<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-75
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HOUSEHOLD FINANCE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1239445
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2700 Sanders Road, Prospect Heights, Illinois 60070
- -------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 564-5000
--------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
At April 30, 1997, there were 1,000 shares of registrant's common
stock outstanding.
The registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing
this Form 10-Q with the reduced disclosure format.
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HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
Table of Contents
PART I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) - Three Months
Ended March 31, 1997 and 1996 2
Condensed Consolidated Balance Sheets -
March 31, 1997 (Unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended
March 31, 1997 and 1996 4
Financial Highlights 5
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
<PAGE>
<PAGE> 3
Part 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
<TABLE>
<CAPTION>
In millions.
- ------------------------------------------------------------------------------------------------
Three months ended March 31 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance income $501.6 $419.6
Interest income from noninsurance investment
securities 5.0 6.0
Interest expense 233.2 194.6
------ ------
Net interest margin 273.4 231.0
Provision for credit losses on owned receivables 233.5 128.9
------ ------
Net interest margin after provision for credit losses 39.9 102.1
------ ------
Securitization income 228.8 154.6
Insurance revenues 41.9 43.8
Investment income 25.3 55.2
Fee income 54.7 36.2
Other income 69.3 17.6
------ ------
Total other revenues 420.0 307.4
------ ------
Salaries and fringe benefits 107.6 90.2
Other operating expenses 171.6 141.3
Policyholders' benefits 42.1 67.6
------ ------
Total costs and expenses 321.3 299.1
------ ------
Income before income taxes 138.6 110.4
Income taxes 49.5 31.4
------ ------
Net income $ 89.1 $ 79.0
====== ======
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 4
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------
<TABLE>
<CAPTION>
In millions, except share data.
- -----------------------------------------------------------------------------------------------------
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash $ 273.4 $ 228.5
Investment securities 1,649.4 1,720.0
Receivables, net 15,759.1 16,391.7
Advances to (from) parent company and affiliates 425.1 (7.6)
Acquired intangibles, net 905.1 938.2
Properties and equipment, net 260.8 268.7
Real estate owned 125.6 112.1
Other assets 763.0 928.2
--------- ---------
Total assets $20,161.5 $20,579.8
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Debt:
Commercial paper, bank and other borrowings $ 4,672.6 $ 5,223.5
Senior and senior subordinated debt (with
original maturities over one year) 10,702.0 10,648.3
--------- ---------
Total debt 15,374.6 15,871.8
Insurance policy and claim reserves 1,065.5 1,021.7
Other liabilities 1,040.3 993.5
--------- ---------
Total liabilities 17,480.4 17,887.0
--------- ---------
Preferred stock 100.0 100.0
--------- ---------
Common shareholder's equity:
Common stock, $1.00 par value, 1,000
shares authorized, issued and outstanding
at March 31, 1997 and December 31, 1996,
and additional paid-in capital 892.8 892.8
Retained earnings 1,733.9 1,721.6
Foreign currency translation adjustments (8.0) (8.9)
Unrealized loss on investments, net (37.6) (12.7)
--------- ---------
Total common shareholder's equity 2,581.1 2,592.8
--------- ---------
Total liabilities and shareholder's equity $20,161.5 $20,579.8
========= =========
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 5
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
In millions.
- ---------------------------------------------------------------------------------------------------
Three months ended March 31 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income $ 89.1 $ 79.0
Adjustments to reconcile net income to cash
provided by operations:
Provision for credit losses on owned receivables 233.5 128.9
Insurance policy and claim reserves 22.8 13.3
Depreciation and amortization 53.3 40.4
Net realized gains from sales of assets (50.6) (4.1)
Other, net 70.0 156.1
--------- ---------
Cash provided by operations 418.1 413.6
--------- ---------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased (377.2) (824.3)
Matured 43.9 8.5
Sold 210.6 829.6
Short-term investment securities, net change 159.1 56.2
Receivables:
Originations, net (2,750.6) (2,543.7)
Purchased (310.3) (123.9)
Sold 3,564.6 2,358.4
Acquisition of portfolios, net - (13.4)
Properties and equipment purchased (10.3) (12.0)
Properties and equipment sold .9 1.5
Advances to parent company and affiliates, net (349.3) 33.8
--------- ----------
Cash increase (decrease) from investments in
operations 181.4 (229.3)
--------- ---------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change (551.5) (413.2)
Senior and senior subordinated debt issued 772.3 676.0
Senior and senior subordinated debt retired (718.6) (386.1)
Policyholders' benefits paid (37.7) (11.1)
Cash received from policyholders 57.7 23.0
Dividends on preferred stock (1.8) (1.8)
Dividends paid to parent company (75.0) -
--------- ---------
Cash decrease from financing and capital
transactions (554.6) (113.2)
--------- ---------
Increase in cash 44.9 71.1
Cash at January 1 228.5 154.7
--------- ---------
Cash at March 31 $ 273.4 $ 225.8
========= =========
Supplemental cash flow information:
Interest paid $ 204.5 $ 199.7
--------- ---------
Income taxes paid (received) (22.6) 44.7
--------- ---------
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 6
Household Finance Corporation and Subsidiaries
FINANCIAL HIGHLIGHTS
- ---------------------
<TABLE>
<CAPTION>
All dollar amounts are stated in millions.
- --------------------------------------------------------------------------------
Three months ended March 31 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 89.1 $ 79.0
------ ------
Revenues 926.6 733.0
------ ------
Return on average common shareholder's
equity <F1> 13.4% 14.4%
------ ------
Return on average owned assets <F1> 1.69 1.74
------ ------
</TABLE>
All dollar amounts are stated in millions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Total assets:
Owned $20,161.5 $20,579.8
Managed 33,043.0 33,089.2
--------- ---------
Receivables:
Owned $15,390.9 $16,086.8
Serviced with limited recourse 12,881.5 12,509.4
--------- ---------
Managed $28,272.4 $28,596.2
========= =========
Debt to total shareholder's equity 5.7:1 5.9:1
--------- ---------
Debt to common shareholder's equity 6.0:1 6.1:1
--------- ---------
<FN>
<F1> Annualized.
</FN>
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 7
Household Finance Corporation and Subsidiaries
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
- -------------------------
The accompanying unaudited condensed consolidated financial
statements of Household Finance Corporation and its subsidiaries
(the "company") have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. Certain prior period amounts have
been reclassified to conform with the current period's presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included
in the company's annual report on Form 10-K for the year ended
December 31, 1996.
2. INVESTMENT SECURITIES
- -------------------------
Investment securities consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
In millions. March 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities $ 178.9 $ 179.3 $ 212.7 $ 213.1
Corporate debt securities 1,117.2 1,075.5 1,069.5 1,058.5
U.S. government and federal
agency debt securities 258.6 244.3 252.6 243.7
Other 126.2 126.0 180.5 180.5
-------- -------- -------- --------
Subtotal 1,680.9 1,625.1 1,715.3 1,695.8
Accrued investment income 24.3 24.3 24.2 24.2
-------- -------- -------- --------
Total investment securities $1,705.2 $1,649.4 $1,739.5 $1,720.0
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 8
3. RECEIVABLES
- ---------------
Receivables consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity $ 2,832.0 $ 2,513.9
Visa/MasterCard 5,678.6 6,308.9
Private label 4,009.7 3,807.0
Other unsecured 1,997.0 2,564.4
Commercial 873.6 892.6
--------- ---------
Total owned receivables 15,390.9 16,086.8
Accrued finance charges 207.2 215.8
Credit loss reserve for
owned receivables (724.1) (671.5)
Unearned credit insurance premiums
and claims reserves (81.5) (82.6)
Amounts due and deferred from
receivables sales 1,561.0 1,404.8
Reserve for receivables serviced with
limited recourse (594.4) (561.6)
--------- ---------
Total owned receivables, net 15,759.1 16,391.7
Receivables serviced with limited
recourse 12,881.5 12,509.4
--------- ---------
Total managed receivables, net $28,640.6 $28,901.1
========= =========
</TABLE>
The outstanding balance of receivables serviced with limited recourse
consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity $ 4,016.6 $ 4,337.5
Visa/MasterCard 5,120.8 5,043.5
Private label 434.4 517.0
Other unsecured 3,309.7 2,611.4
--------- ---------
Total $12,881.5 $12,509.4
========= =========
</TABLE>
The combination of receivables owned and receivables serviced with limited
recourse, which the company considers its managed portfolio, is shown below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity $ 6,848.6 $ 6,851.4
Visa/MasterCard 10,799.4 11,352.4
Private label 4,444.1 4,324.0
Other unsecured 5,306.7 5,175.8
Commercial 873.6 892.6
--------- ---------
Total $28,272.4 $28,596.2
========= =========
</TABLE>
<PAGE>
<PAGE> 9
At March 31, 1997 and December 31, 1996, the amounts due and deferred from
receivables sales of $1,561.0 and $1,404.8 million, respectively, included
the unamortized securitization assets and funds established pursuant to the
recourse provisions for certain sales totaling $968.2 and $894.2 million,
respectively. The amounts due and deferred also included customer payments
not yet remitted by the securitization trustee to the company of $555.1 and
$478.0 million at March 31, 1997 and December 31, 1996, respectively. In
addition, the company has subordinated interests in certain transactions,
which were recorded as receivables, of $478.3 and $388.5 million at March 31,
1997 and December 31, 1996, respectively. The company has agreements with
a "AAA"-rated third party who will indemnify the company for up to $21.2
million in losses relating to certain securitization transactions. The
company maintains credit loss reserves pursuant to the recourse provisions
for receivables serviced with limited recourse which are based on estimated
probable losses under such provisions. These reserves totaled $594.4 and
$561.6 million at March 31, 1997 and December 31, 1996, respectively, and
represent the company's best estimate of possible losses on receivables
serviced with limited recourse.
4. CREDIT LOSS RESERVES
- ------------------------
An analysis of credit loss reserves for the three months ended March 31 was
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
In millions. 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables
at January 1 $ 671.5 $ 531.8
Provision for credit losses 233.5 128.9
Chargeoffs (188.7) (128.8)
Recoveries 16.4 21.4
Portfolio acquisitions, net (8.6) 3.7
-------- --------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES
AT MARCH 31 724.1 557.0
-------- --------
Credit loss reserves for receivables serviced with
limited recourse at January 1 561.6 334.2
Provision for credit losses 156.6 127.8
Chargeoffs (132.3) (74.0)
Recoveries 6.2 2.1
Other, net 2.3 (1.3)
-------- --------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED
WITH LIMITED RECOURSE AT MARCH 31 594.4 388.8
-------- --------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES
AT MARCH 31 $1,318.5 $ 945.8
======== ========
</TABLE>
5. INCOME TAXES
- ----------------
Effective tax rates for the three months ended March 31, 1997 and 1996 of
35.7 and 28.4 percent, respectively, differ from the statutory federal
income tax rate for the respective periods primarily because of the effects
of (a) leveraged lease tax benefits, (b) dividends received deduction
applicable to term preferred stock, (c) amortization of intangible assets,
(d) state and local income taxes and (e) United States loss carry forwards
in 1996.
<PAGE>
<PAGE> 10
6. TRANSACTIONS WITH PARENT COMPANY AND AFFILIATES
- --------------------------------------------------
HFC periodically advances funds to Household International and affiliates or
receives amounts in excess of the parent company's current requirements.
Advances to (from) parent company and affiliates were $425.1 million at
March 31, 1997 compared to $(7.6) million at December 31, 1996. Advances
from parent company and affiliates, which are included in commercial paper,
bank and other borrowings, were $297.6 and $15.0 million at March 31, 1997
and December 31, 1996, respectively. Net interest income on affiliated
balances was $6.1 and $.8 million for the three months ended March 31, 1997
and 1996, respectively.
7. RECENT ACCOUNTING DEVELOPMENTS
- ----------------------------------
Effective January 1, 1997, the company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("FAS No. 125").
FAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on an
approach that focuses on control of the assets and extinguishment of the
liabilities. The statement is effective for securitization transactions
occurring subsequent to December 31, 1996. The adoption of FAS No. 125
did not have a material impact on the company's consolidated financial
statements.
<PAGE>
<PAGE> 11
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATIONS SUMMARY
- ------------------
Net income for the first quarter of 1997 was $89.1 million, up 13 percent
from $79.0 million in 1996. The company's annualized return on average
common shareholder's equity for the first quarter of 1997 was 13.4 percent
compared to 14.4 percent in the year-ago period. The annualized return on
average owned assets was 1.69 percent in the 1997 first quarter, compared to
1.74 percent a year ago.
- - The following is a summary of the operating results of the company's key
businesses for the first quarter of 1997 compared to the prior year period:
The consumer finance business experienced higher margins and improved
efficiency compared to the prior year quarter which were partially offset
by higher credit losses primarily due to increased bankruptcies.
Results for the Visa*/MasterCard* business improved from the prior year
period due to receivable growth and higher net interest margin and fee
income. These improvements were partially offset by higher credit losses
resulting primarily from increased personal bankruptcy filings. Results
for this business continued to benefit from the company's co-branding
strategy, in particular the association with the General Motors credit card
("GM Card") program and the Union Privilege Visa/MasterCard portfolio
acquired in June 1996.
The private-label credit card business reported higher earnings in the
first quarter of 1997 compared to the year-ago period due to portfolio
growth and improved operating efficiency.
- - During the first quarter of 1997, the company sold certain non-strategic
assets for a pretax gain of approximately $50 million. This non-recurring
gain was recorded in other income in the statement of income.
- - The company increased its credit loss reserves during the first three
months of 1997 by providing reserves in excess of chargeoffs for owned
receivables of $61 million. The company increased credit loss reserves
due to continued growth and seasoning of unsecured loan products, and
uncertainty over the economy and consumer payment patterns.
BALANCE SHEET REVIEW
- --------------------
- - Managed consumer receivables (owned and serviced with limited recourse)
grew 31 percent over the prior year. Credit cards increased 52 percent
and other unsecured receivables were up 29 percent from the year-ago
levels. Year-over-year comparisons for the home equity portfolio were
impacted by the fourth quarter 1996 sale of approximately $131
million of lower margin home equity loans and the de-emphasis of the
company's wholesale business. Home equity loan production in the retail
branch network was up 10 percent year-over-year.
- - Compared to the fourth quarter of 1996, managed consumer receivables were
down slightly due to normal, seasonal runoff in the Visa/MasterCard
portfolio. Loan originations in the retail branch network also
experienced a typical seasonal slowdown.
* VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International, Incorporated, respectively.
<PAGE>
<PAGE> 12
- - Owned consumer receivables were $14.5 billion at March 31, 1997, compared
to $15.2 billion at December 31, 1996 and $11.3 billion at March 31, 1996.
Changes in owned receivables from period to period may vary depending on
the timing and significance of securitization transactions.
- - The company's managed credit loss reserves were $1,318.5 million at
March 31, 1997, up from $1,233.1 million at December 31, 1996 and $945.8
million at March 31, 1996. Credit loss reserves as a percent of managed
receivables were 4.66 percent, up from 4.31 percent at December 31, 1996
and March 31, 1996. Reserves as a percent of nonperforming managed
receivables were 131.4 percent, unchanged from December 31, 1996, and
compared to 136.7 percent at March 31, 1996. Consumer two-months-and-over
contractual delinquency ("delinquency") as a percent of managed consumer
receivables was 4.62 percent, up from 4.33 percent at December 31, 1996
and 4.01 percent at March 31, 1996. The annualized total consumer managed
chargeoff ratio in the first quarter of 1997 was 4.31 percent, compared to
3.51 percent in the prior quarter and 3.50 percent in the year-ago quarter.
- - The company's debt to total shareholder's equity ratio was 5.7 to 1 at
March 31, 1997 compared to 5.9 to 1 at December 31, 1996. Debt to common
shareholder's equity was 6.0 to 1 at March 31, 1997 compared to 6.1 to 1
at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The major use of cash by the company is the origination or purchase of
receivables or investment securities. The main sources of cash for the
company are the collection and sales of receivable balances; maturities
or sales of investment securities; proceeds from the issuance of debt;
and cash provided by operations.
The following describes major changes in the company's funding base from
December 31, 1996 to March 31, 1997:
- - The company paid $75.0 million of dividends to its parent company during
the quarter.
- - Total debt decreased from $15.9 billion to $15.4 billion primarily as a
result of the decrease in owned receivables during the quarter.
- - The company had securitized home equity, Visa/MasterCard, private label
and other unsecured receivables outstanding of $12.9 and $12.5 billion at
March 31, 1997 and December 31, 1996, respectively. In the first quarter
of 1997, the company securitized, excluding replenishments of certificate
holder interests, $1.1 billion of Visa/MasterCard and other unsecured
receivables, the same amount as a year ago.
The composition of these securitizations by type is as follows (in billions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
March 31, March 31,
Three months ended 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Visa/MasterCard $ .3 $ .3
Other unsecured .8 .8
------- -------
Total $ 1.1 $ 1.1
======= =======
</TABLE>
The market for securities backed by receivables is a reliable,
efficient and cost-effective source of funds, which the company
plans to continue to utilize in the future.
<PAGE>
<PAGE> 13
INCOME STATEMENT REVIEW
- -----------------------
Net interest margin
- --------------------
Net interest margin was $273.4 million for the first quarter of
1997, up from $231.0 million in the prior year. Net interest margin
as a percent of average owned interest-earning assets, annualized,
was 6.65 percent compared to 7.12 percent in the year-ago quarter.
The dollar increase in 1997 was primarily due to growth in average
owned Visa/MasterCard and private-label receivables.
Due to the securitization of assets over the past several years,
the comparability of net interest margin between years may be
affected by the level and type of assets securitized. As
receivables are securitized and sold rather than held in portfolio,
net interest income is shifted to securitization income. Net
interest margin on a managed basis, assuming receivables
securitized and sold were instead held in the portfolio, was $555.7
million for the first quarter of 1997, compared to $419.4 million
in the same year-ago period. Net interest margin on a managed basis
as a percent of average managed interest-earning assets,
annualized, was 7.69 percent compared to 7.63 percent in the year-
ago quarter. The net interest margin percentage on a managed basis
was greater than on an owned basis because of the increased
proportion of Visa/MasterCard and other unsecured receivables,
which have wider spreads, in the securitized portfolio.
Provision for credit losses
- ---------------------------
The provision for credit losses for receivables on an owned basis
for the first quarter of 1997 totaled $233.5 million, up 81 percent
from $128.9 million in the prior year period. In view of
uncertainty regarding consumer payment patterns, the continued high
levels of personal bankruptcies and growth of unsecured loan
products, the company continued to increase its credit loss
reserves in excess of current period chargeoffs. Provision in
excess of chargeoffs related to owned receivables was $61 and $22
million for the three months ended March 31, 1997 and 1996,
respectively. The provision for credit losses may vary from quarter
to quarter, depending on the amount of securitizations in a
particular period.
Other revenues
- --------------
Securitization income of $228.8 and $154.6 million for the three
months ended March 31, 1997 and 1996, respectively, consists of
income associated with the securitization of receivables with
limited recourse, including net interest income, fee and other
income and provision for credit losses related to those
receivables. The 48 percent increase in securitization income
compared to the first quarter of 1996 was primarily due to the 38
percent increase in average securitized receivables. In addition,
securitization income for the first quarter of 1997 was favorably
impacted by wider spreads resulting from growth in securitized
Visa/MasterCard and other unsecured receivables compared to a year
ago.
Fee income includes revenues from fee-based products such as
Visa/MasterCard and private-label credit cards. Fee income was
$54.7 million in the first quarter of 1997, up from $36.2 million
in the comparable period of the prior year, primarily due to higher
interchange and other fees as a result of the increase in the
amount of average credit card receivables compared to the prior
year.
Other income increased from $17.6 million in the first quarter of
1996 to $69.3 million in 1997 as a result of gains totaling
approximately $50 million on the sales of assets, as previously
discussed.
<PAGE>
<PAGE> 14
Expenses
- --------
Salaries and fringe benefits and other operating expenses were
$279.2 million, up 21 percent from $231.5 million a year ago. The
higher expense was primarily due to an increase in sales force in
the consumer finance business, as well as the addition of
collectors in all the company's businesses, as compared to the
prior year. Also contributing to the increase in 1997 were higher
marketing expenses related to the company's credit card programs.
CREDIT LOSS RESERVES
- --------------------
The company's consumer credit management policies focus on product
type and specific portfolio risk factors. The consumer credit
portfolio is diversified by product and geographic location. See
Note 3, "Receivables" in the accompanying financial statements for
receivables by product type.
Total managed credit loss reserves, which include reserves for
recourse obligations for receivables sold, were as follows (in
millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
March 31, December 31, March 31,
1997 1996 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Owned $ 724.1 $ 671.5 $ 557.0
Serviced with limited recourse 594.4 561.6 388.8
-------- -------- --------
Total $1,318.5 $1,233.1 $ 945.8
======== ======== ========
</TABLE>
Credit loss reserves have increased due to growth and seasoning of
unsecured products, coupled with uncertainty over the strength of
the economy and increased personal bankruptcies. Managed credit
loss reserves as a percent of nonperforming managed receivables
were 131.4 percent, unchanged from December 31, 1996, and compared
to 136.7 percent at March 31, 1996.
Total owned and managed credit loss reserves as a percent of
receivables were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
March 31, December 31, March 31,
1997 1996 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Owned 4.70% 4.17% 4.47%
Managed 4.66 4.31 4.31
---- ---- ----
</TABLE>
The level of reserves for consumer credit losses is based on
delinquency and chargeoff experience by product and judgmental
factors. Management also evaluates the potential impact of existing
and anticipated national and regional economic conditions on the
managed receivable portfolio when establishing credit loss
reserves. While management allocates reserves among the company's
various products, all reserves are considered to be available to
cover total loan losses. See Note 4, "Credit Loss Reserves" in the
accompanying financial statements for analyses of reserves.
<PAGE>
<PAGE> 15
CREDIT QUALITY
- --------------
Delinquency and chargeoff levels in the consumer portfolio were
higher compared to the prior and year-ago quarters. Delinquency and
chargeoff levels are monitored on a managed basis since all of the
receivables are originated using comparable underwriting standards,
are managed by operating personnel without regard to portfolio
ownership and result in a similar credit loss exposure.
Delinquency
- -----------
Two-Months-and-Over Contractual Delinquency (as a percent of
managed consumer receivables):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
3/31/97 12/31/96 9/30/96 6/30/96 3/31/96
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity 3.53% 3.62% 3.59% 3.47% 3.36%
Visa/MasterCard 3.32 2.90 2.64 1.99 2.61
Private label 5.81 5.95 5.68 5.25 4.93
Other unsecured 7.68 7.04 6.79 6.59 6.50
---- ---- ---- ---- ----
Total 4.62% 4.33% 4.14% 3.70% 4.01%
==== ==== ==== ==== ====
</TABLE>
Delinquency as a percent of managed consumer receivables increased
from the prior quarter and the prior year. The increase in
delinquency was primarily due to seasoning of the portfolios; the
company's continued shift in portfolio mix away from secured real
estate loans and toward unsecured products; and a slower consumer
payment pattern.
Net Chargeoffs of Consumer Receivables
- --------------------------------------
Net Chargeoffs of Consumer Receivables (as a percent, annualized,
of average managed consumer receivables):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
1997 1996 1996 1996 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity 1.35% 1.22% .96% .91% .85%
Visa/MasterCard 4.76 3.90 3.99 4.40 4.67
Private label 5.36 3.78 3.78 4.08 5.05
Other unsecured 6.34 5.53 5.57 4.31 4.85
---- ---- ---- ---- ----
Total 4.31% 3.51% 3.45% 3.29% 3.50%
==== ==== ==== ==== ====
</TABLE>
Net chargeoffs as a percent of average managed consumer receivables
for the first quarter of 1997 increased compared to both the prior
and year-ago periods. Approximately 90 percent of the year-over-
year increase in the total chargeoff ratio was due to increased
bankruptcy filings in the Visa/MasterCard portfolio. The remaining
increase was primarily attributable to the continued seasoning of
the private label and other unsecured portfolios. The private label
ratio was also affected by a portion of promotional business
reaching chargeoff. The increase in net chargeoffs is in line with
the company's expectations and industry trends.
<PAGE>
<PAGE> 16
Nonperforming Assets
- --------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
In millions. 3/31/97 12/31/96 9/30/96 6/30/96 3/31/96
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed
receivables $ 558.4 $ 519.9 $500.0 $487.1 $511.8
Accruing managed consumer
receivables 90 or more days
delinquent 432.2 405.7 310.0 229.1 159.8
Renegotiated commercial
loans 12.9 12.9 19.9 19.9 20.4
-------- -------- ------ ------ ------
Total nonperforming managed
receivables 1,003.5 938.5 829.9 736.1 692.0
Real estate owned 125.6 112.1 107.4 103.5 96.2
-------- -------- ------ ------ ------
Total nonperforming assets $1,129.1 $1,050.6 $937.3 $839.6 $788.2
======== ======== ====== ====== ======
Managed credit loss reserves as
a percent of nonperforming
managed receivables 131.4% 131.4% 140.7% 151.0% 136.7%
-------- -------- ------ ------ ------
</TABLE>
<PAGE>
<PAGE> 17
Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Restated Certificate of Incorporation of Household Finance
Corporation, as amended.
12 Statement of Computation of Ratio of Earnings to Fixed Charges
and to Combined Fixed Charges and Preferred Stock Dividends.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
(b) Reports on Form 8-K
During the first quarter of 1997, the Registrant filed a Current
Report on Form 8-K dated February 10, 1997 with respect to the
financial results of Household Finance Corporation, for the quarter
and year ended December 31, 1996, and a Current Report on Form 8-K
dated March 12, 1997 containing owned and managed financial
information with respect to the operations of Household Finance
Corporation, as of and for the year ended December 31, 1996.
<PAGE>
<PAGE> 18
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSEHOLD FINANCE CORPORATION
-----------------------------
(Registrant)
Date: May 14, 1997 By: /s/ David A. Schoenholz
--------------- ----------------------------
David A. Schoenholz
Vice President, Chief Accounting Officer
and Chief Financial Officer, Director
and on behalf of
Household Finance Corporation
<PAGE>
<PAGE> 19
Exhibit Index
--------------
3(i) Restated Certificate of Incorporation of Household Finance
Corporation, as amended.
12 Statement of Computation of Ratio of Earnings to Fixed Charges and to
Combined Fixed Charges and Preferred Stock Dividends.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
RESTATED
CERTIFICATE OF INCORPORATION
OF
HOUSEHOLD FINANCE CORPORATION
This Restated Certificate of Incorporation was duly adopted
by the stockholders in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of
Delaware. The original Certificate of Incorporation was filed
with the Secretary of State of Delaware on July 21, 1925.
ARTICLE 1
The name of the Corporation is Household Finance
Corporation.
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is 100 West Tenth Street, Wilmington, Delaware
19899. The name of its registered agent at such address is The
Corporation Trust Company, in the county of New Castle.
ARTICLE III
The nature of the business to be transacted or carried on
and the objects and purposes to be promoted are lending money,
acting as agent, broker, or otherwise in procuring money for
loans, endorsing, guaranteeing the payment of, buying, selling
and otherwise dealing in notes, open accounts, and all other
evidences of debt, and engaging in any lawful act or activity for
which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,000 shares of
Common Stock of the par value of $1.00 per share.
ARTICLE V
In furtherance, and not in limitation, of the powers
conferred by statue, the Board of Directors of the Corporation is
expressly authorized to make, alter, amend and rescind the by-
laws of the Corporation.<PAGE>
IN WITNESS WHEREOF, said Household Finance Corporation has
caused its corporate seal to be hereunto affixed and this
certificate to be signed by R.E. Bouma, its Senior Vice President
and General Counsel, and attested by R.C. Roselli, its Assistant
Secretary, this 24th day of June, 1981.
HOUSEHOLD FINANCE CORPORATION
By: /s/ R. E. Bouma
----------------------
Senior Vice President-
General Counsel
Attest:
By: /s/ R. C. Roselli
-------------------
Assistant Secretary
<PAGE>
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE
To: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of Title 8 of the
Delaware Code, the undersigned Agent for service of process, in
order to change the address of the registered office of the
corporations for which it is registered agent, hereby certifies
that:
1. The name of the agent is: The Corporation Trust Company
2. The address of the old registered office was:
100 West Tenth Street
Wilmington, Delaware 19801
3. The address to which the registered office is to be changed
is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The new address will be effective on July 30, 1984.
4. The names of the corporations represented by said agent are
set forth on the list annexed to this certificate and made a
part hereof by reference.
IN WITNESS WHEREOF, said agent has caused this certificate
to be signed on its behalf by its Vice-President and Assistant
Secretary this 25th day of July, 1984.
THE CORPORATION TRUST COMPANY
(Name of Registered Agent)
By: /s/ Virginia Colwell
---------------------
(Vice-President)
ATTEST:
/s/ NN
- --------------------
(Assistant Secretary)<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Household Finance Corporation, a corporation organized and
existing under the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the Restated Certificate of Incorporation, as
heretofore amended, of said Corporation has been further amended
by inserting the following as Article IV:
ARTICLE IV
(A) The total number of shares of all classes of capital
stock which the Corporation shall have the authority to issue is
two thousand (2,000) shares, of which one thousand (1,000) shares
shall be shares of Preferred Stock of no par value (hereinafter
called "Preferred Stock") and one thousand (1,000) shares shall
be shares of Common Stock of the par value of $1.00 per share.
(B) The holders of the outstanding shares of a class shall
be entitled to vote as a class upon a proposed amendment to the
Corporation's Certificate of Incorporation if the amendment would
increase or decrease the par value of the shares of such class,
or alter or change the powers, preferences, or special rights of
the shares of such class so as to affect them adversely. If any
proposed amendment would alter or change the powers, preferences,
or special rights of one or more series of any class so as to
affect them adversely, but shall not so affect the entire class,
then only the shares of the series so affected by the amendment
shall be considered a separate class for the purposes of this
paragraph. The number of authorized shares of any such class or
classes of stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the stock of the Corporation
entitled to vote.
(C) The designations and the powers, preferences and
rights, and the qualifications, limitations or restrictions
thereof, of the Preferred Stock shall be as follows:
(1) The Board of Directors is expressly authorized at
any time, and from time to time, to provide for the issuance
of shares of Preferred Stock in one or more series, with
such voting powers, full or limited but not to exceed one
vote per share, or without voting powers, and with such
designations, preferences and relative, participating
optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are
not stated and expressed in this Certificate of
Incorporation, or any amendment thereto, including (but
without limiting the generality of the foregoing) the
following:
(a) the designation of and number of shares
constituting such series;
(b) the dividend rate of such series, the conditions
and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to
the dividends payable on any other class or classes or of
any other series of capital stock, and whether such
dividends shall be cumulative or noncumulative;
(c) whether the shares of such series shall be subject
to redemption by the Corporation, and, if made subject to
such redemption, the times, prices and other terms and
conditions of such redemption;
(d) the terms and amount of any sinking fund provided
for the purchase or redemption of the shares of such series;
(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other
class or classes or of any other series of any class or
classes of capital stock of the Corporation or for any other
securities of the Corporation, and, if provision be made for
conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such
conversion or exchange;
(f) the extent, if any, to which the holders of the
shares of such series shall be entitled to vote as a class
or otherwise with respect to the election of the Directors
or otherwise; provided, however, that in no event shall any
holder of any series of Preferred Stock be entitled to more
than one vote for each share of such Preferred Stock held by
him;
(g) the restrictions, if any, on the issue or reissue
of any additional Preferred Stock;
(h) the rights of the holders of the shares of such
series upon the dissolution of, or upon the distribution of
assets of, the Corporation.
(2) Except as otherwise required by law and except for
such voting powers with respect to the election of Directors
or other matters as may be stated in the resolutions of the
Board of Directors creating any series of Preferred Stock,
the holders of any such series shall have no voting power
whatsoever.
(D) No stockholder of this Corporation shall have any pre-
emptive or preferential right of subscription to any shares of
any stock of this Corporation, or to any obligations convertible
into stock of this Corporation, issued or sold, nor any right of
subscription to any thereof other than such, if any, as the Board
of Directors of this Corporation in its discretion from time to
time may determine, and the Board of Directors may issue stock of
this Corporation, or obligations convertible into stock, without
offering such issue of stock, either in whole or in part, to the
stockholders of this Corporation. The acceptance of stock in
this Corporation shall be a waiver of any such pre-emptive or
preferential rights which in the absence of this provision might
otherwise be asserted by stockholders of this Corporation or any
of them.
This Corporation shall be entitled to treat the person in
whose name any share is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or
other claim to, or interest in, such share on the part of any
other person, whether or not this Corporation shall have notice
thereof, save as expressly provided by the laws of the State of
Delaware.
SECOND: That the aforesaid amendment of the Restated
Certificate of Incorporation of said Corporation, set forth in
Paragraph FIRST hereinabove, has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunto affixed and this certificate to be signed by
W.D. Hendry, its President, and attested by R.C. Roselli, its
Assistant Secretary, this 20th day of November, 1985.
HOUSEHOLD FINANCE CORPORATION
By: /s/ W. D. Hendry
----------------
President
Attest:
/s/ R. C. Roselli
- -------------------
Assistant Secretary<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
EXCHANGEABLE MONEY MARKET CUMULATIVE PREFERREDTM STOCK,
SERIES A
OF
HOUSEHOLD FINANCE CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
HOUSEHOLD FINANCE CORPORATION, a corporation organized
and existing under the laws of the State of Delaware (the
"Corporation"), HEREBY CERTIFIES that the following resolutions
were duly adopted by the Board of Directors of the Corporation
and by the Finance Committee of the Board of Directors,
respectively, pursuant to authority conferred upon the Board of
Directors by the provisions of the Restated Certificate of
Incorporation of the Corporation which authorizes the issuance of
up to 1,000 shares of preferred stock, without par value, and
pursuant to authority conferred upon the Finance Committee of the
Board of Directors by Section 141(c) of the General Corporation
Law of the State of Delaware, by Article III, Section 6, of the
By-Laws of the Corporation and by Section 141(f) of the General
Corporation Law of the State of Delaware and by the resolutions
of the Board of Directors set forth herein, by unanimous written
consent of the Board of Directors dated December 16, 1985 and by
unanimous written consent of the Finance Committee thereof dated
December 17, 1985:
1. The Board of Directors by unanimous written
consent dated December 16, 1985 adopted the following resolution
designating a series of preferred stock, without par value, of
the Corporation (for purposes of paragraphs 1, 2 and 4 of this
Certificate of Designations, such series is referred to as the
"Preferred Stock"):
"RESOLVED, that there is hereby designated a series of
Preferred Stock, entitled 'Exchangeable Money Market Cumulative
Preferred Stock, Series A (sometimes referred to herein as
'Preferred Stock'), such series to consist of 150 shares."
2. The Board of Directors by unanimous written
consent dated December 16, 1985, adopted the following resolution
fixing the voting rights of the Preferred Stock:
"RESOLVED, that the shares of the Preferred Stock shall
have no voting powers, either general or special, except that:
(a) Unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66-2/3% of all of the
shares of the Preferred Stock at the time outstanding, given
in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of
shares of the Preferred Stock shall vote together as a
separate class, shall be necessary for authorizing,
effecting or validating the amendment, alteration or repeal
of any of the provisions of the Restated Certificate of
Incorporation or of any certificate amendatory thereof or
supplemental thereto (including any Certificate of
Designations or any similar document relating to any series
of preferred stock) which would adversely affect the
preferences, powers, rights or privileges of the Preferred
Stock; provided, however, that any increase or decrease in
the amount of authorized preferred stock or the creation and
issuance of other series of preferred stock, or any increase
in the amount of authorized shares or issued shares of the
Preferred Stock or any other series of preferred stock, in
each case ranking on a parity with or junior to the
Preferred Stock with respect to the payment of dividends or
the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely
affect the preference, powers, rights or privileges of the
Preferred Stock;
(b) Unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66-2/3% of all of the
shares of the Preferred Stock and all other series of
preferred stock ranking on a parity with shares of the
Preferred Stock, either as to dividends or upon liquidation,
and which are granted in the Restated Certificate of
Incorporation the right to vote together with the Preferred
Stock as a single class on the matters set forth in this
subparagraph (b), at the time outstanding, given in person
or by proxy, either in writing or by a vote at a meeting
called for the purpose at which the holders of shares of the
Preferred Stock and such other series of preferred stock
shall vote together as a single class without regard to
series, shall be necessary for authorizing, effecting or
validating the creation, authorization or issuance of any
shares of any class of stock of the Corporation ranking
prior to the shares of the Preferred Stock as to dividends
or upon liquidation, or the reclassification of any
authorized stock of the Corporation into any such prior
shares, or the creation, authorization or issuance of any
obligation or security convertible into or evidencing the
right to purchase any such prior shares;
(c) If at the time of any annual meeting of
stockholders for the election of directors of the
Corporation a default in preference dividends shall exist on
the Preferred Stock or any series of preferred stock of the
Corporation ranking on a parity with the Preferred Stock as
to dividends or upon liquidation and which is granted in the
Restated Certificate of Incorporation the right to vote
together with the Preferred Stock as a single class on the
election of directors (the Preferred Stock and the other
preferred stock of all such series being referred to as the
"Voting Parity Preferred Stock"), the number of directors
constituting the Board of Directors of the Corporation shall
be increased by two, and the holders of the Voting Parity
Preferred Stock of all series shall have the right at such
meeting, voting together as a single class without regard to
series, to the exclusion of the holders of the Common Stock
and any other class of capital stock that is not Voting
Parity Preferred Stock, to elect two directors of the
Corporation to fill such newly created directorships. Such
right shall continue until there are no preference dividends
in arrears upon the Voting Parity Preferred Stock of any
series, at which time such right shall terminate, except as
by law expressly provided, subject to revesting in the event
of each and every subsequent default of the character above
mentioned. Upon any such termination of the right of the
holders of shares of Voting Parity Preferred Stock as a
class to vote for directors as herein provided, the term of
office of each director then in office elected by such
holders voting as a class (herein called a "Preferred
Director") shall terminate immediately. Any Preferred
Director may be removed by, and shall not be removed except
by, the vote of the holders of record of the outstanding
shares of Voting Parity Preferred Stock, voting together as
a single class without regard to series, at a meeting of the
Corporation's stockholders, or of the holders of shares of
Voting Parity Preferred Stock, called for such purpose. So
long as a default in any preference dividends on the Voting
Parity Preferred Stock of any series shall exist (A) any
vacancy in the office of a Preferred Director may be filled
(except as provided in the following clause (B)) by a person
appointed by an instrument in writing signed by the
remaining Preferred Director and filed with the Corporation
and (B) in the case of the removal of any Preferred
Director, the vacancy may be filled by a person elected by
the vote of the holders of the outstanding shares of Voting
Parity Preferred Stock, voting together as a single class
without regard to series, at the same meeting at which such
removal shall be voted or at any subsequent meeting. Each
director appointed as aforesaid by the remaining Preferred
Director shall be deemed, for all purposes hereof, to be a
Preferred Director. Whenever a default in preference
dividends shall no longer exist, the term of office of the
Preferred Directors shall end and the number of directors
constituting the Board of Directors of the Corporation shall
be reduced by two. For the purposes hereof, a "default in
preference dividends" on the Voting Parity Preferred Stock
of any series shall be deemed to have occurred whenever the
amount of unpaid accrued dividends upon any series of Voting
Parity Preferred Stock shall be equivalent to six quarterly
dividends (which, with respect to the Preferred Stock and
any other series of Voting Parity Preferred Stock, shall be
deemed to be dividends in respect of a number of dividend
periods containing not less than 540 days) or more, and,
having so occurred, such default shall be deemed to exist
thereafter until, but only until, all accrued dividends on
all shares of Voting Parity Preferred Stock of each and
every series then outstanding shall have been paid to the
end of the last preceding dividend period."
3. The Board of Directors by unanimous written
consent dated December 16, 1985, adopted the following
resolution:
"RESOLVED, that the issue of up to 150 shares of
Exchangeable Money Market Cumulative Preferred Stock, Series A,
without par value, of the Corporation is hereby authorized and
the preferences and privileges, relative, participating, optional
and other special rights, and qualifications, limitations and
restrictions of all 150 shares of such series, in addition to
those set forth in the Restated Certificate of Incorporation of
the Corporation, are hereby fixed as follows:
Exchangeable Money Market Cumulative Preferred Stock,
Series A
PART I
1. Number of Shares; Ranking. (a) The designation
of the series of preferred stock without par value provided for
herein shall be "Exchangeable Money Market Cumulative Preferred
Stock, Series A" (hereinafter referred to as the "Series A MMP"),
and the number of authorized shares constituting Series A MMP is
150. No fractional shares of Series A MMP will be issued.
(b) Any shares of Series A MMP which at any time have
been redeemed by the Corporation shall, after such redemption,
have the status of authorized but unissued shares of preferred
stock, without designation as to series until such shares are
once more designated as part of a particular series by the Board
of Directors of the Corporation.
(c) The shares of Series A MMP shall rank senior to or
on a parity with shares of any other series of the Corporation's
preferred stock as to dividends and upon liquidation and shall
rank on a parity with shares of any other series of the
Corporation's Exchangeable Money Market Cumulative Preferred
Stock as to dividends and upon liquidation.
2. Dividends. (a) The Holders (as defined in
Section 7 of this Part I) shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation, out
of funds legally available therefor, cumulative cash dividends at
the Applicable Rate (as defined in subparagraph (c)(i) of this
Section 2) per annum, determined as set forth below, and no more,
payable on the respective dates set forth below.
(b) (i) Dividends on shares of Series A MMP, at the
Applicable Rate per annum, shall accrue from the Date of Original
Issue (as defined in Section 7 of this Part I) and shall be
payable commencing on such Tuesday as shall be specified for
Series A MMP by resolutions duly adopted by the Board of
Directors of the Corporation, and each succeeding seventh Tuesday
thereafter, except that (X)(1) if such Tuesday is not a Business
Day (as defined in Section 7 of this Part I), then on the first
Business Day after such Tuesday that is immediately followed by a
Business Day and is preceded by a Business Day that is the
preceding Friday or a day after such Friday, or (2) if such
Tuesday is a Business Day but the Wednesday following such
Tuesday is not a Business Day, then (I) on the preceding Monday
if such Monday and the preceding Friday are Business Days or (II)
otherwise on the first Business Day after such Tuesday that is
immediately followed by a Business Day and preceded by a Business
Day that is such Friday or a day after such Friday, or (3) if
such Tuesday and the Wednesday following such Tuesday are both
Business Days but both the preceding Friday and Monday are not
Business Days, then on the first Business Day after such Tuesday
that is immediately followed by a Business Day and is preceded by
a Business Day that is such Tuesday or a day after such Tuesday,
or (Y) if such Tuesday is not a Business Day or both the Friday
and Monday preceding such Tuesday are not Business Days and if
the Securities Depository shall make available to its
participants and members, in funds immediately available in The
City of New York on each Dividend Payment Date, the amount due as
dividends on each such Dividend Payment Date, and the Securities
Depository shall have so advised the Auction Agent (as defined in
Section 7 of this Part I) then on the first Business Day after
such Tuesday that is preceded by a Business Day that is the
preceding Friday or a day after such Friday; provided, however,
that the Board of Directors of the Corporation, in the event of a
change in law lengthening the minimum holding period (currently
found in Section 246(c) of the Code (as defined in Section 7 of
this Part I)) required for taxpayers to be entitled to the
dividends received deduction on preferred stock held by non-
affiliated corporations (currently found in Section 243(a) of the
Code), may adjust the period of time between Dividend Payment
Dates so as, subject to clauses (X) and (Y), to adjust uniformly
the number of days (such number of days without giving effect to
such clauses (X) and (Y) being hereinafter referred to as
"Dividend Period Days") in Dividend Periods (as defined in
subparagraph (c)(i) of this Section 2) commencing after the date
of such change in law to equal or exceed the then current minimum
holding period; provided that the number of Dividend Period Days
shall not exceed by more than nine days the length of such then
current minimum holding period and in no event shall exceed 98
days and that dividends shall continue to be payable, subject to
clauses (X) and (Y), on Tuesdays (each date of payment of
dividends being herein referred to as a "Dividend Payment Date"
and the first Dividend Payment Date being herein referred to as
the "Initial Dividend Payment Date"). Upon any such change in
the number of Dividend Period Days as a result of a change in
law, the Corporation shall publish notice of such change in a
newspaper of general circulation in The City of New York, New
York, which carries financial news and shall mail notice of such
change by first class mail, postage prepaid, to each Holder at
such Holder's address as the same appears on the stock books of
the Corporation.
(ii) So long as no LIBOR Event (as defined in Section 7
of this Part I) has occurred, the Corporation shall pay to the
Auction Agent not later than 12:00 noon, New York City time, on
the Business Day next preceding each Dividend Payment Date, an
aggregate amount of funds available on the next Business Day in
The City of New York, New York, equal to the dividends to be paid
to all Holders on such Dividend Payment Date. All such moneys
shall be held in trust for the payment of such dividends by the
Auction Agent for the benefit of the Holders specified in
subparagraph (b)(iii) of this Section 2.
(iii) Each dividend shall be paid to the Holders as
their names appear on the stock books of the Corporation on the
Business Day next preceding the Dividend Payment Date thereof;
provided, however, that if such dividend shall have been
determined under the proviso in subparagraph (c)(i) of this
Section 2, such dividend shall be paid to the Holders as their
names appear on the stock books of the Corporation on such date,
not exceeding 15 days preceding the payment date thereof, as may
be fixed by the Board of Directors of the Corporation. Dividends
in arrears for any past Dividend Period may be declared and paid
at any time, without reference to any regular Dividend Payment
Date, to the Holders as their names appear on the stock books of
the Corporation on such date, not exceeding 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors
of the Corporation.
(c) (i) The dividend rate on shares of Series A MMP
during the period from and after the Date of Original Issue to
and including the Initial Dividend Payment Date (the "Initial
Dividend Period") shall be the rate per annum as shall be
approved for Series A MMP by resolutions duly adopted by the
Board of Directors of the Corporation. Commencing on the Initial
Dividend Payment Date, the dividend rate on shares of Series A
MMP for each subsequent dividend period (hereinafter referred to
as a "Subsequent Dividend Period" and collectively as "Subsequent
Dividend Periods"; and the Initial Dividend Period or any
Subsequent Dividend Period being hereinafter referred to as a
"Dividend Period" and collectively as "Dividend Periods")
thereafter, which Subsequent Dividend Periods shall commence on
the day that is the last day of the preceding Dividend Period and
shall end on and include the next succeeding Dividend Payment
Date, shall be equal to the rate per annum that results from
implementation of the Auction Procedures (as defined in Section 7
of this Part I); provided, however, that if a LIBOR Event shall
have occurred prior to the first day of such Subsequent Dividend
Period, the dividend rate for such Subsequent Dividend Period
shall be a rate per annum equal to 150% of LIBOR (as defined in
Section 7 of this Part I) (the rate per annum at which dividends
are payable on shares of Series A MMP for any Dividend Period
being herein referred to as the "Applicable Rate").
(ii) The amount of dividends per share payable on
shares of Series A MMP for any Dividend Period shall be computed
by multiplying the Applicable Rate for such Dividend Period by a
fraction the numerator of which shall be the number of days in
such Dividend Period (calculated by counting the first day
thereof but excluding the last day thereof) and the denominator
of which shall be 360 and applying the rate obtained against
$500,000 per share of Series A MMP.
(d) (i) No full dividends shall be declared or paid or
set apart for payment on the preferred stock of any series
ranking, as to dividends, on a parity with or junior to Series A
MMP for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on
shares of Series A MMP for all Dividend Periods terminating on or
prior to the date of payment of such full cumulative dividends.
When dividends are not paid in full, as aforesaid, upon the
shares of Series A MMP and any other series of preferred stock
ranking on a parity as to dividends with Series A MMP, all
dividends declared upon shares of Series A MMP and any other
series of preferred stock ranking on a parity as to dividends
with Series A MMP shall be declared pro rata so that the amount
of dividends declared per share on Series A MMP and such other
series of preferred stock shall in all cases bear to each other
the same ratio that accrued dividends per share on the shares of
Series A MMP and such other series of preferred stock bear to
each other. Holders of shares of Series A MMP shall not be
entitled to any dividend, whether payable in cash, property or
stock, in excess of full cumulative dividends, as herein
provided, on Series A MMP. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment
or payments on Series A MMP which may be in arrears.
(ii) So long as any shares of Series A MMP are
outstanding, no dividend (other than dividends or distributions
paid in shares of, or options, warrants or rights to subscribe
for or purchase shares of, common stock or any other stock
ranking junior to Series A MMP as to dividends and upon
liquidation and other than as provided in subparagraph (d)(i) of
this Section 2) shall be declared or paid or set aside for
payment or other distribution declared or made upon the common
stock or upon any other stock of the Corporation ranking junior
to or on a parity with Series A MMP as to dividends or upon
liquidation, nor shall any common stock or any other stock of the
Corporation ranking junior to or on a parity with Series A MMP as
to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid
to or made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation (except by
conversion into or exchange for stock of the Corporation ranking
junior to Series A MMP as to dividends and upon liquidation)
unless, in each case, the full cumulative dividends on all
outstanding shares of Series A MMP shall have been paid for all
past Dividend Periods.
(iii) Any dividend payment made on shares of Series A
MMP shall first be credited against the earliest accrued but
unpaid dividend due with respect to shares of Series A MMP.
3. Redemption. (a)(i)(A) The shares of Series A MMP
may be redeemed, at the option of the Corporation, as a whole or
from time to time in part, on the second Business Day next
preceding any Dividend Payment Date at a redemption price of:
(I) $515,000 per share if redeemed during the twelve
months ending on the first anniversary of the Date of
Original issue;
(II) $510,000 per share if redeemed during the twelve
months ending on the second anniversary of the Date of
Original Issue;
(III) $505,000 per share if redeemed during the twelve
months ending on the third anniversary of the Date of
Original Issue; and
(IV) $500,000 per share if redeemed thereafter;
plus, in each case, an amount equal to accrued and unpaid
dividends thereon (whether or not earned or declared) to the date
fixed for redemption.
(B) If fewer than all of the outstanding shares of
Series A MMP are to be redeemed pursuant to this subparagraph
(a)(i), the number of shares to be redeemed shall be determined
by the Board of Directors of the Corporation, and such shares
shall be redeemed pro rata from the Holders in proportion to the
number of such shares held by such Holders (with adjustments to
avoid redemption of fractional shares).
(ii) The shares of Series A MMP may be redeemed, at the
option of the Corporation, as a whole but not in part, on any
Dividend Payment Date at a redemption price of $500,000 per
share, plus an amount equal to accrued and unpaid dividends
thereon (whether or not earned or declared) to the date fixed for
redemption, if the Applicable Rate fixed for the Dividend Period
ending on such Dividend Payment Date shall equal or exceed the
"AA" Composite Commercial Paper Rate (as defined in Section 7 of
this Part I) on the date of determination of such Applicable
Rate.
(b) If the Corporation shall redeem shares of Series A
MMP pursuant to paragraph (a) of this Section 3, notice of such
redemption shall be mailed by first class mail, postage prepaid,
to each Holder of the shares to be redeemed, at such Holder's
address as the same appears on the stock books of the
Corporation. Such notice shall be so mailed not less than 30 nor
more than 45 days prior to the date fixed for redemption. Each
such notice shall state: (i) the redemption date, (ii) the
number of shares of Series A MMP to be redeemed, (iii) the
redemption price, (iv) the place or places where certificates for
such shares of Series A MMP are to be surrendered for payment of
the redemption price and (v) that dividends on the shares to be
redeemed will cease to accrue on such redemption date. If fewer
than all shares held by any Holder are to be redeemed, the notice
mailed to such Holder shall also specify the number of shares to
be redeemed from such Holder.
(c) Notwithstanding the foregoing provisions of
paragraph (a) of this Section 3, if any dividends on shares of
Series A MMP are in arrears, no shares of Series A MMP shall be
redeemed unless all outstanding shares of Series A MMP are
simultaneously redeemed, and the Corporation shall not purchase
or otherwise acquire any shares of Series A MMP; provided,
however, that the foregoing shall not prevent the purchase or
acquisition of shares of Series A MMP pursuant to a purchase or
exchange offer made on the same terms to holders of all
outstanding shares of Series A MMP.
(d) If notice of redemption has been given under
paragraph (b) of this Section 3, from and after the redemption
date for the shares of Series A MMP called for redemption (unless
default shall be made by the Corporation in providing money for
the payment of the redemption price of the shares so called for
redemption) dividends on the shares of Series A MMP so called for
redemption shall cease to accrue and said shares shall no longer
be deemed to be outstanding, and all rights of the Holders
thereof as stockholders of the Corporation (except the right to
receive the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so
redeemed (property endorsed or assigned for transfer, if the
Board of Directors of the Corporation shall so require and the
notice shall so state), the redemption price set forth above
shall be paid by the Auction Agent to the Holders of the shares
of Series A MMP subject to redemption. In case fewer than all of
the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed
shares without cost to the Holder thereof.
(e) So long as no LIBOR Event has occurred, the
Corporation shall pay the applicable Redemption Deposit Amount
(as defined in Section 7 of this Part I) to the Auction Agent, in
funds available on the next Business Day in The City of New York,
New York, on the Business Day next preceding any redemption date
for disbursement to Holders as appropriate. All such moneys
shall be held in trust by the Auction Agent for the benefit of
Holders of shares so to be redeemed.
4. Exchange. (a) The shares of Series A MMP are
exchangeable in whole at the sole option of the Corporation on
any Dividend Payment Date on or after the second anniversary of
the Date of Original Issue for the Corporation's Senior
Subordinated Money Market NotesTM (the "MMNsTM"), to be issued
pursuant to the Indenture (as defined in Section 7 of this Part
I); provided, however, that shares of Series A MMP may not be so
exchanged unless (i) notice thereof shall have been given as set
forth in paragraph (d) of this Section 4, (ii) at no time prior
to the Exchange Date, including after the Corporation gives
notice of its intention to exchange as set forth in paragraph (d)
of this Section 4, has a LIBOR Event occurred and (iii) S&P and
Moody's shall have provided ratings for MMNs of such series on
the Exchange Date; provided further, however, if (A) (x) either
S&P or Moody's shall not make such a rating available or (y)
neither S&P nor Moody's shall make such a rating available, and
(B) the Corporation shall have advised the trustee under the
Indenture of the occurrence of (x) or (y) of clause (A) of this
Section 4(a), then, in the case of subclause (x) of clause (A) of
this Section 4(a), a nationally recognized statistical rating
organization (as that term is used in the rules and regulations
of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) or, in the case of subclause
(y) of clause (A) of this Section 4(a), two nationally recognized
statistical rating organizations, selected by Shearson Lehman
Brothers Inc. or its successor and approved by the Corporation,
shall have provided a rating or ratings, as the case may be, for
MMNs of such series on the Exchange Date. The MMNs of such
series shall have such designation, shall mature, bear interest
and have such other terms as set forth in the Indenture.
(b) Holders of outstanding shares of Series A MMP will
be entitled to receive $500,000 principal amount of the MMNs for
each share of Series A MMP held by them on the Exchange Date.
(c) At the time of the exchange pursuant to paragraph
(a) of this Section 4, the shares of MMP of such series shall
cease to accrue dividends, such shares of MMP shall no longer be
deemed outstanding, the rights of the Holders of shares of Series
A MMP as stockholders of the Corporation shall cease (except the
right to receive accrued and unpaid dividends to the Exchange
Date), and the person or persons entitled to receive the MMNs
issuable upon exchange shall be treated for all purposes as the
registered holder or holders of such MMNs.
(d) If the Corporation shall exchange shares of Series
A MMP pursuant to paragraph (a) of this Section 4, notice of such
exchange (A) shall be published or caused to be published by the
Corporation in a newspaper of general circulation in The City of
New York, New York, which carries financial news, at least 10
days prior to both (i) the Dividend Payment Date preceding the
Exchange Date and (ii) the Exchange Date and (B) shall be mailed
to the Holders of Series A MMP and the trustee under the
Indenture at least 10 days prior to both (i) the Dividend Payment
Date preceding the Exchange Date and (ii) the Exchange Date.
Each such notice shall state: (i) the Exchange Date, (ii) the
number of shares of Series A MMP to be exchanged, (iii) the
exchange price, (iv) the place or places where certificates for
such shares of Series A MMP are to be surrendered for payment of
the exchange price and (v) that dividends on the shares to be
exchanged will cease to accrue on the Exchange Date.
5. Liquidation Rights. (a) Upon the dissolution,
liquidation or winding up of the Corporation, the Holders of the
shares of Series A MMP shall be entitled to receive and to be
paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment or
distribution shall be made on the common stock or on any other
class of stock ranking junior to Series A MMP upon liquidation,
the amount of $500,000 per share, plus a sum equal to all
dividends (whether or not earned or declared) on such shares
accrued and unpaid thereon to the date of final distribution.
(b) Neither the sale of all or substantially all the
property or business of the Corporation, nor the merger or
consolidation of the Corporation into or with any other
corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 5.
(c) After the payment to the Holders of the shares of
Series A MMP of the full preferential amounts provided for in
this Section 5, the Holders of Series A MMP as such shall have no
right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation
available for distribution to the Holders of shares of Series A
MMP upon any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such Holders are
entitled pursuant to paragraph (a) of this Section 5, no such
distribution shall be made on account of any shares of any other
class or series of preferred stock ranking on a parity with the
shares of Series A MMP upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be
paid on account of the shares of Series A MMP, ratably, in
proportion to the full distributable amounts for which holders of
all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
(e) Subject to the rights of the holders of shares of
any series or class or classes of stock ranking on a parity with
the shares of Series A MMP upon liquidation, dissolution or
winding up of the Corporation, after payment shall have been made
in full to the Holders of the shares of Series A MMP as provided
in this Section 5, but not prior thereto, any other series or
class or classes of stock ranking junior to the shares of Series
A MMP upon liquidation shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any
and all assets remaining to be paid or distributed, and the
Holders of the shares of Series A MMP shall not be entitled to
share therein.
6. Ranking. For purposes of this resolution, any
stock of any class or classes of the Corporation shall be deemed
to rank:
(a) prior to the shares of Series A MMP, either as to
dividends or upon liquidation, if the holders of such class
or classes shall be entitled to the receipt of dividends or
of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in
preference or priority to the Holders of shares of Series A
MMP;
(b) on a parity with shares of Series A MMP, either as
to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation prices per share or sinking fund provisions, if
any, be different from those of Series A MMP, if the holders
of such stock shall be entitled to the receipt of dividends
or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in
proportion to their respective dividend rates or liquidation
prices, without preference or priority, one over the other,
as between the holders of such stock and the Holders of
shares of Series A MMP; and
(c) junior to shares of Series A MMP, either as to
dividends or upon liquidation, if such class shall be common
stock or if the Holders of shares of Series A MMP shall be
entitled to receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority
to the holders of shares of such class or classes.
7. Definitions. As used in Parts I and II hereof,
the following terms shall have the following meanings (with terms
defined in the singular having comparable meanings when used in
the plural and vice versa), unless the context otherwise
requires:
(a) "'AA' Composite Commercial Paper Rate," on any
date, shall mean (i) the interest equivalent of the 60-day
rate on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P, or the equivalent of
such rating by S&P or another rating agency, as made
available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the immediately preceding
Business Day prior to such date; or (ii) in the event that
the Federal Reserve Bank of New York does not make available
such a rate, then the arithmetic average of the interest
equivalent of the 60-day rate on commercial paper placed on
behalf of such issuers, as quoted on a discount basis or
otherwise by the Commercial Paper Dealers to the Auction
Agent for the close of business of the immediately preceding
Business Day prior to such date. If any Commercial Paper
Dealer does not quote a rate required to determine the "AA"
Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate shall be determined on the basis of
the quotation or quotations furnished by the remaining
Commercial Paper Dealer or Commercial Paper Dealers and any
Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers selected by the Corporation to provide such
rate or rates not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers, as the case may be, or,
if the Corporation does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper
Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. If the Board of Directors of the
Corporation shall make the adjustment referred to in the
first proviso of the second sentence of paragraph (b) of
Section 2 of this Part I, then (i) if the Dividend Period
Days after such adjustment shall be 70 or more days but
fewer than 85 days, such rate shall be based on the
arithmetic average of the interest equivalent of the 60-day
and 90-day rates on such commercial paper, and (ii) if the
Dividend Period Days after such adjustment shall be 85 or
more days but 98 or fewer days, such rate shall be the
interest equivalent of the 90-day rate on such commercial
paper. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis (a
"discount rate") for commercial paper of a given days'
maturity shall be equal to the quotient (rounded upwards to
the next higher one-thousandth (.001) of 1%) of (A) the
discount rate divided by (B) the difference between (x) 1.00
and (y) a fraction the numerator of which shall be the
product of the discount rate times the number of days in
which such commercial paper matures and the denominator of
which shall be 360.
(b) "Applicable Rate" shall have the meaning specified
in subparagraph (c)(i) of Section 2 of this Part I.
(c) "Auction" shall mean each periodic implementation
of the Auction Procedures.
(d) "Auction Agent" shall mean the bank or trust
company or other entity appointed as such by a resolution of
the Board of Directors of the Corporation.
(e) "Auction Procedures" shall mean the procedures for
conducting Auctions set forth in Part II hereof.
(f) "Board of Directors of the Corporation" shall mean
the Board of Directors of the Corporation or any duly
authorized committee thereof.
(g) "Business Day" shall mean a day on which the New
York Stock Exchange is open for trading and which is neither
a Saturday, Sunday nor any other day on which banks in The
City of New York, New York, are authorized by law to close.
(h) "Code" shall mean the Internal Revenue Code of
1954, as amended.
(i) "Commercial Paper Dealers" shall mean Goldman,
Sachs & Co., Lehman Commercial Paper Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc or, in lieu of any thereof, their respective
affiliates or successors, provided that any such entity is a
commercial paper dealer.
(j) "Date of Original Issue" shall mean the date on
which the Corporation initially issues shares of Series A
MMP.
(k) "Dividend Payment Date" shall have the meaning
specified in subparagraph (b)(i) of Section 2 of this Part
I.
(l) "Dividend Period" and "Dividend Periods" shall have
the respective meanings specified in subparagraph (c)(i) of
Section 2 of this Part I.
(m) "Dividend Period Days" shall have the meaning
specified in subparagraph (b)(i) of Section 2 of this Part
I.
(n) "Exchange Date" shall mean the date on which the
Corporation exchanges shares of Series A MMP for MMNs of any
series pursuant to Section 4 of this Part I.
(o) "Holder" shall mean the holder of shares of Series
A MMP as the same appears on the stock books of the
Corporation.
(p) "Indenture" shall mean the indenture dated as of
December 1, 1985 between the Corporation and Manufacturers
Hanover Trust Company, as Trustee.
(q) "Initial Dividend Payment Date" shall have the
meaning specified in subparagraph (b)(i) of Section 2 of
this Part I.
(r) "Initial Dividend Period" shall have the meaning
specified in subparagraph (c)(i) of Section 2 of this Part
I.
(s) "LIBOR" shall mean for any Dividend Period the
arithmetic average (rounded to the next higher 1/16 of 1%),
computed by the Corporation, of the respective rates per
annum quoted by each of the Reference Banks at which United
States dollar deposits for a two-month in the amount of U.S.
$10,000,000 are offered by such Reference Banks to leading
banks in the London interbank market at approximately 11:00
A.M. (London time) on the first day of such Dividend Period,
or if such day is not a day on which dealings in United
States dollars are transacted in the London interbank
market, then on the next preceding day on which such
dealings are transacted in such market. If any Reference
Bank does not quote a rate required to determine LIBOR,
LIBOR shall be determined on the basis of the quotation or
quotations furnished by the remaining Reference Bank or
Reference Banks and any Substitute Reference Bank or
Substitute Reference Banks selected by the Corporation to
provide such quotation or quotations not being supplied by
any Reference Bank or Reference Banks, as the case may be,
or, if the Corporation does not select any such Substitute
Reference Bank or Substitute Reference Banks, by the
remaining Reference Bank or Reference Banks. If the Board
of Directors of the Corporation shall make the adjustment
referred to in the first proviso of the second sentence of
paragraph (b) of Section 2 of this Part I, then (i) if the
Dividend Period Days after such adjustment shall be 70 or
more days but fewer than 85 days, LIBOR shall be based on
the arithmetic average (rounded to the next higher 1/16 of
1%) of the rates per annum quoted for such United States
dollar deposits for two- and three-month periods, and (ii)
if the Dividend Period Days after such adjustment shall be
85 or more days but 98 or fewer days, such rate shall be
based on the rates per annum quoted for such United States
dollar deposits for a three-month period.
(t) "LIBOR Event" shall mean the first failure by the
Corporation to pay to the Auction Agent, not later than
12:00 noon, New York City time, (A) on the Business Day next
preceding any Dividend Payment Date, in funds available on
such Dividend Payment Date in The City of New York, New
York, the full amount of any dividend (whether or not earned
or declared) to be paid on such Dividend Payment Date on any
share of Series A MMP or (B) on the Business Day next
preceding any redemption date in funds available on such
redemption date in The City of New York, New York, the
redemption price to be paid on such redemption date of any
share of Series A MMP after notice of redemption is given
pursuant to paragraph (b) of Section 3 of this Part I.
(u) "Moody's" shall mean Moody's Investors Service,
Inc., a Delaware corporation, and its successors.
(v) "Redemption Deposit Amount" shall mean the product
of (i) the number of outstanding shares of Series A MMP to
be redeemed times (ii) an amount equal to the applicable
redemption price, plus an amount equal to accrued and unpaid
dividends (whether or not earned or declared) to the date
fixed for redemption.
(w) "Reference Bank" shall mean the principal London
offices of Bankers Trust Company, The Bank of Tokyo, Ltd.,
Barclays Bank PLC and National Westminster Bank PLC, or
their respective successors.
(x) "Series A MMP" shall mean the series of the
preferred stock, without par value, of the Corporation
designated at its "Exchangeable Money Market Cumulative
PreferredTM Stock, Series A."
(y) "S&P" shall mean Standard & Poor's Corporation, a
New York corporation, and its successors.
(z) "Subsequent Dividend Period" and "Subsequent
Dividend Periods" shall have the respective meanings
specified in subparagraph (c)(i) of Section 2 of this Part
I.
(aa) "Substitute Commercial Paper Dealer" shall mean
The First Boston Corporation or Morgan Stanley & Co.
Incorporated, or their respective affiliates or successors,
if such dealer or its affiliate or successor is a commercial
paper dealer; provided that neither such dealer nor any of
its affiliates shall be a Commercial Paper Dealer.
(bb) "Substitute Reference Bank" shall mean the
principal London offices of The Chase Manhattan Bank
(National Association), Deutsche Bank Aktiengesellschaft,
Morgan Guaranty Trust Company of New York or Swiss Bank
Corporation, or their respective successors, or, if none of
such Substitute Reference Banks are engaged in dealings in
United States dollars in the London interbank market, then a
bank or banks, selected by the Corporation, engaged in
dealings in United States dollars in the London interbank
market.
PART II
1. Certain Definitions. Capitalized terms not defined
in this Section 1 shall have the respective meanings specified in
Part I hereof. As used in this Part II, the following terms
shall have the following meanings, unless the context otherwise
requires:
(a) "'AA' Rate Multiple," on any Auction Date, shall
mean the percentage determined as set forth below based on
the prevailing rating of Series A MMP in effect at the close
of business on the Business Day immediately preceding such
Auction Date:
Prevailing Rating Percentage
AA/aa or Above.......... 110%
A/a..................... 120%
BBB/baa................. 130%
Below BBB/baa........... 150%
For purposes of this definition, the "prevailing rating" of
Series A MMP shall be (i) AA/aa or Above if Series A MMP has
a rating of AA- or better by S&P or aa3 or better by
Moody's, or the equivalent of either or both of such ratings
by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not
AA/aa or Above, then a/a if Series A MMP has a rating of A-
or better and lower than AA- by S&P or a3 or better and
lower than aa3 by Moody's or the equivalent of either or
both of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided
below, (iii) if not AA/aa or Above or A/a, then BBB/baa if
Series A MMP has a rating of BBB- or better and lower than
A- by S&P or baa3 or better and lower than a3 by Moody's or
the equivalent of either or both of such ratings by such
agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (iv) if not AA/aa
or Above, A/a or BBB/baa, then Below BBB/baa. The
Corporation shall take all reasonable action necessary to
enable S&P and Moody's to provide a rating for Series A MMP.
If either S&P or Moody's shall not make such a rating
available, or neither S&P nor Moody's shall make such a
rating available, Shearson Lehman Brothers Inc. or its
successor shall select a nationally recognized statistical
rating organization (as that term is used in the rules and
regulations of the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended) or two
nationally recognized statistical rating organizations to
act as substitute rating agency or substitute rating
agencies, as the case may be, and the Corporation shall take
all reasonable action to enable such rating agency or rating
agencies to provide a rating or ratings for the Series A
MMP.
(b) "Affiliate" shall mean any Person known to the
Auction Agent to be controlled by, in control of or under
common control with the Corporation.
(c) "Agent Member" shall mean the member of, or
participant in, the Securities Depository that will act on
behalf of a Bidder and is identified as such in such
Bidder's Purchaser's Letter.
(d) "Auction Date" shall mean the Business Day next
preceding the first day of a Dividend Period.
(e) "Available Series A MMP" shall have the meaning
specified in paragraph (a) of Section 4 of this Part II.
(f) "Bid" and "Bids" shall have the respective meanings
specified in paragraph (a) of Section 2 of this Part II.
(g) "Bidder" and "Bidders" shall have the respective
meanings specified in paragraph (a) of Section 2 of this
Part II.
(h) "Broker-Dealer" shall mean any broker-dealer, or
other entity permitted by law to perform the functions
required of a Broker-Dealer in this Part II, that is a
member of, or a participant in, the Securities Depository,
has been selected by the Corporation and has entered into a
Broker-Dealer Agreement with the Auction Agent that remains
effective.
(i) "Broker-Dealer Agreement" shall mean an agreement
between the Auction Agent and a Broker-Dealer pursuant to
which such Broker-Dealer agrees to follow the procedures
specified in this Part II.
(j) "Existing Holder," when used with respect to shares
of Series A MMP, shall mean a Person who has signed a
Purchaser's Letter and is listed as the beneficial owner of
such shares of Series A MMP in the records of the Auction
Agent.
(k) "Hold Order" and "Hold Orders" shall have the
respective meanings specified in paragraph (a) of Section 2
of this Part II.
(l) "Maximum Rate," on any Auction Date, shall mean the
product of the "AA" Composite Commercial Paper Rate times
the "AA" Rate Multiple.
(m) "Order" and "Orders" shall have the respective
meanings specified in paragraph (a) of Section 2 of this
Part II.
(n) "Outstanding" shall mean, as of any date, shares of
Series A MMP theretofore issued by the Corporation except,
without duplication, (i) any shares of Series A MMP
theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Corporation or as to which a
notice of redemption shall have been given by the
Corporation, (ii) any shares of Series A MMP as to which the
Corporation or any Affiliate thereof (other than a Broker-
Dealer Affiliate) shall be an Existing Holder and (iii) any
shares of Series A MMP represented by any certificate in
lieu of which a new certificate has been executed and
delivered by the Corporation.
(o) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated
association, a joint venture or other entity or a government
or any agency or political subdivision thereof.
(p) "Potential Holder" shall mean any Person, including
any Existing Holder, (i) who shall have executed a
Purchaser's Letter and (ii) who may be interested in
acquiring shares of Series A MMP (or, in the case of an
Existing Holder, additional shares of Series A MMP).
(q) "Purchaser's Letter" shall mean a letter, the form
of which is attached hereto, addressed to the Corporation,
the Auction Agent, a Broker-Dealer and an Agent Member in
which a Person agrees, among other things, to offer to
purchase, to purchase, to offer to sell and/or to sell
shares of Series A MMP as set forth in this Part II.
(r) "Securities Depository" shall mean The Depository
Trust Company and its successors and assigns or any other
securities depository selected by the Corporation which
agrees to follow the procedures required to be followed by
such securities depository in connection with shares of
Series A MMP.
(s) "Sell Order" and "Sell Orders" shall have the
respective meanings specified in paragraph (a) of Section 2
of this Part II.
(t) "Submission Deadline" shall mean 1:00 P.M., New
York City time, on any Auction Date or such other time on
any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the
Auction Agent from time to time.
(u) "Submitted Bid" and "Submitted Bids" shall have the
respective meanings specified in paragraph (a) of Section 4
of this Part II.
(v) "Submitted Hold Order" and "Submitted Hold Orders"
shall have the respective meanings specified in paragraph
(a) of Section 4 of this Part II.
(w) "Submitted Order" and "Submitted Orders" shall have
the respective meanings specified in paragraph (a) of
Section 4 of this Part II.
(x) "Submitted Sell Order" and "Submitted Sell Orders"
shall have the respective meanings specified in paragraph
(a) of Section 4 of this Part II.
(y) "Sufficient Clearing Bids" shall have the meaning
specified in paragraph (a) of Section 4 of this Part II.
(z) "Winning Bid Rate" shall have the meaning specified
in paragraph (a) of Section 4 of this Part II.
2. Orders by Existing Holders and Potential Holders.
(a) On or prior to the Submission Deadline on each Auction Date:
(i) each Existing Holder may submit to a Broker-Dealer
information as to:
(A) the number of Outstanding shares, if any, of
Series A MMP held by such Existing Holder which such
Existing Holder desires to continue to hold without
regard to the Applicable Rate for the next succeeding
Dividend Period;
(B) the number of Outstanding shares, if any, of
Series A MMP which such Existing Holder desires to
continue to hold if the Applicable Rate for the next
succeeding Dividend Period shall not be less than the
rate per annum specified by such Existing Holder;
and/or
(C) the number of Outstanding shares, if any, of
Series A MMP held by such Existing Holder which such
Existing Holder offers to sell without regard to the
Applicable Rate for the next succeeding Dividend
Period; and
(ii) one or more Broker-Dealers, using lists of
Potential Holders, shall in good faith for the purpose of
conducting a competitive Auction in a commercially
reasonable manner, contact Potential Holders, including
Persons that are not Existing Holders, on such lists to
determine the number of shares, if any, of Series A MMP
which each such Potential Holder offers to purchase if the
Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such
Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (i)(A), (i)(B), (i)(C) or (ii)
of this paragraph (a) is hereinafter referred to as an "Order"
and collectively as "Orders" and each Existing Holder and each
Potential Holder placing an Order is hereinafter referred to as a
"Bidder" and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) of this paragraph (a) is
hereinafter referred to as a "Hold Order" and collectively as
"Hold Orders"; an Order containing the information referred to in
clause (i)(B) or (ii) of this paragraph (a) is hereinafter
referred to as a "Bid" and collectively as "Bids"; and an Order
containing the information referred to in clause (i)(C) of this
paragraph (a) is hereinafter referred to as a "Sell Order" and
collectively as "Sell Orders."
(b) (i) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding shares of Series A
MMP specified in such Bid if the Applicable Rate
determined on such Auction Date shall be less than the
rate specified therein;
(B) such number or a lesser number of Outstanding
shares of Series A MMP to be determined as set forth in
clause (iv) of paragraph (a) of Section 5 of this Part
II if the Applicable Rate determined on such Auction
Date shall be equal to the rate specified therein; or
(C) a lesser number of Outstanding shares of
Series A MMP to be determined as set forth in clause
(iii) of paragraph (b) of Section 5 of this Part II if
the rate specified therein shall be higher than the
Maximum Rate and Sufficient Clearing Bids do not exist.
(ii) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of Series A
MMP specified in such Sell Order; or
(B) such number or a lesser number of Outstanding
shares of Series A MMP as set forth in clause (iii) of
paragraph (b) of Section 5 of this Part II if
Sufficient Clearing Bids do not exist.
(iii) A Bid by a Potential Holder shall constitute
an irrevocable offer to purchase:
(A) the number of Outstanding shares of Series A
MMP specified in such Bid if the Applicable Rate
determined on such Auction Date shall be higher than
the rate specified therein; or
(B) such number or a lesser number of Outstanding
shares of Series A MMP as set forth in clause (v) of
paragraph (a) of Section 5 of this Part II if the
Applicable Rate determined on such Auction Date shall
be equal to the rate specified therein.
3. Submission of Orders by Broker-Dealers to Auction
Agent. (a) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Auction
Date all Orders obtained by such Broker-Dealer and shall specify
with respect to each Order:
(i) the name of the Bidder placing such Order;
(ii) the aggregate number of shares of Series A
MMP that are the subject of such Order;
(iii) to the extent that such Bidder is an
Existing Holder:
(A) the number of shares, if any, of Series A
MMP subject to any Hold Order placed by such Existing
Holder;
(B) the number of shares, if any, of Series A
MMP subject to any Bid placed by such Existing Holder
and the rate specified in such Bid; and
(C) the number of shares, if any, of Series A
MMP subject to any Sell Order placed by such Existing
Holder; and
(iv) to the extent such Bidder is a Potential
Holder, the rate and number of shares specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than
three figures to the right of the decimal point, the Auction
Agent shall round such rate up to the next highest one thousandth
(.001) of 1%.
(c) If an Order or Orders covering all of the
Outstanding shares of Series A MMP held by any Existing Holder is
not submitted to the Auction Agent prior to the Submission
Deadline, the Auction Agent shall deem a Hold Order to have been
submitted on behalf of such Existing Holder covering the number
of Outstanding shares of Series A MMP held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders covering in the aggregate
more than the number of Outstanding shares of Series A MMP held
by any Existing Holder are submitted to the Auction Agent, such
Orders shall be considered valid as follows and in the following
order of priority:
(i) all Hold Orders shall be considered valid, but
only up to and including in the aggregate the number of
Outstanding shares of Series A MMP held by such Existing
Holder, and, solely for purposes of allocating compensation
among the Broker-Dealers submitting Hold Orders, if the
number of shares of Series A MMP subject to such Hold Orders
exceeds the number of Outstanding shares of Series A MMP
held by such Existing Holder, the number of shares subject
to each such Hold Order shall be reduced pro rata to cover
the number of Outstanding shares of Series A MMP held by
such Existing Holder;
(ii) (A) any Bid shall be considered valid up to
and including the excess of the number of Outstanding shares
of Series A MMP held by such Existing Holder over the number
of shares of Series A MMP subject to any Hold Orders
referred to in clause (i) above;
(B) subject to subclause (A), if more than
one Bid with the same rate is submitted on behalf of such
Existing Holder and the number of Outstanding shares of
Series A MMP subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and
including the amount of such excess, and, solely for
purposes of allocating compensation among the Broker-Dealers
submitting Bids with the same rate, the number of shares of
Series A MMP subject to each Bid with the same rate shall be
reduced pro rata to cover the number of shares of Series A
MMP equal to such excess;
(C) subject to subclause (A), if more than
one Bid with different rates is submitted on behalf of such
Existing Holder, such Bids shall be considered valid in the
ascending order of their respective rates up to and
including the amount of such excess; and
(D) in any such event, the number, if any, of
such Outstanding shares of Series A MMP subject to Bids not
valid under this clause (ii) shall be treated as the subject
of a Bid by a Potential Holder at the rate therein
specified; and
(iii) all Sell Orders shall be considered valid up
to and including the excess of the number of Outstanding
shares of Series A MMP held by such Existing Holder over the
sum of shares of Series A MMP subject to Hold Orders
referred to in clause (i) above and valid Bids by such
Existing Holder referred to in clause (ii) above.
(e) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with
the rate and number of shares therein specified.
4. Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate. (a) Not earlier than the
Submission Deadline on each Auction Date, the Auction Agent shall
assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed submitted
by a Broker-Dealer being hereinafter referred to individually as
a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
Order," as the case may be, or as a "Submitted Order" and
collectively as "Submitted Hold Orders," "Submitted Bids" or
"Submitted Sell Orders," as the case may be, or as "Submitted
Orders") and shall determine:
(i) the excess of the total number of Outstanding
shares of Series A MMP over the number of Outstanding shares
of Series A MMP that are the subject of Submitted Hold
Orders (such excess being hereinafter referred to as the
"Available Series A MMP");
(ii) from the Submitted Orders whether:
(A) the number of Outstanding shares of Series A
MMP that are the subject of Submitted Bids by Potential
Holders specifying one or more rates equal to or lower than
the Maximum Rate;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of Series A
MMP that are the subject of Submitted Bids by Existing
Holders specifying one or more rates higher than the Maximum
Rate; and
(C) the number of Outstanding shares of Series A
MMP that are subject to Submitted Sell Orders
(in the event of such excess or such equality (other than
because the number of shares of Series A MMP in subclauses
(B) and (C) above is zero because all of the Outstanding
shares of Series A MMP are the subject of Submitted Hold
Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing
Bids"); and
(iii) if Sufficient Clearing Bids exist, the lowest
rate specified in the Submitted Bids (the "Winning Bid
Rate") which if:
(A)(I) each Submitted Bid from Existing Holders
specifying such lowest rate and (II) all other Submitted
Bids from Existing Holders specifying lower rates were
rejected, thus entitling such Existing Holders to continue
to hold the shares of Series A MMP that are the subject of
such Submitted Bids; and
(B)(I) each Submitted Bid from Potential Holders
specifying such lowest rate and (II) all other Submitted
Bids from Potential Holders specifying lower rates were
accepted,
would result in such Existing Holders described in subclause
(A) above continuing to hold an aggregate number of
Outstanding shares of Series A MMP which, when added to the
number of Outstanding shares of Series A MMP to be purchased
by such Potential Holders described in subclause (B) above,
would equal not less than the Available Series A MMP.
(b) Promptly after the Auction Agent has made the
determinations pursuant to paragraph (a) of this Section 4, the
Auction Agent shall advise the Corporation of the "AA" Composite
Commercial Paper Rate and the Maximum Rate on the Auction Date
and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:
(i) if Sufficient Clearing Bids exist, that the
Applicable Rate for the next succeeding Dividend Period
shall be equal to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist
(other than because all of the Outstanding shares of Series
A MMP are the subject of Submitted Hold Orders), that the
Applicable Rate for the next succeeding Dividend Period
shall be equal to the Maximum Rate; or
(iii) if all of the Outstanding shares of Series A
MMP are the subject of Submitted Hold Orders, that the
Applicable Rate for the next succeeding Dividend Period
shall be equal to 59% of the "AA" Composite Commercial Paper
Rate.
5. Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Existing Holders
shall continue to hold the shares of Series A MMP that are the
subject of Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 4 of
this Part II, the Submitted Bids and Submitted Sell Orders shall
be accepted or rejected and the Auction Agent shall take such
other action as set forth below:
(a) If Sufficient Clearing Bids have been made, all
Submitted Sell Orders shall be accepted and, subject to the
provisions of paragraphs (d) and (e) of this Section 5, Submitted
Bids shall be accepted or rejected as follows in the following
order of priority and all other Submitted Bids shall be rejected:
(i) the Submitted Sell Orders of Existing Holders
shall be accepted and Existing Holders' Submitted Bids
specifying any rate that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder
to sell the shares of Series A MMP that are the subject of
such Submitted Sell Orders or Submitted Bids;
(ii) Existing Holders' Submitted Bids specifying
any rate that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to
continue to hold the shares of Series A MMP that are the
subject of such Submitted Bids;
(iii) Potential Holders' Submitted Bids specifying
any rate that is lower than the Winning Bid Rate shall be
accepted;
(iv) each Existing Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be rejected, thus entitling such Existing Holder to
continue to hold the shares of Series A MMP that are the
subject of such Submitted Bid, unless the number of
Outstanding shares of Series A MMP subject to all such
Submitted Bids shall be greater than the number of shares of
Series A MMP ("remaining shares") equal to the excess of the
Available Series A MMP over the number of shares of Series A
MMP subject to Submitted Bids described in clauses (ii) and
(iii) of this paragraph (a), in which event such Submitted
Bid of such Existing Holder shall be accepted in part, and
such Existing Holder shall be required to sell shares of
Series A MMP subject to such Submitted Bid, but only in an
amount equal to the difference between (A) the number of
Outstanding shares of Series A MMP then held by such
Existing Holder subject to such Submitted Bid and (B) the
number of shares of Series A MMP obtained by multiplying the
number of remaining shares by a fraction the numerator of
which shall be the number of Outstanding shares of Series A
MMP held by such Existing Holder subject to such Submitted
Bid and the denominator of which shall be the aggregate
number of Outstanding shares of Series A MMP subject to such
Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate; and
(v) each Potential Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be accepted but only in an amount equal to the number
of shares of Series A MMP obtained by multiplying the
difference between the Available Series A MMP and the number
of shares of Series A MMP subject to Submitted Bids
described in clauses (ii), (iii) and (iv) of this paragraph
(a) by a fraction the numerator of which shall be the number
of Outstanding shares of Series A MMP subject to such
Submitted Bid and the denominator of which shall be the
aggregate number of Outstanding shares of Series A MMP
subject to such Submitted Bids made by all such Potential
Holders that specified a rate equal to the Winning Bid Rate.
(b) If Sufficient Clearing Bids have not been made
(other than because all of the Outstanding shares of Series A MMP
are the subject of Submitted Hold Orders), subject to the
provisions of paragraph (d) of this Section 5, Submitted Orders
shall be accepted or rejected as follows in the following order
of priority and all other Submitted Bids shall be rejected:
(i) Existing Holders' Submitted Bids specifying
any rate that is equal to or lower than the Maximum Rate
shall be rejected, thus entitling such Existing Holders to
continue to hold the shares of Series A MMP that are the
subject of such Submitted Bids;
(ii) Potential Holders' Submitted Bids specifying
any rate that is equal to or lower than the Maximum Rate
shall be accepted; and
(iii) each Existing Holder's Submitted Bid
specifying any rate that is higher than the Maximum Rate and
the Submitted Sell Order of each Existing Holder shall be
accepted, but in both cases only in an amount equal to the
difference between (A) the number of Outstanding shares of
Series A MMP then held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and (B) the
number of shares of Series A MMP obtained by multiplying the
difference between the Available Series A MMP and the
aggregate number of shares of Series A MMP subject to
Submitted bids described in clauses (i) and (ii) of this
paragraph (b) by a fraction the numerator of which shall be
the number of Outstanding shares of Series A MMP held by
such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be
the aggregate number of Outstanding shares of Series A MMP
subject to all such Submitted Bids and Submitted Sell
Orders.
(c) If all of the Outstanding shares of Series A MMP
are the subject of Submitted Hold Orders, all Submitted Bids
shall be rejected.
(d) If, as a result of the procedures described in
paragraph (a) or (b) of this Section 5, any Existing Holder would
be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of Series
A MMP on any Auction Date, the Auction Agent shall, in such
manner as, in its sole discretion, it shall determine, round up
or down the number of shares of Series A MMP to be purchased or
sold by any Existing Holder or Potential Holder on such Auction
Date so that the number of shares purchased or sold by each
Existing Holder or Potential Holder on such Auction Date shall be
whole shares of Series A MMP.
(e) If, as a result of the procedures described in
paragraph (a) of this Section 5, any Potential Holder would be
entitled or required to purchase less than a whole share of
Series A MMP on any Auction Date, the Auction Agent shall, in
such manner as in its sole discretion, it shall determine,
allocate shares for purchase among Potential Holders so that only
whole shares of Series A MMP are purchased on such Auction Date
by any Potential Holder, even if such allocation results in one
or more of such Potential Holders not purchasing shares of Series
A MMP on such Auction Date.
(f) Based on the results of each Auction, the Auction
Agent shall determine the aggregate number of shares of Series A
MMP to be purchased and the aggregate number of shares of Series
A MMP to be sold by Potential Holders and Existing Holders on
whose behalf each Broker-Dealer submitted Bids or Sell Orders
and, with respect to each Broker-Dealer, to the extent that such
aggregate number of shares to be purchased and such aggregate
number of shares to be sold differ, determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers
such Broker-Dealer shall deliver, or from which other Broker-
Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, shares of Series
A MMP.
6. Miscellaneous. (a) The Board of Directors of the
Corporation may interpret the provisions of this Part II to
resolve any inconsistency or ambiguity which may arise or be
revealed in connection with the Auction Procedures provided for
herein, and if such inconsistency or ambiguity reflects an
inaccurate provision hereof, the Board of Directors of the
Corporation may, in appropriate circumstances, authorize the
filing of a Certificate of Correction.
(b) As long as no LIBOR Event has occurred, an Existing
Holder (i) may sell, transfer or otherwise dispose of shares of
Series A MMP only pursuant to a Bid or Sell Order in accordance
with the procedures described in this Part II or to or through a
Broker-Dealer or to a Person that has delivered a signed copy of
a Purchaser's Letter to the Auction Agent, provided that in the
case of all transfers other than pursuant to Auctions, such
Existing Holder, its Broker-Dealer or its Agent Member advises
the Auction Agent of such transfer, and (ii) shall have the
ownership of the shares of Series A MMP held by it maintained in
book entry form by the Securities Depository for the account of
its Agent Member, which in turn will maintain records of such
Existing Holder's beneficial ownership.
(c) Neither the Corporation or any affiliate thereof
may submit an Order in any Auction except as set forth in the
next sentence. Any Broker-Dealer that is an affiliate of the
Corporation may submit Orders in Auctions but only if such Orders
are not for its own account, except that if such affiliated
Broker-Dealer holds shares of Series A MMP for its own account,
it must submit a Sell Order in the next Auction with respect to
such shares.
(d) Commencing with the first day of the first Dividend
Period for which the Applicable Rate is determined by the formula
of 150% of LIBOR, as set forth in subparagraph (c)(i) of Section
2 of Part I hereof, the Corporation or a designee thereof, at the
option of the Corporation, may perform any of the functions to be
performed by the Auction Agent set forth herein."
4. The Board of Directors by unanimous written consent
dated December 16, 1985 adopted the following resolution
authorizing the Finance Committee to act on behalf of the Board
of Directors in connection with the issuance of the Preferred
Stock:
"RESOLVED, that the Finance Committee be and hereby is
authorized and empowered with full power and authority to act on
behalf and in the stead of the Board of Directors in connection
with the issuance of the Preferred Stock as herein designated and
to fix the initial dividend rate, the initial dividend payment
date, the price at which the Preferred Stock will be sold by the
Corporation, and to declare dividends payable on the Preferred
Stock."
5. The Finance Committee of the Board of Directors, by
unanimous written consent dated December 17, 1985, pursuant to
the authority conferred upon the Finance Committee as set forth
above, adopted the following resolution:
"RESOLVED, that the Exchangeable Money Market
Cumulative Preferred Stock, Series A (the 'Series A MMP') shall
bear the following terms:
(a) The dividend rate during the Initial Dividend
Period shall be equal to 6.25% per annum.
(b) The Initial Dividend Payment Date shall be
February 11, 1986, subject to the exceptions set forth in
subparagraph (b)(i) of Section 2 of Part I of the resolution
of the Board of Directors of the Corporation adopted by
unanimous written consent dated December 16, 1985.
(c) The underwriting discounts and commissions in
respect of the public offering of the Series A MMP shall be
equal to $7,500 per share.
(d) All other terms and provisions of the Series A MMP
shall be as set forth in the resolutions adopted by the
Board of Directors of the Corporation by unanimous written
consent dated December 16, 1985."
IN WITNESS WHEREOF, the Corporation has caused its
corporate seal to be hereunto affixed and this Certificate to be
signed by S.M. Herman, its Vice President-General Counsel, and
attested by R.C. Roselli, its Asst. Secretary, this 17th day of
December, 1985.
HOUSEHOLD FINANCE CORPORATION
By: /s/ S. M. Herman
------------------------------
Title: Vice President-General
Counsel
[Corporate seal]
ATTEST:
/s/ R. C. Roselli
- ---------------------------
Title: Assistant Secretary
<PAGE>
PURCHASER'S LETTER
Relating to
EXCHANGEABLE MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK
or
SENIOR SUBORDINATED MONEY MARKET NOTES(TM)
of
HOUSEHOLD FINANCE CORPORATION
Household Finance Corporation
The Auction Agent
A Broker-Dealer
An Agent Member
c/o Manufacturers Hanover Trust Company
40 Wall Street
New York, New York 10015
Dear Sirs:
1. We may from time to time offer to purchase, purchase,
offer to sell/ and/or sell shares of Exchangeable Money Market
Cumulative Preferred Stock or Senior Subordinated Money Market
Notes (together with any other shares of preferred stock or notes
of Household Finance Corporation (the "Corporation") whose
dividend or interest rate, except in certain limited
circumstances, results from the periodic implementation of
certain auction procedures, the "MMP(TM)" or the MMNs(TM)", as
the case may be) of one or more series, issued by the
Corporation, as described in a prospectus relating to the MMP or
MMNs, including the Appendices thereto, as supplemented by a
prospectus supplement relating to any such series of MMP or MMNs
(together the "Prospectus"). We agree that this letter shall
apply to such purchases, sales, and offers and to MMP and MMNs
owned by us. We understand that the dividend rate on MMP or
interest rate on MMNs may be based from time to time on the
results of Auctions as set forth in the Prospectus.
2. We agree that any Bid or Sell Order placed by us shall
constitute an irrevocable offer by us to purchase or sell the MMP
or MMNs subject to such Bid or Sell Order at a price equal to
$500,000 per share in the case of MMP and at a price equal to the
principal amount thereof in the case of MMNs, as set forth in the
Prospectus, and that if we fail to place a Bid or Sell Order with
respect to MMP or MMNs owned by us with a Broker-Dealer on any
Auction Date or a Broker-Dealer to which we communicate a Bid or
Sell Order fails to submit such Bid or Sell Order to the Auction
Agent, we shall be deemed to have placed a Hold Order with
respect to such MMP or MMNs as described in the Prospectus. We
authorize any Broker-Dealer that submits a Bid or Sell Order as
our agent in Auctions to execute contracts for the sale of MMP or
MMNs covered by such Bid or Sell Order.
3. We agree that (x) with respect to the MMP of any series,
so long as the Corporation has not failed to pay in a timely
manner to the Auction Agent the full amount of any dividend for
MMP of such series or the redemption price of any shares of MMP
of such series called for redemption and (y) with respect to the
MMNs of any series, so long as no Payment Default or Event of
Default has occurred, dispositions of MMNs of such series can be
made only in denominations of $500,000 or an integral multiple
thereof and we will sell, transfer or otherwise dispose of any
shares of MMP or MMNs of such series held by us from time to time
only pursuant to a Bid or Sell Order placed in an Auction, to or
through a Broker-Dealer or to a person that has signed and
delivered to the Auction Agent a letter substantially in the form
of this letter, provided that in the case of all transfers other
than pursuant to Auctions we or our Broker-Dealer or our Agent
Member shall advise the Auction Agent of such transfer. We
understand that a restrictive legend will be placed on
certificates and stop-transfer instructions will be issued to the
transfer agent and the MMNs Registrar, all as set forth in the
Prospectus.
4. Our Agent Member of the Securities Depository, now DTC,
currently is ________________________________________.
5. We agree that so long as an event described in clause
(x) or (y) of Paragraph 3 of this letter shall not have occurred,
ownership of MMP or MMNs of such series affected thereby, as the
case may be, will be maintained in book entry form by the
Securities Depository for the account of our Agent Member, which
in turn will maintain records of our beneficial ownership. We
authorize and instruct our Agent Member to disclose to the
Auction Agent such information concerning our beneficial
ownership of MMP and MMNs of such series as the Auction Agent
shall request.
6. We acknowledge that partial deliveries of MMP and MMNs
purchased in Auctions may be made to us and such deliveries shall
constitute good delivery as set forth in the Prospectus.
7. Our personnel authorized to place Orders with Broker-
Dealers for the purposes set forth in the Prospectus in Auctions
currently is/are ___________ telephone number (___)____________.
8. This letter is not a commitment by us to purchase any
shares of MMP or MMNs.
9. This letter supersedes any version of this letter
delivered by us and dated earlier than the date hereof.
Terms used in this letter, unless otherwise defined, shall
have the meanings set forth in the Prospectus.
--------------------------------
(Name of Purchaser)
By: ___________________________
Printed Name: _________________
Title: ________________________
Mailing Address of Purchaser:
________________________________
Date: ______________________
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
EXCHANGEABLE MONEY MARKET CUMULATIVE PREFERRED TM STOCK
SERIES B
OF
HOUSEHOLD FINANCE CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
HOUSEHOLD FINANCE CORPORATION, a corporation organized
and existing under the laws of the State of Delaware (the
"Corporation"), HEREBY CERTIFIES that the following resolutions
were duly adopted by the Board of Directors of the Corporation
and by the Finance Committee of the Board of Directors,
respectively, pursuant to authority conferred upon the Board of
Directors by the provisions of the Restated Certificate of
Incorporation of the Corporation which authorizes the issuance of
up to 1,000 shares of preferred stock, without par value, and
pursuant to authority conferred upon the Finance Committee of the
Board of Directors by Section 141(c) of the General Corporation
Law of the State of Delaware, by Article III, Section 6, of the
By-Laws of the Corporation and by Section 141(f) of the General
Corporation Law of the State of Delaware and by the resolutions
of the Board of Directors set forth herein, by unanimous written
consent of the Board of Directors dated May 19, 1986 and by
unanimous written consent of the Finance Committee thereof dated
May 19, 1986:
1. The Board of Directors by unanimous written
consent dated May 19, 1986 adopted the following resolution
designating a series of preferred stock, without par value, of
the Corporation (For purposes of paragraphs 1 and 2 of this
Certificate of Designations, such series is referred to as the
"Preferred Stock"):
"RESOLVED, that there is hereby designated a series of
Preferred Stock, entitled 'Exchangeable Money Market Cumulative
Preferred Stock, Series B' (sometimes referred to herein as the
'Preferred Stock'), such series to consist of 150 shares."
2. The Board of Directors by unanimous written
consent dated May 19, 1986, adopted the following resolution
fixing the voting rights of the Preferred Stock:
"RESOLVED, that the shares of the Preferred Stock shall
have no voting powers, either general or special, except that:
(a) Unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66-2/3% of all of the
shares of the Preferred Stock at the time outstanding, given
in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of
shares of the Preferred Stock shall vote together as a
separate class, shall be necessary for authorizing,
effecting or validating the amendment, alteration or repeal
of any of the provisions of the Restated Certificate of
Incorporation or of any certificate amendatory thereof or
supplemental thereto (including any Certificate of
Designations or any similar document relating to any series
of preferred stock) which would adversely affect the
preferences, powers, rights or privileges of the Preferred
Stock; provided, however, that any increase or decrease in
the amount of authorized preferred stock or the creation and
issuance of other series of preferred stock, or any increase
in the amount of authorized shares or issued shares of the
Preferred Stock or of any other series of preferred stock,
in each case ranking on a parity with or junior to the
Preferred Stock with respect to the payment of dividends or
the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely
affect the preference, powers, rights or privileges of the
Preferred Stock;
(b) Unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66-2/3% of all of the
shares of the Preferred Stock, the preferred stock of the
Corporation designated as 'Exchangeable Money Market
Cumulative Preferred Stock, Series A' (the 'Series A MMP')
and all other series of preferred stock ranking on a parity
with shares of the Preferred Stock, either as to dividends
or upon liquidation, and which are granted in the Restated
Certificate of Incorporation the right to vote together with
the Preferred Stock as a single class on the matters set
forth in this subparagraph (b), at the time outstanding,
given in person or by proxy, either in writing or by a vote
at a meeting called for the purpose at which the holders of
shares of the Preferred Stock, the Series A MMP and such
other series of preferred stock shall vote together as a
single class without regard to series, shall be necessary
for authorizing, effecting or validating the creation,
authorization or issuance of any shares of any class of
stock of the Corporation ranking prior to the shares of the
Preferred Stock as to dividends or upon liquidation, or the
reclassification of any authorized stock of the Corporation
into any such prior shares, or the creation, authorization
or issuance of any obligation or security convertible into
or evidencing the right to purchase any such prior shares;
(c) If at the time of any annual meeting of
stockholders for the election of directors of the
Corporation a default in preference dividends shall
exist on the Preferred Stock, the Series A MMP or any
series of preferred stock of the Corporation ranking on
a parity with the Preferred Stock as to dividends or
upon liquidation and which is granted in the Restated
Certificate of Incorporation the right to vote together
with the Preferred Stock as a single class on the
election of directors (the Preferred Stock, the Series
A MMP and the other preferred stock of all such series
being referred to as the 'Voting Parity Preferred
Stock'), the number of directors constituting the Board
of Directors of the Corporation shall be increased by
two, and the holders of the Voting Parity Preferred
Stock of all series shall have the right at such
meeting, voting together as a single class without
regard to series, to the exclusion of the holders of
the Common Stock and any other class of capital stock
that is not Voting Parity Preferred Stock, to elect two
directors of the Corporation to fill such newly created
directorships. Such right shall continue until there
are no preference dividends in arrears upon the Voting
Parity Preferred Stock of any series, at which time
such right shall terminate, except as by law expressly
provided, subject to revesting in the event of each and
every subsequent default of the character above
mentioned. Upon any such termination of the right of
the holders of shares of Voting Parity Preferred Stock
as a class to vote for directors as herein provided,
the term of office of each director then in office
elected by such holders voting as a class (herein
called a 'Preferred Director') shall terminate
immediately. Any Preferred Director may be removed by,
and shall not be removed except by, the vote of the
holders of record of the outstanding shares of Voting
Parity Preferred Stock, voting together as a single
class without regard to series, at a meeting of the
Corporation's stockholders, or of the holders of shares
of Voting Parity Preferred Stock, called for such
purpose. So long as a default in any preference
dividends on the Voting Parity Preferred Stock of any
series shall exist (A) any vacancy in the office of a
Preferred Director may be filled (except as provided in
the following clause (B)) by a person appointed by an
instrument in writing signed by the remaining Preferred
Director and filed with the Corporation and (B) in the
case of the removal of any Preferred Director, the
vacancy may be filled by a person elected by the vote
of the holders of the outstanding shares of Voting
Parity Preferred Stock, voting together as a single
class without regard to series, at the same meeting at
which such removal shall be voted or at any subsequent
meeting. Each director appointed as aforesaid by the
remaining Preferred Director shall be deemed, for all
purposes hereof, to be a Preferred Director. Whenever
a default in preference dividends shall no longer
exist, the term of office of the Preferred Directors
shall end and the number of directors constituting the
Board of Directors of the Corporation shall be reduced
by two. For the purposes hereof, a 'default in
preference dividends' on the Voting Parity Preferred
Stock of any series shall be deemed to have occurred
whenever the amount of unpaid accrued dividends upon
any series of Voting Parity Preferred Stock shall be
equivalent to six quarterly dividends (which, with
respect to the Preferred Stock and any other series of
Voting Parity Preferred Stock, shall be deemed to be
dividends in respect of a number of dividend periods
containing not less than 540 days) or more, and, having
so occurred, such default shall be deemed to exist
thereafter until, but only until, all accrued dividends
on all shares of Voting Parity Preferred Stock of each
and every series then outstanding shall have been paid
to the end of the last preceding dividend period;
(d) For purposes of the second resolution of Exhibit A
adopted by the Board of Directors of the Corporation by
unanimous written consent dated December 16, 1985 (which is
included in Section 2 of the Certificate of Designations
filed by the Corporation with the Secretary of State of the
State of Delaware on December 18, 1985), the Preferred Stock
is a series of preferred stock ranking on a parity with the
shares of the Series A MMP, as to dividends and upon
liquidation, and which is granted in the Restated
Certificate of Incorporation (i) the right to vote together
with the Series A MMP as a single class on the matters set
forth in subparagraph (b) of such resolution and (ii) the
right to vote together with the Series A MMP as a single
class on the election of directors as set forth in
subparagraph (c) of such resolution."
3. The Board of Directors by unanimous written
consent dated May 19, 1986, adopted the following resolution:
"RESOLVED, that the issue of up to 150 shares of
Exchangeable Money Market Cumulative Preferred Stock, Series B,
without par value, of the Corporation is hereby authorized and
the preferences and privileges, relative, participating, optional
and other special rights, and qualifications, limitations and
restrictions of all 150 shares of such series, in addition to
those set forth in the Restated Certificate of Incorporation of
the Corporation, are hereby fixed as follows:
Exchangeable Money Market Cumulative Preferred Stock,
Series B
PART I
1. Number of Shares; Ranking.
(a) The designation of the series of preferred stock
without par value provided for herein shall be "Exchangeable
Money Market Cumulative Preferred Stock, Series B"
(hereinafter referred to as the "Series B MMP"), and the
number of authorized shares constituting Series B MMP is
150. No fractional shares of Series B MMP will be issued.
(b) Any shares of Series B MMP which at any time have
been redeemed by the Corporation shall, after such
redemption, have the status of authorized but unissued
shares of preferred stock, without designation as to series
until such shares are once more designated as part of a
particular series by the Board of Directors of the
Corporation.
(c) The shares of Series B MMP shall rank senior to or
on a parity with shares of any other series of the
Corporation's preferred stock as to dividends and upon
liquidation and shall rank on a parity with shares of any
other series of the Corporation's Exchangeable Money Market
Cumulative Preferred Stock as to dividends and upon
liquidation.
2. Dividends.
(a) The Holders (as defined in Section 7 of this Part
I) shall be entitled to receive, when, as and if declared by
the Board of Directors of the Corporation, out of funds
legally available therefor, cumulative cash dividends at the
Applicable Rate (as defined in subparagraph (c)(i) of this
Section 2) per annum, determined as set forth below, and no
more, payable on the respective dates set forth below.
(b) (i) Dividends on shares of Series B MMP, at the
Applicable Rate per annum, shall accrue from the Date
of Original Issue (as defined in Section 7 of this Part
I) and shall be payable commencing on such Tuesday as
shall be specified for Series B MMP by resolutions duly
adopted by the Board of Directors of the Corporation,
and each succeeding seventh Tuesday thereafter, except
that (X) (1) if such Tuesday is not a Business Day (as
defined in Section 7 of this Part I), then on the first
Business Day after such Tuesday that is immediately
followed by a Business Day and is preceded by a
Business Day that is the preceding Friday or a day
after such Friday, or (2) if such Tuesday is a Business
Day but the Wednesday following such Tuesday is not a
Business Day, then (I) on the preceding Monday if such
Monday and the preceding Friday are Business Days or
(II) otherwise on the first Business Day after such
Tuesday that is immediately followed by a Business Day
and preceded by a Business Day that is such Friday or a
day after such Friday, or (3) if such Tuesday and the
Wednesday following such Tuesday are both Business Days
but both the preceding Friday and Monday are not
Business Days, then on the first Business Day after
such Tuesday that is immediately followed by a Business
Day and is preceded by a Business Day that is such
Tuesday or a day after such Tuesday, or (Y) if such
Tuesday is not a Business Day or both the Friday and
Monday preceding such Tuesday are not Business Days and
if the Securities Depository shall make available to
its participants and members, in funds immediately
available in The City of New York on each Dividend
Payment Date, the amount due as dividends on each such
Dividend Payment Date, and the Securities Depository
shall have so advised the Auction Agent (as defined in
Section 7 of this Part I) then on the first Business
Day after such Tuesday that is preceded by a Business
Day that is the preceding Friday or a day after such
Friday; provided, however, that the Board of Directors
of the Corporation, in the event of a change in law
lengthening the minimum holding period (currently found
in Section 246(c) of the Code (as defined in Section 7
of this Part I)) required for taxpayers to be entitled
to the dividends received deduction on preferred stock
held by non-affiliated corporations (currently found in
Section 243(a) of the Code), may adjust the period of
time between Dividend Payment Dates so as, subject to
clauses (X) and (Y), to adjust uniformly the number of
days (such number of days without giving effect to such
clauses (X) and (Y) being hereinafter referred to as
"Dividend Period Days") in Dividend Periods (as defined
in subparagraph (c)(i) of this Section 2) commencing
after the date of such change in law to equal or exceed
the then current minimum holding period; provided that
the number of Dividend Period Days shall not exceed by
more than nine days the length of such then current
minimum holding period and in no event shall exceed 98
days and that dividends shall continue to be payable,
subject to clauses (X) and (Y), on Tuesdays (each date
of payment of dividends being herein referred to as a
"Dividend Payment Date" and the first Dividend Payment
Date being herein referred to as the "Initial Dividend
Payment Date"). Upon any such change in the number of
Dividend Period Days as a result of a change in law,
the Corporation shall publish notice of such change in
a newspaper of general circulation in The City of New
York, New York, which carries financial news and shall
mail notice of such change by first class mail, postage
prepaid, to each Holder at such Holder's address as the
same appears on the stock books of the Corporation.
(ii) So long as no LIBOR Event (as defined in
Section 7 of this Part I) has occurred, the Corporation
shall pay to the Auction Agent not later than 12:00
noon, New York City time, on the Business Day next
preceding each Dividend Payment Date, an aggregate
amount of funds available on the next Business Day in
The City of New York, New York, equal to the dividends
to be paid to all Holders on such Dividend Payment
Date. All such moneys shall be held in trust for the
payment of such dividends by the Auction Agent for the
benefit of the Holders specified in subparagraph
(b)(iii) of this Section 2.
(iii) Each dividend shall be paid to the Holders as
their names appear on the stock books of the
Corporation on the Business Day next preceding the
Dividend Payment Date thereof; provided, however, that
if such dividend shall have been determined under the
proviso in subparagraph (c)(i) of this Section 2, such
dividend shall be paid to the Holders as their names
appear on the stock books of the Corporation on such
date, not exceeding 15 days preceding the payment date
thereof, as may be fixed by the Board of Directors of
the Corporation. Dividends in arrears for any past
Dividend Period may be declared and paid at any time,
without reference to any regular Dividend Payment Date,
to the Holders as their names appear on the stock books
of the Corporation on such date, not exceeding 15 days
preceding the payment date thereof, as may be fixed by
the Board of Directors of the Corporation.
(c) (i) The dividend rate on shares of Series B MMP
during the period from and after the Date of Original
Issue to and including the Initial Dividend Payment
Date (the "Initial Dividend Period") shall be the rate
per annum as shall be approved for Series B MMP by
resolutions duly adopted by the Board of Directors of
the Corporation. Commencing on the Initial Dividend
Payment Date, the dividend rate on shares of Series B
MMP for each subsequent dividend period (hereinafter
referred to as a "Subsequent Dividend Period" and
collectively as "Subsequent Dividend Periods"; and the
Initial Dividend Period or any Subsequent Dividend
Period being hereinafter referred to as a "Dividend
Period" and collectively as "Dividend Periods")
thereafter, which Subsequent Dividend Periods shall
commence on the day that is the last day of the
preceding Dividend Period and shall end on and include
the next succeeding Dividend Payment Date, shall be
equal to the rate per annum that results from
implementation of the Auction Procedures (as defined in
Section 7 of this Part I); provided, however, that if a
LIBOR Event shall have occurred prior to the first day
of such Subsequent Dividend Period, the dividend rate
for such Subsequent Dividend Period shall be a rate per
annum equal to 150% of LIBOR (as defined in Section 7
of this Part I) (the rate per annum at which dividends
are payable on shares of Series B MMP for any Dividend
Period being herein referred to as the "Applicable
Rate").
(ii) The amount of dividends per share payable on
shares of Series B MMP for any Dividend Period shall be
computed by multiplying the Applicable Rate for such
Dividend Period by a fraction the numerator of which
shall be the number of days in such Dividend Period
(calculated by counting the first day thereof but
excluding the last day thereof) and the denominator of
which shall be 360 and applying the rate obtained
against $500,000 per share of Series B MMP.
(d) (i) No full dividends shall be declared or paid
or set apart for payment on the preferred stock of any
series ranking, as to dividends, on a parity with or
junior to Series B MMP for any period unless full
cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on
shares of Series B MMP for all Dividend Periods
terminating on or prior to the date of payment of such
full cumulative dividends. When dividends are not paid
in full, as aforesaid, upon the shares of Series B MMP
and any other series of preferred stock ranking on a
parity as to dividends with Series B MMP, all dividends
declared upon shares of Series B MMP and any other
series of preferred stock ranking on a parity as to
dividends with Series B MMP shall be declared pro rata
so that the amount of dividends declared per share on
Series B MMP and such other series of preferred stock
shall in all cases bear to each other the same ratio
that accrued dividends per share on the shares of
Series B MMP and such other series of preferred stock
bear to each other. Holders of shares of Series B MMP
shall not be entitled to any dividend, whether payable
in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on Series B
MMP. No interest, or sum or money in lieu of interest,
shall be payable in respect of any dividend payment or
payments on Series B MMP which may be in arrears.
(ii) So long as any shares of Series B MMP are
outstanding, no dividend (other than dividends or
distributions paid in shares of, or options, warrants
or rights to subscribe for or purchase shares of,
common stock or any other stock ranking junior to
Series B MMP as to dividends and upon liquidation and
other than as provided in subparagraph (d)(i) of this
Section 2) shall be declared or paid or set aside for
payment or other distribution declared or made upon the
common stock or upon any other stock of the Corporation
ranking junior to or on a parity with Series B MMP as
to dividends or upon liquidation, nor shall any common
stock or any other stock of the Corporation ranking
junior to or on a parity with Series B MMP as to
dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the
Corporation (except by conversion into or exchange for
stock of the Corporation ranking junior to Series B MMP
as to dividends and upon liquidation) unless, in each
case, the full cumulative dividends on all outstanding
shares of Series B MMP shall have been paid for all
past Dividend Periods.
(iii) Any dividend payment made on shares of Series
B MMP shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares
of Series B MMP.
3. Redemption.
(a)(i)(A) The shares of Series B MMP may be
redeemed, at the option of the Corporation, as a
whole or from time to time in part, on the second
Business Day next preceding any Dividend Payment
Date at a redemption price of:
(I) $515,000 per share if redeemed
during the twelve months ending on the first
anniversary of the Date of Original Issue;
(II) $510,000 per share if redeemed
during the twelve months ending on the second
anniversary of the Date of Original Issue;
(III) $505,000 per share if redeemed
during the twelve months ending on the third
anniversary of the Date of Original Issue;
and
(IV) $500,000 per share if redeemed
thereafter;
plus, in each case, an amount equal to accrued and
unpaid dividends thereon (whether or not earned or
declared) to the date fixed for redemption.
(B) If fewer than all of the outstanding
shares of Series B MMP are to be redeemed pursuant
to this subparagraph (a)(i), the number of shares
to be redeemed shall be determined by the Board of
Directors of the Corporation, and such shares
shall be redeemed pro rata from the Holders in
proportion to the number of such shares held by
such Holders (with adjustments to avoid redemption
of fractional shares).
(ii) The shares of Series B MMP may be redeemed,
at the option of the Corporation, as a whole but not in
part, on any Dividend Payment Date at a redemption
price of $500,000 per share, plus an amount equal to
accrued and unpaid dividends thereon (whether or not
earned or declared) to the date fixed for redemption,
if the Applicable Rate fixed for the Dividend Period
ending on such Dividend Payment Date shall equal or
exceed the "AA" Composite Commercial Paper Rate (as
defined in Section 7 of this Part I) on the date of
determination of such Applicable Rate.
(b) If the Corporation shall redeem shares of Series B
MMP pursuant to paragraph (a) of this Section 3, notice of
such redemption shall be mailed by first class mail, postage
prepaid, to each Holder of the shares to be redeemed, at
such Holder's address as the same appears on the stock books
of the Corporation. Such notice shall be so mailed not less
than 30 nor more than 45 days prior to the date fixed for
redemption. Each such notice shall state: (i) the
redemption date, (ii) the number of shares of Series B MMP
to be redeemed, (iii) the redemption price, (iv) the place
or places where certificates for such shares of Series B MMP
are to be surrendered for payment of the redemption price
and (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date. If fewer than all
shares held by any Holder are to be redeemed, the notice
mailed to such Holder shall also specify the number of
shares to be redeemed from such Holder.
(c) Notwithstanding the foregoing provisions of
paragraph (a) of this Section 3, if any dividends on shares
of Series B MMP are in arrears, no shares of Series B MMP
shall be redeemed unless all outstanding shares of Series B
MMP are simultaneously redeemed, and the Corporation shall
not purchase or otherwise acquire any shares of Series B
MMP; provided, however, that the foregoing shall not prevent
the purchase or acquisition of shares of Series B MMP
pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of Series B MMP.
(d) If notice of redemption has been given under
paragraph (b) of this Section 3, from and after the
redemption date for the shares of Series B MMP called for
redemption (unless default shall be made by the Corporation
in providing money for the payment of the redemption price
of the shares so called for redemption) dividends on the
shares of Series B MMP so called for redemption shall cease
to accrue and said shares shall no longer be deemed to be
outstanding, and all rights of the Holders thereof as
stockholders of the Corporation (except the right to receive
the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for any
shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall
so require and the notice shall so state), the redemption
price set forth above shall be paid by the Auction Agent to
the Holders of the shares of Series B MMP subject to
redemption. In case fewer than all of the shares
represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed
shares without cost to the Holder thereof.
(e) So long as no LIBOR Event has occurred, the
Corporation shall pay the applicable Redemption Deposit
Amount (as defined in Section 7 of this Part I) to the
Auction Agent, in funds available on the next Business Day
in The City of New York, New York, on the Business Day next
preceding any redemption date for disbursement to Holders as
appropriate. All such moneys shall be held in trust by the
Auction Agent for the benefit of Holders of shares so to be
redeemed.
4. Exchange.
(a) The shares of Series B MMP are exchangeable in
whole at the sole option of the Corporation on any Dividend
Payment Date on or after the second anniversary of the Date
of Original Issue for the Corporation's Senior Subordinated
Money Market Notes TM (the "MMNs TM"), to be issued pursuant
to the Indenture (as defined in Section 7 of this Part I);
provided, however, that shares of Series B MMP may not be so
exchanged unless (i) notice thereof shall have been given as
set forth in paragraph (d) of this Section 4, (ii) at no
time prior to the Exchange Date, including after thee
Corporation gives notice of its intention to exchange as set
forth in paragraph (d) of this Section 4, has a LIBOR Event
occurred and (iii) S&P and Moody's shall have provided
ratings for MMNs of such series on the Exchange Date;
provided further, however, if (A) (x) either S&P or Moody's
shall not make such a rating available or (y) neither S&P
nor Moody's shall make such a rating available, and (B) the
Corporation shall have advised the trustee under the
Indenture of the occurrence of (x) or (y) of clause (A) of
this Section 4(a), then, in the case of subclause (x) of
clause (A) of this Section 4(a), a nationally recognized
statistical rating organization (as that term is used in the
rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended) or, in the case of subclause (y) of clause (A) of
this Section 4(a), two nationally recognized statistical
rating organizations, selected by Shearson Lehman Brothers
Inc. or its successor and approved by the Corporation, shall
have provided a rating or ratings, as the case may be, for
MMNs of such series on the Exchange Date. The MMNs of such
series shall have such designation, shall mature, bear
interest and have such other terms as set forth in the
Indenture.
(b) Holders of outstanding shares of Series B MMP will
be entitled to receive $500,000 principal amount of the MMNs
for each share of Series B MMP held by them on the Exchange
Date.
(c) At the time of the exchange pursuant to paragraph
(a) of this Section 4, the shares of Series B MMP shall
cease to accrue dividends, such shares of Series B MMP shall
no longer be deemed outstanding, the rights of the Holders
of shares of Series B MMP as stockholders of the Corporation
shall cease (except the right to receive accrued and unpaid
dividends to the Exchange Date), and the person or persons
entitled to receive the MMNs issuable upon exchange shall be
treated for all purposes as the registered holder or holders
of such MMNs.
(d) If the Corporation shall exchange shares of Series
B MMP pursuant to paragraph (a) of this Section 4, notice of
such exchange (A) shall be published or caused to be
published by the Corporation in a newspaper of general
circulation in The City of New York, New York, which carries
financial news, at least 10 days prior to both (i) the
Dividend Payment Date preceding the Exchange Date and (ii)
the Exchange Date and (B) shall be mailed to the Holders of
Series B MMP and the trustee under the Indenture at least 10
days prior to both (i) the Dividend Payment Date preceding
the Exchange Date and (ii) the Exchange Date. Each such
notice shall state: (i) the Exchange Date, (ii) the number
of shares of Series B MMP to be exchanged, (iii) the
exchange price, (iv) the place or places where certificates
for such shares of Series B MMP are to be surrendered for
payment of the exchange price and (v) that dividends on the
shares to be exchanged will cease to accrue on the Exchange
Date.
5. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of
the Corporation, the Holders of the shares of Series B MMP
shall be entitled to receive and to be paid out of the
assets of the Corporation available for distribution to its
stockholders, before any payment or distribution shall be
made on the common stock or on any other class of stock
ranking junior to Series B MMP upon liquidation, the amount
of $500,000 per share, plus a sum equal to all dividends
(whether or not earned or declared) on such shares accrued
and unpaid thereon to the date of final distribution.
(b) Neither the sale of all or substantially all the
property or business of the Corporation, nor the merger or
consolidation of the Corporation into or with any other
corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to
be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 5.
(c) After the payment to the Holders of the shares of
Series B MMP of the full preferential amounts provided for
in this Section 5, the Holders of Series B MMP as such shall
have no right or claim to any of the remaining assets of the
Corporation.
(d) In the event the assets of the Corporation
available for distribution to the Holders of shares of
Series B MMP upon any dissolution, liquidation or winding up
of the Corporation, whether voluntary or involuntary, shall
be insufficient to pay in full all amounts to which such
Holders are entitled pursuant to paragraph (a) of this
Section 5, no such distribution shall be made on account of
any shares of any other class or series of preferred stock
ranking on a parity with the shares of Series B MMP upon
such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account
of the shares of Series B MMP, ratably, in proportion to the
full distributable amounts for which holders of all such
parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
(e) Subject to the rights of the holders of shares of
any series or class or classes of stock ranking on a parity
with the shares of Series B MMP upon liquidation,
dissolution or winding up of the Corporation, after payment
shall have been made in full to the Holders of the shares of
Series B MMP as provided in this Section 5, but not prior
thereto, any other series or class or classes of stock
ranking junior to the shares of Series B MMP upon
liquidation shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive
any and all assets remaining to be paid or distributed, and
the Holders of the shares of Series B MMP shall not be
entitled to share therein.
6. Ranking. For purposes of this resolution, any
stock of any class or classes of the Corporation shall be deemed
to rank:
(a) prior to the shares of Series B MMP, either as to
dividends or upon liquidation, if the holders of such class
or classes shall be entitled to the receipt of dividends or
of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in
preference or priority to the Holders of shares of Series B
MMP;
(b) on a parity with shares of Series B MMP, either as
to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation prices per share or sinking fund provisions, if
any, be different from those of Series B MMP, if the holders
of such stock shall be entitled to the receipt of dividends
or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in
proportion to their respective dividend rates or liquidation
prices, without preference or priority, one over the other,
as between the holders of such stock and the Holders of
shares of Series B MMP; and
(c) junior to shares of Series B MMP, either as to
dividends or upon liquidation, if such class shall be common
stock or if the Holders of shares of Series B MMP shall be
entitled to receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority
to the holders of shares of such class or classes.
7. Definitions. As used in Parts I and II hereof,
the following terms shall have the following meanings (with terms
defined in the singular having comparable meanings when used in
the plural and vice versa), unless the context otherwise
requires:
(a) "'AA' Composite Commercial Paper Rate," on any
date, shall mean (i) the interest equivalent of the 60-day
rate on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P, or the equivalent of
such rating by S&P or another rating agency, as made
available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the immediately preceding
Business Day prior to such date; or (ii) in the event that
the Federal Reserve Bank of New York does not make available
such a rate, then the arithmetic average of the interest
equivalent of the 60-day rate on commercial paper placed on
behalf of such issuers, as quoted on a discount basis or
otherwise by the Commercial Paper Dealers to the Auction
Agent for the close of business of the immediately preceding
Business Day prior to such date. If any Commercial Paper
Dealer does not quote a rate required to determine the "AA"
Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate shall be determined on the basis of
the quotation or quotations furnished by the remaining
Commercial Paper Dealer or Commercial Paper Dealers and any
Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers selected by the Corporation to provide such
rate or rates not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers, as the case may be, or,
if the Corporation does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper
Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. If the Board of Directors of the
Corporation shall make the adjustment referred to in the
first proviso of the first sentence of paragraph (b) of
Section 2 of this Part I, then (i) if the Dividend Period
Days after such adjustment shall be 70 or more days but
fewer than 85 days, such rate shall be based on the
arithmetic average of the interest equivalent of the 60-day
and 90-day rates on such commercial paper, and (ii) if the
Dividend Period Days after such adjustment shall be 85 or
more days but 98 or fewer days, such rate shall be the
interest equivalent of the 90-day rate on such commercial
paper. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis(a "discount
rate") for commercial paper of a given days' maturity shall
be equal to the quotient (rounded upwards to the next higher
one-thousandth (.001) of 1%) of (A) the discount rate
divided by (B) the difference between (x) 1.00 and (y) a
fraction the numerator of which shall be the product of the
discount rate times the number of days in which such
commercial paper matures and the denominator of which shall
be 360.
(b) "Applicable Rate" shall have the meaning specified
in subparagraph (c)(i) of Section 2 of this Part I.
(c) "Auction" shall mean each periodic implementation
of the Auction Procedures.
(d) "Auction Agent" shall mean the bank or trust
company or other entity appointed as such by a resolution of
the Board of Directors of the Corporation.
(e) "Auction Procedures" shall mean the procedures for
conducting Auctions set forth in Part II hereof.
(f) "Board of Directors of the Corporation" shall mean
the Board of Directors of the Corporation or any duly
authorized committee thereof.
(g) "Business Day" shall mean a day on which the New
York Stock Exchange is open for trading and which is neither
a Saturday, Sunday nor any other day on which banks in The
City of New York, New York, are authorized by law to close.
(h) "Code" shall mean the Internal Revenue Code of
1954, as amended.
(i) "Commercial Paper Dealers" shall mean Goldman,
Sachs & Co., Lehman Commercial Paper Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc. or, in lieu of any thereof, their respective
affiliates or successors, provided that any such entity is a
commercial paper dealer.
(j) "Date of Original Issue" shall mean the date on
which the Corporation initially issues shares of Series B
MMP.
(k) "Dividend Payment Date" shall have the meaning
specified in subparagraph (b)(i) of Section 2 of this Part
I.
(l) "Dividend Period" and "Dividend Periods" shall
have the respective meanings specified in subparagraph
(c)(i) of Section 2 of this Part I.
(m) "Dividend Period Days" shall have the meaning
specified in subparagraph (b)(i) of Section 2 of this Part
I.
(n) "Exchange Date" shall mean the date on which the
Corporation exchanges shares of Series B MMP for MMNs of any
series pursuant to Section 4 of this Part I.
(o) "Holder" shall mean the holder of shares of Series
B MMP as the same appears on the stock books of the
Corporation.
(p) "Indenture" shall mean the indenture dated as of
December 1, 1985 between the Corporation and Manufacturers
Hanover Trust Company, as Trustee.
(q) "Initial Dividend Payment Date" shall have the
meaning specified in subparagraph (b)(i) of Section 2 of
this Part I.
(r) "Initial Dividend Period" shall have the meaning
specified in subparagraph (c)(i) of Section 2 of this Part
I.
(s) "LIBOR" shall mean for any Divided Period the
arithmetic average (rounded to the next higher 1/16 of 1%),
computed by the Corporation, of the respective rates per
annum quoted by each of the Reference Banks at which United
States dollar deposits for a two-month period in the amount
of U.S. $10,000,000 are offered by such Reference Banks to
leading banks in the London interbank market at
approximately 11:00 A.M. (London time) on the first day of
such Dividend Period, or if such day is not a day on which
dealings in United States dollars are transacted in the
London interbank market, then on the next preceding day on
which such dealings are transacted in such market. If any
Reference Bank does not quote a rate required to determine
LIBOR, LIBOR shall be determined on the basis of the
quotation or quotations furnished by the remaining Reference
Bank or Reference Banks and any Substitute Reference Bank or
Substitute Reference Banks selected by the Corporation to
provide such quotation or quotations not being supplied by
any Reference Bank or Reference Banks, as the case may be,
or, if the Corporation does not select any such Substitute
Reference Bank or Substitute Reference Banks, by the
remaining Reference Bank or Reference Banks. If the Board
of Directors of the Corporation shall make the adjustment
referred to in the first proviso of the first sentence of
paragraph (b) of Section 2 of this Part I, then (i) if the
Dividend Period Days after such adjustment shall be 70 or
more days but fewer than 85 days, LIBOR shall be based on
the arithmetic average (rounded to the next higher 1/16 of
1%) of the rates per annum quoted for such United States
dollar deposits for two- and three-month periods, and (ii)
if the Dividend Period Days after such adjustment shall be
85 or more days but 98 or fewer days, such rate shall be
based on the rates per annum quoted for such United States
dollar deposits for a three-month period.
(t) "LIBOR Event" shall mean the first failure by the
Corporation to pay to the Auction Agent, not later than
12:00 noon, New York City time, (A) on the Business Day next
preceding any Dividend Payment Date, in funds available on
such Dividend Payment Date in The City of New York, New
York, the full amount of any dividend (whether or not earned
or declared) to be paid on such Dividend Payment Date on any
share of Series B MMP or (B) on the Business Day next
preceding any redemption date in funds available on such
redemption date in The City of New York, New York, the
redemption price to be paid on such redemption date of any
share of Series B MMP after notice of redemption is given
pursuant to paragraph (b) of Section 3 of this Part I.
(u) "Moody's" shall mean Moody's Investors Services,
Inc., a Delaware corporation, and its successors.
(v) "Redemption Deposit Amount" shall mean the product
of (i) the number of outstanding shares of Series B MMP to
be redeemed times (ii) an amount equal to the applicable
redemption price, plus an amount equal to accrued and unpaid
dividends (whether or not earned or declared) to the date
fixed for redemption.
(w) "Reference Bank" shall mean the principal London
offices of Bankers Trust Company, The Bank of Tokyo, Ltd.,
Barclays Bank PLC and National Westminster Bank PLC, or
their respective successors.
(x) "Series B MMP" shall mean the series of the
preferred stock, without par value, of the Corporation
designated as its "Exchangeable Money Market Cumulative
Preferred TM Stock, Series B."
(y) "S&P" shall mean Standard & Poor's Corporation, a
New York corporation, and its successors.
(z) "Subsequent Dividend Period" and "Subsequent
Dividend Periods" shall have the respective meanings
specified in subparagraph (c)(i) of Section 2 of this Part
I.
(aa) "Substitute Commercial Paper Dealer" shall mean
The First Boston Corporation or Morgan Stanley & Co.
Incorporated, or their respective affiliates or successors,
if such dealer or its affiliate or successor is a commercial
paper dealer; provided that neither such dealer nor any of
its affiliates shall be a Commercial Paper Dealer.
(bb) "Substitute Reference Bank" shall mean the
principal London offices of The Chase Manhattan Bank
(National Association), Deutsche Bank Aktiengesellschaft,
Morgan Guaranty Trust Company of New York or Swiss Bank
Corporation, or their respective successors, or, if none of
such Substitute Reference Banks are engaged in dealings in
United States dollars in the London interbank market, then a
bank or banks, selected by the Corporation, engaged in
dealings in United States dollars in the London interbank
market.
PART II
1. Certain Definitions. Capitalized terms not
defined in this Section 1 shall have the respective meanings
specified in Part I hereof. As used in this Part II, the
following terms shall have the following meanings, unless the
context otherwise requires:
(a) "'AA' Rate Multiple," on any Auction Date, shall
mean the percentage determined as set forth below based on
the prevailing rating of Series B MMP in effect at the close
of business on the Business Day immediately preceding such
Auction Date:
Prevailing Rating Percentage
AA/aa or Above . . . . . 110%
A/a . . . . . . . . . . 120%
BBB/baa . . . . . . . . 130%
Below BBB/baa . . . . . 150%
For purposes of this definition, the "prevailing rating" of
Series B MMP shall be (i) AA/aa or Above if Series B MMP has
a rating of AA- or better by S&P or aa3 or better by
Moody's, or the equivalent of either or both of such ratings
by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not
AA/aa or Above, then A/a if Series B MMP has a rating of A-
or better and lower than AA- by S&P or a3 or better and
lower than aa3 by Moody's or the equivalent of either or
both of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided
below, (iii) if not AA/aa or Above or A/a, then BBB/baa if
Series B MMP has a rating of BBB- or better and lower than
A- by S&P or baa3 or better and lower than a3 by Moody's or
the equivalent of either or both of such ratings by such
agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (iv) if not AA/aa
or Above, A/a or BBB/baa, then Below BBB/baa. The
Corporation shall take all reasonable action necessary to
enable S&P and Moody's to provide a rating for Series B MMP.
If either S&P or Moody's shall not make such a rating
available, or neither S&P nor Moody's shall make such a
rating available, Shearson Lehman Brothers Inc. or its
successor shall select a nationally recognized statistical
rating organization (as that term is used in the rules and
regulations of the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended) or two
nationally recognized statistical rating organizations to
act as substitute rating agency or substitute rating
agencies, as the case may be, and the Corporation shall take
all reasonable action to enable such rating agency or rating
agencies to provide a rating or ratings for the Series B
MMP.
(b) "Affiliate" shall mean any Person known to the
Auction Agent to be controlled by, in control of or under
common control with the Corporation.
(c) "Agent Member" shall mean the member of, or
participant in, the Securities Depository that will act on
behalf of a Bidder and is identified as such in such
Bidder's Purchaser's Letter.
(d) "Auction Date" shall mean the Business Day next
preceding the first day of a Dividend Period.
(e) "Available Series B MMP" shall have the meaning
specified in paragraph (a) of Section 4 of this Part II.
(f) "Bid" and "Bids" shall have the respective
meanings specified in paragraph (a) of Section 2 of this
Part II.
(g) "Bidder" and "Bidders" shall have the respective
meanings specified in paragraph (a) of Section 2 of this
Part II.
(h) "Broker-Dealer" shall mean any broker-dealer, or
other entity permitted by law to perform the functions
required of a Broker-Dealer in this Part II, that is a
member of, or a participant in, the Securities Depository,
has been selected by the Corporation and has entered into a
Broker-Dealer Agreement with the Auction Agent that remains
effective.
(i) "Broker-Dealer Agreement" shall mean an agreement
between the Auction Agent and a Broker-Dealer pursuant to
which such Broker-Dealer agrees to follow the procedures
specified in this Part II.
(j) "Existing Holder," when used with respect to
shares of Series B MMP, shall mean a Person who has signed a
Purchaser's Letter and is listed as the beneficial owner of
such shares of Series B MMP in the records of the Auction
Agent.
(k) "Hold Order" and "Hold Orders" shall have the
respective meanings specified in paragraph (a) of Section 2
of this Part II.
(l) "Maximum Rate," on any Auction Date, shall mean
the product of the "AA" Composite Commercial Paper Rate
times the "AA" Rate Multiple.
(m) "Order" and "Orders" shall have the respective
meanings specified in paragraph (a) of Section 2 of this
Part II.
(n) "Outstanding" shall mean, as of any date, shares
of Series B MMP theretofore issued by the Corporation
except, without duplication, (i) any shares of Series B MMP
theretofore canceled or delivered to the Auction Agent for
cancellation or redeemed by the Corporation or as to which a
notice of redemption shall have been given by the
Corporation, (ii) any shares of Series B MMP as to which the
Corporation or any Affiliate thereof (other than a Broker-
Dealer Affiliate) shall be an Existing Holder and (iii) any
shares of Series B MMP represented by any certificate in
lieu of which a new certificate has been executed and
delivered by the Corporation.
(o) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated
association, a joint venture or other entity or a government
or any agency or political subdivision thereof.
(p) "Potential Holder" shall mean any Person,
including any Existing Holder, (i) who shall have executed a
Purchaser's Letter and (ii) who may be interested in
acquiring shares of Series B MMP (or, in the case of an
Existing Holder, additional shares of Series B MMP).
(q) "Purchaser's Letter" shall mean a letter, the form
of which is attached hereto, addressed to the Corporation,
the Auction Agent, a Broker-Dealer and an Agent Member in
which a Person agrees, among other things, to offer to
purchase, to purchase, to offer to sell and/or to sell
shares of Series B MMP as set forth in this Part II.
(r) "Securities Depository" shall mean The Depository
Trust Company and its successors and assigns or any other
securities depository selected by the Corporation which
agrees to follow the procedures required to be followed by
such securities depository in connection with shares of
Series B MMP.
(s) "Sell Order" and "Sell Orders" shall have the
respective meanings specified in paragraph (a) of Section 2
of this Part II.
(t) "Submission Deadline" shall mean 1:00 P.M., New
York City time, on any Auction Date or such other time on
any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the
Auction Agent from time to time.
(u) "Submitted Bid" and "Submitted Bids" shall have
the respective meanings specified in paragraph (a) of
Section 4 of this Part II.
(v) "Submitted Hold Order" and "Submitted Hold Orders"
shall have the respective meanings specified in paragraph
(a) of Section 4 of this Part II.
(w) "Submitted Order" and "Submitted Orders" shall
have the respective meanings specified in paragraph (a) of
Section 4 of this Part II.
(x) "Submitted Sell Order" and "Submitted Sell Orders"
shall have the respective meanings specified in paragraph
(a) of Section 4 of this Part II.
(y) "Sufficient Clearing Bids" shall have the meaning
specified in paragraph (a) of Section 4 of this Part II.
(z) "Winning Bid Rate" shall have the meaning
specified in paragraph (a) of Section 4 of this Part II.
2. Orders by Existing Holders and Potential Holders.
(a) On or prior to the Submission Deadline on each
Auction Date:
(i) each Existing Holder may submit to a Broker-
Dealer information as to:
(A) the number of Outstanding shares, if
any, of Series B MMP held by such Existing Holder
which such Existing Holder desires to continue to
hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
(B) the number of Outstanding shares, if
any, of Series B MMP which such Existing Holder
desires to continue to hold if the Applicable Rate
for the next succeeding Dividend Period shall not
be less than the rate per annum specified by such
Existing Holder; and/or
(C) the number of Outstanding shares, if
any, of Series B MMP held by such Existing Holder
which such Existing Holder offers to sell without
regard to the Applicable Rate for the next
succeeding Dividend Period; and
(ii) one or more Broker-Dealers, using lists of
Potential Holders, shall in good faith for the purpose
of conducting a competitive Auction in a commercially
reasonable manner, contact Potential Holders, including
Persons that are not Existing Holders, on such lists to
determine the number of shares, if any, of Series B MMP
which each such Potential Holder offers to purchase if
the Applicable Rate for the next succeeding Dividend
Period shall not be less that the rate per annum
specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-
Dealer of information referred to in clause (i)(A), (i)(B),
(i)(C) or (ii) of this paragraph (a) is hereinafter referred
to as an "Order" and collectively as "Orders" and each
Existing Holder and each Potential Holder placing an Order
is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to
in clause (i)(A) of this paragraph (a) is hereinafter
referred to as a "Hold Order" and collectively as "Hold
Orders"; an Order containing the information referred to in
clause (i)(B) or (ii) of this paragraph (a) is hereinafter
referred to as a "Bid" and collectively as "Bids"; and an
Order containing the information referred to in clause
(i)(C) of this paragraph (a) is hereinafter referred to as a
"Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by an Existing Holder shall constitute
an irrevocable offer to sell:
(A) the number of Outstanding shares of
Series B MMP specified in such Bid if the
Applicable Rate determined on such Auction Date
shall be less than the rate specified therein;
(B) such number or a lesser number of
Outstanding shares of Series B MMP to be
determined as set forth in clause (iv) of
paragraph (a) of Section 5 of this Part II if the
Applicable Rate determined on such Auction Date
shall be equal to the rate specified therein; or
(C) a lesser number of Outstanding shares of
Series B MMP to be determined as set forth in
clause (iii) of paragraph (b) of Section 5 of this
Part II if the rate specified therein shall be
higher than the Maximum Rate and Sufficient
Clearing Bids do not exist.
(ii) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of
Series B MMP specified in such Sell Order; or
(B) such number or a lesser number of
Outstanding shares of Series B MMP as set forth in
clause (iii) of paragraph (b) of Section 5 of this
Part II if Sufficient Clearing Bids do not exist.
(iii) A Bid by a Potential Holder shall constitute
an irrevocable offer to purchase:
(A) the number of Outstanding shares of
Series B MMP specified in such Bid if the
Applicable Rate determined on such Auction Date
shall be higher than the rate specified therein;
or
(B) such number or a lesser number of
Outstanding shares of Series B MMP as set forth in
clause (v) of paragraph (a) of Section 5 of this
Part II if the Applicable Rate determined on such
Auction Date shall be equal to the rate specified
therein.
3. Submission of Orders by Broker-Dealers to Auction
Agent.
(a) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each
Auction Date all Orders obtained by such Broker-Dealer and
shall specify with respect to each Order:
(i) the name of the Bidder placing such Order;
(ii) the aggregate number of shares of Series B
MMP that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing
Holder:
(A) the number of shares, if any, of Series
B MMP subject to any Hold Order placed by such
Existing Holder;
(B) the number of shares, if any, of Series
B MMP subject to any Bid placed by such Existing
Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of Series
B MMP subject to any Sell Order placed by such
Existing Holder; and
(iv) to the extent such Bidder is a Potential
Holder, the rate and number of shares specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more
than three figures to the right of the decimal point, the
Auction Agent shall round such rate up to the next highest
one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the
Outstanding shares of Series B MMP held by any Existing
Holder is not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold
Order to have been submitted on behalf of such Existing
Holder covering the number of Outstanding shares of Series B
MMP held by such Existing Holder and not subject to Orders
submitted to the Auction Agent.
(d) If one or more Orders covering in the aggregate
more than the number of Outstanding shares of Series B MMP
held by any Existing Holder are submitted to the Auction
Agent, such Orders shall be considered valid as follows and
in the following order of priority:
(i) all Hold Orders shall be considered valid,
but only up to and including in the aggregate the
number of Outstanding shares of Series B MMP held by
such Existing Holder, and, solely for purposes of
allocating compensation among the Broker-Dealers
submitting Hold Orders, if the number of shares of
Series B MMP subject to such Hold Orders exceeds the
number of Outstanding shares of Series B MMP held by
such Existing Holder, the number of shares subject to
each such Hold Order shall be reduced pro rata to cover
the number of Outstanding shares of Series B MMP held
by such Existing Holder;
(ii) (A) any Bid shall be considered valid up to
and including the excess of the number of
Outstanding shares of Series B MMP held by such
Existing Holder over the number of shares of
Series B MMP subject to any Hold Orders referred
to in clause (i) above;
(B) subject to subclause (A), if more than
one Bid with the same rate is submitted on behalf
of such Existing Holder and the number of
Outstanding shares of Series B MMP subject to such
Bids is greater than such excess, such Bids shall
be considered valid up to and including the amount
of such excess, and, solely for purposes of
allocating compensation among the Broker-Dealers
submitting Bids with the same rate, the number of
shares of Series B MMP subject to each Bid with
the same rate shall be reduced pro rata to cover
the number of shares of Series B MMP equal to such
excess;
(C) subject to subclause (A), if more than
one Bid with different rates is submitted on
behalf of such Existing Holder, such Bids shall be
considered valid in the ascending order of their
respective rates up to and including the amount of
such excess; and
(D) in any such event, the number, if any,
of such Outstanding shares of Series B MMP subject
to Bids not valid under this clause (ii) shall be
treated as the subject of a Bid by a Potential
Holder at the rate therein specified; and
(iii) all Sell Orders shall be considered valid up
to and including the excess of the number of
Outstanding shares of Series B MMP held by such
Existing Holder over the sum of shares of Series B MMP
subject to Hold Orders referred to in clause (i) above
and valid Bids by such Existing Holder referred to in
clause (ii) above.
(e) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid
with the rate and number of shares therein specified.
4. Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate.
(a) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all Orders
submitted or deemed submitted to it by the Broker-Dealers
(each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as
a "Submitted Hold Order," a "Submitted Bid" or a "Submitted
Sell Order," as the case may be, or as a "Submitted Order"
and collectively as "Submitted Hold Orders," "Submitted
Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine:
(i) the excess of the total number of Outstanding
shares of Series B MMP over the number of Outstanding
shares of Series B MMP that are the subject of
Submitted Hold Orders (such excess being hereinafter
referred to as the "Available Series B MMP");
(ii) from the Submitted Orders whether:
(A) the number of Outstanding shares of
Series B MMP that are the subject of Submitted
Bids by Potential Holders specifying one or more
rates equal to or lower than the Maximum Rate;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of
Series B MMP that are the subject of Submitted
Bids by Existing Holders specifying one or more
rates higher than the Maximum Rate; and
(C) the number of Outstanding shares of
Series B MMP that are subject to Submitted Sell
Orders
(in the event of such excess or such equality (other
than because the number of shares of Series B MMP in
subclauses (B) and (C) above is zero because all of the
Outstanding shares of Series B MMP are the subject of
Submitted Hold Orders), such Submitted Bids in
subclause (A) above being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(iii) if Sufficient Clearing Bids exist, the lowest
rate specified in the Submitted Bids (the "Winning Bid
Rate") which if:
(A)(I) each Submitted Bid from Existing
Holders specifying such lowest rate and (II) all
other Submitted Bids from Existing Holders
specifying lower rates were rejected, thus
entitling such Existing Holders to continue to
hold the shares of Series B MMP that are the
subject of such Submitted Bids; and
(B)(I) each Submitted Bid from Potential
Holders specifying such lowest rate and (II) all
other Submitted Bids from Potential Holders
specifying lower rates were accepted,
would result in such Existing Holders described in
subclause (A) above continuing to hold an aggregate
number of Outstanding shares of Series B MMP which,
when added to the number of Outstanding shares of
Series B MMP to be purchased by such Potential Holders
described in subclause (B) above, would equal not less
than the Available Series B MMP.
(b) Promptly after the Auction Agent has made the
determinations pursuant to paragraph (a) of this Section 4,
the Auction Agent shall advise the Corporation of the "AA"
Composite Commercial Paper Rate and the Maximum Rate on the
Auction Date and, based on such determinations, the
Applicable Rate for the next succeeding Dividend Period as
follows:
(i) if Sufficient Clearing Bids exist, that the
Applicable Rate for the next succeeding Dividend Period
shall be equal to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist
(other than because all of the Outstanding shares of
Series B MMP are the subject of Submitted Hold Orders),
that the Applicable Rate for the next succeeding
Dividend Period shall be equal to the Maximum Rate; or
(iii) if all of the Outstanding shares of Series B
MMP are the subject of Submitted Hold Orders, that the
Applicable Rate for the next succeeding Dividend Period
shall be equal to 59% of the "AA" Composite Commercial
Paper Rate.
5. Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Existing Holders
shall continue to hold the shares of Series B MMP that are the
subject of Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 4 of
this Part II, the Submitted Bids and Submitted Sell Orders shall
be accepted or rejected and the Auction Agent shall take such
other action as set forth below:
(a) If Sufficient Clearing Bids have been made, all
Submitted Sell Orders shall be accepted and, subject to the
provisions of paragraphs (d) and (e) of this Section 5,
Submitted Bids shall be accepted or rejected as follows in
the following order of priority and all other Submitted Bids
shall be rejected:
(i) the Submitted Sell Orders of Existing Holders
shall be accepted and Existing Holders' Submitted Bids
specifying any rate that is higher than the Winning Bid
Rate shall be accepted, thus requiring each such
Existing Holder to sell the shares of Series B MMP that
are the subject of such Submitted Sell Orders or
Submitted Bids;
(ii) Existing Holders' Submitted Bids specifying
any rate that is lower than the Winning Bid Rate shall
be rejected, thus entitling each such Existing Holder
to continue to hold the shares of Series B MMP that are
the subject of such Submitted Bids;
(iii) Potential Holders' Submitted Bids specifying
any rate that is lower than the Winning Bid Rate shall
be accepted;
(iv) each Existing Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be rejected, thus entitling such Existing Holder
to continue to hold the shares of Series B MMP that are
the subject of such Submitted Bid, unless the number of
Outstanding shares of Series B MMP subject to all such
Submitted Bids shall be greater than the number of
shares of Series B MMP ("remaining shares") equal to
the excess of the Available Series B MMP over the
number of shares of Series B MMP subject to Submitted
Bids described in clauses (ii) and (iii) of this
paragraph (a), in which event such Submitted Bid of
such Existing Holder shall be accepted in part, and
such Existing Holder shall be required to sell shares
of Series B MMP subject to such Submitted Bid, but only
in an amount equal to the difference between (A) the
number of Outstanding shares of Series B MMP then held
by such Existing Holder subject to such Submitted Bid
and (B) the number of shares of Series B MMP obtained
by multiplying the number of remaining shares by a
fraction the numerator of which shall be the number of
Outstanding shares of Series B MMP held by such
Existing Holder subject to such Submitted Bid and the
denominator of which shall be the aggregate number of
Outstanding shares of Series B MMP subject to such
Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate; and
(v) each Potential Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be accepted but only in an amount equal to the
number of shares of Series B MMP obtained by
multiplying the difference between the Available Series
B MMP and the number of shares of Series B MMP subject
to Submitted Bids described in clauses (ii), (iii) and
(iv) of this paragraph (a) by a fraction the numerator
of which shall be the number of Outstanding shares of
Series B MMP subject to such Submitted Bid and the
denominator of which shall be the aggregate number of
Outstanding shares of Series B MMP subject to such
Submitted Bids made by all such Potential Holders that
specified a rate equal to the Winning Bid Rate.
(b) If Sufficient Clearing Bids have not been made
(other than because all of the Outstanding shares of Series
B MMP are the subject of Submitted Hold Orders), subject to
the provisions of paragraph (d) of this Section 5, Submitted
Orders shall be accepted or rejected as follows in the
following order of priority and all other Submitted Bids
shall be rejected:
(i) Existing Holders' Submitted Bids specifying
any rate that is equal to or lower than the Maximum
Rate shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of Series B MMP
that are the subject of such Submitted Bids;
(ii) Potential Holders' Submitted Bids specifying
any rate that is equal to or lower than the Maximum
Rate shall be accepted; and
(iii) each Existing Holder's Submitted Bid
specifying any rate that is higher than the Maximum
Rate and the Submitted Sell Order of each Existing
Holder shall be accepted, but in both cases only in an
amount equal to the difference between (A) the number
of Outstanding shares of Series B MMP then held by such
Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (B) the number of shares of
Series B MMP obtained by multiplying the difference
between the Available Series B MMP and the aggregate
number of shares of Series B MMP subject to Submitted
Bids described in clauses (i) and (ii) of this
paragraph (b) by a fraction the numerator of which
shall be the number of Outstanding shares of Series B
MMP held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the
denominator of which shall be the aggregate number of
Outstanding shares of Series B MMP subject to all such
Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of Series B MMP
are the subject of Submitted Hold Orders, all Submitted Bids
shall be rejected.
(d) If, as a result of the procedures described in
paragraph (a) or (b) of this Section 5, any Existing Holder
would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a fraction
of a share of Series B MMP on any Auction Date, the Auction
Agent shall, in such manner as, in its sole discretion, it
shall determine, round up or down the number of shares of
Series B MMP to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date so that the number
of shares purchased or sold by each Existing Holder or
Potential Holder on such Auction Date shall be whole shares
of Series B MMP.
(e) If, as a result of the procedures described in
paragraph (a) of this Section 5, any Potential Holder would
be entitled or required to purchase less than a whole share
of Series B MMP on any Auction Date, the Auction Agent
shall, in such manner as, in its sole discretion, it shall
determine, allocate shares for purchase among Potential
Holders so that only whole shares of Series B MMP are
purchased on such Auction Date by any Potential Holder, even
if such allocation results in one or more of such Potential
Holders not purchasing shares of Series B MMP on such
Auction Date.
(f) Based on the results of each Auction, the Auction
Agent shall determine the aggregate number of shares of
Series B MMP to be purchased and the aggregate number of
shares of Series B MMP to be sold by Potential Holders and
Existing Holders on whose behalf each Broker-Dealer
submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate number of
shares to be purchased and such aggregate number of shares
to be sold differ, determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-
Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, shares of
Series B MMP.
6. Miscellaneous.
(a) The Board of Directors of the Corporation may
interpret the provisions of this Part II to resolve any
inconsistency or ambiguity which may arise or be revealed in
connection with the Auction Procedures provided for herein,
and if such inconsistency or ambiguity reflects an
inaccurate provision hereof, the Board of Directors of the
Corporation may, in appropriate circumstances, authorize the
filing of a Certificate of Correction.
(b) As long as no LIBOR Event has occurred, an
Existing Holder (i) may sell, transfer or otherwise dispose
of shares of Series B MMP only pursuant to a Bid or Sell
Order in accordance with the procedures described in this
Part II or to or through a Broker-Dealer or to a Person that
has delivered a signed copy of a Purchaser's Letter to the
Auction Agent, provided that in the case of all transfers
other than pursuant to Auctions, such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent
of such transfer, and (ii) shall have the ownership of the
shares of Series B MMP held by it maintained in book entry
form by the Securities Depository for the account of its
Agent Member, which in turn will maintain records of such
Existing Holder's beneficial ownership.
(c) Neither the Corporation nor any affiliate thereof
may submit an Order in any Auction except as set forth in
the next sentence. Any Broker-Dealer that is an affiliate
of the Corporation may submit Orders in Auctions but only if
such Orders are not for its own account, except that if such
affiliated Broker-Dealer holds shares of Series B MMP for
its own account, it must submit a Sell Order in the next
Auction with respect to such shares.
(d) Commencing with the first day of the first
Dividend Period for which the Applicable Rate is determined
by the formula of 150% of LIBOR, as set forth in
subparagraph (c)(i) of Section 2 of Part I hereof, the
Corporation or a designee thereof, at the option of the
Corporation, may perform any of the functions to be
performed by the Auction Agent set forth herein."
4. The Board of Directors by unanimous written
consent dated May 19, 1986 adopted the following resolution
authorizing the Finance Committee to act on behalf of the Board
of Directors in connection with the issuance of the Series B MMP:
"RESOLVED, that the Finance Committee be and hereby is
authorized and empowered with full power and authority to act on
behalf and in the stead of the Board of Directors in connection
with the issuance of the Series B MMP as herein designated and to
fix the initial dividend rate, the initial dividend payment date,
the price at which the Series B MMP will be sold by the
Corporation, and to declare dividends payable on the Series B
MMP."
5. The Finance Committee of the Board of Directors,
by unanimous written consent dated May 19, 1986, pursuant to the
authority conferred upon the Finance Committee as set forth
above, adopted the following resolution:
"RESOLVED, that the Exchangeable Money Market
Cumulative Preferred Stock, Series B (the 'Series B MMP') shall
bear the following terms:
(a) The dividend rate during the Initial Dividend
Period shall be equal to 4.85% per annum.
(b) The Initial Dividend Payment Date shall be July
15, 1986, subject to the exceptions set forth in
subparagraph (b)(i) of Section 2 of Part I of the resolution
of the Board of Directors of the Corporation adopted by
unanimous written consent dated May 19, 1986.
(c) The underwriting discounts and commissions in
respect of the public offering of the Series B MMP shall be
equal to $7,500 per share.
(d) All other terms and provisions of the Series B MMP
shall be as set forth in the resolutions adopted by the
Board of Directors of the Corporation by unanimous written
consent dated May 19, 1986."
IN WITNESS WHEREOF, the Corporation has caused its
corporate seal to be hereunto affixed and this Certificate to be
signed by S. M. Herman, its Vice President-General Counsel and
attested by R. C. Roselli, its Assistant Secretary, this 20th day
of May, 1986.
HOUSEHOLD FINANCE CORPORATION
By: /s/ S. M. Herman
--------------------------------
Vice President - General Counsel
[Corporate seal]
ATTEST:
/s/ R. C. Roselli
- -------------------
Assistant Secretary
<PAGE>
PURCHASER'S LETTER
Relating to
EXCHANGEABLE MONEY MARKET CUMULATIVE PREFERRED TM STOCK
or
SENIOR SUBORDINATED MONEY MARKET NOTES TM
of
HOUSEHOLD FINANCE CORPORATION
Household Finance Corporation
The Auction Agent
A Broker-Dealer
An Agent Member
c/o Manufacturers Hanover Trust Company
40 Wall Street
New York, New York 10015
Dear Sirs:
1. We may from time to time offer to purchase, purchase,
offer to sell and/or sell shares of Exchangeable Money Market
Cumulative Preferred Stock or Senior Subordinated Money Market
Notes (together with any other shares of preferred stock or notes
of Household Finance Corporation (the "Corporation") whose
dividend or interest rate, except in certain limited
circumstances, results from the periodic implementation of
certain auction procedures, the "MMP(TM)" or the MMNs(TM)", as
the case may be) of one or more series, issued by the
Corporation, as described in a prospectus relating to the MMP or
MMNs, including the Appendices thereto, as supplemented by a
prospectus supplement relating to any such series of MMP or MMNs
(together the "Prospectus"). We agree that this letter shall
apply to such purchases, sales, and offers and to MMP and MMNs
owned by us. We understand that the dividend rate on MMP or
interest rate on MMNs may be based from time to time of the
results of Auctions as set forth in the Prospectus.
2. We agree that any Bid or Sell Order placed by us shall
constitute an irrevocable offer by us to purchase or sell the MMP
or MMNs subject to such Bid or Sell Order at a price equal to
$500,000 per share in the case of MMP and at a price equal to the
principal amount thereof in the case of MMNs, as set forth in the
Prospectus, and that if we fail to place a Bid or Sell Order with
respect to MMP or MMNs owned by us with a Broker-Dealer on any
Auction Date or a Broker-Dealer to which we communicate a Bid or
Sell Order fails to submit such Bid or Sell Order to the Auction
Agent, we shall be deemed to have placed a Hold Order with
respect to such MMP or MMNs as described in the Prospectus. We
authorize any Broker-Dealer that submits a Bid or Sell Order as
our agent in Auctions to execute contracts for the sale of MMP or
MMNs covered by such Bid or Sell Order.
3. We agree that (x) with respect to the MMP of any
series, so long as the Corporation has not failed to pay in a
timely manner to the Auction Agent the full amount of any
dividend for MMP of such series or the redemption price of any
shares of MMP of such series called for redemption and (y) with
respect to the MMNs of any series, so long as no Payment Default
or Event of Default has occurred, dispositions of MMNs of such
series can be made only in denominations of $500,000 or an
integral multiple thereof and we will sell, transfer or otherwise
dispose of any shares of MMP or MMNs of such series held by us
from time to time only pursuant to a Bid or Sell Order placed in
an Auction, to or thorough a Broker-Dealer or to a person that
has signed and delivered to the Auction Agent a letter
substantially in the form of this letter, provided that in the
case of all transfers other than pursuant to Auctions we or our
Broker-Dealer or our Agent Member shall advise the Auction Agent
of such transfer. We understand that a restrictive legend will
be placed on certificates and stop-transfer instructions will be
issued to the transfer agent and the MMNs Registrar, all as set
forth in the Prospectus.
4. Our Agent Member of the Securities Depository, now DTC,
currently is ____________________________.
5. We agree, that, so long as an event described in clause
(x) or (y) of Paragraph 3 of this letter shall not have occurred,
ownership of MMP or MMNs of such series affected thereby, as the
case may be, will be maintained in book entry form by the
Securities Depository for the account of our Agent Member, which
in turn will maintain records of our beneficial ownership. We
authorize and instruct our Agent Member to disclose to the
Auction Agent such information concerning our beneficial
ownership of MMP and MMNs of such series as the Auction Agent
shall request.
6. We acknowledge that partial deliveries of MMP and MMNs
purchased in Auctions may be made to us and such deliveries shall
constitute good delivery as set forth in the Prospectus.
7. Our personnel authorized to place Orders with Broker-
Dealers for the purposes set forth in the Prospectus in Auctions
currently is/are ______________, telephone number (___)_______.
8. This letter is not a commitment by us to purchase any
shares of MMP or MMNs.
9. This letter supersedes any version of this letter
delivered by us and dated earlier than the date hereof.
Terms used in this letter, unless otherwise defined, shall
have the meanings set forth in the Prospectus.
____________________________
(Name of Purchaser)
By: ____________________________
Printed Name: ____________________________
Title: ____________________________
Mailing Address of Purchaser: ____________________________
Dated: _____________________
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATES OF DESIGNATIONS
OF
EXCHANGEABLE MONEY MARKET CUMULATIVE PREFERREDTM STOCK,
SERIES A AND SERIES B
OF
HOUSEHOLD FINANCE CORPORATION
Household Finance Corporation, a corporation organized and
existing under the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify:
FIRST: That the Certificate of Designations for the
Exchangeable Money Market Cumulative PreferredTM Stock, Series A,
of said Corporation has been amended by inserting the following
paragraph at the end of the definition of "'AA' Rate Multiple"
appearing in Section 1 of Part II of the Certificate of
Designations:
"Notwithstanding the above, the "'AA' Rate Multiple,"
on any Auction Date occurring on or after February 4, 1991,
shall mean the percentage determined as set forth below
based on the prevailing rating of Series A MMP in effect at
the close of business on the Business Day immediately
preceding such Auction Date:
Prevailing Rating Percentage
A/A or Above................. 200%
BBB/baa...................... 225%
Below BBB/baa................ 250%
For purposes of this definition, the "prevailing rating" of
Series A MMP shall be (i) A/a or Above if Series A MMP has a
rating of A- or better by S&P or a3 or better by Moody's, or
the equivalent of either or both of such ratings by such
agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (ii) if not A/a or
Above, then BBB/baa if Series A MMP has a rating of BBB- or
better and lower than A- by S&P or baa3 or better and lower
than a3 by Moody's or the equivalent of either or both of
such ratings by such agencies or a substitute rating agency
or substitute rating agencies selected as provided below,
and (iii) if not A/a or Above or BBB/baa, then Below
BBB/baa. The Corporation shall take all reasonable action
necessary to enable S&P and Moody's to provide a rating for
Series A MMP. If either S&P or Moody's shall not make such
a rating available, or neither S&P nor Moody's shall make
such a rating available, Shearson Lehman Brothers Inc. or
its successor shall select a nationally recognized
statistical rating organization (as that term is used in the
rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended) or two nationally recognized statistical rating
organizations to act as a substitute rating agency or
substitute rating agencies, as the case may be, and the
Corporation shall take all reasonable action to enable such
rating agency or rating agencies to provide a rating or
ratings for the Series A MMP."
SECOND: That the Certificate of Designations for the
Exchangeable Money Market Cumulative PreferredTM Stock, Series B,
of said Corporation has been amended by inserting the following
paragraph at the end of the definition of "'AA' Rate Multiple"
appearing in Section 1 of Part II of the Certificate of
Designations:
"Notwithstanding the above, the "'AA' Rate Multiple,"
on any Auction Date occurring on or after February 4, 1991,
shall mean the percentage determined as set forth below
based on the prevailing rating of Series B MMP in effect at
the close of business on the Business Day immediately
preceding such Auction Date:
Prevailing Rating Percentage
A/A or Above................. 200%
BBB/baa...................... 225%
Below BBB/baa................ 250%
For purposes of this definition, the "prevailing rating" of
Series B MMP shall be (i) A/a or Above if Series B MMP has a
rating of A- or better by S&P or a3 or better by Moody's, or
the equivalent of either or both of such ratings by such
agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (ii) if not A/a or
Above, then BBB/baa if Series B MMP has a rating of BBB- or
better and lower than A- by S&P or baa3 or better and lower
than a3 by Moody's or the equivalent of either or both of
such ratings by such agencies or a substitute rating agency
or substitute rating agencies selected as provided below,
and (iii) if not A/a or Above or BBB/baa, then Below
BBB/baa. The Corporation shall take all reasonable action
necessary to enable S&P and Moody's to provide a rating for
Series B MMP. If either S&P or Moody's shall not make such
a rating available, or neither S&P nor Moody's shall make
such a rating available, Shearson Lehman Brothers Inc. or
its successor shall select a nationally recognized
statistical rating organization (as that term is used in the
rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended) or two nationally recognized statistical rating
organizations to act as s substitute rating agency or
substitute rating agencies, as the case may be, and the
Corporation shall take all reasonable action to enable such
rating agency or rating agencies to provide a rating or
ratings for the Series B MMP."
THIRD: That the aforesaid amendments of the Certificates of
Designations for the Exchangeable Money Market Cumulative
PreferredTM Stock, Series A and B of said Corporation, set forth
in Paragraphs FIRST and SECOND hereinabove, have been approved by
the Corporation's Board of Directors and duly adopted by written
consent of said Corporation's stockholders required to give such
consent in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware and prompt
written notice of the approval of the above amendment has been
given to stockholders who did not consent in writing.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunto affixed and this certificate to be signed by
R. W. Mitchell, its Vice President and Treasurer, and R. C.
Roselli, its Assistant Secretary, this 1st day of February, 1991.
HOUSEHOLD FINANCE CORPORATION
[SEAL]
By: /s/ R. W. Mitchell
----------------------------
Vice President and Treasurer
Attest:
/s/ R. C. Roselli
- -------------------
Assistant Secretary<PAGE>
HOUSEHOLD FINANCE CORPORATION
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
7-1/4% CUMULATIVE PREFERRED STOCK, SERIES 1992-A
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
HOUSEHOLD FINANCE CORPORATION, a corporation organized and
existing under the laws of the State of Delaware (the
"Corporation"), HEREBY CERTIFIES that the following resolutions
were duly adopted by the Board of Directors of the Corporation,
pursuant to authority conferred upon the Board of Directors by
the provisions of the Restated Certificate of Incorporation of
the Corporation which authorizes the issuance of up to 1,000
shares of preferred stock, without par value:
"RESOLVED, that a new series of preferred stock of the
Corporation is hereby created and established and authorized to
be issued, and the designation and amount thereof and the voting
powers, preferences and relative, participating and other special
rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
1. Designation: Amount, Series and Ranking. The series of
preferred stock created hereby shall comprise 333-1/3 shares of
7-1/4% Cumulative Preferred Stock, Series 1992-A, without par
value, and a stated value of $300,000 per share (referred to as
the "Preferred 1992-A"). The Preferred 1992-A shall rank on a
parity with the shares of the Exchangeable Money Market
Cumulative Preferred Stock, Series A ("Series A MMP") and shares
of the Exchangeable Money Market Cumulative Preferred Stock,
Series B (the "Series B MMP", together with the Series A MMP, the
"Money Market Preferred") as to payment of dividends and
distribution of assets upon liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, and
shall rank prior to the Corporation's Common Stock.
2. Dividends. (a) The holders of shares of the Preferred
1992-A shall be entitled to receive cash dividends, when, as and
if declared by the Board of Directors of the Corporation, out of
assets legally available for the purpose, at the rate determined
as provided below. Such dividends shall be cumulative from the
date of original issue of such shares and shall be payable
quarterly in arrears, on the fifteenth day of February, May,
August and November in each year (commencing August 15, 1992) to
Holders of record on the last business day of the preceding
month. The regular quarterly dividend periods shall commence on
the first day of February, May, August and November. Dividends
accruing from August 1, 1997, to the mandatory redemption date of
August 15, 1997, will be paid to Holders of the Preferred 1992-A
who are entitled to receive the mandatory redemption price.
Dividends on the Preferred 1992-A for all quarterly dividend
periods will be payable at the rate of 7.25% per annum, applied
to the stated value of $300,000 per share of Preferred 1992-A.
The amount of dividends payable on each share of Preferred 1992-A
for each full quarterly dividend period shall be computed by
dividing the dividend rate by four and applying the dividend rate
to the stated value of $300,000 per share. The amount of
dividends payable for the initial dividend period and any
dividend period shorter than a full quarterly dividend period
shall be computed on the basis of 30-day months and a 360-day
year, and, in the case of an incomplete month, the actual number
of days elapsed in that month.
(b)(i) No dividends shall be declared or paid or set apart
for payment on the shares of the Preferred 1992-A for any period
unless dividends (whether full or pro rata) have been or
contemporaneously are declared or paid or set apart for payment
on shares of preferred stock ranking on a parity with the
Preferred 1992-A as to payment of dividends, and no dividend
shall be declared or paid or set apart for payment on the shares
of preferred stock ranking on a parity with the Preferred 1992-A
as to payment of dividends for any period unless dividends
(whether full or pro rata) have been or contemporaneously are
declared or paid or set apart for payment on the Preferred 1992-
A, through the most recent applicable dividend payment dates for
such shares of preferred stock and the Preferred 1992-A. Holders
of Preferred 1992-A shall be entitled to receive dividends before
any dividends are declared or paid or set apart for payment upon
the Corporation's Common Stock. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend
payment or payments on the shares of Preferred 1992-A which may
be arrears.
(ii) The Corporation shall have the right to purchase or
otherwise acquire any shares of Preferred 1992-A , shares of its
Common Stock or shares of any other series of preferred stock in
the open market at any price so long as the Corporation is
current in the payment of dividends on the shares of the
Preferred 1992-A. Any shares of Preferred 1992-A purchased or
otherwise acquired by the Corporation shall not be resold and
shall be retired and canceled, and shall be restored to the
status of authorized but unissued shares of the class of the
Corporation's preferred stock without designation as to series,
and may thereafter be issued as new preferred stock.
3. Mandatory Redemption. On August 15, 1997, to the
extent funds are legally available therefor, the Corporation
shall redeem all of the outstanding shares of Preferred 1992-A at
a redemption price of $300,000 per share plus an amount equal to
accrued and unpaid dividends to the date of mandatory redemption.
The Preferred 1992-A shall not be redeemable at the option of the
Corporation prior to August 15, 1997.
If funds required for the mandatory redemption of all of the
shares of Preferred 1992-A are not available on the mandatory
redemption date, the Preferred 1992-A shall remain outstanding
until such time as funds are legally available for payment of the
redemption price. If payment of the redemption price is not made
when due, dividends will continue to accrue on the Preferred
1992-A until funds are available for payment of the redemption
price and such redemption price is paid.
Notice of mandatory redemption shall be mailed by first
class mail, postage prepaid, to each Holder of the shares to be
redeemed, at such Holder's address as the same appears on the
stock books of the Corporation. Such notice shall be so mailed
not less than 30 nor more than 45 days prior to the date fixed
for redemption. Each such notice shall state: (i) the redemption
date; (ii) the redemption price; (iii) the place or places where
certificates for such shares of Preferred 1992-A are to be
surrendered for payment of the redemption price and (iv) that
dividends on the shares to be redeemed will cease to accrue on
such redemption date.
If notice of redemption has been given under this Section 3,
from and after the redemption date for the shares of Preferred
1992-A called for redemption (unless default shall be made by the
Corporation in providing money for the payment of the redemption
price of the shares so called for redemption), dividends on the
shares of Preferred 1992-A so called for redemption shall cease
to accrue and said shares shall no longer be deemed to be
outstanding, and all rights of the Holders thereof as
stockholders of the Corporation (except the right to receive the
redemption price) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the notice shall
so state), the redemption price set forth above shall be paid by
the Transfer Agent (or by such other bank or trust company
designated by the Board of Directors) to the Holders of the
shares of Preferred 1992-A subject to redemption.
4. Liquidation Rights. (a) In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation, Holders of Preferred 1992-A shall be entitled to
receive, out of assets of the Corporation available for
distribution to stockholders after satisfying claims of creditors
but before any distribution of assets is made to holders of the
Common Stock or on any other class of stock ranking junior to the
shares of Preferred 1992-A upon liquidation, a liquidating
distribution in the amount of $300,000 per share plus an amount
equal to accrued and unpaid dividends for the then current
dividend period and all dividend periods prior thereto. Unless
and until payment in full has been made to Holders of the
Preferred 1992-A of the liquidating distributions to which they
are entitled as provided in this Section 4, no liquidating
distributions shall be made to holders of the Common Stock or any
stock ranking junior to the shares of Preferred 1992-A as to such
distribution of assets. After payment of the full amount of the
liquidating distributions to which they are entitled pursuant to
the preceding sentence, Holders (in their capacity as such
Holders) shall not be entitled to any further participation in
any distribution of assets of the Corporation.
(b) Neither the sale, lease or exchange (for cash, stock,
securities or other consideration) of all or substantially all of
the property and assets of the Corporation, nor the merger or
consolidation of the Corporation with or into any other
corporation, nor the merger or consolidation of any other
corporation with or into the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 4.
(c) If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the amounts payable
with respect to the Preferred 1992-A pursuant to Section 4(a)
above are not paid in full, the Holders of the Preferred 1992-A
shall share ratably in any such distribution with all holders of
shares of other preferred stock ranking on a parity with the
shares of Preferred 1992-A as to the distribution of assets, in
proportion to the full distributable amounts to which holders of
all such parity shares are entitled upon such distribution of
assets.
5. Voting Rights. Except as otherwise required by
applicable law and by Article IV of the Corporation's Restated
Certificate of Incorporation, Holders of the Preferred 1992-A
shall have no voting rights, either general or special, other
than those set forth below:
(a) If at the time of any annual meeting of stockholders
for the election of directors of the Corporation, the Corporation
shall have failed to pay any six quarterly accrued dividends
(which shall be deemed to include dividends in respect of a
number of non-quarterly dividend periods containing not less than
540 days), whether consecutive or not, payable upon the Preferred
1992-A, the Money Market Preferred or any series of preferred
stock of the Corporation ranking on a parity with the Preferred
1992-A, either as to payment of dividends or distribution of
assets and upon which is granted the right to vote together with
such Preferred 1992-A and Money Market Preferred as a single
class on the election of directors (collectively the "Voting
Parity Preferred Stock"), the number of directors constituting
the Board of Directors of the Corporation shall be increased by
two, and the holders of the Voting Parity Preferred Stock of all
series shall have the right at such meeting, voting together as a
single class without regard to series, to the exclusion of the
holders of the Common Stock and any other class of capital stock
of the Corporation that is not Voting Parity Preferred Stock, to
elect two directors of the Corporation to fill such newly created
directorships. Such right shall continue until such time as all
dividends accumulated on such shares of Voting Parity Preferred
Stock of any and all series shall have been paid in full, at
which time such right shall terminate, except as by law expressly
provided, subject to revesting in the event of each and every
subsequent failure to pay such six quarterly accrued dividends.
Upon any such termination of the right of the holders of shares
of Voting Parity Preferred Stock to vote as a class for directors
as herein provided, the term of office of each director then in
office elected by such holders voting as a class (herein called a
"Preferred Director") shall terminate immediately.
(b) Removal of Preferred Directors. Preferred Directors
shall (subject to the provisions of any applicable law) be
subject to removal only by the vote of the holders of record of a
majority of the outstanding shares of Voting Parity Preferred
Stock, voting together as a single class, without regard to
series, at a meeting of the Corporation's stockholders, or of the
holders of shares of Voting Parity Preferred Stock called for
such purpose. So long as the right to elect Preferred Directors
by the holders of the Voting Parity Preferred Stock shall exist
(A) any vacancy in the office of a Preferred Director may be
filled (except as provided in the following clauses (B)) by a
person appointed by an instrument in writing signed by the
remaining Preferred Director and filed with the Corporation and
(B) in the case of the removal of any Preferred Director, the
vacancy may be filled by a person elected by the vote of the
holders of the outstanding shares of Voting Parity Preferred
Stock, voting together as a single class without regard to
series, at the same meeting at which such removal shall be voted
or at any subsequent meeting. Each director appointed as
aforesaid by the remaining Preferred Director shall be deemed,
for all purposes hereof, to be a Preferred Director. Whenever
the right to elect Preferred Directors by the holders of the
Voting Parity Preferred Stock no longer exists, the term of
office of the Preferred Directors shall end and the number of
directors constituting the Board of Directors of the Corporation
shall be reduced by two.
(c) Right to Vote in Certain Events. (i) Unless the vote
or consent of the holders of a greater number of shares shall
then be required by law, the consent of the holders of at least
66-2/3% of all of the shares of the Preferred 1992-A, the Money
Market Preferred and any other shares of preferred stock which
may hereafter be issued and rank on a parity with the Preferred
1992-A, either as to payment of dividends or the distribution of
assets, and upon which are conferred the right to vote together
with the Preferred 1992-A and Money Market Preferred as a single
class on the matters set forth in subparagraphs (i) and (ii) of
this Section 5(c) (the "Parity Stock"), at the time outstanding,
given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of shares of
the Preferred 1992-A, Money Market Preferred and the Parity Stock
shall vote together as a single class, shall be necessary for
authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of the Restated Certificate of
Incorporation or of any certificate amendatory thereof or
supplemental thereto (including any Certificate of Designations
or any similar document relating to any series of preferred
stock) which would adversely affect the preferences, powers,
rights or privileges of the Preferred 1992-A, Money Market
Preferred and the Parity Stock; provided, however, that if any
such amendment, alteration or repeal would adversely affect the
preferences, powers, rights or privileges of one or more but not
all of the Money Market Preferred, Preferred 1992-A and the
Parity Stock, then only the vote or consent of the outstanding
shares of all series of the Money Market Preferred, Preferred
1992-A and the Parity Stock so affected, voting as a single
class, shall be required; provided, further, that any increase or
decrease in the amount of authorized preferred stock or the
creation and issuance of other series of preferred stock, or any
increase in the amount of authorized shares or issued shares of
Preferred 1992-A, Money Market Preferred or the Parity Stock or
of any other series of preferred stock, in each case ranking on a
parity with or junior to the Preferred 1992-A, Money Market
Preferred and the Parity Stock with respect to the payment of
dividends or the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and
adversely affect the preference, powers, rights or privileges of
the Preferred 1992-A, Money Market Preferred and the Parity
Stock; and
(ii) Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the consent of
the holders of at least 66-2/3% of all of the shares of the
Preferred 1992-A, Money Market Preferred and the Parity Stock, at
the time outstanding, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which
the holders of shares of the Preferred 1992-A, Money Market
Preferred and Parity Stock shall vote together as a single class
without regard to series, shall be necessary for authorizing,
effecting or validating the creation, authorization or issuance
of any shares of any class of stock of the Corporation ranking
prior to the shares of the Preferred 1992-A, Money Market
Preferred and the Parity Stock as to payment of dividends or
distribution of assets, or the reclassification of any authorized
stock of the Corporation into any such prior shares, or the
creation, authorization or issuance of any obligation or security
convertible into or evidencing the right to purchase any such
prior shares.
(d) No Right to Vote in Certain Events. With respect to
any right of the Holders of shares of Preferred 1992-A to vote on
any matter, whether such right is created by this Certificate of
Designation, Preferences and Rights, by applicable law or
otherwise, no Holder of any share of Preferred 1992-A shall be
entitled to vote and no share of Preferred 1992-A shall be deemed
to be outstanding for the purpose of voting or determining the
number of shares required to constitute a quorum, if prior to or
concurrently with a determination of shares entitled to vote or
of shares deemed outstanding for quorum purposes, as the case may
be, such share is held beneficially or of record by the
Corporation.
In accordance with the provisions set forth herein, each
Holder of the Preferred 1992-A shall be entitled to one vote for
each share of Preferred 1992-A beneficially owned by such Holder
on the appropriate record date.
6. Exclusive Remedy. In the event that dividends are not
timely declared on the shares of Preferred 1992-A, the exclusive
remedy of the Holders against the Corporation shall be as set
forth in this Certificate of Designation, Preferences and Rights
and in no event shall Holders of such shares have any right to
maintain a suit or proceeding against the Corporation in respect
of such dividends or damages for the failure to receive the same
or resulting from such noncompliance.
7. Definitions. Unless the context or use indicates
another or different meaning or intent, the following terms shall
have the following meanings, whether used in the singular or
plural:
"Common Stock" means all shares now or hereafter issued of
any class of common stock of the Corporation presently authorized
and any other shares of stock into which such stock may
hereinafter be changed from time to time.
"Holder" means the holder of shares of the Corporation's
Preferred 1992-A as the same appears on the stock books of the
Corporation.
"Transfer Agent" means Mellon Bank, N.A., unless or until
another bank or trust company has been appointed as such by a
resolution of the Board of Directors of the Corporation."
IN WITNESS WHEREOF, HOUSEHOLD FINANCE CORPORATION, has
caused this Certificate to be made under the seal of the
Corporation and signed by J.W. Hoff, its Vice President-Finance,
and attested by J.W. Blenke, its Assistant Secretary, this 9th
day of July, 1992.
HOUSEHOLD FINANCE CORPORATION
By: /s/ Joseph W. Hoff
---------------------
Vice President-Finance
(Corporate Seal)
ATTEST:
By: /s/ John W. Blenke
-------------------
Assistant Secretary
U:\WP\EMP819\EDGAR\FRCOI.WP
EXHIBIT 12
-----------
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
All dollar amounts are stated in millions.
Three months ended March 31 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Net income $ 89.1 $ 79.0
Income taxes 49.5 31.4
------ ------
Income before income taxes 138.6 110.4
------ ------
Fixed charges:
Interest expense <F1> 240.2 200.3
Interest portion of rentals <F2> 5.3 5.2
------ ------
Total fixed charges 245.5 205.5
------ ------
Total earnings as defined $384.1 $315.9
====== ======
Ratio of earnings to fixed charges 1.56 1.54
====== ======
Preferred stock dividends <F3> $ 2.8 $ 2.5
====== ======
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.55 1.52
====== ======
<FN>
<F1> For financial statement purposes, interest expense includes income
earned on temporary investment of excess funds, generally resulting
from over-subscriptions of commercial paper.
<F2> Represents one-third of rentals, which approximates the portion
representing interest.
<F3> Preferred stock dividends are grossed up to their pretax equivalent
based upon an effective tax rate of 35.7 and 28.4 percent for the
three months ended March 31, 1997 and 1996, respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SUMMARY FINANCIAL INFORMATION OF THE COMPANY AND ITS
SUBSIDIARIES IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES &
EXCHANGE COMMISSION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 273,400
<SECURITIES> 1,649,400
<RECEIVABLES> 15,390,900
<ALLOWANCES> 1,318,500
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 540,100
<DEPRECIATION> 279,300
<TOTAL-ASSETS> 20,161,500
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,702,000
0
100,000
<COMMON> 1
<OTHER-SE> 2,581,100
<TOTAL-LIABILITY-AND-EQUITY> 20,161,500
<SALES> 0
<TOTAL-REVENUES> 926,600
<CGS> 0
<TOTAL-COSTS> 321,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 233,500
<INTEREST-EXPENSE> 233,200
<INCOME-PRETAX> 138,600
<INCOME-TAX> 49,500
<INCOME-CONTINUING> 89,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,100
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH
FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S
BALANCE SHEETS WERE NON-CLASSIFIED.
</FN>
</TABLE>
EXHIBIT 99.1
-------------
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
DEBT AND PREFERRED STOCK SECURITIES RATINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Standard Moody's Fitch Duff & Phelps
& Poor's Investors Investors Credit Thomson
Corporation Service Services Rating Co. BankWatch
- ------------------------------------------------------------------------------------------------------------
At March 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Household Finance Corporation
Senior A A2 A+ A+ A+
Senior subordinated A- A3 A A A
Commercial paper A-1 P-1 F-1 Duff 1+ TBW-1
Preferred stock A- a3 A A- A-
------ ------ ------ ------- ------
Household Bank (Nevada), N.A.
Senior A A2 A+ A+ NR
- ------------------------------------------------------------------------------------------------------------
</TABLE>
