<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1998.
REGISTRATION NOS. 333- AND 333- -01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HOUSEHOLD INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER OR GOVERNING DOCUMENT)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
36-3121988
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
HOUSEHOLD CAPITAL TRUST IV
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER OR GOVERNING DOCUMENT)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
APPLIED FOR
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
847-564-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PATRICK D. SCHWARTZ, ASSOCIATE GENERAL COUNSEL
HOUSEHOLD INTERNATIONAL, INC.
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
847-564-6301
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
(UNDERWRITERS' COUNSEL)
SCOTT N. GIERKE
MCDERMOTT, WILL & EMERY
227 WEST MONROE STREET
CHICAGO, ILLINOIS 60606
312-984-7521
JOHN W. BLENKE
VICE PRESIDENT--CORPORATE LAW
HOUSEHOLD INTERNATIONAL, INC.
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
847-564-6150
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(2)(3) PRICE(2)(3) REGISTRATION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Preferred Securities of Household Capital
Trust IV and Junior Subordinated Deferrable 40,000
Interest Notes of Household International, Preferred
Inc.(1)........................................... Securities $25.00 $1,000,000 $295.00
Guarantee of Trust Preferred Securities by Household
International, Inc. and certain back-up
obligations(4)....................................
=================================================================================================================================
</TABLE>
(1) The Junior Subordinated Deferrable Interest Notes will be purchased by and
constitute assets of Household Capital Trust IV. No separate consideration
therefor will be received.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) and Rule 457(n).
(3) Exclusive of accrued interest and distributions, if any.
(4) Includes the rights of holders of the Preferred Securities under the
Preferred Securities Guarantee and certain back-up undertakings, comprised
of the obligations of Household International to provide certain indemnities
in respect of, and pay and be responsible for certain costs, expenses, debts
and liabilities of the Trust (other than with respect to the Preferred
Securities) and such obligations of Household International as set forth in
the Declaration and the Indenture, in each case as further described in the
Registration Statement. The Preferred Securities Guarantee, when taken
together with Household International's obligations under the Junior
Subordinated Deferrable Interest Notes, the Indenture and the Declaration,
will provide a full and unconditional guarantee on a subordinated basis by
Household International of payments due on the Preferred Securities. The
Guarantee of Trust Preferred Securities referred to in this table is the
Preferred Securities Guarantee described in the Registration Statement. No
separate consideration will be received for the Guarantee or such back-up
obligations.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion, Issued March 2, 1998)
$
Household Capital Trust IV
% TRUST PREFERRED SECURITIES
(Liquidation Amount $25 per Preferred Security)
fully and unconditionally guaranteed by
Household International, Inc.
------------------------
The % Trust Preferred Securities (the "Preferred Securities") offered hereby
evidence preferred undivided beneficial interests in the assets of Household
Capital Trust IV, a statutory business trust formed under the laws of the State
of Delaware (the "Trust"). Household International, Inc., a Delaware corporation
("Household International" or the "Company"), will own all the common securities
(the "Common Securities" and, together with the Preferred Securities, the "Trust
Securities") representing undivided beneficial interests in the assets of the
Trust. The Trust exists for the sole purpose of issuing the Preferred Securities
and Common Securities and investing the proceeds thereof
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES
DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY
BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
SUCH DEFERRAL.
APPLICATION WILL BE MADE TO LIST THE PREFERRED SECURITIES ON THE NEW YORK STOCK
EXCHANGE, INC. (THE "NEW YORK STOCK EXCHANGE"). IF APPROVED, TRADING OF THE
PREFERRED SECURITIES ON THE NEW YORK STOCK EXCHANGE IS EXPECTED TO COMMENCE
WITHIN A 30 DAY PERIOD AFTER THE INITIAL DELIVERY OF THE PREFERRED SECURITIES.
SEE "UNDERWRITING."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $25 PER PREFERRED SECURITY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(2) TRUST(3)(4)
--------- -------------- -----------
<S> <C> <C> <C>
Per Preferred Security............................... $25.00 (3) $25.00
Total................................................ $1,000,000 (3) $1,000,000
</TABLE>
- ------------
(1) Plus accrued distributions, if any, from , 1998.
(2) Household International and the Trust have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Junior Subordinated Notes, Household
International has agreed to pay to the Underwriters as compensation (the
"Underwriters' Compensation ") for their arranging the investment
therein of such proceeds, $ per Preferred Security (or $ in
the aggregate); provided, that such compensation will be $ per
Preferred Security sold to certain institutions. Therefore, to the
extent of such sales, the actual amount of Underwriters' Compensation
will be less than the aggregate amount specified in the preceding
sentence. See "Underwriting."
(4) Expenses of the offering which are payable by Household International
are estimated to be $ .
------------------------
The Preferred Securities are offered subject to prior sale, when, as and if
issued to and accepted by the Underwriters and subject to approval of certain
legal matters by McDermott, Will & Emery, counsel for the Underwriters, and to
certain other conditions. It is expected that delivery of the Preferred
Securities will be made in book-entry form through the book-entry facilities of
The Depository Trust Company on or about , 1998, against payment therefor in
immediately available funds.
MORGAN STANLEY DEAN WITTER
, 1998
<PAGE> 3
(continued from previous page)
in an equivalent amount of % Junior Subordinated Deferrable Interest Notes
due 2037 (the "Junior Subordinated Notes") of Household International. The
Junior Subordinated Notes will be the unsecured obligations of Household
International and will be subordinate and junior in right of payment to certain
other indebtedness of Household International, as described herein. In addition,
because Household International is a holding company, its obligations under the
Junior Subordinated Notes will be effectively subordinate to all existing and
future liabilities of its subsidiaries, as described herein. Upon an event of
default under the Declaration (as defined herein), the holders of the Preferred
Securities will have a preference over the holders of the Common Securities with
respect to payments in respect of distributions and payments upon liquidation,
redemption and otherwise.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year commencing , 1998 (the "distributions"). The payment of
distributions out of moneys held by the Trust, and payments on liquidation of
the Trust or the redemption of Preferred Securities, as set forth below, are
guaranteed by Household International (the "Preferred Securities Guarantee") to
the extent the Trust has funds available therefor as described under
"Description of the Preferred Securities Guarantee." The Preferred Securities
Guarantee, when taken together with Household International's obligations under
the Junior Subordinated Notes, the Indenture and the Declaration (each as
defined herein), including its obligations under the Indenture to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), will provide a full and unconditional guarantee of amounts
due on the Preferred Securities. The obligations of Household International
under the Preferred Securities Guarantee are subordinate and junior in right of
payment to all other liabilities of Household International and will be pari
passu with the most senior preferred stock now or hereafter issued by Household
International and with any guarantee now or hereafter issued by Household
International in respect of any preferred security of any affiliate of Household
International. In addition, because Household International is a holding
company, its obligations under the Preferred Securities Guarantee are
effectively subordinated to all existing and future liabilities of its
subsidiaries.
The distribution rate and the distribution and other payment dates for the
Preferred Securities will correspond to the interest rate and interest and other
payment dates on the Junior Subordinated Notes, which will be the sole assets of
the Trust. As a result, if principal or interest is not paid on the Junior
Subordinated Notes, no amounts will be paid on the Preferred Securities. If
Household International does not make principal or interest payments on the
Junior Subordinated Notes, the Trust will not have sufficient funds to make
distributions on the Preferred Securities. In such event the Preferred
Securities Guarantee will not apply to such distributions until the Trust has
sufficient funds available therefor.
Household International has the right to defer payments of interest on the
Junior Subordinated Notes by extending the interest payment period on the Junior
Subordinated Notes, at any time, for up to 20 consecutive quarters (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
maturity of the Junior Subordinated Notes. If interest payments are so deferred,
distributions will also be deferred. Despite such deferral, distributions will
continue to accrue with interest thereon (to the extent permitted by applicable
law) at an annual rate of % per annum, compounded quarterly, and during any
Extension Period, holders of Preferred Securities will be required to include
deferred interest income in their gross income for United States federal income
tax purposes in advance of receipt of the cash distributions with respect to
such deferred interest payments. There could be multiple Extension
(continued on next page)
2
<PAGE> 4
Periods of varying lengths throughout the term of the Junior Subordinated Notes.
See "Description of the Junior Subordinated Notes -- Option to Extend Interest
Payment Period," "Risk Factors -- Possible Adverse Effects from Extension of
Interest Payment Period", "Certain Federal Income Tax Consequences -- Interest
Income and Original Issue Discount" and "-- Premium and Market Discount."
The Junior Subordinated Notes are redeemable by Household International (in
whole or in part) from time to time, on or after March , 2003 or at any time
in certain circumstances upon the occurrence of a Tax Event (as defined herein).
If Household International redeems the Junior Subordinated Notes, the Trust must
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Junior Subordinated Notes so redeemed at $25
per Preferred Security plus accrued and unpaid distributions thereon (the
"Redemption Price") to the date fixed for redemption. See "Description of the
Preferred Securities -- Mandatory Redemption." The Preferred Securities will be
redeemed upon maturity of the Junior Subordinated Notes. The Junior Subordinated
Notes mature on December 31, 2037 (such date, as it may be advanced as described
herein, the "Stated Maturity"). In addition, upon the occurrence of a Special
Event (as defined herein) arising from a change in law or a change in legal
interpretation, unless the Junior Subordinated Notes are redeemed in the limited
circumstances described herein, the Trust shall be dissolved with the result
that the Junior Subordinated Notes will be distributed to the holders of the
Trust Securities, on a pro rata basis, in lieu of any cash distribution. In the
case of a Special Event that is a Tax Event, Household International will have
the right in certain circumstances to redeem the Junior Subordinated Notes,
which would result in the redemption by the Trust of the Trust Securities in the
same amount on a pro rata basis. If the Junior Subordinated Notes are
distributed to the holders of the Preferred Securities, Household International
will use its best efforts to have the Junior Subordinated Notes listed on the
New York Stock Exchange or on such other exchange as the Preferred Securities
are then listed. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution" and "Description of the Junior Subordinated Notes."
In the event of the voluntary or involuntary dissolution, winding up or
termination of the Trust, the holders of the Preferred Securities will be
entitled to receive, for each Preferred Security, a liquidation amount of $25
plus accrued and unpaid distributions thereon (including interest thereon) to
the date of payment, unless in connection with such dissolution, the Junior
Subordinated Notes are distributed to the holders of the Preferred Securities.
See "Description of the Preferred Securities -- Liquidation Distribution Upon
Dissolution."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT
PREFERRED SECURITIES, AND MAY BID FOR, AND PURCHASE, THE PREFERRED SECURITIES IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" IN
THIS PROSPECTUS.
3
<PAGE> 5
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Incorporation of Certain Documents by
Reference........................... 5
Prospectus Summary.................... 6
Risk Factors.......................... 8
Special Note Regarding Forward-Looking
Statements.......................... 12
Household International............... 12
Household Capital Trust IV............ 12
Selected Financial Information........ 14
Capitalization of Household
International....................... 15
Ratio of Earnings to Fixed Charges.... 15
Accounting Treatment.................. 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Use of Proceeds....................... 15
Description of the Preferred
Securities.......................... 16
Description of the Preferred
Securities Guarantee................ 26
Description of the Junior Subordinated
Notes............................... 29
Effect of Obligations Under the Junior
Subordinated Notes and the
Guarantee........................... 38
Certain Federal Income Tax
Consequences........................ 39
Certain ERISA Considerations.......... 43
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Definitions........................... 47
</TABLE>
AVAILABLE INFORMATION
Household International and the Trust have filed with the Securities and
Exchange Commission (the "Commission") a combined registration statement on Form
S-3 (the "Registration Statement", which term encompasses any amendments
thereof) under the Securities Act of 1933, as amended, with respect to the
Junior Subordinated Notes, Preferred Securities and Preferred Securities
Guarantee offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto to which
reference is hereby made. Statements or extracts presented in this Prospectus
from financial statements, contracts, agreements or other documents included as
an exhibit to the Registration Statement are not necessarily complete. With
respect to each such financial statement, contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is hereby made to
the exhibit for a more complete description of the matter involved.
Household International is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, reports, proxy statements and
4
<PAGE> 6
other material concerning Household International can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, and the Chicago Stock Exchange, 440 South LaSalle Street, Chicago,
Illinois, 60605 or by reference to the Web site maintained by the Commission at
(http://www.sec.gov). Although Household International is not required to send a
copy of its latest Annual Report to Shareholders to holders of the Junior
Subordinated Notes, Preferred Securities or Preferred Securities Guarantee,
Household International will, upon request, send to any holder of such
securities a copy of its latest Annual Report to Shareholders, as filed with the
Commission, which contains financial information that has been examined and
reported upon, with an opinion expressed, by independent certified public
accountants.
No separate financial statements of the Trust are included herein as such
statements are not material to holders of the Preferred Securities. The Trust is
currently not subject to the informational reporting requirements of the
Exchange Act. The Trust will become subject to such requirements upon
effectiveness of the Registration Statement of which this Prospectus forms a
part, although it intends to seek and expects to receive an exemption therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission (File No.
1-8198) pursuant to the Exchange Act and are incorporated herein by reference
and made a part of this Prospectus: (a) Household International's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996; (b) Household
International's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; and (c) Household International
Current Reports on Form 8-K, dated January 23, February 10, May 23 and June 23,
1997 and January 21 and March , 1998.
All documents filed by Household International or the Trust, as the case
may be, with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Junior Subordinated Notes, Preferred
Securities or Preferred Securities Guarantee shall be deemed to be incorporated
herein by reference and made a part of this Prospectus from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
HOUSEHOLD INTERNATIONAL WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM
THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON,
A COPY OF ANY OR ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE (WITHOUT
EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE). REQUESTS
SHOULD BE DIRECTED TO: HOUSEHOLD INTERNATIONAL, INC., 2700 SANDERS ROAD,
PROSPECT HEIGHTS, ILLINOIS 60070, ATTENTION: OFFICE OF THE SECRETARY, TELEPHONE:
847-564-6989.
5
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Reference is made
to "Definitions" herein for the location herein of the definitions of certain
capitalized terms used herein.
PREFERRED SECURITIES OFFERED. 40,000 % Trust Preferred Securities
evidencing preferred undivided beneficial interests in the assets of the Trust.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year commencing on , 1998. The distribution rate and the
distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Junior Subordinated Notes, which will be the sole assets of the Trust. As a
result, if principal or interest is not paid on the Junior Subordinated Notes,
no amounts will be paid on the Preferred Securities. See "Description of the
Preferred Securities" herein.
JUNIOR SUBORDINATED NOTES. The Trust will invest the proceeds from the
issuance of the Preferred Securities and Common Securities in an equivalent
amount of % Junior Subordinated Deferrable Interest Notes due 2037 of
Household International. The Junior Subordinated Notes will be subordinate and
junior in right of payment to all Senior Indebtedness of Household
International. In addition, because Household International is a holding
company, its obligations under the Junior Subordinated Notes will be effectively
subordinated to all existing and future liabilities of its subsidiaries. See
"Description of the Junior Subordinated Notes -- Subordination" herein.
PREFERRED SECURITIES GUARANTEE. Payment of distributions out of moneys held
by the Trust, and payments on liquidation of the Trust or the redemption of
Preferred Securities are guaranteed by Household International to the extent the
Trust has funds available therefor. If Household International does not make
principal or interest payments on the Junior Subordinated Notes, the Trust will
not have sufficient funds to make distributions on the Preferred Securities, in
which event the Preferred Securities Guarantee will not apply to such
distributions until the Trust has sufficient funds available therefor. See
"Description of the Preferred Securities Guarantee" and "Effect of Obligations
under the Junior Subordinated Notes and the Preferred Securities Guarantee"
herein. The obligations of Household International under the Preferred
Securities Guarantee are subordinate and junior in right of payment to all other
liabilities of Household International and will be pari passu with the most
senior preferred stock now or hereafter issued by Household International and
with any guarantee now or hereafter issued by Household International in respect
of any preferred security of any affiliate of Household International. In
addition, because Household International is a holding company, its obligations
under the Preferred Securities Guarantee are effectively subordinated to all
existing and future liabilities of its subsidiaries. The Preferred Securities
Guarantee, when taken together with Household International's obligations under
the Junior Subordinated Notes, the Indenture and the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities), will provide a full and
unconditional guarantee of amounts due on the Preferred Securities. See "Risk
Factors -- Subordination of Preferred Securities Guarantee and Junior
Subordinated Notes" and "Description of the Preferred Securities Guarantee"
herein.
OPTION TO EXTEND INTEREST PAYMENT PERIOD. Household International has the
right to defer payments of interest on the Junior Subordinated Notes by
extending the interest payment period on the Junior Subordinated Notes, at any
time, for up to 20 consecutive quarters. If interest payments on the Junior
Subordinated Notes are so deferred, distributions on the Preferred Securities
will also be deferred. During any deferral, distributions will continue to
accrue with interest thereon (to the extent permitted by law) as described
herein. There could be multiple Extension Periods of varying lengths throughout
the term of the Junior Subordinated Notes. During an Extension Period, holders
of Preferred Securities will be required to include deferred interest income in
their gross income in advance of receipt of the cash distributions attributable
thereto. See "Description of the Junior Subordinated Notes -- Option to Extend
Interest Payment Period", "Certain Federal Income Tax Consequences -- Interest
Income and Original Issue Discount" and "-- Premium and Market Discount."
6
<PAGE> 8
REDEMPTION. The Junior Subordinated Notes are redeemable by Household
International (in whole or in part) from time to time, on or after March ,
2003, or at any time upon the occurrence of a Tax Event. If the Junior
Subordinated Notes are redeemed, the Trust must redeem Trust Securities having
an aggregate liquidation amount equal to the aggregate principal amount of the
Junior Subordinated Notes so redeemed. The Preferred Securities will be redeemed
upon maturity of the Junior Subordinated Notes which will occur on December 31,
2037. See "Description of the Preferred Securities -- Mandatory Redemption."
VOTING RIGHTS. Generally, the holders of the Preferred Securities will not
have any voting rights. Subject to certain conditions, the holders of a majority
in aggregate liquidation amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration including the
right to direct the Property Trustee, as holder of the Junior Subordinated
Notes, to (i) direct the time, method or place of conducting any proceeding for
any remedy available to the Indenture Trustee or exercise any trust or power
conferred on the Debt Trustee with respect to the Junior Subordinated Notes,
(ii) waive any past Indenture Event of Default that is available under the
Indenture (as defined herein), (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Notes shall be due
any payable, or (iv) consent to any amendment, modification or termination of
the Indenture or the Junior Subordinated Notes where such consent shall be
required; provided, however, that, where a consent or action under the Indenture
would require the consent or act of a Super Majority (as defined herein) of
holders of the Junior Subordinated Notes affected thereby, only the holders of
at least such Super Majority in aggregate liquidation amount of the Preferred
Securities may direct the Property Trustee to give such consent or take such
action. See "Description of the Preferred Securities -- Voting Rights."
CONDITIONAL RIGHT TO ADVANCE MATURITY. If a Tax Event occurs, then
Household International will have the right, prior to the dissolution of the
Trust, to advance the Stated Maturity of the Junior Subordinated Notes to the
minimum extent required in order to allow for the payments of interest in
respect of the Junior Subordinated Notes to continue to be tax deductible, but
in no event shall the resulting maturity of the Junior Subordinated Notes be
less than 15 years from the date of original issuance thereof. The Stated
Maturity shall be advanced only if, in the opinion of counsel to Household
International experienced in such matters, (a) after advancing the Stated
Maturity, interest paid on the Junior Subordinated Notes will be deductible for
United States federal income tax purposes and (b) advancing the Stated Maturity
will not result in a taxable event to holders of the Preferred Securities.
7
<PAGE> 9
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters:
SUBORDINATION OF PREFERRED SECURITIES GUARANTEE AND JUNIOR SUBORDINATED NOTES
Household International's obligations under the Preferred Securities
Guarantee are subordinate and junior in right of payment to all liabilities of
Household International and will be pari passu with the most senior preferred
stock now or hereafter issued by Household International and with any guarantee
now or hereafter issued by Household International in respect of any preferred
securities of any affiliate of Household International. The obligations of
Household International under the Junior Subordinated Notes are subordinate and
junior in right of payment to all present and future Senior Indebtedness (as
defined herein) of Household International. At December 31, 1997 Senior
Indebtedness of Household International aggregated approximately $ billion. In
addition, because Household International is a holding company, its obligations
under the Preferred Securities Guarantee and the Junior Subordinated Notes will
be effectively subordinated to all existing and future liabilities of its
subsidiaries. At December 31, 1997, such subsidiaries had total liabilities of
approximately $ billion. There are no terms in the Preferred Securities, the
Junior Subordinated Notes or the Preferred Securities Guarantee that limit
Household International's ability to incur additional indebtedness, including
indebtedness that ranks senior to the Junior Subordinated Notes or the Preferred
Securities Guarantee. See "Description of the Preferred Securities Guarantee"
and "Description of the Junior Subordinated Notes -- Subordination."
LIMITATION OF RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accrued and unpaid distributions
which are required to be paid on the Preferred Securities, to the extent the
Trust shall have funds available therefor, (ii) the Redemption Price, including
all accrued and unpaid distributions with respect to Preferred Securities called
for redemption by the Trust, to the extent the Trust has funds available
therefor and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Junior Subordinated Notes to the holders of Preferred Securities or a redemption
of all of the Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Preferred
Securities to the date of payment, to the extent the Trust has funds available
therefor and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Preferred Securities in liquidation of the Trust.
The holders of a majority in liquidation amount of the Preferred Securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Preferred Guarantee Trustee (as defined herein) or
to direct the exercise of any trust or power conferred upon the Preferred
Guarantee Trustee under the Preferred Securities Guarantee. Any holder of
Preferred Securities may institute a legal proceeding directly against Household
International to enforce such holder's rights under the Preferred Securities
Guarantee, without first instituting a legal proceeding against the Trust, the
Preferred Guarantee Trustee or any other person or entity. If Household
International were to default in its obligation to pay amounts payable on the
Junior Subordinated Notes, the Trust would lack available funds for the payment
of distributions or amounts payable on redemption of the Preferred Securities or
otherwise, and in such event holders of the Preferred Securities would not be
able to rely upon the Preferred Securities Guarantee for payment of such
amounts. Instead, holders of the Preferred Securities would rely on the
enforcement by the Property Trustee (as defined herein) of its rights as
registered holder of the Junior Subordinated Notes against Household
International pursuant to the terms of the Junior Subordinated Notes and may
also vote to appoint a Special Regular Trustee (as defined herein), who shall
have the same rights, powers and privileges as the other Regular Trustees (as
defined herein). If the Property Trustee fails to enforce its rights under the
Junior Subordinated Notes, a holder of Preferred Securities may institute a
legal proceeding directly against Household International to enforce the
Property Trustee's rights under the Junior Subordinated Notes without first
instituting any legal proceeding against the Property Trustee or any other
person or entity, including the Trust. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and
8
<PAGE> 10
such event is attributable to the failure of Household International to pay
interest or principal on the Junior Subordinated Notes on the date such interest
or principal is otherwise payable (or in the case of redemption, the redemption
date), then a holder of Preferred Securities may directly institute a proceeding
for enforcement of payment to such holder of the principal of or interest on the
Junior Subordinated Notes having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on or after the
respective due date specified in the Junior Subordinated Notes. See "Description
of the Preferred Securities Guarantee -- Events of Default" and "-- Status of
the Preferred Securities Guarantee" and "Description of the Junior Subordinated
Notes -- Subordination." The Declaration (as defined herein) provides that each
holder of Preferred Securities by acceptance thereof agrees to the provisions of
the Preferred Securities Guarantee and the Indenture (as defined herein).
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If (i) the Trust fails to pay distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods, or (ii) a
Declaration Event of Default (as defined herein) occurs and is continuing, then
the holders of Preferred Securities would rely on the enforcement by the
Property Trustee of its rights as a holder of the Junior Subordinated Notes
against Household International. In addition, the holders of a majority in
aggregate liquidation amount of the Preferred Securities will have the right to
direct the time, method, and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee to exercise the remedies available to it as
a holder of the Junior Subordinated Notes. If the Property Trustee fails to
enforce its rights under the Junior Subordinated Notes, a holder of Preferred
Securities may institute a legal proceeding directly against Household
International to enforce the Property Trustee's rights under the Junior
Subordinated Notes without first instituting any legal proceeding against the
Property Trustee or any other person or entity, including the Trust.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of Household
International to pay interest or principal on the Junior Subordinated Notes on
the date such interest or principal is otherwise payable (or in the case of
redemption, the redemption date), then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Junior Subordinated Notes having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities of
such holder on or after the respective due date specified in the Junior
Subordinated Notes. Upon the occurrence of any of the events described in
clauses (i) or (ii) above, the holders of the Preferred Securities also will be
entitled, by majority vote, to appoint a Special Regular Trustee, who shall have
the same rights, powers and privileges as the other Regular Trustees.
POSSIBLE ADVERSE EFFECTS FROM EXTENSION OF INTEREST PAYMENT PERIOD
Household International has the right under the Indenture to defer payments
of interest on the Junior Subordinated Notes by extending the interest payment
period at any time, and from time to time, on the Junior Subordinated Notes. As
a consequence of such an extension, quarterly distributions on the Preferred
Securities would be deferred (but despite such deferral would continue to accrue
with interest thereon compounded quarterly) by the Trust during any such
extended interest payment period. Such right to extend the interest payment
period for the Junior Subordinated Notes is limited to a period not exceeding 20
consecutive quarters. In the event that Household International exercises this
right to defer payments of interest, then (a) Household International shall not
declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase or make a liquidation payment with respect to, any of its
capital stock (other than (i) repurchases, redemptions or other acquisitions of
shares of capital stock of Household International in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of employees, officers, directors or consultants, (ii) as a result of an
exchange or conversion of any class or series of Household International's
capital stock for any other class or series of Household International's capital
stock, or (iii) the purchase of fractional interests in shares of Household
International's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged), and (b)
Household International shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by
9
<PAGE> 11
Household International which rank pari passu with or junior to the Junior
Subordinated Notes. The foregoing, however, will not apply to any stock
dividends paid by Household International where the dividend stock is the same
stock as that on which the dividend is being paid. Prior to the termination of
any such Extension Period, Household International may further defer payments of
interest by extending the interest payment period, provided that such Extension
Period, together with all such previous and further extensions thereof, may not
exceed 20 consecutive quarters and provided further that no Extension Period may
extend beyond the maturity of the Junior Subordinated Notes. Upon the
termination of any Extension Period and the payment of all amounts then due,
Household International may select a new Extension Period, subject to the above
requirements. See "Description of the Preferred Securities -- Distributions" and
"Description of the Junior Subordinated Notes -- Option to Extend Interest
Payment Period."
Should Household International exercise its rights to defer payments of
interest by extending the interest payment period, each holder of Preferred
Securities will continue to accrue income (as original issue discount) for
United States federal income tax purposes in respect of the deferred interest
allocable to its Preferred Securities, which will be allocated but not
distributed, to holders of record of Preferred Securities. As a result, holders
of Preferred Securities will recognize income for United States federal income
tax purposes in advance of the receipt of cash and will not receive the cash
from the Trust related to such income if such holder disposes of its Preferred
Securities prior to the record date for the date on which distributions of such
amounts are made. Household International has no current intention of exercising
its right to defer payments of interest by extending the interest payment period
on the Junior Subordinated Notes. However, should Household International
determine to exercise such right in the future, the market price of the
Preferred Securities is likely to be affected. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of Household
International's right to defer interest payments, the market price of the
Preferred Securities (which represent an undivided beneficial interest in the
Junior Subordinated Notes) may be more volatile than other securities on which
original issue discount accrues that do not have such rights. See "Certain
Federal Income Tax Consequences -- Interest Income and Original Issue Discount"
and "-- Premium and Market Discount."
POSSIBLE CHANGES TO UNITED STATES TAX LAWS; POSSIBLE TAX EVENT
In a previous budget proposal released on February 6, 1997, the Clinton
Administration proposed certain tax law changes that, if enacted, would have
treated a corporate issuer that filed annual financial statements with the SEC
as having characterized an instrument such as the Junior Subordinated Notes as
equity for purposes of Section 385(c) of the Internal Revenue Code of 1986, as
amended (the "Code"), if the instrument had a maximum term exceeding 15 years
and was not shown as indebtedness on the issuer's balance sheet or, in the case
of indebtedness issued to a related party that issues a related instrument, the
related instrument was not reflected as indebtedness on the applicable
consolidated balance sheet. Under Section 385(c), the characterization by the
issuer of an instrument as equity is binding on the issuer and all holders of
the instrument unless a holder discloses on his tax return that he is treating
the instrument in a manner inconsistent with the issuer's characterization.
These proposals were not enacted into law, and the Administration has not made
any such proposals in its budget proposal for fiscal year 1999 released on
February 2, 1998. See "-- Effect of Special Event Redemption or Distribution,"
"Description of the Preferred Securities -- Special Event Redemption or
Distribution," "Description of the Junior Subordinated Notes -- Possible Tax
Legislation," and "Certain Federal Income Tax Consequences -- Possible Tax
Legislation."
There can be no assurance that legislation affecting Household
International's ability to deduct interest paid on the Junior Subordinated Notes
or the characterization of the Junior Subordinated Notes for United States
federal income tax purposes, including legislation similar to the proposal
described above, will not be enacted in the future or that any such legislation
would not be effective retroactively. If tax law changes are enacted and apply
retroactively to the Junior Subordinated Notes, those changes could give rise to
a Tax Event, which could, in certain circumstances, require the dissolution of
the Trust or permit Household International to redeem the Junior Subordinated
Notes or advance the Stated Maturity of the Junior Subordinated Notes.
10
<PAGE> 12
EFFECT OF SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event, the Trust shall be dissolved,
except in the limited circumstances described below, with the result that the
Junior Subordinated Notes would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. In the case of a
Special Event that is a Tax Event, in certain circumstances Household
International shall have the right to redeem the Junior Subordinated Notes, in
whole or in part, in which event the Trust will redeem the Trust Securities on a
pro rata basis to the same extent as the Junior Subordinated Notes are redeemed.
See "Description of the Preferred Securities -- Special Event Redemption or
Distribution" and "Certain Federal Income Tax Consequences."
Under current United States federal income tax law, a distribution of
Junior Subordinated Notes upon the dissolution of the Trust would not be a
taxable event to holders of the Preferred Securities. Upon the occurrence of a
Tax Event, however, a dissolution of the Trust in which holders of the Preferred
Securities receive cash would be a taxable event to such holders. See "Certain
Federal Income Tax Consequences -- Receipt of Junior Subordinated Notes Upon
Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Notes that may be distributed in exchange
for Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase, or
the Junior Subordinated Notes that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby. Because holders of
Preferred Securities may receive Junior Subordinated Notes upon the occurrence
of a Special Event, prospective purchasers of Preferred Securities are also
making an investment decision with regard to the Junior Subordinated Notes and
should carefully review all the information regarding the Junior Subordinated
Notes contained herein. See "Description of the Preferred Securities -- Special
Event Redemption or Distribution" and "Description of the Junior Subordinated
Notes."
CONDITIONAL RIGHT TO ADVANCE MATURITY
If a Tax Event occurs, then Household International will have the right,
prior to the dissolution of the Trust, to advance the Stated Maturity of the
Junior Subordinated Notes to the minimum extent required in order to allow for
the payments of interest in respect of the Junior Subordinated Notes to continue
to be tax deductible, but in no event shall the resulting maturity of the Junior
Subordinated Notes be less than 15 years from the date of original issuance
thereof. The Stated Maturity shall be advanced only if, in the opinion of
counsel to Household International experienced in such matters, (a) after
advancing the Stated Maturity, interest paid on the Junior Subordinated Notes
will be deductible for United States federal income tax purposes and (b)
advancing the Stated Maturity will not result in a taxable event to holders of
the Preferred Securities.
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and, except
for the rights of holders of Preferred Securities to appoint a Special Regular
Trustee upon the occurrence of certain events described herein, will not be
entitled to vote to appoint, remove or replace, or to increase or decrease the
number of, Household International Trustees (as defined herein), which voting
rights are vested exclusively in the holder of the Common Securities. See
"Description of the Preferred Securities -- Voting Rights."
TRADING PRICE OF PREFERRED SECURITIES -- TAX CONSEQUENCES UPON DISPOSITION
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Notes. A holder that uses the accrual method of accounting for tax
purposes (and a cash method holder, if the Junior Subordinated Notes are deemed
to have been issued with OID, as defined herein) and that disposes of Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Junior Subordinated Notes
through the date of disposition in income as ordinary income, and to add such
amount to such holder's adjusted tax basis in the pro rata share of the
underlying Junior Subordinated Notes deemed
11
<PAGE> 13
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis so determined, a holder will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount", "--
Premium and Market Discount" and "-- Sale of Preferred Securities and Redemption
of Junior Subordinated Notes."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the caption "Household
International" and elsewhere in this Prospectus or in the information
incorporated by reference herein or therein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and as such may involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of
Household International to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
HOUSEHOLD INTERNATIONAL
Household International was formed in 1981 as a holding company for various
subsidiaries which operated in the financial services, manufacturing,
transportation and merchandising industries. In 1985 the Company initiated a
restructuring program that has resulted in the disposition of its merchandising,
transportation and manufacturing businesses. This has enabled the Company to
focus its resources in the financial services industry. The Company's principal
executive office is located at 2700 Sanders Road, Prospect Heights, Illinois
60070 (telephone: 847-564-5000).
Through subsidiaries, such as Household Finance Corporation ("HFC"),
Household Bank, f.s.b., Household Automotive Finance Corporation, Household
Retail Services, Inc., Household Bank (Nevada), National Association, Household
Bank (S.B.), National Association, Household Financial Corporation Limited, and
HFC Bank plc, the Company offers numerous consumer finance products, including
home equity credit lines, revolving and closed-end unsecured personal loans,
non-prime automobile loans, private label credit cards, and MasterCard* and
VISA* credit cards. Also, in conjunction with its consumer finance business, and
where applicable laws permit, the Company makes credit life, credit accident and
health, and household contents insurance available to its customers. This
insurance is generally directly written by or reinsured with one of its
insurance subsidiaries.
Household International is principally a holding company whose primary
source of funds is cash received from its subsidiaries primarily in the form of
dividends and borrowings under intercorporate agreements. Dividend distributions
to the Company from its savings and loan, banking and insurance subsidiaries may
be restricted by federal and state laws and regulations. Dividend distributions
from its foreign subsidiaries may also be restricted by exchange controls of the
country in which the subsidiary is located. Also, as a holding company the
rights of any creditors or stockholders of Household International to
participate in the assets of any subsidiary upon the latter's liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary. Nevertheless, there are no
restrictions that currently materially limit the Company's ability to make
payments to its creditors or to pay dividends on its preferred stock or common
stock at current levels nor are there any restrictions which Household
International reasonably believes are likely to limit materially such payments
in the future.
HOUSEHOLD CAPITAL TRUST IV
The Trust is a statutory business trust formed under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State on
February 25, 1998. The Trust's business is defined in a
- ---------------
*MasterCard and VISA are registered trademarks of MasterCard International
Incorporated and
VISA, USA, Inc., respectively.
12
<PAGE> 14
Declaration of Trust, executed by Household International, as Sponsor (the
"Sponsor") and the Household International Trustees (as defined herein). The
Declaration of Trust will be amended and restated in its entirety (as so amended
and restated, the "Declaration") substantially in the form filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities.
Household International will acquire all of the Common Securities in an
aggregate liquidation amount equal to 3% of the total capital of the Trust. The
Trust exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in the Junior Subordinated
Notes and (iii) engaging in only those other activities necessary or incidental
thereto. The Trust has a term of approximately 55 years, but may terminate
earlier as provided in the Declaration.
The Trust's business and affairs will be conducted by the trustees (the
"Household International Trustees") appointed by Household International, as
holder of the Common Securities. The duties and obligations of the Household
International Trustees shall be governed by the Declaration. Pursuant to the
Declaration, the number of Household International Trustees will initially be
three. Two of the Household International Trustees (the "Regular Trustees") will
be persons who are employees or officers of, or affiliated with Household
International. The third trustee will be a financial institution which maintains
a principal place of business in the State of Delaware which is unaffiliated
with Household International that will serve as property trustee under the
Declaration and as indenture trustee for purposes of the Trust Indenture Act
(the "Property Trustee"). Wilmington Trust Company will act as the Property
Trustee until removed or replaced by the holder of the Common Securities.
Wilmington Trust Company will also act as indenture trustee under the Preferred
Securities Guarantee (the "Preferred Guarantee Trustee"). See "Description of
the Preferred Securities Guarantee." In certain circumstances, the holders of a
majority of the Preferred Securities will be entitled to appoint one Regular
Trustee (a "Special Regular Trustee"), who need not be an officer or employee
of, or otherwise affiliated with, Household International. See "Description of
the Preferred Securities -- Voting Rights."
The Property Trustee will hold title to the Junior Subordinated Notes for
the benefit of the holders of the Trust Securities and will have the power to
exercise all rights, powers and privileges under the Indenture (as defined
herein) as the holder of the Junior Subordinated Notes. In addition, the
Property Trustee will maintain exclusive control of a segregated non-interest
bearing bank account (the "Property Account") to hold all payments made in
respect of the Junior Subordinated Notes for the benefit of the holders of Trust
Securities. The Property Trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the Trust
Securities out of funds from the Property Account. The Preferred Guarantee
Trustee will hold the Preferred Securities Guarantee for the benefit of the
holders of the Preferred Securities. Subject to the right of the holders of the
Preferred Securities to appoint a Special Regular Trustee, Household
International, as the holder of all the Common Securities, will have the right
to appoint, remove or replace any Household International Trustee and to
increase the number of Household International Trustees, provided that the
number of Household International Trustees shall be at least three, a majority
of which shall be Regular Trustees. Household International will pay all fees
and expenses related to the Trust and the offering of the Trust Securities. See
"Description of the Junior Subordinated Notes -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
The Trust's registered office in the State of Delaware is c/o Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890. The principal place of business of the Trust shall be c/o
Household International, 2700 Sanders Road, Prospect Heights, Illinois 60070
(telephone number (847) 564-6150).
13
<PAGE> 15
SELECTED FINANCIAL INFORMATION
The financial information which is set forth below as of and for the three
years ended December 31, 1997 has been derived from the consolidated financial
statements and notes thereto of Household International and subsidiaries which
have been audited by Arthur Andersen LLP, independent certified public
accountants. All consolidated financial information of Household International
and subsidiaries presented below should be read in conjunction with the detailed
financial statements included in documents on file with the Commission and
listed under "Incorporation of Certain Documents by Reference" in this
Prospectus. Certain prior period amounts have been reclassified to conform with
the current period's presentation. All dollar amounts stated below are in
millions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Finance income.............................. $ $ 2,949.9 $ 2,878.8
Other interest income....................... 80.6 123.4
Interest expense............................ 1,520.6 1,557.1
-------- --------- ---------
Net interest margin...................... 1,509.9 1,445.1
Provision for credit losses on owned
receivables.............................. 759.6 761.3
-------- --------- ---------
Net interest margin after provision for
credit losses............................ 750.3 683.8
-------- --------- ---------
Securitization income....................... 1,149.0 873.6
Insurance revenues.......................... 253.4 322.1
Investment income........................... 153.2 470.2
Fee income.................................. 240.3 196.4
Other income................................ 232.4 279.9
-------- --------- ---------
Total other revenues..................... 2,028.3 2,142.2
-------- --------- ---------
Salaries and fringe benefits................ 564.3 555.3
Occupancy and equipment expense............. 209.8 222.1
Other marketing expenses.................... 354.4 249.7
Other servicing and administrative
expenses................................. 455.0 460.9
Amortization of acquired intangibles and
goodwill................................. -- 143.7 109.8
Policyholders' benefits..................... 229.1 474.5
-------- --------- ---------
Total costs and expenses................. 1,956.3 2,072.3
-------- --------- ---------
Income before income taxes.................. 822.3 753.7
Income taxes................................ 283.7 300.5
-------- --------- ---------
Net income............................... $ $ 538.6 $ 453.2
======== ========= =========
PERIOD END BALANCE SHEET DATA:
Total assets:
Owned.................................... $ -- $29,594.5 $29,218.8
Managed(1)............................... -- 48,120.9 44,103.4
Deposits.................................... 2,365.1 4,708.8
Total other debt............................ 21,230.1 17,887.3
Company obligated mandatorily redeemable
preferred securities of subsidiary
trusts................................... 175.0 75.0
Preferred stock............................. 205.0 205.0
Common shareholders' equity................. 2,941.2 2,690.9
</TABLE>
- -------------------------
(1) Managed assets include assets on our balance sheet and assets that we
service for investors as part of our asset securitization program.
14
<PAGE> 16
CAPITALIZATION OF HOUSEHOLD INTERNATIONAL
The following table sets forth the consolidated capitalization of Household
International at December 31, 1997, and as adjusted to reflect the application
of the estimated net proceeds from the sale of the Preferred Securities. See
"Use of Proceeds." The table should be read in conjunction with Household
International's consolidated financial statements and notes thereto included in
the documents incorporated by reference herein. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL PRO FORMA
------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deposits................................................ $ $
Commercial paper, bank and other borrowings.............
Senior and senior subordinated debt (with original
maturities over one year).............................
--------- --------
Total debt.............................................. $ $
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts(1)....................
Preferred stock.........................................
Common shareholders' equity.............................
--------- --------
Total capitalization.................................. $ $
========= ========
</TABLE>
- -------------------------
(1) The sole assets of the two trusts are Junior Subordinated Deferrable
Interest Notes issued by Household International in June 1996 and June 1995,
bearing interest at 8.70 and 8.25 percent, respectively, with principal
balances of $103.1 and $77.3 million, respectively, and due June 30, 2036
and June 30, 2025, respectively. Pro forma includes the Junior Subordinated
Notes issued by Household International in connection with the issuance of
the Preferred Securities offered hereby.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for Household International and
subsidiaries for the periods indicated below was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........ 1.53 1.47 1.41 1.38 1.19
</TABLE>
For purposes of calculating the above ratios, earnings consist of net
income to which has been added income taxes and fixed charges. Fixed charges
consist of interest on all indebtedness (including capitalized interest) and
one-third of rental expense (approximate portion representing interest).
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Household
International's financial statements, with the Preferred Securities shown as
"Company obligated mandatorily redeemable preferred securities of subsidiary
trusts."
USE OF PROCEEDS
The proceeds of the sale of the Preferred Securities will be invested by
the Trust in the Junior Subordinated Notes of Household International. Household
International will use the net proceeds from the sale of such Junior
Subordinated Notes for the reduction of indebtedness incurred in the normal and
ordinary course of its business, and for other general corporate purposes.
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<PAGE> 17
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the indenture trustee for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the principal terms and provisions of the Preferred Securities does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Declaration, a copy of which is filed as an exhibit to the
Registration Statement, of which this Prospectus is a part, the Trust Act and
the Trust Indenture Act.
The Declaration authorizes the Regular Trustees, on behalf of the Trust, to
issue the Preferred Securities, which represent preferred undivided beneficial
interests in the assets of the Trust, and the Common Securities, which represent
common undivided beneficial interests in the assets of the Trust. All of the
Common Securities will be owned by Household International. The Common
Securities rank pari passu, and payments will be made thereon on a pro rata
basis with the Preferred Securities, except that upon the occurrence of a
Declaration Event of Default, the rights of the holders of the Common Securities
to receive payment of periodic distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Declaration does not permit the issuance by the
Trust of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Property Trustee
will own and hold the Junior Subordinated Notes for the benefit of the holders
of the Trust Securities. The payment of distributions out of money held by the
Trust, and payments upon redemption of the Preferred Securities or liquidation
of the Trust, are guaranteed by Household International on a subordinated basis
as and to the extent described under "Description of the Preferred Securities
Guarantee." The Preferred Guarantee Trustee will hold the Preferred Securities
Guarantee for the benefit of the holders of the Preferred Securities. The
Preferred Securities Guarantee does not cover payment of distributions on the
Preferred Securities when the Trust does not have sufficient available funds in
the Property Account to make such distributions. In such event, the remedy of a
holder of Preferred Securities is to (i) vote to appoint a Special Regular
Trustee, (ii) to direct the Property Trustee to enforce its rights under the
Junior Subordinated Notes or (iii) if the failure of the Trust to pay
distributions is attributable to the failure of Household International to pay
interest or principal on the Junior Subordinated Notes, institute a proceeding
directly against Household International for enforcement of payment to such
holder of the principal or interest on the Junior Subordinated Notes having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Junior Subordinated Notes. See "Description of the Preferred Securities --
Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
the rate per annum of % thereof. The term "distributions" as used herein
includes any such interest payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from March , 1998 and will be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year to the holders of record on the
applicable record date, commencing , 1998 when, as and if available
for payment by the Property Trustee, except as otherwise described below. The
distribution on , 1998 will include the period from , 1998
to , 1998.
Household International has the right under the Indenture to defer payments
of interest on the Junior Subordinated Notes by extending the interest payment
period from time to time on the Junior Subordinated Notes (each, an "Extension
Period") which, if exercised, would defer quarterly distributions on the
Preferred Securities (though such distributions would continue to accrue
interest since interest would continue to accrue on the Junior Subordinated
Notes) during any such extended interest payment period. In the event that
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<PAGE> 18
Household International exercises this right, then (a) Household International
shall not declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase or make a liquidation payment with respect to, any of
its capital stock (other than (i) repurchases, redemptions or other acquisitions
of shares of capital stock of Household International in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of employees, officers, directors or consultants, (ii) as a result of an
exchange or conversion of any class or series of Household International's
capital stock for any other class or series of Household International's capital
stock, or (iii) the purchase of fractional interests in shares of Household
International's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged), and (b)
Household International shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by Household International which rank pari passu
with or junior to the Junior Subordinated Notes. The foregoing, however, will
not apply to any stock dividends paid by Household International where the
dividend stock is the same stock as that on which the dividend is being paid.
Prior to the termination of any such Extension Period, Household International
may further extend the interest payment period, provided that such Extension
Period together with all such previous and further extensions thereof may not
exceed 20 consecutive quarters and provided further that no Extension Period may
extend beyond the maturity of the Junior Subordinated Notes. Upon the
termination of any Extension Period and the payment of all amounts then due,
Household International may select a new Extension Period as if no Extension
Period had previously been declared, subject to the above requirements. See
"Description of the Junior Subordinated Notes -- Interest" and "-- Option to
Extend Interest Payment Period." If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid to holders of record of
the Preferred Securities, if funds are available therefor, as they appear on the
books and records of the Trust on the record date next following the termination
of such Extension Period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received under the Junior Subordinated Notes. See "Description of the
Junior Subordinated Notes." The payment of distributions out of moneys held by
the Trust is guaranteed by Household International to the extent set forth under
"Description of the Preferred Securities Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
only form, will be one Business Day (as defined herein) prior to the relevant
payment dates. Such distributions will be paid through the Property Trustee, who
will hold amounts received in respect of the Junior Subordinated Notes in the
Property Account for the benefit of the holders of the Trust Securities. Subject
to any applicable laws and regulations and the provisions of the Declaration,
each such payment will be made as described under "-- Book-Entry Only Issuance
- -- The Depository Trust Company" below. In the event the Preferred Securities
shall not continue to remain in book-entry only form, the Regular Trustees shall
have the right to select record dates which shall be more than one Business Day,
but less than 30 Business Days prior to the relevant payment dates. In the event
that any date on which distributions are to be made on the Preferred Securities
is not a Business Day, then payment of the distributions payable on such date
will be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. A "Business Day" shall mean any day other than
Saturday, Sunday or any day on which banking institutions in Chicago, Illinois,
New York, New York, or the State of Delaware are authorized or required by law
to close.
MANDATORY REDEMPTION
The Junior Subordinated Notes will mature on December 31, 2037, and may be
redeemed, in whole or in part, at any time on or after March , 2003, or at any
time, in whole or in part, in certain circumstances upon the occurrence of a Tax
Event. Upon the repayment of the Junior Subordinated Notes, whether at maturity
or
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<PAGE> 19
upon redemption, the proceeds from such repayment or payment shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Subordinated Notes so repaid or redeemed at the Redemption Price; provided that
holders of Trust Securities shall be given not less than 30 nor more than 60
days notice of such redemption. See "Description of the Junior Subordinated
Notes." In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
"Tax Event" means that the Regular Trustees shall have received an opinion
from independent tax counsel experienced in such matters (a "Dissolution Tax
Opinion") to the effect that, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein or (b) any amendment to, or change in, an
interpretation or application of such laws or regulations, there is more than an
insubstantial risk that (i) the Trust would be subject to United States federal
income tax with respect to income accrued or received on the Junior Subordinated
Notes, (ii) interest payable to the Trust on the Junior Subordinated Notes would
not be deductible, in whole or in part, by Household International for United
States federal income tax purposes or (iii) the Trust would be subject to more
than a de minimis amount of other taxes, duties or other governmental charges,
which change or amendment becomes effective on or after the date of this
Prospectus.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel to the effect that, as a result of
the occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law
becomes effective on or after the date of this Prospectus.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Trust
shall, except in the circumstances described below, be dissolved with the result
that Junior Subordinated Notes with an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Trust Securities would be distributed to the
holders of the Trust Securities, in liquidation of such holders' interests in
the Trust on a pro rata basis, within 90 days following the occurrence of such
Special Event; provided, however, that in the case of the occurrence of a Tax
Event, as a condition of such dissolution and distribution, the Regular Trustees
shall have received an opinion from independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the holders
of the Trust Securities will not recognize any gain or loss for United States
federal income tax purposes as a result of such dissolution and distribution of
Junior Subordinated Notes; and, provided, further, that, if at the time there is
available to the Trust the opportunity to eliminate, within such 90 day period,
the Special Event by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable measure, which has
no adverse effect on the Trust, Household International or the holders of the
Trust Securities, the Trust will pursue such measure in lieu of dissolution.
Furthermore, if in the case of the occurrence of a Tax Event, (i) Household
International has received an opinion (a "Redemption Tax Opinion") from
independent tax counsel experienced in such matters that, as a result of a Tax
Event, there is more than an insubstantial risk that Household International
would be precluded from deducting the interest on the Junior Subordinated Notes
for United States federal income tax purposes even after the Junior Subordinated
Notes were distributed to the holders of Trust Securities in liquidation of such
holders' interests in the Trust as described above or (ii) the Regular Trustees
shall have been informed by such tax counsel that a No Recognition Opinion
cannot be delivered, Household International shall have the right, upon not less
than 30 nor more than 60 days notice, to redeem the Junior Subordinated Notes in
whole or in part for cash
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<PAGE> 20
within 90 days following the occurrence of such Tax Event, and, following such
redemption, Trust Securities with an aggregate liquidation amount equal to the
aggregate principal amount of the Junior Subordinated Notes so redeemed shall be
redeemed by the Trust at the Redemption Price on a pro rata basis; provided,
however, that, if at the time there is available to Household International or
the Trust the opportunity to eliminate, within such 90 day period, the Tax Event
by taking some ministerial action, such as filing a form or making an election,
or pursuing some other similar reasonable measure which has no adverse effect on
the Trust, the holders of the Trust Securities or Household International, the
Trust will pursue such measure in lieu of redemption.
If Junior Subordinated Notes are distributed to the holders of the
Preferred Securities, Household International will use its best efforts to have
the Junior Subordinated Notes listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
After the date for any distribution of Junior Subordinated Notes upon
dissolution of the Trust, (i) the Preferred Securities and Preferred Securities
Guarantee will no longer be deemed to be outstanding, (ii) the depositary or its
nominee, as the record holder of the Preferred Securities, will receive a
registered global certificate or certificates representing the Junior
Subordinated Notes to be delivered upon such distribution and (iii) any
certificates representing Preferred Securities and the Preferred Securities
Guarantee not held by the depositary or its nominee will be deemed to represent
Junior Subordinated Notes having an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distribution on, such Preferred Securities, until such certificates are
presented to Household International or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Notes that may be distributed in exchange
for the Preferred Securities if a dissolution and liquidation of the Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
or the Junior Subordinated Notes that the investor may receive on dissolution
and liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that Household International has
paid to the Property Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Junior Subordinated Notes, the Property
Trustee will irrevocably deposit with the depositary funds sufficient to pay the
applicable Redemption Price and will give the depositary irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Preferred Securities. See "-- Book-Entry Only Issuance -- The Depository Trust
Company." If notice of redemption shall have been given and funds deposited as
required, then immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the Redemption Price in respect of Preferred
Securities is improperly withheld or refused and not paid either by the Trust or
by Household International pursuant to the Preferred Securities Guarantee,
distributions on such Preferred Securities will continue to accrue from the
original redemption date to the actual date of payment, in which
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<PAGE> 21
case the actual payment date will be considered the date fixed for redemption
for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), Household International or
its affiliates may, at any time and from time to time, purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust, the holders of the Preferred Securities
at that time will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, distributions in an amount equal to
the aggregate of the stated liquidation amount of $25 per Preferred Security
plus accrued and unpaid distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such liquidation,
dissolution, winding-up or termination, Junior Subordinated Notes in an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, the Preferred
Securities have been distributed on a pro rata basis to the holders of Preferred
Securities.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with respect to
such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on March ,
2053, the expiration of the term of the Trust, (ii) upon the bankruptcy of
Household International, (iii) upon the filing of a certificate of dissolution
or its equivalent with respect to Household International (except for permitted
mergers, consolidations or reorganizations of Household International), the
filing of a certificate of cancellation with respect to the Trust, or the
revocation of the charter of Household International and the expiration of 90
days after the date of revocation without a reinstatement thereof, (iv) upon the
distribution of the Junior Subordinated Notes following the occurrence of a
Special Event, (v) upon the redemption of all of the Trust Securities or (vi)
upon the entry of a decree of a judicial dissolution of Household International
or the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"), provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture. In the event
that any Declaration Event of Default with respect to the Preferred Securities
is waived by the holders of the Preferred Securities as provided in the
Declaration, the holders of Common Securities pursuant to the Declaration have
agreed that such waiver also constitutes a waiver of such Declaration Event of
Default with respect to the Common Securities for all purposes under the
Declaration without any further act, vote or consent of the holders of Common
Securities. See "-- Voting Rights."
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<PAGE> 22
If the Property Trustee fails to enforce its rights under the Junior
Subordinated Notes, any holder of Preferred Securities may directly institute a
legal proceeding against Household International to enforce the Property
Trustee's rights under the Junior Subordinated Notes, without first instituting
any legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of Household
International to pay interest or principal on the Junior Subordinated Notes on
the date such interest or principal is otherwise payable (or in the case of
redemption, the redemption date), then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Junior Subordinated Notes having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities of
such holder on or after the respective due date specified in the Junior
Subordinated Notes. In connection with such action, Household International will
be subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by Household International to such
holder of Preferred Securities in such action. The holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Notes.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee, as the sole holder of the Junior Subordinated Notes, will have the
right under the Indenture to declare the principal of and interest on the Junior
Subordinated Notes to be immediately due and payable.
VOTING RIGHTS
Except as provided below, under the Trust Act, the Trust Indenture Act and
"Description of the Preferred Securities Guarantee -- Amendments and Assignment"
and as otherwise required by law and the Declaration, the holders of the
Preferred Securities will have no voting rights.
If (i) the Trust fails to pay distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods, or (ii) a
Declaration Event of Default occurs and is continuing (each, an "Appointment
Event"), then the holders of the Preferred Securities, acting as a single class,
will be entitled by the majority vote of such holders to appoint a Special
Regular Trustee. For purposes of determining whether the Trust has failed to pay
distributions in full for six consecutive quarterly distribution periods,
distributions shall be deemed to remain in arrears, notwithstanding any payments
in respect thereof, until full cumulative distributions have been or
contemporaneously are paid with respect to all quarterly distribution periods
terminating on or prior to the date of payment of such cumulative distributions.
Any holder of Preferred Securities (other than Household International or any of
its affiliates) shall be entitled to nominate any person to be appointed as
Special Regular Trustee. Not later than 30 days after such right to appoint a
Special Regular Trustee arises, the Regular Trustees shall convene a meeting of
the holders of Preferred Securities for the purpose of appointing a Special
Regular Trustee. If the Regular Trustees fail to convene such meeting within
such 30-day period, the holders of not less than 10% of the aggregate stated
liquidation amount of the outstanding Preferred Securities will be entitled to
convene such meeting. The provisions of the Declaration relating to the
convening and conduct of the meetings of the holders will apply with respect to
any such meeting. Any Special Regular Trustee so appointed shall cease to be a
Special Regular Trustee if the Appointment Event pursuant to which the Special
Regular Trustee was appointed and all other Appointment Events cease to be
continuing. Notwithstanding the appointment of any Special Regular Trustee,
Household International shall retain all rights under the Indenture, including
the right to declare an Extension Period as provided under "Description of the
Junior Subordinated Notes -- Option to Extend Interest Payment Period." If such
an Extension Period occurs, there will be no Indenture Event of Default, and
therefore no Declaration Event of Default, for failure to make any scheduled
interest payment during the Extension Period on the date originally scheduled.
The holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as the holder
of the Junior Subordinated Notes, to (i) direct the time, method or place of
conducting any proceeding for any remedy available to the Debt Trustee or
exercise any trust or power conferred on the Debt Trustee with respect to the
Junior Subordinated
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<PAGE> 23
Notes, (ii) waive any past Indenture Event of Default which is waivable under
the Indenture (as defined herein), (iii) exercise any right to rescind or annul
a declaration that the principal of all Junior Subordinated Notes shall be due
and payable, or (iv) consent to any amendment, modification or termination of
the Indenture or the Junior Subordinated Notes where such consent shall be
required; provided that where a consent or action under the Indenture would
require the consent or action of the holders of more than a majority in
principal amount of the Junior Subordinated Notes (a "Super-Majority") affected
thereby, only the holders of at least such Super-Majority in aggregate
liquidation amount of the Preferred Securities may direct the Property Trustee
to give such consent or take such action. If the Property Trustee fails to
enforce its rights under the Junior Subordinated Notes, a holder of Preferred
Securities may institute a legal proceeding directly against Household
International to enforce the Property Trustee's rights under the Junior
Subordinated Notes without first instituting any legal proceeding against the
Property Trustee or any other person or entity. The Property Trustee shall
notify all holders of the Preferred Securities of any notice of default received
from the Debt Trustee (as defined herein) with respect to the Junior
Subordinated Notes. Such notice shall state that such Indenture Event of Default
also constitutes a Declaration Event of Default. Except with respect to
directing the time, method and place of conducting a proceeding for a remedy,
the Property Trustee shall not take any action described in clauses (i), (ii),
(iii) or (iv) above unless the Property Trustee has obtained an opinion of
independent tax counsel to the effect that, as a result of such action, the
Trust will not be classified as other than a grantor trust for United States
federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Junior Subordinated Notes, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with respect
to such amendment, modification or termination and shall vote with respect to
such amendment, modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a single class,
provided that where a consent under the Indenture would require the consent of a
Super-Majority, the Property Trustee may only give such consent at the direction
of the holders of at least the proportion in liquidation amount of the Trust
Securities which the relevant Super-Majority represents of the aggregate
principal amount of the Junior Subordinated Notes outstanding. The Property
Trustee shall not take any such action in accordance with the directions of the
holders of the Trust Securities unless the Property Trustee has obtained an
opinion of independent tax counsel to the effect that, as a result of such
action, the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the holders of the Preferred Securities will constitute a waiver of
the corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Preferred
Securities will be required for the Trust to redeem and cancel Preferred
Securities or distribute Junior Subordinated Notes in accordance with the
Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by Household International or any entity
directly or indirectly controlling or controlled by, or under direct or indirect
common control with Household International, shall not be entitled to vote or
consent and shall, for purposes of such vote or consent, be treated as if they
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
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<PAGE> 24
Except in the limited circumstances described above in connection with the
appointment of a Special Regular Trustee, holders of the Preferred Securities
will have no rights to appoint or remove the Household International Trustees,
who may be appointed, removed or replaced solely by Household International, as
the direct or indirect holder of all the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and executed by a
majority of the Regular Trustees, provided that if any proposed amendment
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would materially adversely affect the powers, preferences or special
rights of the Trust Securities, whether by way of amendment to the Declaration
or otherwise or (ii) the dissolution, winding-up or termination of the Trust
other than pursuant to the terms of the Declaration, then the holders of the
Trust Securities voting together as a single class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least 66 2/3% in liquidation amount of the Trust
Securities affected thereby, provided that (a) any modification of the right of
holders of Preferred Securities to appoint a Special Regular Trustee or (b) a
reduction of the principal amount or the distribution rate, or a change in the
payment dates or maturity dates of the Preferred Securities, shall not be
permitted without the consent of each holder of Preferred Securities. In the
event any amendment or proposal referred to in clause (i) above would materially
adversely affect only the Preferred Securities or the Common Securities, then
only the affected class will be entitled to vote on such amendment or proposal
and such amendment or proposal shall not be effective except with the approval
of 66 2/3% in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Property Trustee or (iii) cause the Trust to be deemed to be an "investment
company" which is required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by a trust organized
as such under the laws of any State; provided, that (i) such successor entity
either (x) expressly assumes all of the obligations of the Trust with respect to
the Trust Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Trust Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) Household International
expressly appoints a trustee of such successor entity possessing the same powers
and duties as the Property Trustee as the holder of the Junior Subordinated
Notes, (iii) the Preferred Securities or any Successor Securities are listed, or
any Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed, (iv) such merger, consolidation, amalgamation or
replacement does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the holders of
the Trust Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the holders' interest in the
new entity), (vi) such successor entity has a purpose identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or replacement,
Household International has received an opinion from independent counsel to the
Trust experienced in such matters to the effect that (A) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to
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any dilution of the holders' interest in the new entity), and (B) following such
merger, consolidation, amalgamation or replacement, neither the Trust nor such
successor entity will be required to register as an investment company under the
1940 Act and (viii) Household International guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Preferred Securities Guarantee. Notwithstanding the foregoing, the Trust
shall not, except with the consent of holders of 100% in liquidation amount of
the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified for United States federal income tax purposes as other
than a grantor trust. In addition, so long as any Preferred Securities are
outstanding and are not held entirely by Household International, the Trust may
not voluntarily liquidate, dissolve, wind-up or terminate except as described
above under "-- Special Event Redemption or Distribution."
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global Preferred Securities certificates will be
issued, representing in the aggregate the total number of Preferred Securities,
and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global Preferred
Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial
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Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will use a lottery to select
certain of the Preferred Securities to be redeemed in accordance with its
procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in listing attached to
the Omnibus Proxy). Household International and the Trust believe the
arrangements among DTC, Direct and Indirect Participants, and Beneficial Owners
will enable the Beneficial Owners to exercise rights equivalent in substance to
the rights that can be directly exercised by a holder of a beneficial interest
in the Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by participants to Beneficial Owners will be governed by
standing instructions and customary practices, as in the case with securities
held for the account of customers in bearer form or registered in "street name,"
and will be the responsibility of such Participant and not of DTC, the Trust,
any trustee or Household International, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of distributions to
DTC is the responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with consent of
Household International) may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary) with respect to the
Preferred Securities. In that event, certificates for the Preferred Securities
will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
have been obtained from sources that Household International and the Trust
believe to be reliable, but Household International and the Trust take no
responsibility for the accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Declaration at the request of
any holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred Securities will not be required to offer such
indemnity in the event such holders, by exercising their voting
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rights, direct the Property Trustee to take any action following a Declaration
Event of Default. The Property Trustee also serves as trustee under the
Preferred Securities Guarantee.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
In the event that the Preferred Securities do not remain in book-entry only
form, the Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time. Registration of transfers of
Preferred Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the Trust or
Household International may require) in respect of any tax or other government
charges which may be imposed in relation to it The Trust will not be required to
register or cause to be registered the transfer of Preferred Securities after
such Preferred Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act or characterized for United States
federal income tax purposes as other than a grantor trust. Household
International is authorized and directed to conduct its affairs so that the
Junior Subordinated Notes will be treated as indebtedness of Household
International for United States federal income tax purposes. In this connection,
the Regular Trustees and Household International are authorized to take any
action, not inconsistent with applicable law, the Declaration or the amended and
restated certificate of incorporation of Household International, that each of
the Regular Trustees and Household International determines in their discretion
to be necessary or desirable for such purposes, as long as such action does not
materially and adversely affect the interests of the holders of the Preferred
Securities.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Preferred
Securities Guarantee that will be executed and delivered by Household
International for the benefit of the holders from time to time of Preferred
Securities. The Preferred Securities Guarantee will be qualified as an indenture
under the Trust Indenture Act. Wilmington Trust Company will act as indenture
trustee under the Preferred Securities Guarantee (the "Preferred Guarantee
Trustee") including for purposes of the Trust Indenture Act. The terms of the
Preferred Securities Guarantee will be those set forth therein and those made
part thereof by the Trust Indenture Act. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to the Preferred Securities Guarantee, which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, and the Trust Indenture Act. The Preferred Securities Guarantee will be
held by the Preferred Guarantee Trustee for the benefit of holders of the
Preferred Securities.
GENERAL
Pursuant to the Preferred Securities Guarantee, Household International
will irrevocably agree, to the extent set forth therein, to pay in full to the
holders of the Preferred Securities, the Guarantee Payments (as defined below)
(without duplication of amounts theretofore paid by the Trust), to the extent
not paid by the Trust, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert. The following payments or
distributions with respect to the Preferred Securities to the extent not paid or
made by the Trust (the "Guarantee Payments") will be subject to the Preferred
Securities Guarantee (without duplication): (i) any accrued and unpaid
distributions on the Preferred Securities where Household International has made
a payment of principal, premium or interest on the Junior Subordinated Notes
held by
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the Property Trustee, (ii) the Redemption Price, including all accrued and
unpaid dividends to the date of the redemption, to the extent the Trust has
funds available therefor with respect to the Preferred Securities called for
redemption by the Trust and (iii) upon a liquidation of the Trust (other than in
connection with the distribution of Junior Subordinated Notes to the holders of
Trust Securities or the redemption of all of the Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities to the date of payment, to the extent
the Trust has funds available therefor, and (b) the amount of assets of the
Trust remaining available for distribution to holders of Preferred Securities in
liquidation of the Trust. Household International's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
Household International to the holders of Preferred Securities or by causing the
Trust to pay such amounts to such holders.
If Household International does not make interest payments on the Junior
Subordinated Notes held by the Property Trustee, the Trust will not make
distributions on the Preferred Securities. The Preferred Securities Guarantee
will guarantee, on a subordinated basis, the Guarantee Payments with respect to
the Preferred Securities from the time of issuance of the Preferred Securities,
but will not apply to the payment of distributions and other payments on the
Preferred Securities when the Property Trustee does not have sufficient funds in
the Property Account to make such distributions or other payments. The Preferred
Securities Guarantee, when taken together with Household International's
obligations under the Junior Subordinated Notes, the Indenture and the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities), will
provide a full and unconditional guarantee on a subordinated basis by Household
International of amounts due on the Preferred Securities.
CERTAIN COVENANTS OF HOUSEHOLD INTERNATIONAL
In the Preferred Securities Guarantee, Household International will
covenant that, so long as the Preferred Securities remain outstanding, if there
shall have occurred and is continuing any event that would constitute an event
of default under the Preferred Securities Guarantee or the Declaration, then (a)
Household International will not declare or pay any dividends on, or purchase,
acquire or make a distribution or liquidation payment with respect to, any of
its capital stock (other than (i) repurchases, redemptions or other acquisitions
of shares of capital stock of Household International in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of employees, officers, directors or consultants, (ii) as a result of an
exchange or conversion of any class or series of Household International's
capital stock for any other class or series of Household International's capital
stock, or (iii) the purchase of fractional interests in shares of Household
International's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged), and (b)
Household International shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by Household International which rank pari passu
with or junior to such Junior Subordinated Notes. The foregoing, however, will
not apply to any stock dividends paid by Household International where the
dividend stock is the same stock as that on which the dividend is being paid.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no consent will be
required), the Preferred Securities Guarantee may be amended only with the prior
approval of the holders of not less than 66 2/3% in aggregate liquidation amount
of the outstanding Preferred Securities. The manner of obtaining any such
approval of holders of the Preferred Securities is set forth under "Description
of the Preferred Securities -- Voting Rights." All guarantees and agreements
contained in the Preferred Securities Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of Household International and
shall inure to the benefit of the holders of the Preferred Securities then
outstanding.
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TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will terminate and be of no further
force and effect as to the Preferred Securities upon full payment of the
Redemption Price of all Preferred Securities, upon distribution of the Junior
Subordinated Notes to the holders of Preferred Securities, or upon full payment
of the amounts payable upon liquidation of the Trust. See "Description of the
Junior Subordinated Notes -- Events of Default" for a description of the events
of default and enforcement rights of the holders of Junior Subordinated Notes.
The Preferred Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities must repay to the Trust or Household International, or their
respective successors, any sums paid to them under the Preferred Securities or
the Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of Household International to perform any of its payment or other
obligations thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
relating to such Preferred Securities Guarantee have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Guarantee Trustee in respect of Preferred Securities Guarantee or
to direct the exercise of any trust or power conferred upon the Preferred
Guarantee Trustee under such Preferred Securities Guarantee. Any holder of
Preferred Securities may institute a legal proceeding directly against Household
International to enforce such holder's rights under such Preferred Securities
Guarantee, without first instituting a legal proceeding against the Trust, the
Preferred Guarantee Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of Household International to pay
interest or principal on the Junior Subordinated Notes on the date such interest
or principal is otherwise payable (or in the case of redemption, the redemption
date), then a holder of Preferred Securities may directly institute a proceeding
for enforcement of payment to such holder of the principal of or interest on the
Junior Subordinated Notes having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on or after the
respective due date specified in the Junior Subordinated Notes. In connection
with such action, Household International will be subrogated to the rights of
such holder of Preferred Securities under the Declaration to the extent of any
payment made by Household International to such holder of Preferred Securities
in such action. The holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Notes.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
Household International's obligations under the Preferred Securities
Guarantee to make the Guarantee Payments will constitute an unsecured obligation
of Household International and will rank (i) subordinate and junior in right of
payment to all other liabilities of Household International, including the
Junior Subordinated Notes, except those made pari passu or subordinate by their
terms, and (ii) pari passu with the most senior preferred stock now or hereafter
issued by Household International and with any guarantee now or hereafter
entered into by Household International in respect of any preferred security of
any affiliate of Household International. The terms of the Preferred Securities
provide that each holder of Preferred Securities by acceptance thereof agrees to
the subordination provisions and other terms of the Preferred Securities
Guarantee. In addition, because Household International is a holding company,
its obligations under the Preferred Securities Guarantee are effectively
subordinated to all existing and future liabilities of its subsidiaries.
The Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity). The Preferred Securities Guarantee will be deposited with the
Property Trustee to be held for the benefit of the holders of the Preferred
Securities. Except as otherwise noted herein, the Property Trustee has the right
to enforce the
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Preferred Securities Guarantee on behalf of the holders of the Preferred
Securities. The Preferred Securities Guarantee will not be discharged except by
payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Trust).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by the Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby. The Preferred Guarantee Trustee also serves as Property Trustee.
GOVERNING LAW
The Preferred Securities Guarantee will be governed by and construed in
accordance with the laws of the State of Illinois.
DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES
Set forth below is a description of the terms of the Junior Subordinated
Notes. The following description does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the Indenture (the "Base
Indenture"), dated as of May 15, 1995, between Household International and The
First National Bank of Chicago, as trustee (the "Debt Trustee"), as supplemented
by a Third Supplemental Indenture, dated as of March , 1998 (the Base
Indenture, as so supplemented, is hereinafter referred to as the "Indenture"),
the forms of which are filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The terms of the Junior Subordinated Notes
will include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act. Certain capitalized terms
used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Junior Subordinated Notes may be
distributed to the holders of Trust Securities in liquidation of the Trust. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
If the Junior Subordinated Notes are distributed to the holders of the
Trust Securities, Household International will use its best efforts to have the
Junior Subordinated Notes listed on the New York Stock Exchange or on such other
exchange as the Preferred Securities are then listed.
GENERAL
The Junior Subordinated Notes will be issued as unsecured junior
subordinated debt securities under the Indenture. The Junior Subordinated Notes
will be limited in aggregate principal amount to approximately $ ,
such amount being the sum of the aggregate stated liquidation amount of the
Preferred Securities and the capital contributed by Household International in
exchange for the Common Securities (the "Payment").
The Junior Subordinated Notes are not subject to a sinking fund provision.
The Junior Subordinated Notes will mature on December 31, 2037 (such date, as it
may be advanced as hereinafter described, the "Stated Maturity"). If a Tax Event
occurs, then Household International will have the right prior to the
termination of the Trust, to advance the Stated Maturity of the Junior
Subordinated Notes to the minimum extent required in order to allow for the
payments of interest in respect of the Junior Subordinated Notes to continue to
be tax deductible, but in no event shall the resulting maturity of the Junior
Subordinated Notes be less than 15 years from the date of original issuance
thereof. The Stated Maturity shall be advanced only if, in the opinion of
counsel to Household International experienced in such matters, (a) after
advancing the Stated
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Maturity, interest paid on the Junior Subordinated Notes will be deductible for
United States federal income tax purposes and (b) advancing the Stated Maturity
will not result in a taxable event to holders of the Preferred Securities.
If Household International elects to advance the Stated Maturity of the
Junior Subordinated Notes, it will give notice to the Debt Trustee, and the Debt
Trustee will give notice of such change to the holders of the Junior
Subordinated Notes not less than 30 and not more than 60 days prior to the
effectiveness thereof.
If Junior Subordinated Notes are distributed to holders of the Preferred
Securities in liquidation of such holders' interests in the Trust, such Junior
Subordinated Notes will initially be issued as a Global Security (as defined
below). As described herein, under certain limited circumstances, Junior
Subordinated Notes may be issued in certificated form in exchange for a Global
Security. See "-- Book-Entry and Settlement." In the event Junior Subordinated
Notes are issued in certificated form, the Junior Subordinated Notes will be in
denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Junior Subordinated Notes
issued as Global Securities will be made to the depositary for the Junior
Subordinated Notes. In the event Junior Subordinated Notes are issued in
certificated form, principal and interest will be payable, the transfer of the
Junior Subordinated Notes will be registrable and Junior Subordinated Notes will
be exchangeable for Junior Subordinated Notes of other denominations of a like
aggregate principal amount at the corporate trust office of the Debt Trustee in
New York, New York; provided, that payment of interest may be made at the option
of Household International by check mailed to the address of the persons
entitled thereto.
The Indenture does not contain provisions that afford holders of Junior
Subordinated Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving Household
International.
SUBORDINATION
The Indenture provides that the Junior Subordinated Notes are subordinated
and junior in right of payment to all Senior Indebtedness of Household
International. No payment of principal of (including redemption payments, if
any), premium, if any, or interest on, the Junior Subordinated Notes may be made
if (a) any Senior Indebtedness is not paid when due and any applicable grace
period with respect to such default has ended with such default not being cured
or waived or ceasing to exist, or (b) the maturity of any Senior Indebtedness
has been accelerated because of a default. Upon any distribution of assets of
Household International to creditors upon any dissolution, winding-up,
liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all principal of,
premium, if any, and interest due or to become due on, all Senior Indebtedness
must be paid in full before the holders of Junior Subordinated Notes are
entitled to receive or retain any payment. The rights of the holders of the
Junior Subordinated Notes will be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions applicable to such
Senior Indebtedness until all amounts owing on the Junior Subordinated Notes are
paid in full.
The term "Senior Indebtedness" means, with respect to Household
International, (i) any payment in respect of (a) indebtedness of such obligor
for money borrowed (including any financial derivative, hedging or futures
contract or similar instrument) and (b) indebtedness evidenced by securities,
debentures, bonds, notes or other similar instruments issued by Household
International which, by their terms, are senior or senior subordinated debt
securities including, without limitation, all obligations under its indentures
with various trustees; (ii) all capital lease obligations; (iii) all obligations
issued or assumed as the deferred purchase price of property, all conditional
sale obligations and all obligations of Household International under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations for the reimbursement on any
letter of credit, banker's acceptance, security purchase facility or similar
credit transaction; (v) all obligations of the type referred to in clauses (i)
through (iv) above of other persons the payment of which Household International
is responsible or liable as obligor, guarantor or otherwise; and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of Household International
(whether or not such obligation is
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assumed by Household International), except for (1) any such indebtedness that
is by its terms subordinated to or pari passu with the Junior Subordinated Notes
and (2) any unsecured indebtedness between or among Household International or
its affiliates including all other debt securities and guarantees in respect of
these debt securities, issued to (a) any other trust or a trustee of such trust
and (b) any other partnership or other entity affiliated with Household
International that is a financing vehicle of Household International or its
subsidiaries in connection with the issuance by such financing vehicle of
preferred securities or other securities that rank pari passu with, or junior
to, the Preferred Securities. Such Senior Indebtedness shall continue to be
Senior Indebtedness and be entitled to the benefits of the subordination
provisions irrespective of any amendment, modification or waiver of any term of
such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which may be issued by Household International. As of December 31, 1997, Senior
Indebtedness of Household International aggregated approximately $ billion.
In addition, because Household International is a holding company, its
obligations under the Junior Subordinated Notes will be effectively subordinated
to all existing and future liabilities of its subsidiaries. At December 31,
1997, such subsidiaries had total liabilities of approximately $ billion.
CERTAIN COVENANTS
If (i) there shall have occurred any event that would constitute an Event
of Default under the Indenture, (ii) Household International shall be in default
with respect to its payment of any obligations under the Preferred Securities
Guarantee, or (iii) Household International shall have given notice of its
election of an Extension Period as provided in the Indenture and such period, or
any extension thereof, shall be continuing, then (a) Household International
shall not declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase or make a liquidation payment with respect to, any of
its capital stock, other than (x) repurchases, redemptions or other acquisitions
of shares of capital stock of Household International in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of employees, officers, directors or consultants, (y) as a result of an
exchange or conversion of any class or series of Household International's
capital stock for any other class or series of Household International's capital
stock, or (z) the purchase of fractional interests in shares of Household
International's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, and (b)
Household International shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by Household International which rank pari passu
with or junior to the Junior Subordinated Notes.
For so long as the Trust Securities remain outstanding, Household
International will covenant (i) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of Household International under the Indenture may succeed
to Household International's ownership of such Common Securities, and (ii) to
use its reasonable efforts to cause the Trust (a) to remain a statutory business
trust, except in connection with the distribution of Junior Subordinated Notes
to the holders of Trust Securities in liquidation of the Trust, the redemption
of all of the Trust Securities of the Trust, or certain mergers, consolidations
or amalgamations, each as permitted by the Declaration, and (b) to otherwise
continue to be classified as a grantor trust for United States federal income
tax purposes.
OPTIONAL REDEMPTION
Household International shall have the right to redeem the Junior
Subordinated Notes, in whole or in part, from time to time, on or after March
, 2003, or at any time in certain circumstances upon the occurrence of a Tax
Event as described under "Description of the Preferred Securities -- Special
Event Redemption or Distribution," upon not less than 30 nor more than 60 days'
notice, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest, including Additional Interest (as
defined herein), if any, to the redemption date. If a partial redemption of the
Preferred Securities resulting from a partial redemption of the Junior
Subordinated Notes would result in the delisting of the Preferred Securities,
Household International may only redeem the Junior Subordinated Notes in whole.
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POSSIBLE TAX LEGISLATION
In a previous budget proposal released on February 6, 1997, the Clinton
Administration proposed certain tax law changes that, if enacted, would have
treated a corporate issuer that filed annual financial statements with the SEC
as having characterized an instrument such as the Junior Subordinated Notes as
equity for purposes of Section 385(c) of the Code, if the instrument had a
maximum term exceeding 15 years and was not shown as indebtedness on the
issuer's balance sheet or, in the case of indebtedness issued to a related party
that issues a related instrument, the related instrument was not reflected as
indebtedness on the applicable consolidated balance sheet. Under Section 385(c),
the characterization by the issuer of an instrument as equity is binding on the
issuer and all holders of the instrument unless a holder discloses on his tax
return that he is treating such instrument in a manner inconsistent with the
issuer's characterization. These proposals were not enacted into law, and the
Administration has not made any such proposals in its budget proposal for fiscal
year 1999, released on February 2, 1998.
There can be no assurance that legislation affecting Household
International's ability to deduct interest paid on the Junior Subordinated Notes
or the characterization of the Junior Subordinated Notes for United States
federal income tax purposes, including legislation similar to the proposal
described above, will not be enacted in the future or that any such legislation
would not be effective retroactively. If tax law changes are enacted and apply
retroactively to the Junior Subordinated Notes, such changes could give rise to
a Tax Event, which would, in certain circumstances, require the dissolution of
the Trust or permit Household International to redeem the Junior Subordinated
Notes. See "Risk Factors -- Possible Changes to United States Tax Laws; Possible
Tax Event," "Risk Factors -- Effect of Special Event Redemption or
Distribution," "Description of the Preferred Securities -- Special Event
Redemption or Distribution," and "Certain Federal Income Consequences --
Possible Tax Legislation."
INTEREST
Each Junior Subordinated Note shall bear interest at the rate of % per
annum from the original date of issuance, payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year (each, an "Interest
Payment Date"), commencing , 1998, to the person in whose name such
Junior Subordinated Note is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment Date.
In the event the Junior Subordinated Notes shall not continue to remain in
book-entry only form, Household International shall have the right to select
such record dates which shall be not less than fifteen days prior to each
Interest Payment Date.
The amount of interest payable for any period will be computed (i) for any
full 90-day quarterly interest payment period, on the basis of a 360-day year of
twelve 30-day months and (ii) for any period shorter than a full 90-day
quarterly interest payment period for which interest payments are computed, on
the basis of a 30-day month, and for periods of less than a month, the actual
number of days elapsed per 30-day month. In the event that any date on which
interest is payable on the Junior Subordinated Notes is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Household International shall have the right at any time, and from time to
time, during the term of the Junior Subordinated Notes to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters, provided, that no Extension Period may extend beyond the
maturity of the Junior Subordinated Notes, at the end of which Extension Period,
Household International shall pay all interest then accrued and unpaid
(including any Additional Interest) (together with interest thereon at the rate
specified for the Junior Subordinated Notes to the extent permitted by
applicable law); provided further that, during any such Extension Period, (a)
Household International shall not declare or pay any dividend or make any
distributions with respect to, or redeem, purchase or make a liquidation payment
with respect to,
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any of its capital stock (other than (i) repurchases, redemptions or other
acquisitions of shares of capital stock of Household International in connection
with any employment contract, benefit plan or other similar arrangement with or
for the benefit of employees, officers, directors or consultants, (ii) as a
result of an exchange or conversion of any class or series of Household
International's capital stock for any other class or series of Household
International's capital stock, or (iii) the purchase of fractional interests in
shares of Household International's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged), and (b) Household International shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by Household International which
rank pari passu with or junior to the Junior Subordinated Notes. The foregoing,
however, will not apply to any stock dividends paid by Household International
where the dividend stock is the same stock as that on which the dividend is
being paid. Prior to the termination of any such Extension Period, Household
International may further defer payments of interest by extending the interest
payment period, provided that such Extension Period together with all such
previous and further extensions thereof may not exceed 20 consecutive quarters
and no Extension Period may extend beyond the maturity of the Junior
Subordinated Notes. Upon the termination of any Extension Period and the payment
of all amounts then due, Household International may select a new Extension
Period, as if no Extension Period had previously been declared, subject to the
above requirements. No interest during an Extension Period, except at the end
thereof, shall be due and payable. Household International has no present
intention of exercising its rights to defer payments of interest by extending
the interest payment period on the Junior Subordinated Notes. If the Property
Trustee shall be the sole holder of the Junior Subordinated Notes, Household
International shall give the Regular Trustees and the Property Trustee notice of
its selection of such Extension Period one Business Day prior to the earlier of
(i) the date distributions on the Preferred Securities are payable or (ii) the
date the Regular Trustees are required to give notice to the New York Stock
Exchange or other applicable self-regulatory organization or to holders of the
Preferred Securities of the record date or the date such distribution is
payable, but in any event not less than one Business Day prior to such record
date. The Regular Trustees shall give notice of Household International's
selection of such Extension Period to the holders of the Preferred Securities.
If the Property Trustee shall not be the sole holder of the Junior Subordinated
Notes, Household International shall give the holders of the Junior Subordinated
Notes notice of its selection of such Extension Period ten Business Days prior
to the earlier of (i) the next Interest Payment Date or (ii) the date Household
International is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Junior Subordinated
Notes of the record or payment date of such related interest payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, Household International will pay as additional interest ("Additional
Interest") such additional amounts as shall be required so that the net amounts
received and retained by the Trust after paying such taxes, duties, assessments
or other governmental charges will be not less than the amounts the Trust would
have received had no such taxes, duties, assessments or other governmental
changes been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Junior Subordinated Notes, will have the
right to declare the principal of and the interest on the Junior Subordinated
Notes (including Additional Interest, if any) and any other amounts payable
under the Indenture to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Notes.
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Junior Subordinated Notes:
(a) failure for 60 days to pay interest on the Junior Subordinated
Notes, including any Additional Interest in respect thereof, when due;
provided, however, that a valid extension of the interest payment
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period by Household International shall not constitute a default in the
payment of interest for this purpose; or
(b) failure to pay principal or premium, if any, on the Junior
Subordinated Notes when due whether at maturity or upon earlier redemption;
(c) failure to observe or perform any other covenant (other than those
specifically relating to another series of junior subordinated notes)
contained in the Indenture for 90 days after written notice to Household
International from the Debt Trustee or the holders of at least 25% in
principal amount of the outstanding Junior Subordinated Notes; or
(d) certain events of bankruptcy, insolvency, or reorganization of
Household International; or
(e) the voluntary or involuntary dissolution, winding-up or
termination of the Trust, except in connection with the distribution of
Junior Subordinated Notes to the holders of Preferred Securities in
liquidation of the Trust and in connection with certain mergers,
consolidations or amalgamation permitted by the Declaration.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debt Trustee. The Debt
Trustee or the holders of not less than 25% in aggregate outstanding principal
amount of the Junior Subordinated Notes may declare the principal due and
payable immediately on default, but the holders of a majority in aggregate
outstanding principal amount may annul such declaration and waive the default if
the default has been cured and a sum sufficient to pay all matured installments
of interest and principal due otherwise than by acceleration and any applicable
premium has been deposited with the Debt Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Notes affected thereby may, on behalf of the holders of all
the Junior Subordinated Notes, waive any past default, except (i) a default in
the payment of principal, premium, if any, or interest (unless such default been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration and any applicable premium has been
deposited with the Debt Trustee) or (ii) a default in the covenant of Household
International not to declare or pay dividends on, or redeem, purchase or acquire
any of its capital stock during an Extension Period. An Indenture Event of
Default also constitutes a Declaration Event of Default. The holders of
Preferred Securities in certain circumstances have the right to direct the
Property Trustee to exercise its rights as the holder of the Junior Subordinated
Notes. See "Description of the Preferred Securities -- Declaration Events of
Default" and "-- Voting Rights."
Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of
Household International to pay interest or principal on the Junior Subordinated
Notes on the date such interest or principal is otherwise payable, Household
International acknowledges that, in such event, a holder of Preferred Securities
may institute a direct action for payment on or after the respective due date
specified in the Junior Subordinated Notes. Household International may not
amend the Indenture to remove the foregoing right to bring a direct action
without the prior written consent of all of the holders of Preferred Securities
of the Trust. Notwithstanding any payment made to such holder of Preferred
Securities by Household International in connection with such a direct action,
Household International shall remain obligated to pay the principal of or
interest on the Junior Subordinated Notes held by the Trust or Property Trustee,
and Household International shall be subrogated to the rights of the holder of
such Preferred Securities with respect to payments on the Preferred Securities
to the extent of any payments made by Household International to such holder in
any such direct action. The holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Notes.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of the Trust as
a result of the occurrence of a Special Event, the Junior
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Subordinated Notes will be issued in the form of one or more global certificates
(each, a "Global Security") registered in the name of the depositary or its
nominee. Except under the limited circumstances described below, Junior
Subordinated Notes represented by the Global Security will not be exchangeable
for, and will not otherwise be issuable as, Junior Subordinated Notes in
definitive form. The Global Securities described above may not be transferred
except by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Notes in definitive form and will not be considered the holders (as
defined in the Indenture) thereof for any purpose under the Indenture, and no
Global Security representing Junior Subordinated Notes shall be exchangeable,
except for another Global Security of like denomination and tenor to be
registered in the name of the depositary or its nominee or to a successor
depositary or its nominee. Accordingly, each beneficial owner must rely on the
procedures of the depositary and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest, to
exercise any rights of a Holder under the Indenture.
If Junior Subordinated Notes are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities depositary for the Junior Subordinated Notes. For a description of
DTC and the specific terms of the depository arrangements, see "Description of
the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company." The description therein of DTC's book-entry system and DTC's practices
as they relate to purchases, transfers, notices and payments with respect to the
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by DTC. Household
International may appoint a successor to DTC or any successor depositary in the
event DTC or such successor depositary is unable or unwilling to continue as
depositary.
None of Household International, the Trust, the Debt Trustee, any paying
agent and any other agent of Household International or the Debt Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in a Global
Security for such Junior Subordinated Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Junior Subordinated Notes
registered in the names of persons other than the depositary or its nominee only
if (i) the depositary notifies Household International that it is unwilling or
unable to continue as a depositary for such Global Security and no successor
depositary shall have been appointed, or if at any time the depositary ceases to
be a clearing agency registered under the Exchange Act at a time when the
depositary is required to be so registered to act as such depositary and no
successor depositary shall have been appointed, (ii) Household International in
its sole discretion determines that such Global Security shall be so
exchangeable or (iii) there shall have occurred an Event of Default with respect
to the Junior Subordinated Notes. Any Global Security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Junior Subordinated
Notes registered in such names as the depositary shall direct. It is expected
that such instructions will be based upon directions received by the depositary
from its Participants with respect to ownership of beneficial interests in such
Global Security.
In the event the Junior Subordinated Notes are not represented by one or
more Global Securities, certificates evidencing Junior Subordinated Notes may be
presented for registration of transfer (with the form of transfer endorsed
thereon duly executed) or exchange, at the office of the Note Registrar or at
the office of any transfer agent designated by Household International for such
purpose with respect to the Junior Subordinated Notes, without service charge
and upon payment of any taxes and other governmental charges as described in the
Indenture. Such transfer or exchange will be effected upon the Note Registrar or
such transfer agent, as the case may be, being satisfied with the documents of
title and identity of the person making the request. Household International has
appointed the Debt Trustee as Note Registrar with respect
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to the Junior Subordinated Notes. Household International may at any time
rescind the designation of any such transfer agent or approve a change in the
location through which any such transfer agent acts, except that Household
International will be required to maintain a transfer agent at the place of
payment. Household International may at any time designate additional transfer
agents with respect to the Junior Subordinated Notes.
In the event of any redemption in part, Household International shall not
be required to (i) issue, register the transfer of or exchange Junior
Subordinated Notes during a period beginning at the opening of business 15 days
before any selection for redemption of Junior Subordinated Notes and ending at
the close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of the Junior
Subordinated Notes and (ii) register the transfer of or exchange any Junior
Subordinated Notes so selected for redemption, in whole or in part, except the
unredeemed portion of any Junior Subordinated Notes being redeemed in part.
PAYMENT AND PAYING AGENTS
Payment of principal of and premium (if any) on the Junior Subordinated
Notes will be made only against surrender to the Paying Agent of the Junior
Subordinated Notes. Principal of and any premium and interest, if any, on Junior
Subordinated Notes will be payable, subject to any applicable laws and
regulations, at the office of such Paying Agent or Paying Agents as Household
International may designate from time to time, except that at the option of
Household International payment of any interest may be made by check mailed to
the address of the person entitled thereto as such address shall appear in the
Note Register with respect to the Junior Subordinated Notes. Payment of interest
on Junior Subordinated Notes on any Interest Payment Date will be made to the
person in whose name the Junior Subordinated Notes (or predecessor security) is
registered at the close of business on the Regular Record Date for such interest
payment.
The Indenture Trustee will act as Paying Agent with respect to the Junior
Subordinated Notes. Household International may at any time designate additional
Paying Agents or rescind the designation of any Paying Agents or approve a
change in the office through which any Paying Agent acts, except that Household
International will be required to maintain a Paying Agent at the place of
payment.
All moneys paid by Household International to a Paying Agent for the
payment of the principal of or premium or interest, if any, on the Junior
Subordinated Notes which remain unclaimed at the end of two years after such
principal, premium, if any, or interest shall have become due and payable will
be repaid to Household International and the holder of such Junior Subordinated
Notes will thereafter look only to Household International for payment thereof.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Household International and
the Debt Trustee, with the consent of the holders of not less than a majority in
principal amount of the Junior Subordinated Notes, to modify the Indenture or
any supplemental indenture affecting that series or the rights of the holders of
the Junior Subordinated Notes; provided, that no such modification may, without
the consent of the holder of each outstanding Junior Subordinated Note affected
thereby, (i) extend the fixed maturity of the Junior Subordinated Notes, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any premium payable upon the redemption
thereof, without the consent of the holder of Junior Subordinated Notes so
affected or (ii) reduce the percentage of Junior Subordinated Notes, the holders
of which are required to consent to any such supplemental indenture, without the
consent of the holders of each Junior Subordinated Note then outstanding and
affected thereby.
In addition, Household International and the Debt Trustee may execute,
without the consent of holders of the Junior Subordinated Notes, any
supplemental indenture for certain other usual purposes including the creation
of any new series of junior subordinated notes.
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CONSOLIDATION, MERGER AND SALE
The Indenture provides that Household International will not consolidate
with or merge into any other corporation or convey, transfer or lease its assets
substantially as an entirety unless (a) the successor is a corporation organized
in the United States and expressly assumes the due and punctual payment of the
principal of (and premium, if any) and interest on all Junior Subordinated Notes
issued thereunder and the performance of every other covenant of the Indenture
on the part of Household International and (b) immediately thereafter no Event
of Default and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing. Upon any such
consolidation, merger, conveyance or transfer, the successor corporation shall
succeed to and be substituted for Household International under the Indenture
and thereafter the predecessor corporation shall be relieved of all obligations
and covenants under the Indenture and the Junior Subordinated Notes.
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, Household International will be
discharged from any and all obligations in respect of the Junior Subordinated
Notes (except in each case for certain obligations to register the transfer or
exchange of Junior Subordinated Notes, replace stolen, lost or mutilated Junior
Subordinated Notes, maintain paying agencies and hold moneys for payment in
trust) if Household International deposits with the Debt Trustee, in trust,
moneys or government obligations, in an amount sufficient to pay all the
principal of, and interest on, the Junior Subordinated Notes on the dates such
payments are due in accordance with the terms of the Junior Subordinated Notes.
For federal income tax purposes, any such defeasance of the Junior
Subordinated Notes will be treated as a taxable exchange of the Junior
Subordinated Notes for an issue of obligations of the trust or a direct interest
in the cash or government securities held in the trust. In that case, holders of
the Preferred Securities would recognize gain or loss as if the trust
obligations or the cash or government obligations deposited, as the case may be,
had actually been received by them in exchange for their Preferred Securities.
Such holders thereafter would be required to include in income a share of the
income, gain or loss of the trust. The amount so required to be included in
income could be a different amount than would be includable in the absence of
defeasance. Holders of the Preferred Securities should consult their own tax
advisors as to the specific consequences of defeasance.
GOVERNING LAW
The Indenture and the Junior Subordinated Notes will be governed by, and
construed in accordance with, the internal laws of the State of Illinois.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Debt Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Notes, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Debt Trustee is not required to
expand or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debt Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Household International and certain of its affiliates maintain a deposit
account and a banking relationship with the Debt Trustee. The Debt Trustee
serves as trustee under other indentures pursuant to which debt securities of an
affiliate of Household International are outstanding.
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MISCELLANEOUS
Household International will have the right at all times to assign any of
its rights or obligations under the Indenture to a direct or indirect
wholly-owned subsidiary of Household International; provided, that, in the event
of any such assignment, Household International will remain liable for all of
their respective obligations. Subject to the foregoing, the Indenture will be
binding upon and inure to the benefit of the parties thereto and their
respective successors and assigns. The Indenture provides that it may not
otherwise be assigned by the parties thereto.
The Indenture will also provide that Household International will pay all
fees and expenses related to (i) the offering of the Trust Securities and the
Junior Subordinated Notes, (ii) the organization, maintenance and dissolution of
the Trust, (iii) the retention of the Household International Trustees and (iv)
the enforcement by the Property Trustee of the rights of holders of Preferred
Securities.
EFFECT OF OBLIGATIONS UNDER THE JUNIOR SUBORDINATED NOTES
AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
Trust Securities and invest the proceeds thereof in the Junior Subordinated
Notes.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Notes, such payments will be sufficient to cover
distributions and payments due on the Trust Securities primarily because (i) the
aggregate principal amount of Junior Subordinated Notes will be equal to the sum
of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and interest and other payment dates on the Junior Subordinated
Notes will match the distribution rate and distribution and other payment dates
for the Preferred Securities; (iii) Household International shall pay for all
costs and expenses of the Trust; and (iv) the Declaration provides that the
Household International Trustees shall not cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by Household International as and to the extent set
forth under "Description of the Preferred Securities Guarantee." If Household
International does not make interest payments on the Junior Subordinated Notes
purchased by the Trust, it is expected that the Trust will not have sufficient
funds to pay distributions on the Preferred Securities. The Preferred Securities
Guarantee is a guarantee on a subordinated basis from the time of its issuance,
but does not apply to any payment of distributions unless and until the Trust
has sufficient funds for the payment of such distributions.
If Household International fails to make interest or other payments on the
Junior Subordinated Notes when due (taking into account any Extension Period),
the Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities -- Voting Rights," may (i) appoint a Special Regular Trustee and (ii)
direct the Property Trustee to enforce its rights under the Junior Subordinated
Notes, including proceeding directly against Household International to enforce
the Junior Subordinated Notes. If the Property Trustee fails to enforce its
rights under the Junior Subordinated Notes, a holder of Preferred Securities may
institute a legal proceeding directly against Household International to enforce
the Property Trustee's rights under the Junior Subordinated Notes without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of Household International to pay interest or principal on the Junior
Subordinated Notes on the date such interest or principal is otherwise payable
(or in the case of redemption, on the redemption date), then a holder of
Preferred Securities may institute an action for payment on or after the
respective due date specified in the Junior Subordinated Notes. In connection
with such action, Household International will be subrogated to the rights of
such holder of Preferred Securities under the Declaration to the extent of any
payment made by Household International to such holder of Preferred Securities
in such
38
<PAGE> 40
Action. Household International, under the Preferred Securities Guarantee,
acknowledges that the Preferred Guarantee Trustee shall enforce the Preferred
Securities Guarantee on behalf of the holders of the Preferred Securities.
If Household International fails to make payments under the Preferred
Securities Guarantee, the Preferred Securities Guarantee provides a mechanism
whereby the holders of the Preferred Securities may direct the Preferred
Guarantee Trustee to enforce its rights thereunder. If the Preferred Guarantee
Trustee fails to enforce the Preferred Securities Guarantee, any holder of
Preferred Securities may institute a legal proceeding directly against Household
International to enforce the Preferred Guarantee Trustee's rights under the
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust, the Preferred Guarantee Trustee or any other person or
entity.
The Preferred Securities Guarantee, when taken together with Household
International's obligations under the Junior Subordinated Notes, the Indenture
and the Declaration, including its obligations under the Indenture to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), will provide a full and unconditional guarantee of amounts
due on the Preferred Securities. See "Description of the Preferred Securities
Guarantee -- General."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal United States
federal income tax consequences of the purchase, ownership and disposition of
the Preferred Securities to a holder that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized under
the laws of the United States or any state thereof or the District of Columbia
or an estate or trust described in Section 7701(a)(30) of the Code (a "Holder").
Except as set forth below, this summary does not address the United States
federal income tax consequences to persons other than Holders.
This summary is based on the United States federal income tax laws,
regulations and rulings and decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. This summary does not address the tax
consequences applicable to investors that may be subject to special tax rules
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a Holder. Further, it
does not include any description of any alternative minimum tax consequences or
the tax laws of any state or local government or of any foreign government that
may be applicable to a Holder.
CLASSIFICATION OF HOUSEHOLD CAPITAL TRUST IV
Sidley & Austin, special counsel to Household International and the Trust,
is of the opinion that, under current law and assuming full compliance with the
terms of the Indenture and the Declaration (and certain other documents),
Household Capital Trust IV will be classified as a "grantor trust" for federal
income tax purposes and will not be classified as an association taxable as a
corporation or a partnership. Each Holder will be treated as owning an undivided
beneficial interest in the Junior Subordinated Notes. Accordingly, each Holder
will be required to include in its gross income any interest or accrued original
issue discount ("OID") with respect to its allocable share of Junior
Subordinated Notes. Investors should be aware that the opinion of Sidley &
Austin does not address any other issue and is not binding on the Internal
Revenue Service (the "Service") or the courts.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Unless the Junior Subordinated Notes are issued with OID, stated interest
on the Junior Subordinated Notes will be taxable to a Holder as ordinary income
at the time such interest is paid (if the Holder uses the
39
<PAGE> 41
cash method of accounting for tax purposes) or accrued (if the Holder uses the
accrual method of accounting for tax purposes). Under regulations of the U.S.
Treasury Department, the Junior Subordinated Notes will not be considered issued
with OID if the likelihood of Household International exercising its right to
defer interest (as described under "Description of the Junior Subordinated Notes
- -- Option to Extend Interest Payment Period") is considered a "remote"
contingency at the time the Junior Subordinated Notes are issued. Household
International believes that such likelihood is remote, because exercise of its
right to defer interest would prevent Household International from declaring
dividends on its capital stock. Accordingly, Household International intends to
take the position that the Junior Subordinated Notes will not be issued with
OID. However, the definition of the term "remote" in the regulations has not yet
been addressed in any rulings or other interpretations by the Service, and it is
possible that the Service would assert that the Junior Subordinated Notes were
issued with OID. A determination that the Junior Subordinated Notes were issued
with OID would not result in substantially different United States federal
income tax consequences to accrual method taxpayers or to cash-method taxpayers
whose taxable year is the calendar year. Holders not described in the preceding
sentence, if any, would recognize acceleration of up to three months' accrued
interest.
If, notwithstanding Household International's current belief, it does
exercise its right to defer interest payments, the Junior Subordinated Notes
would be treated as if they were retired and then reissued with OID at such
time. In such case, the amount of OID would generally be equal to the interest
payable thereafter.
If the Junior Subordinated Notes are treated as having been issued or
reissued with OID (either because Household International exercises its right to
defer interest payments or because the likelihood of exercise of such right is
not considered a remote contingency at the time of issuance), Holders would
include that interest in income on an accrual basis, regardless of their method
of tax accounting. The amount of OID that accrued in any quarter would
approximately equal the amount of interest that accrued on the Junior
Subordinated Notes in that quarter at the stated interest rate. If interest
payments were received later than the taxable year in which the interest
accrued, OID treatment would have the effect of accelerating the reporting of
income for Holders who otherwise use a cash method of tax reporting.
Corporate Holders of Preferred Securities will not be entitled to a
dividends-received deduction with respect to any interest earned with respect to
the Preferred Securities.
PREMIUM AND MARKET DISCOUNT
To the extent a Holder acquires its Preferred Securities at a price that is
greater or less than the principal payable at maturity (or, if the Junior
Subordinated Notes are treated as having been issued or reissued with OID, the
adjusted issue price) of such Holder's share of Junior Subordinated Notes (which
generally should approximate par plus any OID accrued with respect to unpaid
interest), the Holder will be deemed to have acquired its interest in the
Preferred Securities with premium or with market discount, as the case may be. A
Holder acquiring Preferred Securities at a premium may elect to reduce the
amount of interest payments (and will reduce the amount of OID, if any) required
to be included in income to reflect amortization of the premium over the
remaining term. A Holder acquiring Preferred Securities at a market discount
will also include the amount of such discount in income in accordance with the
market discount rules described below.
A Holder acquiring Preferred Securities at a market discount generally will
be required to recognize ordinary income to the extent of accrued market
discount upon the retirement of the underlying Junior Subordinated Notes or, to
the extent of any gain, upon the disposition of the Preferred Securities. Such
market discount would accrue ratably, or, at the election of the Holder, under a
constant yield method over the remaining term of the Junior Subordinated Notes.
A Holder will also be required to defer the deduction of a portion of the
interest paid or accrued on indebtedness incurred to purchase or carry Preferred
Securities acquired with market discount. In lieu of the foregoing, a Holder may
elect to include market discount in income currently as it accrues on all market
discount instruments acquired by such Holder in the taxable year of the election
or thereafter, in which case the interest deferral rule will not apply.
40
<PAGE> 42
RECEIPT OF JUNIOR SUBORDINATED NOTES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution," Junior
Subordinated Notes may be distributed to Holders in exchange for the Preferred
Securities and in liquidation of the Trust. Under current law, such a
distribution would be treated as a non-taxable event to each Holder, and each
Holder would receive an aggregate tax basis in the Junior Subordinated Notes
equal to such Holder's aggregate tax basis in it Preferred Securities. A
Holder's holding period in the Junior Subordinated Notes so received in
liquidation of the Trust would include the period for which the Preferred
Securities were held by such Holder.
SALE OF PREFERRED SECURITIES AND REDEMPTION OF JUNIOR SUBORDINATED NOTES
A Holder that sells Preferred Securities, or whose Preferred Securities or
Junior Subordinated Notes (which shall have been distributed to Holders upon
liquidation of the Trust) are redeemed, will recognize gain or loss equal to the
difference between its adjusted tax basis in the Preferred Securities or Junior
Subordinated Notes and the amount realized on the sale or redemption. A Holder's
adjusted tax basis in the Preferred Securities or Junior Subordinated Notes
generally will be its initial purchase price increased by OID, if any,
previously includible in such Holder's gross income to the date of disposition
(and the accrual of market discount, if any) and decreased by payments (other
than payments of interest not reflected in OID) received on the Preferred
Securities and/or Junior Subordinated Notes and by any premium that the Holder
has taken into account. Subject to the market discount rules described above,
any such gain or loss generally will be capital gain or loss.
The Preferred Securities may trade at prices that do not accurately reflect
the value of accrued by unpaid interest with respect to the underlying Junior
Subordinated Notes. A Holder that uses the accrual method of accounting for tax
purposes (and a cash method Holder if the Junior Subordinated Notes are deemed
to have been issued with OID) and that disposes of Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Junior Subordinated Notes through the date of
disposition in income as ordinary income, and to add such amount to such
Holder's adjusted tax basis in the pro rata share of the underlying Junior
Subordinated Notes deemed disposed of. To the extent that the selling price is
less than the Holder's adjusted tax basis (so determined) a Holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
POSSIBLE TAX LEGISLATION
In a previous budget proposal released on February 6, 1997, the Clinton
Administration proposed certain tax law changes that, if enacted, would have
treated a corporate issuer that filed annual financial statements with the SEC
as having characterized an instrument such as the Junior Subordinated Notes as
equity for purposes of Section 385(c) of the Code, if the instrument had a
maximum term exceeding 15 years and was not shown as indebtedness on the
issuer's balance sheet or, in the case of indebtedness issued to a related party
that issues a related instrument, the related instrument was not reflected as
indebtedness on the applicable consolidated balance sheet. Under Section 385(c),
the characterization by the issuer of an instrument as equity is binding on the
issuer and all holders of the instrument unless a holder discloses on his tax
return that he is treating such instrument in a manner inconsistent with the
issuer's characterization. These proposals were not enacted into law, and the
Administration has not made any such proposals in its budget proposal for fiscal
year 1999, released on February 2, 1998.
There can be no assurance that legislation affecting Household
International's ability to deduct interest paid on the Junior Subordinated
Debentures or the characterization of the Junior Subordinated Notes for United
States federal income tax purposes, including legislation similar to the
proposal described above, will not be enacted in the future or that any such
legislation would not be effective retroactively. If tax law changes are enacted
and apply retroactively to the Junior Subordinated Notes, such changes could
give rise to a Tax Event, which would, in certain circumstances, require the
dissolution of the Trust or permit Household International to redeem the Junior
Subordinated Notes. See "Risk Factors -- Possible Changes to United
41
<PAGE> 43
States Tax Laws; Possible Tax Event," "Risk Factors -- Effect of Special Event
Redemption or Distribution," "Description of the Preferred Securities -- Special
Event Redemption or Distribution," and "Description of the Junior Subordinated
Notes -- Possible Tax Legislation."
FOREIGN INVESTORS
Subject to the discussion of backup withholding below, interest (including
OID) with respect to the Preferred Securities paid to a nonresident alien
individual, foreign corporation, foreign partnership or foreign estate or trust
(collectively, "United States Alien Holder") will be exempt from U.S.
withholding tax, provided that the United States Alien Holder complies with
applicable certification requirements (and does not actually or constructively
own ten percent or more of the total combined voting power of all classes of
stock of Household International and is not a controlled foreign corporation
related to Household International or its affiliates).
On October 14, 1997, the Service published in the Federal Register final
regulations (the "1997 Final Regulations") which affect the United States
taxation of United States Alien Holders. The 1997 Final Regulations are
effective for payments after December 31, 1998, regardless of the issue date of
the instrument with respect to which such payments are made, subject to certain
transition rules. In general, the 1997 Final Regulations provide certification
requirements designed to simplify compliance by those responsible for
withholding on payments to United States Alien Holders. Among other provisions,
the 1997 Final Regulations provide, in the case of an entity classified as a
foreign partnership under United States tax principles, that the partners,
rather than the partnership, generally will be required to provide the required
certification to qualify for an exemption from withholding.
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the Preferred
Securities will be reported to Holders on Form 1099, which forms should be
mailed to Holders of Preferred Securities by January 31 following each calendar
year.
The Trust will be obligated to report annually to Cede & Co., as Holder of
record of the Preferred Securities, the interest (and OID, if any) with respect
to the Preferred Securities that accrued during that year. The Trust currently
intends to report such information on Form 1099 prior to January 31 following
each calendar year even though the Trust is not legally required to report to
record Holders until April 15 following each calendar year. The Underwriters
have indicated to the Trust that, to the extent that they hold Preferred
Securities as nominees for beneficial Holders, they currently expect to report
to such beneficial Holders on Forms 1099 by January 31 following each calendar
year. Under current law, Holders of Preferred Securities who hold as nominees
for beneficial Holders will not have any obligation to report information
regarding the beneficial Holders to the Trust. The Trust, moreover, will not
have any obligation to report to beneficial Holders who are not also record
Holders. Thus, beneficial Holders of Preferred Securities who hold their
Preferred Securities through the Underwriters will receive Forms 1099 reflecting
the income on their Preferred Securities from such nominee Holders rather than
the Trust.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the Holder or the
United States Alien Holder complies with certain identification or certification
requirements. Any withheld amounts will be allowed as a credit against the
holder's United States federal income tax, if any, provided the required
information is provided to the Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
42
<PAGE> 44
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Preferred Securities, fiduciaries
of pension, profit sharing or other employee benefit plans subject to ERISA
("Plans") should consider, among other matters, (a) ERISA's fiduciary standards
(including its prudence and diversification requirements), (b) whether such
fiduciaries have authority to make such investment in the Preferred Securities
under the applicable Plan investment policies and governing instruments, and (c)
rules under ERISA and the Code that prohibit Plan fiduciaries from causing a
Plan to engage in a "prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from, among other things, engaging in certain transactions
involving "plan assets" with persons who are "parties in interest" under ERISA
or "disqualified persons" under the Code (collectively, "Parties in Interest")
with respect to such Plan. A violation of these "prohibited transaction" rules
may result in an excise tax or other liabilities under ERISA and/or Section 4975
of the Code for such persons, unless exemptive relief is available under an
applicable statutory or administrative exemption. Such administrative exemptions
include prohibited transaction class exemption ("PTCE"). PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 95-60 (for
certain transaction involving insurance company general accounts), PTCE 90-1
(for certain transactions involving insurance company pooled separate accounts),
and PTCE 84-14 (for certain transactions determined by independent qualified
asset managers).
The Department of Labor has issued a regulation (29 C.F.R. section
2510.3-101) (the "Plan Assets Regulation") concerning the definition of what
constitutes the assets of a Plan. The Plan Assets Regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply.
Pursuant to an exception contained in the Plan Assets Regulations, the
assets of the Trust would not be deemed to be "plan assets" of investing Plans
if the equity interests acquired by employee benefit plans are "publicly-offered
securities" -- that is, they are (1) widely held (i.e., owned by more than 100
investors independent of the issuer and of each other), (2) freely transferable
and (3) sold as part of an offering pursuant to an effective registration
statement under the Securities Act and then timely registered under Section
12(b) or 12(g) of the Exchange Act. It is expected that the Preferred Securities
will meet the criteria of "publicly-offered securities" above. The Underwriters
expect that the Preferred Securities will be held by at least 100 independent
investors at the conclusion of the offering; there are no restrictions imposed
on the transfer of the Preferred Securities and the Preferred Securities will be
sold as part of an offering pursuant to an effective registration statement
under the Securities Act, and then will be timely registered under the Exchange
Act.
Although it is expected that the assets of the Trust should not be deemed
to be "plan assets" of an investing Plan, if Household International or the
Trust is a Party in Interest with respect to the Plan, in the absence of an
applicable exemption, the Plan's purchase of the Preferred Securities from the
Company would likely constitute a prohibited transaction under Section
406(a)(1)(A) of ERISA and Section 4975(c)(1)(A) of the Code. In addition, in the
absence of an applicable exemption, certain other transactions coincident to the
Preferred Securities may involve a prohibited transaction, such as a
distribution of the Junior Subordinated Notes from the Trust to a Plan investor.
Any plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Preferred Securities
should consult with their own counsel to confirm that such investment will not
result in a prohibited transaction that is not subject to an exemption and will
satisfy any other applicable requirements of ERISA and the Code. Each purchaser
using assets of a Plan to acquire Preferred Securities will be deemed to have
represented that its purchase and holding of such Preferred Securities will not
result in a non-exempt prohibited transaction under ERISA or the Code or will be
covered by the exemptive relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or
84-14 or another applicable exemption.
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<PAGE> 45
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975 of
the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions similar to those under ERISA and the Code discussed
above. Accordingly, fiduciaries of governmental and church plans, in
consultation with their advisers, should consider the impact of their respective
state laws on investments in the Preferred Securities and the considerations
discussed above to the extent applicable.
44
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated , 1998 ( the "Underwriting Agreement") among Household
International, the Trust, and each of the underwriters named therein (the
"Underwriters"), the Trust has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase, severally but not jointly, the respective
number of the Preferred Securities set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER PREFERRED SECURITIES
----------- --------------------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
---------
Total.............................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Preferred Securities are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are committed to take and pay for all the
Preferred Securities if any are taken.
The initial purchase price for the Preferred Securities will be the initial
offering price set forth on the cover page of this Prospectus (the "Preferred
Securities Offering Price"). The Underwriters propose to offer the Preferred
Securities at the Preferred Securities Offering Price, and all or part to
certain dealers at a price that represents a concession not in excess of $
per Preferred Security. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per Preferred Security to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed by the Underwriters named on the cover
page hereof.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Notes issued by
Household International, the Underwriting Agreement provides that Household
International will pay as compensation for the Underwriters arranging the
investment therein of such proceeds an amount of $ per Preferred Security
(or $ in the aggregate) for the accounts of the Underwriters, provided that
such compensation will be $ per Preferred Security sold to certain
institutions. Therefore, to the extent of such sales, the aggregate amount of
compensation will be less than that specified in the preceding sentence.
Prior to this offering, there has been no public market for the Preferred
Securities. Application will be made to list the Preferred Securities on the New
York Stock Exchange. Trading of the Preferred Securities on the New York Stock
Exchange is expected to commence within a 30-day period after the initial
delivery of the Preferred Securities. The Underwriters have advised Household
International that they intend to make a market in the Preferred Securities
prior to commencement of trading on the New York Stock Exchange, but they are
not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Preferred Securities.
In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
Household International and the Trust have agreed that, during a period of
thirty days from the date of this Prospectus, neither will offer, sell, contract
to sell or otherwise dispose of any securities of Household
45
<PAGE> 47
International or the Trust that are substantially similar to the Preferred
Securities, or that are convertible into or exchangeable for, or otherwise
represent a right to acquire, any such securities, except in the offering or
with the prior written consent of the Underwriters.
Household International and the Trust have agreed to indemnify the
Underwriters and certain other persons against certain liabilities, including
liabilities under the Securities Act of 1933, as amended and to contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions to stabilize, maintain or otherwise affect the market
price of the Preferred Securities. Specifically, the Underwriters may overallot
by selling more Preferred Securities than they are committed to purchase from
the Trust. In such a case, to cover all or part of the short position, the
Underwriters may purchase Preferred Securities in the open market following
completion of the initial offering of the Preferred Securities. The Underwriters
also may engage in stabilizing transactions in which they bid for, and purchase,
Preferred Securities at a level above that which might otherwise prevail in the
open market for the purpose of preventing or retarding a decline in the market
price of the Preferred Securities distributed by that Underwriter or dealer. Any
of the foregoing transactions may result in the maintenance of a price for the
Preferred Securities at a level above that which might otherwise prevail in the
open market. Neither Household International nor any Underwriter makes any
representation or prediction as to the direction or magnitude of any offer that
the transactions described above may have on the price of the Preferred
Securities. The Underwriters are not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at anytime
without notice.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or financial services to
Household International and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Trust and Household
International by Richards, Layton & Finger, P.A., Wilmington, Delaware, special
Delaware counsel to the Trust and Household International. The validity of the
Junior Subordinated Notes, the Preferred Securities Guarantee and certain
matters relating thereto will be passed upon on behalf of Household
International by John W. Blenke, Vice President -- Corporate Law and Assistant
Secretary of Household International. Certain legal matters will be passed upon
for the Underwriters by McDermott, Will & Emery, Chicago, Illinois. Certain
United States federal income taxation matters will be passed upon for Household
International and the Trust by Sidley & Austin, Chicago, Illinois.
EXPERTS
The financial statements and schedules of Household International and its
subsidiaries incorporated by reference in this Prospectus, to the extent and for
the periods indicated in its reports, have been audited by Arthur Andersen LLP,
independent public accountants, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
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<PAGE> 48
DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE(S)
---- -------
<S> <C>
Additional Interest......................................... 33
Appointment Event........................................... 21
Base Indenture.............................................. 29
Beneficial Owner............................................ 24
Business Day................................................ 17
Change in 1940 Act Law...................................... 18
Code........................................................ 10, 39
Commission.................................................. 4
Common Securities........................................... 1
Company..................................................... 1
DTC......................................................... 24
Debt Trustee................................................ 29
Declaration................................................. 13
Declaration Event of Default................................ 20
Direct Participants......................................... 24
Dissolution Tax Opinion..................................... 18
distributions............................................... 2, 18
Event of Default............................................ 33
Exchange Act................................................ 4
Extension Period............................................ 2, 16
Global Security............................................. 35
Guarantee Payments.......................................... 26
Holder...................................................... 39
HFC......................................................... 12
Household International..................................... 1
Household International Trustees............................ 13
Indenture................................................... 29
Indenture Event of Default.................................. 20
Indirect Participants....................................... 24
Interest Payment Date....................................... 32
Investment Company Event.................................... 18
Junior Subordinated Notes................................... 2
Liquidation Distribution.................................... 20
MasterCard.................................................. 12
New York Stock Exchange..................................... 1
1940 Act.................................................... 18
1997 Final Regulations...................................... 42
No Recognition Opinion...................................... 18
OID......................................................... 39
Participants................................................ 24
Parties in Interest......................................... 43
Payment..................................................... 29
Plans....................................................... 43
Plan Assets Regulation...................................... 43
Preferred Guarantee Trustee................................. 13, 26
Preferred Securities........................................ 1
Preferred Securities Guarantee.............................. 2
Preferred Securities Offering Price......................... 45
Property Account............................................ 13
Property Trustee............................................ 13
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
TERM PAGE(S)
---- -------
<S> <C>
Redemption Price............................................ 2
Redemption Tax Opinion...................................... 18
Registration Statement...................................... 4
Regular Trustees............................................ 13
Representatives............................................. 45
Senior Indebtedness......................................... 30
Service..................................................... 39
Special Event............................................... 18
Special Regular Trustee..................................... 13
Sponsor..................................................... 13
Stated Maturity............................................. 2, 29
Successor Securities........................................ 23
Super-Majority.............................................. 22
Tax Event................................................... 18
Trust....................................................... 1
Trust Act................................................... 13
Trust Indenture Act......................................... 13
Trust Securities............................................ 1
Underwriters................................................ 45
Underwriters' Compensation.................................. 1, 45
Underwriting Agreement...................................... 45
United States Alien Holder.................................. 42
VISA........................................................ 12
</TABLE>
48
<PAGE> 50
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated Expenses:
<TABLE>
<S> <C>
Printing and Engraving...................................... $ 30,000
Fees of Trustees/Transfer Agents/Registrars................. 20,000
Accountants' Fees........................................... 20,000
Blue Sky Qualifications Fees................................ 15,000
SEC Filing Fee*............................................. 295
Rating Service Fees......................................... 23,000
Stock Exchange Listing Fees................................. 62,450
Legal Fees and Expenses..................................... 25,000
Miscellaneous............................................... 4,255
--------
Total.................................................. $200,000
========
</TABLE>
- -------------------------
*Actual
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Delaware (Section 102) allows a corporation
to eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his/her fiduciary duty as a director, except in the case where the director
breached his/her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. The Restated Certificate of
Incorporation, as amended, of Household International, Inc. (the "Company"),
contains a provision which eliminates directors' personal liability as set forth
above.
The General corporation of Law of Delaware (Section 145) gives Delaware
corporation broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes the Company to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
The Company's Restated Certificate of Incorporation, as amended, provides
for indemnification to the fullest extent as expressly authorized by Section 145
of the General Corporation Law of Delaware for directors, officers and employees
of the Company and also to persons who are serving at the request of the Company
as directors, officers or employees of other corporations (including
subsidiaries). This right of indemnification is not exclusive of any other right
which any person may acquire under any statute, bylaw, agreement, contract, vote
of stockholders or otherwise.
The Company has purchased liability policies which indemnify its officers
and directors against loss arising from claims by reason of their legal
liability for acts as officers, subject to limitations and conditions as set
forth in the policies.
The Declaration provides that no Household International Trustee, affiliate
of any Household International Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Household International Trustee, or any employee or agent of such Trust or its
affiliates (each an "Indemnified Person") shall be liable, responsible or
accountable in damages or otherwise to such Trust or any employee or agent of
the trust or its affiliates for any loss, damage or claim incurred by reason of
any act or omission performed or omitted by such Indemnified Person in good
faith on behalf of such Trust and in a
II-1
<PAGE> 51
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by such Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence or
willful misconduct with respect to such acts or omission. The Declaration of
Trust also provides that to the fullest extent permitted by applicable law,
Household International shall indemnify and hold harmless each Indemnified
Person from and against any loss, damage or claim incurred by such Indemnified
Person by reason of any act or omission performed or omitted by such Indemnified
Person in good faith on behalf of such Trust and in a manner such Indemnified
Person reasonably believed to be within the scope of authority conferred on such
Indemnified Person by such Declaration, except that no Indemnified Person shall
be entitled to be indemnified in respect of any loss, damage or claim incurred
by such Indemnified Person by reason of gross negligence or willful misconduct
with respect to such acts or omissions. The Declaration of Trust further
provides that to the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Person in defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by
Household International prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by Household International of an
undertaking by or on behalf of the Indemnified Person to repay such amount if it
shall be determined that the Indemnified Person is not entitled to be
indemnified for the underlying cause of action as authorized by such
Declaration.
Pursuant to agreements which the Company and the Trust may enter into with
underwriters or agents (forms of which are or will be filed as exhibit to this
Registration Statement) officers and directors of the Company and the Trustees
of the Trust may be entitled to indemnification by such underwriters or agents
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, arising from information appearing in the Registration
Statement or any Prospectus or Prospectus Supplement which has been furnished to
the Company by such underwriters or agents.
II-2
<PAGE> 52
ITEM 16. EXHIBITS.
<TABLE>
<C> <C> <S>
1 + Form of Underwriting Agreement for Preferred Securities.
4.1 Indenture between Household International, Inc. and The
First National Bank of Chicago, as Trustee dated as of May
15, 1995 (incorporated herein by reference to Exhibit 4.1 to
the Registration Statement on Form S-3 (Nos. 333-03337 and
333-03337-01).
4.2 + Form of Supplemental Indenture between Household
International, Inc. and The First National Bank of Chicago,
as Trustee.
4.3 Declaration of Trust of Household Capital Trust IV.
4.4 + Form of Amended and Restated Declaration of Trust.
4.5 + Form of Preferred Security (included in Exhibit 4.4 above).
4.6 + Form of Junior Subordinated Notes (included in Exhibit 4.2
above).
4.7 + Form of Guarantee with respect to Preferred Securities.
4.8 Certificate of Trust.
5.1 + Opinion and Consent of Mr. John W. Blenke, Vice
President--Corporate Law and Assistant Secretary of
Household International, Inc.
5.2 + Opinion and Consent of Richards, Layton & Finger, P.A..
8 + Tax opinion of Sidley & Austin.
12 + Statement on the Computation of Ratio of Earnings to Fixed
Charges and to Combined Fixed Charges and Preferred Stock
Dividends (incorporated herein by reference from Exhibit 12
to the Current Report on Form 8-K, dated March , 1998 of
Household International, Inc. (File No. 1-8198)).
23.1 Consent of Arthur Andersen LLP, Certified Public
Accountants.
23.2 + Consent of Mr. John W. Blenke, Vice President--Corporate Law
and Assistant Secretary of Household International, Inc. is
contained in his opinion (Exhibit 5.1).
23.3 + Consent of Sidley & Austin is contained in their opinion
(Exhibit 8).
23.4 + Consent of Richards, Layton & Finger, P.A. is contained in
their opinion (Exhibit 5.2).
24.1 Powers of Attorney with respect to Household International
officers and directors (filed herewith on page II-5).
24.2 Powers of Attorney with respect to Household Capital Trust
IV trustees (included in Exhibit 4.3 filed herewith).
25.1 + Statement of eligibility and qualification of Wilmington
Trust Company.
25.2 + Statement of eligibility and qualification of The First
National Bank of Chicago.
</TABLE>
- -------------------------
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) That for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the
Securities offered herein, and the offering of such Securities at that time
shall be deemed to be the initial bona fide offering thereof.
(2) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) under the Securities Act of 1933 shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(3) That for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration
II-3
<PAGE> 53
Statement relating to the securities offered therein and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions set forth or described in Item 15 of this
Registration Statement, or otherwise, the Registrants have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by a Registrant of expenses incurred or paid by a director,
officer or controlling person in the successful defense of any action, suit or
proceeding) is asserted against a Registrant by such director, officer or
controlling person, in connection with the Securities registered hereby, such
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE> 54
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused the Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Prospect Heights, and State of Illinois, on the
2nd day of March, 1998.
HOUSEHOLD INTERNATIONAL, INC.
By: (WILLIAM F. ALDINGER)
------------------------------------
William F. Aldinger
Chairman and Chief Executive Officer
Each person whose signature appears below constitutes and appoints J.W.
Blenke, L.S. Mattenson and P.D. Schwartz and each or any of them (with full
power to act alone), as his/her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him/her in his/her name,
place and stead, in any and all capacities, to sign and file with the Securities
and Exchange Commission, any and all amendments (including post-effective
amendments) to the Registration Statement, granting unto each such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he/she might or could do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent or their substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the 2nd day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ (WILLIAM F. ALDINGER)
- --------------------------------------------------- Chairman, Chief Executive Officer, and Director
(William F. Aldinger) (as Principal Executive Officer)
/s/ (ROBERT J. DARNALL)
- ---------------------------------------------------
(Robert J. Darnall) Director
/s/ (GARY G. DILLON)
- ---------------------------------------------------
(Gary G. Dillon) Director
/s/ (JOHN A. EDWARDSON)
- ---------------------------------------------------
(John A. Edwardson) Director
/s/ (MARY J. EVANS)
- ---------------------------------------------------
(Mary J. Evans) Director
/s/ (DUDLEY FISHBURN)
- ---------------------------------------------------
(Dudley Fishburn) Director
/s/ (CYRUS F. FREIDHEIM, JR.)
- ---------------------------------------------------
(Cyrus F. Freidheim, Jr.) Director
/s/ (LOUIS E. LEVY)
- ---------------------------------------------------
(Louis E. Levy) Director
</TABLE>
II-5
<PAGE> 55
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ (GEORGE A. LORCH)
- ---------------------------------------------------
(George A. Lorch) Director
/s/ (JOHN D. NICHOLS)
- ---------------------------------------------------
(John D. Nichols) Director
/s/ (JAMES B. PITBLADO)
- ---------------------------------------------------
(James B. Pitblado) Director
/s/ (S. JAY STEWART)
- ---------------------------------------------------
(S. Jay Stewart) Director
/s/ (LOUIS W. SULLIVAN, M.D.)
- ---------------------------------------------------
(Louis W. Sullivan, M.D.) Director
/s/ (DAVID A. SCHOENHOLZ) Executive Vice President-Chief Financial
- --------------------------------------------------- Officer
(David A. Schoenholz) (as Principal Accounting and Financial
Officer)
</TABLE>
The Registrant reasonably believes that the security rating to be assigned
to the Securities registered hereunder will make the Securities "investment
grade securities" pursuant to Transaction Requirements B-2 of Form S-3.
II-6
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Household
Capital Trust IV certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Prospect Heights, State
of Illinois, on this 27th day of February, 1998.
HOUSEHOLD CAPITAL TRUST IV
By: /s/ (DENNIS J. MICKEY)
------------------------------------
Name: Dennis J. Mickey
Title: Trustee
By: /s/ (MARK R. BURNSTINE)
------------------------------------
Name: Mark R. Burnstine
Title: Trustee
The Registrant reasonably believes that the security rating to be assigned
to the Securities registered hereunder will make the Securities "investment
grade securities" pursuant to Transaction Requirements B-2 of Form S-3.
II-7
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <C>
1 + Form of Underwriting Agreement for Preferred Securities.....
4.1 Indenture between Household International, Inc. and The
First National Bank of Chicago, as Trustee dated as of May
15, 1995 (incorporated herein by reference to Exhibit 4.1 to
the Registration Statement on Form S-3 (Nos. 333-03337 and
333-03337-01)...............................................
4.2+ Form of Supplemental Indenture between Household
International, Inc. and The First National Bank of Chicago,
as Trustee..................................................
4.3 Declaration of Trust of Household Capital Trust IV..........
4.4+ Form of Amended and Restated Declaration of Trust...........
4.5+ Form of Preferred Security (included in Exhibit 4.4
above)......................................................
4.6+ Form of Junior Subordinated Notes (included in Exhibit 4.2
above)......................................................
4.7+ Form of Guarantee with respect to Preferred Securities......
4.8 Certificate of Trust........................................
5.1+ Opinion and Consent of Mr. John W. Blenke, Vice
President--Corporate Law and Assistant Secretary of
Household International, Inc................................
5.2+ Opinion and Consent of Richards, Layton & Finger, P.A.......
8 + Tax opinion of Sidley & Austin..............................
12 + Statement on the Computation of Ratio of Earnings to Fixed
Charges and to Combined Fixed Charges and Preferred Stock
Dividends (incorporated herein by reference from Exhibit 12
to the Current Report on Form 8-K, dated March , 1998 of
Household International, Inc. (File No. 1-8198))............
23.1 Consent of Arthur Andersen LLP, Certified Public
Accountants.................................................
23.2+ Consent of Mr. John W. Blenke, Vice President--Corporate Law
and Assistant Secretary of Household International, Inc. is
contained in his opinion (Exhibit 5.1)......................
23.3+ Consent of Sidley & Austin is contained in their opinion
(Exhibit 8).................................................
23.4+ Consent of Richards, Layton & Finger, P.A. is contained in
their opinion (Exhibit 5.2).................................
24.1 Powers of Attorney with respect to Household International
officers and directors (filed herewith on page II-5)........
24.2 Powers of Attorney with respect to Household Capital Trust
IV trustees (included in Exhibit 4.3 filed herewith)........
25.1+ Statement of eligibility and qualification of Wilmington
Trust Company...............................................
25.2+ Statement of eligibility and qualification of The First
National Bank of Chicago....................................
</TABLE>
- -------------------------
+ To be filed by amendment.
II-8
<PAGE> 1
EXHIBIT 4.3
DECLARATION OF TRUST, dated as of February 25, 1998, between Household
International, Inc., a Delaware corporation, as Sponsor, and Mark R. Burnstine,
Dennis J. Mickey, and Wilmington Trust Company, a Delaware banking corporation,
not in their individual capacities but solely as Trustees. The Sponsor and the
Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Household Capital Trust
IV", in which name the Trustees, or the Sponsor to the extent provided herein,
may conduct the business of the Trust, make and execute contracts, and sue and
be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets over to the
Trustees the sum of $10. The Trustees hereby acknowledge receipt of such
amount in trust from the Sponsor, which amount shall constitute the initial
trust estate. The Trustees hereby declare that they will hold the trust estate
in trust for the Sponsor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of title 12
of the Delaware code, 12 Del. C. "3801 et seq. (the "Business Trust Act"), and
that this document constitute the governing instrument of the Trust. The
Trustees are hereby authorized and directed to execute and file a certificate
of trust with the Delaware Secretary of State substantially in the form
attached hereto or in such other form as the Trustees may approve.
3. The Sponsor and the Trustees will enter into an amended and restated
Declaration of Trust, satisfactory to each such party and substantially in the
form included as Exhibit 4(d) to the 1933 Act Registration Statement referred
to below, or in such other form as the Trustees may approve, to provide for the
contemplated operation of the Trust created hereby and the issuance of the
Preferred Securities and Common Securities referred to therein. Prior to the
execution and delivery of such amended and restated Declaration of Trust, the
Trustees shall not have any duty or obligation hereunder or with respect of the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise. However, notwithstanding
the foregoing, all Trustees may take all actions deemed proper as are necessary
to effect the transactions contemplated herein.
4. The Sponsor and the Trustees hereby authorize and direct the Sponsor,
as the sponsor of the Trust, (i) to file with the Securities and Exchange
Commission (the "Commission") and execute, in each case on behalf of the Trust,
(a) the Registration Statement on Form S-3 (the "1933 Act Registration
Statement") including pre-effective or post-effective amendments to such
Registration Statement, relating to the registration under the Securities Act
of 1933, as amended, of the Preferred Securities of the Trust and (b) a
Registration Statement on Form 8-A (the "1934 Act Registration Statement")
(including all pre-effective and post-effective amendments thereto) relating to
the registration of the
<PAGE> 2
Preferred Securities of the Trust under Section 12(b) of the Securities
Exchange Act of 1934, as amended; (ii) to file with the New York Stock Exchange
and execute on behalf of the Trust a listing application and all other
applications, statements, certificates, agreements and other instruments as
shall be necessary or desirable to cause the Preferred Securities to be listed
on the New York Stock Exchange; and (iii) to file and execute on behalf of the
Trust such applications, reports, surety bonds, irrevocable consents,
appointments of attorney for service of process and other papers and documents
as shall be necessary or desirable to register the Preferred Securities under
the securities or "Blue Sky" laws of such jurisdictions as the Sponsor, on
behalf of the Trust, may deem necessary or desirable. The Trustees further
hereby ratify and approve all actions having previously been taken with respect
to the foregoing. In the event that any filing referred to in clauses
(i)-(iii) above is required by the rules and regulations of the Commission, the
New York Stock Exchange or state securities or blue sky laws, to be executed on
behalf of the Trust by the Trustees, Mark R. Burnstine and Dennis J. Mickey, in
their capacities as Trustees of the Trust, are hereby authorized and directed
to join in any such filing and to execute on behalf of the Trust any and all of
the foregoing, it being understood that Wilmington Trust Company in its
capacity as Trustee of the Trust, shall not be required to join in any such
filing or execute on behalf of the Trust any such document unless required by
the rules and regulations of the Commission, the New York Stock Exchange or
state securities or blue sky laws. In connection with all of the foregoing,
the Sponsor and each Trustee (other than Wilmington Trust Company), solely in
its capacity as Trustee of the Trust, hereby constitutes and appoints John W.
Blenke, Laurie S. Mattensen and Patrick D. Schwartz, and each of them, as his,
her or its, as the case may be, true and lawful attorneys-in-fact, and agents,
with full power of substitution and resubstitution, for the Sponsor or such
Trustee or in the Sponsor's or such Trustee's name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to the 1933 Act Registration Statement and the 1934 Act
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Sponsor or such Trustee
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, shall do or cause to be done by virtue hereof.
5. This Declaration of Trust may be executed in one or more counterparts.
2
<PAGE> 3
6. The number of Trustees initially shall be three (3) and thereafter the
number of Trustees shall be such number as shall be fixed from time to time by
a written instrument signed by the Sponsor which may increase or decrease the
number of Trustees; provided, however, that the number of Trustees shall in no
event be less than three (3); and provided, further that to the extent required
by the Business Trust Act, one Trustee shall either be a natural person who is
a resident of the State of Delaware or, if not a natural person, an entity
which has its principal place of business in the State of Delaware. Subject to
the foregoing, the Sponsor is entitled to appoint or remove without cause any
Trustee at any time. The Trustees may resign upon thirty days prior notice to
the Sponsor.
IN WITNESS WHEREOF, the parties hereto have caused this Declaration of
Trust to be duly executed as of the day and year first above written.
HOUSEHOLD INTERNATIONAL, INC.
as Sponsor
By: /s/ John W. Blenke
----------------------------------------
Name: John W. Blenke
Title: Vice President
WILMINGTON TRUST COMPANY
not in its individual capacity but solely
as Trustee
By: /s/ Donald G. Mackelcan
------------------------------------------
Name: Donald G. Mackelcan
Title: Assistant Vice President
/s/ Mark R. Burnstine
--------------------------------------------
Mark R. Burnstine
not in his individual capacity but solely
as Trustee
/s/ Dennis J. Mickey
--------------------------------------------
Dennis J. Mickey
not in his individual capacity but solely
as Trustee
3
<PAGE> 1
EXHIBIT 4.8
CERTIFICATE OF TRUST
OF
HOUSEHOLD CAPITAL TRUST IV
This Certificate of Trust of Household Capital Trust IV (the "Trust"),
dated February 25, 1998, is being duly executed and filed by the undersigned,
as trustees, to form a business trust under the Delaware Business Trust Act (12
Del.C. "3801 et seq.).
1. Name. The name of the business trust formed hereby is Household
Capital Trust IV.
2. Delaware Trustee. The name and business address of the trustee of the
Trust with a principal place of business in the State of Delaware is Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, DE
19890, Attention: Corporate Trust Administration.
3. Counterparts. This Certificate may be executed in one or more
counterparts.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY
as Trustee
By: Donald G. Mackelcan
-------------------------------------
Name: Donald G. Mackelcan
Title: Assistant Vice President
/s/ Mark R. Burnstine
-------------------------------------
Mark R. Burnstine, as trustee
/s/ Dennis J. Mickey
------------------------------------
Dennis J. Mickey, as trustee
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Household International, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-3 relating to the offering
of up to 40,000 Trust Preferred Securities of Household Capital Trust IV and
Junior Subordinated Deferrable Interest Notes of Household International, Inc.
to be filed with the Securities and Exchange Commission on or about February
27, 1998, of our report dated January 23, 1997, included in Household
International, Inc.'s Form 10-K for the year ended December 31, 1996, and to
all references to our Firm included in this registration statement.
Arthur Andersen LLP
Chicago, Illinois
February 27, 1998
