. Tryforos has been employed as a General Partner at
Prescott Investors, Inc., a private investment firm based in Connecticut. Mr.
Tryforos became a director of the Company in July 1999.
OTHER EXECUTIVE OFFICERS
MICHAEL W. KNOBLAUCH; AGE 40; CHIEF OPERATING OFFICER
Mr. Knoblauch joined the Company in 1992. He served as the Company's
collection manager from May 1994 to August 1995. He was named Vice
President -- Collections in August 1995, Chief Operating Officer in July 1999,
Co-President in January 2000, President in October 2000, and to his present
position in January 2002.
KEITH P. MCCLUSKEY; AGE 44; PRESIDENT
Mr. McCluskey joined the Company in May 1999 as President of the Company's
auto leasing subsidiary. He was named Chief Marketing Officer in February 2001
while remaining President of the Company's auto leasing subsidiary and to his
present position in January 2002. Since June 1983, Mr. McCluskey has owned and
operated companies engaged in the sale and lease of new and used vehicles.
DOUGLAS W. BUSK; AGE 43; TREASURER AND CHIEF FINANCIAL OFFICER
Mr. Busk joined the Company in November 1996 and was named Vice President
and Treasurer in January 1997. He was named Chief Financial Officer in January
2000. Mr. Busk served as Chief Financial
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Officer and Treasurer until August 2001, when he was named President of the
Company's Capital Services unit. He resumed his duties as Chief Financial
Officer and Treasurer in December 2001.
CHARLES A. PEARCE; AGE 39; VICE PRESIDENT -- GENERAL COUNSEL AND CORPORATE
SECRETARY
Mr. Pearce joined the Company in January 1996 as general counsel. He was
named Vice President -- General Counsel in January 1997 and to his present
position in June 1999.
DAVID S. SIMMET; AGE 39; CHIEF INFORMATION OFFICER
Mr. Simmet joined the Company in August 1992 as Manager of Information
Systems. He was named Director of Information Systems in April 1995. He was
named Vice President -- Information Systems in October 1997 and to his present
position in February 2001.
STEVEN M. JONES; AGE 40; CHIEF ADMINISTRATIVE OFFICER
Mr. Jones joined the Company in October 1997 as Manager of the Debt
Recovery Department for Credit Acceptance Corporation UK Limited, in which
position he served until November 1999 when he was named Deputy Managing
Director, Credit Acceptance Corporation UK Limited. In December 2001, he was
named Managing Director Credit Acceptance Corporation UK Limited in which he was
responsible for the operations of the Company's United Kingdom business segment.
Mr. Jones was named to his present position in November 2003.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during 2003. All directors
attended at least 75% of the total number of meetings of the Board and any
committees of the board on which he or she served during 2003, which were held
during the period that he or she served. Directors are expected to use their
best efforts to be present at the annual meeting of shareholders. All of our
directors attended the 2003 Annual Meeting of Shareholders.
Standing committees of the Board during 2003 included the Executive
Compensation Committee and the Audit Committee. The members of the committees
during 2003 were Messrs. Craig, Leff, Tryforos and Sam Lafata, who retired from
the Board effective December 31, 2003. Ms. Flanagan was appointed to the Audit
Committee and the Executive Compensation Committee in April 2004. In addition,
on April 1, 2004, the Board established the Nominating Committee, comprised of
Mr. Craig, Ms. Flanagan, Mr. Leff, and Mr. Tryforos. The Board of Directors has
determined that all of the directors, other than Mr. Foss and Mr. Roberts,
including all of the members of the standing committees, are "independent
directors" as defined in Marketplace Rule 4200(a)(15) of The Nasdaq Stock Market
("Nasdaq").
The Board has adopted charters for each of the three standing committees.
The charters are available on the Company's website at www.creditacceptance.com.
In addition, the Audit Committee charter is attached to this proxy statement as
Annex A.
The Executive Compensation Committee's principal responsibilities include:
(a) reviewing on an annual basis the compensation of all executive officers of
the Company, (b) making recommendations to the Board regarding compensation of
executive officers, and (c) reviewing and administering all benefit plans
pursuant to which Company securities (including stock options) are granted to
the Company's executive officers or directors. The Executive Compensation
Committee held two meetings during 2003.
The Nominating Committee's principal responsibilities include: (a)
establishing criteria for the selection of new Board members and conducting
searches and interviews for individuals qualified to become Board members; (b)
making recommendations to the Board regarding director nominees for the next
annual shareholders meeting from the pool of identified qualified individuals;
and (c) recommending to the Board which directors should serve on the various
committees of the Board. The Nominating Committee may use various methods to
identify director candidates, including recommendations from existing Board
members, management, shareholders, search firms and other sources outside the
Company. Director candidates need not
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possess any specific minimum qualifications. Rather, a candidate's suitability
for nomination and election to the Board will be evaluated in light of the
portfolio of skills, experience, perspective and background required for the
effective functioning of the Board, as well as the Company's strategy and its
regulatory and market environments. The Nominating Committee will consider
candidates recommended by shareholders using the same procedures and standards
utilized for evaluating candidates recommended by other sources. See
"Shareholder Proposals and Nominees for 2005 Annual Meeting" for a description
of the procedures for shareholders to submit recommendations of candidates for
director.
The Audit Committee's principal responsibilities include: (a) overseeing
the integrity of the Company's financial statements and financial reporting
process, and the Company's systems of internal accounting and financial
controls; (b) overseeing the annual independent audit of the Company's financial
statements, the engagement of the independent auditors and the evaluation of the
independent auditors' qualifications, independence and performance; (c)
overseeing compliance by the Company with corporate governance, legal and
regulatory requirements, including the Company's disclosure controls and
procedures; (d) approving in advance all audit services, to ensure that a
written statement is received from the external auditors setting forth all
relationships with the Company; (e) reviewing and approving any related party
transactions; and (f) acting as the Qualified Legal Compliance Committee. The
Board of Directors has adopted a written charter for the Audit Committee, which
is included in this proxy statement as Exhibit A. The Audit Committee held eight
meetings during 2003. The Board has determined that each of the members of the
Audit Committee is "independent," as independence is defined in the applicable
Nasdaq rules for audit committee members. The Board has also determined that Mr.
Tryforos and Ms. Flanagan are "audit committee financial experts" as defined by
applicable Securities and Exchange Commission rules and that each of the Audit
Committee members satisfies all other qualifications for Audit Committee members
set forth in the applicable Nasdaq rules.
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter, the Audit Committee provides
assistance to the Board in fulfilling its responsibility to the shareholders,
potential shareholders and investment community relating to corporate
accounting, reporting practices and the quality and integrity of the financial
reports of the Company.
In discharging its oversight responsibility as to the audit process, the
Audit Committee received from the independent auditors and reviewed a formal
written statement describing all relationships between the auditors and the
Company that might reasonably be thought to bear on the auditors' independence
consistent with Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees", discussed with the auditors any
relationships that may reasonably be thought to impact their objectivity and
independence and satisfied itself as to the auditors' independence.
The Audit Committee discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees," and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed the results of the
internal audit examinations.
The Audit Committee reviewed and discussed with management and the
independent auditors the audited financial statements of the Company as of and
for the fiscal year ended December 31, 2003.
Based on the above-mentioned reviews and discussions with management and
the independent auditors, the Audit Committee recommended to the Board of
Directors that the Company's audited financial statements be included in its
Annual Report on Form 10-K for the year ended December 31, 2003 for filing with
the Securities and Exchange Commission. The Audit Committee also reappointed
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, the "Deloitte Entities") as the independent
auditors for the fiscal year ended December 31, 2004.
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AUDIT COMMITTEE:
HARRY E. CRAIG GLENDA FLANAGAN DANIEL P. LEFF THOMAS N. TRYFOROS
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders desiring to communicate with the board of directors or any
individual director may call 1-866-396-0556. Telephone calls will be taped and
summarized by the third party provider which monitors the hotline service. A
summary of the calls received will be sent to the General Counsel, the Director
of Internal Audit, the Chairman of the Audit Committee, and to any director to
whom communications are addressed.
CODES OF ETHICS
The Company has adopted codes of ethics that apply to the Company's
directors, executive officers and other employees. The codes of ethics are
available on the Company's website at www.creditacceptance.com. Shareholders may
also obtain a written copy of the codes of ethics, without charge, by sending a
written request to the Investor Relations Department, Credit Acceptance
Corporation, P.O. Box 513, Southfield, Michigan 48037. We will disclose any
amendments to, or waivers from, the provisions of the codes of ethics applicable
to our directors or executive officers on our website.
(2) PROPOSAL TO APPROVE THE CREDIT ACCEPTANCE CORPORATION INCENTIVE
COMPENSATION PLAN
On April 1, 2004, the Board of Directors unanimously approved the Incentive
Compensation Plan ("Proposed Plan"), subject to shareholder approval. The
Proposed Plan is intended to attract, motivate and retain highly competent,
effective and loyal employees and non-employee directors in order to create per
share intrinsic value for shareholders.
The Board of Directors recommends a vote FOR the approval of the Plan.
EXECUTED PROXIES WILL BE VOTED FOR THE APPROVAL OF THE PROPOSED PLAN UNLESS
SHAREHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES. Approval of the Proposed Plan
requires the affirmative vote of a majority of the votes cast by the holders of
shares entitled to vote on the proposal.
The Proposed Plan, if approved by shareholders, is intended to replace the
1992 Stock Option Plan (the "1992 Plan") and the Company's Director Stock Option
Plan (the "Director Plan"). A total of 1,000,000 shares of Common Stock have
been set aside for issuance under the Proposed Plan. The 1992 Plan and the
Director Plan have a combined 1,749,335 shares available for grant as of
February 29, 2004. If the Proposed Plan is approved by shareholders, the Board
of Directors intends to terminate the 1992 Plan and the Director Plan as to
future grants so that the shares currently available for grants under these plan
would no longer be available.
GENERAL. The Proposed Plan provides for the grant of restricted stock,
restricted stock units, nonqualified stock options, incentive stock options, and
performance awards, including cash, at any time prior to April 1, 2014. A total
of 1,000,000 shares of Common Stock have been set aside for issuance under the
Proposed Plan. This amount is subject to adjustment for stock splits and certain
other corporate events. Approximately 700 full time employees and four
non-employee directors of the Company would be eligible to receive grants under
the Proposed Plan, if the plan were in place today.
ADMINISTRATION. The Proposed Plan will be administered by the Executive
Compensation Committee of the Board (the "Compensation Committee"). Unless
otherwise specified in the Proposed Plan, the Compensation Committee has the
power to select the recipients of awards and has broad power to determine the
terms of awards and to change such terms in various ways subsequent to grant,
including among others, accelerating the exercisability of options or lapse of
transfer restrictions, waiving or modifying performance conditions and transfer
restrictions, and extending the post-termination exercise period of options. The
Board is permitted by the Proposed Plan to amend or terminate the Proposed Plan
at any time without shareholder approval, although requirements of the Nasdaq
and applicable law restrict its ability to amend the Proposed Plan
7
without shareholder approval when the amendment would increase the number of
shares available under the Proposed Plan, change the provisions relating to
eligibility for grants or would otherwise be material.
The Compensation Committee may delegate to one or more officers or managers
the authority to grant awards and to otherwise act with respect to awards made
to participants who are not officers or directors of the Company for purposes of
Section 16 of the Securities Exchange Act of 1934.
RESTRICTED STOCK AWARDS AND RESTRICTED STOCK UNITS. The Proposed Plan
provides for the grant of restricted shares or restricted stock units. A
restricted stock unit is the right to receive restricted shares or an equivalent
value in cash. Restricted shares and restricted stock units will initially be
non-transferable but will become transferable upon fulfillment of conditions
established by the Compensation Committee at the time of grant. An award of
restricted stock or restricted stock units may also be subject to vesting or
other restrictions, which may include performance goals. All of the terms
relating to vesting or other restrictions, including performance goals, the
length of any performance period, and the termination of the restriction period
relating to a restricted stock award or restricted stock unit, will be
determined by the Compensation Committee and set forth in the agreement relating
to such restricted stock award or restricted stock unit. The holder of
restricted shares or shares subject to a restricted stock unit will have rights
as a shareholder of the Company, including the right to vote and receive
dividends with respect to such shares.
PERFORMANCE GOALS. In its discretion, the Compensation Committee may
designate any grant of restricted stock or restricted stock units to any
Proposed Plan participant as intended to satisfy the requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Restrictions on transfer relating to such restricted stock or
restricted stock units would lapse upon completion of written objective
performance goals using one or more of the following criteria: (i) economic
profit; (ii) earnings per share; (iii) operating income; (iv) net income;
(v) revenue; (vi) book value per share; (vii) return on capital; (viii)
total loan originations; (ix) origination quality measures, such as
charge-off rates, collection rates, dollars collected or similar measures;
(x) loan performance measures, such as charge-off rates, collection rates,
dollars collected; (xi) annual profitability; and (xii) market
capitalization. The performance period may be a one, two, three, four or
five fiscal year period, determined by the Compensation Committee. Grants
of restricted stock and restricted stock units that are intended to satisfy
Code Section 162(m) will be subject to a formula to be approved by the
Compensation Committee and shareholders in accordance with Treasury
regulations under Code Section 162(m). A performance-based restricted stock
award or restricted stock unit shall not be paid until the Compensation
Committee has certified in writing that the applicable performance goals
have been attained.
OPTIONS. Options granted under the Proposed Plan may be either incentive
stock options under Section 422 of the Code or nonqualified stock options. The
terms of options granted under the Proposed Plan will be set forth in an
agreement between the Company and the recipient and will be determined by the
Compensation Committee, unless specified in the Proposed Plan. The exercise
price will not be less than the fair market value of the shares on the date of
grant. The fair market value per share of the Common Stock on March 31, 2004 was
$18.99. The exercise price must be at least 110% of fair market value if the
recipient is the holder of more than 10% of the Company's stock.
Options granted under the Proposed Plan become exercisable at such times as
the Compensation Committee may determine and will expire not later than ten
years after grant. The aggregate fair market value, determined on the grant
date, of stock with respect to which incentive stock options may first become
exercisable for a holder during any calendar year may not exceed $100,000. The
maximum number of shares that may be subject to option grants under the Proposed
Plan to any salaried employee during any two-year period is 500,000 (subject to
adjustment for stock splits and other corporate events). Payment for shares to
be acquired upon exercise of options granted under the Proposed Plan may be made
in cash, by check or, at the discretion of the Compensation Committee, as set
forth in the related option agreement, a holder may exercise an option through a
cashless exercise procedure whereby the holder provides an option exercise
notice to the Company and simultaneously irrevocably instructs a broker to sell
a sufficient number of the shares from the option exercise to pay the option
exercise price and accompanying taxes. In addition, at the Compensation
8
Committee's discretion, shares held by the holder for at least six months may be
tendered to the Company to pay the exercise price and tax withholding
obligations, if any.
PERFORMANCE AWARDS. The Proposed Plan also provides for the grant of
performance awards. A performance award is a right, contingent upon the
attainment of performance goals within a specified performance period, to
receive cash, shares of Common Stock, which may be restricted stock, or a
combination of both. All of the terms relating to the satisfaction of
performance goals, the length of any performance period, the amount of any
performance award granted, the amount of any payment or transfer to be made
pursuant to any performance award, and any other terms and conditions of any
performance award, including the effect upon such award of termination of the
recipient's status as an employee or director, will be determined by the
Compensation Committee and included in an agreement between the recipient and
the Company. The holder of performance awards who receive the award in the form
of restricted stock will have rights as a shareholder of the Company, including
the right to vote and receive dividends with respect to such shares, but will be
prohibited from transferring the stock until the satisfaction of the performance
goals.
PERFORMANCE GOALS. In its discretion, the Compensation Committee may
designate any performance award to any Proposed Plan participant as
intended to satisfy the requirements of Code Section 162(m). Restrictions
on transfer of the award will lapse and the award will be payable upon
completion of written objective performance goals using one or more of the
following criteria: (i) economic profit; (ii) earnings per share; (iii)
operating income; (iv) net income; (v) revenue; (vi) book value per share;
(vii) return on capital; (viii) total loan originations; (ix) origination
quality measures, such as charge-off rates, collection rates, dollars
collected or similar measures; (x) loan performance measures, such as
charge-off rates, collection rates, dollars collected; (xi) annual
profitability; and (xii) market capitalization. The performance period may
be a one, two, three, four or five fiscal year period, determined by the
Compensation Committee. Grants of performance awards that are intended to
satisfy Code Section 162(m) will be subject to a formula to be approved by
the Compensation Committee and shareholders in accordance with Treasury
regulations under Code Section 162(m). A performance award under Code
Section 162(m) shall not be paid until the Compensation Committee has
certified in writing that the applicable performance goals have been
attained.
CHANGE IN CONTROL AND TERMINATION. Unless otherwise provided in the
applicable agreement, any portion of an option which is not yet exercisable will
be forfeited if the holder's status as an employee or director is terminated for
any reason, and any portion of a restricted stock grant or restricted stock unit
which is not yet transferable and any portion of a performance share award with
respect to which performance goals have not yet been achieved will be forfeited
if the holder's status as an employee or director is terminated for any reason.
Unless the relevant agreement otherwise provides, the exercisable portion
of an option will terminate at various times after the holder's status as an
employee or director terminates, based upon the reason for the termination. If
status is terminated for cause, any unexercised portion of an option immediately
terminates. If status terminates due to death or disability, then the option is
exercisable until the earlier of the date the option would otherwise have
terminated or the first anniversary of such death or disability. If the option
is a nonqualified stock option and (1) status terminates due to retirement, or
(2) the holder is terminated involuntarily (other than for cause or due to death
or disability) within six months following a change in control, then the
exercisable portion of the option may be exercised until the option would
otherwise have expired in the absence of termination. If status terminates for
any other reason, then the option terminates when the option otherwise expires
or three months after termination of status, whichever is earlier. The
Compensation Committee, however, has discretion under the Proposed Plan to
accelerate the exercisability of options, extend the exercise period of an
option (but not past the tenth anniversary of the grant date) and waive the
restrictions or conditions applicable to restricted stock, restricted stock
units or performance share awards, and such acceleration and waiver will occur
automatically upon a "change in control" of the Company (as defined in the
Proposed Plan).
9
INCOME TAX CONSEQUENCES. Under the Code as now in effect, at the time an
incentive stock option is granted or exercised, the holder will not be deemed to
have received any income, and the Company will not be entitled to a deduction.
The difference between the exercise price and the fair market value of the
shares on the date of exercise is a tax preference item, which may subject the
holder to the alternative minimum tax in the year of exercise. The holder of an
incentive stock option generally will be accorded capital gain or loss treatment
on the disposition of the stock acquired upon exercise, provided the disposition
occurs more than two years after the date of grant and more than one year after
exercise. A holder who disposes of shares acquired by exercise of an incentive
stock option prior to the expiration of the foregoing holding periods realizes
ordinary income upon the disposition equal to the difference between the
exercise price and the lesser of the fair market value of the shares on the date
of exercise or the disposition price. To the extent ordinary income is
recognized by the holder, the Company is permitted to deduct a corresponding
amount as compensation expense.
Upon the exercise of a nonqualified stock option, a holder will generally
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise. Upon withholding for
income and employment taxes, the Company will receive a corresponding
compensation deduction. When the holder disposes of the shares acquired upon
exercise of the option, any amount received in excess of the fair market value
of the shares on the date of exercise will be treated as a capital gain.
A participant who receives a restricted stock, restricted stock unit or
performance share award recognizes ordinary income equal to the fair market
value of the stock on the date the restrictions lapse, in the case of restricted
stock and restricted stock units, or the date on which any cash payment is
received, as applicable, and, upon withholding for income and employment taxes,
the Company will receive a compensation tax deduction equal to the ordinary
income realized by the participant.
2004 ANNUAL BONUS FOR THE CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF
OPERATING OFFICER AND CHIEF ADMINISTRATIVE OFFICER UNDER THE PROPOSED
PLAN. Subject to shareholder approval of the Proposed Plan, on February 9, 2004
the Compensation Committee approved the bonus formula for the year ending
December 31, 2004 for the Chief Executive Officer, President, Chief Operating
Officer and Chief Administrative Officer, as intended to satisfy the
requirements of Section 162(m) of the Code. The Company's Chairman has currently
elected not to receive a bonus under the Proposed Plan. The 2004 bonus formula
for these officers has two components:
(1) Annual cash bonuses based on improvement in economic profit
(2) Annual equity awards based on improvement in economic profit
CASH BONUS AWARDS. For the year ending December 31, 2004, the annual
bonuses of the Chief Executive Officer, President, Chief Operating Officer
and Chief Administrative Officer under the Proposed Plan will be determined
using a formula based on the improvement in the Company's economic profit
in 2004. Economic profit, for purposes of the annual bonus formula, is
calculated by subtracting a cost of equity from reported net income, after
adjusting for non-recurring items and stock options.
The cost of equity is computed as 10% of average equity, which
approximates the S&P 500's rate of return since 1965.
Adjustments for non-recurring items for 2003 included the foreign
exchange loss due to the fair value recognition of forward contracts, a
reduction in Michigan single business tax expense resulting from a
reduction in the amount of income apportioned to the state of Michigan,
impairment expenses associated with the Company's decision to liquidate the
United Kingdom operation, and interest income from the Internal Revenue
Service.
Future adjustments for non-recurring items will be approved by the
Compensation Committee and will typically be consistent with non-recurring
items presented in the Company's quarterly earnings releases.
For purposes of determining economic profit, the Company adds back the
expense for stock options calculated in accordance with SFAS No. 123 and
instead records an expense that the Company believes
10
is a more accurate reflection of the actual economic cost of stock options.
This expense is calculated in a manner consistent with the treatment of
stock options outlined in a memorandum on this topic titled Credit
Acceptance's Practice Regarding Stock Compensation, which is posted in the
investor relations section of the Company's website. The formula used to
calculate the expense is as follows:
(Grant price) x (number of options) x (10%) = economic cost of
outstanding stock options
The calculation of 2003 economic profit on this basis is as follows
(in thousands):
Net income, as reported..................................... $ 28,181
Foreign exchange loss on forward contracts................ 1,831
Reduction in Michigan single business tax................. (307)
United Kingdom impairment expense......................... 7,238
Interest income from the Internal Revenue Service......... (400)
--------
Net income, as adjusted for non-recurring items............. 36,543
Plus: stock compensation expense recognized, net of tax... 2,343
Less: economic cost of outstanding stock options.......... (3,209)
Less: cost of equity...................................... (33,938)
--------
Economic profit............................................. $ 1,739
========
The cash component of each of the executive's annual bonus will be
calculated as a fixed percentage of the improvement in the Company's
economic profit from the prior year to the current year.
EQUITY AWARDS. Equity awards are intended to reward longer-term
business performance. Future equity awards are intended to be made in the
form of restricted stock. Future restricted stock awards will be calculated
as a fixed multiple of the cash component of the annual bonus as calculated
above, and will be reduced by the average economic cost of options held by
the individual during the year, calculated using the formula detailed above
and an effective tax rate of 35%. The Company deducts the economic cost of
an individual's outstanding stock options in the calculation of the
restricted stock component of each individual's annual bonus in order to
fix the annual cost of equity compensation at the amount earned under the
formulae determined pursuant to the Proposed Plan and to properly recognize
the true carrying cost to the Company of outstanding stock options. The
number of restricted shares granted as a part of the annual bonus will be
determined by dividing the value of the restricted stock awarded by the
market price per share of the Common Stock on the date of grant.
Restricted stock will vest based on the attainment of annual earnings
per share ("EPS") equal to or greater than 2 times the EPS attained in the
year the grant was earned (the "EPS Target"). The vesting occurs in full if
the EPS Target is attained within 5 years. If such EPS Target is attained
in year 6 or year 7, the percentage of restricted shares which vest is
reduced to 50% and 25%, respectively. The restricted shares are forfeited
if the EPS Target is not attained within 7 years.
11
2004 BONUS FORMULA. The annual bonus and restricted stock formulas,
under the 2004 Plan, for the Chief Executive Officer (CEO), President,
Chief Operating Officer (COO) and Chief Administrative Officer (CAO) are as
follows:
CEO PRESIDENT COO CAO
--- --------- --- ---
Cash component of annual bonus:
Percentage of improvement in economic
profit................................... 5.0% 4.0% 2.5% 2.0%
Restricted stock component of annual bonus:
Multiple of the cash component.............. 3.5 3.5 1.5 1.5
Less: the economic cost of unexercised stock
options (in thousands) (A)............... $1,222 $937 $537 $227
(A)- Based on unexercised stock options outstanding as of February 29,
2004.
For example, if the Company's economic profit increases by $8 million
in 2004, the Chief Executive Officer would receive a cash bonus of $400,000
and a restricted stock bonus of $178,000. The annual bonus in this example
would be calculated as follows (in thousands):
Cash component of annual bonus:
2004 economic profit...................................... $ 9,739
Less: 2003 economic profit................................ (1,739)
-------
Improvement in economic profit......................... 8,000
Bonus percentage.......................................... 5%
-------
Cash bonus............................................. $ 400
=======
Restricted stock component of annual bonus:
Cash bonus................................................ $ 400
Bonus multiple............................................ 3.5
-------
Restricted stock bonus before stock option
adjustment............................................ 1,400
Less: economic cost of outstanding stock options.......... (1,222)
-------
Restricted stock bonus................................. $ 178
=======
The cash awards will be paid and restricted stock grants will be made
following the release of audited financial statements in early 2005.
The actual amounts to be paid pursuant to the 2004 bonus formula are
dependent on 2004 performance and are not currently determinable. The
example used above has been provided for illustrative purposes only and
should not be construed as an estimate or projection of actual results of
the Company for 2004 or amounts actually to be paid out under the Proposed
Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THIS PROPOSAL.
12
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY
The following table sets forth certain summary information for the years
indicated concerning the compensation awarded to, earned by, or paid to the
Chief Executive Officer, and the other four most highly compensated executive
officers of the Company (based on combined salary and bonus for 2003)
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM
----------------------------------------- COMPENSATION
OTHER ANNUAL AWARDS SECURITIES ALL OTHER
NAME AND SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(A) ($)(B) OPTIONS/SARS(#) ($)(C)
------------------ ---- -------- -------- ------------ ----------------- ------------
Donald A. Foss......... 2003 $475,000 $ -- $ -- -- $ 625
Chairman of the Board 2002 475,000 -- -- -- 625
2001 475,000 -- 12,313 -- 625
Brett A. Roberts....... 2003 $386,000 $240,000 $ -- -- $ 625
Chief Executive
Officer 2002 308,000 -- -- 452,469 625
2001 305,000 274,300 -- -- 625
Michael W. Knoblauch... 2003 $259,000 $155,000 $ -- -- $ 625
Chief Operating
Officer 2002 258,000 -- -- 100,000 625
2001 255,000 227,200 -- -- 625
Keith P. McCluskey..... 2003 $254,000 $152,000 $ -- -- $ --
President 2002 253,000 -- -- -- --
2001 233,000 36,000 14,063 1,000,000 32,816
Steven M. Jones........ 2003 $243,000 $135,000 $ -- 120,000 $80,461
Chief Administrative 2002 183,000 16,000 -- -- 18,343
Officer 2001 127,000 14,000 -- 30,000 12,698
(a) Annual bonus amounts are earned and accrued during the fiscal years
indicated and paid in subsequent years. See "Compensation of Executive
Officers -- Report of the Executive Compensation Committee."
(b) The amount disclosed in this column for Mr. Foss consists of automobile
allowances of $9,746 and a related tax "gross up" of $2,567. The amount
disclosed in this column for Mr. McCluskey consists the tax "gross up" on a
loan that began to accrue interest on January 1, 2002. See "Certain
Relationships and Transactions -- Indebtedness".
(c) The amounts disclosed in this column for Mr. Foss, Mr. Roberts, and Mr.
Knoblauch consist of the Company's matching contribution for the 401(k)
Profit Sharing Plan. The amount disclosed in this column for Mr. McCluskey
consists of reimbursed relocation expenses. The 2003 amount in this column
for Mr. Jones consists of the Company's retirement contribution of $34,286,
reimbursed relocation expenses of $34,461, and reimbursed housing expenses
of $11,714. The 2002 and 2001 amounts disclosed in this column for Mr.
Jones consist of the Company's retirement contributions.
13
OPTIONS
The following table provides information on options granted in 2003 to the
Named Executive Officers, which were granted under the Company's 1992 Stock
Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(B)
OPTIONS/ EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME SARS GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ------------ ------------ -------------- ---------- ------------ --------------
Donald A. Foss......... -- --% $ -- -- $ -- $ --
Brett A. Roberts....... -- -- -- -- -- --
Steven M. Jones........ 120,000(a) 86.6 10.33 11/17/2013 779,200 1,974,647
Michael W. Knoblauch... -- -- -- -- -- --
Keith P. McCluskey..... -- -- -- -- -- --
(a) These options vest based upon the Company attaining specific levels of
Economic Profit, or immediately upon a change of control of the Company.
Refer to "Economic Profit" under Item 7 in the Company's Annual Report
filed on Form 10-K for further information on Economic Profit.
(b) Represents the value of such option at the end of its 10-year term (without
discounting to present value), assuming the market price of the Common
Stock appreciates from the exercise price beginning on the grant date at an
annually compounded rate of 5% or 10%. These amounts represent assumed
rates of appreciation only, in accordance with SEC rules. Actual gains, if
any, will be dependent on overall market conditions and on the future
performance of the Common Stock. There can be no assurance that the price
appreciation reflected in this table will be achieved.
The following table provides information with respect to the options
exercised during 2003 and the unexercised options held as of December 31, 2003
by the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBERS OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END($) (A)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Donald A. Foss............ -- $ -- -- -- $ -- $ --
Brett A. Roberts.......... 30,000 106,456 395,000 552,469 2,721,325 3,786,157
Steven M. Jones........... -- -- 6,000 144,000 43,590 745,560
Michael W. Knoblauch...... 20,000 65,010 280,000 200,000 2,155,600 1,666,000
Keith P. McCluskey........ -- -- -- 1,000,000 -- 8,995,000
(a) Values are based on the December 31, 2003 average of the high and low price
of $15.09 per share on The Nasdaq Stock Market's National Market.
EMPLOYMENT AGREEMENT
Effective April 19, 2001, the Company entered into an employment agreement
with Mr. McCluskey as Chief Marketing Officer, which replaced the prior
agreement dated May 29, 1999. Under the terms of this agreement, Mr. McCluskey
is to be paid an annual base salary of $250,000 and is entitled to participate
in the bonus program and the other fringe benefit programs for salaried
employees. In addition, Mr. McCluskey was granted 1,000,000 options with an
exercise price of $6.09 under the Company's 1992 Stock Option Plan, with vesting
of such options subject to the Company achieving certain performance criteria,
and was provided a
14
$478,000 loan. Refer to "Indebtedness" section for further information on the
terms of this agreement. The term of this employment agreement will continue
indefinitely, with a right of termination by either the Company or Mr. McCluskey
under any circumstances upon 30 days written notice. Upon such termination the
Company is obligated to pay Mr. McCluskey all salary and other compensation
accrued through and including the date of such termination, and any options
which have not yet vested and become exercisable shall be cancelled. In the
event of a "change of control" of the Company (as defined in the 1992 Stock
Option Plan), each option shall be cancelled in exchange for payment in cash of
an amount equal to the excess of the change of control price (as defined in Mr.
McCluskey's option agreement) over the exercise price thereof, unless such
option is honored or assumed, or new rights substituted therefor immediately
following the change of control.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee, comprised of directors who are not
employees of the Company, annually reviews and makes recommendations to the
Board of Directors regarding executive compensation for the Chief Executive
Officer and other top officers of the Company as well as reviews and gives input
into the compensation philosophies and programs for all employees. It is the
philosophy of the Compensation Committee that the executive compensation program
should align the financial interests of the Company's executives with the long
term interests of the Company and its shareholders and should attract and retain
qualified executives to lead the Company toward its goals. The key elements of
the Company's current program include a base salary, a bonus based on the
Company's financial and operational performance and, where applicable, on that
executive's performance, and equity participation through grants of stock
options and restricted shares. The Compensation Committee delegates compensation
decisions for other executive officers to their direct supervisors.
BASE SALARY. The Compensation Committee, based on a variety of factors,
including individual performance, competitive practices and industry norms, has
reviewed the Company's compensation policy and has set the base salaries for the
top executive officers consistent with this policy. The Company's policy is to
establish base compensation levels for executives that are competitive with
other companies representing labor markets where the Company competes for
business and employment, including consumer finance, finance/banking, or
cross-industry sectors. Within these industries, the focus is on companies of
comparable size. Several of these companies are included in the Dow
Jones -- Diversified Financial Services Industry Group, the Company's peer group
used in the stock performance graph. See "Stock Performance Graph". Factors
taken into consideration include the executive's responsibilities, skills and
individual performance. Salaries are reviewed annually and are adjusted based on
the recommendation of management.
BONUS. Early in 2003, the Compensation Committee approved the basis upon
which bonus awards to executive officers would be granted for 2003. The bonus
awards for the Chief Executive Officer, Chief Operating Officer and President
were based on the Company's achievement of predefined business measures that
directly impact economic profit, including profitability, loan origination
quality, growth in the number of loans originated, and loan portfolio
performance. "Economic profit" is described in detail in the Company's Annual
Report on Form 10-K. Generally, for the other executive officers, the formula
was based upon the Company's achievement of the same predefined business
measures and upon accomplishing predefined individual and departmental
objectives. The Compensation Committee believes that bonus awards based on
measures that directly impact economic profit properly align the executives'
incentives with the Company's performance, because the Compensation Committee
believes that improvements in economic profit will create increased shareholder
value.
STOCK OPTIONS. Under the 1992 Stock Option Plan, the Compensation
Committee may grant options to purchase Common Stock to employees of the
Company, including executive officers. Option grants have an exercise price
equal to the fair market value of the Common Stock on the grant date and become
exercisable either over a period of time or if the Company attains specified
levels of economic profit or earnings per share. It is the Compensation
Committee's policy that the vesting schedule for option grants be predominantly
performance-based, with appropriately aggressive vesting targets. When
structured in this way, the Compensation Committee believes that the options
properly align the interests of management and shareholders by
15
rewarding management only for exceptional business performance. Beginning in
2002, the Company issued options only after shares had first been repurchased in
the open market. In all cases, the option is priced at or above the average
price of the repurchased shares. Generally, the Compensation Committee considers
the making of option grants on an annual basis. The number of options awarded
and the related vesting criteria are generally determined based upon
management's recommendation and are generally based upon the position held by an
executive, that executive's performance and contributions to the Company over
the prior year and the executive's expected future contribution. Stock options
for 120,000 shares of Common Stock were granted to Mr. Jones in November 2003
upon his promotion to Chief Administrative Officer. There were no options
granted to other executive officers in 2003.
Beginning in 2004, if the new Incentive Compensation Plan, described
elsewhere in the proxy statement, is approved by shareholders, the Compensation
Committee intends to use primarily restricted stock grants rather than stock
options to provide an equity compensation component for executive officers.
These grants will be an integrated component of the Company's variable
compensation program, which provides both a short-term incentive, paid in cash,
and a long-term incentive, paid in restricted stock. The Compensation
Committee's current intention, subject to shareholder approval of the Proposed
Plan, is that restricted stock grants to the Chief Executive Officer, President,
Chief Operating Officer and Chief Administrative Officer would be made annually
with grant amounts based on the achievement of increases in economic profit. In
addition, the Compensation Committee's current intention, subject to shareholder
approval of the Proposed Plan, is that restricted stock grants to other
employees would be made annually with grant amounts based on the achievement of
both individual and company performance targets. Vesting schedules for these
grants would be based on meeting earnings per share targets established by the
Compensation Committee. The earnings per share targets currently established are
equal to twice the earnings per share amount for the fiscal year immediately
preceding the year of grant.
THE CHIEF EXECUTIVE OFFICER'S 2003 COMPENSATION. Mr. Roberts, the
Company's Chief Executive Officer, is compensated on a basis similar to that
described above. Mr. Roberts' base salary was increased from $308,000 to
$400,000 based on external labor market data for chief executive officers in
similarly sized companies, in similar industries, or in other successful
companies. Early in 2003, the Compensation Committee approved the basis upon
which bonus awards to Mr. Roberts would be made. The bonus award for Mr. Roberts
was based on the Company's achievement of predefined business measures that
directly impact economic profit including profitability, loan origination
quality, growth in the number of loans originated, and loan portfolio
performance. The amount shown in the Summary Compensation Table includes the
full amount earned for 2003 based on the above formula.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) of the Internal
Revenue Code of 1986, as amended, restricts the deductibility of executive
compensation paid to the Company's Chief Executive Officer and any of the four
other most highly compensated executive officers at the end of any fiscal year
to not more than $1 million in annual compensation (including gains from the
exercise of certain stock option grants). Certain performance-based compensation
is exempt from this limitation if it complies with the various conditions
described in Section 162(m). The 1992 Stock Option Plan contains a restriction
on the number of options that may be granted which is intended to cause
compensation realized in connection with the exercise of options granted under
the Option Plan to comply with these conditions and be exempt from the Section
162(m) restriction on deductibility.
The Compensation Committee believes that other components of the Company's
compensation program may result in payments to executive officers that would
exceed the restriction on deductibility. Accordingly, the Company is structuring
the shareholder approval of the Proposed Plan so that compensation paid
thereunder will qualify for an exemption from the Section 162(m) restriction on
deductibility. The Compensation Committee intends to continue to evaluate from
time to time the advisability of qualifying future executive compensation
programs for exemption from the Section 162(m) restriction on deductibility.
EXECUTIVE COMPENSATION COMMITTEE:
HARRY E. CRAIG GLENDA FLANAGAN DANIEL P. LEFF THOMAS N. TRYFOROS
16
DIRECTOR COMPENSATION
For 2003, all outside Board members received $1,500 for each Board meeting
attended plus $500 for each committee meeting attended and were reimbursed for
travel related expenses. Non-employee directors are also eligible to participate
in the Company's Director Stock Option Plan, which permits the board to grant
stock options to these directors at their discretion. No options were granted
under this plan in 2003. In March 2004, upon her appointment as director, Ms.
Flanagan was granted stock options for 100,000 shares of Common Stock with an
exercise price of $17.25 per option, the fair market value of the Company's
Common Stock on the date of grant. Ms. Flanagan's stock options expire in 2014,
and vest in four portions based on the Company's achievement of four tiered
economic profit targets or immediately upon a change in control of the Company.
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on the Company's Common Stock during the period beginning on
January 1, 1999 and ending on December 31, 2003 with the cumulative total return
on the Nasdaq Market index and a peer group index based upon the approximately
100 companies included in the Dow Jones -- Diversified Financial Services
Industry Group. The comparison assumes that $100 was invested on December 31,
1998 in the Company's Common Stock and in the foregoing indices and assumes the
reinvestment of dividends.
[PERFORMANCE GRAPH]
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Credit Acceptance
Corporation $100.00 $ 50.43 $ 82.05 $121.71 $ 87.26 $209.23
Peer Group 100.00 126.12 154.83 141.54 113.19 154.94
Nasdaq Market Index 100.00 176.37 110.86 88.37 61.64 92.68
17
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In the normal course of business, the Company has maintained business
relationships and engaged in certain transactions with companies owned by Donald
Foss, the Company's majority shareholder and Chairman (the "Foss Companies"),
and with certain automotive dealerships owned by Keith McCluskey, the Company's
President (the "McCluskey Dealerships").
CONTRACT ASSIGNMENTS
The Company regularly accepts retail automobile installment contracts
(referred to as "Loans") originated by the Foss Companies, which totaled
approximately $14.5 million in 2003, or 1.8% of the $814.2 million in Loans
originated by the Company in 2003. The total outstanding Loans originated by the
Foss Companies represented approximately 2.0% of gross Loans receivable as of
December 31, 2003. The Company accepts Loans from the Foss Companies on the same
terms as those accepted from unaffiliated dealers.
The Company also regularly accepts Loans originated by the McCluskey
Dealerships, which totaled approximately $6.6 million in 2003, or 0.7% of the
$814.2 million in Loans originated by the Company in 2003. The total outstanding
Loans originated by the McCluskey Dealerships represented approximately 0.7% of
gross Loans receivable as of December 31, 2003. The Company accepts Loans from
McCluskey Dealerships on the same terms as those accepted from unaffiliated
dealers.
INDEBTEDNESS
Pursuant to an employment agreement with Mr. McCluskey dated April 19,
2001, the Company loaned the McCluskey Dealerships $850,000. The note, including
all principal and interest, is due on April 19, 2011, bears interest at 5.22%,
is unsecured, and is personally guaranteed by Mr. McCluskey. As of February 29,
2004, the balance of the note including accrued but unpaid interest was
approximately $1,062,000, which was the highest amount outstanding since the
beginning of 2003. In addition, in 2001 pursuant to the employment agreement,
the Company loaned Mr. McCluskey approximately $478,000. The note, including all
principal and interest, is due on April 19, 2011, bears interest at 5.22%,
beginning January 1, 2002, and is unsecured. As of February 29, 2004 the balance
of the note including accrued interest was approximately $533,000.
OTHER
The Company paid for air transportation services provided by a company
owned by the Company's majority shareholder and Chairman totaling $159,000 for
the year ended December 31, 2003.
Beginning in 2000, the Company offered a line of credit arrangement to
certain dealers who were not participating in the Company's core business. These
lines of credit are secured primarily by loans originated and serviced by the
dealer, with additional security provided by the personal guarantee of the
dealership's owner. The Company ceased offering this program to new dealers in
the third quarter of 2001 and has been reducing the amount of capital invested
in this program since that time. Beginning in 2002, entities owned by Mr. Foss
began offering secured line of credit loans in a manner similar to the Company's
prior program, at his dealerships and at two other dealers, one of whom also
does business with the Company. Mr. Foss does not intend to expand his line of
credit lending activities to additional dealers, except to dealerships which he
owns or controls.
INDEPENDENT ACCOUNTANTS
GENERAL
The Audit Committee has appointed the Deloitte Entities as the Company's
independent accountants to audit the consolidated financial statements of the
Company for 2004. The Deloitte Entities has served as the Company's independent
accountants since 1998. Representatives of the Deloitte Entities will be present
at the meeting to respond to questions from the shareholders and will be given
the opportunity to make a statement.
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FEES PAID TO INDEPENDENT ACCOUNTANTS
The following table provides a summary of the aggregate fees billed by the
Deloitte Entities in 2003 and 2002:
2003 2002
---------- ----------
Audit fees(1)............................................... $ 764,000 $ 671,000
Audit-related fees(2)....................................... 97,000 81,000
---------- ----------
Audit and audit related fees.............................. 861,000 752,000
---------- ----------
Tax fees(3)................................................. 240,000 655,000
All other fees(4)........................................... -- 55,000
---------- ----------
Total fees................................................ $1,101,000 $1,462,000
========== ==========
(1) Audit fees were for professional services rendered for the audit of our
consolidated financial statements and reviews of the interim consolidated
financial statements included in quarterly reports and services that are
normally provided by the Deloitte Entities in connection with statutory and
regulatory filing engagements.
(2) Audit-related fees were for assurance and related services that are
reasonably related to the performance of the audit or review of our
consolidated financial statements and are not reported under "Audit Fees."
These services include subsidiary audits, agreed-upon procedures, and the
audit of the Company's employee benefit plan.
(3) Tax fees were professional services for federal and state tax compliance,
tax advice and tax planning.
(4) All other fees were for services other than the services reported above. In
2003, no other services were provided. In 2002, these services included an
assessment of the Company's information system security.
The Audit Committee has considered whether the provision of these services
is compatible with maintaining the independence of the Deloitte Entities, and
satisfied itself as to the maintenance of the auditors' independence.
POLICY FOR PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
The Audit Committee's policy is to pre-approve all audit services and all
non-audit services that our independent accountants are permitted to perform for
us under applicable federal securities regulations. The Audit Committee's policy
utilizes an annual review and general pre-approval of certain categories of
specified services that may be provided by the independent accountants, up to
predetermined fee levels. Any proposed services not qualifying as a pre-approved
specified service, and pre-approved services exceeding the predetermined fee
levels, require further specific pre-approval by the Audit Committee. The Audit
Committee has delegated to the Chairman of the Audit Committee the authority to
pre-approve audit and non-audit services proposed to be performed by the
independent accountants. Since May 6, 2003, all services provided by the
Deloitte Entities were pre-approved by the Audit Committee. The policy has not
been waived in any instance.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than 10% shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on its review of the copies of such forms received since
January 1, 2003, and written representations from certain reporting persons, the
Company believes that all filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were complied with.
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OTHER BUSINESS MATTERS
The only matters which management intends to present to the meeting are set
forth in the Notice of Annual Meeting. Management knows of no other matters
which will be brought before the meeting by any other person. However, if any
other matters are properly brought before the meeting, the persons named on the
enclosed form of proxy intend to vote on such matters in accordance with their
best judgment on such matters.
Enclosed with the Notice of Annual Meeting and this Proxy Statement is a
copy of the Company's Annual Report on Form 10-K. The Company has also published
a formal annual report which is available without charge to shareholders upon
request. Address all requests, in writing, to the Investor Relations Department,
Credit Acceptance Corporation, P.O. Box 513, Southfield, Michigan 48037.
SHAREHOLDER PROPOSALS AND NOMINEES FOR 2005 ANNUAL MEETING
SHAREHOLDER PROPOSALS
Proposals by shareholders which are intended to be presented at the 2005
Annual Meeting of Shareholders must be submitted to the Secretary of the Company
no later than December 17, 2004 in order to be considered for inclusion in the
Company's 2005 proxy materials. The Company expects the persons named as proxies
for the 2004 Annual Meeting of Shareholders to use their discretionary voting
authority, to the extent permitted by law, with respect to any proposal
presented at that meeting by a shareholder who does not provide the Company with
written notice of such proposal on or before March 2, 2005.
SHAREHOLDER NOMINEES
Shareholders desiring to recommend candidates for consideration and
evaluation by the Nominating Committee for the 2005 Annual Meeting should be
submit such recommendations to the General Counsel of the Company not later than
November 14, 2004. The recommendation should be accompanied by (i) the name and
address of the shareholder recommending the candidate, (ii) evidence of the
shareholder's ownership of Company shares along with an undertaking that the
shareholder will continue to own such shares through the date of the annual
meeting, (iii) all information regarding the candidate that would be required to
be disclosed in the Company's annual meeting proxy statement if the candidate is
nominated by the Board, and (iv) the candidate's consent to serve as a director
if elected. The General Counsel will forward any recommendations to the
Nominating Committee. The Nominating Committee may seek additional biographical
and background information from any candidate that must be received on a timely
basis to be considered by the Nominating Committee.
By Order of the Board of Directors,
Charles A. Pearce
Corporate Secretary
April 16, 2004
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ANNEX A
AUDIT COMMITTEE CHARTER
I. STATEMENT OF POLICY
There shall be a Standing Committee of the Board of Directors to be known
as the Audit Committee. The Audit Committee shall provide assistance to the
Board of Directors in fulfilling its oversight responsibility relating to:
1. The integrity of the Company's financial statements and financial
reporting process and the Company's systems of internal accounting and financial
controls.
2. The annual independent audit of the Company's financial statements, the
engagement of the independent auditors and the evaluation of the independent
auditors' qualifications, independence and performance.
3. The compliance by the Company with corporate governance, legal and
regulatory requirements, including the Company's disclosure controls and
procedures.
4. The fulfillment of the other responsibilities set out herein.
The Committee shall review and reassess the Committee's Charter annually
and recommend any changes to this Charter that it finds necessary or advisable
to the Board.
In discharging its responsibilities, the Committee is not itself
responsible for the planning or conduct of audits or for any determination that
the Company's financial statements are complete and accurate or in accordance
with generally accepted accounting principles. This is the responsibility of
management and the independent auditors.
The Audit Committee shall have the power to conduct or authorize
investigations into any matters within the Committee's scope of
responsibilities. The Committee shall be empowered to retain independent
counsel, accountants, or others to assist it in the conduct of any investigation
or to otherwise carry out its duties. The Committee shall also have the
authority to cause the Company to compensate the independent auditors and any
independent counsel, accountants or other advisors employed or retained by the
Committee. The Company will provide all necessary funding to pay such
compensation and to pay all ordinary administrative expenses of the Committee
that are necessary or appropriate in carrying out its duties.
The Committee will act as the Company's qualified legal compliance
committee ("QLCC") and will perform such other functions as assigned by law, the
Company's Articles of Incorporation or Bylaws, or the Board of Directors.
II. ORGANIZATION
The Audit Committee shall be composed of three or more members, including a
chairman, each of whom are directors not simultaneously serving as officers or
employees of the Corporation. Each member shall at all times be an independent
director within the meaning of the Nasdaq rules and satisfy all of the other
requirements for Audit Committee members set forth in the Nasdaq rules. At least
one member of the Committee shall meet the rules of and be designated as an
Audit Committee Financial Expert. The chairman and members of the Committee
shall be appointed by a majority vote of the Board of Directors.
III. RESPONSIBILITIES
The following shall be the principal responsibilities of the Audit
Committee:
REVIEW OF ANNUAL SEC FILINGS. The Committee shall review with management
and the independent auditors the Company's Annual Report on Form 10-K, including
the disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," their judgment about the quality, not just
acceptability, of accounting principles, the purpose for and advisability of
major changes in accounting
A-1
principles, the reasonableness of significant judgments, the clarity of the
disclosures in the financial statements and the adequacy of internal controls.
The Committee shall also discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the independent auditors
under generally accepted auditing standards, applicable law or listing
standards, including matters required to be discussed by Statement on Auditing
Standards No. 61, as amended by Statement on Auditing Standards No. 90. Based on
such review and discussion, the Committee shall make a determination whether to
recommend to the Board of Directors that the audited financial statements be
included in the Company's Form 10-K.
REVIEW OF QUARTERLY SEC FILINGS AND OTHER COMMUNICATIONS. The Committee
shall review and discuss with management and the independent auditors the
quarterly financial information to be included in the Company's Quarterly
Reports on Form 10-Q, including the disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and shall
discuss any other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards, applicable law
or listing standards. The Committee shall also review and discuss the Company's
earnings press releases as well as the types of financial information
periodically provided to analysts and rating agencies. The Committee shall also
discuss the results of the independent auditors' review of the Company's
quarterly financial information conducted in accordance with Statement on
Auditing Standards No. 71.
ENGAGEMENT OF INDEPENDENT AUDITORS. The Committee shall directly appoint,
retain, compensate, evaluate and terminate the Company's independent auditors.
The Committee shall have the sole authority to approve all engagement fees to be
paid to the independent auditors. The independent auditor shall report directly
to the Committee.
DETERMINATION AS TO INDEPENDENCE AND PERFORMANCE OF INDEPENDENT
AUDITORS. The Committee shall receive periodic reports from the independent
auditors as required by the Independence Standards Board (or any successor body)
regarding the auditors' independence, which shall be not less frequently than
annually. The Committee shall discuss such reports with the auditors, including
any relationships or services disclosed in the reports that may impact the
objectivity and independence of the auditor, and if so determined by the
Committee, take appropriate action to satisfy itself of the independence of the
auditors. The Committee shall review the performance of the Company's
independent auditors annually. In doing so, the Committee shall consult with
management and the Company's internal auditors and shall obtain and review a
report by the independent auditors describing their internal control procedures,
material issues raised by their most recent internal quality control review, or
peer review (if applicable), or by any inquiry or investigation by governmental
or professional authorities within the preceding five years and the response of
the independent auditors. The Committee shall also review any significant
disagreement among management and the independent auditors which, if not
resolved to the independent auditors' satisfaction, would have caused them to
issue a qualified report on the financial statements. "Disagreements" for this
purpose shall be those contemplated by Item 304 of SEC Regulation S-K (or any
successor rule). The Committee shall consider whether or not there should be a
regular rotation of the lead audit partner or the independent audit firm.
REVIEW OF DISCLOSURE CONTROLS AND PROCEDURES. The Committee shall review
with the Chief Executive Officer, the Chief Financial Officer and the General
Counsel the Company's disclosure controls and procedures and shall review
periodically, but in no event less frequently than quarterly, management's
conclusions about the effectiveness of such disclosure controls and procedures,
including any significant deficiencies in, or material non-compliance with, such
controls and procedures.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES. The Committee shall
establish and maintain guidelines for the retention of the independent auditors
for any non-audit service and the fee for such service and shall determine
procedures for the approval of audit and non-audit services in advance. The
Committee shall, in accordance with such procedures, approve in advance any
audit or non-audit service provided to the Company by the independent auditors,
all as required by applicable law or listing standards.
PREPARATION OF REPORT FOR PROXY STATEMENT. The Committee shall prepare the
report required to be included in the Company's annual proxy statement, all in
accordance with applicable rules and regulations.
A-2
WHISTLEBLOWING PROCEDURES. The Committee shall establish and maintain
procedures for the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls or auditing
matters and for the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting or auditing matters.
REVIEW OF CORPORATE GOVERNANCE, LEGAL AND REGULATORY COMPLIANCE. The
Committee shall periodically review with management, including the General
Counsel, Director of Internal Audit and the independent auditors any
correspondence with, or other action by, regulators or governmental agencies and
any employee complaints or published reports that raise concerns regarding the
Company's financial statements, accounting or auditing matters or compliance
with the Company's Code of Conduct. The Committee shall also meet periodically,
and may request to meet separately, with the General Counsel and other
appropriate legal staff of the Company to review material legal affairs of the
Company and the Company's compliance with applicable law and listing standards.
ACT AS QUALIFIED LEGAL COMPLIANCE COMMITTEE. The Committee shall as the
Company's Qualified Legal Compliance Committee ("QLCC") for purposes of
compliance with 17 CFR 205, "Standards of Professional Conduct for Attorneys
Appearing and Practicing Before the Commission in the Representation of an
Issuer." In this regard, the Committee shall do the following:
(1) Adopt written procedures for the confidential receipt, retention, and
consideration of any report of evidence of a material violation by the Company
or any of its officers, directors, employees or agents, of an applicable U.S.
federal or state securities law, a material breach of a fiduciary duty arising
under U.S. federal or state law, or similar material violation of any U.S.
federal or state law.
(2) Inform the Company's chief legal officer and chief executive officer
(or the equivalents thereof) of any report of evidence of a material violation
(unless such report to the chief legal officer and chief executive officer would
be futile).
(3) Determine whether an investigation is necessary regarding any report of
evidence of any material violation by the Company, its officers, directors,
employees or agents and, if it determines an investigation is necessary or
appropriate: (a) notify the full Board of Directors; (b) initiate an
investigation, which may be conducted either by the chief legal officer (or the
equivalent thereof) or by outside attorneys; and (c) retain such additional
expert personnel as the Committee deems necessary.
(4) At the conclusion of an investigation: (a) recommend, by majority vote,
that the issuer implement an "appropriate response" to evidence of a material
violation; and (b) inform the chief legal officer and the chief executive
officer (or the equivalents thereof) and the Board of Directors of the results
of any such investigation and the appropriate remedial measures to be adopted.
(5) Acting by majority vote, take all other appropriate action, including
notifying the SEC if necessary in the event the Company fails in any material
respect to implement an appropriate response that the QLCC has recommended the
issuer to take.
REVIEW OF CERTAIN TRANSACTIONS WITH DIRECTORS AND RELATED PARTIES. The
Committee shall review and approve all of the Company's transactions with
Directors and executive officers of the Company and with firms that employ
Directors, as well as any other material related party transactions.
In addition to the principal responsibilities, the Audit Committee may
perform the following:
INTERNAL AUDIT. Consider, in consultation with management, the independent
accountants and the Director of Internal Audit:
1. Significant risks and exposures to the Company and assess the steps
management has taken to minimize such risk to the Company.
2. The audit scope and plan of the internal auditors.
3. Significant findings during the year and management's responses thereto.
A-3
4. Any difficulties encountered in the course of the audits, including any
restrictions on the scope of their work or access to required information.
5. Any changes required in the planned scope of their audit plan.
6. The Internal Audit Department budget and staffing.
7. The Internal Audit Department charter.
8. The adequacy of internal controls, including information systems and
security.
The Committee may also review on a continuing basis the adequacy of
internal controls, including meeting periodically with management and the
independent auditors to review the adequacy of such controls and to review
before release the disclosure regarding such system of internal controls
required under SEC rules to be contained in the Company's periodic filings and
the attestations or reports by the independent auditors relating to such
disclosure.
The Committee shall review and concur in the appointment, replacement,
reassignment, or dismissal of the Director of Internal Audit. The Director of
Internal Audit reports functionally to the Chairman of the Audit Committee.
OFFICERS' EXPENSE ACCOUNTS. Review policies and procedures with respect to
officers' expense accounts and perquisites, including their use of corporate
assets, and consider the results of any review of these areas by Internal Audit
or the independent accountant.
IV. MEETINGS
The Committee shall meet at least four times annually and such meetings
shall, during their course and in total, provide for at least:
1. Representatives of the independent accountants to attend at least two
meetings to present the results of their annual audit.
2. Representatives of the Internal Audit and General Counsel to present
their results.
3. Provide sufficient opportunity for the internal and independent
accountants to meet with the members of the Audit Committee without members of
management present. Among the items to be discussed in these meetings are the
independent accountants' evaluation of the corporation's financial, accounting,
and auditing personnel, and the cooperation that the independent accountants
received during the course of the audit.
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(CREDIT ACCEPTANCE LOGO) 000000 0000000000 0 0000
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DESIGNATION (IF ANY) 0000000000.000 ext
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ADD 5 [BAR CODE]
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[ ] Mark this box with an X if you have
made changes to your name or
address details above.
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ANNUAL MEETING PROXY CARD
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A ELECTION OF DIRECTORS
This Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD FOR WITHHOLD
01 - Donald A. Foss [ ] [ ] 04 - Daniel P. Leff [ ] [ ]
02 - Harry E. Craig [ ] [ ] 05 - Brett A. Roberts [ ] [ ]
03 - Glenda Flanagan [ ] [ ] 06 - Thomas N. Tryforos [ ] [ ]
B ISSUES
The Board of Directors recommends a vote FOR the following proposal.
FOR AGAINST ABSTAIN
02 - To adopt the Credit Acceptance Corporation [ ] [ ] [ ]
Incentive Compensation Plan and approve the
performance goals thereunder.
C ATTENDANCE
Mark this box with an X if you plan to attend the meeting. [ ]
D AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR INSTRUCTIONS TO BE EXECUTED.
NOTE: Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy. All joint holders must sign. When signing as
attorney, trustee, executor, administrator, guardian or corporate officer, please provide your FULL title.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within box Date (mm/dd/yyyy)
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1 U P X H H H P P P P 003409
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PROXY - CREDIT ACCEPTANCE CORPORATION
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS MAY 13, 2004
The undersigned hereby constitutes and appoints Donald A. Foss and Brett A.
Roberts, and each of them, attorneys and proxies, with the power of substitution
in each of them, to vote all the shares of Common Stock of Credit Acceptance
Corporation that the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Corporation to be held on May 13, 2004 at 9:00 a.m., local
time, and at any adjournments or postponements thereof, upon all matters
properly coming before the meeting including, without limitation, those set
forth in the related Notice of Meeting and Proxy Statement. This Proxy, when
properly executed, will be voted in the manner directed. IF NO SPECIFICATION IS
MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES NAMED ON THE OTHER SIDE AND FOR
THE PROPOSAL. In their discretion, to the extent permitted by law, the proxies
are also authorized to vote upon such other matters as may properly come before
the meeting, including the election of any person to the Board of Directors
where a nominee named in the Proxy Statement dated April 16, 2004 is unable to
serve or, for good cause, will not serve. The undersigned acknowledges receipt
of the Notice of Annual Meeting of Shareholders and the Proxy Statement dated
April 16, 2004, and the 2003 Annual Report to Shareholders, and ratifies all
that the proxies or either of them or their substitutes may lawfully do or cause
to be done by virtue hereof and revokes all former proxies.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN, DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
(Continued and to be voted on reverse side.)
CREDIT ACCEPTANCE CORPORATION
INCENTIVE COMPENSATION PLAN
EFFECTIVE APRIL 1, 2004
I. GENERAL PROVISIONS
1.01 PURPOSE. The Plan, which was adopted by the Company's Board on the
Effective Date, is intended to attract and retain highly competent, effective
and loyal Employees and Non-Employee Directors in order to create per share
intrinsic value for shareholders.
1.02 PARTICIPANTS. Participants in the Plan shall be such Employees
(including Employees who are directors) and Non-Employee Directors of the
Company or of an Affiliate as the Committee may select from time to time. The
Committee may grant Options, Restricted Stock Awards, Restricted Stock Units and
Performance Awards to an individual upon the condition that the individual
become an Employee or Non-Employee Director of the Company or of an Affiliate,
provided that the Option, Restricted Stock Award, Restricted Stock Unit or
Performance Award shall be deemed to be granted only on the date that the
individual becomes an Employee or Non-Employee Director.
1.03 DEFINITIONS. As used in this Plan, the following terms have the
meaning described below:
(a) "AFFILIATE" OR "AFFILIATES" means a corporation or other
entity that is affiliated with the Company and includes any parent or subsidiary
of the Company, as defined in Code Sections 424(e) and (f), respectively.
(b) "AGREEMENT" means the written agreement that sets forth
the terms of a Participant's Option, Restricted Stock Award, Restricted Stock
Unit or Performance Award.
(c) "BOARD" means the Board of Directors of the Company.
(d) "BUSINESS COMBINATION" means (1) any reorganization,
merger, share exchange or consolidation of the Company, or (2) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company.
(e) "CASHLESS EXERCISE PROCEDURE" means delivery to the
Company by a Participant exercising an Option of a properly executed exercise
notice, acceptable to the Company, together with irrevocable instructions to the
Participant's broker to deliver to the Company sufficient cash to pay the
exercise price and any applicable income and employment withholding taxes, in
accordance with a written agreement between the Company and the brokerage firm.
(f) "CAUSE" means (1) with respect to any Participant who is a
party to a written employment agreement with the Company or any Affiliate,
"Cause" as defined in such employment agreement, or (2) with respect to any
Participant who is not a party to a written employment agreement with the
Company or any Affiliate, personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or receipt of a final cease-and-desist order. In
determining willfulness, no act or failure to act on a Participant's part shall
be considered "willful" unless done or omitted to be done by the Participant not
in good faith and without reasonable belief that the Participant's action or
omission was in the best interests of the Company.
(g) "CHANGE IN CONTROL" means the occurrence of any of the
following events:
(1) If the Incumbent Directors cease for any reason
to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election or
nomination for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Directors
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without written
objection to such nomination) shall be considered to be an Incumbent Director;
provided further, that any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies by or on behalf of a person other than the Board shall not be
considered an Incumbent Director.
(2) If there shall be consummated a Business
Combination, other than (A) a merger or consolidation effected to implement a
reorganization of the Company's ownership wherein the Company shall become a
wholly-owned subsidiary of another corporation and the shareholders of the
Company shall become shareholders of such other corporation without any material
change in each shareholder's proportionate ownership of such other corporation
from that owned in the Company prior to such merger or consolidation; and (B) a
Business Combination following which: (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
outstanding Common Stock and outstanding Voting Stock immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 65% of,
respectively, the then outstanding shares of Common Stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the Surviving
Corporation in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the outstanding Common Stock
and Voting Stock, as the case may be; (ii) no person or entity beneficially
owns, directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the Surviving Corporation or the combined voting power
of the then outstanding voting securities of the Surviving Corporation
(excluding any person or entity who beneficially owned 20% or more of the
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outstanding Common Stock or Voting Stock prior to such Business Combination, the
Surviving Corporation and any employee benefit plan (or related trust) of the
Company or the Surviving Corporation); and (iii) at least a majority of the
members of the board of directors of the Surviving Corporation were Incumbent
Directors immediately prior to the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination.
(3) Approval by the shareholders of the Company of
any plan or proposal for the liquidation or dissolution of the Company.
(h) "CODE" means the Internal Revenue Code of 1986, as
amended.
(i) "CODE SECTION 162(M) PERFORMANCE AWARDS" is defined in
Section 4.02 of the Plan.
(j) "CODE SECTION 162(M) RESTRICTED STOCK AWARD AND RESTRICTED
STOCK UNITS" is defined in Section 3.07 of the Plan.
(k) "COMMITTEE" means the Board acting as a whole, or a
committee of two or more "non-employee directors" (as defined in Rule 16b-3
under the Exchange Act) who also constitute "outside directors" (as defined
under Code Section 162(m) if applicable at the time) if designated by the Board
to administer the Plan. The fact that a Committee member shall fail to qualify
under Rule 16b-3 under the Exchange Act or Code Section 162(m) shall not
invalidate any grant or award made by the Committee, if the grant or award is
otherwise validly granted under the Plan.
(l) "COMMON STOCK" means shares of the Company's authorized
and unissued common stock, or reacquired shares of such common stock.
(m) "COMPANY" means Credit Acceptance Corporation and any
successor thereto.
(n) "DISABILITY" means disability as defined in Section 22(e)
of the Code.
(o) "EFFECTIVE DATE" means April 1, 2004, the date on which
the Board adopted the Plan.
(p) "EMPLOYEE" means an employee of the Company or Affiliate,
who has an "employment relationship" with the Company or an Affiliate, as
defined in Treasury Regulation 1.421-7(h); and the term "employment" means
employment with the Company, or an Affiliate of the Company.
(q) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time and any successor thereto.
(r) "FAIR MARKET VALUE" means, with respect to a share of
Common Stock on the Grant Date, the average of the high and low sale prices of
Common Stock
3
on the Nasdaq Stock Market ("NSM") as reported in The Wall Street Journal for
the Grant Date. In the event that there were no Common Stock transactions on
such date, the Fair Market Value shall be determined as of the immediately
preceding date on which there were Common Stock transactions. Unless otherwise
specified in the Plan, "Fair Market Value" for purposes of determining the value
of Common Stock on the date of exercise means (i) if shares acquired or to be
acquired upon exercise were sold by the Participant exercising the option on the
date of exercise, the average sale price of such shares, or (ii) if shares
acquired or to be acquired upon exercise were not sold on the date of exercise
by the Participant exercising the option, the average of the high and low sale
prices of such Common Stock on the NSM on the last date preceding the exercise
on which there were Common Stock transactions, as reported in The Wall Street
Journal. If the Common Stock is not listed for trading on the NSM on the
relevant date, (1) the average of the high and low sale prices on the securities
exchange (or, if there is more than one, the principal such exchange) on which
the Common Stock is traded as reported in The Wall Street Journal for the
relevant date; (2) if the shares are not listed for trading on any securities
exchange or the NSM on such date but bid and ask information is reported by
Nasdaq or another generally accepted reporting service, the average of the high
bid and low asked prices of the shares, as so reported by Nasdaq or, if not
reported by Nasdaq, another generally accepted reporting service, for the
relevant date; (3) if none of the foregoing is applicable, the fair market value
of a share as of the relevant date, as determined by the Committee; provided
that for purposes of determining the value of Common Stock on the date of
exercise under the circumstances described in this sentence, if shares acquired
or to be acquired upon exercise were sold on the date of exercise by the
Participant exercising the option, "Fair Market Value" means the average sale
price of such shares.
(s) "GRANT DATE" means the date on which the Committee
authorizes an individual Option, Restricted Stock Award, Restricted Stock Unit
or Performance Award, or such later date as shall be designated by the
Committee.
(t) "INCENTIVE STOCK OPTION" means an Option that is intended
to meet the requirements of Section 422 of the Code and is designated as such in
the Agreement evidencing the grant.
(u) "INCUMBENT DIRECTORS" means the members of the Board on
the Effective Date.
(v) "NON-EMPLOYEE DIRECTOR" means a director of the Company or
an Affiliate who is not an Employee.
(w) "NONQUALIFIED STOCK OPTION" means an Option that is not an
Incentive Stock Option.
(x) "OPTION" means either an Incentive Stock Option or a
Nonqualified Stock Option.
(y) "PARTICIPANT" means the individuals described in Section
1.02.
4
(z) "PERFORMANCE AWARD" means a performance award granted
pursuant to Article IV.
(aa) "PLAN" means the Credit Acceptance Corporation Incentive
Compensation Plan, the terms of which are set forth herein, as amended from time
to time.
(bb) "RESTRICTED PERIOD" means the period of time during which
Common Stock subject to a Restricted Stock Award, Restricted Stock Unit or
Performance Award is subject to transfer restrictions that make it
nontransferable.
(cc) "RESTRICTED STOCK" means Common Stock that is subject to
a Restricted Period pursuant to Article III or Article IV.
(dd) "RESTRICTED STOCK AWARD" means an award of Common Stock
that is subject to a Restricted Period, granted pursuant to Article III.
(ee) "RESTRICTED STOCK UNIT" means a right granted pursuant to
Article III to receive Restricted Stock or an equivalent value in cash pursuant
to the terms of the Plan and the related Agreement.
(ff) "RETIREMENT" means a Participant's voluntary cessation of
employment, or voluntary cessation of services as a Non-Employee Director,
following the Participant's 65th birthday.
(gg) "SURVIVING CORPORATION" means the corporation resulting
from a Business Combination referred to in Section 1.03(g)(2)(B) of the Plan,
including, without limitation, the surviving corporation in a merger involving
the Company and a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries.
(hh) "VOTING STOCK" means the securities ordinarily having the
right to vote in the election of directors to the Board.
1.04 ADMINISTRATION. (A) The Plan shall be administered by the
Committee, in accordance with Rule 16b-3 under the Exchange Act and Code Section
162(m), if applicable. The Committee, at any time and from time to time, subject
to Sections 2.02 and 7.07, may grant Options, Restricted Stock Awards,
Restricted Stock Units and Performance Awards to such Employees and for such
number of shares of Common Stock as it shall designate. The Committee shall
interpret the Plan, prescribe, amend, and rescind rules and regulations relating
to the Plan, and make all other determinations necessary or advisable for its
administration. The decision of the Committee on any question concerning the
interpretation of the Plan or its administration with respect to any Option,
Restricted Stock Award, Restricted Stock Unit or Performance Award granted under
the Plan shall be final and binding upon all Participants. Notwithstanding the
foregoing, the Committee shall not waive any restrictions on a Code Section
162(m) Performance Award, Restricted Stock Award or Restricted Stock Unit.
5
(b) To the extent permitted by applicable law, the Committee may
delegate to one or more officers or managers of the Company or a committee of
such officers or managers, the authority, subject to such terms and limitations
as the Committee shall determine, to grant Options, Restricted Stock Awards,
Restricted Stock Units and Performance Awards to, or to cancel, modify, waive
rights with respect to, alter, discontinue or terminate Options, Restricted
Stock Awards, Restricted Stock Units or Performance Awards held by Participants
who are not officers or directors of the Company for purposes of Section 16 of
the Exchange Act.
1.05 STOCK. The total number of shares of Company Common Stock
available for grants and awards under this Plan shall be One Million
(1,000,000). The maximum number of shares of Common Stock that may be subject to
Option grants under the Plan to any salaried employee during any two-year period
shall not exceed 500,000 shares. Shares subject to any portion of a terminated,
forfeited, cancelled or expired Option, Restricted Stock Award, Restricted Stock
Unit or Performance Award granted hereunder may again be subjected to grants and
awards under the Plan as of the date of such termination, forfeiture,
cancellation or expiration. All amounts in this Section 1.05 shall be adjusted,
as applicable, in accordance with Article VI.
II. STOCK OPTIONS
2.01 GRANT OF OPTIONS. The Committee may grant Options to Participants
and, to the extent Options are granted, shall determine the general terms and
conditions of exercise, including any applicable vesting or performance
requirements, which shall be set forth in a Participant's Agreement. The
Committee may designate any Option granted as either an Incentive Stock Option
or a Nonqualified Stock Option, or the Committee may designate a portion of an
Option as an Incentive Stock Option and the remainder as a Nonqualified Stock
Option. An Option shall expire no later than the close of business on the tenth
anniversary of the Grant Date. Any Participant may hold more than one Option,
Restricted Stock Award, Restricted Stock Unit or Performance Award under the
Plan and any other plan of the Company or Affiliate.
2.02 INCENTIVE STOCK OPTIONS. Any Option intended to constitute an
Incentive Stock Option shall comply with the requirements of this Section 2.02
and shall only be granted to an Employee. No Incentive Stock Option shall be
granted with an exercise price below its Fair Market Value on the Grant Date. An
Incentive Stock Option shall not be granted to any Participant who owns (within
the meaning of Code Section 424(d)) stock of the Company or any Affiliate
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or a Affiliate unless, at the Grant Date, the exercise
price for the Option is at least 110% of the Fair Market Value of the shares
subject to the Option and the Option, by its terms, is not exercisable more than
5 years after the Grant Date. The aggregate Fair Market Value of the underlying
Common Stock (determined at the Grant Date) as to which Incentive Stock Options
granted under the Plan (including a plan of an Affiliate) may first be exercised
by a Participant in any one calendar year shall not exceed $100,000. To the
extent that an Option intended to constitute an Incentive Stock Option shall
violate the foregoing $100,000 limitation (or any other limitation set forth in
Code Section 422), the portion of the Option that exceeds
6
the $100,000 limitation (or fails any other Code Section 422 requirement) shall
be deemed to constitute a Nonqualified Stock Option.
2.03 OPTION PRICE. The Committee shall determine the per share exercise
price for each Option granted under the Plan, but no Option shall be granted
with an exercise price below 100% of the Fair Market Value of Common Stock on
the Grant Date.
2.04 PAYMENT FOR OPTION SHARES. The purchase price for shares of Common
Stock to be acquired upon exercise of an Option granted hereunder shall be paid
in full in cash or by personal check, bank draft or money order at the time of
exercise; provided, however, that in lieu of such form of payment, the Committee
may permit a Participant to pay such purchase price in whole or in part by
tendering shares of Common Stock that have been held at least six months, which
are freely owned and held by the Participant independent of any restrictions,
hypothecations or other encumbrances, duly endorsed for transfer (or with duly
executed stock powers attached), or in any combination of the above. If shares
of Common Stock are tendered in payment of all or part of the exercise price,
they shall be valued for such purpose at their Fair Market Value on the date of
exercise. At the discretion of the Committee, as set forth in a Participant's
Option Agreement, the purchase price may be paid by using the Cashless Exercise
Procedure if the relevant agreement between the Company and the Participant's
broker referred to in the definition of such term has been executed by the
Company and such broker.
2.05 ACCELERATION. The Committee may, in its discretion, accelerate a
Participant's right to exercise an Option.
III. RESTRICTED STOCK AWARDS AND UNITS
3.01 TERMS OF RESTRICTED STOCK AWARDS AND RESTRICTED STOCK UNITS. The
Committee shall have the authority to grant Restricted Stock Awards and
Restricted Stock Units to such Participants and for such number of shares of
Common Stock as it shall designate. Such Awards and Units shall be evidenced by
an Agreement that shall specify the terms thereof, including the Restricted
Period, the number of shares of Common Stock subject to the Award or Unit, and
such other provisions, which may include, among other things, vesting and
performance goals, as the Committee shall determine.
3.02 TRANSFERABILITY. Except as provided in this Article III of the
Plan, the shares of Common Stock subject to a Restricted Stock Award or
Restricted Stock Unit may not be transferred, pledged, assigned, or otherwise
alienated or hypothecated until the termination of (a) the applicable Restricted
Period or for such period of time as shall be established by the Committee and
specified in the applicable Agreement, or (b) upon the earlier satisfaction of
other conditions as specified by the Committee and set forth in the applicable
Agreement. Prior to the end of the Restricted Period, all rights with respect to
the Common Stock subject to a Restricted Stock Award or Restricted Stock Unit
granted to a Participant shall be exercisable during the Participant's lifetime
only by the Participant or the Participant's legal representative.
7
3.03 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any shares of Common Stock subject to a Restricted Stock Award
or Restricted Stock Unit as it may deem advisable including, without limitation,
restrictions under applicable federal or state securities laws, and shall legend
any certificates representing such shares to give appropriate notice of such
restrictions.
3.04 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 3.03 or Article IV, any certificate
representing shares of Common Stock subject to a Restricted Stock Award or
Restricted Stock Unit or Performance Award shall bear the following legend:
The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer set forth in the Credit
Acceptance Corporation Incentive Compensation Plan (the "Plan"), rules
and administrative guidelines adopted pursuant to such Plan and an
Agreement dated ______ __, _____. A copy of the Plan, such rules and
such Agreement may be obtained from the Secretary of the Company.
3.05 REMOVAL OF RESTRICTIONS. Except as otherwise provided under the
Plan, if the Restricted Period has elapsed or been waived by the Committee with
respect to all or a portion of the Restricted Stock represented by a
certificate, the holder thereof shall be entitled to have the legend required by
Section 3.04 removed from such stock certificate with respect to the shares as
to which the Restricted Period has elapsed. Any certificate evidencing the
remaining shares shall bear the legend required by Section 3.04 and Article IV.
The Committee shall have the discretion to waive the applicable Restricted
Period with respect to all or any part of the Common Stock subject to a
Restricted Stock Award, or Restricted Stock Unit or Performance Share Award that
has not been granted pursuant to Code Section 162(m). The Company shall have the
right to retain any certificate representing shares of Common Stock subject to a
Restricted Stock Award, Restricted Stock Unit or Performance Award until such
time as all conditions and/or restrictions applicable to such shares of Common
Stock have been satisfied.
3.06 VOTING AND DIVIDEND RIGHTS. During the Restricted Period,
Participants shall be considered record owners of any shares of Common Stock
subject to any Restricted Stock Award or Restricted Stock Unit held by them for
purposes of determining who is entitled to vote or receive dividends with
respect to such shares. If any dividends or distributions are paid in shares of
Common Stock during the Restricted Period, the dividend or other distribution
shares shall be subject to the same restrictions on transferability as the
shares of Common Stock with respect to which they were paid.
3.07 RESTRICTED STOCK AWARDS AND RESTRICTED STOCK UNITS GRANTED UNDER
CODE SECTION 162(M). The Committee, at its discretion, may designate certain
Restricted Stock Awards and Restricted Stock Units as granted pursuant to Code
Section 162(m) ("Code Section 162(m) Restricted Stock Award and Restricted Stock
Units"). Such Restricted Stock Awards and Restricted Stock Units must comply
with the following additional requirements, which override any other provision
set forth in this Article III:
8
(a) CODE SECTION 162(M) GRANTS. Each Code Section 162(m)
Restricted Stock Award and Restricted Stock Unit shall be based upon
pre-established, objective performance goals that are intended to
satisfy the performance-based compensation requirements of Code Section
162(m) and the regulations promulgated thereunder. Further, at the
discretion of the Committee, a Restricted Stock Award or Restricted
Stock Unit also may be subject to goals and restrictions in addition to
the performance requirements.
(b) PERFORMANCE GOALS. Each Code Section 162(m) Restricted
Stock Award or Restricted Stock Unit shall be based upon the attainment
of specified levels of Company or Affiliate performance (or combination
thereof) during a specified performance period, as measured by any or
all of the following: (i) economic profit; (ii) earnings per share;
(iii) operating income; (iv) net income; (v) revenue; (vi) book value
per share, (vii) return on capital; (viii) total loan originations;
(ix) origination quality measures such as charge-off rates, collection
rates, dollars collected or similar measures; (x) loan performance
measures such as charge-off rates, collection rates, dollars collected;
(xi) annual profitability; and (xii) market capitalization.
(c) COMMITTEE DETERMINATIONS. For each designated performance
period, the Committee shall (i) select those Employees who shall be
eligible to receive a Restricted Stock Award or Restricted Stock Unit;
(ii) determine the performance period, which may be a one, two, three,
four or five fiscal year period; (iii) determine the target levels of
Company or Affiliate performance; and (iv) determine the number of
shares or compensation subject to a Restricted Stock Award or
Restricted Stock Unit to be paid to each selected Employee. The
Committee shall make the foregoing determinations prior to the
commencement of services to which a Restricted Stock Award or
Restricted Stock Unit relates (or within the permissible time period
established under Code Section 162(m)) and while the outcome of the
performance goals and targets is uncertain.
(d) COMMITTEE CERTIFICATION. For each performance period, the
Committee shall certify, in writing: (i) if the Company or its
Affiliate(s) (as applicable) has attained the performance targets; and
(ii) the cash or number of shares (or combination thereof) pursuant to
the Restricted Stock Award or Restricted Stock Unit that shall be paid
to each selected Employee or that become freely transferable upon
attainment of the performance targets and/or other restrictions. The
Committee may not waive all or part of the conditions, goals and
restrictions applicable to the receipt of full or partial payment of a
Restricted Stock Award or Restricted Stock Unit. No part of a Code
Section 162(m) Restricted Stock Award or Restricted Stock Unit shall be
paid or become transferable until the Committee certifies in writing
that the performance goals and restrictions have been satisfied.
(e) DIVIDENDS. Any dividends paid on Restricted Stock during
the Restricted Period automatically shall be reinvested on behalf of
the Employee in additional shares of Restricted Stock under the Plan,
and such additional shares
9
shall be subject to the same performance goals and restrictions as the
other shares under the Restricted Stock Award.
(f) FORMULA. Grants of Restricted Stock and Restricted Stock
Units that are intended to satisfy Code Section 162(m) shall be subject
to a formula to be approved by the Compensation Committee and
shareholders in accordance with Treasury regulations under Code Section
162(m).
(g) NONALIENATION. Except as provided in this Article III of
the Plan, the shares pursuant to a Code Section 162(m) Restricted Stock
Award or Restricted Stock Unit granted hereunder may not be
transferred, pledged, assigned, or otherwise alienated or hypothecated
until the applicable performance targets and other restrictions are
satisfied, as shall be certified in writing by the Committee. All
rights with respect to a Restricted Stock Award or Restricted Stock
Unit granted hereunder shall apply only to such Employee or the
Employee's legal representative.
(h) REMOVAL OF LEGEND. Except as otherwise provided in this
Article III of the Plan, and subject to applicable federal and state
securities laws, shares covered by each Code Section 162(m) Restricted
Stock Award or Restricted Stock Unit granted under the Plan shall
become freely transferable by the Employee after the Committee has
certified that the applicable performance targets and restrictions have
been satisfied. Once the shares are released from the restrictions, the
Employee shall be entitled to have the legend required by Section 3.04
of the Plan removed from the applicable Common Stock certificate.
IV. PERFORMANCE AWARDS
4.01 PERFORMANCE AWARDS. The Committee is authorized to grant
Performance Awards to eligible Participants. Subject to the terms of the Plan, a
Performance Award granted under the Plan (a) may be denominated or payable in
cash or shares of Common Stock (including, without limitation, Restricted
Stock), and (b) shall confer on the holder thereof rights valued as determined
by the Committee and payable to, or exercisable by, the holder of the
Performance Award, in whole or in part, upon the achievement of such performance
goals during such performance period, as the Committee shall establish. Subject
to the terms of the Plan, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted, the amount of any payment or transfer to be made
pursuant to any Performance Award, and the other terms and conditions of any
Performance Award, including the effect upon such Award of termination of the
Participant's employment and/or directorship, shall be determined by the
Committee.
4.02 PERFORMANCE AWARDS GRANTED UNDER CODE SECTION 162(M). The
Committee, at its discretion, may designate certain Performance Awards as
granted pursuant to Code Section 162(m) ("Code Section 162(m) Performance
Awards"). Such
10
Performance Awards must comply with the following additional requirements, which
override any other provision set forth in this Article IV:
(a) CODE SECTION 162(M) GRANTS. Each Code Section 162(m)
Performance Award shall be based upon pre-established, objective
performance goals that are intended to satisfy the performance-based
compensation requirements of Code Section 162(m) and the regulations
promulgated thereunder. Further, at the discretion of the Committee, a
Performance Award also may be subject to goals and restrictions in
addition to the performance requirements.
(b) PERFORMANCE GOALS. Each Code Section 162(m) Performance
Award shall be based upon the attainment of specified levels of Company
or Affiliate performance (or combination thereof) during a specified
performance period, as measured by any or all of the following: (i)
economic profit; (ii) earnings per share; (iii) operating income; (iv)
net income; (v) revenue; (vi) book value per share, (vii) return on
capital; (viii) total loan originations; (ix) 3-month gross charge-off
rate; (x) 36-month gross charge-off rate; (xi) annual profitability;
and (xii) market capitalization.
(c) COMMITTEE DETERMINATIONS. For each designated performance
period, the Committee shall (i) select those Employees who shall be
eligible to receive a Code Section 162(m) Performance Award; (ii)
determine the performance period, which may be a one, two, three, four
or five fiscal year period; (iii) determine the target levels of
Company or Affiliate performance; and (iv) determine the Performance
Award to be paid to each selected Employee. The Committee shall make
the foregoing determinations prior to the commencement of services to
which a Performance Award relates (or within the permissible time
period established under Code Section 162(m)) and while the outcome of
the performance goals and targets is uncertain. No part of a
Performance Award shall be paid or become transferable until the
Committee certifies in writing that the performance goals and
restrictions have been satisfied.
(d) COMMITTEE CERTIFICATION. For each performance period, the
Committee shall certify, in writing: (i) if the Company or its
Affiliate(s) (as applicable) has attained the performance targets; and
(ii) the cash or number of shares (or combination thereof) pursuant to
the Performance Award that shall be paid to each selected Employee (or
the number of shares that are to become freely transferable, if a
Performance Award is granted subject to attainment of the designated
performance goals). The Committee may not waive all or part of the
conditions, goals and restrictions applicable to the receipt of full or
partial payment of a Performance Award.
(e) FIRST FORM - VOTING AND DIVIDEND RIGHTS. Code Section
162(m) Performance Awards may be granted in two different forms, at the
discretion of the Committee. Under the first form, the Employee shall
receive a Performance Award that consists of a certificate of Common
Stock legended in accordance
11
with Section 3.04, restricted from transfer prior to the satisfaction
of the designated performance goals and restrictions, as determined by
the Committee and specified in the Employee's Agreement. Prior to
satisfaction of the performance goals and restrictions, the Employee
shall be entitled to vote the performance shares. Further, any
dividends paid on such shares during the performance and/or Restricted
Period automatically shall be reinvested on behalf of the Employee in
additional performance shares under the Plan, and such additional
shares shall be subject to the same performance goals and restrictions
as the other shares under the Performance Award.
(f) SECOND FORM. Under the second form, the Employee shall
receive an Agreement from the Committee that specifies the performance
goals and restrictions that must be satisfied before the Company shall
issue the payment, which may be cash, a designated number of shares of
Common Stock, or a combination thereof. Any certificate for shares
under such form of Performance Award shall be issued only after the
Committee certifies in writing that the performance goals and
restrictions have been satisfied.
(g) FORMULA. Performance Awards that are intended to satisfy
Code Section 162(m) shall be subject to a formula to be approved by the
Compensation Committee and shareholders in accordance with Treasury
regulations under Code Section 162(m).
(h) NON-ALIENATION. Except as provided in this Article IV of
the Plan, the shares pursuant to a Code Section 162(m) Performance
Award granted hereunder may not be transferred, pledged, assigned, or
otherwise alienated or hypothecated until the applicable performance
targets and other restrictions are satisfied, as shall be certified in
writing by the Committee. All rights with respect to a Code Section
162(m) Performance Award granted hereunder shall apply only to such
Employee or the Employee's legal representative.
(i) REMOVAL OF LEGEND. Except as otherwise provided in this
Article IV of the Plan, and subject to applicable federal and state
securities laws, shares covered by each Code Section 162(m) Performance
Share Award made under the Plan shall become freely transferable by the
Employee after the Committee has certified that the applicable
performance targets and restrictions have been satisfied. Once the
shares are released from the restrictions, the Employee shall be
entitled to have the legend required by Section 3.04 removed from the
applicable Common Stock certificate.
V. TERMINATION OF EMPLOYMENT AND SERVICES
5.01. OPTIONS.
(a) Unless otherwise provided in the applicable Agreement, if,
prior to the date that an Option first becomes exercisable, a Participant's
status as an Employee or Non-Employee Director is terminated for any reason, the
Participant's right to exercise
12
the Option shall terminate and all rights thereunder shall cease as of the close
of business on the date of such termination.
(b) For any Nonqualified Stock Option unless otherwise
provided in the applicable Agreement and for any Incentive Stock Option, if, on
or after the date that the Option first becomes exercisable, a Participant's
status as an Employee or Non-Employee Director is terminated (1) for Cause, any
unexercised portion of the Option (whether then exercisable or not) shall, as of
the time of the Cause determination, immediately terminate, (2) due to death or
Disability, then the Option, to the extent that it is exercisable on the date of
termination, shall be exercisable only until the earlier of the one year
anniversary of such termination or the "expiration date" set forth in the
applicable Agreement, (3) for any other reason (except as provided in the next
sentence), then the Option, to the extent that it is exercisable on the date of
termination, shall be exercisable only until the earlier of the three month
anniversary of such termination or the "expiration date" set forth in the
applicable Agreement. For any Nonqualified Stock Option, unless otherwise
provided in the applicable Agreement, if, on or after the date that the Option
first becomes exercisable, a Participant's status as an Employee or Non-Employee
Director is terminated due to Retirement, or is terminated involuntarily (other
than for Cause or due to death or Disability) within 6 months following a Change
in Control, then the Option, to the extent that it is exercisable on the date of
termination, shall be exercisable until the "expiration date" set forth in the
applicable Agreement. The Committee, at its discretion, may designate in the
applicable Agreement a different post-termination period for exercise of a
Nonqualified Stock Option and may extend the exercise period of any Option, but
in no event may the post-termination exercise period exceed the tenth
anniversary of the Grant Date; it being understood that the extension of the
exercise term for an Incentive Stock Option may cause such Option to become a
Nonqualified Stock Option.
(c) Shares subject to Options that are not exercised within
the time allotted for exercise shall expire and be forfeited by the Participant
as of the close of business on the date they are no longer exercisable.
5.02 RESTRICTED STOCK AWARDS AND RESTRICTED STOCK UNITS. Unless
otherwise provided in the applicable Agreement, if the status as an Employee or
Non-Employee Director of a Participant holding a Restricted Stock Award or
Restricted Stock Unit terminates for any reason prior to the lapse of the
Restricted Period, any shares of Common Stock subject to a Restricted Stock
Award or Restricted Stock Unit as to which the Restricted Period has not yet
lapsed or been waived shall be forfeited by the Participant; provided, however,
that the Committee, in its sole discretion, may waive or change the remaining
restrictions or add additional restrictions with respect to any Restricted Stock
Award or Restricted Stock Unit that would otherwise be forfeited, as it deems
appropriate.
5.03 PERFORMANCE AWARDS. Unless otherwise provided in the applicable
Agreement, if the status as an Employee or Non-Employee Director of a
Participant holding a Performance Award terminates for any reason prior to
satisfaction of the performance requirements of such Award, such Award
automatically shall be forfeited by
13
the Participant to the extent such requirements are not satisfied; provided,
however, that the Committee, in its sole discretion, may waive or change the
remaining requirements or add additional requirements with respect to any
Performance Award or portion thereof that would otherwise be forfeited, as it
deems appropriate.
5.04 OTHER PROVISIONS. Neither the transfer of a Participant from one
corporation or division to another corporation or division among the Company and
any of its Affiliates nor a leave of absence under the Company's leave policy
shall be deemed to constitute a termination of status as a Participant for
purposes of the Plan.
VI. ADJUSTMENTS AND CHANGE IN CONTROL
6.01 ADJUSTMENTS.
(a) If the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Common Stock, other securities,
or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other corporate transaction or event affects the
Common Stock such that an adjustment is appropriate in order to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (1) the number and type of shares of Common
Stock which thereafter may be made the subject of Options, Restricted Stock
Awards, Restricted Stock Units and Performance Awards, (2) the number and type
of shares of Common Stock subject to outstanding Options, Restricted Stock
Awards, Restricted Stock Units and Performance Awards, and (3) the exercise
price with respect to any Option, or, if deemed appropriate, cancel outstanding
Options and make provision for a cash payment to the holders thereof; provided,
however, in each case, that with respect to Incentive Stock Options any such
adjustment shall be made in accordance with Section 422 of the Code or any
successor provision thereto to the extent that such Option is intended to remain
an Incentive Stock Option.
(b) The foregoing adjustments shall be made by the Committee
or, if such adjustment is required by the Board, then by the Board at the
recommendation of the Committee. Any such adjustment shall provide for the
elimination of any fractional share that might otherwise become subject to an
Option, Restricted Stock Award, Restricted Stock Unit or Performance Award.
6.02 CHANGE IN CONTROL. Upon the occurrence of a Change in Control, or
if the Committee determines in its sole discretion that a Change in Control has
occurred, then Options, Restricted Stock Awards, Restricted Stock Units and
Performance Awards shall be treated as the Committee may determine (including
acceleration of vesting and cash settlements of Options) at the time of grant or
at a subsequent date, as provided in the recipient's Agreement. If no such
provision is made in the recipient's Agreement and no subsequent determination
is made by the Committee, then (a) any Option granted
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hereunder immediately shall become exercisable in full, regardless of any
installment provision applicable to such Option; (b) any remaining Restricted
Period on any shares of Common Stock subject to a Restricted Stock Award or
Restricted Stock Unit granted hereunder immediately shall lapse; and (c) the
performance requirements for a Performance Award granted hereunder shall be
deemed to have been satisfied in full.
6.03 MERGER. If the Company is a party to any merger, consolidation,
reorganization, or sale of substantially all of its assets, each holder of
outstanding Option, Restricted Stock Award, Restricted Stock Unit or Performance
Award, to the extent that such Option, Award or Unit remains outstanding
thereafter, shall be entitled to receive, in lieu of the shares of Common Stock
to which such holder would otherwise be entitled, upon the exercise of such
Option or the lapse of the Restricted Period on shares of Common Stock subject
to a Restricted Stock Award or Restricted Stock Unit or the satisfaction of the
performance requirements for a Performance Award, the securities and/or property
which a shareholder owning the number of shares subject to the holder's Option,
Restricted Stock Award, Restricted Stock Unit or Performance Award would be
entitled to receive pursuant to such merger, consolidation, reorganization or
sale of assets.
VII. MISCELLANEOUS
7.01 PARTIAL EXERCISE/FRACTIONAL SHARES. The Committee may permit, and
shall establish procedures for, the partial exercise of Options granted under
the Plan. No fractional shares shall be issued in connection with the exercise
or payment of a grant or award under the Plan; instead, the Fair Market Value of
the fractional shares shall be paid in cash, or at the discretion of the
Committee, the number of shares shall be rounded down to the nearest whole
number of shares, and any fractional shares shall be disregarded.
7.02 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on a Restricted Stock Award,
Restricted Stock Unit, Performance Award or the exercise of an Option
(including, without limitation, the right of the Committee to limit the time of
exercise to specified periods) as may be required to satisfy the requirements of
Rule 16b-3 of the Exchange Act (as such rule may be in effect at such time).
7.03 RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any
rights as a shareholder with respect to shares covered by an Option, Restricted
Stock Award, Restricted Stock Unit or Performance Award until the issuance of
such shares as reflected on the books and records of the Company or its transfer
agent. No adjustment shall be made for dividends or other rights with respect to
such shares for which the record date is prior to the date the shares are
issued.
7.04 NON-ASSIGNABILITY. No Option, Restricted Stock Award, Restricted
Stock Unit or Performance Award shall be transferable by a Participant except by
will or the laws of descent and distribution. During the lifetime of a
Participant, an Incentive Stock Option shall be exercised only by the
Participant. No transfer of an Option, Restricted
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Stock Award, Restricted Stock Unit or Performance Award shall be effective to
bind the Company unless the Company shall have been furnished with written
notice thereof and a copy of the will or such evidence as the Company may deem
necessary to establish the validity of the transfer and the acceptance by the
transferee of the terms and conditions of the Option, Restricted Stock Grant
Award, Restricted Stock Unit or Performance Award.
7.05 SECURITIES LAWS.
(a) Anything to the contrary herein notwithstanding, the
Company's obligation to sell and deliver Common Stock pursuant to the exercise
of an Option, or deliver Common Stock pursuant to a Restricted Stock Award,
Restricted Stock Unit or Performance Award is subject to such compliance with
federal and state laws, rules and regulations applying to the authorization,
issuance or sale of securities as the Company deems necessary or advisable. The
Company shall not be required to sell or deliver Common Stock unless and until
it receives satisfactory assurance that the issuance or transfer of such shares
shall not violate any of the provisions of the Securities Act of 1933, the
Exchange Act, any other applicable federal laws, or the rules and regulations of
the Securities and Exchange Commission promulgated thereunder or those of any
stock exchange or stock market on which the Common Stock may be listed or
traded, the provisions of any state laws governing the sale of securities, or
that there has been compliance with the provisions of such acts, rules,
regulations and laws.
(b) The Committee may impose such restrictions on any shares
of Common Stock subject to or underlying an Option, Restricted Stock Award,
Restricted Stock Unit or Performance Award as it may deem advisable, including,
without limitation, restrictions (i) under applicable federal securities laws,
(ii) under the requirements of any stock exchange or other recognized trading
market upon which such shares of Common Stock are then listed or traded, or
(iii) under any blue sky or state securities laws applicable to such shares. No
shares shall be issued until counsel for the Company has determined that the
Company has complied with all requirements under appropriate securities laws.
7.06 WITHHOLDING AND TAXES. The Company shall have the right to
withhold from a Participant's compensation or require a Participant to remit
sufficient funds to satisfy applicable withholding for income and employment
taxes upon the exercise of an Option, the lapse of a Restricted Period or the
satisfaction of the performance requirements relating to a Performance Award. A
Participant may use the Cashless Exercise Procedure or may tender previously
acquired shares of Common Stock that have been held at least six months to
satisfy the withholding obligation in whole or in part, such shares being valued
for such purpose at Fair Market Value; provided that the Company shall not
withhold from exercise more shares than are necessary to satisfy the established
requirements of federal, state and local tax withholding obligations.
7.07 TERMINATION AND AMENDMENT.
(a) The Board may terminate the Plan, or the granting of
Options, Restricted Stock Awards, Restricted Stock Units or Performance Awards
under the Plan,
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at any time. No new grants or awards of Incentive Stock Options shall be made
under the Plan after the tenth anniversary of the Effective Date.
(b) The Board may amend or modify the Plan at any time and
from time to time.
(c) No amendment, modification or termination of the Plan
shall adversely affect any Option, Restricted Stock Award, Restricted Stock Unit
or Performance Award previously granted under the Plan in any material way
without the consent of the Participant holding the Option, Restricted Stock
Award, Restricted Stock Unit or Performance Award.
7.08 EFFECT ON EMPLOYMENT OR SERVICES. Neither the adoption of the Plan
nor the granting of any Option, Restricted Stock Award, Restricted Stock Unit or
Performance Award pursuant to the Plan shall be deemed to create any right in
any individual to be retained or continued in the employment or services of the
Company or an Affiliate.
7.09 USE OF PROCEEDS. The proceeds received from the sale of Common
Stock pursuant to the Plan shall be used for general corporate purposes of the
Company.
7.10 SHAREHOLDER APPROVAL OF PLAN. The Plan shall be subject to the
approval of the holders of at least a majority of the votes cast on the matter
at a meeting of shareholders of the Company held within 12 months after adoption
of the Plan by the Board. No Option, Restricted Stock Award, Restricted Stock
Unit or Performance Award granted under the Plan may be exercised or paid out in
whole or in part unless the Plan has been approved by the shareholders as
provided herein. If not approved by shareholders within 12 months after approval
by the Board, the Plan and any Options, Restricted Stock Awards, Restricted
Stock Units or Performance Awards granted under the Plan shall be rescinded.
7.11 GOVERNING LAW. The Plan and all actions taken under the Plan shall
be governed and construed in accordance with Michigan law.
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THIS PLAN is hereby executed as of April 16, 2004 in accordance with
the Board resolutions adopted on such date.
CREDIT ACCEPTANCE CORPORATION
By: /s/ Charles A. Pearce
---------------------------------
Charles A. Pearce
Corporate Secretary
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