<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1996
REGISTRATION NO. 333-817
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ASSOCIATES FIRST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6141 06-0876639
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation) Classification Code Number) Identification No.)
</TABLE>
250 E. CARPENTER FREEWAY
IRVING, TEXAS 75062-2729
(214) 541-4000
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
CHESTER D. LONGENECKER, ESQ.
250 E. CARPENTER FREEWAY
IRVING, TEXAS 75062-2729
(214) 541-4000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
DAVID J. SORKIN, ESQ. ARBIE R. THALACKER, ESQ.
SIMPSON THACHER & BARTLETT STUART K. FLEISCHMANN, ESQ.
425 LEXINGTON AVENUE SHEARMAN & STERLING
NEW YORK, NEW YORK 10017-3954 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022-6069
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$.01 per share............... 69,000,000 $28.00 $1,932,000,000 $666,207(3)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 9,000,000 shares of Class A Common Stock which the Underwriters
have the option to purchase to cover over-allotments, if any. The shares of
Class A Common Stock are not being registered for the purpose of sales
outside the United States.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The Registrant previously paid $34,483 upon the original filing of this
Registration Statement on February 9, 1996 and so is submitting herewith the
net amount of $631,724.
-------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
ASSOCIATES FIRST CAPITAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ --------------------------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back
Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors;
Selected Supplemental Combined
Financial Data
4. Use of Proceeds.................................... Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price.................... Outside Front Cover Page;
Underwriting
6. Dilution........................................... *
7. Selling Security Holders........................... *
8. Plan of Distribution............................... Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered......... Outside Front Cover Page;
Prospectus Summary; Description
of Capital Stock
10. Interests of Named Experts and Counsel............. Legal Matters; Experts
11. Information with Respect to the Registrant......... Outside Front Cover Page; Risk
Factors; Dividend Policy;
Capitalization; Selected
Supplemental Combined Financial
Data; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Relationship with Ford;
Management; Ownership of Common
Stock; Shares Available for
Future Sale; Description of
Capital Stock; Description of
Certain Indebtedness;
Supplemental Combined Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
</TABLE>
- ---------------
* Omitted from Prospectus because item is inapplicable.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 27, 1996
60,000,000 SHARES
LOGO
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
---------------------
Of the 60,000,000 shares of Class A Common Stock offered, 51,000,000 shares
are being offered hereby in the United States and 9,000,000 shares are being
offered in a concurrent international offering outside the United States. The
initial public offering price and the aggregate underwriting discount per share
will be identical for both Offerings. See "Underwriting".
The shares of Class A Common Stock offered hereby are being offered by the
Company, which is an indirect, wholly-owned subsidiary of Ford Motor Company.
Upon completion of the Offerings, Ford will own 30.1% of the outstanding Class A
Common Stock (27.3% if the Underwriters' over-allotment options are exercised in
full) and will indirectly own 100% of the outstanding shares of Class B Common
Stock of the Company (which have five votes per share), a class of common stock
separate from the Class A Common Stock (which has one vote per share). Following
the Offerings, the outstanding shares of Class A Common Stock to be offered in
the Offerings will represent 4.4% of the combined voting power of all classes of
voting stock and 17.7% of the economic interest (or rights of holders of common
equity to participate in distributions in respect of the common equity) in the
Company (5.1% and 19.8%, respectively, if the Underwriters' over-allotment
options are exercised in full). The remainder of the voting power and economic
interest in the Company will be held by Ford. See "Risk Factors -- Control by
and Relationship with Ford" and "Description of Capital Stock".
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. It is currently estimated that the initial public
offering price per share of Class A Common Stock offered hereby will be between
$25.00 and $28.00. For factors to be considered in determining the initial
public offering price, see "Underwriting".
Shares of Class A Common Stock are being reserved for sale to certain
employees and retirees of the Company and its affiliates at the initial public
offering price. See "Underwriting". It is expected that such employees and
retirees will purchase, in the aggregate, less than 10% of the Class A Common
Stock offered in the Offerings.
SEE "RISK FACTORS", BEGINNING ON PAGE 12, FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange, upon notice of issuance, under the symbol "AFS".
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ----------- -----------
<S> <C> <C> <C>
Per Share........................................................ $ $ $
Total(3)......................................................... $ $ $
</TABLE>
- ---------------
(1) The Company and Ford have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting".
(2) Before deducting estimated expenses of $4,000,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 7,650,000 shares of Class A Common Stock at the initial
public offering price, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted an over-allotment
option with respect to an additional 1,350,000 shares of Class A Common
Stock as part of the international offering. If such options are exercised
in full, the total initial public offering price, underwriting discount and
proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting".
-------------------------
GLOBAL COORDINATORS
GOLDMAN, SACHS & CO.
-------------------------
The shares of Class A Common Stock offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York, on or about , 1996, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MERRILL LYNCH & CO.
J. P. MORGAN & CO.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
---------------------
The date of this Prospectus is , 1996.
<PAGE> 4
[THE ASSOCIATES LOGO] ASSOCIATES FIRST CAPITAL CORPORATION
[PICTURE] [PICTURE]
TRUCK AND TRUCK TRAILER HOME EQUITY LOANS
FINANCING AND LEASING
[PICTURE] [PICTURE]
INTERNATIONAL MARKETS CREDIT CARDS
CONSUMER FINANCE NAME PLATES
[FORD CONSUMER FINANCE [THE ASSOCIATES [FIRST FAMILY FINANCIAL SERVICES
LOGO] LOGO] LOGO]
[ALLIED FINANCE LOGO] [KFC LOGO] [TRANSOUTH LOGO]
[THE ASSOCIATES LOGO]
<PAGE> 5
<TABLE>
<S> <C>
[THE ASSOCIATES LOGO] ASSOCIATES FIRST CAPITAL CORPORATION CANADA
[MAP]
PRODUCTS AND
SERVICES
CONSUMER
- - Home Equity Lending
- - Personal Loans
- - Retail Sales Finance Contracts
- - Credit Cards [MAP]
COMMERCIAL
- - Truck and Truck Trailer
Financing and Leasing
- - Equipment Financing and Leasing
- - Manufactured Housing Financing
- - Fee Based Services
RELATED INSURANCE
JAPAN UNITED KINGDOM
[MAP] [MAP]
HAWAII PUERTO RICO
[MAP] [MAP]
OFFICE LOCATIONS MEXICO
O CONSUMER OFFICES [MAP]
U.S. 1,467
International 400
TOTAL 1,867 O DENOTES NUMBER OF CONSUMER OFFICES
[] DENOTES NUMBER OF COMMERCIAL OFFICES
[] COMMERCIAL OFFICES
U.S. 76
International 4
TOTAL 80
</TABLE>
<PAGE> 6
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
DURING THE OFFERINGS, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
---------------------
FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF
THIS DOCUMENT.
3
<PAGE> 7
AVAILABLE INFORMATION
Associates First Capital Corporation (the "Company") has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-1 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations thereunder, for
the registration of the Class A Common Stock offered hereby. This Prospectus,
which forms a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain parts of which have
been omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Class A Common Stock
offered hereby, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made. The Registration Statement can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange, upon notice of issuance, under the symbol "AFS". Copies of the
Registration Statement, including all exhibits thereto, and reports and other
information are available for inspection and copying at the office of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005.
The Company is currently subject to abbreviated informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") in
accordance with General Instruction J.(1)(a) and (b) to Form 10-K and in
accordance therewith files reports and other information with
the Commission. Such reports and other information can be inspected and copied
at the offices of the Commission set forth above. Copies of such material can be
obtained from the Public Reference Section of the Commission at the address set
forth above at prescribed rates. As a result of the Offerings (as defined
herein), the Company will become subject to the full informational requirements
of the Exchange Act. The Company will fulfill its obligations with respect to
such requirements by filing periodic reports and other information with the
Commission. In addition, the Company intends to furnish its stockholders with
annual reports containing consolidated financial statements certified by an
independent public accounting firm and quarterly reports containing unaudited
consolidated financial information for the first three quarters of each fiscal
year.
---------------------
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any shares of Class A Common Stock in any jurisdiction in which
such offer or solicitation is unlawful. See "Underwriting".
In this Prospectus, references to "Dollars" and to "$" are to United States
dollars.
4
<PAGE> 8
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and supplemental combined financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless the context otherwise requires, (i) the "Company" means Associates First
Capital Corporation and its consolidated subsidiaries after giving effect to the
recontribution by Ford of certain non-U.S. subsidiaries described below under
"The Company", (ii) "ACONA" means Associates Corporation of North America, the
Company's principal operating subsidiary, (iii) "Ford" means Ford Motor Company
and its consolidated subsidiaries (other than the Company) and (iv) the
information contained in this Prospectus assumes that the Class A Common Stock
offered hereby will be sold in the Offerings at $26.50 per share (the mid-point
of the range set forth on the cover page of this Prospectus) and that the
Underwriters' over-allotment options are not exercised. Unless otherwise defined
herein, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Prospectus. For a description of certain
terms and phrases in this Prospectus, see "Glossary" at the end of this
Prospectus. Terms and phrases set forth in the Glossary are printed in bold face
type the first time they appear in this Prospectus. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS".
THE COMPANY
The Company is a leading, diversified consumer and commercial finance
organization which provides finance, leasing and related services to
approximately 9.4 million individual consumers and 143,000 businesses in the
United States and internationally. At or for the year ended December 31, 1995,
the Company had aggregate NET FINANCE RECEIVABLES of $39.7 billion, total assets
of $41.3 billion, net earnings of $723.1 million and stockholder's equity of
$4.8 billion. The Company, through its predecessors, commenced operations in
1918 and was acquired by Ford in 1989. The Company believes that it is the
second largest INDEPENDENT FINANCE COMPANY in the United States based on
aggregate net finance receivables outstanding. The Company's operations outside
the United States are conducted principally in Japan ($2.1 billion of net
finance receivables) and are also conducted in, among other places, the United
Kingdom and Canada. The current credit ratings for the long-term debt of ACONA,
through which the Company conducts substantially all of its funding activities,
are Aa3 and AA- as determined by MOODY'S and STANDARD & POOR'S, respectively,
and those of the Company are A1 and A+.
Through various economic conditions and interest rate environments, the
Company has produced growth in pre-tax earnings for twenty-one consecutive
years. As the following graph depicts, over this period, pre-tax earnings have
grown at a compound annual rate in excess of 22% to $1.2 billion for the year
ended December 31, 1995. Such growth resulted principally from internal
expansion (through, among other things, branch openings, new lines of business
and geographic expansion) as well as selective acquisitions.
PRE-TAX EARNINGS TREND(1)
(DOLLARS IN MILLIONS)
LOGO
(1) 1990 and 1991 pre-tax earnings exclude non-recurring
interest expense. See the immediately following
financial information and note (4) thereto.
5
<PAGE> 9
The table below sets forth certain financial information (dollars in
millions):
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31(1)
---------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
CONSUMER NET FINANCE RECEIVABLES:
Home equity lending.............. $ 14,386.2 $ 12,349.9 $ 10,619.7 $ 9,630.1 $ 8,249.1
Personal lending and retail sales
finance....................... 6,117.6 5,304.2 4,354.2 3,640.2 3,224.2
Credit card...................... 4,818.6 3,915.5 3,104.8 2,614.6 2,668.4
COMMERCIAL NET FINANCE RECEIVABLES:
Truck and truck trailer.......... $ 7,648.4 $ 6,681.5 $ 5,540.0 $ 4,350.7 $ 4,000.3
Equipment........................ 3,827.2 2,987.4 2,464.5 2,290.6 2,157.9
Manufactured housing(2).......... 2,034.1 1,669.2 1,290.2 983.9 697.2
Other(3)......................... 416.3 336.5 345.3 324.7 269.8
TOTAL NET FINANCE RECEIVABLES...... 39,702.5 33,685.7 28,294.7 24,371.0 21,672.8
TOTAL ASSETS....................... 41,303.9 35,283.5 30,039.6 25,996.3 23,523.5
STOCKHOLDER'S EQUITY............... 4,801.1 4,436.8 3,774.3 3,231.1 3,061.0
NET EARNINGS(4).................... 723.1 603.3 494.0 410.1 311.9
RETURN ON AVERAGE ASSETS(4)........ 1.89% 1.85% 1.76% 1.66% 1.40%
RETURN ON AVERAGE EQUITY(4)........ 15.66 14.70 14.10 13.04 12.49
RETURN ON AVERAGE TANGIBLE
EQUITY(4)........................ 21.90 21.71 22.31 22.15 24.59
</TABLE>
- ---------------
(1) Amounts in this table reflect the inclusion of certain non-U.S. subsidiaries
of Ford which are expected to be recontributed to the Company prior to the
completion of the Offerings. Such subsidiaries were owned by the Company
prior to its acquisition by Ford and have been continuously managed by the
Company since such acquisition. These subsidiaries had total assets of $4.1
billion at December 31, 1995. See "-- Relationship with Ford" and "The
Company".
(2) Manufactured housing operations are discussed in this Prospectus as part of
the Company's commercial activities because the marketing and management of
manufactured housing products are more closely related to commercial finance
products. See "Business -- Commercial Finance". Except as otherwise
indicated, the dollar amount of manufactured housing receivables is included
in the dollar amount of total consumer net finance receivables throughout
this Prospectus, because the credit and related risks of the manufactured
housing business are similar to those of the Company's consumer finance
business. Similarly, manufactured housing receivables are included with
consumer net finance receivables in determining the percentage of total net
finance receivables which are consumer net finance receivables.
(3) Includes auto fleet leasing and management, small business administration
lending, relocation services and auto club and roadside assistance services.
See "Business -- Commercial Finance -- Other Commercial Activities".
(4) In 1991, certain debt related to Ford's acquisition of the Company's
operation in Japan was converted to equity. Non-recurring interest expense
related to such debt was $39.2 million and $54.2 million in 1991 and 1990,
respectively. If 1991 results treated the converted debt as equity and
excluded the related non-recurring interest expense consistent with
subsequent years, net earnings would have been $351.1 million and the return
on average assets, average equity and average tangible equity would have
been 1.58%, 12.29% and 21.56%, respectively. In addition, if 1990 results
excluded the related non-recurring interest expense, pre-tax earnings would
have been $493.7 million.
CONSUMER FINANCE
The Company's consumer finance business represents approximately $27.6
billion, or 70%, of its 1995 year-end net finance receivables. HOME EQUITY LOANS
account for the largest share, or 52%, of the Company's consumer finance
portfolio based on outstanding net finance receivables at December 31, 1995. In
addition, the Company offers secured and unsecured personal loans and purchases
retail sales finance contracts from consumer goods retailers. The Company also
provides REVOLVING CREDIT through its VISA(R) and MasterCard(R) bankcard and
PRIVATE LABEL CREDIT CARD businesses. In addition, the Company sells a variety
of credit-related and other specialized insurance products to its consumer
finance customers.
At December 31, 1995, the Company had approximately 9.4 million individual
consumer finance customers spanning a wide range of income levels, age groups
and credit histories. The Company markets its consumer finance products through
a number of different channels of distribution, including its network of over
1,400 domestic branch offices and 400 international branch offices as well as
its centralized lending operations. The Company believes that its domestic
branch system is the largest consumer finance branch system in the United
States. In Japan, the Company's branch system and net finance receivables have
been growing in recent years at rates in excess of the Company's overall rates
of growth, and the Company believes that its international markets offer
significant opportunities for future growth. The Company believes that its
domestic and international branches enable it to attract, service and retain
customers through personal relationships with branch employees.
6
<PAGE> 10
COMMERCIAL FINANCE
The Company's commercial finance business, which represents $12.1 billion,
or 30%, of its 1995 year-end net finance receivables, consists of a variety of
retail and WHOLESALE FINANCING and leasing products and services for heavy-duty
(Class 8) and medium-duty (Classes 3 through 7) trucks and truck trailers,
construction and material handling equipment and other industrial equipment. The
Company believes that it is the leading independent source of financing for
heavy-duty trucks, truck trailers and heavy construction equipment in the United
States. The Company also engages in a number of other commercial activities,
including auto fleet leasing and management, small business administration
lending, relocation services and auto club and roadside assistance services. In
addition, the Company's commercial operations' staff manages its $2.0 billion
portfolio of MANUFACTURED HOUSING receivables (which for financial reporting
purposes are treated as consumer receivables). The Company also sells a variety
of credit-related and other specialized insurance products to its commercial
finance customers.
At December 31, 1995, the Company had approximately 143,000 commercial
finance customers ranging from large corporate customers to small,
individually-owned businesses. The Company provides truck and truck trailer
financing and leasing services from 39 branch offices in the United States and
Canada, and provides equipment financing and leasing services through 19 branch
offices in the United States, Mexico and the United Kingdom and, in the case of
material handling and certain other equipment, from two centralized lending and
service operations. Manufactured housing financing is provided from five
regional offices and 14 sales purchase offices, and fee-based services are
provided from centralized locations.
STRATEGY
The Company believes that its consistent growth in profits has resulted
from the balanced pursuit of asset and revenue growth and risk and expense
control. The Company believes that the following operating disciplines have been
key to its success: (i) focusing employees on growth and profitability through
incentives, (ii) maintaining strict credit underwriting standards and collection
policies to reduce losses, (iii) controlling operating expenses and (iv)
sourcing funds on a cost effective basis. The Company believes that adherence to
these disciplines has created a receivables portfolio that is diversified by
market, geography, customer, maturity and product. As a result, the Company
believes that it has been able to reduce its exposure to adverse economic
developments in any particular market or region.
The Company's business objective is to continue to achieve consistent
profitable growth based upon the foregoing operating disciplines, regardless of
economic conditions and interest rate environments. The Company seeks to achieve
this goal by (i) expanding its existing businesses by developing new product
lines in its core businesses and expanding its flexible delivery systems, (ii)
identifying and entering new markets with strong profit potential, (iii)
providing superior customer service through building long-term relationships and
maintaining an intimate knowledge of its business segments, (iv) employing
proven technology to reduce costs and enhance product delivery and portfolio
management and (v) pursuing selective acquisitions designed to leverage
operating costs, increase market share, introduce new product lines and fuel
growth.
The Company believes that its strong, experienced management team has
developed a disciplined operating philosophy and has defined and implemented a
distinct business strategy in each of the Company's diverse business units.
Management believes that employees' commitment to a distinct culture and set of
core values distinguishes the Company from its competitors. The Company seeks to
reinforce its culture and core values to all employees through extensive
training, incentive programs and operating controls at every level. The Company
believes that maintaining its distinct culture, core values and strong
management at every level will continue to be a key element of the Company's
future strategy.
7
<PAGE> 11
THE OFFERINGS
<TABLE>
<S> <C>
Class A Common Stock Offered(1):
United States Offering........ 51,000,000 shares
International Offering........ 9,000,000 shares
Total................. 60,000,000 shares
Common Stock Outstanding After
the Offerings(1)(2):
Class A Common Stock.......... 85,883,019 shares
Class B Common Stock.......... 253,601,830 shares
Total................. 339,484,849 shares
Use of Proceeds................. The net proceeds to the Company from the offering made
hereby in the United States (the "U.S. Offering") and the
concurrent international offering (the "International
Offering" and, together with the U.S. Offering, the
"Offerings"), are estimated to be $ billion ($
billion if the Underwriters' over-allotment options are
exercised in full), all of which is expected to be used to
reduce short-term indebtedness of the Company. See "Use of
Proceeds".
New York Stock Exchange Symbol
for Class A Common Stock...... AFS
Dividends; Voting Rights;
Conversion.................... The holders of CLASS A COMMON STOCK and CLASS B COMMON
STOCK (collectively, "Common Stock") share ratably on a per
share basis in all dividends and other distributions
declared by the board of directors; however, the holders of
Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to five votes
per share. See "Description of Capital Stock -- Common
Stock -- Voting Rights". Under certain circumstances,
shares of Class B Common Stock convert or are convertible
into an equivalent number of shares of Class A Common
Stock. See "-- Relationship with Ford" and "Description of
Capital Stock -- Common Stock -- Conversion".
Controlling Stockholder......... For information regarding the Company's controlling
stockholder, see "-- Relationship with Ford" below.
</TABLE>
- ---------------
(1) Excludes up to 7,650,000 shares and 1,350,000 shares subject to
over-allotment options granted by the Company to the U.S. Underwriters and
the International Underwriters, respectively. See "Underwriting".
(2) Excludes 204,200 shares of Class A Common Stock reserved for issuance
pursuant to certain employee benefit plans. See "Management -- Additional
Material Employee Compensation Plans and Agreements -- Long-Term Equity
Compensation Plan".
8
<PAGE> 12
DIVIDEND POLICY
The Company's board of directors currently intends to declare quarterly
dividends on both the Class A Common Stock and Class B Common Stock. It is
expected that the first quarterly dividend payment will be $0.10 per share (a
rate of $0.40 annually), with the initial dividend to be declared and paid in
the third quarter of 1996. The declaration and payment of dividends by the
Company are subject to the discretion of its board of directors. Any
determination as to the payment of dividends will depend upon, among other
things, general business conditions, the Company's financial results,
contractual, legal and regulatory restrictions regarding the payment of
dividends by the Company's subsidiaries, the credit ratings of the Company and
ACONA and such other factors as the board of directors may consider to be
relevant. See "Risk Factors -- Limitations Upon Liquidity and Capital
Raising -- Limitations upon the payment of dividends" and "-- Holding Company
Structure".
The Company paid cash dividends to Ford of $226.0 million, $288.1 million
and $318.0 million during the years ended December 31, 1993, 1994 and 1995,
respectively, paid a dividend of $1.75 billion to its immediate parent, Ford
FSG, Inc., an indirect, wholly-owned subsidiary of Ford ("FFSG"), on February 8,
1996 in the form of an intercompany note, of which $1.71 billion is presently
outstanding, and in March 1996 declared a cash dividend of $100 million payable
to FFSG on March 29, 1996. In 1993, 1994 and 1995, Ford made cash capital
contributions to the Company of $200.0 million, $215.1 million and $200.0
million, respectively. Thus, the dividends historically paid by the Company are
not indicative of its future dividend policy.
RELATIONSHIP WITH FORD
The Company is an indirect, wholly-owned subsidiary of Ford. Upon
completion of the Offerings, Ford will beneficially own 30.1% of the outstanding
Class A Common Stock (27.3% if the Underwriters' over-allotment options are
exercised in full) and 100% of the outstanding Class B Common Stock.
Accordingly, Ford will beneficially own Common Stock representing in the
aggregate 95.6% of the combined voting power of all of the outstanding Common
Stock (94.9% if the Underwriters' over-allotment options are exercised in full)
and will continue to have the ability to direct the election of members of the
board of directors of the Company and exercise a controlling influence over the
business and affairs of the Company. Ford has advised the Company that its
current intent is to continue to hold all of the Common Stock beneficially owned
by it following the Offerings. However, Ford is not subject to any contractual
obligation to retain its controlling interest, except that Ford has agreed not
to sell or otherwise dispose of any shares of Common Stock of the Company for a
period of 180 days after the date of this Prospectus without the prior written
consent of Goldman, Sachs & Co. See "Underwriting". As a result, there can be no
assurance concerning the period of time during which Ford will maintain its
beneficial ownership of Common Stock owned by it following the Offerings. See
"Risk Factors -- Control by and Relationship with Ford", "-- Possible Future
Sales of Common Stock by Ford" and "Relationship with Ford". From time to time
the Company and Ford have entered into, and can be expected to continue to enter
into, certain agreements and business transactions in the ordinary course of
their respective businesses, and the Company's Restated Certificate of
Incorporation includes certain provisions relating to the Company's relationship
with Ford. See "Relationship with Ford" and "Description of Capital
Stock -- Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".
The Company was acquired by Ford and became part of its Financial Services
Group in 1989. In connection with this acquisition, the Company's operations in
Japan, the United Kingdom, Canada and Puerto Rico were transferred to certain
non-U.S. subsidiaries of Ford, but the Company continued to manage such
operations. Prior to completion of the Offerings, Ford is expected to
recontribute the operations of Ford's non-U.S. subsidiaries managed by the
Company (principally subsidiaries in Japan, the United Kingdom, Canada, Puerto
Rico and Mexico, the "Foreign Subsidiaries"). In connection with this
transaction, Ford will receive an estimated 25,883,019 shares of Class A Common
Stock and an estimated 28,113,208 shares of Class B Common Stock (assuming an
initial public offering price of $26.50 per share, the mid-point of the range
set forth on the cover page of this Prospectus). These share amounts have been
used in determining the number of shares of Class A Common Stock and Class B
Common Stock to be outstanding upon completion of the Offerings and the
percentages of economic and voting interests in the Company to be held by Ford
and the other holders of the Class A Common Stock upon completion of the
Offerings. The number of shares of Class A Common Stock and Class B Common Stock
to be received by Ford in connection with the contribution of the Foreign
Subsidiaries will be determined by dividing the aggregate fair market value of
such subsidiaries by the initial public offering price per share of Class A
Common Stock. The Foreign Subsidiaries had aggregate total assets at December
31, 1995 of $4.1 billion, and the financial and other information with respect
to the Foreign Subsidiaries have been retroactively included in the financial
and other information of the Company contained herein. See "The Company".
9
<PAGE> 13
SUMMARY SUPPLEMENTAL COMBINED FINANCIAL DATA
The summary supplemental combined financial data of the Company presented
below presents financial information of the Company giving supplemental combined
effect to the expected recontribution by Ford to the Company of the Foreign
Subsidiaries. See "The Company". The summary supplemental combined results of
operations and balance sheet data presented below as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1995
was derived from the supplemental combined financial statements of the Company
and the notes thereto set forth herein. The summary supplemental combined
results of operations and balance sheet data presented below as of December 31,
1993, 1992 and 1991 and for each of the years in the two-year period ended
December 31, 1992 was derived from supplemental combined financial statements
and the related notes thereto not presented herein. The data presented below
should be read in conjunction with the supplemental combined financial
statements and the related notes thereto set forth herein (dollars in millions,
except per share data):
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
---------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total revenue....................................... $ 6,107.2 $ 4,925.8 $ 4,114.8 $ 3,696.2 $ 3,495.8
Finance charge revenue.............................. 5,560.8 4,445.2 3,709.7 3,330.7 3,117.9
Interest expense.................................... 2,177.9 1,657.3 1,421.7 1,352.1 1,452.8
Net interest margin................................. 3,382.9 2,787.9 2,288.0 1,978.6 1,665.1
Operating expenses.................................. 1,754.7 1,456.1 1,216.8 1,007.2 911.7
Provision for losses................................ 834.0 647.1 536.1 568.6 494.3
Insurance benefits paid............................. 142.5 147.9 118.9 103.7 99.9
Earnings before provision for income taxes and
cumulative effect of changes in accounting
principles........................................ 1,198.1 1,017.4 821.3 664.6 537.1
Provision for income taxes.......................... 475.0 414.1 327.3 254.5 225.2
Net earnings(1)..................................... 723.1 603.3 494.0 410.1 311.9
Pro forma net earnings per share(2)(3).............. 2.13
BALANCE SHEET DATA
Net finance receivables:
Consumer.......................................... 27,575.3 23,627.8 19,912.4 17,412.7 15,275.9
Commercial........................................ 12,127.2 10,057.9 8,382.3 6,958.3 6,396.9
--------- --------- --------- --------- ---------
Total............................................. 39,702.5 33,685.7 28,294.7 24,371.0 21,672.8
========= ========= ========= ========= =========
Allowance for losses................................ (1,268.6) (1,061.6) (892.3) (764.7) (649.7)
Total assets........................................ 41,303.9 35,283.5 30,039.6 25,996.3 23,523.5
Short-term debt (notes payable)..................... 13,747.3 12,431.9 10,385.9 9,086.4 8,632.4
Long-term debt(4)................................... 21,372.6 17,306.2 14,826.8 12,846.5 11,022.3
Stockholder's equity................................ 4,801.1 4,436.8 3,774.3 3,231.1 3,061.0
Pro forma stockholder's equity per share(2)(3)...... 14.14
SELECTED DATA AND RATIOS
Net interest margin as a percentage of average net
finance receivables............................... 9.22% 9.00% 8.69% 8.59% 8.25%
Earnings to fixed charges........................... 1.55x 1.61x 1.57x 1.49x 1.37x
Total debt to equity................................ 7.2:1 6.6:1 6.6:1 6.7:1 6.4:1
Total debt to tangible equity....................... 9.9:1 9.6:1 10.1:1 11.1:1 11.2:1
Return on average assets(1)......................... 1.89% 1.85% 1.76% 1.66% 1.40%
Return on average equity(1)......................... 15.66 14.70 14.10 13.04 12.49
Return on average tangible equity(1)................ 21.90 21.71 22.31 22.15 24.59
60+days contractual delinquency..................... 1.71 1.35 1.43 1.85 2.56
Net credit losses to average net finance
receivables....................................... 1.70 1.64 1.68 2.04 2.17
Allowance for losses to net finance receivables..... 3.20 3.15 3.15 3.14 3.00
Allowance for losses to net credit losses........... 2.03x 2.09x 2.02x 1.63x 1.49x
Number of employees................................. 16,647 15,318 13,933 12,430 11,142
Number of consumer and commercial branch offices
Domestic.......................................... 1,543 1,472 1,378 1,133 892
International..................................... 404 329 278 256 240
Total............................................. 1,947 1,801 1,656 1,389 1,132
</TABLE>
- ---------------
(1) In 1991, certain debt related to Ford's acquisition of the Company's
operation in Japan was converted to equity, and 1991 results therefore
include $39.2 million of non-recurring interest expense related to the
converted debt. If 1991 results treated the converted debt as equity and
excluded the related non-recurring interest expense consistent with
subsequent years, net earnings would have been $351.1 million and the return
on average assets, average equity and average tangible equity would have
been 1.58%, 12.29% and 21.56%, respectively.
(2) Based on 339,484,849 shares to be outstanding after the Offerings. Excludes
up to 7,650,000 shares and 1,350,000 shares subject to over-allotment
options granted by the Company to the U.S. Underwriters and the
International Underwriters, respectively. See "Underwriting". If such
options are exercised in full, pro forma net earnings per share and pro
forma stockholder's equity per share would be $2.08 and $13.78,
respectively.
(3) Due to the change in the Company's capital structure, historical share and
per share data will not be comparable to, or meaningful in the context of,
future periods. See "Capitalization".
(4) Includes current portion of long-term debt.
10
<PAGE> 14
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11
<PAGE> 15
RISK FACTORS
ECONOMIC FACTORS
Risk of economic downturn. The Company's results of operations are affected
by certain economic factors, including the level of economic activity in the
markets in which the Company operates. While the Company historically has been
able to maintain its profitability throughout the business cycle, a decline in
economic activity may adversely affect the Company. First, the Company's growth
is dependent to a significant degree upon its ability to generate new finance
receivables, and in an adverse economic environment, growth in finance
receivables may not be attainable. The Company's growth rate has varied from
year to year, and there can be no assurance that the average growth rates
sustained in the recent past will continue. Second, adverse economic conditions
are likely to result in an increase in non-performing loans and credit losses.
Many of the Company's consumer finance customers may be particularly sensitive
to loss of employment or other adverse economic conditions in terms of their
ability to meet their payment obligations. Although the Company maintains an
allowance for losses on finance receivables at an amount which it believes is
sufficient to provide adequate protection against losses in its portfolios, this
allowance could prove to be inadequate. Third, adverse economic conditions may
contribute to a decline in the net realizable value of collateral securing
certain of the Company's finance receivables (in the case of any collateral, the
realizable value thereof may at any time be less than the loan secured). At
December 31, 1995, 52% of the aggregate outstanding balance of consumer finance
receivables were home equity loans secured by residential real estate and
substantially all of the aggregate outstanding balance of commercial finance
receivables were secured by collateral. The Company believes that its exposure
to borrower default under adverse economic conditions is less with respect to
secured loans than with respect to unsecured loans. Finally, any of the above
factors could contribute to a downgrading of the Company's credit ratings and/or
that of ACONA, its principal operating subsidiary. Any such downgrading could
increase the Company's funding cost and decrease its net interest margin. There
can be no assurance that if a decline in economic activity does occur, that it
will not have a material adverse effect on the Company's results of operations
or financial condition.
Interest rate-related risks. While the Company employs a comprehensive
interest rate risk management program and closely monitors its pricing to keep
its lending rates responsive to market conditions and to match maturities of its
financial assets and liabilities, an increase in interest rates, or the
perception that an increase could occur, could adversely affect the Company's
ability to generate new finance receivables, which would limit the Company's
growth. In addition, an increase in interest rates may have a short-term adverse
impact on the Company's profitability, as net interest margins may decline to
the extent that the Company's borrowing costs increase more quickly than its
finance charge rates. For a discussion of the Company's indebtedness in
connection with its finance business, including borrowing costs and maturities,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". Also, in the event of an
increase in prevailing interest rates, the Company's finance customers with
variable rate loans may have greater difficulty meeting their higher payment
obligations, which could result in an increase in non-performing loans and
credit losses. At December 31, 1995, the interest rates charged on 33% of the
Company's consumer finance loans and 17% of the Company's commercial finance
loans varied during the term of the loan.
Exchange rate risk. For the year ended December 31, 1995, 10% of both the
Company's revenues and net earnings were derived from the operation of its
Japanese subsidiary, AIC Corporation ("AIC"). In recent years, the value of the
Japanese yen has appreciated sharply against the U.S. dollar, and this
appreciation has had a positive impact upon the contribution of AIC to the
Company's revenues and net earnings expressed in U.S. dollars. Any appreciation
of the U.S. dollar against the Japanese yen would adversely affect AIC's
contribution measured in U.S. dollars. The Company has also entered into various
support agreements on behalf of certain non-U.S. subsidiaries, including AIC.
For a discussion of the Company's management of exchange rate risk, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
12
<PAGE> 16
ALLOWANCE FOR CREDIT LOSSES
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
losses in its portfolios. The allowance is determined principally on the basis
of historical loss experience and reflects management's judgment of additional
loss potential considering future economic conditions and the nature and
characteristics of the underlying finance receivables. Although the allowance
for losses in finance receivables reflected in the Company's supplemental
combined balance sheet at December 31, 1995 is considered adequate by the
Company's management, there can be no assurance that this allowance will prove
to be adequate over time to cover losses in connection with the Company's
portfolios. This allowance may prove to be inadequate due to unanticipated
adverse changes in the economy or discrete events adversely affecting specific
customers or industries. The Company's results of operations and financial
condition could be materially adversely affected to the extent that the
Company's allowance is insufficient to cover such changes or events. See
"Business -- Additional Information Regarding the Company -- Loan Loss Reserves
and Credit Losses" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
LIMITATIONS UPON LIQUIDITY AND CAPITAL RAISING
Potential restraints upon liquidity. The Company satisfies its funding
requirements principally through sales of commercial paper and the issuance of
long-term debt. At December 31, 1995, commercial paper borrowings and other
short-term indebtedness were $13.7 billion. A downgrade in either the Company's
or ACONA's credit ratings could result in an increase in the Company's funding
costs and could, under certain circumstances, have an adverse impact on the
Company's access to the commercial paper market. In the event that the Company
is unable to access the commercial paper market or otherwise finance its
short-term borrowing needs in the public or private markets upon acceptable
terms, it would seek to satisfy its liquidity requirements through borrowings
under its bank credit facilities. At December 31, 1995, the Company had the
capacity to borrow $10.3 billion under committed credit facilities available to
the Company's domestic businesses, representing 77% of ACONA's net short-term
indebtedness outstanding at that time. While there can be no assurance that
these committed bank lines would provide sufficient liquidity to the Company
under the foregoing conditions, the Company believes that such lines should
provide adequate liquidity under foreseeable conditions.
Limitations upon the payment of dividends. The Company believes that
keeping its DEBT TO EQUITY RATIO within certain limits is important in order to
maintain its existing credit ratings. Thus, under certain circumstances, the
Company's ability to pay dividends while maintaining levels of debt which
management believes are appropriate for the Company could be limited. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition". The Company's holding company structure may
also limit its ability to pay dividends. See "-- Holding Company Structure". For
a discussion of the Company's dividend policy and certain related matters, see
"Dividend Policy".
Potential constraints upon ability to raise capital and fund operations.
Because Ford may seek to maintain its beneficial ownership percentage of the
Company, the Company may be constrained in its ability to raise common or
preferred equity capital in the future. In addition, Ford may not be willing to
make capital contributions to the Company in the future. See "Relationship with
Ford".
Although the Company believes that the business of and outlook for Ford is
not closely related to the business of and outlook for the Company, there can be
no assurance that any future downgrading of Ford's credit ratings would not have
an adverse impact on the Company's or ACONA's credit ratings. Therefore, for so
long as Ford maintains a controlling interest in the Company, a deterioration in
the financial condition of Ford could have the effect of increasing the
Company's borrowing costs and/or impairing its access to the capital markets. To
the extent the Company does not pass on its increased borrowing costs to its
customers, the Company's profitability, and potentially its ability to raise
capital, could be adversely affected. Also, while no
13
<PAGE> 17
such agreements or policies are presently contemplated, Ford will have the
ability in the future to enter into agreements or adopt policies which limit the
Company's ability to incur debt.
HOLDING COMPANY STRUCTURE
As a holding company, the Company relies primarily on dividends and other
intercompany transfers of funds from its subsidiaries for the payment of
dividends to stockholders. The terms of the agreements governing certain
outstanding indebtedness of ACONA currently contain certain limitations on the
payment of dividends and certain other transfers of funds to the Company. The
principal restriction, which is contained in certain issues of debt having
stated maturities no later than March 15, 1999, generally limits payments of
dividends on ACONA's common stock in any year to not more than 50% of
consolidated net earnings for such year, subject to certain exceptions. For a
description of certain other limitations, see "Description of Certain
Indebtedness". In addition, the Company's banking subsidiaries, Associates
National Bank (Delaware) ("ANB") and Associates Investment Corporation
("Associates Investment"), and the Company's insurance subsidiaries may pay
dividends and make certain other transfers of funds to the Company only up to
amounts permitted by applicable banking and insurance regulations, respectively,
and the repatriation of funds from the Foreign Subsidiaries may be subject to
withholding taxes or other restrictions. For a discussion of the Company's
dividend policy and certain related matters, see "Dividend Policy".
REGULATION
The Company's consumer and commercial finance and insurance businesses are
subject to extensive regulation and supervision in the jurisdictions in which
the Company operates. Such regulation and supervision are primarily for the
benefit and protection of the Company's customers, and not for the benefit of
investors and could limit the Company's discretion in operating its businesses.
Noncompliance with applicable statutes or regulations could result in the
suspension or revocation of any license or registration at issue, as well as the
imposition of civil fines and criminal penalties. State laws often establish
maximum allowable finance charges for certain consumer and commercial loans;
approximately 92% and 100% of the outstanding consumer and commercial net
finance receivables, respectively, were either not subject to such state
maximums, or if subject, such maximum finance charge did not, in most cases,
materially restrict the interest rate charged. No assurance can be given that
applicable laws or regulations will not be amended or construed differently,
that new laws and regulations will not be adopted or that interest rates will
not rise to state maximum levels, the effect of any of which could be to
adversely affect the business or results of operations of the Company. See
"Business -- Additional Information Regarding the Company -- Regulation". In
addition, the Company is subject to certain litigation with respect to such
matters, see "Business -- Additional Information Regarding the Company -- Legal
Proceedings".
COMPETITION
The markets in which the Company operates are highly competitive.
Competitors include, among others, finance companies, commercial banks, thrifts,
other financial institutions, credit unions and manufacturers and vendors. Many
of the competitors of the Company in different segments and regions are large
companies that have substantial capital, technological and marketing resources,
and some of these competitors are larger than the Company and may have access to
capital at a lower cost than the Company. The Company believes that the finance
charge rate is one of the primary competitive factors in many of its markets.
From time to time, competitors of the Company may seek to compete aggressively
on the basis of pricing, and the Company may lose market share to the extent it
is not willing to match competitor pricing. See "Business -- Additional
Information Regarding the Company -- Competition".
14
<PAGE> 18
CONTROL BY AND RELATIONSHIP WITH FORD
Ford is currently the beneficial owner of all of the common stock of the
Company. Upon completion of the Offerings, Ford will beneficially own 30.1% of
the outstanding Class A Common Stock (27.3% if the Underwriters' over-allotment
options are exercised in full) and 100% of the outstanding Class B Common Stock
of the Company which will, in the aggregate, represent 95.6% of the combined
voting power of all the outstanding Common Stock (94.9% if the Underwriters'
over-allotment options are exercised in full). For as long as Ford continues to
beneficially own shares of Common Stock representing more than 50% of the
combined voting power of the Common Stock, Ford will be able to direct the
election of all of the members of the Company's board of directors and exercise
a controlling influence over the business and affairs of the Company, including
any determinations with respect to mergers or other business combinations
involving the Company, the acquisition or disposition of assets by the Company,
the incurrence of indebtedness by the Company, the issuance of any additional
Common Stock or other equity securities and the payment of dividends with
respect to the Common Stock. See "-- Limitations Upon Liquidity and Capital
Raising -- Potential constraints upon ability to raise capital and fund
operations". Similarly, Ford will have the power to determine matters submitted
to a vote of the Company's stockholders without the consent of the Company's
other stockholders, will have the power to prevent or cause a change in control
of the Company and could take other actions that might be favorable to Ford. In
the foregoing situations or otherwise, various conflicts of interest between the
Company and Ford could arise. Ownership interests of directors or officers of
the Company in common stock of Ford or service as a director or officer of both
the Company and Ford could create or appear to create potential conflicts of
interest when directors and officers are faced with decisions that could have
different implications for the Company and Ford. The Company's Restated
Certificate of Incorporation will include certain provisions relating to the
allocation of business opportunities that may be suitable for both the Company
and Ford. See "Relationship with Ford" and "Description of Capital
Stock -- Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for Ford to continue to
include the Company in its consolidated group for federal income tax purposes,
and beneficial ownership of at least 80% of the total voting power and 80% of
each class of nonvoting capital stock is required in order for Ford to effect a
TAX-FREE SPIN-OFF of the Company or certain other tax-free transactions. Each
member of a consolidated group for federal income tax purposes is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Each member of the Ford controlled group, which includes
Ford, the Company and Ford's other subsidiaries, is also jointly and severally
liable for pension and benefit funding and termination liabilities of other
group members, as well as certain benefit plan taxes. Accordingly, the Company
could be liable under such provisions in the event any such liability is
incurred, and not discharged, by any other member of the Ford consolidated or
controlled group. If the Company were no longer to be included in Ford's
consolidated group for federal tax purposes, there is no assurance that the
Company's tax position would not be less favorable than it is at present. See
"Relationship with Ford".
In addition, by virtue of its controlling beneficial ownership and the
terms of a tax-sharing agreement to be entered into between the Company and
Ford, Ford will effectively control all of the Company's tax decisions. Under
the tax-sharing agreement, Ford will have sole authority to respond to and
conduct all tax proceedings (including tax audits) relating to the Company, to
file all returns on behalf of the Company and to determine the amount of the
Company's liability to (or entitlement to payment from) Ford under the
tax-sharing agreement. See "Relationship with Ford--Tax-Sharing Agreement". This
arrangement may result in conflicts of interests between the Company and Ford.
For example, under the tax-sharing agreement, Ford may choose to contest,
compromise or settle any adjustment or deficiency proposed by the relevant
taxing authority in a manner that may be beneficial to Ford and detrimental to
the Company. In connection therewith, however, Ford is
15
<PAGE> 19
obligated under the tax-sharing agreement to act in good faith with regard to
all members included in the applicable returns.
Certain intercompany agreements and arrangements exist between the Company
and Ford. See "Relationship with Ford". Among these is a trademark license
agreement which permits certain use by the Company of certain of Ford's
trademarks. There can be no assurance that the trademark license or services
provided to the Company by Ford under such agreements will continue to be
provided, and if not, whether, or on what terms, such license or services could
be replicated. Any termination of the trademark license agreement could have an
adverse effect on certain operations of the Company. See "Relationship with
Ford -- Trademark License Agreement".
POSSIBLE FUTURE SALES OF COMMON STOCK BY FORD
Subject to applicable federal securities laws and the restrictions set
forth below, after completion of the Offerings, Ford may sell any and all of the
shares of the Common Stock beneficially owned by it or distribute any or all of
such shares of Common Stock to its stockholders. Sales or distribution by Ford
of substantial amounts of Common Stock in the public market or to its
stockholders, or the perception that such sales or distribution could occur,
could adversely affect prevailing market prices for the Class A Common Stock.
Ford has advised the Company that its current intent is to continue to hold all
of the Common Stock beneficially owned by it following the Offerings. However,
Ford is not subject to any contractual obligation to retain its controlling
interest, except that Ford has agreed not to sell or otherwise dispose of any
shares of Common Stock of the Company for a period of 180 days after the date of
this Prospectus without the prior written consent of Goldman, Sachs & Co. See
"Underwriting". As a result, there can be no assurance concerning the period of
time during which Ford will maintain its beneficial ownership of Common Stock
owned by it following the Offerings. Ford will have registration rights with
respect to the shares of the Common Stock owned by it following the Offerings
which would facilitate any future disposition. See "-- Control by and
Relationship with Ford" above, "Relationship with Ford -- Corporate Agreement"
and "Shares Available for Future Sale".
NO PRIOR MARKET FOR CLASS A COMMON STOCK
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. The initial public offering price of the Class A
Common Stock will be determined by negotiations between the Company and the
representatives of the Underwriters. There can be no assurance that the initial
public offering price will correspond to the price at which the Class A Common
Stock will trade in the public market subsequent to the Offerings or that an
active public market for the Class A Common Stock will develop and continue
after the Offerings. See "Underwriting".
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws may render more difficult or have the effect of discouraging
unsolicited takeover bids from third parties or the removal of incumbent
management of the Company. See "Description of Capital Stock -- Certain
Certificate of Incorporation and By-law Provisions". Although such provisions do
not have a substantial practical significance to investors while Ford controls
the Company, such provisions could have the effect of depriving stockholders of
an opportunity to sell their shares at a premium over prevailing market prices
should Ford's combined voting power decrease to less than 50%.
16
<PAGE> 20
THE COMPANY
The Company is a leading, diversified consumer and commercial finance
organization which provides finance, leasing and related services to
approximately 9.4 million individual consumers and 143,000 businesses in the
United States and internationally. At or for the year ended December 31, 1995,
the Company had aggregate net finance receivables of $39.7 billion, total assets
of $41.3 billion, net earnings of $723.1 million and stockholder's equity of
$4.8 billion. The Company believes that it is the second largest independent
finance company in the United States based on aggregate net finance receivables
outstanding. The Company's operations outside the United States are conducted
principally in Japan ($2.1 billion of net finance receivables) and are also
conducted in, among other places, the United Kingdom and Canada.
The Company's consumer finance operations consist of a variety of
specialized consumer financing products and services, including home equity
lending, personal installment lending, retail sales financing and credit cards.
The Company's commercial operations primarily provide retail financing, leasing
and wholesale financing for heavy-duty and medium-duty trucks and truck
trailers, construction, material handling and other industrial equipment and
manufactured housing. The Company also provides a number of other products and
services, including credit-related and non-credit-related insurance to its
consumer and commercial customers as well as certain fee-based services such as
auto fleet leasing and management, small business administration lending,
relocation services and auto club and roadside assistance services.
The Company, through its predecessors, was organized in 1918 to provide
financing for the automobile industry. The Company's Common Stock was first
listed on the New York Stock Exchange in 1937 and was publicly traded until
1968, when Gulf + Western Industries, Inc. acquired the Company. In 1979, the
Company expanded into international markets in Japan and the United Kingdom. In
1989, Ford acquired the Company and, in connection with such acquisition, the
Company's operations in Japan, the United Kingdom, Canada and Puerto Rico were
transferred to certain non-U.S. subsidiaries of Ford, but the Company continued
to manage such operations. Prior to completion of the Offerings, Ford is
expected to recontribute the Foreign Subsidiaries to the Company. In connection
with this transaction, Ford will receive an estimated 25,883,019 shares of Class
A Common Stock, which upon completion of the Offerings will represent 30.1% of
the outstanding Class A Common Stock (27.3% if the Underwriters' over-allotment
options are exercised in full) and an estimated 28,113,208 shares of Class B
Common Stock. Financial and other information with respect to the Foreign
Subsidiaries, which in the aggregate had total assets at December 31, 1995 of
$4.1 billion, have been retroactively included in the financial and other
information relating to the Company contained herein.
The Company's principal executive offices are located at 250 East Carpenter
Freeway, Irving, Texas 75062, and its telephone number is (214) 541-4000.
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
$ billion ($ billion if the Underwriters' over-allotment options are
exercised in full), all of which is expected to be used to reduce short-term
indebtedness of the Company. Such indebtedness will be incurred to repay an
intercompany note issued by the Company as a dividend to FFSG in the amount of
$1.75 billion on February 8, 1996, of which $1.71 billion is presently
outstanding. See "Dividend Policy".
17
<PAGE> 21
DIVIDEND POLICY
The Company's board of directors currently intends to declare quarterly
dividends on both the Class A Common Stock and Class B Common Stock. It is
expected that the first quarterly dividend payment will be $0.10 per share (a
rate of $0.40 annually), with the initial dividend to be declared and paid in
the third quarter of 1996. The declaration and payment of dividends by the
Company are subject to the discretion of its board of directors. Any
determination as to the payment of dividends will depend upon, among other
things, general business conditions, the Company's financial results,
contractual, legal and regulatory restrictions regarding the payment of
dividends by the Company's subsidiaries, the credit ratings of the Company and
ACONA and such other factors as the board of directors may consider to be
relevant. See "Risk Factors -- Limitations Upon Liquidity and Capital
Raising -- Limitations upon the payment of dividends" and " -- Holding Company
Structure".
The Company paid cash dividends to Ford of $226.0 million, $288.1 million
and $318.0 million during the years ended December 31, 1993, 1994 and 1995,
respectively, and paid a dividend of $1.75 billion to FFSG on February 8, 1996
in the form of an intercompany note, of which $1.71 billion is presently
outstanding. Such note bears interest at a variable annual rate equal to
one-month LIBOR plus 0.10% (5.4125% as of March 6, 1996) and has a stated
maturity of April 8, 1996. In March 1996, the Company declared a cash dividend
of $100 million payable to FFSG on March 29, 1996. In 1993, 1994 and 1995, Ford
made cash capital contributions to the Company of $200.0 million, $215.1 million
and $200.0 million, respectively. Thus, the dividends historically paid by the
Company are not indicative of its future dividend policy.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995 (i) on a supplemental combined basis giving effect to the
FOREIGN SUBSIDIARIES RECONTRIBUTION and (ii) as adjusted to give effect to (a)
the reclassification of 250 shares of common stock, no par value, of the Company
beneficially held by Ford into 225,488,622 shares of Class B Common Stock, the
issuance to Ford of an estimated 25,883,019 shares of Class A Common Stock and
an estimated 28,113,208 shares of Class B Common Stock in connection with the
Foreign Subsidiaries Recontribution and the issuance and sale by the Company of
60,000,000 shares of Class A Common Stock in the Offerings at an assumed initial
public offering price of $26.50 per share, (b) the payment of a dividend of
$1.75 billion to FFSG on February 8, 1996 in the form of an intercompany note
and a cash dividend of $100 million payable to FFSG on March 29, 1996 and (c),
assuming an initial public offering price of $26.50 per share, the receipt of
net proceeds of $ billion from the sale by the Company of 60,000,000 shares
of Class A Common Stock in the Offerings and application of such proceeds as set
forth in "Use of Proceeds". This table should be read in conjunction with the
supplemental combined financial statements and the related notes thereto set
forth herein (in millions).
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
COMBINED AS ADJUSTED
--------- -----------
<S> <C> <C>
Debt
Short-term debt (notes payable)................................... $13,747.3
Long-term debt.................................................... 21,372.6
---------
Total debt................................................ $35,119.9
=========
Stockholder's Equity
Preferred Stock...................................................
Common Stock...................................................... $ 47.0
Class A Common Stock..............................................
Class B Common Stock..............................................
Paid-in capital................................................... 2,124.3
Retained earnings................................................. 2,287.0
Foreign currency translation adjustments.......................... 330.6
Unrealized gain on available-for-sale securities.................. 12.2
---------
Total stockholder's equity................................ 4,801.1
---------
Total capitalization...................................... $39,921.0
=========
</TABLE>
18
<PAGE> 22
SELECTED SUPPLEMENTAL COMBINED FINANCIAL DATA
The selected supplemental combined financial data of the Company presented
below presents financial information of the Company giving supplemental combined
effect to the expected recontribution by Ford to the Company of the Foreign
Subsidiaries. See "The Company". The selected supplemental combined results of
operations and balance sheet data presented below as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1995
was derived from the supplemental combined financial statements of the Company
and the notes thereto set forth herein. The selected supplemental combined
results of operations and balance sheet data presented below as of December 31,
1993, 1992 and 1991 and for each of the years in the two-year period ended
December 31, 1992 was derived from supplemental combined financial statements
and the related notes thereto not presented herein. The data presented below
should be read in conjunction with the supplemental combined financial
statements and the related notes thereto set forth herein (dollars in millions,
except per share data):
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
---------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total revenue.................................................. $ 6,107.2 $ 4,925.8 $ 4,114.8 $ 3,696.2 $ 3,495.8
Finance charge revenue......................................... 5,560.8 4,445.2 3,709.7 3,330.7 3,117.9
Interest expense............................................... 2,177.9 1,657.3 1,421.7 1,352.1 1,452.8
Net interest margin............................................ 3,382.9 2,787.9 2,288.0 1,978.6 1,665.1
Operating expenses............................................. 1,754.7 1,456.1 1,216.8 1,007.2 911.7
Provision for losses........................................... 834.0 647.1 536.1 568.6 494.3
Insurance benefits paid........................................ 142.5 147.9 118.9 103.7 99.9
Earnings before provision for income taxes and cumulative
effect of changes in accounting principles................... 1,198.1 1,017.4 821.3 664.6 537.1
Provision for income taxes..................................... 475.0 414.1 327.3 254.5 225.2
Net earnings(1)................................................ 723.1 603.3 494.0 410.1 311.9
Pro forma net earnings per share(2)(3)......................... 2.13
BALANCE SHEET DATA
Net finance receivables:
Consumer..................................................... 27,575.3 23,627.8 19,912.4 17,412.7 15,275.9
Commercial................................................... 12,127.2 10,057.9 8,382.3 6,958.3 6,396.9
-------- -------- -------- -------- --------
Total........................................................ 39,702.5 33,685.7 28,294.7 24,371.0 21,672.8
======== ======== ======== ======== ========
Allowance for losses........................................... (1,268.6) (1,061.6) (892.3) (764.7) (649.7)
Total assets................................................... 41,303.9 35,283.5 30,039.6 25,996.3 23,523.5
Short-term debt (notes payable)................................ 13,747.3 12,431.9 10,385.9 9,086.4 8,632.4
Long-term debt(4).............................................. 21,372.6 17,306.2 14,826.8 12,846.5 11,022.3
Stockholder's equity........................................... 4,801.1 4,436.8 3,774.3 3,231.1 3,061.0
Pro forma stockholder's equity per share(2)(3)................. 14.14
SELECTED DATA AND RATIOS
Net interest margin as a percentage of average net finance
receivables.................................................. 9.22% 9.00% 8.69% 8.59% 8.25%
Earnings to fixed charges...................................... 1.55x 1.61x 1.57x 1.49x 1.37x
Total debt to equity........................................... 7.2:1 6.6:1 6.6:1 6.7:1 6.4:1
Total debt to tangible equity.................................. 9.9:1 9.6:1 10.1:1 11.1:1 11.2:1
Return on average assets(1).................................... 1.89% 1.85% 1.76% 1.66% 1.40%
Return on average equity(1).................................... 15.66 14.70 14.10 13.04 12.49
Return on average tangible equity(1)........................... 21.90 21.71 22.31 22.15 24.59
60+days contractual delinquency................................ 1.71 1.35 1.43 1.85 2.56
Net credit losses to average net finance receivables........... 1.70 1.64 1.68 2.04 2.17
Allowance for losses to net finance receivables................ 3.20 3.15 3.15 3.14 3.00
Allowance for losses to net credit losses...................... 2.03x 2.09x 2.02x 1.63x 1.49x
Number of employees............................................ 16,647 15,318 13,933 12,430 11,142
Number of consumer and commercial branch offices
Domestic..................................................... 1,543 1,472 1,378 1,133 892
International................................................ 404 329 278 256 240
Total........................................................ 1,947 1,801 1,656 1,389 1,132
</TABLE>
- ---------------------
(1) In 1991, certain debt related to Ford's acquisition of the Company's
operation in Japan was converted to equity, and 1991 results therefore
include $39.2 million of non-recurring interest expense related to the
converted debt. If 1991 results treated the converted debt as equity and
excluded the related non-recurring interest expense consistent with
subsequent years, net earnings would have been $351.1 million and the return
on average assets, average equity and average tangible equity would have
been 1.58%, 12.29% and 21.56%, respectively.
(2) Based on 339,484,849 shares to be outstanding after the Offerings. Excludes
up to 7,650,000 shares and 1,350,000 shares subject to over-allotment
options granted by the Company to the U.S. Underwriters and the
International Underwriters, respectively. See "Underwriting". If such
options are exercised in full, pro forma net earnings per share and pro
forma stockholder's equity per share would be $2.08 and $13.78,
respectively.
(3) Due to the change in the Company's capital structure, historical share and
per share data will not be comparable to, or meaningful in the context of,
future periods. See "Capitalization".
(4) Includes current portion of long-term debt.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is in the consumer and commercial finance business, providing
finance, leasing and related insurance products as well as other services. The
Company's revenues principally consist of income through finance charges and, to
a lesser extent, insurance premiums and investment income. The Company's primary
expenses are interest expense for the funding of its finance business, provision
for loan losses and operating expenses. A principal factor determining the
profitability of the Company is the Company's finance charge revenue less
interest expense ("net interest margin").
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's supplemental combined
financial condition and results of operations. This discussion should be read in
conjunction with the supplemental combined financial statements of the Company
and the related notes thereto included in this Prospectus. The following
information gives effect to the Foreign Subsidiaries Recontribution. See "The
Company".
RESULTS OF OPERATIONS
SUMMARY RESULTS OF OPERATIONS
The following table summarizes the Company's net earnings and related data
(dollars in millions):
NET EARNINGS AND RELATED DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net Earnings............................................... $723.1 $603.3 $494.0
Change in Net Earnings
Amount................................................... $119.8 $109.3 $ 83.9
Percent.................................................. 19.9% 22.1% 20.5%
Return
On average assets........................................ 1.89% 1.85% 1.76%
On average equity........................................ 15.66% 14.70% 14.10%
</TABLE>
The primary factors influencing the changes in net earnings are finance
charge revenue and interest expense, operating expenses and loan losses, all of
which are described below.
The Company derived approximately 13% of its net earnings in 1995 from the
Foreign Subsidiaries, principally in Japan. See Note 17 to the Company's
supplemental combined financial statements. Management believes that the overall
factors and trends affecting the profitability of the Foreign Subsidiaries were
generally similar to the factors and trends affecting the profitability of its
analogous businesses in the United States.
20
<PAGE> 24
FINANCE CHARGE REVENUE AND INTEREST EXPENSE
The Company's net interest margin was as follows (dollars in millions):
NET INTEREST MARGIN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ---------------------
AMOUNT PERCENT(1) AMOUNT PERCENT(1) AMOUNT PERCENT(1)
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Finance Charge Revenue..... $5,560.8 15.15% $4,445.2 14.34% $3,709.7 14.09%
Interest Expense........... 2,177.9 6.72 1,657.3 6.03 1,421.7 6.03
-------- -------- --------
Net Interest Margin........ $3,382.9 9.22% $2,787.9 9.00% $2,288.0 8.69%
======== ======== ========
</TABLE>
- ---------------
(1) Finance charge revenue and net interest margin are expressed as a percent of
average net finance receivables outstanding for the indicated period;
interest expense is expressed as a percent of average debt outstanding for
the indicated period.
Finance charge revenue increased in each of the years in both the Company's
domestic and international operations. The increase principally resulted from
growth in net finance receivables in each of the periods which caused
corresponding increases in the average net finance receivables outstanding
("ANR"). To a lesser extent, an increase in the composite finance charge yield
(finance charges as a percent of ANR) contributed to the increase in 1995 and
1994. However, in 1993, a decrease in the composite finance charge yield
partially offset the increase in finance charge revenue due to growth in ANR.
The components of the change in finance charge revenue attributable to net
receivable growth and changes in finance charge yields are set forth in the
following table (in millions):
COMPONENTS OF CHANGES IN FINANCE CHARGE REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- ------ ------
<S> <C> <C> <C>
Change Due to:
Growth in receivables................................... $ 864.4 $668.0 $466.4
Finance charge yield.................................... 251.2 67.5 (87.4)
-------- ------ ------
Total................................................... $1,115.6 $735.5 $379.0
======== ====== ======
</TABLE>
For further discussion regarding growth in the Company's net finance
receivables, see "-- Financial Condition". The finance charge yields to ANR for
each of the Company's business segments were as follows:
FINANCE CHARGE YIELDS TO ANR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993 1992
----- ----- ----- -----
<S> <C> <C> <C> <C>
Consumer Segment.................................. 17.48% 16.85% 16.88% 16.91%
Commercial Segment................................ 10.11 9.67 10.05 10.82
Total Company..................................... 15.15% 14.34% 14.09% 14.47%
</TABLE>
The principal factors which influence finance charge yields are (i) the
interest rate environment, (ii) the level of business competition and (iii) the
varying composition of the finance receivable portfolios (i.e., "product mix").
The consumer segment composite finance charge yield is principally influenced by
shifts in product mix between higher yielding unsecured finance products and
lower yielding secured finance products. Change in product mix was the principal
cause of the
21
<PAGE> 25
movements in finance charge yield from 1993 to 1995. The commercial segment
composite finance charge yield is principally influenced by the level of
business competition and the interest rate environment and not by the mix of
secured and unsecured products since substantially all commercial finance
receivables are secured. The commercial segment experienced increased
competition from other lenders entering the commercial markets during the period
from 1992 to 1995, which caused the finance charge yields to decrease as a
result of competitive pricing. Changes in the prime lending rate over this
period introduced additional sensitivity in the composite finance charge yields
because commercial business pricing is substantially tied to the prime lending
rate. However, the Company's initiatives to increase pricing more than offset
the changes due to competition and the interest rate environment in 1995.
Total interest expense increased from 1993 through 1995. The increases were
principally due to higher average outstanding debt, primarily resulting from the
Company's growth in net finance receivables (see "-- Financial Condition") and,
to a lesser extent, an overall increase in the Company's borrowing rate
(interest expense divided by average outstanding debt). Interest expense and
average borrowing rates were as follows (dollars in millions):
INTEREST EXPENSE AND AVERAGE BORROWING RATES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------------------------------------------------------------
1995 1994 1993 1992
--------------------- --------------------- --------------------- ---------
AVERAGE AVERAGE AVERAGE AVERAGE
INTEREST BORROWING INTEREST BORROWING INTEREST BORROWING BORROWING
EXPENSE RATE EXPENSE RATE EXPENSE RATE RATE
-------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term Debt.......................... -- 5.98% -- 4.35% -- 3.22% 3.80%
Long-term Debt(1)........................ -- 7.21 -- 7.23 -- 8.01 8.51
Total Debt............................... $2,177.9 6.72% $1,657.3 6.03% $1,421.7 6.03% 6.50%
======== ======== ========
</TABLE>
- ---------------
(1) Includes the current portion of long-term debt.
The increases in the short-term average borrowing rate from 1993 to 1995,
which principally relate to commercial paper issued by the Company, generally
reflect the overall market increases in short-term interest rates over the
three-year period. The concurrent decreases in the long-term average borrowing
rates are the result of decreases in long-term market rates and the refinancing
of maturing debt at the prevailing lower rates. The Company seeks to match fund
its total finance receivables in each of the countries in which it does business
through the issuance of debt denominated in local currencies with maturity and
interest rate characteristics that reasonably match the characteristics of its
composite portfolio. Interest rate risk is measured and controlled through the
use of two different techniques: (i) static gap analysis and (ii) financial
forecasting. See "-- Liquidity and Capital Resources".
For purposes of measuring business segment profitability, the Company
generally allocates the interest expense incurred to the business segments based
on ANR. Management believes that analysis of the principal components of changes
in interest expense is only meaningful on a total Company basis. The change in
interest expense attributable to growth in average outstanding debt and changes
in average borrowing rates are set forth in the following table (in millions):
COMPONENTS OF CHANGES IN INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Change Due to:
Growth in debt............................................... $332.7 $235.3 $167.6
Borrowing rate............................................... 187.9 0.3 (98.0)
------ ------ -------
Total........................................................ $520.6 $235.6 $ 69.6
====== ====== =======
</TABLE>
22
<PAGE> 26
As a result of the forgoing changes in finance charge revenue and interest
expense, the Company's net interest margin increased in each of the three years
ended December 31, 1995, 1994 and 1993, respectively.
INSURANCE PREMIUM REVENUE
Insurance premium revenue was $370.6 million, $329.0 million and $270.9
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Insurance premium revenue, which is earned over the coverage term, increased
$41.6 million (12.6%) in 1995, $58.1 million (21.5%) in 1994, and $20.8 million
(8.3%) in 1993. The insurance operation is engaged in underwriting credit-
related and other specialized insurance products for customers of the consumer
and commercial finance businesses. See "Business -- Related Insurance".
Therefore, insurance sales, and resulting revenue, are largely dependent on the
business activities and volumes of the consumer and commercial finance
businesses. The increase in insurance revenue in each of the years was
principally caused by increased sales of insurance products associated with the
increase in net finance receivables outstanding. For a summary of premium
revenue generated by general product grouping, see "Business -- Related
Insurance".
INVESTMENT AND OTHER REVENUE
Investment and other revenue for the years ended December 31, 1995, 1994
and 1993 was $175.8 million, $151.6 million and $134.2 million, respectively.
Investment income is derived from investments in marketable securities which are
principally owned by the Company's insurance operation. Other revenue is
primarily derived from the Company's fee-based financial services (i.e.,
relocation services and auto club and roadside assistance services). In each of
the years 1995, 1994 and 1993, the year-over-year increase in investment and
other revenue principally resulted from increases in the Company's investments
in marketable securities and related returns and, to a lesser extent, an
increase in other revenue related to the growth in the fee-based businesses.
OPERATING EXPENSES
Operating expenses, which do not include interest expense, were as follows
(dollars in millions):
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
AMOUNT % ANR AMOUNT % ANR AMOUNT % ANR
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Salaries and Benefits............. $ 807.7 2.20 % $ 700.8 2.26 % $ 622.3 2.36 %
Occupancy, Data Processing, and
Other........................... 947.0 2.58 755.3 2.44 594.5 2.26
-------- ---- -------- ---- -------- ----
Total............................. $1,754.7 4.78 % $1,456.1 4.70 % $1,216.8 4.62 %
======== ==== ======== ==== ======== ====
Efficiency Ratio.................. 46.34% 46.66% 47.27%
==== ==== ====
</TABLE>
Total operating expenses increased from 1993 to 1995, principally due to
higher levels of business volume and outstanding receivables in each of the
years. The increases in salaries and benefits in total dollars is primarily due
to increases in the number of employees to support the higher business volume
and outstanding receivables. As a percentage of ANR, salaries and benefits
decreased in each of the years. This decrease reflects continued reductions in
the proportion of employee labor required to support the higher business volumes
and outstanding net receivables and results from improved operating efficiency.
The Company has achieved improved operating
23
<PAGE> 27
efficiency through focused initiatives it has undertaken over the last three
years, such as electronic credit applications, centralized payment processing
and automated loan documentation. The principal cause for the increases in
occupancy, data processing and other expenses in total dollars was growth in the
number of business locations, the aforementioned increase in employees and the
cost to implement its efficiency improvement initiatives. The increases in the
percentage of these expenses to ANR were primarily due to the Company's
investments in certain start-up expenses to expand the number of locations, fund
and implement its efficiency initiatives, and support its increased number of
employees, which are in part incurred in advance of generating expected
incremental finance receivables outstanding. As a result of such investments,
the Company's total operating efficiency, as measured by the ratio of total
operating expenses to revenues net of interest expense and insurance benefits
paid or provided ("Efficiency Ratio") improved from 1993 through 1995.
ALLOWANCE FOR LOSSES, LOSSES AND ASSET QUALITY
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
losses in its portfolios. The allowance is determined principally on the basis
of historical loss experience and reflects management's judgment of additional
loss potential considering future economic conditions and the nature and
characteristics of the underlying finance receivables. For purposes of measuring
business segment profitability, each business segment establishes an allowance
for loan loss when a loan is made with a corresponding charge to the provision
for losses. The Company manages its allowance for losses on finance receivables
on a Company-wide basis taking into account actual and expected losses in each
business segment and the relationship of the allowance to net finance
receivables and total net credit losses; the resulting charge is included in the
provision for losses.
The components of the changes in the aggregate allowance for losses on
finance receivables during the periods indicated were as follows (dollars in
millions):
COMPONENTS OF CHANGES IN THE ALLOWANCE FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Balance at Beginning of Period............................. $1,061.6 $ 892.3 $ 764.7
Provision for losses..................................... 834.0 647.1 536.1
Recoveries on receivables charged off.................... 132.9 118.2 101.3
Losses sustained......................................... (757.1) (626.8) (542.5)
Reserves of acquired businesses and other................ (2.8) 30.8 32.7
-------- -------- -------
Balance at End of Period................................... $1,268.6 $1,061.6 $ 892.3
======== ======== =======
Allowance for Losses to Net Finance Receivables............ 3.20% 3.15% 3.15%
Allowance for Losses to Net Credit Losses.................. 2.03x 2.09x 2.02x
</TABLE>
24
<PAGE> 28
The provision for losses is principally influenced by growth in net finance
receivables and, to a lesser extent, net credit loss experience. Additions to
the allowance are charged to the provision for losses. Losses are charged to the
allowance as incurred and recoveries on losses previously charged to the
allowance are credited to the allowance at the time the recovery is collected.
The provision for losses increased in each of the years 1995, 1994 and 1993 as a
result of growth in finance receivables. The components of the changes in the
provision for losses in each of the years ended 1995, 1994 and 1993 are as
follows (in millions):
COMPONENTS OF CHANGES IN PROVISION FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Change Due to:
Growth in receivables....................................... $184.5 $155.5 $ 92.4
Net loss experience......................................... 2.4 (44.5) (124.9)
------ ------ -------
Total....................................................... $186.9 $111.0 $ (32.5)
====== ====== =======
</TABLE>
For further discussion regarding growth in net finance receivables, see
"-- Financial Condition". Net loss experience improved year-over-year in 1994
and 1993, with the improved loss experience in 1993 more than offsetting the
increase in the provision resulting from growth. Loss experience increased
moderately in 1995 in substantially all of the Company's portfolios as reflected
in the following table (dollars in millions):
CONTRACTUAL DELINQUENCY AND NET CREDIT LOSSES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
---------------------------------------
1995 1994 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
60+Days Contractual Delinquency
Consumer........................................... 2.19% 1.80% 1.81% 2.25%
Commercial......................................... 0.64 0.28 0.52 0.82
Total...................................... 1.71% 1.35% 1.43% 1.85%
Total dollars delinquent................... $755.4 $510.3 $454.6 $506.2
Net Credit Losses to ANR
Consumer........................................... 2.35% 2.30% 2.24% 2.62%
Commercial......................................... 0.19 0.09 0.29 0.63
Total...................................... 1.70% 1.64% 1.68% 2.04%
Total dollars.............................. $624.2 $508.6 $441.2 $470.5
</TABLE>
Contractual delinquency and net credit losses improved, on a ratio basis,
across all portfolios domestically and internationally from 1992, approaching
historical lows in 1994, reflecting similar trends in overall economic
conditions. These trends reversed across all portfolios in 1995, principally as
a result of generally less favorable trends in economic conditions, including
decreased manufacturing capacity utilization and rising consumer debt levels.
The relationship of the allowance for losses to net finance receivables at
December 31, 1995 increased from 1994, reflecting management's opinion that
delinquency and net credit losses will continue to increase in 1996. See
"Business -- Additional Information Regarding the Company -- Loan Loss Reserves
and Credit Losses". Management believes the allowance for losses at December 31,
1995 is sufficient to provide adequate protection against losses in its
portfolios.
INSURANCE BENEFITS PAID OR PROVIDED
Insurance benefits paid or provided were $142.5 million in 1995, $147.9
million in 1994 and $118.9 million in 1993. Benefits paid or provided are
influenced by the amount of insurance in force, underwriting standards, loss
experience, term of coverage and product mix. Benefits paid or provided
increased in 1994 compared to 1993 primarily as a result of more insurance in
force. For
25
<PAGE> 29
1995, benefits paid or provided decreased when compared to 1994 primarily as a
result of favorable loss experience. See "Business -- Related Insurance" for a
description of the Company's insurance activities.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes and effective tax rates were as
follows (dollars in millions):
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
EFFECTIVE EFFECTIVE EFFECTIVE
AMOUNT TAX RATE AMOUNT TAX RATE AMOUNT TAX RATE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Statutory Rate................. $419.4 35.0% $356.1 35.0% $287.5 35.0%
State income taxes................ 14.0 1.2 20.5 2.0 13.3 1.6
Non-deductible goodwill........... 10.9 0.9 11.7 1.2 13.5 1.6
Foreign rates in excess of U.S.
rate and other................. 30.7 2.5 25.8 2.5 13.0 1.7
------ ---- ------ ---- ------ ----
Provision for Income Taxes.......... $475.0 39.6% $414.1 40.7% $327.3 39.9%
====== ==== ====== ==== ====== ====
</TABLE>
The Company provides for income taxes on its foreign earnings at the
statutory tax rate in effect for the applicable country where such earnings
arise. The principal foreign earnings of the Company arise from its operation in
Japan, where the statutory tax rate is significantly higher than the U.S.
statutory tax rate.
The state income tax provision, and impact on the Company's effective tax
rate, increased from 1993 to 1994 due to changes in the Company's state
tax-sharing arrangement with Ford, which generally had the effect of increasing
the amount of taxable income in certain states in which the Company does
business. The provision and resulting impact on effective tax rate decreased
from 1994 to 1995 principally due to a one-time benefit provided to the Company
by Ford under its state tax-sharing agreement. Had the Company not received such
benefit, the 1995 provision and resulting impact on the effective rate would
have been substantially the same as that in 1994.
A substantial portion of the Company's total goodwill is related to, and
has been recorded by, its operation in Japan. The decrease in the tax provision
and the related impact on the effective tax rate for each year results from
changes in the Company's estimate of the amount of such goodwill that will
ultimately be tax deductible in Japan.
The increase in the provision resulting from foreign rates in excess of the
U.S. statutory rate and other, in each of the years, was principally due to
increases in Japanese earnings, on a percentage basis relative to total
earnings, which are subject to a higher tax rate than the U.S. rate.
NET EARNINGS
Net earnings of the Company for the years ended December 31, 1995, 1994 and
1993 increased $119.8 million (19.9%), $109.3 million (22.1%) and $83.9 million
(20.5%), respectively. The profitability of the Company, as measured by returns
on average assets and average equity, also increased.
26
<PAGE> 30
FINANCIAL CONDITION
GROWTH IN NET FINANCE RECEIVABLES
The Company experienced growth in its consumer and commercial finance
receivable portfolios in 1995 and 1994 as follows (dollars in millions):
GROWTH IN NET FINANCE RECEIVABLES
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
INCREASE FROM INCREASE FROM
PRIOR YEAR PRIOR YEAR
---------------- ----------------
BALANCE AMOUNT % BALANCE AMOUNT %
--------- -------- ---- --------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Consumer Finance................. $27,575.3 $3,947.5 16.7% $23,627.8 $3,715.4 18.7%
Commercial Finance............... 12,127.2 2,069.3 20.6 10,057.9 1,675.6 20.0
--------- -------- --------- --------
Total.................. $39,702.5 $6,016.8 17.9% $33,685.7 $5,391.0 19.1%
========= ======== ========= ========
</TABLE>
The growth in net finance receivables, in both the consumer and commercial
finance segments, during 1994 and 1995, was principally due to expansion through
the addition of 145 branches in 1994 and 146 branches in 1995, as well as
increased penetration of existing markets through expanded lines of business,
new products, acquisitions and other activities.
DEBT
Total outstanding debt was $35.1 billion, $29.7 billion, and $25.2 billion
at December 31, 1995, 1994, and 1993, respectively. Such amounts of debt reflect
net increases of $5.4 billion (18.1%) in 1995 and $4.5 billion (17.9%) in 1994.
In both years, the increase was primarily a result of the growth in net finance
receivables. Debt is the primary source of funding to support the Company's
growth in net finance receivables. At December 31, 1995 and 1994, short-term
debt, including the current portion of long-term debt, as a percent of total
debt was 48% and 50%, respectively. The current portion of long-term debt at
December 31, 1995 and 1994 was $3.2 billion and $2.4 billion, respectively.
Total debt to equity (the ratio of interest-bearing debt net of short-term
investments to total stockholder's equity) at December 31, 1995 and 1994 was
7.2:1 and 6.6:1, respectively. The increase was primarily due to a special,
one-time return of capital made by the Company's operation located in Japan, to
a Ford subsidiary, in the amount of $228.9 million in September 1995. Without
the repatriation of capital by the operation in Japan, the December 31, 1995
total debt to equity would have been approximately 6.9:1.
STOCKHOLDER'S EQUITY
Stockholder's equity increased to $4.8 billion in 1995 from $4.4 billion in
1994. The primary cause for this increase was the amount of net earnings from
the Company's operations in the amount of $723.1 million in 1995 and $603.3
million in 1994. In 1995 and 1994, the Company paid dividends to Ford of $318.0
million and $288.1 million, respectively. The Company received capital
contributions from Ford in 1995 and 1994 of $200.0 million and $215.1 million,
respectively. Also in 1995, the Company made a one-time return of capital from
its operation in Japan to Ford in the amount of $228.9 million. A portion of the
Company's assets, liabilities and earnings are denominated in foreign
currencies. The Company records the financial impact of translating these
balances for financial accounting purposes as unrealized translation gains and
losses directly to equity. The balance of unrealized translation gains and
losses at December 31, 1995 and 1994 was $330.6 million and $372.3 million,
respectively.
27
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
Through its asset and liability management function, the Company maintains
a disciplined approach to the management of liquidity, capital, interest rate
risk and foreign exchange risk. The Company has a formal process for managing
its liquidity in the U.S. and internationally to ensure that funds are available
at all times to meet the Company's commitments.
The Company's principal sources of cash are proceeds from the issuance of
short-term and long-term debt and cash provided from the Company's operations.
In the past, Ford has made periodic capital contributions to the Company. As a
result of Ford's decreased ownership interest in the Company, Ford may not be
willing to make capital contributions to the Company in the future. In addition,
because Ford may seek to maintain its beneficial ownership percentage of the
Company, the Company may be constrained in its ability to raise common or
preferred equity capital in the future. For a discussion of the potential impact
of Ford's financial condition on the Company's ability to raise capital, see
"Risk Factors -- Limitations upon Liquidity and Capital Raising -- Potential
constraints upon ability to raise capital and fund operations". Nevertheless,
the Company believes that it has available sufficient liquidity, from a
combination of cash provided from operations and external borrowings, to support
its operations.
A principal strength of the Company is its ability to access the global
debt markets in a cost-efficient manner. Continued access to the public and
private debt markets is critical to the Company's ability to continue to fund
its operations. The Company seeks to maintain a conservative liquidity position
and actively manage its liability and capital levels, debt maturities,
diversification of funding sources and asset liquidity to ensure that the
Company is able to meet its obligations. The Company's U.S. operations are
principally funded through domestic borrowings made by ACONA and, to a much
lesser extent, directly by the Company. The Company's Foreign Subsidiaries are
principally financed through private debt borrowings made directly by the
particular foreign entity in the local currency and, to a lesser extent, fully
hedged intercompany borrowings.
At December 31, 1995, the Company had short-term debt outstanding of $13.7
billion. Short-term debt principally consists of commercial paper issued by
ACONA and represents the Company's primary source of short-term liquidity.
Commercial paper is issued with maturities ranging from 1 to 270 days. The
average interest rate on short-term debt in 1995 and 1994 was 5.98% and 4.35%,
respectively. The change in average rates was principally due to the overall
changes in market rates during such years.
At December 31, 1995, the Company had long-term debt outstanding of $21.4
billion. Long-term debt principally consists of unsecured long-term debt issued
publicly and privately by ACONA in the United States and abroad, and to a lesser
extent, private borrowings made by the Company's foreign subsidiaries. During
the years ended 1995 and 1994 the Company raised debt aggregating $6.3 billion
and $4.8 billion, respectively, through public and private offerings at weighted
average effective interest rates and weighted average terms of 6.59% and 5.7
years and 6.94% and 4.7 years, respectively. The change in effective average
interest rates was primarily caused by overall changes in market rates during
such years. A portion of the long-term debt raised was used to retire
outstanding indebtedness. For the years ended 1995 and 1994, the Company
replaced maturing long-term debt in the amount of $2.5 billion and $2.4 billion,
respectively.
Interest rate risk management is measured and controlled through the use of
two different techniques: static gap analysis and financial forecasting, both of
which incorporate assumptions as to future events. The Company's GAP POSITION is
defined as the sum of floating rate asset balances and principal payments on
fixed rate assets, less the sum of floating rate liability balances and fixed
rate liability maturities. The Company measures its gap position at various time
horizons, ranging from three months to five years. The Company seeks to maintain
a positive one-year gap position within a range of 15% of total earning assets,
although the one-year gap position is not necessarily illustrative of the gap
position at shorter or longer time horizons. The Company's three-, six- and
twelve-month gap positions at December 31, 1995 were -2.8%, 1.4% and 9.2%,
respectively. A
28
<PAGE> 32
positive gap position at one year indicates that a greater percentage of assets
than liabilities reprice within a one-year time frame. Generally, the
combination of a positive gap position and a rising rate environment will result
in assets repricing to higher rates more quickly than liabilities, thereby
producing wider lending spreads over a given time frame. Conversely, the
combination of a positive gap and a falling rate environment will generally
result in narrowing lending spreads over a given time frame. The Company
believes that its portfolio has repricing characteristics that mitigate the
impact of rate movements over both the short- and long-term. In addition to the
gap analysis, the Company uses financial forecasting to evaluate the impact on
earnings under a variety of scenarios that may incorporate changes in the
absolute level of interest rates, the shape of the yield curve, prepayments,
interest rate spread relationships and changes in the volumes and rates of
various asset and liability categories.
Management believes that the Company has limited exposure to exchange rate
risk related to its foreign operations. At December 31, 1995, the Company had
$55.7 million of outstanding hedged borrowings with its foreign operations. For
the year ended December 31, 1995, approximately 10% of the Company's revenues
and 10% of its net earnings were derived from its operation in Japan. In recent
years, the value of the Japanese yen has appreciated sharply against the U.S.
dollar. Appreciation had a positive impact upon the contribution of AIC to the
Company's revenues and net earnings expressed in U.S. dollars. Any appreciation
of the U.S. dollar against the Japanese yen would adversely affect AIC's
contribution measured in U.S. dollars. The Company has also entered into various
support agreements on behalf of certain non-U.S. subsidiaries, including AIC.
Under these support agreements, the Company has either guaranteed specific
issues of such subsidiaries' debt denominated in foreign currency or agreed to
supervise operations in a responsible manner and to provide additional support
on a lender's reasonable request. See Notes 6, 7 and 15 to the Company's
supplemental combined financial statements for a further description of the
Company's borrowings and currency hedging activities.
Substantial additional liquidity is available to the Company's domestic
operations through established credit facilities in support of its net
short-term borrowings. Such credit facilities provide a means of refinancing its
maturing short-term obligations as needed. At December 31, 1995, short-term bank
lines, revolving credit facilities and receivable purchase facilities totaled
$10.3 billion, none of which was in use at that date. These facilities
represented 77% of domestic net short-term indebtedness outstanding at December
31, 1995.
Additionally, the Company believes it has access to other sources of
liquidity, which to date it has not accessed, including, among others, the
securitization or sale of its assets and issuance of alternative forms of
capital, including preferred stock.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS
No. 123") effective in 1996. The Company has not determined whether it will
adopt the fair value-based method prescribed by SFAS No. 123 or use the
accounting prescribed by APB No. 25, "Accounting for Stock Issued to Employees".
In any event, the effect is not expected to be significant to the Company's
results of operations or financial condition.
29
<PAGE> 33
BUSINESS
OVERVIEW
The Company is a leading, diversified consumer and commercial finance
organization which provides finance, leasing and related services to
approximately 9.4 million individual consumers and 143,000 businesses in the
United States and internationally. At or for the year ended December 31, 1995,
the Company had aggregate net finance receivables of $39.7 billion, total assets
of $41.3 billion, net earnings of $723.1 million and stockholder's equity of
$4.8 billion. The Company believes that it is the second largest independent
finance company in the United States based on aggregate net finance receivables
outstanding. The Company's operations outside the United States are conducted
principally in Japan ($2.1 billion of net finance receivables) and are also
conducted in, among other places, the United Kingdom and Canada.
As the following graph depicts, over the last five years after-tax earnings
have grown at a compound annual rate in excess of 19% to $723.1 million and
return on average equity has grown to 15.66% for the year ended December 31,
1995. Such growth resulted principally from internal expansion (through, among
other things, branch openings, new lines of business and geographic expansion)
as well as selective acquisitions.
AFTER-TAX EARNINGS AND RETURN ON AVERAGE EQUITY
(DOLLARS IN MILLIONS)
- --------------- LOGO
(1) In order to present 1991 return on average equity and after-tax earnings on
a basis consistent with subsequent years, certain debt related to Ford's
acquisition of the Company's operation in Japan which was converted to
equity during 1991 has been treated as if it were converted as of December
31, 1990 and the related 1991 non-recurring interest expense of $39.2
million has been excluded. If this debt had not been so treated and the
related non-recurring interest expense included, return on average equity
would have been 12.49% and after-tax net earnings would have been $311.9
million.
30
<PAGE> 34
The Company divides its diverse activities into consumer finance and
commercial finance. The Company's consumer finance operations consist of a
variety of specialized consumer financing products and services, including home
equity lending, personal lending, retail sales financing and credit cards. The
Company's commercial operations primarily provide retail financing, leasing and
wholesale financing for heavy-duty and medium-duty trucks and truck trailers,
construction, material handling and other industrial equipment and manufactured
housing.
The business of the Company and its products are depicted in the following
chart:
LOGO
31
<PAGE> 35
As shown in the table below, the Company has expanded its business over the
last five years, both through internal growth and selective acquisitions. The
table sets forth data for the respective periods (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consumer Net Finance
Receivables....................... $27,575.3 $23,627.8 $19,912.4 $17,412.7 $15,275.9
Commercial Net Finance
Receivables....................... 12,127.2 10,057.9 8,382.3 6,958.3 6,396.9
--------- --------- --------- --------- ---------
Total Receivables................... $39,702.5 $33,685.7 $28,294.7 $24,371.0 $21,672.8
========= ========= ========= ========= =========
Composition of Receivables Growth
Internal(1)....................... $ 5,713.4 $ 4,876.2 $ 2,881.7 $ 1,689.9 $ 3,531.8(2)
Acquisitions...................... 303.4 514.8 1,042.0 1,008.3 1,840.2
--------- --------- --------- --------- ---------
Total Growth........................ $ 6,016.8 $ 5,391.0 $ 3,923.7 $ 2,698.2 $ 5,372.0
========= ========= ========= ========= =========
Percent of Growth from
Acquisitions...................... 5.0% 9.5% 26.6% 37.4% 34.3%
</TABLE>
- ---------------
(1) Internal growth includes receivables generated by acquired businesses from
the date of acquisition.
(2) Includes $2.2 billion of receivables from the transfer of Ford Consumer
Finance Company, Inc. from Ford to the Company.
Internal expansion has resulted from, among other things, branch openings,
new lines of business and geographic expansion. The Company actively pursues
attractive acquisition opportunities, and, over the past five years,
acquisitions have represented a significant percentage of the Company's net
receivables growth in any particular year. There can be no assurance, however,
that such acquisition opportunities will continue to be available to the Company
in the future. Set forth below is certain information concerning several of the
Company's more significant acquisitions from 1991 through 1995 (in millions):
<TABLE>
<CAPTION>
NET FINANCE
RECEIVABLES
ACQUISITION ACQUIRED DESCRIPTION
- ----------------------------------- ----------- ---------------------------------------------
<S> <C> <C>
LCA (1995)......................... $ 252 Commercial leasing receivables, principally
related to machine tool finance
Amoco (1994)....................... 454 Private label credit card receivables
Mack Financial (1993).............. 629 The assets of the financing division of Mack
Trucks Inc., consisting of commercial
finance receivables, principally secured by
heavy-duty trucks and truck trailers
Allied Finance (1993).............. 146 Consumer finance branch office franchise
operating principally in Texas
First Family Financial (1992)...... 546 Consumer finance branch office franchise
operating principally in the Southeastern
United States
Signal Finance (1992).............. 290 Consumer finance receivables and branch
offices
Chase Manhattan Leasing (formerly
Clark Equipment Credit) (1991)... 800 Equipment finance business operating in the
United States and Canada
Kentucky Finance (1991)............ 276 Consumer finance branch office franchise
operating principally in Kentucky
</TABLE>
32
<PAGE> 36
STRATEGY
The Company believes that its consistent growth in profits has resulted
from the balanced pursuit of asset and revenue growth and risk and expense
control. The Company attempts to increase its net finance receivables by
emphasizing customer service and convenient product delivery and expanding its
relationships with existing customers. The Company also seeks to develop
products and services for new markets believed to have strong profit potential.
OPERATING DISCIPLINES. The Company believes that the following operating
disciplines have been key to its success: (i) focusing employees on growth and
profitability through incentives, (ii) maintaining strict credit underwriting
standards and collection policies to reduce losses, (iii) controlling operating
expenses and (iv) sourcing funds on a cost effective basis. The Company believes
that adherence to these disciplines has created a receivables portfolio that is
diversified by market, geography, customer, maturity and product. As a result,
the Company believes that it has been able to reduce its exposure to adverse
economic developments in any particular market or region. The Company has also
developed flexible branch and centralized delivery systems that it believes
allow it to best serve the diversified nature of its business activities and
customer base.
Employee Focus. The Company recognizes and rewards employee performance at
all levels of the organization. Performance measures are tailored to the
specific objectives of each business unit. Individual rewards for meeting
specific pre-set targets represent a meaningful portion of an employee's
compensation package. For example, in certain branches the Company provides
incentives to branch employees enabling the employees to earn bonuses when the
branches meet established performance objectives. Performance objectives include
measures of sales, service, collections and profitability.
Credit Quality. To maintain profit margins and minimize risk, the Company
employs various credit analysis techniques, including proprietary credit and
BEHAVIORAL SCORING SYSTEMS to price loans according to risk. The Company places
significant emphasis on proper assessment of customer credit profiles as well as
maintaining appropriate loss reserves. While approaches for CREDIT SCORING,
reserving and portfolio monitoring are developed at the corporate level, the
Company believes that both delinquencies and credit losses have been reduced
through close contact with its customers and early attention to problem
situations.
Expense Control. The Company seeks to control operational expenses at every
level. For example, the Company has invested in technology and other systems
designed to improve the level of service provided to customers as well as
centralize those functions that can be administered more prudently and
efficiently on a Company-wide basis.
Funds and Capital. The Company seeks to source funds on a cost effective
basis by maintaining strong credit ratings and a conservative capital structure,
accessing selected global markets and managing asset/liability and interest rate
exposures. The current long-term credit ratings of ACONA are Aa3 and AA- as
determined by Moody's and Standard & Poor's, respectively. Those for the Company
are A1 and A+, respectively. ACONA's commercial paper ratings are P-1 and A-1+
from Moody's and Standard & Poor's, respectively, the highest ratings available
for commercial paper.
BUSINESS OBJECTIVE. The Company's business objective is to continue to
achieve consistent profitable growth based upon the foregoing operating
disciplines, regardless of market conditions and interest rate environments. The
Company believes this objective can be met by the following strategies:
Expanding Existing Businesses. The Company seeks to generate growth from
its current businesses by expanding its relationships with customers, increasing
its number of branches and developing new products. The Company also seeks to
enhance profitability through productivity improvements, including investments
in proven technology. The Company strives to establish additional customer
relationships and arrangements with third parties, such as major oil companies
33
<PAGE> 37
(private label credit cards) and selected manufacturers (financing for material
handling equipment), to provide financing services that enhance the distribution
of their products.
Identifying New Markets. The Company also seeks to achieve profitable
domestic and international growth by developing delivery systems and marketing
strategies that target niche markets and customer segments with strong profit
potential. In recent years, for example, the Company has begun to focus on
sourcing home improvement loans and providing financing and leasing for
medium-duty trucks. See "-- Consumer Finance" and "-- Commercial Finance".
Building Customer Relationships. Through its multiple distribution systems,
the Company seeks to design marketing strategies and servicing standards not
only to identify new customers and originate initial loans but also to retain
existing customers. The Company believes that this strategy has enabled it to
generate repeat loans and migrate existing customers to other finance products.
In its consumer branch delivery systems, the Company seeks to migrate existing
finance customers toward home equity loans by employing analytical tools to
identify those customers who have good payment and credit histories and who may
desire additional credit. Home equity loans typically have higher balances and
lower levels of risk to the Company. The Company's commercial finance businesses
are structured so that the Company's sales representatives and managers maintain
ongoing close contact with dealers and manufacturers (the primary "customers" in
the truck finance and equipment finance arena) as well as product purchasers.
Selective Acquisitions. Although the Company does not rely on acquisitions
for growth, management seeks to continue to pursue opportunistic acquisitions
which meet Company growth and profitability standards. Historically, strategic
acquisitions have, in both the U.S. and international markets, leveraged
operating costs, increased market share, introduced new product lines, enhanced
profitability and fueled growth. Management believes that its disciplined,
financial and operational approach to acquisitions has enabled the Company to
develop the skills required to successfully acquire and integrate acquisitions
into its operations.
DISTINCTIVE CULTURE AND EXPERIENCED MANAGEMENT. Management believes that
employees' commitment to a distinct culture and set of core values distinguishes
the Company from its competitors. Core values include: (i) working hard to
exceed customers' expectations, (ii) taking pride in each employee's work and in
the Company, (iii) conducting business with integrity and trust, (iv) responding
quickly to customer needs, (v) mutual respect and recognition of excellent
performance, (vi) the importance of constant improvement by each employee, (vii)
the belief that intensity and competition fuel success and (viii) the belief in
being a good corporate neighbor. The Company believes its strong, experienced
management team has developed a disciplined operating philosophy and has
implemented a distinct business strategy in each of the Company's diverse
business units. The Company seeks to reinforce such culture and core values to
all employees through extensive training, incentive programs and operating
controls at every level. The Company believes that maintaining its distinct
culture, core values and strong management will continue to be a key element of
the Company's strategy.
CONSUMER FINANCE
GENERAL
The Company's consumer finance business consists of a variety of consumer
financing services and a credit card business. The Company distributes its
consumer finance products through multiple delivery systems, which include (i)
over 1,800 domestic and international consumer branch offices, (ii) a
centralized lending operation principally for third party sourced home equity
loans and (iii) centralized credit card operations. Home equity loans account
for the largest portion of the Company's consumer finance portfolio, and are
distributed through branch delivery systems and a centralized lending operation.
The Company also offers personal installment loans and purchases consumer retail
sales finance contracts through various domestic and international branch
delivery systems. In addition, the Company provides revolving credit financing
through its
34
<PAGE> 38
credit card business, which consists of issuing VISA and MasterCard bankcards
and private label credit cards. The Company, through certain subsidiaries and
others, also makes available various credit-related and non-credit-related
insurance products to its consumer finance customers, including CREDIT LIFE,
CREDIT ACCIDENT AND HEALTH, ACCIDENTAL DEATH AND DISMEMBERMENT, INVOLUNTARY
UNEMPLOYMENT and PERSONAL PROPERTY INSURANCE. See "-- Related Insurance".
The Company's consumer finance customers span a wide range of income
levels, age groups and credit histories. These customers generally have a
history of using credit from a variety of sources and include homeowners,
purchasers of consumer durables (such as furniture, electronics and appliances)
and college students. Customer credit factors generally include, among other
things, job stability, length of time at residence and, in many cases, home
ownership. With respect to its branch delivery system, the Company believes that
an important characteristic is the personal relationships developed between the
branch employee and its customers.
The following table shows net finance receivables outstanding and the
annual growth rates attributable to the various types of consumer financing
products (dollars in millions):
CONSUMER NET FINANCE RECEIVABLES OUTSTANDING
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
----------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------- -------------------- -------------------- -------------------- --------------------
NET ANNUAL NET ANNUAL NET ANNUAL NET ANNUAL NET ANNUAL
RECEIVABLES GROWTH RECEIVABLES GROWTH RECEIVABLES GROWTH RECEIVABLES GROWTH RECEIVABLES GROWTH
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Home Equity
Lending....... $ 14,386.2 16.5% $ 12,349.9 16.3% $ 10,619.7 10.3% $ 9,630.1 16.7% $ 8,249.1 16.3%
Personal
Lending/Sales
Finance....... 6,117.6 15.3 5,304.2 21.8 4,354.2 19.6 3,640.2 12.9 3,224.2 16.7
Credit Card..... 4,818.6 23.1 3,915.5 26.1 3,104.8 18.7 2,614.6 (2.0) 2,668.4 3.2
Manufactured
Housing(1).... 2,034.1 21.9 1,669.2 29.4 1,290.2 31.1 983.9 41.1 697.2 34.6
Accruals and
Other......... 218.8 389.0 543.5 543.9 437.0
---------- ---------- ---------- ---------- ----------
Total
Consumer...... $ 27,575.3 16.7% $ 23,627.8 18.7% $ 19,912.4 14.4% $ 17,412.7 14.0% $ 15,275.9 17.1%
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Except as otherwise indicated, the dollar amount of manufactured housing
receivables is included in the dollar amount of total consumer net finance
receivables throughout this Prospectus, because the credit and related risks
of the manufactured housing business are similar to those of the Company's
consumer finance business. Manufactured housing receivables are included
with consumer net finance receivables in determining the percentage of total
net finance receivables which are consumer net finance receivables. However,
manufactured housing operations are discussed in this Prospectus as part of
the Company's commercial activities because the marketing and management of
manufactured housing products are more closely related to commercial finance
products. See "-- Commercial Finance".
At December 31, 1995, the finance charge yield on all types of consumer net
finance receivables averaged approximately 17% per annum. Variable rates were
charged on 33% of the consumer net finance receivables outstanding at such date.
State laws often establish maximum allowable finance charges for certain
consumer loans; approximately 92% of the outstanding consumer net finance
receivables were either not subject to such state maximums, or if subject, such
maximum finance charges did not, in most cases, materially restrict the interest
rates charged. See "-- Additional Information Regarding the
Company -- Regulation".
HOME EQUITY LENDING, PERSONAL LENDING AND RETAIL SALES FINANCE
OVERVIEW. Home equity loans account for the largest share (52%) of the
Company's consumer finance portfolio and are distributed through its U.S. and
international branch delivery systems and a centralized lending operation. The
Company offers personal installment loans and purchases retail sales finance
contracts from retailers through its various domestic and international branch
delivery systems.
The Company's consumer finance branch system traces its roots to 1918 in
South Bend, Indiana. Throughout the Company's history, its branch delivery
system has been at the core of its
35
<PAGE> 39
success. The Company believes its branch delivery system is the largest consumer
finance branch system in the United States and has been a key factor in the
growth and profitability of its consumer finance business. In the United States,
the Company has in excess of 1,400 branch offices in 44 states and serves
approximately 2.5 million customers. Internationally the Company operates
principally in Japan, with 294 branches serving approximately 314,000 customers.
The Company also operates branch systems in the United Kingdom (64 branches) and
Puerto Rico (34 branches) and recently commenced consumer finance operations in
Canada and Mexico.
In the late 1980's, to maintain the core business focus of the branch
delivery system and in recognition of the growth potential in home equity
lending, the Company formed a centralized operation devoted to originating and
servicing home equity loans from mortgage brokers. In 1991, Ford transferred its
centralized home equity lending operation, Ford Consumer Finance Company, Inc.
("FCFC"), to the Company. The Company combined its then-existing broker-sourced
home equity lending operations with those of FCFC and continues to operate its
centralized home equity lending business under the FCFC name. The Company's use
of the name "Ford" is subject to a trademark license agreement. See
"Relationship with Ford -- Trademark License Agreement".
HOME EQUITY LENDING -- PRODUCTS. The Company's home equity lending
activities consist of originating and servicing fixed and variable rate mortgage
loans that are primarily secured by single family residential properties. Such
loans are made to borrowers primarily for the purpose of debt consolidation,
including the refinancing of existing mortgage loans, home improvements and a
variety of other purposes. Relatively few of the Company's originations of home
equity loans are mortgages used for the acquisition of homes.
The following table shows certain information with respect to the Company's
home equity lending receivables:
HOME EQUITY LENDING
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
---------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)..... $14,386.2 $12,349.9 $ 10,619.7 $ 9,630.1 $ 8,249.1
Average Account Balance........... $ 41,356 $ 40,018 $ 36,018 $ 34,179 $ 32,550
Number of Accounts................ 347,864 308,607 294,848 281,752 253,429
Finance Charge Yield to Average
Amount Advanced................. 13.95% 13.62% 13.53% 13.52% 14.43%
Original Term (In Months)......... 157 155 153 158 158
60 + Days Contractual
Delinquency..................... 1.88% 1.45% 1.52% 2.00% 2.63%
Losses to Average Amount
Advanced........................ 1.08% 1.05% 1.16% 1.26% 1.21%
</TABLE>
The Company's home equity loans typically have maturities of up to 180
months. Approximately 36% of the Company's home equity loans are variable rate
loans. While home equity loans may be secured by either first or second
mortgages, at December 31, 1995, approximately 75% of the aggregate net
outstanding balance of home equity lending receivables were secured by first
mortgages.
The Company makes credit decisions based on pre-established guidelines
principally regarding each applicant's credit history and ability to repay.
Company representatives or, in the case of centralized lending, correspondent
lenders or brokers, are responsible for completing, evaluating and processing
each loan application based on information obtained from the borrower or third
parties. Such information includes annual income, length of time at residence
and job stability. A debt to income ratio is calculated, including the monthly
payment on the proposed loan, in determining the ability of the customer to
repay. In addition, the Company reviews credit bureau
36
<PAGE> 40
records to determine the applicant's credit history and may use credit scoring
models to assess the applicant's credit risk profile. Because many branch
customers have borrowed previously from the Company, the branch may also have
direct credit experience with that customer, and this experience can often add a
further level of reliability to the Company's credit evaluation. Loans generally
do not exceed 90% of the appraised value of the property with the maximum LOAN
TO VALUE RATIO available to any customer depending on the credit quality of the
customer and local economic and real estate market conditions. The Company
grants to employees varying levels of lending authority based on the
individual's performance, qualifications and experience. Management approval
outside the local branch is necessary for deviations from the Company's standard
lending practices.
Branch employees receive training concerning the Company's collection
policies, procedures and techniques. The Company seeks to leverage the personal
relationships it develops with its branch customers to make personal contact
with customers whose accounts are delinquent. A branch employee generally
contacts a customer whose account has become ten days contractually delinquent
to learn of any changes in the customer's financial situation and to make
arrangements for payment. A branch manager generally contacts a customer whose
account has become 30 days contractually delinquent to assess the customer's
willingness and ability to repay, including potential loan restructuring
alternatives. Home equity loans more than 90 days contractually past due are
collected through centralized units which manage foreclosures. Collections by
the centralized lending operations are handled from the outset by regional
service centers. Once any foreclosure is completed, the property is marketed by
the Company's real estate owned unit.
PERSONAL LOANS/RETAIL SALES FINANCE -- PRODUCTS. The Company's personal
lending business consists of direct origination and servicing of secured and
unsecured revolving and CLOSED-END PERSONAL LOANS to individuals. Personal loans
are direct consumer loans that are generally not secured by real estate. Such
loans may be secured by existing personal property, including automobiles, as
well as consumer durables and/or guarantees by third parties. Personal loans
generally involve disbursements at the inception of the loan with installment
payments leading to full amortization by maturity, which ranges up to 60 months.
In general, personal loans are made for debt consolidation, home improvement,
education, vacation, taxes and major purchases of appliances and other durable
goods. The Company sources personal loan customers through solicitation of
existing retail sales finance customers, direct mail, advertising and referrals.
The relationships between the Company and its personal loan customers permit the
Company to offer other loan products based on each customer's credit needs.
Retail sales finance contracts are generally for the purchase of items such
as household electronic appliances, furniture and home improvements. The Company
generally purchases retail finance sales contracts from retailers of such items.
These activities provide an important source of new loan customers, since,
following the purchase of a retail sales finance contract, the Company has a
direct relationship with the borrower. The newly-established relationship often
leads to other types of financing for the customer based on the individual's
credit needs. As with personal loans, the terms of retail sales finance
contracts differ based on the amount financed and the credit quality of the
customer. Generally, retail sales finance contracts have terms ranging from 24
to 36 months.
37
<PAGE> 41
Statistical information for average personal loan and average retail sales
finance contract receivables is generally similar. For example, at December 31,
1995, the average balance of the Company's outstanding personal loans was
$2,490, and the average balance of the Company's outstanding retail sales
finance contracts was $1,783. The following table shows certain information with
respect to the Company's aggregate personal lending and retail sales finance
contract receivables:
PERSONAL LENDING/RETAIL SALES FINANCE
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Receivables (In
Millions).................... $ 6,117.6 $ 5,304.2 $ 4,354.2 $ 3,640.2 $ 3,224.2
Average Account Balance........ $ 2,213 $ 2,183 $ 2,111 $ 2,031 $ 2,105
Number of Accounts............. 2,764,050 2,429,281 2,062,200 1,792,328 1,531,993
Finance Charge Yield to Average
Amount Advanced.............. 25.22% 25.47% 24.73% 24.28% 22.94%
Original Term (In Months)...... 37 36 35 39 37
60 + Days Contractual
Delinquency.................. 2.63% 2.41% 2.50% 3.15% 3.68%
Losses to Average Amount
Advanced..................... 4.33% 3.71% 3.23% 4.05% 4.48%
</TABLE>
Credit decisions and collections with respect to personal loans and retail
sales finance contracts are generally handled in a manner consistent with home
equity loans, although actual credit scoring models and credit criteria differ.
Retail sales finance programs feature timely credit approval decisions that, in
many cases, are automated through the Company's centralized credit application
processing systems.
Even where credit decisions have been made centrally, the branches play the
primary role in collections of personal loans and retail sales finance
contracts. Collection responsibility remains with the appropriate branch until
the loan is charged off, at which point collection responsibility moves to a
recovery center. It is the Company's policy to report delinquencies and defaults
from customers on their obligations to credit reporting agencies.
DELIVERY OF HOME EQUITY LOANS, PERSONAL LOANS AND RETAIL SALES FINANCING.
The Company provides its home equity and personal loans and retail sales
financing through both domestic and international branch systems and through a
centralized lending operation. The following table sets forth the distribution
of home equity and personal lending/retail sales finance outstanding net
receivables among the various delivery systems (in millions):
HOME EQUITY AND PERSONAL LENDING/RETAIL SALES FINANCE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------
DOMESTIC INTERNATIONAL
BRANCH BRANCH CENTRALIZED
SYSTEM SYSTEM LENDING TOTAL
--------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
Home Equity Lending......................... $ 6,245.0 $1,112.4 $7,028.8 $14,386.2
Personal Lending/Retail Sales Finance....... 4,716.2 1,381.4 20.0 6,117.6
--------- -------- --------- ---------
Total............................. $10,961.2 $2,493.8 $7,048.8 $20,503.8
========= ======== ========= =========
</TABLE>
Domestic Branch System. At December 31, 1995, the Company's consumer
finance domestic branch system consisted of more than 1,400 geographically
dispersed locations in the United States. These locations operate under five
different nameplates -- Associates Financial Services, TranSouth Financial,
First Family Financial Services, Kentucky Finance and Allied Finance. The
38
<PAGE> 42
Company retained the latter four nameplates following their acquisition by the
Company in order to retain name recognition and awareness, customer
relationships and market niches.
Each nameplate operates under similar strategies in specific niche product
or geographic markets. Associates Financial Services operates in 44 states,
typically in retail shopping areas. TranSouth Financial operates in 19 states,
principally in the Southeastern United States. First Family Financial Services
operates in 6 states, principally in the Southeastern United States. Kentucky
Finance operates primarily in Kentucky. Allied Finance operates in Texas. All
offices offer home equity loans (except Allied Finance) and personal loans and
purchase retail sales finance contracts. In addition, TranSouth offices
specialize in retail installment financing through automobile dealers.
The following table shows certain information with respect to the Company's
domestic branch system (dollars in millions):
DOMESTIC BRANCH SYSTEM
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Receivables
Home equity lending..... $ 6,245.0 $ 5,456.1 $ 4,820.8 $ 4,466.3 $ 3,745.6
Personal lending/retail
sales finance........ 4,716.2 4,140.8 3,449.5 2,850.2 2,400.0
----------- ----------- ----------- ----------- -----------
Total
receivables... $ 10,961.2 $ 9,596.9 $ 8,270.3 $ 7,316.5 $ 6,145.6
=========== =========== =========== =========== ===========
Number of Branches........ 1,416 1,356 1,269 1,021 762
Number of Accounts........ 2,479,509 2,175,095 1,844,686 1,581,944 1,304,216
</TABLE>
Since 1991, the Company's domestic branch delivery system has increased by
654 branches (86%), a significant portion of which resulted from new branch
openings.
A key objective of the Company's branches is to establish and maintain
continuing personal relationships with its customers. As a result of the
Company's familiarity and frequent contact with its customers, the principal
source of business at the branch level is from repeat customers. Many of these
customers begin their relationship with the Company through personal loans and
retail sales finance contracts. Once a payment history has been established (or
the financing has been repaid), the Company seeks to encourage customers for
whom an appropriate risk profile has been developed to utilize the Company's
real estate-secured products to satisfy their credit needs. Real estate-secured
products generally provide the borrower with lower-cost financing and reduce the
credit risk to the Company. The customer relationships developed at each branch
are also an important part of the collections process.
The Company also seeks to obtain customers in a number of other ways,
including through purchases of retail sales finance contracts from local
merchants and dealers of consumer goods, new branch openings and related
advertising and direct-mail and telephone solicitations in each branch's target
market. Referrals from existing customers are also important sources of new
business.
Each branch services the loans it originates. Subsequent to credit
investigation and loan approval, ongoing servicing includes processing payments,
soliciting additional business and collecting past due accounts.
In an effort to improve productivity, the Company has recently implemented
a number of technological initiatives, such as electronic credit applications,
centralized payment processing and automated loan documentation. These
initiatives are intended to enable each branch to operate more efficiently,
while preserving its access to information so that it can effectively maintain
its
39
<PAGE> 43
relationships with its customers and monitor account performance. Such
technology is also expected to benefit customers by accelerating the credit
decision process.
The Company also operates a central processing operation for national or
regional sales finance programs to provide more efficient service to retailers,
such as electronic application processing and contract preparation, during their
business hours. Subsequent to origination, sales contracts are generally sent to
local branches in proximity to the customer for servicing. The Company believes
that it distinguishes itself in the market by providing retail merchants with
rapid application turnaround, quick funding, marketing assistance and in-store
technological support.
International Branch System. At December 31, 1995, the Company's
international consumer finance branch system consisted of 400 locations. The
Company operates its international consumer finance business principally in
Japan, but also has operations in the United Kingdom, Puerto Rico, Canada and
Mexico. The Company's international branches employ similar operational
disciplines as the domestic branches. Set forth below is a description of the
Company's international consumer finance branch system.
- Japan. The Company operates 294 branches in Japan through its
wholly-owned subsidiary, AIC. AIC provides home equity and personal loans and
purchases retail sales finance contracts from retailers. In addition, AIC
recently introduced credit cards to its portfolio of products. At December 31,
1995, AIC had $3.0 billion of total assets and employed approximately 1,300
individuals. Since 1991, AIC has increased its number of branches by 75%, and
net receivables have grown at a compound annual rate of 28.1%, to $2.1 billion
at December 31, 1995 with approximately 325,000 accounts. At or for the year
ended December 31, 1995, AIC's home equity loans had average original maturities
of 158 months, average account balances of $65,264 and average finance charge
yields of 19.9%. At or for the year ended December 31, 1995, personal loans and
retail sales finance contracts had average original terms of 36 months, average
account balances of $3,580 and average finance charge yields of 34.8%.
Similarly, AIC's operating income has grown from $52.3 million in 1992 to $164.8
million in 1995, a compound annual growth rate of 46.6%. AIC has been operating
in Japan since 1978. At present, AIC operates in every prefecture in Japan. The
Company believes AIC has attractive growth opportunities through opening new
branches and introducing new products in Japan.
- United Kingdom. At December 31, 1995, the Company had 64 branches in the
United Kingdom, approximately 166,200 accounts and $552.6 million of total
assets. The operation offers to consumers home equity and personal loans and
purchases consumer retail sales finance contracts from retailers. In the early
1990s, the size of the Company's operations in the United Kingdom decreased, due
in large part to generally less favorable economic conditions in the United
Kingdom. However, over the last two years the Company's United Kingdom operation
has increased its net receivables by an average of $55.5 million per year.
- Other Consumer International Operations. The Company has 34 branches in
Puerto Rico, which make personal and home equity loans and purchase retail sales
finance contracts from retailers. In 1995, the Company opened two branches in
Mexico, which make personal loans. In Canada, the Company opened six branches in
1995, where the Company purchases retail sales finance contracts from retailers
and makes personal and home equity loans.
40
<PAGE> 44
The following table shows certain information with respect to the Company's
international branches (dollars in millions):
INTERNATIONAL BRANCH SYSTEM
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Japan
Net Receivables
Home equity lending.................. $ 998.5 $ 870.0 $ 665.5 $487.8 $385.6
Personal lending/sales finance....... 1,068.9 849.5 628.7 505.1 438.3
-------- -------- -------- ------ ------
Total........................... $2,067.4 $1,719.5 $1,294.2 $992.9 $823.9
======== ======== ======== ====== ======
Number of Branches...................... 294 249 201 182 168
Other International (principally United
Kingdom)
Net Receivables
Home equity lending.................. $ 113.9 $ 118.2 $ 121.7 $150.7 $223.8
Personal lending/sales finance....... 312.5 300.5 271.2 279.9 377.8
-------- -------- -------- ------ ------
Total........................... $ 426.4 $ 418.7 $ 392.9 $430.6 $601.6
======== ======== ======== ====== ======
Number of Branches...................... 106 77 72 70 69
</TABLE>
Centralized Lending. The Company's centralized home equity lending
operation, conducted through FCFC, extends both closed-end loans and lines of
credit to customers. A majority of the home equity loans at December 31, 1995 in
the Company's centralized home equity lending operation were originated through
financial institutions and mortgage brokers. Mortgage brokers are independent
agents who match their customers with a lender based on the customer's needs and
the credit profile requirements of the lender. The remainder of the home equity
loans in the centralized lending operation at December 31, 1995 were originated
as a result of existing customer relationships, direct mail and telemarketing
efforts or customer referrals. The Company's centralized lending operation
covers most of the United States through three regional service centers and 44
district sales offices located in 41 states. The regional service centers handle
all administrative activities, including underwriting and quality control, as
well as customer service and collections, allowing the sales offices to
concentrate on originating new business and servicing clients.
The table below sets forth certain information with respect to the
Company's centralized lending operation (dollars in millions):
CENTRALIZED LENDING
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables
Home equity lending................. $7,028.8 $5,905.6 $5,011.7 $4,525.3 $3,894.1
Personal lending/sales finance...... 20.0 13.4 4.8 5.0 8.1
-------- -------- -------- -------- --------
Total receivables........... $7,048.8 $5,919.0 $5,016.5 $4,530.3 $3,902.2
======== ======== ======== ======== ========
Number of Accounts.................. 124,967 111,564 102,094 102,470 100,710
</TABLE>
STRATEGIC INITIATIVES. The Company has expanded its core consumer finance
businesses by investing in new offices, providing consumers with more convenient
access to credit, enhancing customer retention and nurturing long-term
relationships, identifying new niche market opportunities and improving
productivity and cost efficiency. Recent Company initiatives include:
41
<PAGE> 45
Branch Expansion. Based on its belief that consumers generally prefer a
local, face-to-face lending source, the Company has aggressively pursued branch
expansion activities in the United States and targeted international markets,
primarily Japan. The Company believes that it has gained considerable experience
in selecting local markets for expansion that provide incremental growth and
profit.
Convenient Sources of Funds for Consumers. Consumers are increasingly
demanding convenience and quality service. The Company has responded by
improving the response time to customer needs and providing convenient access to
funds. Under one new program, currently in testing, the Associates Cash
Transaction card issued by Associates Investment enables approved domestic
branch customers to obtain cash advances through automated teller machines.
Customer Retention. The Company has established innovative marketing
programs designed to increase customer satisfaction and retention. For example,
in 1994 the Company began an incentive program for its home equity loan
customers called "Ford Reward". Under this program, borrowers with current
accounts earn discounts of up to $2,500 on the purchase or lease of Ford,
Lincoln or Mercury automobiles and light trucks. All costs of this program are
borne by the Company and paid directly to dealers of Ford products.
Home Improvement Market. The Company has recently created a centralized
operation to concentrate on sourcing home improvement loans from quality
national and regional home improvement dealers. This centralized group seeks to
establish relationships with qualified dealers of home improvement products,
such as kitchen and bathroom remodeling, heating and air conditioning systems
and windows and siding. Home improvement loan customers are also viewed as a
potential source of customers for the Company's home equity products.
Productivity Improvements. The Company seeks to improve its productivity
and cost efficiency. For example, the Company recently centralized payment
processing and certain collection and recovery functions. Furthermore, a new and
improved credit application processing system is being installed in the
centralized home equity lending operation which is expected to reduce paperwork
and manual processing.
CREDIT CARDS
PRODUCTS. The Company's credit card business consists primarily of issuing
VISA and MasterCard bankcards and private label credit cards to consumers. The
strategy of providing both bankcards and private label credit cards has enabled
the Company to grow in the highly competitive credit card market. Through its
banking subsidiary, ANB, the Company acquires customer accounts and seeks to
increase average balances through direct mail and telemarketing solicitations,
CO-BRANDED marketing programs and acquisitions. At December 31, 1995, the
Company had approximately 6.2 million ACTIVE ACCOUNTS.
VISA and MasterCard bankcards are offered directly to the public and
through co-marketing programs with, among others, Amoco Oil Company ("Amoco"),
GTE Vantage Incorporated and GTE Telephone Operations ("GTE"), Citgo Petroleum
Corporation ("Citgo") and Union Oil Company of California ("Unocal"). The
Company issues its credit cards across a wide risk spectrum with interest rates
based on customer credit profiles. In addition to standard VISA and MasterCard
bankcards, the Company offers a VISA Gold bankcard directed primarily to high
credit balance individuals (the "Gold Card"), a VISA and MasterCard program
oriented primarily to customers with a higher risk profile (the "Finance Card")
and VISA and MasterCard programs directed to college students (the "College
Program"). The Gold Card is designed to attract customers with outstanding
balances on credit cards issued by other companies, who will transfer their
balances to a Company credit card in return for a lower interest rate. The
Finance Card is designed for customers who may not qualify for a credit card
from another issuer because they may be new credit users or have had prior
credit problems. The College Program is oriented towards first time credit card
users who are undergraduate or graduate students.
42
<PAGE> 46
The private label credit card business principally consists of a customized
private label revolving charge program for customers of Amoco, who utilize the
cards to purchase gasoline and other automotive products at Amoco gasoline
stations nationwide. In addition, the Company believes that the Amoco credit
card is currently the only gasoline credit card that has a cash advance feature
that may be used at automated teller machines. The Company seeks to target
retailers for potential expansion of its private label credit card business.
The following table shows certain information regarding the Company's
credit card receivables:
CREDIT CARD
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Receivables (In
Millions)................ $ 4,818.6 $ 3,915.5 $ 3,104.8 $ 2,614.6 $ 2,668.4
Average Account
Balance(1)............... $ 771 $ 694 $ 1,385 $ 1,522 $ 1,566
Number of
Accounts(1).............. 6,246,089 5,638,265 2,241,292 1,717,376 1,703,494
Finance Charge Yield to
Average Amount
Advanced................. 20.62% 19.99% 20.29% 21.71% 22.01%
60 + Days Contractual
Delinquency.............. 3.46% 2.99% 2.71% 2.98% 3.63%
Losses to Average Amount
Advanced................. 4.85% 4.64% 4.67% 6.63% 6.81%
</TABLE>
- ---------------
(1) In 1994, the Company acquired Amoco's private label gasoline credit card
program, which added 3.2 million accounts. These accounts generally carried
smaller balances than the Company's bankcard accounts, which had the effect
of decreasing the average balance for the Company's credit card receivables
in 1994 and 1995.
The Company earns revenues as the result of finance charges on revolving
accounts, the interchange fees derived from merchant discounts, annual
membership and other account fees and fees earned from the sale of insurance and
other fee-based products. The Company's credit cards typically bear variable
interest rates.
More than 90% of the credit granted to new accounts results from direct
solicitation of consumers from pre-approved lists which have been reviewed using
proprietary criteria. Risk management is accomplished using proprietary
behavioral scoring systems and generic credit bureau data. To control delinquent
accounts and reduce losses, the Company has developed a system of delinquency
follow-up incorporating written and telephone communication with delinquent
cardmembers. The Company classifies accounts as delinquent when no payment has
been received by the second billing date. Accounts with a high probability of
charge-off are outplaced to collection agencies while accounts which are deemed
to be more easily collectible remain with the Company.
DELIVERY OF CREDIT CARD SERVICES. From its centralized operations the
Company offers its bankcards through direct mail and telemarketing solicitations
and through co-branded marketing programs with major corporations. Of the
accounts at December 31, 1995, approximately 50% resulted from either direct
mail or telemarketing. Approximately 35% were developed as a result of the
marketing of affinity and co-branding relationships. The Company offers
co-branded VISA and MasterCard bankcards (in certain cases featuring low
introductory interest rates) to the customer bases of major corporations, with
the offer of rebates that the customer can use to purchase the goods and
services of the co-brand companies. The Company's co-branded bankcards involve
marketing programs with GTE, Amoco, Unocal and Citgo, among others.
The Company's credit card business focuses on customer service, operating
efficiency and productivity improvements. The Company offers cardmembers 24-hour
service, 365 days a year.
43
<PAGE> 47
The Company's bankcard operation handles incoming customer service telephone
call volume of approximately 1.4 million calls per month. The Company employs an
automated voice response unit to handle most routine requests. However, customer
service representatives are available for customers who prefer to speak with a
person or to handle non-routine requests. The Company routinely monitors the
performance of customer service representatives against established standards.
Customer surveys are regularly conducted in measuring customer satisfaction and
identifying areas for improvement. Customer service representatives are also
trained to sell the Company's products and services. The private label operation
center employs many of the same functions and operational techniques as the
bankcard center.
Data processing functions for the bankcards have been outsourced to
increase product flexibility and operating efficiencies and reduce systems
development costs. However, the Company continues to utilize its proprietary
technology with respect to key elements of the customer relationship including
card issuance, statement production, credit application processing and payment
processing.
STRATEGIC INITIATIVES. The Company's initiatives in the U.S. are to pursue
additional co-branding marketing opportunities with oil, retail and other
businesses, target retailers for potential expansion of its private label cards
and take advantage of selective acquisition opportunities. The Company also
intends to continue marketing its specialty products including its Gold Card,
Finance Card and College Program.
The Company has recently begun to offer bankcards to its customers in Japan
and the United Kingdom. In Japan, the Company is offering a MasterCard bankcard,
which is directed primarily to existing customers of its consumer branch system.
In the United Kingdom, the Company acquired a retail credit card portfolio in
1994 and converted the portfolio to the VISA brand. The Company is seeking to
expand the portfolio through direct mail as well as offers to other new
customers of the Company.
COMMERCIAL FINANCE
GENERAL
The Company's commercial finance business provides a variety of retail and
wholesale financing and leasing products and services for heavy-duty (Class 8)
and medium-duty (Classes 3 through 7) trucks and truck trailers, construction
and material handling equipment and other industrial equipment. The Company
believes that it is the leading independent source of financing for heavy-duty
trucks, truck trailers and heavy construction equipment in the United States. In
addition, the Company believes that it is the third largest provider of
financing to dealers and purchasers of manufactured housing in the United States
with a $2.0 billion portfolio of manufactured housing receivables (which for
financial reporting purposes are included in the Company's consumer receivables
portfolio). The Company also engages in a number of other commercial activities,
including auto fleet leasing and management, Small Business Administration
lending, relocation services and auto club and roadside assistance services. The
Company also makes available various credit-related and non-credit-related
insurance products to its commercial finance customers, including COMMERCIAL
AUTO AND DEALERS' OPEN LOT PHYSICAL DAMAGE, credit life, motor truck cargo and
extended coverage insurance. See "-- Related Insurance".
The Company believes that its focus on serving these highly specialized
niche markets and its ability to provide premium service through experienced
employees has been a key factor in the growth and profitability of its
commercial finance business.
At December 31, 1995, the Company had approximately 143,000 commercial
finance customers, consisting mainly of businesses acquiring or leasing trucks,
truck trailers and other equipment, as well as dealers of these types of
equipment. The Company's commercial finance business is focused on developing
long-term relationships with manufacturers, distributors and users of income
producing equipment. Relationships with manufacturers include, among others,
Paccar, Inc. (Peterbilt and Kenworth trucks), Freightliner Corporation, Mack
Trucks, Inc., Volvo GM Heavy
44
<PAGE> 48
Truck Corporation, Great Dane Trailers, Inc. and Utility Trailer Manufacturing
Company in truck and truck trailer financing and leasing; Ingersoll-Rand Co.
Inc., Volvo Construction Equipment North America, Inc., Clark Material Handling
Co., Melroe Company, a business unit of Clark Equipment Company and Club Car
Inc. in equipment financing and leasing; and Fleetwood Enterprises, Inc.,
Oakwood Homes Corp. and Redman Industries, Inc. in manufactured housing
financing.
The Company provides truck and truck trailer financing and leasing services
from 39 branch offices in the United States and Canada. The Company provides
equipment financing and leasing services from 19 branch offices in the United
States, Mexico and the United Kingdom and, in the case of material handling and
certain other equipment, utilizes two centralized lending and service
operations. Fee-based services are provided from centralized locations. The
Company provides manufactured housing financing through five regional offices
and 14 sales purchase offices to approximately 68,000 individuals. The Company
markets its insurance products to its commercial finance customers through the
same delivery systems used to market its commercial finance products.
The following table shows net finance receivables outstanding and the
annual growth rates attributable to the various types of commercial financing
products (dollars in millions):
COMMERCIAL NET FINANCE RECEIVABLES OUTSTANDING
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
----------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------- -------------------- -------------------- -------------------- --------------------
NET ANNUAL NET ANNUAL NET ANNUAL NET ANNUAL NET ANNUAL
RECEIVABLES GROWTH RECEIVABLES GROWTH RECEIVABLES GROWTH RECEIVABLES GROWTH RECEIVABLES GROWTH
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Truck and Truck
Trailer....... $ 7,648.4 14.5% $ 6,681.5 20.6% $5,540.0 27.3% $4,350.7 8.8% $4,000.3 0.9%
Equipment(1).... 3,827.2 28.1 2,987.4 21.2 2,464.5 7.6 2,290.6 6.1 2,157.9 54.8
Other
Commercial(2).. 416.3 23.7 336.5 (2.5) 345.3 6.3 324.7 20.3 269.8 (11.0)
Accruals and
Other......... 235.3 52.5 32.5 (7.7) (31.1)
--------- --------- -------- -------- --------
Total
Commercial.... $12,127.2 20.6% $10,057.9 20.0% $8,382.3 20.5% $6,958.3 8.8% $6,396.9 14.8%
========= ========= ======== ======== ========
Manufactured
Housing(3).... $ 2,034.1 21.9% $ 1,669.2 29.4% $1,290.2 31.1% $ 983.9 41.1% $ 697.2 34.6%
========= ========= ======== ======== ========
</TABLE>
- ---------------
(1) 1991 reflects the Company's acquisition of Chase Manhattan Leasing (formerly
Clark Equipment Credit). See "-- Overview".
(2) Includes auto fleet leasing, Small Business Administration lending and
fee-based businesses.
(3) Except as otherwise indicated, the dollar amount of manufactured housing
receivables is included in the dollar amount of total consumer net finance
receivables throughout this Prospectus, because the credit and related risks
of the manufactured housing business are similar to those of the Company's
consumer finance business. Manufactured housing receivables are included
with consumer net finance receivables in determining the percentage of total
net finance receivables which are consumer net finance receivables. However,
manufactured housing operations are discussed in this Prospectus as part of
the Company's commercial activities because the marketing and management of
manufactured housing products are more closely related to commercial finance
products.
At December 31, 1995, the interest rates charged on approximately 17% of
the commercial net finance receivables were variable rates. Commercial finance
receivables are generally not subject to maximum finance charges established by
state law, and where such restrictions apply, at the present time, they do not
materially restrict the interest rates charged. See "-- Additional Information
Regarding the Company -- Regulation". At December 31, 1995, the finance charge
yield on all types of commercial finance receivables averaged approximately 10%
per annum.
Except for lease or rental transactions in which the Company owns the
equipment, liens on the equipment financed secure the receivables. Generally,
the dealer and/or manufacturer provides some form of loss protection to the
Company.
45
<PAGE> 49
TRUCK AND TRUCK TRAILER FINANCING AND LEASING
OVERVIEW. The Company believes that it is the leading provider of financing
to the heavy-duty truck and truck trailer industry in the United States based on
units financed. The Company provides wholesale and retail financing services to
dealers to assist manufacturers in selling their products and also provides
financing to purchasers, including owner operators and fleet operators.
In 1974, the Company decided to target heavy-duty truck and truck trailer
sales financing by establishing a dedicated management, credit, marketing and
distribution effort. The unit has grown by maintaining long-standing formal
relationships with the majority of domestic and foreign truck and truck trailer
manufacturers in the United States and Canada. The Company has also expanded its
presence in the heavy-duty truck and truck trailer markets through acquisitions,
and by focusing on selective niches. For example, in 1991 the Company formed its
environmental division through the acquisition of a business specializing in
liquid and solid waste transportation equipment financing and leasing.
At December 31, 1995, the Company had net truck and truck trailer finance
and lease receivables in excess of $7.6 billion. The Company provides financing
and leasing to more than 1,800 dealers and more than 70,000 trucking firms and
private carriers. The Company's traditional market focuses on owner operators
and small to medium fleets of less than 500 vehicles, but it also has some
larger fleet relationships.
According to industry estimates, there are approximately 323,000 trucking
companies in the United States. The majority of these companies are small, with
approximately 60% of such companies believed to be operating six or fewer
trucks. Domestic sales of heavy-duty trucks depend on the trucking industry's
capital requirements, which are in turn affected by the country's general
economic conditions. In addition, heavy-duty truck sales are sensitive to other
factors such as fuel costs, interest rates, federal excise and highway use taxes
and taxation of the acquisition and use of capital goods. Over the last 20
years, heavy-duty truck sales have ranged from a low of 75,800 units in 1982 to
201,300 units in 1995, the best year for sales of such trucks in the United
States, and there can be no assurance that sales of heavy-duty trucks will
continue at 1995 levels.
The Company believes that it has been relatively successful during economic
downturns. Unlike many competitors, the Company has not withdrawn or retreated
from the truck and truck trailer financing market during economic downturns. The
Company believes that this long-standing commitment, sustained over many years,
has attracted dealers and carriers to the Company as a reliable source of
funding in all economic environments.
PRODUCTS AND SERVICES. The Company provides retail financing and leasing
for purchasers and users of medium-duty through heavy-duty trucks and truck
trailers, as well as wholesale financing, ACCOUNTS RECEIVABLE FINANCING and
working capital loans to dealers and trucking companies. The Company also
provides financing and leasing for truck and truck trailer purchases by truck
leasing and rental companies.
46
<PAGE> 50
The following table shows certain information regarding the Company's truck
and truck trailer financing and leasing receivables:
TRUCK AND TRUCK TRAILER
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
-----------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)
Retail........................... $ 5,300.6 $ 4,820.4 $4,075.7 $3,226.3 $2,990.3
Lease............................ 1,300.1 1,110.5 891.8 804.7 736.5
Wholesale........................ 1,047.7 750.6 572.5 319.7 273.5
---------- ---------- -------- -------- --------
Total.................... $ 7,648.4 $ 6,681.5 $5,540.0 $4,350.7 $4,000.3
========== ========== ======== ======== ========
Retail and Leasing Receivables
Average account balance.......... $ 37,127 $ 36,147 $ 32,544 $ 29,166 $ 27,794
Number of accounts............... 177,789 164,076 152,638 138,210 134,085
Finance charge yield to average
amount advanced............... 10.24% 9.94% 10.49% 11.32% 12.35%
Original term (In Months)........ 51 50 49 48 49
60 + days contractual
delinquency................... .82% .32% .68% 1.02% 2.22%
Losses to average amount
advanced...................... .16% .06% .26% .52% .66%
Wholesale Receivables
Average balance per dealer....... $1,427,384 $1,055,696 $822,557 $556,000 $467,521
Number of active dealers......... 734 711 696 575 585
</TABLE>
Retail Financing. The Company provides retail financing of new and used
medium-duty through heavy-duty trucks and truck trailers primarily on an
indirect basis through truck and truck trailer dealers. The Company has
agreements in place with approximately 40 truck and truck trailer manufacturers
to provide retail financing for their dealership organizations. Under an
installment sales contract, the dealer and purchaser enter into a financing
arrangement for the installment purchase of a truck or truck trailer. Subject to
credit approval by the Company, the dealer assigns the installment contract to
the Company. The Company funds the transaction by a payment to the dealer for
the net amount financed in the contract. The Company also sources retail truck
and truck trailer financing on a direct basis with the truck or truck trailer
purchaser.
Generally, retail financing transactions provide for terms up to 60 months
for trucks and up to 84 months for truck trailers at fixed rates of interest.
The interest rate varies depending on, among other things, the credit quality of
the purchaser, the transaction size, the term and down payment, and whether the
collateral is new or used.
Leasing. The Company also provides fleet leasing for users of medium-duty
through heavy-duty trucks and truck trailers. The Company offers a variety of
truck and truck trailer lease options, but more than 90% of its truck and truck
trailer leases are non-maintenance, net OPEN-END LEASES commonly referred to as
T.R.A.C. (Terminal Rental Adjustment Clause) leases. Under such leases, the
customer is responsible for the maintenance and residual value of the vehicle
and the Company retains the depreciation benefit. Therefore, these leases do not
result in any RESIDUAL RISK to the Company, although the risk of the lessee's
failure to make lease payments still exists. The Company also offers CLOSED-END
LEASES pursuant to which the lessee leases the vehicle for a specified term
subject to certain restrictions, including mileage restrictions. The Company is
the owner of the vehicles under closed-end leases and is fully responsible for
the residual value. Residual values are established at the inception of a lease
and are based on a percentage of the estimated value of the vehicles at the time
the Company expects to dispose of the vehicles. These estimates are derived by
the Company from, among other things, market information on sales of used
vehicles and estimated
47
<PAGE> 51
obsolescence trends. The Company regularly reviews the residual values of leased
vehicles. If the residual values have declined, adjustments are made that may
result in a charge to income.
The Company actively manages its residual risk by working with lessees
during the lease term to encourage lessees to extend their leases, exercise
options to purchase the leased vehicles or upgrade and enhance their leased
vehicles, as appropriate, and by monitoring the various trucking industry
segments for obsolescence trends. The Company uses its asset management
capabilities (including asset remarketing) and technical expertise to help
manage its residual positions. As of December 31, 1995, aggregate truck and
truck trailer residuals for leases in the Company's portfolio approximated $444
million. Of this amount, approximately $26 million were under closed-end leases
under which the Company contractually bears the residual risk.
Wholesale Financing. The Company provides new and used vehicle wholesale
financing to more than 700 truck and truck trailer dealers throughout the United
States and Canada. The Company has agreements in place with approximately 40
truck and truck trailer manufacturers to provide wholesale financing for their
dealer organizations. Generally, wholesale loans are short-term loans with
variable rates (prime based) and are secured by inventory. Subject to, among
other things, the level of retail financing transactions purchased from a dealer
in the preceding quarter, the Company generally assesses a flat charge service
fee for each unit in inventory and generally requires periodic principal
reductions. These reductions are scheduled to compensate for any potential
decline in the value of the collateral.
In addition, the Company makes available working capital loans to truck and
truck trailer dealers that generally are secured by real estate and/or parts
inventory and receivables. Proceeds are used generally for expansion of the
dealer's business or acquisition of other dealerships. The maturities of these
loans generally do not exceed 60 months, and the interest rate charged generally
is fixed for the life of the loan.
The Company also engages in receivables financing and other asset-based
lending to truckload carriers and manufacturers. These products generally are
variable rate loans and are secured by accounts receivable. Both revolving and
term loans are generally variable rate loans.
RISK MANAGEMENT. The Company employs a variety of techniques to manage
credit risk and reduce credit losses in its financing and leasing of trucks and
truck trailers. The Company has developed written policies to govern the credit
and risk management aspects of the Company's business. Individual credit
approval authorities for retail transactions may vary and are delegated based on
the employee's position and experience. Credit approval requests for
transactions beyond the established credit approval limits are submitted through
a tiered credit committee system which the Company believes provides a thorough
risk management control system. Branches do not approve wholesale, accounts
receivable or working capital financing; a senior credit officer of the Company
is responsible for these approvals. Compliance with these policies is monitored
through a series of audits and portfolio reviews conducted by internal audit and
senior risk management personnel. Dealers are reviewed through the branch and/or
centralized credit processes, including financial statement analysis. Such
analysis is done before the beginning of the financing relationship and
periodically throughout the life of the relationship.
Retail Financing and Lease Transactions. The credit review of new business
solicited through the branch distribution system is initiated at the branch
level. A credit review generally includes credit investigation, collateral
evaluation and, if required, a review of the financial statements of the
purchaser or lessee. The Company also uses credit scoring models for certain
smaller transactions. Terms and conditions are based on creditworthiness,
financial condition of the customer and collateral position and are subject to
the terms of any dealer or manufacturer purchasing program, which may provide
certain loss protection. Transactions exceeding branch credit limit
authorizations require additional levels of management approval.
48
<PAGE> 52
Wholesale Transactions. The Company periodically reviews its wholesale and
working capital loans to ensure that each dealer remains viable and is capable
of meeting its retail and direct obligations to the Company. Reviews are
conducted centrally, with branches providing periodic inspections of collateral
as well as credit, financial and other relevant material. Periodic inspections
of collateral are important in part because liens on collateral for wholesale
financing may not be effective against third party purchasers of such
collateral. Corporate risk management personnel approve and review all
wholesale, accounts receivable and working capital financing limits.
Branch Collection Activities. The Company's collection process is handled
at the branch level which provides local collection personnel with the
knowledge, understanding and ability to respond to diverse and fluctuating local
market conditions. In those cases where collection contact is necessary, account
history is reviewed prior to contact. On-line data technology is utilized to
facilitate timely follow-up during all stages of delinquency. In the event
repossession is necessary, the Company believes its local presence in every
major market is a distinct advantage in the repossession process because of its
ability to locate, recover and return collateral. The Company believes that this
capability is attractive to manufacturers and dealers who provide some form of
loss protection to the Company.
DELIVERY OF TRUCK AND TRUCK TRAILER FINANCING AND LEASING. The Company
distributes its finance and lease products and services for trucks and truck
trailers though a network of 39 branch offices throughout the United States (35
offices) and Canada (4 offices). The Company believes that its local presence
gives it an advantage over many of its competitors, which generally operate
regionally or centrally. At the same time, the Company believes that the
geographic and industry dispersion of its receivables reduces its exposure to
downturns in any particular region or industry (such as logging in the Pacific
Northwest and mining in the Southeast).
The Company believes that the experience of its branch personnel is an
important competitive advantage. Branch managers average 24 years of experience
with the Company and sales representatives average 17 years of experience with
the Company. Through the Company's emphasis on education, training, development
and advancement programs, branch personnel have the opportunity to develop
expertise in the technical aspects of the truck and truck trailer industry.
Sales representatives call on dealers for the purpose of establishing and
maintaining relationships, promoting the Company as a source of wholesale and
retail financing and leasing and assisting in the underwriting and processing of
individual finance transactions. Sales representatives also call on purchasers
directly.
STRATEGIC INITIATIVES. The Company seeks to increase its penetration in the
truck and truck trailer financing and leasing markets by continuing to invest in
its delivery system, technology, personnel and marketing programs. While the
number of branch offices has remained relatively constant, the Company has added
sales personnel in markets that provide additional opportunities for growth.
Several new initiatives reflect the Company's continued commitment to enhancing
its position in the truck and truck trailer market.
Customer Service. The Company seeks to differentiate itself from its
competitors by providing premium service to manufacturers, dealers, distributors
and users of truck and truck trailer financing products. Elements of this
premium service include, among other things, timely response to customer needs,
employing marketing professionals with in-depth product and industry knowledge
and emphasizing long-standing personal relationships.
Dealer-based Services. The Company continues to develop both internal and
dealer-based technology to improve services to its dealer customer base by
automating dealer financing tasks, including preparing finance, lease and
insurance premium quotations and electronic document preparation.
International Expansion. The Company is seeking continued growth from
international expansion. A 1993 acquisition expanded the Company's Canadian
business. In addition, a branch in
49
<PAGE> 53
Mexico was opened in 1995, and the Company also expanded its presence in the
United Kingdom during 1995. The Company believes that its long-standing
relationships with domestic and foreign manufacturers will benefit the Company
in global markets.
Medium-duty Trucks. In 1995, the Company expanded its presence in the
medium-duty truck market. While the Company believes that the medium-duty market
approximates the size of the heavy-duty market, the Company's market share in
the medium-duty truck segment has lagged behind its heavy-duty truck market
share. The Company recently employed a dedicated sales force and centralized
marketing function in its effort to improve its market share in selected U.S.
medium-duty truck markets. The Company has centralized and automated the credit
application process for medium-duty truck financing and leasing while relying on
the Company's branch system for local collections and account servicing.
Truck Trailer Rental. In 1995, the Company entered the short-term truck
trailer rental business. Marketing efforts target existing private fleet and
truckload carriers. The Company believes that the increasing use by
manufacturers of "just-in-time" inventory management will result in fleet owners
having periodic peaks in demand for truck trailers and that truck trailer
rentals will become an integral part of fleet management programs.
EQUIPMENT FINANCING AND LEASING
OVERVIEW. The Company is a leading independent source of financing and
leasing of new and used construction, mining, forestry, industrial, machine
tool, material handling, communications and turf maintenance equipment and golf
cars in the United States and Canada. The Company offers wholesale and rental
fleet financing to dealers (who may either sell or rent the equipment to end-
users) and retail financing and leasing to end-users of equipment in niche
markets.
The Company originally modeled its equipment finance business after the
early success of the Company's truck and truck trailer finance business by
establishing dedicated branches throughout the United States. The Company seeks
to develop and maintain relationships with manufacturers and their distributors
and dealers. Such relationships may take the form of CAPTIVE FINANCE PROGRAMS,
factory endorsed programs or other forms of lender programs. In the mid-1980's,
the Company responded to changing market demands in which equipment users
demanded greater access to rental equipment by offering wholesale financing
plans to support manufacturers who neither had the capital nor the financial
infrastructure to provide such financing to their dealers. During the early
1990's, the Company expanded its activities through strategic acquisitions of
certain finance companies and the acquisition of finance and lease portfolios.
The Company combined these operations in 1995 to form a centralized operation,
complementing its branch system, to provide specialized financing products to
specific niche markets, primarily through operating agreements with
manufacturers. The Company's distribution systems, specialized sales
representatives and growing list of manufacturer relationships provide the
Company with a diversified base of industries that the Company believes reduces
the risk to the Company from specific industry and regional economic cycles.
The Company seeks to provide financing products and services to support the
entire distribution chain (manufacturers, dealers, and purchasers) in specific,
identifiable niche markets. The Company searches for new niche opportunities
which offer strong growth and profit potential.
50
<PAGE> 54
PRODUCTS AND SERVICES. The Company provides specialized retail financing
and leasing products as well as wholesale financing to dealers and users in a
variety of industries.
The following table shows certain information regarding the Company's
equipment financing and leasing receivables:
EQUIPMENT
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)
Retail....................... $2,059.9 $1,798.8 $1,574.2 $1,505.6 $1,532.0
Lease........................ 1,097.5 635.2 471.0 355.5 304.4
Wholesale.................... 669.8 553.4 419.3 429.5 321.5
-------- -------- -------- -------- --------
Total................ $3,827.2 $2,987.4 $2,464.5 $2,290.6 $2,157.9
======== ======== ======== ======== ========
Retail and Leasing Receivables
Average account balance...... $ 24,424 $ 20,979 $ 18,167 $ 16,506 $ 14,288
Number of accounts........... 129,276 116,019 112,584 112,756 128,525
Finance charge yield to
average amount advanced... 10.82% 10.65% 10.93% 12.30% 12.48%
Original term (In Months).... 48 46 46 47 47
60 + days contractual
delinquency............... .62% .34% .41% .69% 1.38%
Losses to average amount
advanced.................. .22% .11% .26% .51% .60%
Wholesale Receivables
Average balance per dealer... $674,522 $580,588 $449,411 $535,536 $399,379
Number of active dealers..... 993 953 933 802 805
</TABLE>
Retail Financing. The Company provides retail financing for the purchase of
new and used equipment through installment sales contracts purchased from
dealers and distributors, and through direct loans to purchasers. Generally,
retail financing transactions for equipment provide for maturities of up to 60
months at fixed rates of interest. The interest rate varies depending on, among
other things, the credit quality of the purchaser, transaction size, term, down
payment and whether the collateral is new or used.
Leasing. The Company also provides leasing for end-users of equipment,
either directly to the customer or through dealers. As part of residual risk
management, FINANCE LEASES typically include an option for the lessee to acquire
the equipment at a set time before the termination of the lease for a specified
price (designed to offer the lessee an incentive to purchase) and typically
include an option for the lessee to acquire the equipment at the end of the
lease term for the fair market value. Certain residual values are guaranteed by
the selling dealer or manufacturer. Residual values are established at the
inception of a lease and are based on a percentage of the estimated value of the
equipment at the time the Company expects to dispose of the equipment. These
estimates are derived by the Company from, among other things, market
information on sales of used equipment and estimated obsolescence trends. The
Company regularly reviews the residual values of leased equipment and records a
charge to income in the event of declined residual values.
The Company actively manages its residual risk by working with lessees
during the lease term to encourage lessees to extend their leases, exercise
options to purchase the leased equipment or upgrade and enhance their leased
equipment, as appropriate, and by monitoring the various equipment industry
segments for obsolescence trends. The Company uses its asset management
capabilities (including asset remarketing) and technical expertise to help
manage its residual positions. As of December 31, 1995, the Company's aggregate
equipment residuals approximated $178 million, of which approximately $61
million were unguaranteed residuals under closed-end leases.
51
<PAGE> 55
Wholesale Financing. The Company provides wholesale and rental fleet
financing for selected dealers. Generally, wholesale loans are short-term loans
with variable rates (prime rate based) and are secured by inventory. In some
instances, equipment manufacturers provide interest rate subsidies and other
credit support arrangements to induce the Company to finance their dealers.
The Company also provides capital financing to dealers primarily for
start-up, expansion or buy-out of existing dealers. These loans are usually
guaranteed by a manufacturer and are secured by some or all of the assets of the
dealership.
RISK MANAGEMENT. The Company employs a variety of techniques to manage
credit risk and minimize credit losses. The Company's equipment finance business
employs risk management techniques similar to those employed by the Company's
truck and truck trailer finance business. See "-- Truck and Truck Trailer
Financing and Leasing -- Risk Management".
DELIVERY OF EQUIPMENT FINANCING AND LEASING. The Company delivers equipment
financing and leasing products and services through 19 full-service branch
offices in the United States, Mexico and the United Kingdom, as well as through
two centralized operations.
Equipment Branches. Through relationships developed with distributors and
purchasers, branch offices provide financing for higher-priced industrial
equipment (such as heavy construction and mining equipment and machine tools).
In addition, branch offices support manufacturer marketing efforts by promoting
specific retail finance plans and providing quick credit responses. Because of
their experience in the industry, branch office personnel conduct all aspects of
the operations including sales activities, credit reviews, collections and
customer and account servicing.
Centralized Equipment Operations. The Company's centralized vendor support
operations for equipment financing and leasing provide specialized financing
products to specific niche markets, such as material handling and light
construction equipment, golf cars and turf maintenance equipment. These products
are provided primarily on the basis of operating agreements with manufacturers
in a quasi-captive market environment. The centralized operation allows the
Company to take advantage of operating efficiencies in light of the size of the
individual transactions it handles (generally less than $50,000) and the
Company's close relationship with manufacturers. In addition, the Company has a
separate centralized operation devoted to providing financing and supporting
vendor programs in the communications equipment industry.
STRATEGIC INITIATIVES. The Company seeks to increase its penetration in the
equipment financing and leasing markets by continuing to invest in its delivery
systems, technology, personnel and marketing programs.
Customer Service. The Company seeks to differentiate itself from its
competitors by providing premium service to manufacturers, dealers, distributors
and users of equipment financing and leasing products. Elements of this premium
service include, among other things, timely response to customer needs,
employing marketing professionals with in-depth product and industry knowledge
and emphasizing long-standing personal relationships.
Dealer-based Services. The Company continues to develop both internal and
dealer-based technology to improve services to the dealer customer base by
automating dealer financing tasks, including preparing finance, lease and
insurance premium quotations and electronic document preparation.
Machine Tool Financing. In late 1995, the Company acquired a machine tool
financing company in order to increase its financing activity for the machine
tool market. Financing in this market is very fragmented. The Company intends to
use the same approach to this market as it does in other equipment financing
markets, by targeting manufacturers, establishing and expanding relationships
with dealers and providing retail, wholesale and lease programs with the user in
mind.
International Expansion. The Company's business in Canada and the United
Kingdom is marketed on both an indirect (dealer sourced) and direct (purchaser
sourced) basis. The Company
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<PAGE> 56
believes its long-standing relationships in the United States with manufacturers
will benefit its presence in Canada and the United Kingdom. In addition, the
Company believes the Mexican market provides the Company with growth
opportunities.
MANUFACTURED HOUSING
OVERVIEW. The Company believes it is the third largest provider of
financing to the manufactured housing industry in the United States, providing
financing both to dealers and purchasers of manufactured housing. The Company's
manufactured housing finance business, conducted through FCFC, purchases
manufactured housing retail installment contracts originated by retail dealers
in financing the sale of manufactured housing, originates and services direct
loans to purchasers, and provides wholesale financing to approved manufactured
housing dealers. The Company also offers commercial business loans to selected
dealers to provide capital to build new retail sales centers, update existing
facilities or expand into community park sales.
According to the U.S. Department of Commerce, manufactured housing
shipments represented 20.2% of new single-family housing starts and 31.2% of new
single-family homes sold in 1994. The Company maintains agreements with leading
manufacturers of manufactured housing, and the Company originates a significant
portion of its retail manufactured housing financing receivables through one
such relationship. By working through the manufactured housing distribution
channel, the Company has developed relationships with the key dealers in the
industry which have helped the Company's manufactured housing net receivables to
increase from $697.2 million in 1991 to $2.0 billion in 1995. The Company
considers its manufactured housing activities to be a commercial business
principally because the predominant portion of its financing receivables is
obtained from its relationships with manufacturers and dealers, notwithstanding
that the credit and related risks typically are that of the consumer purchaser
of the housing.
PRODUCTS AND SERVICES. The Company offers a variety of financing products
and services to dealers and individual retail purchasers of both new and
pre-owned manufactured homes.
The following table sets forth certain information regarding the Company's
manufactured housing receivables:
MANUFACTURED HOUSING
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Receivables (In Millions)
Retail.......................... $1,601.6 $1,329.2 $1,042.5 $ 812.4 $ 597.8
Wholesale....................... 432.5 340.0 247.7 171.5 99.4
-------- -------- -------- -------- --------
Total...................... $2,034.1 $1,669.2 $1,290.2 $ 983.9 $ 697.2
======== ======== ======== ======== ========
Retail Receivables
Average account balance....... $ 23,990 $ 22,134 $ 20,306 $ 19,045 $ 17,732
Number of accounts............ 66,762 60,052 51,339 42,656 33,713
Finance charge yield to
average amount advanced.... 11.47% 11.94% 12.44% 12.99% 12.96%
Original term (In Months)..... 210 200 194 187 181
60 + days contractual
delinquency................ 0.85% 0.64% 0.67% 0.81% 1.18%
Losses to average amount
advanced................... 1.05% 0.81% 0.83% 0.93% 1.11%
Wholesale Receivables
Average balance per dealer.... $443,135 $354,906 $312,753 $283,471 $261,579
Number of active dealers...... 976 958 792 605 380
</TABLE>
53
<PAGE> 57
Retail Financing. Retail finance products provided by the Company include
(i) the purchase of a retail installment contract or a direct loan for the
purchase of a manufactured home only, (ii) a retail installment contract or loan
on a manufactured home and added amenities such as furnishings, air
conditioning, skirting, appliances and patios and (iii) loans covering both a
manufactured home and the related real estate. Additionally, the Company
purchases retail loans from captive finance companies of manufacturers which
normally carry some form of loss protection. Retail financing products are
generally secured by a lien on the home and have varying maturities, down
payments and interest rates. Original loan terms range up to 25 years. Rates
offered include fixed, variable and graduated rate programs.
Wholesale Financing. The Company provides revolving lines of credit to in
excess of 900 approved manufactured housing retailers in connection with their
inventory purchases of manufactured homes from approximately 90 pre-approved
manufacturers. Generally, wholesale loans are short-term loans with variable
rates (prime rate based) and are secured by inventory. Agreements with
manufacturers provide for repurchase of inventory in the event of retailer
default. Manufacturers may also subsidize the cost of the wholesale financing,
thereby allowing the Company to offer reduced rate financing and extensions on
the initiation of principal payments by retailers.
In addition, in order to stimulate incremental retail and wholesale finance
volume, the Company offers programs and products to key retailers, such as
financing for construction or upgrade of model home centers or development
financing for manufactured home communities. The Company has developed products
and services for manufacturers and retailers of manufactured homes in order to
strengthen strategic alliances and private label finance programs.
RISK MANAGEMENT. Risk management in the Company's manufactured housing
lending operations combines elements of risk management in both the consumer and
commercial segments. As manufactured housing loans are marketed as a commercial
finance product, the Company generally obtains applications for retail
installment sales contracts from approved retailers, and generally performs an
initial credit scoring analysis to determine how the application should be
processed. Applications which are not denied continue to the next stage where
the Company generally conducts a full credit background review consistent with
the consumer finance nature of the individual credit risk, verifying employment,
income and credit references, rental or mortgage experience and credit sources.
As with consumer finance lending, credit decisions are based on established
underwriting guidelines, and an appropriate credit grade is assigned to each
application approved.
Credit underwriting is performed individually on each application submitted
on individual purchaser transactions. Dealers are reviewed periodically to
determine performance and financial status under all terms and conditions of
agreements. Dealer principals generally provide personal guarantees and agree to
repurchase or indemnify the Company from loss for any contracts where fraudulent
conditions are discovered.
DELIVERY OF MANUFACTURED HOUSING FINANCING. The Company distributes
manufactured housing financing through a network of five regional and 14 sales
purchase offices located throughout the United States. The Company's sales
purchase offices establish and maintain relationships with retailers and also
process, review and fund retail credit applications generated from direct or
indirect sources. The Company's regional offices are responsible for approving
and reviewing retailers as well as performing collections and servicing
activities for the retail portfolio. Additionally, the Company has established a
centralized processing center to consolidate certain aspects of its operations.
The Company believes that this distribution system allows the Company to
maintain close relationships with dealers and individual customers while
realizing efficiencies through centralizing certain functions.
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<PAGE> 58
STRATEGIC INITIATIVES. The Company supplements its retail and wholesale
financing products by providing commercial business loans and dealer training
programs and seminars for dealers. Additional initiatives are designed to
further strengthen the Company's competitive advantage while also tapping into
new market niches:
Customer Service. The Company seeks to differentiate itself from its
competitors by providing premium service to manufacturers, dealers and
purchasers of manufactured housing. Elements of this premium service include,
among other things, timely response to customer needs, employing marketing
professionals with in-depth product and industry knowledge and emphasizing long-
standing personal relationships.
Expanded Distribution Network. The Company seeks additional distribution
networks such as manufactured home community operators and community banks. The
Company believes that these new business sources will enhance the Company's
penetration of the pre-owned manufactured housing market.
OTHER COMMERCIAL ACTIVITIES
AUTO FLEET LEASING AND MANAGEMENT. The Company provides leasing and
management services for corporations and municipalities that generally have auto
and light truck fleets of 100 or more vehicles. Fleet leasing service activities
are centralized with nine regional sales offices from which the Company
emphasizes customer service.
The Company's auto fleet management operations provide vehicle leasing and,
for a fee, vehicle management services that primarily include the administration
of vehicle purchase, maintenance and disposal. Auto fleet revenue consists of
leasing revenue and fees for providing various management services. Upon
assuming management of a fleet, the Company seeks to replace vehicles with those
leased by the Company. Typical leases are open-ended, in which the customer is
responsible for the residual value at the end of the lease. Less than 5% of the
Company's leases are closed-end, under which the Company accepts residual risk
at the end of the lease. Leases are usually 36 to 60 months in duration, but the
customer has a contractual right to end the lease any time after 12 months. The
Company had approximately $340 million in auto fleet management related assets
at December 31, 1995.
SMALL BUSINESS ADMINISTRATION LENDING. The Company recently entered the
small business administration loan market under which it extends credit that is
partially guaranteed by the federal government. Financing is provided to small
business customers on a nationwide basis. Operating through two regional offices
at December 31, 1995, the Company had approximately $41 million in net
guaranteed receivables and servicing rights for approximately $83 million of net
receivables.
RELOCATION SERVICES. The Company provides corporations and certain agencies
of the federal government with assistance in employee relocation, origination of
mortgages and management and disposal of residential real estate. The Company
believes that it is a significant provider of relocation services to certain
agencies of the federal government. Ford is presently the Company's largest
corporate client for relocation services.
The Company markets relocation services by competitive pricing, superior
customer service and comprehensive capabilities through two centralized service
centers. Revenue consists primarily of fees from consulting services which
include the marketing, management, acquisition and resale of residential real
estate, the transportation and storage of personal property, and tracking and
reporting of related expenses for clients. While the Company generally bears no
resale risk on real estate marketed in connection with corporate relocations,
the Company does bear the resale risk on homes marketed in connection with
relocations of federal government employees. Market value of these properties is
determined by independent appraisals and the properties are acquired at a pre-
determined discount to the appraised values. On December 31, 1995, the Company
held an ownership position in 835 properties for a total investment of $125
million.
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<PAGE> 59
AUTO CLUB AND ROADSIDE ASSISTANCE. The Company offers various emergency
roadside assistance and related auto club services to consumers through major
corporations, primarily automobile manufacturers, including Ford (the largest
client of the Company's auto club). Services offered include emergency road
service, custom trip routing, discounts on lodging and car rentals and ambulance
service reimbursement.
Based on industry data, the Company believes it operates the second largest
auto club in the United States, with approximately 9.2 million members at
December 31, 1995. The auto club has been increasing its customer base by
approximately 300,000 members per month, substantially all of which is due to
Ford's roadside assistance program operated by the Company. The portion of
non-Ford vehicle-related customer base has decreased in each of the last five
years, primarily as a result of other automakers including roadside assistance
benefits as a standard option on all new vehicles as a sales enhancement.
INTERNATIONAL OPERATIONS
The Company has operations in Japan, the United Kingdom, Canada, Puerto
Rico and Mexico. The foreign operations of the Company consist principally of
its consumer operation in Japan (more than 70% of total foreign operations based
on assets at December 31, 1995). Total net receivables in Japan have grown from
$1.0 billion in 1992 to $2.1 billion in 1995, representing a compound annual
growth rate of 28.1%. Similarly, operating income from the Company's operation
in Japan has grown from $52.3 million in 1992 to $164.8 million in 1995, a
compound annual growth rate of 46.6%. Likewise, the number of branch offices in
Japan has risen from 182 to 294 during this period. The Company believes that
its operation in Japan represents a significant growth opportunity, a platform
for possible expansion in the Pacific Rim and a model for other international
expansion.
The following table sets forth certain information relating to the
Company's international operations (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Net Receivables......... $3,093.0 $2,509.7 $1,930.0 $1,537.4 $1,523.9
Total Assets.................. 4,102.8 3,649.7 2,971.5 2,551.9 2,703.5
Operating Income (Loss)....... 197.8 133.9 72.5 58.3 (3.2)
Number of Branches............ 404 329 278 256 240
</TABLE>
The Company's international operations have represented an increasingly
important source of new business for the Company. Total net finance receivables
have grown from $1.5 billion in 1992 to $3.1 billion in 1995, representing a
compound annual growth rate of 26.2%. Likewise, total operating income has risen
from $58.3 million in 1992 to $197.8 million in 1995, a compound annual growth
rate of 50.3%. An increase of 148 branches over this period has provided the
foundation for this growth. For further financial information relating to the
Company's foreign operations, see Note 17 to the Company's supplemental combined
financial statements.
RELATED INSURANCE
The Company, through certain subsidiaries, makes available various credit
and non-credit insurance products to its finance customers. Insurance products
offered to the Company's consumer finance customers include credit life, credit
accident and health, accidental death and dismemberment, involuntary
unemployment and personal property insurance. Insurance products offered to the
Company's commercial finance customers include commercial auto and dealers' open
lot physical damage, credit life, motor truck cargo and extended coverage
insurance. In addition to INSURANCE UNDERWRITING, the Company also receives
compensation for certain insurance programs underwritten by other companies. The
Company does not underwrite liability insurance. The Company markets its
insurance products to its consumer and commercial finance customers
56
<PAGE> 60
through the same delivery systems used to market its consumer and commercial
finance products, respectively.
The purchase of insurance by a finance customer is optional with the
exception of physical damage insurance on loan collateral which is required. The
customer can purchase such insurance either from the Company or an alternative
carrier. Premiums for insurance coverage are generally financed as part of the
insured's finance obligation. In addition to leveraging the Company's
distribution systems, the Company seeks to leverage its existing insurance
customer base by marketing to its customers non-credit insurance products.
The Company continues to market new insurance products to complement its
core lines of business. In November 1995, the Company began marketing inventory
insurance for dealers of manufactured housing.
STATISTICAL INFORMATION. The following table sets forth certain information
relating to the Company's insurance operations (in millions):
INSURANCE STATISTICAL DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Written Premium
Credit life, accident and other
related............................... $240.6 $242.4 $195.1 $148.3 $112.3
Physical damage.......................... 180.3 168.7 138.9 107.7 85.0
Other casualty........................... 69.6 54.5 35.7 36.1 32.7
------ ------ ------ ------ ------
Total................................. $490.5 $465.6 $369.7 $292.1 $230.0
====== ====== ====== ====== ======
Premium Revenue(2)
Credit life, accident and other
related............................... $164.8 $148.1 $123.6 $107.4 $ 99.7
Physical damage.......................... 148.5 136.7 116.9 107.0 98.6
Other casualty........................... 57.3 44.2 30.4 35.7 38.0
------ ------ ------ ------ ------
$370.6 $329.0 $270.9 $250.1 $236.3
====== ====== ====== ====== ======
Investment Income.......................... $ 68.5 $ 47.3 $ 41.4 $ 47.5 $ 61.7
====== ====== ====== ====== ======
Benefits Paid or Provided.................. $142.5 $147.9 $118.9 $103.7 $ 99.9
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) This table does not reflect any direct or indirect expenses that may be
associated with the Company's insurance operations. The Company markets its
insurance products through its consumer and commercial distribution systems
and, accordingly, does not allocate overhead and related expenses to its
insurance operations.
(2) Includes compensation for insurance proceeds underwritten by other
companies.
INSURANCE RISK. The Company seeks to manage its insurance underwriting risk
through (i) strict underwriting guidelines applied either on an individual
policy or group basis, (ii) the REINSURANCE of certain risks with non-affiliated
reinsurers and (iii) the maintenance of reserves which are reviewed annually. In
addition, the Company's geographically and demographically diverse lending and
insurance customer base reduces concentrations of risk.
Underwriting Guidelines. Where permitted, the Company generally utilizes
health questionnaires to evaluate risks for prospective insureds under life and
health products. For certain casualty products, the Company evaluates risks
based on historical data and characteristics of the prospective insured
including equipment, usage/driving patterns and, for motor truck cargo
insurance, the goods being transported.
Reinsurance. The Company seeks to limit its loss exposures by securing
catastrophe and per risk EXCESS OF LOSS COVERAGES in the reinsurance
marketplace. These coverages are placed through brokers. The underlying
reinsurers are reviewed and approved by the Company with no first level
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<PAGE> 61
coverage provider rated less than "A" by A.M. Best Company. Within the last five
years, no catastrophe coverage claim has been filed.
Reserves. Reserves are established based on historical and actuarially
reviewed data to account for the estimated ultimate costs of claims and claim
adjustment expenses. Reserves are reviewed annually by an independent actuary.
Claims include those that have been reported but not yet settled, reopened
claims, and claims which have been incurred but not reported.
ADDITIONAL INFORMATION REGARDING THE COMPANY
LOAN LOSS RESERVES AND CREDIT LOSSES. The Company maintains an allowance
for losses on finance receivables at an amount which it believes is sufficient
to provide adequate protection against anticipated losses in the portfolios. The
allowance is determined principally on the basis of historical loss experience,
and reflects management's judgment of additional loss potential considering
future economic conditions and the nature and characteristics of the underlying
finance receivables. Additions to the allowance are charged to the provision for
losses on finance receivables.
Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, Company policy generally provides for
CHARGE-OFF of various types of accounts on a contractual basis. Consumer direct
and other installment and credit card receivables are charged to the allowance
for losses when they become 180 days delinquent. All other finance receivables
are charged to the allowance for losses when any of the following conditions
occur: (i) the related security has been converted or destroyed; (ii) the
related security has been repossessed and sold or held for sale for one year; or
(iii) the related security has not been repossessed and the receivable has
become one year delinquent. A delinquent account is one on which the customer
has not made payments as contractually agreed. Recoveries on losses previously
charged to the allowance are credited to the allowance at the time recovery is
collected.
Although the allowance for losses in finance receivables reflected in the
Company's supplemental combined balance sheet at December 31, 1995 is considered
adequate by the Company's management, there can be no assurance that this
allowance will prove to be adequate over time to cover ultimate losses in
connection with the Company's finance receivables. This allowance may prove to
be inadequate due to unanticipated adverse changes in the economy or discrete
events adversely affecting specific customers or industries. The Company's
results of operations, financial condition and the market value of the Common
Stock could be materially adversely affected to the extent that the Company's
allowance is insufficient to cover such changes or events.
The Company employs a variety of credit analysis techniques appropriately
tailored to each of its lines of business. Additionally, the Company has
developed and regularly updates proprietary credit scoring systems designed to
improve its risk-based pricing. The Company uses credit scoring in most, but not
all, extensions of consumer credit. In addition, the Company aggressively
employs VINTAGE ANALYSIS and customer service and collection procedures for
early detection and resolution of potential credit problems.
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<PAGE> 62
The following table sets forth information as of the dates shown concerning
net finance receivables, 60 + days contractual delinquency and losses to average
amount advanced. This information should be read in conjunction with the
discussion of the Company's financial condition under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition" (dollars in millions).
ANALYSIS OF NET FINANCE RECEIVABLES, 60 + DAYS CONTRACTUAL DELINQUENCY AND
LOSSES TO AVERAGE AMOUNT ADVANCED
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Finance Receivables
Home equity lending............................. $14,386.2 $12,349.9 $10,619.7 $ 9,630.1 $ 8,249.1
Personal lending/retail sales finance........... 6,117.6 5,304.2 4,354.2 3,640.2 3,224.2
Credit card..................................... 4,818.6 3,915.5 3,104.8 2,614.6 2,668.4
Truck and truck trailer......................... 7,648.4 6,681.5 5,540.0 4,350.7 4,000.3
Equipment....................................... 3,827.2 2,987.4 2,464.5 2,290.6 2,157.9
Manufactured housing............................ 2,034.1 1,669.2 1,290.2 983.9 697.2
Other commercial................................ 416.3 336.5 345.3 324.7 269.8
Premium and accruals............................ 454.1 441.5 576.0 536.2 405.9
--------- --------- --------- --------- ---------
Total net finance receivables................... $39,702.5 $33,685.7 $28,294.7 $24,371.0 $21,672.8
========= ========= ========= ========= =========
60 + Days Contractual Delinquency
Home equity lending............................. 1.88% 1.45% 1.52% 2.00% 2.63%
Personal lending/retail sales finance........... 2.63 2.41 2.50 3.15 3.68
Credit card..................................... 3.46 2.99 2.71 2.98 3.63
Truck and truck trailer......................... .82 .32 .68 1.02 2.22
Equipment....................................... .62 .34 .41 .69 1.38
Manufactured housing............................ .85 .64 .67 .81 1.18
Losses to Average Amount Advanced
Home equity lending............................. 1.08 1.05 1.16 1.26 1.21
Personal lending/retail sales finance........... 4.33 3.71 3.23 4.05 4.48
Credit card..................................... 4.85 4.64 4.67 6.63 6.81
Truck and truck trailer......................... .16 .06 .26 .52 .66
Equipment....................................... .22 .11 .26 .51 .60
Manufactured housing............................ 1.05 .81 .83 .93 1.11
</TABLE>
RECEIVABLES CONCENTRATION. The Company's ten largest accounts at December
31, 1995 (all of which were current at December 31, 1995) represented 0.7% of
the Company's total gross finance receivables outstanding. All ten of such
accounts are commercial finance accounts and are secured.
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<PAGE> 63
The following table shows the concentration of the Company's net finance
receivables in the ten states and foreign jurisdictions with the highest
concentrations (dollars in millions):
NET FINANCE RECEIVABLES
TEN LARGEST STATES OR FOREIGN JURISDICTIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------------------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL NET CONSUMER COMMERCIAL
TOTAL FINANCE CONSUMER NET FINANCE COMMERCIAL NET FINANCE
AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES
--------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
California..... $ 4,348.6 11.0% $ 3,138.6 11.4% $1,210.0 10.0%
Florida........ 2,394.8 6.0 1,876.2 6.8 518.6 4.3
Texas.......... 2,281.7 5.7 1,279.8 4.6 1,001.9 8.2
Japan.......... 2,125.7 5.4 2,125.7 7.7 -- --
Georgia........ 1,640.9 4.1 1,215.2 4.4 425.7 3.5
Pennsylvania... 1,585.0 4.0 1,006.5 3.6 578.5 4.8
North
Carolina..... 1,581.2 4.0 1,242.5 4.5 338.7 2.8
New York....... 1,576.9 4.0 1,118.3 4.1 458.6 3.8
Illinois....... 1,532.6 3.9 929.4 3.4 603.2 5.0
Ohio........... 1,523.5 3.8 1,043.7 3.8 479.8 3.9
--------- ----- --------- ----- -------- -----
Total........ $20,590.9 51.9% $14,975.9 54.3% $5,615.0 46.3%
========= ===== ========= ===== ======== =====
</TABLE>
COMPETITION. The markets in which the Company operates are highly
competitive. Many of the competitors of the Company in different segments and
regions are large companies that have substantial capital, technological and
marketing resources, and some of these competitors are larger than the Company
and may have access to capital at a lower cost than the Company. The Company
believes that the finance charge rate is one of the primary competitive factors
in many of its markets. From time to time, competitors of the Company may seek
to compete aggressively on the basis of pricing, and the Company may lose market
share to the extent it is not willing to match competitor pricing, in order to
maintain interest margins.
Consumer Finance. Traditional competitors in the consumer finance business
include captive and independent finance companies, commercial banks and thrift
institutions, credit unions, industrial banks, credit card issuers, leasing
companies, manufacturers and vendors. On a local level, community banks and
smaller independent finance and/or mortgage companies are a competitive force.
Additionally, substantial national financial services networks have been formed
by major brokerage firms, insurance companies and bank holding companies. Some
competitors have substantial local market positions; others are part of large,
diversified organizations. Because of their longstanding insured deposit base,
many banks that compete with the Company are able to offer financial services on
very competitive terms.
Competition varies across products offered. While there is considerable
competition in the home equity loan market, the market is fragmented with no
single competitor claiming more than a 10% market share. The Company, as a
portfolio lender, maintains considerable product and delivery flexibility, which
the Company believes is a competitive advantage.
Competition in the credit card industry has been intense over the last
several years. Large money-center banks have been seeking to expand their
profitable credit card units through aggressive pricing and marketing. In
addition, many non-bank competitors specialize in certain growth strategies,
such as partnership and database marketing. The Company addresses these
competitive pressures by focusing on targeted segments of the consumer market,
co-branding relationships and its private label credit card programs.
Competition also differs between the operating divisions of the Company.
For example, competitors of the Company's branch system are distinct from the
competitors of the Company's
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<PAGE> 64
centralized lending operation. In addition, competition varies a great deal
across geographic regions.
Commercial Finance. In its commercial finance business, the Company
competes with captive and independent finance companies, commercial banks,
thrift and other financial institutions, leasing companies, lease brokers,
manufacturers, vendors and others who extend or arrange credit for the
acquisition of truck and truck trailers and equipment.
The Company believes, based on its experience in the industry, that the
primary competitive factors in the commercial finance and leasing business are
price, product quality, risk management, new account marketing and retention of
customers through emphasis on superior customer service. In addition, the
Company believes that innovation is necessary to compete in the industry,
including enhanced customer service, specialization in certain types of
equipment, exploitation of alternative channels of distribution and, in certain
lines of business, optimization of tax treatment between owner and user.
Purchasers of equipment financed by the Company generally seek transactions that
are simple, flexible and customer responsive.
Insurance. Competitors in the insurance business include national, regional
and local insurance companies, as well as self-insurance programs and captive
insurers. Competition in the insurance business is based upon price, product
design and service levels rendered to producers and policyholders. The insurance
business is extremely competitive, in both price and services, and no single
insurer is dominant. The Company believes that its ability to market its
insurance products through its consumer and commercial distribution systems
gives it a distinct competitive advantage over its competitors who do not have
such ability.
EMPLOYEES. At December 31, 1995, the Company had approximately 16,600
full-time and part-time employees, approximately 12,500 of whom were employed in
connection with the consumer finance business and approximately 2,500 of whom
were employed in connection with the commercial finance business. The Company is
not subject to any collective bargaining arrangements. The Company believes that
its employee relations are good.
PROPERTIES. The Company owns its administrative headquarters in Irving,
Texas, consisting of approximately 550,000 square feet. At December 31, 1995,
the Company had approximately 2,100 offices worldwide, including 1,947 consumer
and commercial branch offices as well as other offices performing centralized
functions. Substantially all of these offices are leased pursuant to leases with
terms of generally five years or less. The Company believes that its properties
are suitable and adequate for its business as presently conducted.
LEGAL PROCEEDINGS. The Company is a defendant in various lawsuits arising
in the ordinary course of its business. The Company aggressively manages its
litigation and assesses appropriate responses to its lawsuits in light of a
number of factors, including potential impact of the actions on the conduct of
the Company's operations. While, in the opinion of management, the resolution of
any of these matters is not expected to have a material adverse effect on the
Company's financial condition or results of operations, there can be no
assurance that an adverse decision in one or more of such lawsuits will not have
such a material adverse effect. The outcome of various individual lawsuits,
however, may affect the manner in which the Company conducts its business, as
further described below.
Alabama Concentration. The Company and certain of its subsidiaries are
defendants in a relatively higher concentration of lawsuits in the State of
Alabama than in the remainder of the United States. Management believes that the
aggregate number of lawsuits instituted in Alabama represents additional
exposure to the Company because of the recent history of juries in Alabama
awarding significant damages, both compensatory and punitive, in civil cases.
For example, in 1994, a jury in Alabama awarded damages in excess of $30,000,000
against the Company in one case relating to a $25,000 real estate-secured loan.
The Company's post-trial motion in that case was granted, and the jury verdict
overturned. The case was subsequently settled. Presently, there are
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approximately 100 actions pending against the Company in Alabama. In addition, a
recent Alabama Supreme Court decision, McCullar v. Universal Underwriters Life
Ins. Co., et al., (a case in which the Company was not a party), has cast doubt
on the method many lenders, including the Company, have used to calculate
coverage amounts and premiums with respect to credit insurance. A motion for
reconsideration is currently pending in that case. Although the impact of this
decision on the Company's past activities and pending litigation is not clear,
as a result of this ruling the Company has changed its practices in this area to
conform to the Court's opinion as it currently stands. Presently, the Company is
a defendant in approximately 10 class action lawsuits in Alabama involving
similar claims related to the sale of credit insurance.
Credit Card Fee Litigation. In various states consumers have filed lawsuits
against credit card issuers that claim the issuer does not have the authority to
export fees and charges that exceed the numerical interest rate authorized by
the law of the state where the issuer is domiciled. For example, the California
and Colorado State Supreme Courts have upheld the ability of an out-of-state
bank to export all fees and charges, while the New Jersey State Supreme Court
and a Pennsylvania state appeals court have ruled that only the numerical
interest rate can be exported. In a similar case against a subsidiary of the
Company, Szydlik v. Associates National Bank (Delaware), ANB was sued in a
Pennsylvania class action that alleged ANB's late fees, overlimit fees and
returned check fees were in excess of those allowed by Pennsylvania law. The
trial court in Szydlik dismissed the case, and the United States Court of
Appeals for the Third Circuit has held that such fees constitute interest and
may be exported by a national bank from its state of domicile. With respect to
certain issues relating to fees allowed under California law relating to a
predecessor bank, the case was remanded to federal district court for further
proceedings. An adverse ultimate judgment in Szydlik or an adverse United States
Supreme Court ruling in a similar case could affect ANB's future ability to
export fees and charges, which could adversely impact its results of operations.
The United States Supreme Court has recently agreed to hear arguments in one
such case.
REGULATION. The Company's operations are subject to extensive state and
Federal regulations including, but not limited to, the following Federal
statutes and regulations: the Consumer Credit Protection Act of 1968, as amended
(including certain provisions thereof commonly known as the "Truth-in-Lending
Act" or "TILA"), the Equal Credit Opportunity Act of 1974, as amended (the
"ECOA"), the Fair Credit Reporting Act of 1970, as amended (the "FCRA") and the
Real Estate Settlement Procedures Act (the "RESPA"). In addition, the Company is
subject to state laws and regulations with respect to the amount of interest and
other charges which lenders can collect on loans.
In the judgment of the Company, existing statutes and regulations have not
had a materially adverse effect on the operations of the Company. However, it is
not possible to forecast the nature of future legislation, regulations, judicial
decisions, orders or regulatory interpretations with respect to the foregoing or
their impact on the future business, financial condition or prospects of the
Company.
Consumer Finance. The Company's consumer finance business, including its
credit card business, is subject to detailed supervision by Federal and state
authorities under legislation and regulations which generally require licensing
of the lender, limitations on the amount, duration and charges for various
categories of loans, adequate disclosure of certain contract terms and
limitations on certain collection practices and creditor remedies. Licenses are
renewable, and may be subject to revocation for violations of such laws and
regulations. In addition, most states have usury laws which limit interest
rates. Federal legislation preempts state interest rate ceilings on first
mortgage loans and state laws which restrict various types of alternative home
equity receivables, except in those states which have specifically opted out of
such preemption.
The Company is required to comply with TILA and Regulation Z promulgated
thereunder. TILA requires, among other things, disclosure of pertinent elements
of consumer credit transactions, including the finance charges and the
comparative costs of credit expressed in terms of an annual percentage rate. The
TILA disclosure requirements are designed to provide consumers with
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uniform, understandable information with respect to the terms and conditions of
loans and credit transactions in order to enable them to compare credit terms.
TILA also guarantees consumers a three-day right to cancel certain credit
transactions, including refinanced mortgages and junior mortgage loans on a
consumer's primary residence. Section 32 of Regulation Z mandates that
applicants for real estate loans which contain certain rate and fee amounts be
provided an additional three days waiting period prior to signing loan
documents.
In addition, the Company is required to comply with the ECOA which, in
part, prohibits credit discrimination on the basis of race, color, religion,
sex, marital status, national origin and age. Regulation B promulgated under
ECOA restricts the type of information that may be obtained by creditors in
connection with a credit application. It also requires certain disclosures by
the lender regarding consumer rights and requires lenders to advise applicants
who are denied credit of the reasons therefor. In instances where a loan
application is denied or the rate or charge on a loan is increased as a result
of information obtained from a consumer credit agency, the FCRA requires the
lender to supply the applicant with the name and address of the reporting
agency.
RESPA has been extended to cover real estate secured loans that are
subordinated to other mortgage loans. RESPA and Regulation X thereunder require
disclosure of certain information to customers within prescribed time frames and
regulate the receipt or payment of fees or charges for services performed.
ANB is under the supervision of, and subject to examination by, the Office
of the Comptroller of the Currency ("OCC"). ANB's charter limits its activities
to credit card operations. In addition, ANB is subject to the rules and
regulations of the Federal Reserve Board and the Federal Deposit Insurance
Corporation ("FDIC"). Associates Investment is regulated by the FDIC and the
Utah Department of Financial Institutions. ANB and Associates Investment are
subject to regulation relating to capital adequacy, leverage, loans, deposits,
consumer protection, the payment of dividends, transactions with affiliates and
other aspects of operations. In addition, both ANB and Associates Investment are
subject to the provisions of the Community Reinvestment Act.
The right of federally insured depositary institutions, including ANB and
Associates Investment, to export certain charges to consumers, such as late
fees, overlimit fees and returned check fees, is not settled in some states
under existing law. The restrictions imposed by such laws and regulations could
limit the Company's discretion in operating ANB and Associates Investment.
Federal and state legislation seeking to regulate the maximum interest rate
and/or other charges on consumer finance receivables has been introduced in the
past, and may from time to time be introduced in the future. However, it is not
possible to predict the nature of future legislation with respect to the
foregoing or its impact on the future business, financial condition or prospects
of the Company.
Commercial Finance. Although most states do not regulate commercial
finance, certain states do require licensing of lenders and financers,
limitations on interest rates and other charges, adequate disclosure of certain
contract terms and limitations on certain collection practices and creditor
remedies. The Company is also required to comply with certain provisions of the
ECOA which are applicable to commercial loans.
Small business administration loans made by the Company are governed by the
Small Business Act and the Small Business Investment Act of 1958, as amended,
and may be subject to the same regulations by certain states as are other
commercial finance operations. The federal statutes and regulations specify the
types of loans and loan amounts which are eligible for the Small Business
Administration's guaranty as well as the servicing requirements imposed on the
lender to maintain small business administration guarantees.
Insurance. The insurance operations of the Company are subject to detailed
regulation and supervision in each state or other jurisdiction in which they
conduct business. The laws of the various jurisdictions establish supervisory
and regulatory agencies with broad administrative pow-
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<PAGE> 67
ers. Generally, such laws cover, among other things, types of insurance that may
be sold, policy forms, reserve requirements, permissible investments, premiums
charged, trade practices, limitations on the amount of dividends payable by any
insurance company and guidelines and standards with respect to dealings between
insurance companies and affiliates.
Foreign Regulation. The Company is subject to regulation in those countries
in which the Company has operations and in most cases has been required to
obtain central governmental approval before commencing business. In the United
Kingdom, the Company's lending activities are generally subject to regulation
and licensing under the Consumer Credit Act by the Office of Fair Trading, and
its insurance activities are regulated by the Department of Trade. Japanese
lending activities are licensed and regulated by the Ministry of Finance
pursuant to the Moneylenders Law. In Canada, legislation and regulation relating
to disclosure and consumer protection vary from province to province, and the
Company is subject to limitations on the effective rate of interest. Supervision
of the Company's activities in Mexico is provided, at the federal level, by the
Treasury Ministry, Banking Commission and the Central Bank (Banco de Mexico).
RELATIONSHIP WITH FORD
Immediately prior to the Offerings, Ford and FFSG will be the only
stockholders of the Company. Upon completion of the Offerings, Ford will
beneficially own 30.1 % of the outstanding Class A Common Stock (27.3% if the
Underwriters' over-allotment options are exercised in full) and 100% of the
outstanding Class B Common Stock of the Company (which Class B Common Stock is
entitled to five votes per share on any matter submitted to a vote of the
Company's stockholders). Upon completion of the Offerings, the Common Stock
beneficially owned by Ford will represent in the aggregate 95.6% of the combined
voting power of all of the outstanding Common Stock (94.9% if the Underwriters'
over-allotment options are exercised in full). For as long as Ford continues to
beneficially own shares of Common Stock representing more than 50% of the
combined voting power of the Common Stock, Ford will be able to direct the
election of all of the members of the Company's board of directors and exercise
a controlling influence over the business and affairs of the Company, including
any determinations with respect to mergers or other business combinations
involving the Company, the acquisition or disposition of assets by the Company,
the incurrence of indebtedness by the Company, the issuance of any additional
Common Stock or other equity securities, and the payment of dividends with
respect to Common Stock. Similarly, Ford will have the power to determine
matters submitted to a vote of the Company's stockholders without the consent of
the Company's other stockholders, will have the power to prevent a change in
control of the Company and could take other actions that might be favorable to
Ford. See "Management".
Ford has advised the Company that its current intent is to continue to hold
all of the Common Stock beneficially owned by it following the Offerings.
However, Ford is not subject to any contractual obligation to retain its
controlling interest, except that Ford has agreed not to sell or otherwise
dispose of any shares of Common Stock of the Company for a period of 180 days
after the date of this Prospectus without the prior written consent of Goldman,
Sachs & Co. As a result, there can be no assurance concerning the period of time
during which Ford will maintain its beneficial ownership of Common Stock owned
by it following the Offerings. See "Underwriting".
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for Ford to continue to
include the Company in its consolidated group for federal income tax purposes
and beneficial ownership of at least 80% of the total voting power and 80% of
each class of nonvoting capital stock is required in order for Ford to be able
to effect a Tax-Free Spin-Off or certain other tax-free transactions.
In addition, by virtue of its controlling beneficial ownership and the
terms of a tax-sharing agreement to be entered into between the Company and
Ford, Ford will effectively control all of the Company's tax decisions, and
conflicts of interest regarding tax matters between the Company and Ford may
arise. See "-- Tax-Sharing Agreement".
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For a description of certain provisions of the Company's Restated
Certificate of Incorporation concerning the allocation of business opportunities
that may be suitable for both the Company and Ford, see "Description of Capital
Stock -- Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".
Set forth below are descriptions of certain agreements, relationships and
transactions between the Company and Ford:
CORPORATE AGREEMENT. The Company and Ford intend to enter into a corporate
agreement (the "Corporate Agreement") under which the Company will grant to Ford
a continuing option, assignable to any of its subsidiaries, to purchase, under
certain circumstances, additional shares of Class B Common Stock or shares of
nonvoting capital stock of the Company (the "Stock Option"). The Stock Option
may be exercised simultaneously with the issuance of any equity security of the
Company (other than in the Offerings or upon the exercise of the Underwriters'
over-allotment options), with respect to Class B Common Stock, only to the
extent necessary to maintain its then-existing percentage of the total voting
power and value of the Company and, with respect to shares of nonvoting capital
stock, to the extent necessary to own 80% of each outstanding class of such
stock. The purchase price of the shares of Class B Common Stock purchased upon
any exercise of the Stock Option, subject to certain exceptions, will be based
on the market price of the Class A Common Stock, and the purchase price of
nonvoting capital stock will be the price at which such stock may be purchased
by third parties. The Stock Option expires in the event that Ford reduces its
beneficial ownership of Common Stock in the Company to Common Stock representing
less than 45% of the outstanding shares of Common Stock.
The Corporate Agreement will further provide that, upon the request of
Ford, the Company will use its best efforts to effect the registration under the
applicable federal and state securities laws of any of the shares of Common
Stock and nonvoting capital stock (and any other securities issued in respect of
or in exchange for either) beneficially owned by Ford for sale in accordance
with Ford's intended method of disposition thereof, and will take such other
actions as may be necessary to permit the sale thereof in other jurisdictions,
subject to certain specified limitations. Ford will also have the right which,
subject to certain limitations, it may exercise at any time and from time to
time, to include the shares of Common Stock and nonvoting capital stock (and any
other securities issued in respect of or in exchange for either) beneficially
owned by it in certain other registrations of common equity securities of the
Company initiated by the Company on its own behalf or on behalf of its other
stockholders. The Company will agree to pay all out-of-pocket costs and expenses
in connection with each such registration that Ford requests or in which Ford
participates. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by Ford and its assigns.
The Corporate Agreement will contain indemnification and contribution
provisions: (i) by Ford and its permitted assigns for the benefit of the Company
and related persons; and (ii) by the Company for the benefit of Ford and the
other persons entitled to effect registrations of Common Stock (and other
securities) pursuant to its terms and related persons.
The Corporate Agreement will also provide that for so long as Ford
maintains beneficial ownership of a majority of the number of outstanding shares
of Common Stock, the Company may not take any action or enter into any
commitment or agreement which may reasonably be anticipated to result, with or
without notice and with or without lapse of time, or otherwise, in a
contravention (or an event of default) by Ford of: (i) any provision of
applicable law or regulation, including but not limited to provisions pertaining
to the Code or the Employee Retirement Income Security Act of 1974, as amended;
(ii) any provision of Ford's, Ford Holdings, Inc.'s (an indirect, wholly-owned
subsidiary of Ford) or FFSG's certificates of incorporation or by-laws; (iii)
any credit agreement or other material instrument binding upon Ford, Ford
Holdings, Inc. or FFSG or any of their respective assets or (iv) any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over Ford, Ford Holdings, Inc. or FFSG or any of their respective assets.
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The Corporate Agreement will provide that the Company will enter into a
similar agreement for the benefit of the Class B Transferee (as defined below),
if any.
TRADEMARK LICENSE AGREEMENT. The Company and Ford are parties to a
trademark license agreement pursuant to which Ford has granted to the Company a
nonexclusive license that permits the Company to use Ford's name and trademark
for general corporate identification purposes and in connection with the
business of FCFC in the United States (i.e., home equity lending and
manufactured housing lending) and the Company's credit card operations. The
agreement is terminable at the will of either party upon at least 180 days'
prior written notice and will automatically terminate if at any time Ford ceases
to own, directly or indirectly, more than 50% of the outstanding Common Stock of
the Company. Within 90 days following termination of the agreement, the Company
must cease using Ford's name and trademark; provided that it shall not be
required to replace trademark branded credit cards except in the normal course
of business on the normal expiration date of each such card, but in any event,
within 2 years of the date of termination. Effective January 1, 1996, the
Company has agreed to pay to Ford an annual royalty for such license in an
amount equal to 0.01% of the Company's total domestic assets at December 31 of
each year. Based upon the Company's total domestic assets at December 31, 1995,
such payment will be approximately $3.7 million for 1996. Prior to January 1,
1996, the Company's use of Ford's name and trademark was royalty free. The
royalty is subject to review by the parties every five years and may be changed
by the parties based on advice from an independent appraiser as to the market
value of the license.
TAX-SHARING AGREEMENT. The Company is, and after the Offerings will
continue to be, included in Ford's federal consolidated income tax group, and
the Company's federal income tax liability will be included in the consolidated
federal income tax liability of Ford and its subsidiaries. In certain
circumstances, certain of the Company's subsidiaries will also be included with
certain Ford subsidiaries in combined, consolidated or unitary income tax groups
for state and local tax purposes. The Company and Ford intend to enter into a
tax-sharing agreement (the "Tax-Sharing Agreement"). Pursuant to the Tax-Sharing
Agreement, the Company and Ford will make payments between them such that, with
respect to any period, the amount of taxes to be paid by the Company, subject to
certain adjustments, will be determined as though the Company were to file
separate federal, state and local income tax returns (including, except as
provided below, any amounts determined to be due as a result of a
redetermination of the tax liability of Ford arising from an audit or otherwise)
as the common parent of an affiliate group of corporations filing combined,
consolidated or unitary (as applicable) federal, state and local returns rather
than a consolidated subsidiary of Ford with respect to federal, state and local
income taxes. With respect to certain tax items, however, such as foreign tax
credits and any alternative minimum tax penalty payments, the Company's right to
reimbursement will be determined based on the usage of such foreign tax credits
and alternative minimum tax credits by the consolidated group.
In determining the amount of tax-sharing payments under the Tax-Sharing
Agreement, Ford will prepare pro forma returns with respect to federal and
applicable state and local income taxes that reflect the same positions and
elections used by Ford in preparing the returns for Ford's consolidated group
and other applicable groups. Ford will continue to have all the rights of a
parent of a consolidated group (and similar rights provided for by applicable
state and local law with respect to a parent of a combined, consolidated or
unitary group), will be the sole and exclusive agent for the Company in any and
all matters relating to the income, franchise and similar liabilities of the
Company, will have sole and exclusive responsibility for the preparation and
filing of consolidated federal and consolidated or combined state and local
income tax returns (or amended returns), and will have the power, in its sole
discretion, to contest or compromise any asserted tax adjustment or deficiency
and to file, litigate or compromise any claim for refund on behalf of the
Company. In addition, Ford has agreed to undertake to provide the aforementioned
services with respect to the Company's separate state and local returns and the
Company's foreign returns.
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In general, the Company will be included in Ford's consolidated group for
federal income tax purposes for so long as Ford beneficially owns at least 80%
of the total voting power and value of the outstanding Common Stock. Each member
of a consolidated group is jointly and severally liable for the federal income
tax liability of each other member of the consolidated group. Accordingly,
although the Tax-Sharing Agreement allocates tax liabilities between the Company
and Ford, during the period in which the Company is included in Ford's
consolidated group, the Company could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of Ford's
consolidated group. See "Risk Factors -- Control by and Relationship with Ford".
MANAGEMENT SERVICES AGREEMENT. Ford has provided (and as long as Ford
beneficially owns more than 50% of the outstanding Common Stock of the Company,
Ford expects to continue to provide), at the request of the Company, certain
services to the Company for commercially reasonable fees. These services, which
are the subject of a management services agreement between the Company and Ford,
include: (i) management and other technical and professional (e.g., legal and
tax) support; (ii) accounting and bookkeeping, including assistance with
policies, principles and procedures, budget and cost controls, and audit
programs; (iii) pension asset management; (iv) sales, marketing and operational
planning, including providing the Company with Ford customer data to facilitate
cross-marketing; and (v) insurance coverage under Ford's property and casualty
insurance policies such as liability, crime, property, workers' compensation and
directors' and officers' insurance. The aggregate annual payments by the Company
for (i) the services provided in clauses (i) through (iv) of the preceding
sentence are $3.5 million, subject to adjustment for inflation and (ii) the
insurance coverage provided in clause (v) of the preceding sentence will be
based on the Company's proportional share of the premium costs of such
coverages. Ford and the Company may each terminate the management services
agreement by giving the other party at least 180 days prior written notice. In
addition, if at any time Ford ceases to beneficially own more than 50% of the
outstanding voting stock of the Company or ceases for any reason, as determined
in Ford's reasonable discretion, to have effective control of the Company, then
the management services agreement shall terminate automatically. Following any
termination of the management services agreement, the Company will remain liable
for any retroactive insurance premium adjustments for the periods the Company
participated in Ford's insurance programs.
As described under "Business -- Commercial Finance -- Other Commercial
Activities", the Company provides relocation services to Ford and, through its
auto club operations, administers Ford's roadside assistance program. In
addition, the Company operates a computer system that supports the term-funding
operations of a Ford subsidiary. See Note 14 to the supplemental combined
financial statements.
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MANAGEMENT
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Keith W. Hughes............ 49 Chairman of the Board, Chief Executive Officer and Director
of the Company since February 1995; President and Director
of the Company from August 1991 until February 1995; Vice
Chairman of the Board and Director of the Company from
November 1988 until August 1991. Mr. Hughes is a director
of American Eagle Group, Inc. (insurance).
Joseph M. McQuillan........ 64 Vice Chairman of the Board and Director of the Company
since August 1991; Senior Executive Vice President,
Comptroller and Chief Accounting Officer from November
1988 until February 1990.
Harold D. Marshall......... 59 Vice Chairman of the Board and Director of the Company
since November 1988.
Roy A. Guthrie............. 42 Executive Vice President, Comptroller, Chief Accounting
Officer and Director of the Company since June 1995;
Chief Financial Officer of the Company since March 1996;
Senior Vice President, Comptroller and Chief Accounting
Officer of the Company from February 1990 until June
1995.
Chester D. Longenecker..... 49 Executive Vice President and General Counsel of the Company
since June 1986.
James B. Watts............. 60 Executive Vice President of the Company since May 1990.
James F. Metevier.......... 54 Senior Vice President of the Company since December 1995;
Senior Vice President of ACONA since March 1981.
Fredrick H. Stern.......... 43 Senior Vice President of the Company since February 1995;
Senior Vice President of Associates Corporation of North
America (A Texas Corporation) since February 1987.
</TABLE>
Upon completion of the Offerings, the Company will have a board of
directors consisting of the four current members of the Company's board of
directors identified above. After completion of the Offerings, the Company
anticipates that the size and composition of the board of directors will be
changed and will include three directors who will be officers of the Company,
two directors who will be officers of Ford and two directors who will be persons
not associated with the Company or Ford. Ford will have the ability to change
the size and composition of the Company's board of directors and committees of
the board of directors. See "Relationship with Ford".
The Company's board of directors is expected to appoint members to a
compensation committee of the board of directors (the "Compensation Committee")
and an audit committee of the board of directors (the "Audit Committee") after
independent directors are elected. Both such committees will be comprised solely
of independent directors. The Compensation Committee will establish remuneration
levels for certain officers of the Company and perform such functions as may be
delegated to it under employee benefit programs and executive compensation
programs. The Audit Committee will select and engage, on behalf of the Company,
the independent public accountants to audit the Company's annual financial
statements. The Audit Committee will also review and approve the planned scope
of the annual audit.
The board of directors may, from time to time, establish certain other
committees to facilitate the management of the Company.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table discloses compensation received by the Company's
Chairman and Chief Executive Officer, the Company's former Chairman and Chief
Executive Officer and the four other most highly paid executive officers of the
Company who were serving as executive officers at December 31, 1995 (the "Named
Executive Officers") for the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------- ------------ ----------
SECURITIES
UNDERLYING
STOCK
NAME AND BASE OTHER ANNUAL OPTIONS/SARS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) (#) PAYOUTS($) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ------------ ---------- ---------------
(5) (6) (7) (10)
<S> <C> <C> <C> <C> <C> <C> <C>
Keith W. Hughes............ 1995 $ 431,667 $700,000 $ 17,176 0 $1,088,050(8) $ 29,596(11)
Chairman and Chief
Executive Officer(1)
Reece A. Overcash, Jr...... 1995 92,863(4) 0 4,328 0 0 2,107,518(12)
Former Chairman and 1994 729,150 700,000 35,491 0 5,258,770 67,689(12)
Chief Executive 1993 675,925 650,000 28,140 0 765,000 64,496(12)
Officer(2)
Joseph M. McQuillan........ 1995 315,250 410,000 16,820 0 438,000 73,050(13)
Vice Chairman 1994 296,625 385,000 14,665 10,000 365,000 64,509(13)
1993 278,250 324,000 12,471 0 330,000 48,819(13)
Harold D. Marshall......... 1995 342,750 350,000 13,919 0 458,000 100,989(14)
Vice Chairman 1994 325,900 330,000 15,139 10,000 1,114,828 24,648(14)
1993 309,175 286,000 13,698 0 565,518 30,338(14)
James E. Jack.............. 1995 253,950 200,000 11,698 0 582,090(9) 43,103(15)
Senior Executive Vice 1994 238,500 224,000 11,374 0 572,880 16,574(15)
President and Chief 1993 221,525 200,000 7,962 0 276,960 15,296(15)
Financial Officer(3)
Chester D. Longenecker..... 1995 216,250 127,000 7,298 0 121,000 159,046(16)
Executive Vice President 1994 205,500 113,000 8,667 0 541,701 13,238(16)
and General Counsel 1993 195,250 103,000 4,528 0 100,000 46,758(16)
</TABLE>
- ---------------
(1) Mr. Hughes was elected Chairman and Chief Executive Officer on February 1,
1995 following the death of Reece A. Overcash, Jr., the immediately
preceding Chairman and Chief Executive Officer of the Company. Compensation
information is provided for 1995, including the period before Mr. Hughes
was elected Chairman and Chief Executive Officer.
(2) Reece A. Overcash, Jr. was the Chairman and Chief Executive Officer of the
Company from August 1, 1979 through January 17, 1995, the date of his
death. Compensation information for 1995 includes all compensation earned
by Mr. Overcash prior to his death, as well as additional amounts paid to
Mr. Overcash's estate and/or beneficiaries as post-death compensation
continuation payments pursuant to Mr. Overcash's Employment Agreement with
the Company (see footnote 11).
(3) Mr. Jack retired as an officer of the Company in March 1996.
(4) Compensation reported is base salary earned through February 15, 1995, the
close of the pay period ending within the month following Mr. Overcash's
death.
(5) Compensation reported is the Company's payment to cover a Named Executive
Officer's taxes with respect to the value of benefits and perquisites
includable in the Named Executive Officer's taxable income for the year
reported (commonly known as a "tax gross-up").
(6) The options reported in the "Securities Underlying Stock Options/SARs"
column are nonqualified stock options to purchase shares of Ford common
stock granted pursuant to the Ford Motor Company 1990 Long-Term Incentive
Plan. The Company has also made grants of "phantom stock appreciation
rights" ("PSARs") under the Associates First Capital Corporation Phantom
Stock Appreciation Right Plan (the "PSAR Plan"). PSARs have been classified
as long-term incentive plan compensation throughout this Executive
Compensation section rather than as stock appreciation
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<PAGE> 73
rights because the value of the PSARs is based on a profit-based formula
rather than appreciation in the Company's stock price (for a description of
the PSAR Plan, see footnote 1 to the Long-Term Incentive Plans table).
(7) Compensation reported in the "LTIP Payouts" column is the amount paid in
the year reported to a Named Executive Officer under the Associates First
Capital Corporation Long-Term Performance Plan (the "LTPP") and, if
specifically noted, the amount paid under the PSAR Plan with respect to
PSARs exercised by the Named Executive Officer during the year (for a
description of the LTPP, see footnote 3 to the Long-Term Incentive Plans
table).
(8) For Mr. Hughes for 1995, the LTPP award was $700,000, and he received
$388,050 for PSARs exercised in 1995.
(9) For Mr. Jack for 1995, the LTPP award was $284,000, and he received
$298,090 for PSARs exercised in 1995.
(10) Compensation reported in the "All Other Compensation" column includes
Company contributions on behalf of a Named Executive Officer pursuant to
the Company's tax-qualified and non-qualified supplemental defined
contribution plans ("Company DCP Contributions"), above-market earnings
accrued by the Company for the reported year with respect to a Named
Executive Officer's elective deferrals of salary, bonus, PSAR payouts,
and/or LTPP payouts ("Above-Market Earnings on Deferred Compensation"), and
amounts includable in compensation for Company-paid premiums for additional
term life insurance ("Term Insurance Compensation"). Earnings are
above-market to the extent they exceed one-hundred-twenty percent of the
applicable federal rate.
(11) For Mr. Hughes for 1995, Company DCP Contributions were $25,900,
Above-Market Earnings on Deferred Compensation were $898 and Term Insurance
Compensation was $2,798.
(12) For Mr. Overcash for 1995, compensation reported includes amounts payable
to Mr. Overcash's estate pursuant to the post-death compensation
continuation provisions of Mr. Overcash's five-year Employment Agreement
with the Company dated October 25, 1991 which for 1995 provides for (i) the
continued monthly payment of Mr. Overcash's base salary for February 16,
1995 through December 31, 1995 ($649,594), (ii) the payment of a bonus for
1995 equal to the average bonus paid for the three preceding fiscal years
($650,000) plus (iii) the payment of a long-term incentive for 1995 under
the LTPP equal to the average incentive paid under the LTPP to Mr. Overcash
for the three preceding fiscal years ($805,000). These post-death
compensation continuation payments end on October 24, 1996, the date Mr.
Overcash's Employment Agreement terminates. Company DCP Contributions were
(i) $929 for 1995, (ii) $43,749 for 1994, and (iii) $40,556 for 1993. Term
Insurance Compensation was (i) $1,995 for 1995, (ii) $23,940 for 1994 and
(iii) $23,940 for 1993. Mr. Overcash received no Above-Market Earnings on
Deferred Compensation for any reported year.
(13) For Mr. McQuillan, Company DCP Contributions were (i) $18,915 for 1995,
(ii) $17,798 for 1994 and (iii) $16,695 for 1993. Above-Market Earnings on
Deferred Compensation were (i) $44,939 for 1995, (ii) $38,638 for 1994 and
(iii) $25,048 for 1993. Term Insurance Compensation was (i) $9,196 for
1995, (ii) $8,073 for 1994 and (iii) $7,076 for 1993.
(14) For Mr. Marshall, Company DCP Contributions were (i) $20,565 for 1995, (ii)
$19,554 for 1994 and (iii) $18,551 for 1993. Above-Market Earnings on
Deferred Compensation were (i) $74,781 for 1995, (ii) $0 for 1994 and (iii)
$7,026 for 1993. Term Insurance Compensation was (i) $5,643 for 1995, (ii)
$5,094 for 1994 and (iii) $4,761 for 1993.
(15) For Mr. Jack, Company DCP Contributions were (i) $15,237 for 1995, (ii)
$14,310 for 1994 and (iii) $13,292 for 1993. Above-Market Earnings on
Deferred Compensation were (i) $25,378 for 1995, (ii) $0 for 1994 and (iii)
$0 for 1993. Term Insurance Compensation was (i) $2,488 for 1995, (ii)
$2,264 for 1994 and (iii) $2,004 for 1993.
(16) For Mr. Longenecker, Company DCP Contributions were (i) $12,975 for 1995,
(ii) $12,330 for 1994 and (iii) $11,715 for 1993. Above-Market Earnings on
Deferred Compensation were (i) $145,090 for 1995, (ii) $0 for 1994 and
(iii) $34,204 for 1993. Term Insurance Compensation was (i) $981 for 1995,
(ii) $908 for 1994 and (iii) $839 for 1993.
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<PAGE> 74
OPTIONS/STOCK APPRECIATION RIGHTS
The following table sets forth certain information regarding the exercise
of options to purchase common stock of Ford during the fiscal year ending
December 31, 1995 and exercisable/unexercisable options to purchase common stock
of Ford held at December 31, 1995 and the value thereof by the Named Executive
Officers. No options were exercised by the Named Executive Officers during 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
12/31/95(#) 12/31/95($)
SHARES -------------- --------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Keith W. Hughes
Chairman and Chief Executive
Officer............................ 0 $ 0 3,750/11,250 $938/2,813
Reece A. Overcash, Jr.
Former Chairman and Chief Executive
Officer............................ 0 0 0 0
Joseph M. McQuillan
Vice Chairman......................... 0 0 2,500/7,500 625/1,875
Harold D. Marshall
Vice Chairman......................... 0 0 2,500/7,500 625/1,875
James E. Jack
Senior Executive Vice President and
Chief Financial Officer............ 0 0 0 0
Chester D. Longenecker
Executive Vice President and General
Counsel............................ 0 0 0 0
</TABLE>
- ---------------
(1) The options reported in this table are incentive stock options and
nonqualified stock options to purchase shares of common stock of Ford
granted pursuant to the Ford Motor Company 1990 Long-Term Incentive Plan.
The exercise price of the options is $28.625 per share, and the closing
trading price on the NYSE of Ford common stock on December 31, 1995 was
$28.875.
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<PAGE> 75
LONG-TERM INCENTIVE PLANS
The following table sets forth certain information regarding awards made
during 1995 to the Named Executive Officers under the Company's long-term
incentive compensation plans: the PSAR Plan and the LTPP.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
NUMBER OF PERIOD ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNTIL NON-STOCK PRICE-BASED PLANS(3)
UNITS OR MATURATION ----------------------------------------
NAME OTHER RIGHTS(#) OR PAYOUT THRESHOLD($) TARGET($) MAXIMUM($)
- --------------------------------------------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
(1) (2)
Keith W. Hughes
Chairman and Chief
Executive Officer
PSAR Plan................... 35,000 1/1/96 N/A(4) N/A N/A
LTPP........................ (5) 12/31/95 $110,500 $ 276,300 $828,900
Reece A. Overcash, Jr.
Former Chairman and Chief
Executive Officer
PSAR Plan(6)................ 0 1/1/96 N/A N/A N/A
LTPP(7)..................... (5) 12/31/95 0 0 0
Joseph M. McQuillan
Vice Chairman
PSAR Plan................... 13,245 1/1/96 N/A N/A N/A
LTPP........................ (5) 12/31/95 75,500 188,700 566,100
Harold D. Marshall
Vice Chairman
PSAR Plan................... 13,000 1/1/96 N/A N/A N/A
LTPP........................ (5) 12/31/95 75,500 188,700 566,100
James E. Jack
Senior Executive Vice
President and Chief
Financial Officer
PSAR Plan................... 7,755 1/1/96 N/A N/A N/A
LTPP........................ (5) 12/31/95 42,500 106,200 318,600
Chester D. Longenecker
Executive Vice President and
General Counsel
PSAR Plan................... 5,000 1/1/96 N/A N/A N/A
LTPP........................ (5) 12/31/95 33,800 84,500 253,500
</TABLE>
- ---------------
(1) Reports the number of PSARs granted during 1995 under the PSAR Plan. The
Company terminated the PSAR Plan as of December 31, 1995 and has cashed out
all outstanding PSARs. See "-- Additional Material Employee Compensation
Plans and Agreements".
(2) With respect to the PSAR Plan, the date disclosed in this column refers to
the date upon which the grant of PSARs becomes exercisable. With respect to
the LTPP, the performance period is the four-consecutive years ending on the
last day of the current year, December 31, 1995.
(3) Amounts listed represent estimated payout levels for interests granted
during 1995 under the LTPP. Awards payable under the LTPP are determined
based on the Company's average performance in achieving annual profitability
targets for the four-consecutive years ending with the current year. An
award pool is created based on the performance of the Company for the
four-year performance period. The award pool is allocated among eligible
participants based on the performance of a business unit and the performance
of a participant in achieving individual performance objectives. For
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<PAGE> 76
1995, the performance period is 1992-1995, inclusive. Awards determined for
1995 were paid in December 1995. See "-- Additional Material Employee
Compensation Plans and Agreements".
(4) N/A means not applicable.
(5) Interests granted under the LTPP are not evidenced by shares, units or other
rights or indicia of ownership.
(6) No PSARs were granted during 1995 to Mr. Overcash or his estate.
(7) Pursuant to Mr. Overcash's Employment Agreement with the Company, an award
for 1995 under the LTPP was paid to Mr. Overcash's estate (see footnote 11
to the Summary Compensation table for additional information).
PENSION/DEFINED BENEFIT RETIREMENT PLANS
The Company sponsors three defined benefit retirement plans (collectively,
the "Company's DB Plans") pursuant to which retirement income is payable to
covered employees, including the Named Executive Officers. The Associates First
Capital Corporation Pension Plan (the "Qualified Plan") is a tax-qualified
defined benefit retirement plan covering all eligible employees of the Company.
The Excess Benefit Plan of Associates First Capital Corporation (the "EBP")
covers participants in the Qualified Plan whose retirement income is affected by
(i) elections to defer compensation, and (ii) limitations imposed on qualified
retirement plans, in general, by Sections 401(a)(17), 414(s) and 415 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). The
purpose of the EBP is to restore benefits which, if it were not for such limits,
would otherwise be available under the Qualified Plan. Mr. Jack will be eligible
to receive a benefit under the Qualified Plan and the EBP; such benefit would be
approximately $135,000 annually commencing at age 56, and continue until Mr.
Jack attains age 62. However, of the active Named Executive Officers, based on
assumed retirement at normal retirement age, only Mr. Longenecker will receive a
benefit pursuant to the EBP.
The following table illustrates the yearly pension commencing at "normal
retirement age" for Mr. Longenecker pursuant to the Company's Qualified Plan and
the EBP.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)(3)
--------------------------------------------------------
REMUNERATION($)(1) 20 25 30 35 40
- --------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$250,000............................ $100,000 $112,500 $125,500 $137,500 $150,000
275,000............................ 110,000 123,750 137,500 151,250 165,000
300,000............................ 120,000 135,000 150,000 165,000 180,000
325,000............................ 130,000 146,250 162,500 178,750 195,000
350,000............................ 140,000 157,500 175,000 192,500 210,000
375,000............................ 150,000 168,750 187,500 206,250 225,000
400,000............................ 160,000 180,000 200,000 220,000 240,000
425,000............................ 170,000 191,250 212,500 233,750 255,000
450,000............................ 180,000 202,500 225,000 247,500 270,000
475,000............................ 190,000 213,750 237,500 261,250 285,500
</TABLE>
- ---------------
(1) Remuneration is the sum of a participant's base salary plus annual bonus
(excluding amounts payable under the LTPP and the PSAR Plan) paid or payable
for a fiscal year, including elective deferrals (see "Base Salary" and
"Bonus" columns in the Summary Compensation table).
(2) The estimated credited service at December 31, 1995 for Mr. Longenecker is
21 years.
(3) The estimated annual benefits illustrated in the table are to be offset by
the Named Executive Officer's Social Security benefits. The normal form of
payment is a life annuity for a single participant and an actuarially
equivalent 50% joint and survivor annuity for a married participant. The
estimated annual benefits illustrated in the table are in the form of a life
annuity.
The Associates Corporation of North America Supplemental Retirement Income
Plan (the "SRIP") covers only designated eligible executives of the Company and
is designed to provide a target retirement income for participants. Retirement
benefits are payable under the SRIP to the extent the Company's Qualified Plan
does not achieve the target level of retirement income. Messrs. Hughes,
McQuillan, Marshall and Jack are participants in the SRIP and, based on assumed
retirement at normal retirement age, will receive a benefit under the SRIP. Mr.
Overcash was a
73
<PAGE> 77
participant in the SRIP at his death and his surviving spouse is receiving a
survivor benefit under the SRIP.
The SRIP provides participants with a retirement annuity commencing at
"normal retirement age" equal to 50% of the participant's "final average
earnings", offset by benefits payable pursuant to the Company's Qualified Plan
and Social Security. For purposes of the SRIP, "normal retirement age" is
defined as age 62, "final average earnings" is defined as the average "annual
earnings" for a participant's highest five-consecutive years of the last ten
years immediately preceding retirement and "annual earnings" is defined as the
sum of a participant's base salary plus annual bonus (excluding amounts payable
under the LTPP and the PSAR Plan) paid or payable for a calendar year, including
elective deferrals (see "Base Salary" and "Bonus" columns in the Summary
Compensation table).
The following table illustrates the estimated projected annual pension
payable for the Named Executive Officers (excluding Mr. Longenecker) under the
Company's Qualified Plan and the SRIP commencing at "normal retirement age".
<TABLE>
<CAPTION>
PROJECTED ANNUAL RETIREMENT
BENEFITS AT NORMAL
RETIREMENT
NAME AND PRINCIPAL POSITION AGE($)(1)(2)
- -------------------------------------------------------------------- ----------------------------
<S> <C>
Keith W. Hughes
Chairman and Chief Executive Officer.............................. $814,990
Reece A. Overcash, Jr.
Former Chairman and Chief Executive Officer(3).................... 459,988
Joseph M. McQuillan
Vice Chairman..................................................... 300,780
Harold D. Marshall
Vice Chairman..................................................... 407,731
James E. Jack
Senior Executive Vice President and Chief Financial Officer....... 208,114
</TABLE>
- ---------------
(1) Projected annual retirement benefits reflect the total amount payable to the
Named Executive Officer commencing at normal retirement age pursuant to the
SRIP and the Company's Qualified Plan (on a combined basis), and are subject
to offset by the Officer's Social Security benefits.
(2) Annual retirement benefits are determined by projecting current "final
average earnings" for each Named Executive Officer, other than Mr. Jack, to
the Officer's normal retirement age at 6% per annum, compounded annually.
The normal form of benefit is a single life annuity for the life of the
Named Executive Officer.
(3) Mr. Overcash died on January 17, 1995, and a survivor benefit commenced to
his spouse as of February 1, 1995 in the amount set forth above, payable for
the life of Mr. Overcash's spouse (see footnote 11 to the Summary
Compensation table).
COMPENSATION OF DIRECTORS
It is anticipated that directors who do not receive compensation as
officers or employees of the Company or any of its affiliates will be paid an
annual board membership fee of $25,000, an attendance fee of $1,000 for each
meeting of the board of directors, and an annual membership fee of $5,000 for
service on any committee of the board of directors. The Company does not pay any
additional compensation to directors who receive compensation as officers or
employees of the Company or any of its affiliates.
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE-IN-CONTROL
ARRANGEMENTS
EMPLOYMENT CONTRACTS
The Company has entered into individual employment contracts with twenty
senior executives, including each Named Executive Officer (individually, an
"Employment Agreement" and collectively,
74
<PAGE> 78
the "Employment Agreements"). The terms of the Employment Agreements for all
Named Executive Officers, other than Mr. Overcash, are substantially identical
(except for commencement dates) and are summarized in the following paragraphs.
The terms of the Employment Agreements covering senior executives who are not
Named Executive Officers are substantially identical to the Employment
Agreements described below (except for commencement dates). The relevant death
benefits provisions of Mr. Overcash's Employment Agreement are summarized in
footnote 11 to the Summary Compensation table.
The term of each Employment Agreement is three years. For Messrs. Jack and
Longenecker, the three-year term commenced on September 13, 1995. However, Mr.
Jack retired as an officer of the Company in March 1996. For Messrs. Hughes,
McQuillan and Marshall, the three-year term commenced on November 16, 1995.
Each Employment Agreement provides for certain cash and non-cash
compensation, including current base salaries for Messrs. Hughes, McQuillan,
Marshall and Longenecker of $440,000, $320,000, $347,000 and $219,000,
respectively. Each Named Executive Officer is required to execute the Company's
standard confidentiality, conflict of interest and proprietary information
agreement. Furthermore, the Named Executive Officer agrees not to solicit,
during the twelve month period following the termination of the Officer's
employment, any Company employee to leave employment with the Company.
The Company may terminate a Named Executive Officer at any time with
fifteen days' prior written notice, with or without "cause" (as defined in each
Employment Agreement). If the Company terminates a Named Executive Officer for
cause, the Company's obligations under the Employment Agreement cease. If the
Company terminates a Named Executive Officer other than for "cause", the Named
Executive Officer will continue to receive, for the duration of the term of the
Employment Agreement, (i) a monthly base salary, (ii) the annual payments under
the Company's Corporate Annual Performance Plan (the "CAPP") and the LTPP based
on average performance over the three performance periods immediately preceding
the annual payment and (iii) life, medical, dental and disability coverage. The
Named Executive Officer will also receive an amount payable as if credit were
given under the Company's retirement plans for service through the end of the
employment term. The right to termination benefits described in the preceding
sentences shall cease if the board of directors determines that the Named
Executive Officer, either before or after termination of employment, directly or
indirectly competed with the Company or any affiliate or engaged in any activity
adverse to the best interests of the Company or any affiliate.
In the event of a Named Executive Officer's "permanent disability" (as
defined in the Company's long-term disability plan), the Named Executive Officer
shall continue to receive a monthly base salary plus the bonuses referred to in
subsection (ii) of the preceding paragraph for six months after the
determination of permanent disability or, if later, the end of the employment
term, reduced by any amounts received through any disability or salary
continuation plan or program provided by the Company. If a Named Executive
Officer's employment terminates due to death during the employment term, the
Named Executive Officer's estate or designated beneficiary shall continue to
receive compensation equal to the Named Executive Officer's base salary plus the
bonuses referred to in subsection (ii) of the preceding paragraph for one year
following the Named Executive Officer's date of death, or, if later, the end of
the employment term.
The Company intends to amend the Employment Agreements for active executive
officers prior to or after the completion of the Offerings to provide subsequent
one-year renewals, add a covenant not to compete and provide that if a
termination for other than for "cause" occurs or a "change-in-control" of the
Company occurs which results in the Company either actually or "constructively"
terminating a Named Executive Officer other than for "cause" (as such terms will
be defined in the
75
<PAGE> 79
Employment Agreements) within 12 months, the Named Executive Officer shall
receive the following severance benefits, in lieu of continuing salary and
annual payments:
(i) A cash severance payment equal to the sum of (i) the Named Executive
Officer's base salary then in effect multiplied by 3 if the Named
Executive Officer is one of the designated top three executive officers
of the Company, or by 2, for all other Named Executive Officers, plus
(ii) the average of the bonuses paid to the Named Executive Officer
under the CAPP during each of the three years immediately preceding the
year of termination multiplied by the base salary multiple determined
in (i) above, plus (iii) a pro rata portion, based on the portion of
the current performance year preceding termination, equal to the
average of the Named Executive Officer's bonuses under the CAPP and
LTPP during each of the three years preceding the year of termination.
(ii) All outstanding awards granted to the Named Executive Officer pursuant
to the Associates First Capital Corporation Long-Term Equity
Compensation Plan (the "ECP") shall become 100% vested.
(iii) Coverage shall be provided under life, medical, dental and disability
plans for the number of years equal to the base salary multiple
determined above with regard to the Named Executive Officer's base
salary cash severance payment. Coverage will terminate earlier,
however, if the Named Executive Officer becomes covered by similar
coverage provided by a successor employer.
(iv) The Named Executive Officer's accrued benefits under the EBP and/or the
SRIP shall become 100% vested.
(v) The Named Executive Officer shall also receive distribution of his
account balance under the Associates First Capital Corporation Equity
Deferred Plan (the "EDP").
A "change-in-control" of the Company means any of the following:
(i) Any merger, consolidation or similar combination with or involving
the Company, as of the date of the conclusion of such event, other than
a merger, consolidation or similar combination of the Company with Ford
or any of its affiliates.
(ii) Any transaction or series of transactions that results in the sale or
divestiture of all or substantially all of the Company's assets, as of
the conclusion of such transaction or series of transactions.
(iii) Any capital reorganization, transaction or series of transactions
that results in Ford and its affiliates owning common stock of the
Company having less than 50% of the combined voting power of the
outstanding capital stock of the Company, as of the date of the
conclusion of such reorganization, transaction or series of
transactions.
(iv) The successful completion of a public offering, or distribution to
the public by dividend or spinoff, that results in Ford and its
affiliates owning Common Stock of the Company having less than 50% of
the combined voting power of the outstanding capital stock of the
Company.
Notwithstanding the foregoing, total compensation paid to a Named Executive
Officer as a result of a change-in-control shall not exceed 2.99 times the
average of the Named Executive Officer's "Annualized Includable
Compensation for Base Period," as defined in Section 280G(d)(1) of the
Internal Revenue Code, during the five years preceding the termination.
ADDITIONAL MATERIAL EMPLOYEE COMPENSATION PLANS AND AGREEMENTS
In addition to the Employment Agreements and retirement benefits described
above, the Company sponsors material compensation plans and arrangements
covering certain designated
76
<PAGE> 80
employees, including the Named Executive Officers. These material compensation
plans and arrangements are described below.
CORPORATE ANNUAL PERFORMANCE PLAN
The Company sponsors an annual bonus plan, the CAPP, covering the Named
Executive Officers and other executives of the Company. The payments reported in
the "Bonus" column of the Summary Compensation table are paid to the Named
Executive Officers pursuant to the CAPP. The performance period for determining
awards under the CAPP is the Company's fiscal year ending December 31. Bonuses
under the CAPP are generally paid during December of each fiscal year.
The CAPP is administered by the Executive Committee of the board of
directors. After the completion of the Offerings, the CAPP will be administered
by the Compensation Committee. The administrator of the CAPP is responsible for
annually establishing performance goals under the CAPP.
CAPP bonuses for a fiscal year are determined based on the performance of
the Company, the business unit in which a participant is employed and the
participant, personally. A bonus pool is created based on the relative
performance of the Company in achieving a profit target established for the
fiscal year. The bonus pool is allocated among eligible participants based on
the performance of a business unit in achieving targeted objectives for the
fiscal year and the performance of a participant in achieving individual
performance objectives.
To receive an award under the CAPP, a participant must remain in the employ
of the Company or its affiliates through the date awards are payable. However, a
participant whose employment with the Company or its affiliates terminates
during a fiscal year due to the participant's death, disability or retirement
(as defined) shall remain eligible to receive a portion of the award otherwise
payable to the participant, in proportion to the period of the fiscal year the
participant was employed. In addition, the administrator of the CAPP retains the
right, exercisable in its reasonable discretion, to approve payment of an award
to a participant whose employment terminates prior to the date awards are
payable for reasons other than death, disability or retirement. Notwithstanding
the foregoing, a participant forfeits the right to receive an award under the
CAPP for a fiscal year during which, prior to the date awards are payable under
the CAPP, the participant either (i) directly or indirectly competes with the
Company or any affiliate, or (ii) divulges any trade secrets, methods, processes
or other proprietary or confidential information of the Company or any affiliate
without the consent of the Company.
Awards under the CAPP are payable in a lump sum cash payment unless a
participant has elected to defer receipt of all or a specified portion of an
award for a fiscal year. A deferred award earns interest based on a
participant's election of one of two interest rate indices. A deferred CAPP
award is generally payable in the manner selected by the participant.
LONG-TERM PERFORMANCE PLAN
The Company sponsors a long-term cash incentive plan, the LTPP, covering
the Named Executive Officers and other executives of the Company. The payments
reported in the "LTIP Payouts" column of the Summary Compensation table include
awards paid to the Named Executive Officers pursuant to the LTPP. The
performance period for the LTPP is the Company's then current fiscal year and
the three immediately preceding fiscal years. Awards under the LTPP are
determined annually for the relevant four-year performance period during
December of each fiscal year and paid in that December.
The LTPP is administered by the Executive Committee of the board of
directors. Following the completion of the Offerings, the LTPP will be
administered by the Compensation Committee. The administrator of the LTPP is
responsible for establishing performance goals under the LTPP.
77
<PAGE> 81
LTPP awards are determined for a performance period based on the success of
the Company in achieving a target level of profits established for each year of
the performance period, with such annual performance then averaged for the
performance period. An award pool is then created based on the performance of
the Company for the four-year performance period and the award pool is allocated
among eligible participants based on the performance of a business unit and the
performance of a participant in achieving individual performance objectives.
To receive an award under the LTPP, a participant must remain in the employ
of the Company or its affiliates through the date awards are payable. However, a
participant whose employment with the Company or its affiliates terminates
during a fiscal year due to the participant's death, disability or retirement
(as defined) shall remain eligible to receive a portion of the award otherwise
payable to the participant, in proportion to the period of the performance
period the participant was employed. In addition, the administrator of the LTPP
retains the right, exercisable in its reasonable discretion, to approve payment
of an award to a participant whose employment terminates prior to the date
awards are payable for reasons other than death, disability or retirement.
Notwithstanding the foregoing, a participant forfeits the right to receive an
award under the LTPP for a fiscal year during which, prior to the date awards
are payable under the LTPP, the participant either (i) directly or indirectly
competes with the Company or any affiliate, or (ii) divulges any trade secrets,
methods, processes or other proprietary or confidential information of the
Company or any affiliate without the consent of the Company.
Awards under the LTPP are payable in a lump sum cash payment unless a
participant has elected to defer receipt of all or a specified portion of an
award for a fiscal year. A deferred award earns interest based on a
participant's election of one of two interest rate indices. A deferred LTPP
award is generally payable in the manner selected by the participant.
PHANTOM STOCK APPRECIATION RIGHT PLAN
The Company sponsored a long-term cash plan, the PSAR Plan, which covered
the Named Executive Officers and other executives of the Company. The Company
terminated the PSAR Plan as of December 31, 1995. The payments reported in the
"LTIP Payouts" column of the Summary Compensation table include awards paid to
the Named Executive Officers pursuant to the PSAR Plan.
A PSAR granted under the PSAR Plan entitled the holder to receive from the
Company, upon the exercise of such PSAR, an amount in cash (less required tax
withholding) equal to the amount by which the "Phantom Share Price" of a phantom
share of stock of Ford Financial Services Group ("Ford FSG") on the exercise
date exceeded the "Base Share Price" of such PSAR, multiplied by the number of
PSARs exercised. The Phantom Share Price and the Base Share Price were
determined pursuant to a formula set forth in the PSAR Plan which was based on
Ford FSG's profits for the four most recent calendar quarters, a price/earnings
ratio determined for comparable companies and the total number of PSARs
established under the PSAR Plan. A PSAR had a term of five years and vested 100%
on the first anniversary of the date of grant.
The Company has terminated the PSAR Plan, effective as of December 31,
1995, and has cashed out all outstanding PSARs. The amount paid for each
outstanding PSAR equaled the sum of (i) the amount by which the Phantom Share
Price of a PSAR on December 31, 1995 exceeded the Base Share Price of such PSAR,
plus (ii) the present value, determined pursuant to a modified Black-Scholes
option pricing model, of the estimated foregone future appreciation of the PSAR
for the period of January 1, 1996 through the last day of the term of the PSAR.
Except as provided in the immediately following paragraph, amounts payable
in satisfaction of outstanding PSARs were paid in a lump sum cash payment,
unless a participant had elected to defer receipt of all or a specified portion
of such cash payment. The deferred payment earns interest based on a
participant's election of one of two interest rate indices. A deferred PSAR
payment is generally payable in the manner selected by the participant.
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The Company also amended the PSAR Plan so as to require Named Executive
Officers and certain other officers of the Company (all of whom were granted
PSARs in 1995) to defer one-half of the amount payable in satisfaction of their
respective PSARs granted in 1995. The amounts so deferred are being administered
by the Company in accordance with the terms of the Associates First Capital
Corporation Equity Deferral Plan (the "EDP").
EQUITY DEFERRAL PLAN
The EDP covers the Named Executive Officers and certain other officers of
the Company (approximately 20 participants). The Company adopted the EDP in
connection with the termination of the PSAR Plan and the requirement that these
EDP participants defer one-half of the amount payable in satisfaction of their
PSARs granted in 1995. The objective is for these participants to have the
amount so deferred be deemed to be invested in shares of Class A Common Stock.
The EDP will govern the manner in which these deferred amounts are administered
and paid out.
The EDP is administered by a committee appointed by the board of directors.
Following the completion of the Offerings, the EDP will be administered by the
Compensation Committee.
Amounts deferred pursuant to the EDP will be credited to individual
unfunded accounts (the "EDP Accounts") which will earn interest at the prime
rate of interest, as determined from time to time, from the date the amounts so
deferred would otherwise be distributed to the participants upon termination of
the PSAR Plan to the first date on which the Company issues its Class A Common
Stock pursuant to the Offerings (the "Closing Date") or the termination of
employment of the participant for any reason prior to the Closing Date. On the
Closing Date, EDP Accounts will be deemed to be invested in the number of shares
of Class A Common Stock determined by dividing (i) such EDP Account balance, by
(ii) the price of one share of Class A Common Stock under the Offerings.
Dividends paid on Class A Common Stock thereafter will be credited to
participants and will be deemed to be reinvested in additional shares of Class A
Common Stock.
A participant's EDP Account may not be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated, except by will or by the laws of
intestate succession. In general, EDP Accounts will be distributed on the
earlier of (i) the fifth anniversary of the Closing Date or (ii) the
participant's termination of employment for any reason, in cash, reduced by
applicable withholding of taxes, based on the closing price of the Company's
Class A Common Stock on the New York Stock Exchange on the trading day preceding
such date, and the EDP Account will terminate. See "Employment Contracts and
Termination, Severance and Change-in-Control Arrangements -- Employment
Contracts". The EDP will terminate when no EDP Accounts are outstanding. The
board of directors may, from time to time, terminate, amend or modify the EDP;
provided, however, that no such amendment, modification or termination may
materially adversely affect a participant without the participant's consent.
EXECUTIVE DEFERRED SALARY PLAN
The Company sponsors a deferred salary plan, the Associates First Capital
Corporation Executive Deferred Salary Plan (the "EDSP"), covering the Named
Executive Officers and other executives of the Company. Pursuant to the EDSP, a
participant may elect to defer up to thirty-five percent of the participant's
base salary. The amount deferred is deducted from the participant's wages each
pay period. Elections under the EDSP to defer base salary are made annually
prior to the commencement of each year. A deferred salary amount earns interest
based on a participant's election of one of two interest rate indices. A salary
deferral is generally payable in the manner selected by the participant.
The EDSP is administered by a Committee appointed by the board of
directors. Following the completion of the Offerings, the EDSP will be
administered by the Compensation Committee.
Certain senior executives of the Company, including Named Executive
Officers, have also been participants in similar deferred compensation plans,
the Associates Corporation of North America
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Deferred Compensation Unit Plan Agreement and/or Executive Incentive Plan. These
plans are administered by a Committee appointed by the board of directors. After
the completion of the Offerings, these plans will be administered by the
Compensation Committee. These plans are frozen to new participants and have been
replaced by the EDSP and CAPP. For participants in these frozen plans, their
accounts continue to be active even though new deferrals are not permitted. As
under the EDSP, a deferral under these frozen plans earns interest based on a
participant's election of one of two interest rate indices. A deferral is
generally payable in the manner selected by the participant.
LONG-TERM EQUITY COMPENSATION PLAN
The Company sponsors a stock-based incentive plan, the ECP, covering the
Named Executive Officers and other executives of the Company. The Company
adopted the ECP in 1996 prior to the Offerings. Awards granted under the ECP are
based on shares of Class A Common Stock.
The ECP is administered by a committee appointed by the board of directors.
After the completion of the Offerings, the ECP will be administered by the
Compensation Committee. The ECP provides for the grant of incentive and
nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and performance units (individually, an "Award" or
collectively, "Awards"). Only officers or certain salaried employees of the
Company with potential to contribute to the future success of the Company or its
subsidiaries will be eligible to receive Awards under the ECP (initially
approximately 600 employees). The administrator of the ECP has the discretion to
select the employees to whom Awards will be granted, to determine the type, size
and terms and conditions applicable to each Award and the authority to
interpret, construe and implement the provisions of the ECP. The administrator's
decisions will be binding.
The total number of shares of Class A Common Stock that may be subject to
Awards under the ECP is 4% of all outstanding Common Stock as of the tenth
business day following the Closing Date, or approximately 13,579,394 shares
(13,939,394 shares if the Underwriters' over-allotment options are exercised in
full), including Awards granted prior to the Offerings and subject to adjustment
as provided in the ECP. Class A Common Stock issued under the ECP may be either
authorized but unissued shares (subject to a maximum limit of 204,200 shares),
treasury shares or any combination thereof. Any shares of Class A Common Stock
in addition to 204,200 shares to be issued as Awards under the ECP or pursuant
to Awards granted under the ECP will be obtained by the Company either through
forfeitures of shares of restricted stock (to the extent that such shares are
made available again for issuance under the ECP) or from treasury shares (to the
extent that the Company is permitted by applicable law to acquire its own
shares). In general, to the fullest extent permitted under Rule 16b-3 under the
Exchange Act and Sections 422 and 162(m) of the Internal Revenue Code, any
shares of Class A Common Stock subject to an Award which lapses, expires or is
otherwise terminated without the issuance of such shares may become available
for new Awards.
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The Company intends to grant Awards to the active Named Executive Officers
and other selected participants which will be contingent on the successful
completion of the Offerings. The terms of the Awards will be set forth in award
agreements ("Award Agreements"). These Awards are summarized in the following
table and are described below:
ECP TABLE
<TABLE>
<CAPTION>
NO. OF
NONQUALIFIED
NO. OF SHARES OF STOCK OPTIONS
NAME AND POSITION RESTRICTED STOCK WITH TANDEM SARS(1)
- -------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
Keith W. Hughes
Chairman and Chief Executive Officer.................. 60,000 290,000
Joseph M. McQuillan
Vice Chairman......................................... 20,000 100,000
Harold D. Marshall
Vice Chairman......................................... 20,000 100,000
Chester D. Longenecker
Executive Vice President and General Counsel.......... 6,000 35,000
All Executive Officers as a Group (including those
listed above)......................................... 196,600 994,800
Non-Employee Directors 0 0
All Other Employees as a Group.......................... 0 1,900,000
</TABLE>
- ---------------
(1) The Company intends to grant these options with an exercise price equal to
the initial public offering price set forth on the cover page of this
Prospectus.
The principal terms of the Awards Agreements are as follows:
(i) An Award will be granted to each active Named Executive Officer
and to approximately 15 other officers which will consist of shares of
Restricted Stock and Tandem Option/SARs which will vest on the fifth
anniversary of the date of grant, presuming continued employment through
such date, or earlier upon termination of employment due to death,
disability or retirement.
(ii) An Award will be granted to each active Named Executive Officer
and to a significantly larger group of eligible employees which will
consist of Tandem Option/SARs which will vest one-third on each of the
first three anniversaries of the date of grant, presuming continued
employment through such date, or earlier upon termination of employment due
to death, disability or retirement.
Set forth below is a brief description of the Awards that may be granted
under the ECP:
Stock Options. Options (each an "Option") to purchase shares of Class A
Common Stock, which may be incentive or nonqualified stock options, may be
granted under the ECP at an exercise price (the "Option Price") determined by
the administrator of the ECP in its discretion, provided that the Option Price
may be no less than the closing trading price of the Class A Common Stock on the
New York Stock Exchange on the date of grant, except the initial grants
described above will be granted with an exercise price equal to the initial
public offering price set forth on the cover page of this Prospectus. Each
Option represents the right to purchase one share of Class A Common Stock at the
specified Option Price.
Options will expire not later than 10 years after the date on which they
are granted and will become exercisable at such times and in such installments
as determined by the administrator of the ECP. Payment of the Option Price must
be made in full at the time of exercise in cash, certified or bank check. As
determined by the administrator of the ECP, payment in full or in part may also
be
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made by tendering to the Company shares of Class A Common Stock having a fair
market value equal to the Option Price (or such portion thereof). The Committee
may also allow a cashless exercise of such options.
Stock Appreciation Rights. An Award of a stock appreciation right ("SAR")
may be granted under the ECP with respect to shares of Class A Common Stock.
Generally, one SAR is granted with respect to one share of Class A Common Stock.
The SAR entitles the participant, upon the exercise of the SAR, to receive an
amount equal to the appreciation in the underlying share of Class A Common
Stock. The appreciation is equal to the difference between (i) the "base value"
of the SAR (which is determined with reference to the closing trading price of
the Class A Common Stock on the New York Stock Exchange on the date the SAR is
granted), and (ii) the closing trading price of the Class A Common Stock on the
New York Stock Exchange on the date the SAR is exercised. Upon the exercise of a
vested SAR, the exercising participant will be entitled to receive the
appreciation in the value of one share of Class A Common Stock as so determined,
payable at the discretion of the participant in cash, shares of Class A Common
Stock, or some combination thereof, subject to the availability of shares of
Class A Common Stock to the Company.
SARs will expire not later than 10 years after the date on which they are
granted. SARs become exercisable at such times and in such installments as
determined by the administrator of the ECP; provided that currently no SAR may
be exercised by an individual who is subject to Section 16(b) of the Exchange
Act except during the quarterly exercise window period allowable under Section
16(b).
Tandem Option/SARs. An Option and a SAR may be granted "in tandem" with
each other (a "Tandem Option/SAR"). An Option and an SAR are considered to be in
tandem with each other because the exercise of the Option aspect of the tandem
unit automatically cancels the right to exercise the SAR aspect of the tandem
unit, and vice versa. The Option may be an incentive stock option or a
nonqualified stock option, and the Option may be coupled with one SAR, more than
one SAR or a fractional SAR in any proportionate relationship selected by the
Compensation Committee. Descriptions of the terms of the Option and the SAR
aspects of a Tandem Option/SAR are provided above.
Restricted Stock. An Award of restricted stock ("Restricted Stock") is an
Award of Class A Common Stock that is subject to such restrictions as the
administrator of the ECP deems appropriate, including forfeiture conditions and
restrictions against transfer for a period specified by the administrator of the
ECP. Restricted Stock Awards may be granted under the ECP for services and/or
payment of cash. Restrictions on Restricted Stock may lapse in installments
based on factors selected by the administrator of the ECP. Prior to the
expiration of the restricted period, except as and only if provided by the
administrator of the ECP, a grantee who has received a Restricted Stock Award
generally has the rights of a stockholder of the Company, including the right to
vote and to receive cash dividends on the shares subject to the Award. Stock
dividends issued with respect to a Restricted Stock Award may be treated as
additional shares under such Award and may be subject to the same restrictions
and other terms and conditions that apply to the shares with respect to which
such dividends are issued.
Performance Shares and Performance Units. A performance share Award (a
"Performance Share") and/or a performance unit Award (a "Performance Unit") may
be granted under the ECP. Each Performance Unit will have an initial value that
is established by the administrator of the ECP at the time of grant. Each
Performance Share will have an initial value equal to the closing trading price
of one share of Class A Common Stock on the New York Stock Exchange on the date
of grant. Such Awards may be earned based upon satisfaction of certain specified
performance criteria, subject to such other terms and conditions as the
administrator of the ECP deems appropriate. Performance objectives will be
established before, or as soon as practicable after, the commencement of the
performance period during which performance will be measured (the "Performance
Period") and may be based on net earnings, operating earnings or income, net
income, absolute and/or relative return on equity, capital invested or assets,
earnings per share, cash flow, profits, earnings growth,
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revenue growth, comparisons to peer companies, share price, total shareholder
return, economic value added, expense reduction, customer satisfaction, any
combination of the foregoing and/or such other measures, including individual
measures of performance, as the administrator of the ECP deems appropriate.
Prior to the end of a Performance Period, the administrator of the ECP, in its
discretion, may adjust the performance objectives to reflect an event that may
materially affect the performance of the Company, including, but not limited to,
market conditions or a significant acquisition or disposition of assets or other
property by the Company. The extent to which a grantee is entitled to payment in
settlement of such an Award at the end of the Performance Period will be
determined by the administrator of the ECP, in its sole discretion, based on
whether the performance criteria have been met and payment will be made in cash
or in shares of Class A Common Stock in accordance with the terms of the
applicable Award Agreements.
Additional Information. Under the ECP, if there is any change in the
capitalization of the Company, a corporate transaction, a reorganization or a
partial liquidation of the Company, such proportionate adjustments as may be
necessary (in the form determined by the administrator of the ECP) to reflect
such change will be made to prevent dilution or enlargement of the rights with
respect to the aggregate number of shares of Class A Common Stock for which
Awards in respect thereof may be granted under the ECP, the number of shares of
Class A Common Stock covered by each outstanding Award and the price per share
in respect thereof. Unless otherwise provided in an Award Agreement, an
individual's rights under the ECP may not be assigned or transferred (except in
the event of death). An individual's rights under the ECP are subject to
forfeiture for competitive activity or activity that is inimical to the best
interest of the Company.
The ECP will remain in effect until terminated by the board of directors
and thereafter until all Awards granted thereunder are satisfied by the issuance
of shares of Class A Common Stock and/or the payment of cash or the ECP is
otherwise terminated pursuant to the terms of the ECP or under any Award
Agreements. Notwithstanding the foregoing, no Awards may be granted under the
ECP after the tenth anniversary of the effective date of the ECP. The board of
directors may at any time terminate, modify or amend the ECP; provided, however,
that no such amendment, modification or termination may materially adversely
affect an optionee's or grantee's rights under any Award theretofore granted
under the ECP, except with the consent of such optionee or grantee, and no such
amendment or modification will be effective unless and until the same is
approved by the shareholders of the Company when such shareholder approval is
required to comply with Rule 16b-3 under the Exchange Act, or other applicable
law, regulation or stock exchange rule. Rule 16b-3 currently requires
shareholder approval if the amendment would, among other things, materially
increase the benefits accruing to optionees or grantees under the ECP.
Certain Federal Income Tax Consequences of Awards. Certain of the federal
income tax consequences to ECP participants and the Company of Awards granted
under the ECP are generally set forth in the following summary.
An employee to whom an Option which is an incentive stock option ("ISO")
that qualifies under Section 422 of the Internal Revenue Code is granted will
not recognize income at the time of grant or exercise of such Option. No federal
income tax deduction will be allowable to the Company upon the grant or exercise
of such ISO. However, upon the exercise of an ISO, any excess in the fair market
price of the Class A Common Stock over the Option Price constitutes a tax
preference item that may have alternative minimum tax consequences for the
employee. When the employee sells such shares more than 1 year after the date of
transfer of such shares and more than 2 years after the date of grant of such
ISO, the employee will normally recognize a long-term capital gain or loss equal
to the difference, if any, between the sale prices of such shares and the
aggregate Option Price and the Company will not be entitled to a federal income
tax deduction with respect to the exercise of the ISO or the sale of such
shares. If the employee does not hold such shares for the required period, when
the employee sells such shares, the employee will recognize ordinary
compensation income and possibly capital gain or loss in such amounts as are
prescribed by the
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<PAGE> 87
Internal Revenue Code and the regulations thereunder and the Company will
generally be entitled to a federal income tax deduction in the amount of such
ordinary compensation income.
An employee to whom an Option which is a nonqualified stock option ("NSO")
is granted will not recognize income at the time of grant of such Option. When
the employee exercises such NSO, the employee will recognize ordinary
compensation income equal to the difference, if any, between the Option Price
paid and the fair market value, as of the date of Option exercise, of the shares
of Class A Common Stock the employee receives. The tax basis of such shares to
such employee will be equal to the Option Price paid plus the amount includible
in the employee's gross income, and the employee's holding period for such
shares will commence on the date of exercise. Subject to the applicable
provisions of the Internal Revenue Code and regulations thereunder, the Company
will generally be entitled to a federal income tax deduction in respect of an
NSO in an amount equal to the ordinary compensation income recognized by the
employee upon the exercise of the NSO.
OWNERSHIP OF COMMON STOCK
Ford beneficially owns 100% of the common stock of the Company outstanding
prior to the Offerings. Upon completion of the Offerings, Ford will beneficially
own 100% of the outstanding Class B Common Stock and 30.1% of the outstanding
Class A Common Stock (27.3 % if the Underwriters' over-allotment options are
exercised in full) and, accordingly, will in the aggregate own Common Stock
representing 82.3% of the economic interest in the Company (80.2% if the
Underwriters' over-allotment options are exercised in full) and representing
95.6% of the combined voting power of the Company's outstanding Common Stock
(94.9% if the Underwriters' over-allotment options are exercised in full). See
"Relationship with Ford".
The principal executive offices of Ford are located at The American Road,
Dearborn, MI 48121.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 85,883,019 shares
of Class A Common Stock issued and outstanding (94,883,019 if the Underwriters'
over-allotment options are exercised in full) and 253,601,830 shares of Class B
Common Stock issued and outstanding. All of the shares of Class A Common Stock
to be sold in the Offerings will be freely tradeable without restrictions or
further registration under the Securities Act, except for any shares purchased
by an "affiliate" of the Company (as that term is defined in Rule 144 adopted
under the Securities Act ("Rule 144")), which will be subject to the resale
limitations of Rule 144. Immediately prior to the Closing Date, all of the
outstanding shares of Class B Common Stock and an estimated 25,883,019 shares of
Class A Common Stock will be beneficially owned by Ford and will not have been
registered under the Securities Act and may not be sold in the absence of an
effective registration statement under the Securities Act other than in
accordance with Rule 144 or another exemption from registration. Ford has
certain rights to require the Company to effect registration of shares of Common
Stock owned by Ford, which rights may be assigned. See "Relationship with
Ford -- Corporate Agreement".
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock for at least two years, including a person who may be deemed an
"affiliate", is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1 percent of the total number of
shares of the class of stock being sold or the average weekly reported trading
volume of the class of stock being sold during the four calendar weeks preceding
such sale. A person who is not deemed an "affiliate" of the Company at any time
during the three months preceding a sale and who has beneficially owned shares
for at least three years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through the use
of one or more intermediaries controls, is controlled by, or is under common
control with, such issuer. Rule 144A under the Securities Act
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("Rule 144A") provides a non-exclusive safe harbor exemption from the
registration requirements of the Securities Act for specified resales of
restricted securities to certain institutional investors. In general, Rule 144A
allows unregistered resales of restricted securities to a "qualified
institutional buyer", which generally includes an entity, acting for its own
account or for the account of other qualified institutional buyers, that in the
aggregate owns or invests at least $100 million in securities of unaffiliated
issuers. Rule 144A does not extend an exemption to the offer or sale of
securities that, when issued, were of the same class as securities listed on a
national securities exchange or quoted on an automated quotation system. The
shares of Class B Common Stock outstanding as of the date of this Prospectus
would be eligible for resale under Rule 144A because such shares, when issued,
were not of the same class as any listed or quoted securities. The foregoing
summary of Rule 144 and Rule 144A is not intended to be a complete description
thereof.
Prior to the Offerings, there has been no market for the Class A Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of outstanding shares of Class B Common Stock, or the availability of such
shares for sale, will have on the market price of the Class A Common Stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
Class B Common Stock or the shares of Class A Common Stock beneficially owned by
Ford in the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Class A Common Stock offered
in the Offerings.
Although Ford in the future may effect or direct sales or other
dispositions of Common Stock that would reduce its beneficial ownership interest
in the Company, Ford has advised the Company that its current intent is to
continue to hold all of the Common Stock beneficially owned by it following the
Offerings. However, Ford is not subject to any contractual obligation to retain
its controlling interest except that Ford has agreed not to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Goldman, Sachs & Co. As a
result, there can be no assurance concerning the period of time during which
Ford will maintain its beneficial ownership of Common Stock owned by it
following the Offerings. See "Underwriting". Beneficial ownership of at least
80% of the total voting power and value of the outstanding Common Stock is
required in order for Ford to continue to include the Company in its
consolidated group for federal income tax purposes, and beneficial ownership of
at least 80% of the total voting power and 80% of each class of nonvoting
capital stock is required in order for Ford to be able to effect a Tax-Free
Spin-Off or certain other tax-free transactions. See "Relationship with Ford".
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company will consist of (i)
1,150,000,000 shares of Class A Common Stock and 400,000,000 shares of Class B
Common Stock and (ii) 50,000,000 shares of Preferred Stock, par value $0.01 per
share, none of which is outstanding as of the date hereof. Of the 1,150,000,000
shares of Class A Common Stock, an estimated 25,883,019 shares will be issued to
Ford in connection with the Foreign Subsidiaries Recontribution, 60,000,000
shares are being offered in the Offerings, 253,601,830 shares will be reserved
for issuance upon conversion of Class B Common Stock into Class A Common Stock
and 204,200 shares have been reserved for issuance pursuant to certain employee
benefit plans. See "Management -- Additional Material Employee Compensation
Plans and Agreements -- Long-Term Equity Compensation Plan". Of the 400,000,000
shares of Class B Common Stock, 253,601,830 shares will be outstanding and held
by Ford or one or more of its subsidiaries, including FFSG, on the Closing Date.
A description of the material terms and provisions of the Company's Restated
Certificate of Incorporation affecting the relative rights of the Class A Common
Stock, the Class B Common Stock and the Preferred Stock is set forth below. The
following description of the capital stock of the Company is intended as a
summary only and is qualified in its entirety by reference to the form of the
Company's Restated
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Certificate of Incorporation filed with the Registration Statement of which this
Prospectus forms a part and to Delaware corporate law.
COMMON STOCK
VOTING RIGHTS. The holders of Class A Common Stock and Class B Common Stock
generally have identical rights except that holders of Class A Common Stock are
entitled to one vote per share while holders of Class B Common Stock are
entitled to five votes per share on all matters to be voted on by stockholders.
Holders of shares of Class A Common Stock and Class B Common Stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority (or, in
the case of election of directors, by a plurality) of the votes entitled to be
cast by all shares of Class A Common Stock and Class B Common Stock present in
person or represented by proxy, voting together as a single class, subject to
any voting rights granted to holders of any Preferred Stock. Except as otherwise
provided by law, and subject to any voting rights granted to holders of any
outstanding Preferred Stock, amendments to the Company's Restated Certificate of
Incorporation must be approved by a majority of the combined voting power of all
of Class A Common Stock and Class B Common Stock, voting together as a single
class. However, amendments to the Company's Restated Certificate of
Incorporation that would alter or change the powers, preferences or special
rights of the Class A Common Stock or the Class B Common Stock so as to affect
them adversely also must be approved by a majority of the votes entitled to be
cast by the holders of the shares affected by the amendment, voting as a
separate class. Notwithstanding the foregoing, any amendment to the Company's
Restated Certificate of Incorporation to increase or decrease the authorized
shares of any class shall be approved upon the affirmative vote of the holders
of a majority of the Common Stock, voting together as a single class.
DIVIDENDS. Holders of Class A Common Stock and Class B Common Stock will
share ratably in any dividend declared by the board of directors, subject to any
preferential rights of any outstanding Preferred Stock. Dividends consisting of
shares of Class A Common Stock and Class B Common Stock may be paid only as
follows: (i) shares of Class A Common Stock may be paid only to holders of
shares of Class A Common Stock, and shares of Class B Common Stock may be paid
only to holders of Class B Common Stock; and (ii) shares shall be paid
proportionally with respect to each outstanding share of Class A and Class B
Common Stock.
The Company may not subdivide or combine shares of either class of Common
Stock without at the same time proportionally subdividing or combining shares of
the other class.
CONVERSION. Each share of Class B Common Stock is convertible while held by
Ford, any of its subsidiaries or the Class B Transferee (as defined below), if
any, at the option of the holder thereof into one share of Class A Common Stock.
Following the occurrence of a Tax-Free Spin-Off, if any, shares of Class B
Common Stock shall not be convertible into shares of Class A Common Stock at the
option of the holder thereof.
Except as provided below, any shares of Class B Common Stock transferred to
a person other than Ford or any of its subsidiaries or the Class B Transferee or
any of its subsidiaries shall automatically convert to shares of Class A Common
Stock upon such disposition. Shares of Class B Common Stock representing more
than a 50% economic interest in the Company transferred by Ford or any of its
subsidiaries in a single transaction to one unrelated person (the "Class B
Transferee") or any subsidiary of the Class B Transferee shall not automatically
convert to shares of Class A Common Stock upon such disposition. Any shares of
Class B Common Stock retained by Ford or any of its subsidiaries following any
such disposition to the Class B Transferee shall automatically convert to shares
of Class A Common Stock upon such disposition. Shares of Class B Common Stock
transferred to stockholders of Ford or stockholders of the Class B Transferee as
a dividend intended to be a Tax-Free Spin-Off shall not convert to shares of
Class A Common Stock upon the occurrence of a Tax-Free Spin-Off. Following a
Tax-Free Spin-Off, shares of Class B
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Common Stock shall be transferable as Class B Common Stock, subject to
applicable laws; provided, however, that shares of Class B Common Stock shall
automatically convert into shares of Class A Common Stock on the fifth
anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free Spin-Off,
Ford or the Class B Transferee, as the case may be, delivers to the Company an
opinion of counsel reasonably satisfactory to the Company (which, in the case of
Ford, shall include Ford's Chief Tax Officer) to the effect that such conversion
would preclude Ford or the Class B Transferee, as the case may be, from
obtaining a favorable ruling from the Internal Revenue Service that the
distribution would be a Tax-Free Spin-Off. If such an opinion is received,
approval of such conversion shall be submitted to a vote of the holders of the
Common Stock as soon as practicable after the fifth anniversary of the Tax-Free
Spin-Off unless Ford or the Class B Transferee, as the case may be, delivers to
the Company an opinion of counsel reasonably satisfactory to the Company (which,
in the case of Ford, shall include Ford's Chief Tax Officer) prior to such
anniversary that such vote would adversely affect the status of the Tax-Free
Spin-Off. Approval of such conversion will require the affirmative vote of the
holders of a majority of the shares of both the Class A Common Stock and Class B
Common Stock present and voting, voting together as a single class, with each
share entitled to one vote for such purpose. No assurance can be given that such
conversion would be consummated. The requirement to submit such conversion to a
vote of the holders of Common Stock is intended to ensure tax treatment of the
Tax-Free Spin-Off is preserved should the Internal Revenue Service challenge
such automatic conversion as violating the 80% vote requirement. Ford has no
current plans with respect to a Tax-Free Spin-Off of the Company.
All shares of Class B Common Stock shall automatically convert into Class A
Common Stock if a Tax-Free Spin-Off has not occurred and the number of
outstanding shares of Class B Common Stock beneficially owned by Ford or the
Class B Transferee, as the case may be, falls below 45% of the aggregate number
of outstanding shares of Common Stock. This will prevent Ford or the Class B
Transferee, as the case may be, from decreasing its economic interest in the
Company to less than 45% while still retaining control of more than 80% of the
Company's voting power. Automatic conversion of the Class B Common Stock into
Class A Common Stock if a Tax-Free Spin-Off has not occurred and Ford or the
Class B Transferee, as the case may be, decreases its economic interest in the
Company to less than 45% is intended to ensure that Ford or the Class B
Transferee, as the case may be, retains voting control by virtue of its
ownership of Class B Common Stock only if it has a substantial economic interest
in the Company. All conversions will be effected on a share-for-share basis.
OTHER RIGHTS. In the event of any merger or consolidation of the Company
with or into another company in connection with which shares of Common Stock are
converted into or exchangeable for shares of stock, other securities or property
(including cash), all holders of Common Stock, regardless of class, will be
entitled to receive the same kind and amount of shares of stock and other
securities and property (including cash).
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to share ratably
in any assets available for distribution to holders of shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock. However, see
"Relationship with Ford -- Corporate Agreement" with respect to certain rights
of Ford to purchase additional shares of Common Stock.
Upon consummation of the Offerings, all the outstanding shares of Class A
Common Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series and
with such designations and preferences for each series as shall be stated in the
resolutions providing for the
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designation and issue of each such series adopted by the board of directors of
the Company. The board of directors is authorized by the Company's Restated
Certificate of Incorporation to determine, among other things, the voting,
dividend, redemption, conversion and liquidation powers, rights and preferences
and the limitations thereon pertaining to such series. The board of directors,
without stockholder approval, may issue Preferred Stock with voting and other
rights that could adversely affect the voting power of the holders of the Common
Stock and could have certain anti-takeover effects. The Company has no present
plans to issue any shares of Preferred Stock. The ability of the board of
directors to issue Preferred Stock without stockholder approval could have the
effect of delaying, deferring or preventing a change in control of the Company
or the removal of existing management.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
CORPORATE OPPORTUNITIES. The Company's Restated Certificate of
Incorporation will provide that: Ford shall have no duty to refrain from
engaging in the same or similar activities or lines of business as the Company,
and neither Ford nor any officer or director thereof (except as provided below)
shall be liable to the Company or its stockholders for breach of any fiduciary
duty by reason of any such activities of Ford. In the event that Ford acquires
knowledge of a potential transaction or matter which may be a corporate
opportunity for both Ford and the Company, Ford shall have no duty to
communicate or offer such corporate opportunity to the Company and shall not be
liable to the Company or its stockholders for breach of any fiduciary duty as a
stockholder of the Company by reason of the fact that Ford pursues or acquires
such corporate opportunity for itself, directs such corporate opportunity to
another person, or does not communicate information regarding such corporate
opportunity to the Company.
In the event that a director or officer of the Company who is also a
director or officer of Ford acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both the Company and Ford, such
director or officer of the Company shall have fully satisfied and fulfilled the
fiduciary duty of such director or officer to the Company and its stockholders
with respect to such corporate opportunity if such director or officer acts in a
manner consistent with the following policy:
(i) a corporate opportunity offered to any person who is an officer of
the Company, and who is also a director but not an officer of Ford, shall
belong to the Company;
(ii) a corporate opportunity offered to any person who is a director
but not an officer of the Company, and who is also a director or officer of
Ford, shall belong to the Company if such opportunity is expressly offered
to such person in writing solely in his or her capacity as a director of
the Company, and otherwise shall belong to Ford; and
(iii) a corporate opportunity offered to any person who is an officer
of both the Company and Ford shall belong to the Company if such
opportunity is expressly offered to such person in writing solely in his or
her capacity as an officer of the Company, and otherwise shall belong to
Ford.
For purposes of the foregoing:
(i) A director of the Company who is chairman of the board of
directors of the Company or of a committee thereof shall not be deemed to
be an officer of the Company by reason of holding such position (without
regard to whether such position is deemed an office of the Company under
the By-laws of the Company), unless such person is a full-time employee of
the Company; and
(ii) (A) The term "Company" shall mean the Company and all
corporations, partnerships, joint ventures, associations and other entities
in which the Company beneficially owns (directly or indirectly) fifty
percent or more of the outstanding voting stock, voting power, partnership
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interests or similar voting interests, and (B) the term "Ford" shall mean
Ford and all corporations, partnerships, joint ventures, associations and
other entities (other than the Company, defined in accordance with clause
(A) of this section (ii)) in which Ford beneficially owns (directly or
indirectly) fifty percent or more of the outstanding voting stock, voting
power, partnership interests or similar voting interests.
The foregoing provisions of the Company's Restated Certificate of
Incorporation shall expire on the date that Ford ceases to own beneficially
Common Stock representing at least 20% of the total voting power of all classes
of outstanding Common Stock and no person who is a director or officer of the
Company is also a director or officer of Ford or any of its subsidiaries (other
than the Company).
In addition to any vote of the stockholders required by the Company's
Restated Certificate of Incorporation, until the time that Ford ceases to own
beneficially Common Stock representing at least 20% of the total voting power of
all classes of outstanding Common Stock, the affirmative vote of the holders of
more than 80% of the total voting power of all classes of outstanding Common
Stock shall be required to alter, amend or repeal in a manner adverse to the
interests of Ford and its subsidiaries (other than the Company), or adopt any
provision adverse to the interests of Ford and its subsidiaries (other than the
Company), and inconsistent with, the corporate opportunity provisions described
above. Accordingly, so long as Ford beneficially owns Common Stock representing
at least 20% of the total voting power of all classes of outstanding Common
Stock, it can prevent any such alteration, amendment, repeal or adoption.
Any person purchasing or otherwise acquiring Common Stock will be deemed to
have notice of, and to have consented to, the foregoing provisions of the
Company's Restated Certificate of Incorporation.
PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT. Certain provisions of the
Company's Restated Certificate of Incorporation and By-laws summarized below may
be deemed to have an anti-takeover effect and may delay, deter or prevent a
tender offer or takeover attempt that a stockholder might consider to be in its
best interest, including attempts that might result in a premium being paid over
the market price for the shares held by stockholders.
The Company's Restated Certificate of Incorporation will provide that,
subject to any rights of holders of Preferred Stock to elect additional
directors under specified circumstances, the number of directors of the Company
will be not more than twelve nor less than three, with the exact number to be
fixed from time to time as provided in the By-laws. The By-laws will provide
that, subject to any rights of holders of Preferred Stock to elect additional
directors under specified circumstances, the number of directors will be fixed
from time to time exclusively by resolution of the board of directors adopted by
the affirmative vote of directors constituting not less than a majority of the
total number of directors that the Company would have if there were no vacancies
on the Company's board of directors, but shall consist of not more than twelve
nor less than three directors. In addition, the Restated Certificate of
Incorporation and By-laws will provide that, subject to any rights of holders of
Preferred Stock, and unless the Company's board of directors otherwise
determines, any vacancies will be filled by the affirmative vote of a majority
of the remaining members of the board of directors, though less than a quorum,
or by a sole remaining director; except as otherwise provided by law, any such
vacancy may not be filled by the stockholders.
The Company's By-laws will provide for an advance notice procedure for the
nomination, other than by or at the direction of the board of directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or raise matters at such meetings will have to be
received in writing by the Company not less than 60 nor more than 90 days prior
to the anniversary of the previous year's annual meeting of stockholders, and
must contain certain information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal. The Company's Restated Certificate of Incorporation and
By-
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laws will also provide that special meetings of stockholders may be called only
by certain specified officers of the Company or by any officer at the request in
writing of a majority of the board of directors; special meetings of
stockholders cannot be called by stockholders. In addition, the Company's
Restated Certificate of Incorporation will provide that any action required or
permitted to be taken by stockholders may be effected by written consent;
provided, however, that on and after the date on which neither Ford nor the
Class B Transferee continue to beneficially own 50% or more of the total voting
power of all classes of outstanding Common Stock, any action required or
permitted to be taken by stockholders may be effected only at a duly called
annual or special meeting of stockholders and may not be effected by a written
consent by stockholders in lieu of such a meeting.
The Company's Restated Certificate of Incorporation will also provide that
the affirmative vote of the holders of at least 75% of the total voting power of
all classes of outstanding Common Stock, voting together as a single class, is
required to amend, repeal or adopt any provision inconsistent with the foregoing
provisions of the Restated Certificate of Incorporation. The Restated
Certificate of Incorporation and By-laws will further provide that the By-laws
may be altered, amended or repealed by the affirmative vote of directors
constituting not less than a majority of the entire board of directors (if
effected by action of the board of directors) or by the affirmative vote of the
holders of at least 75% of the total voting power of all classes of outstanding
capital stock, voting together as a single class (if effected by action of the
stockholders).
REGULATORY MATTERS. Because of the nature of the businesses in which the
Company operates, the acquisition of various amounts of its equity securities
may not be permitted without regulatory approval. Set forth below are certain
principal regulatory thresholds. The information set forth below is not meant to
be complete, and any person desiring to acquire in excess of 5% of any class of
the Company's voting securities is advised to consult its own advisors.
The Company indirectly owns all of the shares of stock of insurance
companies domiciled in the states of Delaware, Indiana, Nevada, Tennessee and
Texas. The respective insurance laws of these states require prior approval by
the state's insurance commissioner of any acquisition of control of a domestic
insurance company or of any company which controls a domestic insurance company.
"Control" is presumed to exist through the ownership of 10% or more of the
voting securities of a domestic insurance company or of any company which
controls a domestic insurance company. Therefore, any person owning 10% or more
of the value of the outstanding Common Stock may, following the conversion of
some (and will following the conversion of all) of the Class B Common Stock into
Class A Common Stock , be presumed to have acquired control of the Company's
insurance subsidiaries unless the insurance commissioners of Delaware, Indiana,
Nevada, Tennessee and Texas, following application by such purchaser in each
such state, determine otherwise.
The United Kingdom's Insurance Companies Act 1982 requires the prior
approval by the Department of Trade and Industry of anyone proposing to become a
"controller" of an insurance company regulated under such Act. Any company or
individual that directly or indirectly exercises 10% or more of the voting power
at a general meeting of a regulated insurance company is considered a
"controller". Therefore, any person owning 10% or more of the value of the
outstanding Common Stock will, following any conversion of all of the Class B
Common Stock into Class A Common Stock, be a controller of the Company's U.K.
subsidiaries, Cumberland Insurance Company Limited and Cumberland Life Insurance
Co. Limited.
The Company indirectly owns all of the shares of stock of ANB and
Associates Investment, the deposits of which are insured by the FDIC. The
federal Change in Bank Control Act and the regulations issued thereunder require
that a person (including an individual) file a notice with the appropriate
federal bank regulatory agency prior to acquiring 10% or more of any class of
voting securities of a company that controls an insured depository institution
such as ANB or Associates Investment. In addition, as long as the Company
controls Associates Investment, the laws of the State of Utah require that the
prior approval of the Utah Commissioner of Financial Institutions be
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obtained before any individual acquires the power to vote 20% or more of any
class of voting securities of the Company and before any person other than an
individual acquires the power to vote 5% or more of any class of voting
securities of the Company.
The Company indirectly owns all of the shares of stock of licensed lenders
in the states of Georgia, Hawaii, Nevada and Virginia and in the Commonwealth of
Puerto Rico. The lender licensing laws of these states and Puerto Rico require
approval by the appropriate regulatory agency prior to any acquisition of
control of any company which controls a license. "Control" is presumed to exist
through the ownership of 10% or more (25% in Georgia and Virginia) of the voting
securities of a licensee or a company that controls a licensee. Therefore any
person owning 10% or more (25% in Georgia and Virginia) of the value of the
outstanding Common Stock will, following any conversion of all of the Class B
Common Stock into Class A Common Stock, be presumed to have acquired control of
the Company's licensed lenders in these jurisdictions unless the appropriate
regulatory agency determines otherwise.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"). Section 203 provides
that, subject to certain exceptions specified therein, a corporation shall not
engage in any business combination with any "interested stockholder" for a
three-year period following the time that such stockholder becomes an interested
stockholder unless (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (iii) on or subsequent to such time, the
business combination is approved by the board of directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. Except as specified in Section
203 of the Delaware Law, an interested stockholder is defined to include (x) any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person. Under certain circumstances,
Section 203 of the Delaware Law makes it more difficult for an "interested
stockholder" to effect various business combinations with a corporation for a
three-year period, although the stockholders may elect to exclude a corporation
from the restrictions imposed thereunder. By virtue of its ownership of 15% or
more of the outstanding voting stock of the Company for more than a three-year
period, Ford and its subsidiaries are not themselves restricted from engaging in
a business combination with the Company pursuant to Section 203 of the Delaware
Law.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
DESCRIPTION OF CERTAIN INDEBTEDNESS
GENERAL
In connection with the funding of its operations, the Company and its
principal operating subsidiary, ACONA, each from time to time issue publicly and
privately held debt securities (the "Senior Debt"). At December 31, 1995, the
Company and its subsidiaries had an aggregate of $21.2 billion in Senior Debt
outstanding. The following is a brief summary of the material terms of such
Senior Debt.
MATURITIES AND INTEREST RATES
The Senior Debt has maturities ranging from 1996 to 2010 with interest
rates ranging from 2.66% to 13.75%.
COVENANTS
No provisions in the Senior Debt issued by the Company limit the amount of
other debt which may be issued by the Company or the amount of dividends or
other payments which may be paid with respect to, or the redemption or
acquisition of, its equity securities by the Company or its subsidiaries. Except
as otherwise set forth below, no terms of the Senior Debt issued by ACONA limit
the amount of other debt which may be issued by ACONA or the amount of dividends
or other payments which may be paid with respect to, or the redemption or
acquisition of, its equity securities by ACONA or its subsidiaries. Each
indenture governing the terms of ACONA's publicly issued Senior Debt contains a
covenant that neither ACONA nor any finance or insurance subsidiary of ACONA
will create or incur any mortgage, pledge, or charge of any kind on any of its
properties, except for: (i) intercompany mortgages or pledges from subsidiary to
parent corporation or to any other finance or insurance subsidiary; (ii)
purchase money liens or leases; (iii) acquisitions of subsidiaries, the physical
properties or assets of which are subject to liens; (iv) liens created in the
ordinary course of business by subsidiaries for money borrowed if such
subsidiaries operate in foreign countries or prior to becoming a subsidiary had
borrowed on a secured basis; (v) sale and leaseback arrangements upon any real
property; (vi) renewals or refundings of any of the foregoing; and (vii) certain
other minor exceptions. Each such indenture also contains a covenant restricting
certain transactions by ACONA or its subsidiaries with any affiliate.
A restriction contained in one bank term loan of ACONA, the maturity date
of which is January 6, 1997, limits the amount of receivables which ACONA may
have at any time from its affiliates to 7% of the gross receivables of ACONA. A
restriction contained in one other bank term loan of ACONA, the maturity date of
which is April 30, 1996, requires ACONA to enter into transactions with its
affiliates under the same terms and conditions as such transaction would be
entered into with a nonaffiliate. A restriction contained in numerous revolving
credit facilities of ACONA, the final maturity date of which is April 1, 2001,
requires ACONA to maintain a tangible net worth of at least $1,500,000,000. A
restriction, which is contained in certain issues of Senior Debt having stated
maturities no later than March 15, 1999, generally limits payments of dividends
on ACONA's common stock in any year to not more than 50% of consolidated net
earnings for such year, subject to certain exceptions.
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CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Class A
Common Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any
person who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a foreign
estate or trust. This discussion does not address all aspects of United States
federal income and estate taxes and does not deal with foreign, state and local
consequences that may be relevant to such Non-U.S. Holders in light of their
personal circumstances. Furthermore, this discussion is based on provisions of
the Internal Revenue Code, existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change (possibly with retroactive
effect). EACH PROSPECTIVE PURCHASER OF CLASS A COMMON STOCK IS ADVISED TO
CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX
CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF CLASS A COMMON STOCK AS WELL
AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE,
MUNICIPALITY OR OTHER TAXING JURISDICTION.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States on at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Class A Common Stock generally will
be subject to withholding of United States federal income tax either at a rate
of 30% of the gross amount of the dividends or at such lower rate as may be
specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business by the Non-U.S.
Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-U.S. Holder,
are not subject to the withholding tax, but instead are subject to United States
federal income tax on a net income basis at applicable graduated individual or
corporate rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. Under proposed United States
Treasury regulations not currently in effect, however, a Non-U.S. Holder of
Class A Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification and other
requirements. Currently, certain certification and disclosure requirements must
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.
A Non-U.S. Holder of Class A Common Stock eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Class A Common Stock unless (i) the gain is effectively connected with a trade
or business of the Non-U.S. Holder in the United States, and, where a tax treaty
applies, is attributable to a United States permanent establishment of the Non-
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U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Class A Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions are met, or (iii) the Company is or has
been a "U.S. real property holding corporation" for United States federal income
tax purposes. The Company believes it is not and does not anticipate becoming a
"U.S. real property holding corporation" for United States federal income tax
purposes.
If an individual Non-U.S. Holder falls under clause (i) above, he will,
unless an applicable treaty provides otherwise, be taxed on his net gain derived
from the sale under regular graduated United States federal income tax rates. If
an individual Non-U.S. Holder falls under clause (ii) above, he will be subject
to a flat 30% tax on the gain derived from the sale, which may be offset by
certain United States capital losses.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its gain under regular graduated United States
federal income tax rates and may be subject to an additional branch profits tax
at a 30% rate, unless it qualifies for a lower rate under an applicable income
tax treaty.
FEDERAL ESTATE TAX
Class A Common Stock held by an individual Non-U.S. Holder at the time of
death will be included in such holder's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
A backup withholding tax is imposed at the rate of 31% on certain payments
to persons that fail to furnish certain identifying information to the payor.
Backup withholding generally will not apply to dividends paid to a Non-U.S.
Holder at an address outside the United States (unless the payer has knowledge
that the payee is a U.S. person). Backup withholding and information reporting
generally will also apply to dividends paid on Class A Common Stock at addresses
inside the United States to Non-U.S. Holders that fail to provide certain
identifying information in the manner required.
Payment of the proceeds of a sale of Class A Common Stock by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner provides the payor with its
name and address and certifies under penalties of perjury that it is a Non-U.S.
Holder, or otherwise establishes an exemption. In general, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of Class A Common Stock by or through a foreign office of a foreign broker. If,
however, such broker is, for United States federal income tax purposes a U.S.
person, a controlled foreign corporation, or a foreign person that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States, such payments will be subject to information
reporting, but not backup withholding, unless (1) such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met, or (2) the beneficial owner otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
The backup withholding and information reporting rules are under review by
the Treasury Department and their application to the Class A Common Stock could
be changed by future regulations.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., CS First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan
Securities Inc., Bear, Stearns & Co. Inc., Lehman Brothers Inc. and Salomon
Brothers Inc are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company, the respective number of shares
of Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
---------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co...................................................
CS First Boston Corporation...........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated....................
J.P. Morgan Securities Inc............................................
Bear, Stearns & Co. Inc...............................................
Lehman Brothers Inc...................................................
Salomon Brothers Inc .................................................
Total.......................................................
========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Class A Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Class A Common
Stock are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 9,000,000 shares of Class A Common Stock in an International Offering outside
the United States. The initial public offering price and aggregate underwriting
discounts and commissions per share for the Offerings are identical. The closing
of the offering made hereby is a condition to the closing of the International
Offering, and vice versa. The representatives of the International Underwriters
are Goldman Sachs International, CS First Boston Limited, Merrill Lynch
International Limited, J.P. Morgan Securities Ltd., Bear, Stearns International
Limited, Lehman Brothers International (Europe) and Salomon Brothers
International Limited.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the Offerings, each of the U.S.
Underwriters named herein has agreed that, as a part of the distribution of the
shares offered as a part of the U.S. Offering and subject to certain exceptions,
it will offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction (the "United States") and to U.S. persons, which term shall
mean, for purposes of this paragraph: (i) any individual who is a resident of
the United States or (ii) any corporation, partnership or other entity organized
in or under the laws of the United States or any political subdivision thereof
and whose office most directly involved with the purchase is located in the
United States. Each of the International Underwriters has agreed, or will agree,
pursuant to the Agreement Between that, as a
95
<PAGE> 99
part of the International Offering, and subject to certain exceptions, it will
(i) not, directly or indirectly, offer, sell or deliver shares of Class A Common
Stock (a) in the United States or to any U.S. persons or (b) to any person whom
it believes intends to reoffer, resell or deliver the shares in the United
States or to any U.S. persons and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so sold
shall be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
7,650,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 51,000,000 shares of Class A Common Stock offered hereby.
The Company has granted the International Underwriters a similar option
exercisable for up to an aggregate of 1,350,000 additional shares of Class A
Common Stock.
The Company and Ford have agreed that, during the period beginning from the
date of this Prospectus and continuing to and including the date 180 days after
the date of this Prospectus, they will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any security convertible into
or exchangeable for, or that represents the right to receive, shares of Common
Stock or enter into any swap, option, future, forward or other agreement that
transfers, in whole or in part, the economic consequence of ownership of Common
Stock, without the prior written consent of Goldman, Sachs & Co., other than,
with respect to the Company, (i) pursuant to employee stock option plans
existing on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Prospectus and (ii) the issuance
of Common Stock in connection with the transactions described in this
Prospectus.
The Underwriters have reserved for sale, at the initial public offering
price, shares of the Class A Common Stock for certain employees and retirees of
the Company and its affiliates in the United States and, subject to local laws,
internationally who have expressed an interest in purchasing such shares of
Class A Common Stock in the Offerings. It is expected that such employees and
retirees will purchase, in the aggregate, less than 10% of the Class A Common
Stock offered in the Offerings. The number of shares available for sale to the
general public in the Offerings will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as the other shares offered
hereby.
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated among
the Company and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class A Common Stock in addition to
prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
96
<PAGE> 100
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of Class A Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange, upon notice of issuance, under the symbol "AFS". In order to
meet one of the requirements for listing of the Class A Common Stock on the New
York Stock Exchange, the U.S. Underwriters will undertake to sell lots of 100 or
more shares to a minimum of 2,000 beneficial owners.
The Company and Ford have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
From time to time, in the ordinary course of their respective businesses,
certain of the Underwriters and their affiliates have engaged, and may in the
future engage, in commercial banking transactions with the Company.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York and for the Underwriters by
Shearman & Sterling, New York, New York. Simpson Thacher & Bartlett and Shearman
& Sterling have in the past provided, and may continue to provide, legal
services to Ford and its affiliates.
EXPERTS
The Supplemental Combined Balance Sheets of the Company as of December 31,
1995 and 1994 and the Supplemental Combined Statements of Earnings, Changes in
Stockholder's Equity and Cash Flows for each of the three years in the period
ended December 31, 1995 included in this Prospectus, have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
97
<PAGE> 101
GLOSSARY
<TABLE>
<S> <C>
Accidental Death and Dismem-
berment Insurance............. Insurance that pays a benefit upon the covered accidental
death or dismemberment of an insured.
Accounts Receivable Financing... A type of lending to a dealer of commercial goods which is
secured by such dealer's accounts receivable.
Active Accounts................. An account that has either an outstanding balance or has
had credit or debit activity during the billing cycle for
which activity is determined.
Behavioral Scoring System....... A system used to assess the credit risk of a finance
customer based upon the actual credit history of such
customer.
Captive Finance Program......... A finance program which is operated by a finance company
under the name of the manufacturer or dealer of the goods
being financed.
Charge-Off...................... A loan which is deemed uncollectible and the balance of
which is charged against the allowance for loan losses.
Generally, unsecured loans are charged off when they
become contractually delinquent for a stated number of
days or upon the occurrence of certain specific events
specified in the applicable loan agreement.
Class A Common Stock............ Class A Common Stock, par value $0.01 per share, of the
Company.
Class B Common Stock............ Class B Common Stock, par value $0.01 per share, of the
Company.
Closed-End Lease................ A lease with a specified term under which the lessor bears
the residual risk of the property subject to the lease.
Closed-End Personal Loan........ A direct consumer loan with a specified term.
Co-Branded...................... A type of credit card that bears the name of third party
businesses with whom the issuer of the credit card has a
marketing relationship, such as a specialty credit card
issued by a financial institution but bearing the logo
and other marketing insignia of a designated gasoline
retailer.
Commercial Auto and Dealers'
Open Lot Physical Damage
Insurance..................... Insurance that provides a monthly benefit on an insured's
credit balance in the event of a loss to the insured's
property pledged as collateral. In the case of property
owned and used by truck owner-operators and fleet
customers, coverage is for the term of the loan or the
policy term and may not exceed three years. In the case
of property held in inventory for resale, coverage is for
one year.
Contractual Delinquency......... Failure to pay when due any amount as called for by the
terms of the contract.
Credit Accident and Health
Insurance..................... Insurance that provides a benefit in the event an insured
becomes disabled because of a covered accident or illness
during the term of the insurance.
</TABLE>
98
<PAGE> 102
<TABLE>
<S> <C>
Credit Life Insurance........... Insurance that provides coverage that may pay off an
insured's credit balance in the event of a covered death
during the term of the insurance.
Credit Scoring.................. A credit approval system used to evaluate the perceived
credit worthiness of an applicant based upon information
regarding the applicant and the transaction in question.
Debt to Equity Ratio............ The ratio of interest bearing debt to total stockholder's
equity.
Excess of Loss Coverages........ Reinsurance under which the reinsurer is responsible for
the losses exceeding a specific dollar amount during the
term of reinsurance coverage.
Finance Lease................... A lease under which the lessee is obligated to pay to the
lessor over the term of the lease an amount equal to the
cost of the goods being leased plus a finance charge. The
lessee becomes the owner of the goods at the end of the
lease.
Foreign Subsidiaries
Recontribution................ The expected recontribution by Ford to the Company of the
Foreign Subsidiaries, as described under "The Company".
Gap Position.................... The sum of floating rate asset balances and principal
payments on fixed rate assets, less the sum of floating
rate liability balances and fixed rate liability
maturities.
Home Equity Loan................ A loan secured by the borrower's home.
Independent Finance Company..... A company engaged in providing finance products and/or
services whose business is directed by its internal
management and is not dependent upon the business of an
affiliated party.
Insurance Underwriting.......... The process whereby a company applies a set of standards to
the risks presented to it to determine whether to insure
such risks.
Involuntary Unemployment
Insurance..................... Insurance that provides a monthly benefit on an insured's
credit balance for a specified period of time in the
event of the insured's involuntary loss of work (for
example, layoff, strike or lockout).
LTV -- Loan to Value Ratio...... The ratio (expressed as a percentage) of the dollar amount
of the loan or credit extension to the agreed-upon or
appraised value of the property serving as collateral for
such loan or credit extension at any specified date,
usually at the inception of the loan or credit extension.
Manufactured Housing............ Residential housing constructed at a manufacturing facility
and transported to the site at which it will be located.
Moody's......................... Moody's Investors Service
Net Credit Loss................. The loss from an account charged off, which loss typically
excludes interest and fees not paid and includes present
period recoveries on loans charged off in prior periods.
Net Finance Receivables......... Finance receivables net of unearned income.
Open-End Lease.................. A lease agreement (i) providing for an additional payment
after the property is returned to the lessor to account
for any change in the value of the property and (ii)
under which the lessor retains the benefit of
depreciation for tax purposes.
</TABLE>
99
<PAGE> 103
<TABLE>
<S> <C>
Personal Property Insurance..... Insurance that provides a benefit in the event of a loss of
or damage to property pledged as collateral on direct,
non-real estate loans and retail sales finance contracts.
Private Label Credit Card....... A credit card issued by a retailer of consumer goods, or by
a financial institution pursuant to an agreement with a
retailer, for the purchase or financing of the retailer's
goods and services.
Reinsurance..................... The practice whereby one party, called the reinsurer, in
consideration of a premium paid to it, agrees to indemnify
another party for part or all of the liability assumed by
the reinsured under a contract or contracts of insurance
which it has issued. The reinsured may be referred to as
the original or primary insurer, the direct writing
company or the ceding company.
Residual Risk................... The risk that at the end of a lease the market value of the
personal property subject to the lease will be less than
the residual value on which the lease payments were
based.
Return on Average Assets........ A fraction, the numerator of which is annual net earnings
and the denominator of which is the average of total assets
at the beginning and end of the annual period.
Return on Average Equity........ A fraction, the numerator of which is annual net earnings
and the denominator of which is the average of total stock-
holder's equity at the beginning and end of the annual
period.
Return on Average Tangible
Equity........................ A fraction, the numerator of which is annual net earnings
and the denominator of which is the average of total stock-
holder's equity less goodwill and other intangibles at
the beginning and end of the annual period.
Revolving Credit................ A credit arrangement whereby a borrower may repeatedly
borrow and repay specified amounts.
Standard & Poor's............... Standard & Poor's Ratings Group
Tax-Free Spin-Off............... The disposition of the Common Stock beneficially owned by
Ford or the Class B Transferee, if any, effected in
connection with a transfer of such Common Stock to
stockholders of Ford or stockholders of the Class B
Transferee, as the case may be, as a dividend intended to
be on a tax-free basis under the Code.
Variable Rate................... An interest rate that adjusts based on the movement of a
specified index, such as LIBOR or the prime interest
rate.
Vintage Analysis................ A comparison of the performance of portfolio segments at
specified months from the date the loans were made.
Wholesale Financing............. Financing to a dealer of consumer or commercial goods se-
cured by such dealer's product inventory.
</TABLE>
100
<PAGE> 104
ASSOCIATES FIRST CAPITAL CORPORATION
INDEX TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Supplemental Combined Financial Statements
Report of Independent Accountants................................................... F-2
Supplemental Combined Statement of Earnings -- Years Ended December 31, 1995, 1994
and 1993......................................................................... F-3
Supplemental Combined Balance Sheet -- December 31, 1995 and 1994................... F-4
Supplemental Combined Statement of Changes in Stockholder's Equity -- Years Ended
December 31, 1995, 1994 and 1993................................................. F-5
Supplemental Combined Statement of Cash Flows -- Years Ended December 31, 1995, 1994
and 1993......................................................................... F-6
Notes to Supplemental Combined Financial Statements................................. F-7
</TABLE>
F-1
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Associates First Capital Corporation
We have audited the supplemental combined statements of financial position
of Associates First Capital Corporation (an indirect subsidiary of Ford Motor
Company) and subsidiaries as of December 31, 1995 and 1994, and the related
supplemental combined statements of earnings, changes in stockholder's equity,
and cash flows for each of the years in the three-year period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental combined financial statements give retroactive effect to
the proposed contributions by Ford Motor Company of certain foreign subsidiaries
to Associates First Capital Corporation, to be accounted for as a pooling of
interests as described in NOTE 2 to the supplemental combined financial
statements. Generally accepted accounting principles proscribe giving effect to
a consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
Associates First Capital Corporation and subsidiaries after financial statements
covering the date of consummation of the business combination are issued.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the supplemental combined financial position of
Associates First Capital Corporation and subsidiaries at December 31, 1995 and
1994, and the supplemental combined results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles applicable after
financial statements are issued for a period which includes the date of
consummation of the proposed business combination.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 26, 1996, except for Note 18,
as to which the date is February 8, 1996
F-2
<PAGE> 106
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF EARNINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Finance charges......................................... $5,560.8 $4,445.2 $3,709.7
Insurance premiums...................................... 370.6 329.0 270.9
Investment and other income............................. 175.8 151.6 134.2
-------- -------- --------
6,107.2 4,925.8 4,114.8
EXPENSES
Interest expense........................................ 2,177.9 1,657.3 1,421.7
Operating expenses...................................... 1,754.7 1,456.1 1,216.8
Provision for losses on finance receivables -- NOTE 4... 834.0 647.1 536.1
Insurance benefits paid or provided..................... 142.5 147.9 118.9
-------- -------- --------
4,909.1 3,908.4 3,293.5
-------- -------- --------
EARNINGS BEFORE PROVISION FOR INCOME TAXES................ 1,198.1 1,017.4 821.3
PROVISION FOR INCOME TAXES -- NOTE 8...................... 475.0 414.1 327.3
-------- -------- --------
NET EARNINGS.............................................. $ 723.1 $ 603.3 $ 494.0
======== ======== ========
NET EARNINGS PER SHARE*................................... $ 2.13 $ 1.78 $ 1.46
======== ======== ========
</TABLE>
- ---------------
* Based on an assumed 339.5 million shares outstanding and in whole dollars.
See notes to supplemental combined financial statements.
F-3
<PAGE> 107
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED BALANCE SHEET
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS........................................... $ 532.2 $ 606.0
INVESTMENTS IN DEBT AND EQUITY SECURITIES -- NOTE 16................ 881.1 605.1
FINANCE RECEIVABLES, net of unearned finance income -- NOTE 3
Consumer Finance.................................................. 27,575.3 23,627.8
Commercial Finance................................................ 12,127.2 10,057.9
--------- ---------
Total net finance receivables.................................. 39,702.5 33,685.7
ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES -- NOTE 4............... (1,268.6) (1,061.6)
INSURANCE POLICY AND CLAIMS RESERVES................................ (625.4) (565.7)
OTHER ASSETS -- NOTE 13............................................. 2,082.1 2,014.0
--------- ---------
Total assets.............................................. $41,303.9 $35,283.5
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
NOTES PAYABLE -- NOTE 6
Commercial Paper.................................................. $12,902.9 $11,807.4
Bank Loans........................................................ 844.4 624.5
ACCOUNTS PAYABLE AND ACCRUALS....................................... 1,382.9 1,108.6
LONG-TERM DEBT -- NOTES 7 and 9..................................... 21,372.6 17,306.2
STOCKHOLDER'S EQUITY
Common Stock, no par value, 250 shares authorized, issued and
outstanding, at stated value................................... 47.0 47.0
Paid-in Capital................................................... 2,124.3 2,153.2
Retained Earnings................................................. 2,287.0 1,881.9
Foreign Currency Translation Adjustments -- NOTE 2................ 330.6 372.3
Unrealized Gain (Loss) on Available-for-Sale Securities -- NOTES 2
and 16......................................................... 12.2 (17.6)
--------- ---------
Total stockholder's equity................................ 4,801.1 4,436.8
--------- ---------
Total liabilities and stockholder's equity................ $41,303.9 $35,283.5
========= =========
</TABLE>
See notes to supplemental combined financial statements.
F-4
<PAGE> 108
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF
CHANGES IN STOCKHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
FOREIGN (LOSS) ON TOTAL
CURRENCY AVAILABLE- STOCK-
COMMON PAID-IN RETAINED TRANSLATION FOR-SALE HOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENTS SECURITIES EQUITY
------ -------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1992.................. $47.0 $1,738.1 $1,298.7 $ 143.6 $ 3.7 $3,231.1
Net Earnings..................... 494.0 494.0
Contributions from Parent........ 200.0 200.0
Cash Dividends................... (226.0) (226.0)
Current Period Adjustment........ 74.9 0.3 75.2
----- -------- -------- ------- ------ --------
DECEMBER 31, 1993.................. 47.0 1,938.1 1,566.7 218.5 4.0 3,774.3
Net Earnings..................... 603.3 603.3
Contributions from Parent........ 215.1 215.1
Cash Dividends................... (288.1) (288.1)
Current Period Adjustment........ 153.8 (21.6) 132.2
----- -------- -------- ------- ------ --------
DECEMBER 31, 1994.................. 47.0 2,153.2 1,881.9 372.3 (17.6) 4,436.8
Net Earnings..................... 723.1 723.1
Contributions from Parent........ 200.0 200.0
Capital distribution to Ford..... (228.9) (228.9)
Cash Dividends................... (318.0) (318.0)
Current Period Adjustment........ (41.7) 29.8 (11.9)
----- -------- -------- ------- ------ --------
DECEMBER 31, 1995.................. $47.0 $2,124.3 $2,287.0 $ 330.6 $ 12.2 $4,801.1
===== ======== ======== ======= ====== ========
</TABLE>
See notes to supplemental combined financial statements.
F-5
<PAGE> 109
ASSOCIATES FIRST CAPITAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings....................................................... $ 723.1 $ 603.3 $ 494.0
Adjustments to net earnings for noncash items:
Provision for losses on finance receivables..................... 834.0 647.1 536.1
Depreciation and amortization................................... 193.8 187.4 264.8
Increase in accounts payable and accruals....................... 166.5 91.1 172.5
Deferred income taxes........................................... 101.1 (18.8) 33.6
Increase in insurance policy and claims reserves................ 59.7 118.9 67.6
Unrealized gain on trading securities........................... (3.6) (1.6)
Purchases of trading securities.................................... (5.8) (23.8)
Sales and maturities of trading securities......................... 38.7 17.4
Other.............................................................. (6.8) (5.0)
--------- --------- ---------
Net cash provided from operating activities................ 2,107.5 1,614.2 1,563.6
--------- --------- ---------
Cash Flows from Investing Activities
Finance receivables originated or purchased........................ (37,051.1) (30,431.1) (22,868.8)
Finance receivables liquidated..................................... 30,689.1 24,942.8 19,217.5
Acquisitions of other finance businesses, net...................... (143.9) (484.9) (329.1)
Proceeds from sale of investment in mortgage servicing rights...... 97.1
(Increase) decrease in real estate loans held for sale............. (3.7) 51.9 0.8
Increase in other assets........................................... (176.5) (200.3) (208.3)
Purchases of available-for-sale securities......................... (893.9) (306.0)
Sales and maturities of available-for-sale securities.............. 635.9 318.1
Purchases of marketable securities................................. (639.6)
Sales and maturities of marketable securities...................... 519.0
--------- --------- ---------
Net cash used for investing activities..................... (6,944.1) (6,012.4) (4,308.5)
--------- --------- ---------
Cash Flows from Financing Activities
Issuance of long-term debt......................................... 6,327.8 4,837.2 4,073.1
Retirement of long-term debt....................................... (2,491.8) (2,357.7) (2,092.9)
Increase in notes payable.......................................... 1,315.4 2,046.0 797.4
Capital contributions.............................................. 200.0 215.1 200.0
Capital distribution............................................... (228.9)
Cash dividends..................................................... (318.0) (288.1) (226.0)
Other.............................................................. (20.7) (0.4)
--------- --------- ---------
Net cash provided from financing activities................ 4,804.5 4,431.8 2,751.2
--------- --------- ---------
Effect of foreign currency translation adjustments on cash........... (41.7) 153.8 74.9
--------- --------- ---------
(Decrease)increase in cash and cash equivalents...................... (73.8) 187.4 81.2
Cash and cash equivalents at beginning of period..................... 606.0 418.6 337.4
--------- --------- ---------
Cash and cash equivalents at end of period........................... $ 532.2 $ 606.0 $ 418.6
========= ========= =========
Cash paid for:
Interest........................................................... $ 2,175.8 $ 1,693.6 $ 1,448.1
========= ========= =========
Income taxes....................................................... $ 399.7 $ 465.3 $ 375.3
========= ========= =========
</TABLE>
See notes to supplemental combined financial statements.
F-6
<PAGE> 110
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Associates First Capital Corporation ("First Capital" or the "Company"), a
Delaware corporation, is a subsidiary of Ford FSG, Inc. and an indirect
subsidiary of Ford Motor Company ("Ford"). Associates Corporation of North
America ("Associates") is the principal U.S.-based operating subsidiary of First
Capital. AIC Corporation is the principal foreign-based operating subsidiary of
First Capital.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
Basis of Presentation
The supplemental combined financial statements of First Capital and
subsidiaries have been prepared to give retroactive effect to the contribution
by Ford of certain foreign operations to First Capital. First Capital was
acquired by Ford in 1989. At that time, First Capital transferred its finance
operations in Japan, the United Kingdom, Canada and Puerto Rico to other foreign
subsidiaries of Ford but maintained management supervision over such operations.
In 1995, First Capital also commenced management supervision of operations in
Mexico. As part of an organizational restructuring of Ford's financial services
companies expected to be completed prior to completion of the Company's public
offering, Ford expects to recontribute the previously owned foreign operations,
and Mexico, collectively referred to hereafter as the "Foreign Operations", back
to First Capital. The results of these operations have been retroactively
included in First Capital's results contained herein. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of First Capital after
financial statements covering the date of consummation of the business
combination are issued.
Amounts of goodwill relating to acquisitions are being amortized by the
straight-line method over periods not exceeding forty years. The carrying value
of goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If the review indicates that goodwill will not be recoverable, as
determined based on undiscounted cash flows, the carrying value of the goodwill
is reduced by the estimated short-fall of discounted cash flows.
All significant intercompany balances and transactions have been eliminated
in consolidation.
The preparation of these supplemental combined financial statements in
conformity with generally accepted accounting principles requires the use of
management's estimates. These estimates are subjective in nature and involve
matters of judgment. Actual results could differ from these estimates.
Revenue Recognition
Finance charges on receivables are recognized as revenue using the interest
(actuarial) method. Premiums and discounts on purchased receivables are
considered as yield adjustments. The unamortized balance is included in finance
receivables and the associated amortization is included in finance charge
revenue. Finance charge accruals are suspended on accounts when they become 60
days contractually delinquent. The accrual is resumed when the loan becomes
contractually current. At December 31, 1995 and 1994, net finance receivables on
which revenue was not accrued approximated $678.9 million and $454.8 million,
respectively.
F-7
<PAGE> 111
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Insurance premiums are recorded as unearned premiums when collected or when
written and are subsequently amortized into income based on the nature and term
of the underlying insurance contracts. The methods of amortization used are pro
rata, sum-of-the-years-digits and a combination thereof.
Gains or losses on sales of debt securities are included in revenue when
realized. Unrealized gains or losses on debt securities are reported as a
component of stockholder's equity, net of tax. Realized and unrealized gains or
losses on equity securities are included in revenue as incurred. The cost of
debt and equity securities sold is determined by the specific identification
method.
Allowance for Losses on Finance Receivables
The Company maintains an allowance for losses on finance receivables at an
amount which it believes is sufficient to provide adequate protection against
losses in the portfolios. The allowance is determined principally on the basis
of historical loss experience, and reflects management's judgment of additional
loss potential considering future economic conditions and the nature and
characteristics of the underlying finance receivables. The allowance is managed
on an aggregate basis considering the relationship of the allowance to net
finance receivables and net credit losses. Additions to the allowance are
charged to the provision for losses on finance receivables.
Finance receivables are charged to the allowance for losses when they are
deemed to be uncollectible. Additionally, Company policy provides for charge-off
of various types of accounts on a contractual basis described as follows:
Consumer direct and other installment and credit card receivables are charged to
the allowance for losses when they become 180 days delinquent. All other finance
receivables are charged to the allowance for losses when any of the following
conditions occur: (i) the related security has been converted or destroyed; (ii)
the related security has been repossessed and sold or held for sale for one
year; or (iii) the related security has not been repossessed and the receivable
has become one year delinquent. A delinquent account is one on which the
customer has not made payments as contractually agreed. Extensions are granted
on receivables from customers with satisfactory credit and with prior approval
of management. Recoveries on losses previously charged to the allowance are
credited to the allowance at the time the recovery is collected.
Insurance Reserves
The reserves for future benefits and refunds upon cancellation of credit
life and health insurance and property and casualty insurance are provided for
in the unearned premium reserve for each class of insurance. In addition,
reserves for reported claims on credit accident and health insurance are
established based on standard morbidity tables used in the insurance business
for such purposes. Claim reserves for reported property and casualty insurance
claims are based on estimates of costs and expenses to settle each claim.
Additional amounts of reserves, based on prior experience and insurance in
force, are provided for each class of insurance for claims which have been
incurred but not reported as of the balance sheet date.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at the rate
of exchange in effect on the balance sheet date; income and expenses are
translated at the average rate of exchange prevailing during the year. The
related translation adjustments are reflected in the stockholder's equity
section of the supplemental combined balance sheet. Foreign currency gains and
losses resulting from transactions are included in earnings. Such foreign
currency losses approximated
F-8
<PAGE> 112
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$0.6 million, $0.5 million and $0.3 million during the years ended December 31,
1995, 1994 and 1993, respectively.
Income Taxes
First Capital and its subsidiaries are included in the consolidated Federal
income tax return of Ford. The provision for income taxes is computed on a
separate-return basis. Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
In 1993, the Company entered into a tax-sharing agreement with Ford whereby
state income taxes are provided on a separate-return basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The amounts reported
in the supplemental combined balance sheet approximate fair value.
Disclosures About Fair Value of Financial Instruments
The supplemental combined financial statements present the information
required by Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures about Fair Value of Financial Instruments". Amounts disclosed
represent estimates of fair values at a particular point in time. Significant
assumptions regarding economic conditions, loss experience and risk
characteristics associated with particular financial instruments and other
factors were used for purposes of this disclosure. These assumptions are
subjective in nature and involve matters of judgment. Changes in assumptions
could have a material impact on these estimates.
Derivative Financial Instruments
The Company does not hold or issue derivative financial instruments for
trading purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign
currency-denominated assets denominated in British Sterling. Gains and losses on
qualifying hedges are deferred and are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. See NOTE 15 to the
supplemental combined financial statements for additional information related to
currency swap transactions.
Earnings Per Share
Net earnings per share are determined by dividing net earnings during each
year by an assumed 339.5 million shares outstanding after completion of the
Company's initial public offering.
F-9
<PAGE> 113
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- NET FINANCE RECEIVABLES
Composition of Net Finance Receivables
At December 31, 1995 and 1994, net finance receivables consisted of the
following (in millions):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Consumer Finance
Home equity lending....................................... $ 14,316.3 $ 12,449.9
Personal lending and retail sales finance................. 6,225.1 5,420.3
Credit card............................................... 4,984.6 4,076.5
Manufactured housing...................................... 2,049.3 1,681.1
---------- ----------
27,575.3 23,627.8
---------- ----------
Commercial Finance
Truck and truck trailer................................... 7,724.0 6,739.7
Equipment................................................. 4,012.0 3,007.9
Other..................................................... 391.2 310.3
---------- ----------
12,127.2 10,057.9
---------- ----------
Net finance receivables........................... $ 39,702.5 $ 33,685.7
========== ==========
</TABLE>
At December 31, 1995, contractual maturities of net finance receivables
were as follows (in millions):
<TABLE>
<CAPTION>
CONSUMER COMMERCIAL
YEAR DUE FINANCE FINANCE TOTAL
------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
1996............................................ $ 3,899.7 $ 5,461.9 $ 9,361.6
1997............................................ 3,230.7 3,013.2 6,243.9
1998............................................ 2,849.7 2,032.0 4,881.7
1999............................................ 2,576.4 1,092.0 3,668.4
2000 and thereafter............................. 15,018.8 528.1 15,546.9
--------- --------- ---------
$27,575.3 $12,127.2 $ 39,702.5
========= ========= =========
</TABLE>
It is the Company's experience that a substantial portion of the consumer
loan portfolio generally is renewed or repaid prior to contractual maturity
dates. The above maturity schedule should not be regarded as a forecast of
future cash collections.
Included in commercial finance receivables are direct financing leases as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Minimum lease rentals......................................... $3,147.1 $2,315.5
Unguaranteed residual values.................................. 77.1 52.4
-------- --------
Future minimum lease rentals................................ 3,224.2 2,367.9
Unearned finance income....................................... (448.6) (332.7)
-------- --------
Net investment in direct financing leases........... $2,775.6 $2,035.2
======== ========
</TABLE>
Future net minimum lease rentals on direct financing leases for each of the
years succeeding December 31, 1995 are as follows (in millions): 1996 -- $856.2;
1997 -- $727.6; 1998 -- $578.5; 1999 -- $383.8; 2000 -- $160.9 and 2001 and
thereafter -- $68.6.
F-10
<PAGE> 114
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated Fair Value of Net Finance Receivables
The estimated fair value of net finance receivables at December 31, 1995
and 1994 was $43.4 billion and $36.4 billion, respectively. In order to
determine the fair values of loans, the loan portfolio was segmented based on
loan type, credit quality and repricing characteristics. The fair value was
estimated by discounting the expected cash flows from such loans at discount
rates which approximate gross finance charge rates that would achieve an
expected return on assets with similar risk characteristics. The estimated fair
value of the credit card receivables was based on the Company's experience in
pricing similar portfolios for acquisition purposes.
Dispersion of Finance Receivables
The Company has geographically dispersed finance receivables. At December
31, 1995, approximately 93% of the Company's total receivables were dispersed
across the United States, 5% were in Japan and the remaining 2% were in other
foreign countries. Of the total receivables dispersed across the United States
or foreign jurisdictions, 11% were in California, 6% in Florida, 6% in Texas, 4%
in Georgia, 4% in Pennsylvania, 4% in North Carolina, 4% in New York, 4% in
Illinois, and 4% in Ohio; no other individual state had more than 4%.
Acquisitions of Finance Businesses
During the years ended December 31, 1995, 1994 and 1993, the Company made
acquisitions of finance businesses accounted for as purchases, the most
significant of which were as follows:
On January 1, 1995, Associates acquired $116 million of net home
equity receivables and certain other assets from Ford Motor Credit Company,
an affiliate. The transaction was recorded at historical cost, which
approximated market.
In October 1995, Associates acquired the stock of LCA Corporation,
principally consisting of leasing receivables. The fair market value of
total assets acquired and liabilities assumed was $253 million and $225
million, respectively.
In September 1994, Associates acquired the credit card portfolio and
certain other assets of Amoco Oil Company. The fair market value of assets
acquired totaled $426 million.
In December 1994, Associates acquired the assets of First Collateral
Services, Inc., principally consisting of warehouse loan facilities
extended to mortgage brokers secured by mortgage contracts. The fair market
value of total assets acquired and liabilities assumed was $62 million and
$3 million, respectively.
In April 1993, Associates purchased the stock of Allied Finance
Company, with assets primarily consisting of $146 million of net consumer
finance receivables, principally comprised of home equity and personal
lending and sales finance receivables. The fair market value of total
assets acquired and liabilities assumed was $197 million and $112 million,
respectively.
In September 1993, Associates purchased the assets of Mack Financial
Corporation, the financing division of Mack Trucks, Inc., consisting of
$629 million of net commercial finance receivables, principally secured by
heavy-duty trucks and truck trailers. The fair market value of total assets
acquired and liabilities assumed was $663 million and $419 million,
respectively.
The pro forma effect of the above acquisitions, when taken in the aggregate
for each reporting period, was not significant.
F-11
<PAGE> 115
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- ALLOWANCE FOR LOSSES ON FINANCE RECEIVABLES
Changes in the allowance for losses on finance receivables during the
periods indicated were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Balance at beginning of period....................... $1,061.6 $ 892.3 $ 764.7
Provision for losses............................... 834.0 647.1 536.1
Recoveries on receivables charged off.............. 132.9 118.2 101.3
Losses sustained................................... (757.1) (626.8) (542.5)
Reserves of acquired businesses and other.......... (2.8) 30.8 32.7
-------- -------- -------
Balance at end of period............................. $1,268.6 $1,061.6 $ 892.3
======== ======== =======
</TABLE>
NOTE 5 -- CREDIT FACILITIES
At December 31, 1995, available credit facilities were as follows (in
millions):
<TABLE>
<CAPTION>
FACILITY
ENTITY CREDIT FACILITY DESCRIPTION AMOUNT
- --------------------- ------------------------------- ---------
<S> <C> <C>
Associates Lines of Credit $ 3,959.7*
Revolving Lines 5,105.0*
Receivables Purchase Facilities 1,275.0
---------
$10,339.7
=========
Foreign Operations:
Japan Lines of Credit $ 136.1
United Kingdom Lines of Credit 51.5
Canada Lines of Credit 33.1
---------
$ 220.7
=========
</TABLE>
- ---------------
* Included in the Associates Lines of Credit and Revolving Lines are $90.0
million and $1,080.0 million of Lines of Credit and Revolving Lines,
respectively, that are available to First Capital.
Lines of Credit, Revolving Lines and Receivables Purchase Facilities may be
withdrawn only under certain standard conditions, including, as to the credit
facilities of Associates identified above, failure to pay principal or interest
when due, breach of representations, warranties or covenants, default on other
debt, or bankruptcy or other insolvency-type proceedings. As to the credit
facilities of the foreign operations, in addition to the foregoing standard
conditions, certain facilities contain provisions which permit withdrawals as a
result of any material adverse changes in the financial conditions of such
operations. Associates principally pays fees for the availability of its credit
facilities. Bank fees incurred during 1995, 1994 and 1993 were $11.8 million,
$11.4 million and $9.8 million, respectively, and are .07 to .25 of 1% per annum
of the amount of the facilities.
F-12
<PAGE> 116
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- NOTES PAYABLE
Commercial paper notes are issued by Associates in the minimum amount of
$100,000 with terms from 1 to 270 days. Bank loan terms range from 1 to 90 days.
Information pertaining to the Company's commercial paper notes and bank loans is
set forth below for the periods indicated (dollar amounts in millions):
<TABLE>
<CAPTION>
COMMERCIAL BANK
PAPER NOTES LOANS
----------- ------
<S> <C> <C>
Ending balance at December 31, 1995......................... $12,902.9 $844.4
Weighted average interest rate at December 31, 1995......... 5.73% 6.48%
Ending balance at December 31, 1994......................... $11,807.4 $624.5
Weighted average interest rate at December 31, 1994......... 5.89% 6.82%
</TABLE>
The amounts reported in the supplemental combined balance sheet approximate
fair value.
NOTE 7 -- LONG-TERM DEBT
Outstanding balances of long-term debt at December 31 were as follows (in
millions):
<TABLE>
<CAPTION>
INTEREST
RATE
RANGE MATURITIES 1995 1994
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Senior:
Notes........................... 2.66-13.75% 1996-2010 $20,801.7 $16,809.8
Investment notes................ 4.90- 9.50 1996-2000 429.1 354.6
--------- ---------
21,230.8 17,164.4
--------- ---------
Subordinated and Capital:
Subordinated.................... 7.63- 8.15 1998-2009 141.2 141.2
Capital......................... 4.68- 9.00 1996-2002 0.6 0.6
--------- ---------
141.8 141.8
--------- ---------
Total long-term debt.... $21,372.6 $17,306.2
========= =========
</TABLE>
The weighted average interest rate for total long-term debt was 6.92% at
December 31, 1995 and 7.15% at December 31, 1994.
The estimated fair value of long-term debt at December 31, 1995 and 1994
was $22.5 billion and $16.8 billion, respectively. The fair value was determined
by discounting expected cash flows at discount rates currently available to the
Company for debt with similar terms and remaining maturities.
Long-term borrowing maturities during the next five years, including the
current portion of notes payable after one year, are: 1996, $3,166.7 million;
1997, $3,676.8 million; 1998, $3,790.0 million; 1999, $2,674.0 million; 2000,
$2,981.0 million and 2001 and thereafter, $5,084.1 million.
Certain debt issues contain call provisions or may be subject to repayment
provisions at the option of the holder on specified dates prior to the maturity
date. At December 31, 1995, 3,509 warrants were outstanding to purchase $154.8
million aggregate principal amount of senior notes at par with interest rates
ranging from 7.00% to 10.50%. The warrants are exercisable at various dates
through October 1, 1999 at prices ranging from $1,000 to $25,000,000 per
warrant. All of the above issues are unsecured, except for a $50 million, 8.25%
Senior Note due August 15, 2001, which is collateralized by First Capital's
corporate offices.
F-13
<PAGE> 117
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
The following table sets forth the components of the provision for income
taxes and deferred income tax (benefit) for the periods indicated (in millions):
<TABLE>
<CAPTION>
UNITED STATES
----------------
FEDERAL STATE FOREIGN TOTAL
------- ----- ------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Current............................................ $ 342.0 $21.5 $ 10.4 $ 373.9
------- ----- ------- -------
Deferred:
Leasing transactions............................ 66.7 66.7
Finance revenue................................. 14.0 14.0
Net operating loss utilized..................... 167.4 167.4
Goodwill amortization........................... (11.0) (11.0)
Provision for losses on finance receivables and
other......................................... (71.8) (64.2) (136.0)
------- ----- ------- -------
Total deferred............................. 8.9 92.2 101.1
------- ----- ------- -------
$ 350.9 $21.5 $ 102.6 $ 475.0
======= ===== ======= =======
Year Ended December 31, 1994
Current............................................ $ 400.1 $31.5 $ 1.3 $ 432.9
------- ----- ------- -------
Deferred:
Leasing transactions............................ 29.2 29.2
Finance revenue................................. (5.7) (5.7)
Net operating loss utilized..................... 187.3 187.3
Goodwill amortization........................... (119.4) (119.4)
Provision for losses on finance receivables and
other......................................... (115.2) 5.0 (110.2)
------- ----- ------- -------
Total deferred............................. (91.7) 72.9 (18.8)
------- ----- ------- -------
$ 308.4 $31.5 $ 74.2 $ 414.1
======= ===== ======= =======
Year Ended December 31, 1993
Current............................................ $ 337.1 $20.5 $ (63.9) $ 293.7
------- ----- ------- -------
Deferred:
Leasing transactions............................ 3.6 3.6
Finance revenue................................. 3.9 3.9
Net operating loss utilized..................... (342.6) (342.6)
Goodwill amortization........................... 450.3 450.3
Provision for losses on finance receivables and
other......................................... (83.4) 1.8 (81.6)
------- ----- ------- -------
Total deferred............................. (75.9) 109.5 33.6
------- ----- ------- -------
$ 261.2 $20.5 $ 45.6 $ 327.3
======= ===== ======= =======
</TABLE>
F-14
<PAGE> 118
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and 1994, the components of the Company's net deferred
tax asset and liability were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Provision for losses on finance receivables and other....... $ 744.0 $ 593.7
Net operating loss.......................................... 2.6 160.1
Postretirement and other employee benefits.................. 56.0 74.0
------- -------
802.6 827.8
Deferred tax liabilities:
Leasing transactions........................................ (241.8) (175.1)
Unamortized tax deductible goodwill......................... (339.0) (361.5)
Finance revenue and other................................... (261.7) (237.0)
------- -------
(842.5) (773.6)
------- -------
Net deferred tax (liability)/asset.................. $ (39.9) $ 54.2
======= =======
</TABLE>
Deferred income taxes have not been provided on approximately $48.3 million
of undistributed earnings related to foreign subsidiaries as the earnings are
considered to be permanently reinvested. If these amounts were not considered
permanently reinvested, additional deferred taxes of $16.9 million would have
been provided.
Due to the Company's earnings level, no valuation allowance related to the
deferred tax asset has been recorded.
The effective tax rate differed from the statutory U.S. Federal income tax
rate as follows:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................ 35.0% 35.0% 35.0%
State tax rate................................................ 1.2 2.0 1.6
Non-deductible goodwill....................................... 0.9 1.2 1.6
Foreign rates in excess of U.S. rates and other............... 2.5 2.5 1.7
---- ---- ----
Effective tax rate.......................................... 39.6% 40.7% 39.9%
==== ==== ====
</TABLE>
NOTE 9 -- DEBT RESTRICTIONS
Associates, First Capital's principal operating subsidiary, is subject to
various limitations under the provisions of its outstanding debt and credit
facilities. The most significant of these limitations are summarized as follows:
Limitation on Payment of Dividends
A restriction contained in one series of Associates debt securities
maturing August 1, 1996, generally limits payments of dividends on Associates
Common Stock in any year to not more than 50% of Associates consolidated net
earnings for such year, subject to certain exceptions, plus increases in
contributed capital and extraordinary gains. Any such amounts available for the
payment of dividends in such fiscal year and not so paid, may be paid in any one
or more of the five subsequent fiscal years. In accordance with this provision,
at December 31, 1995, $727.6 million was available for dividends.
F-15
<PAGE> 119
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Limitation on Minimum Tangible Net Worth
A restriction contained in certain revolving credit agreements requires
Associates to maintain a minimum tangible net worth, as defined, of $1.5
billion. At December 31, 1995, Associates tangible net worth was $4.1 billion.
NOTE 10 -- LEASE COMMITMENTS
Leases are primarily short-term and generally provide for renewal options
not exceeding the initial term. Total rent expense for the years ended December
31, 1995, 1994 and 1993 was $92.6 million, $75.4 million, and $63.7 million,
respectively. Minimum rental commitments as of December 31, 1995 for all
noncancelable leases (primarily office leases) for the years ending December 31,
1996, 1997, 1998, 1999 and 2000 are $71.4 million, $52.3 million, $35.0 million,
$20.3 million and $7.5 million, respectively, and $21.5 million thereafter.
NOTE 11 -- EMPLOYEE BENEFITS
Defined Benefit Plans
The Company sponsors various qualified and nonqualified pension plans (the
"Plan" or "Plans"), which together cover substantially all permanent employees,
other than those of the foreign operations, who meet certain eligibility
requirements.
Net periodic pension cost for the years indicated includes the following
components (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost........................................... $ 13.1 $ 13.7 $ 10.0
Interest cost.......................................... 23.1 21.3 18.1
Actual return on Plan assets........................... (51.1) (0.4) (21.6)
Net amortization....................................... 33.9 (10.9) 7.4
------- ------- -------
Net periodic pension cost.................... $ 19.0 $ 23.7 $ 13.9
======= ======= =======
Assumed discount rate, beginning of year............... 8.25% 7.00% 8.00%
==== ==== ====
</TABLE>
F-16
<PAGE> 120
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Plan is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1995 1994
-------------------------- --------------------------
QUALIFIED NONQUALIFIED QUALIFIED NONQUALIFIED
PLAN PLANS PLAN PLANS
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested................................ $255.9 $23.7 $187.6 $16.8
Nonvested............................. 11.5 0.3 9.0 0.8
------ ----- ------ -----
Accumulated benefit obligation.......... 267.4 24.0 196.6 17.6
Effect of projected future salary
increases............................. 76.1 9.3 50.4 6.2
------ ----- ------ -----
Projected benefit obligation............ 343.5 33.3 247.0 23.8
Plan assets at fair market value........ 322.0 204.7
------ ----- ------ -----
Excess of plan obligation over plan
assets................................ 21.5 33.3 42.3 23.8
Unamortized transition obligation and
amendments............................ (5.1) (3.8) (6.5) (4.3)
Unamortized net loss.................... (53.0) (8.8) (13.3) (1.5)
Adjustment required to recognize minimum
liability............................. 3.3
------ ----- ------ -----
(Prepaid)/accrued pension liability... $(36.6) $24.0 $ 22.5 $18.0
====== ===== ====== =====
Assumed discount rate................... 7.00% 7.00% 8.25% 8.25%
Projected compensation increases........ 6.00% 6.00% 6.00% 6.00%
Expected return......................... 9.00% 9.00% 9.00% 9.00%
</TABLE>
Retirement Savings and Profit Sharing Plan
The Company sponsors a defined contribution plan which covers substantially
all employees, other than those of the foreign operations, intended to provide
assistance in accumulating personal savings for retirement and is designed to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. For the
years ended December 31, 1995, 1994 and 1993, the Company's pretax contributions
to the plan were $18.2 million, $16.1 million and $14.1 million, respectively.
Employers' Accounting for Postretirement Benefits Other than Pensions
The Company provides certain postretirement benefits through unfunded plans
sponsored by First Capital. These benefits are currently provided to
substantially all permanent employees, other than those of the foreign
operations, who meet certain eligibility requirements. The benefits of the plan
can be modified or terminated at the discretion of the Company. The amount paid
for postretirement benefits for the years ended December 31, 1995, 1994 and 1993
was $2.0 million, $1.8 million and $1.5 million, respectively.
F-17
<PAGE> 121
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes
the following components (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost................................................. $ 5.5 $ 5.5 $ 4.2
Interest cost................................................ 7.7 6.3 6.3
Net amortization............................................. (1.3) (1.0) (0.7)
------ ------ ------
Net periodic postretirement benefit cost........... $ 11.9 $ 10.8 $ 9.8
====== ====== ======
Assumed discount rate, beginning of year..................... 8.75% 7.50% 8.50%
====== ====== ======
</TABLE>
Accrued postretirement benefit cost at December 31, 1995 and 1994 is
composed of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1994
------- ------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retired participants............................................ $ 45.2 $ 33.9
Fully eligible participants..................................... 26.9 18.6
Other active participants....................................... 45.7 29.5
------- ------
Total APBO.............................................. 117.8 82.0
Unamortized amendments............................................ 5.4 9.8
Unrecognized actuarial loss....................................... (24.2) (2.7)
------- ------
Accrued postretirement benefit cost............................. $ 99.0 $ 89.1
======= ======
Assumed discount rate............................................. 7.25% 8.75%
======= ======
</TABLE>
For measurement purposes, a 13.00% and 12.10% weighted average annual rate
of increase in per capita cost of covered health care benefits was assumed for
1995 and 1994, respectively, decreasing gradually to 5.50% by the year 2010.
Increasing the assumed health care cost trend rate by one percentage point each
year would increase the APBO as of December 31, 1995 and 1994 by $8.6 million
and $6.0 million, respectively, and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $1.0 million
and $0.9 million, respectively.
Incentive Compensation Programs
The Company sponsors compensation plans covering certain officers and
employees.
Corporate Annual Performance Plan and Long-Term Performance Plan
The Corporate Annual Performance Plan ("CAPP") is an annual bonus plan.
CAPP bonuses are determined based on the performance of the Company, the
business unit in which a participant is employed, and the participant,
personally. The Long-Term Performance Plan ("LTPP") is a long-term cash
incentive plan. LTPP awards are determined for a performance period based on the
success of the Company in achieving a target level of profits established for
each year of the performance period, with such annual performance then averaged
for the performance period. Amounts charged to expense under CAPP and LTPP
amounted to $16.1 million, $16.2 million and $14.8 million during the years
ended December 31, 1995, 1994 and 1993, respectively.
F-18
<PAGE> 122
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Phantom Stock Appreciation Right Plan
The Company sponsored a long-term cash plan, the Phantom Stock Appreciation
Right Plan (the "PSAR Plan"). The Company terminated the PSAR Plan as of
December 1995 and intends to cash out all outstanding phantom stock appreciation
rights ("PSARs") prior to completion of the Company's public offering. A PSAR
granted under the PSAR Plan entitled the holder thereof to receive from the
Company, upon exercise of such PSAR, a specified amount of cash. A PSAR had a
term of five years and vested 100% on the first anniversary of the date of
grant. Amounts charged to expense under the PSAR Plan amounted to $30.1 million,
$4.1 million and $36.1 million during the years ended December 31, 1995, 1994
and 1993, respectively. The company also amended the PSAR Plan to provide that
certain officers of the Company (all of whom were granted PSARs in 1995) are
required to defer one-half of the amount payable in satisfaction of their
respective PSARs granted in 1995. The amounts so deferred will be administered
by the Company in accordance with the terms of the Associates First Capital
Corporation Equity Deferral Plan.
Long-Term Equity Compensation Plan
The Long-Term Equity Compensation Plan ("ECP") is a stock-based incentive
plan that will be adopted in 1996 prior to the Company's public offering. The
ECP provides for the grant of incentive and nonqualified stock options, stock
appreciation rights, restricted stock, performance shares and performance units.
Awards granted under the ECP are based on shares of Class A Common Stock.
NOTE 12 -- COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits arising in the ordinary
course of its business. The Company aggressively manages its litigation and
assesses appropriate responses to its lawsuits in light of a number of factors,
including potential impact of the actions on the conduct of the Company's
operations. In the opinion of management, the resolution of any of these matters
is not expected to have a material adverse effect on the Company's financial
condition or results of operations.
NOTE 13 -- OTHER ASSETS
The components of Other Assets at December 31, 1995 and 1994 were as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Goodwill...................................................... $ 1,278.9 $ 1,354.3
Other......................................................... 803.2 659.7
--------- ---------
Total other assets.................................. $ 2,082.1 $ 2,014.0
========= =========
</TABLE>
NOTE 14 -- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
The Company paid cash dividends to Ford of $226.0 million, $288.1 million
and $318.0 million during the years ended December 31, 1993, 1994 and 1995,
respectively. In 1993, 1994 and 1995, Ford made cash capital contributions to
the Company of $200.0 million, $215.1 million and $200.0 million, respectively.
The Company provides certain auto club and relocation services to Ford.
Revenues related to these services were $29.7 million, $19.4 million and $12.1
million for the years ended December 31, 1995, 1994 and 1993, respectively.
F-19
<PAGE> 123
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company pays fees for certain administrative services provided by its
Ford-affiliated parent. Such fees were $8.8 million, $5.0 million and $4.3
million for the years ended December 31, 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994, First Capital's current income taxes payable
to its Ford-affiliated parent amounted to $45.1 million and $30.4 million,
respectively.
NOTE 15 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISKS
The Company maintains cash, cash equivalents, investments, and certain
other financial instruments with various major financial institutions. To the
extent such deposits exceed maximum insurance levels, they are uninsured.
As explained in NOTE 2 to the supplemental combined financial statements,
the Company does not hold or issue derivative financial instruments for trading
purposes. The Company's derivative activity is limited to currency swap
transactions designed to hedge its currency risk on specific foreign
currency-denominated assets denominated in British Sterling. One interest rate
swap transaction for $40.0 million, assumed in 1993 as part of a business
acquisition, matured in April 1995 and is no longer outstanding. The Company is
a buyer in each transaction.
The Company's currency swap transactions are not material to its
supplemental combined balance sheet and do not represent a material exposure to
its supplemental combined net earnings. Amounts under currency and interest rate
swap contracts at December 31, 1995 and 1994 were $55.7 million and $95.7
million, respectively. At December 31, 1995, the Company was at market risk for
any currency differential should a counterparty to these contracts fail to meet
the terms of the contracts. The contracts expire in October 1996. At December
31, 1995, the Company's estimated exposure to loss resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$1.1 million; the Company estimates its benefit resulting from currency
differentials, in the event of nonperformance by certain counterparties, was
$0.2 million. The estimated fair value of amounts under contract approximated
$0.9 million and $0.7 million at December 31, 1995 and 1994, respectively. Such
value was determined based on the foreign currency exchange rates/interest rate
for similar transactions in effect at the balance sheet date. It is the
Company's policy that each counterparty's public debt rating must be rated Aa3,
AA- or better by at least two nationally recognized rating agencies at the time
any such contract is entered into. The Company monitors such ratings on an
ongoing basis. The Company does not employ other methods to assess credit risk,
because swap transactions are not a significant part of its operating activities
and because the Company does not enter into complex derivative transactions.
Subsidiaries of First Capital make available credit lines to holders of
their credit cards. The unused portion of the available credit is revocable by
the bank under specified conditions. The unused portion of the available credit
at December 31, 1995 and 1994 was $12.8 billion and $9.4 billion, respectively.
The potential risk associated with, and the estimated fair value of, the unused
credit lines are not considered to be significant.
Associates Investment Corporation, an indirect subsidiary of First Capital,
makes available credit lines to holders of their private label credit cards. The
unused portion of the available credit is revocable by Associates Investment
Corporation under specified conditions. The unused portion of the available
credit at December 31, 1995 and 1994 was $4.8 billion and $5.1 billion,
respectively. The potential risk associated with, and the estimated fair value
of, the unused credit lines are not considered to be significant.
The consumer finance business grants revolving lines of credit to certain
of its customers. At December 31, 1995 and 1994, the unused portion of these
lines aggregated $783.9 million and
F-20
<PAGE> 124
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$543.3 million, respectively. The potential risk associated with, and the
estimated fair value of, the unused credit lines are not considered to be
significant.
The commercial finance business grants lines of credit to certain dealers
of truck, construction equipment and manufactured housing. At December 31, 1995
and 1994, the unused portion of these lines aggregated $1.3 billion and $881.7
million, respectively. The potential risk associated with, and the estimated
fair value of, the unused credit lines are not considered to be significant.
NOTE 16 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
Debt Securities
The Company invests in debt securities, principally bonds and notes held by
the Company's insurance subsidiaries, with the intention of holding them to
maturity. However, if market conditions change, the Company may sell these
securities prior to maturity. Accordingly, concurrent with the adoption of SFAS
No. 115 in 1994, the Company classified its investments in debt securities as
available for sale and adjusted its recorded value to market. Prior to adoption
of this standard, the Company carried these investments at amortized cost.
During 1995, gross realized gains on sales amounted to $0.2 million. Gross
realized gains and losses on sales during 1994 amounted to $2.1 million and $0.3
million, respectively. Unrealized gains or losses are reported as a component of
stockholder's equity, net of tax. The following tables set forth, by type of
security issuer, the amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and estimated market value at December 31, 1995 and
1994 (in millions):
<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations............. $ 400.2 $ 14.4 $ $ 414.6
Corporate obligations................... 222.3 3.5 225.8
Mortgage-backed......................... 215.6 0.8 216.4
Other................................... 11.7 11.7
--------- ---------- ---------- ---------
Total debt securities......... $ 849.8 $ 18.7 $ $ 868.5
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations............. $ 422.4 $ 0.7 $ (25.2) $ 397.9
Corporate obligations................... 66.8 0.2 (0.5) 66.5
Mortgage-backed......................... 96.3 (2.3) 94.0
Other................................... 4.8 4.8
--------- ---------- ---------- ---------
Total debt securities......... $ 590.3 $ 0.9 $ (28.0) $ 563.2
========= ========== ========== =========
</TABLE>
F-21
<PAGE> 125
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of debt securities at
December 31, 1995 and 1994, by contractual maturity, are shown below (in
millions):
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less................ $ 159.0 $ 159.6 $ 93.2 $ 92.1
Due after one year through five
years................................ 379.9 390.4 384.3 369.6
Due after five years through ten
years................................ 187.5 194.6 110.8 99.6
Due after ten years.................... 123.4 123.9 2.0 1.9
------- ------- ------- -------
$ 849.8 $ 868.5 $ 590.3 $ 563.2
======= ======= ======= =======
</TABLE>
Equity Securities
Equity security investments are recorded at market value. Concurrent with
the adoption of SFAS No. 115 in 1994, the Company classified its investments in
equity securities as trading securities and included in earnings unrealized
gains or losses on such securities. Prior to adoption, unrealized gains or
losses were reported as a component of stockholder's equity, net of tax. The
estimated market value at December 31, 1995 and 1994 was $12.6 million and $41.9
million, respectively. Historical cost at December 31, 1995 and 1994 was $8.5
million and $38.9 million, respectively.
Estimated market values of debt and equity securities are based on quoted
market prices.
NOTE 17 -- BUSINESS SEGMENT INFORMATION
First Capital's primary business activities are consumer finance and
commercial finance. The consumer finance operation is engaged in making and
investing in home equity, personal lending and sales finance receivables, credit
card receivables, primarily through a wholly-owned credit card bank, and
providing sales financing of manufactured housing. The commercial finance
operation is principally engaged in financing sales of transportation and
industrial equipment and leasing, and sales of other financial services,
including auto fleet leasing and management, relocation services and auto club
and roadside assistance services. The Company has an insurance operation which
is engaged in underwriting credit life, credit accident and health, property and
casualty, and accidental death and dismemberment insurance, principally for
customers of the finance operations. Such insurance activity is conducted by the
company's licensed insurance agents and managed as a separate activity.
Insurance sales are dependent on the business activities and volumes of the
consumer and commercial business. Accordingly, insurance revenues and related
claims are included in the consumer and commercial business to which they
relate.
F-22
<PAGE> 126
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information by business segment (in
millions):
<TABLE>
<CAPTION>
BUSINESS SEGMENT(1)
-----------------------
CONSUMER COMMERCIAL FOREIGN
FINANCE FINANCE(2) COMBINED OPERATIONS(1)
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Year Ended or at December 31, 1995
Revenue.................................. $ 4,595.6 $ 1,511.6 $ 6,107.2 $ 765.3
========= ========= ========= ========
Operating income:
From segment.......................... $ 1,010.2 $ 313.7 $ 1,323.9 $ 284.4
Corporate and other(3)................ (95.6) (30.2) (125.8) (86.6)
--------- --------- --------- --------
Total............................ $ 914.6 $ 283.5 $ 1,198.1 $ 197.8
========= ========= ========= ========
Total assets............................. $27,128.2 $14,175.7 $41,303.9 $4,102.8
========= ========= ========= ========
Year Ended or at December 31, 1994
Revenue.................................. $ 3,691.3 $ 1,234.5 $ 4,925.8 $ 587.5
========= ========= ========= ========
Operating income:
From segment.......................... $ 823.7 $ 288.2 $ 1,111.9 $ 217.8
Corporate and other(3)................ (70.6) (23.9) (94.5) (83.9)
--------- --------- --------- --------
Total............................ $ 753.1 $ 264.3 $ 1,017.4 $ 133.9
========= ========= ========= ========
Total assets............................. $23,322.9 $11,960.6 $35,283.5 $3,649.7
========= ========= ========= ========
Year Ended or at December 31, 1993
Revenue.................................. $ 3,039.2 $ 1,075.6 $ 4,114.8 $ 467.7
========= ========= ========= ========
Operating income:
From segment.......................... $ 649.8 $ 261.9 $ 911.7 $ 137.9
Corporate and other(3)................ (65.1) (25.3) (90.4) (65.4)
--------- --------- --------- --------
Total............................ $ 584.7 $ 236.6 $ 821.3 $ 72.5
========= ========= ========= ========
Total assets............................. $19,884.3 $10,155.3 $30,039.6 $2,971.5
========= ========= ========= ========
</TABLE>
- ---------------
(1) The revenues, operating income and total assets of the Company's foreign
operations are included in the business segments of the Company as set forth
above. The foreign operations of the Company consist principally of its
consumer finance operation in Japan (more than 70% of total foreign
operations) and, to a lesser extent, its consumer and commercial operations
in the United Kingdom, Canada, Puerto Rico and Mexico (the "Other Foreign
Operations"). Total revenue, operating income and total assets,
respectively, for Japan were: 1995 -- $587.7 million, $164.8 million and
$3.0 billion, respectively; 1994 -- $448.1 million, $129.5 million and $2.8
billion, respectively; and 1993 -- $345.1 million, $78.7 million and $2.2
billion, respectively. Total revenue, operating income and total assets,
respectively, for the Other Foreign Operations were: 1995 -- $177.6 million,
$33.0 million and $1,102.8 million, respectively; 1994 -- $139.4 million,
$4.4 million and $849.7 million, respectively; 1993 -- $122.6 million,
($6.2) million and $771.5 million, respectively.
(2) Includes information pertaining to the financing of manufactured housing
purchases which are managed by the commercial finance operation.
(3) Includes operating income pertaining to the Company's non-operating
subsidiaries.
Capital expenditures and depreciation and amortization expense are not
significant.
F-23
<PAGE> 127
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- SUBSEQUENT EVENT
On February 8, 1996, the Company paid a dividend in the amount of $1.75
billion to its Ford-affiliated parent in the form of an intercompany note.
NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table sets forth the unaudited quarterly results of
operations (in millions, except earnings per share):
<TABLE>
<CAPTION>
1995
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges............................. $1,467.4 $1,426.6 $1,377.8 $1,289.0
======== ======== ======== ========
Interest expense............................ $ 570.9 $ 557.5 $ 540.3 $ 509.2
======== ======== ======== ========
Earnings before provision for income
taxes..................................... $ 324.6 $ 327.6 $ 272.1 $ 273.8
Provision for income taxes.................. 129.7 130.1 109.7 105.5
-------- -------- -------- --------
Net earnings................................ $ 194.9 $ 197.5 $ 162.4 $ 168.3
======== ======== ======== ========
Net earnings per share...................... $ .57 $ .58 $ .48 $ .50
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Finance charges............................. $1,235.4 $1,135.9 $1,053.7 $1,020.2
======== ======== ======== ========
Interest expense............................ $ 468.6 $ 429.1 $ 393.1 $ 366.5
======== ======== ======== ========
Earnings before provision for income
taxes..................................... $ 280.8 $ 272.0 $ 232.0 $ 232.6
Provision for income taxes.................. 117.5 109.3 95.0 92.3
-------- -------- -------- --------
Net earnings................................ $ 163.3 $ 162.7 $ 137.0 $ 140.3
======== ======== ======== ========
Net earnings per share...................... $ .48 $ .48 $ .41 $ .41
======== ======== ======== ========
</TABLE>
F-24
<PAGE> 128
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
Condensed unconsolidated financial information of Associates First Capital
Corporation as of or for the years ended December 31, 1995, 1994 and 1993 were
as follows (in millions):
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenue
Interest and other income...................................... $ 10.2 $ 8.7 $ 6.7
Dividends from subsidiaries.................................... 284.0 270.5 242.7
------- ------- -------
294.2 279.2 249.4
Expenses
Interest expense............................................... 66.0 54.8 51.1
Operating expenses............................................. 23.3 16.2 15.3
------- ------- -------
89.3 71.0 66.4
------- ------- -------
Income before credit for Federal income taxes and equity in net
earnings of subsidiaries....................................... 204.9 208.2 183.0
Credit for Federal income taxes resulting from tax agreements
with subsidiaries.............................................. 28.0 21.7 21.2
------- ------- -------
Earnings before equity in undistributed earnings of
subsidiaries................................................... 232.9 229.9 204.2
Equity in undistributed earnings of subsidiaries................. 490.2 373.4 289.8
------- ------- -------
Net earnings..................................................... $ 723.1 $ 603.3 $ 494.0
======= ======= =======
</TABLE>
See notes to condensed financial information.
F-25
<PAGE> 129
ASSOCIATES FIRST CAPITAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Assets
Investment in and advances to subsidiaries, eliminated in
consolidation, and other......................................... $5,774.5 $5,306.3
-------- --------
Total assets................................................ $5,774.5 $5,306.3
======== ========
Liabilities and Stockholder's Equity
Accounts payable and accruals....................................... $ 52.5 $ 33.0
Bank lines.......................................................... 85.0
Notes payable and long-term debt(2)................................. 835.9 836.5
Stockholder's equity(1)............................................. 4,801.1 4,436.8
-------- --------
Total liabilities and stockholder's equity.................. $5,774.5 $5,306.3
======== ========
</TABLE>
The estimated fair value of notes payable and long-term debt at December
31, 1995 and 1994 was $878.6 million and $829.4 million, respectively. Fair
values were estimated by discounting expected cash flows at discount rates
currently available to the Company for debt with similar terms and remaining
maturities.
See notes to condensed financial information.
F-26
<PAGE> 130
CONDENSED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings................................................ $ 723.1 $ 603.3 $ 494.0
Adjustments to net earnings for noncash items:
Amortization and depreciation............................ 0.1 0.1 0.1
Increase (decrease) in accounts payable and accruals..... 19.5 13.1 (6.5)
Equity in undistributed earnings of subsidiaries......... (490.2) (373.4) (289.8)
Other....................................................... 29.5 (20.9) (0.6)
-------- -------- --------
Net cash provided from operating activities......... 282.0 222.2 197.2
-------- -------- --------
Cash Flows from Investing Activities
Cash dividends from subsidiaries(1)......................... 284.0 270.5 242.7
Increase in investments in and advances to subsidiaries..... (492.6) (737.5) (477.6)
-------- -------- --------
Net cash used for investing activities.............. (208.6) (467.0) (234.9)
-------- -------- --------
Cash Flows from Financing Activities
Increase in notes payable and long-term debt(2)............. 438.9 352.7 231.6
Capital contribution from parent............................ 200.0 215.1 200.0
Cash dividends paid......................................... (318.0) (288.1) (226.0)
Retirement of long-term debt................................ (354.4) (188.9) (244.2)
-------- -------- --------
Net cash (used for) provided from financing
activities........................................ (33.5) 90.8 (38.6)
Effect of foreign currency translation adjustments on cash.... (41.7) 153.8 74.9
-------- -------- --------
Decrease in cash and cash equivalents......................... (1.8) (0.2) (1.4)
Cash and cash equivalents at beginning of period.............. (1.1) (0.9) 0.5
-------- -------- --------
Cash and cash equivalents at end of period.................... $ (2.9) $ (1.1) $ (0.9)
======== ======== ========
</TABLE>
NOTES TO CONDENSED FINANCIAL INFORMATION:
(1) The ability of the Company's subsidiaries to transfer funds to the Company
in the form of cash dividends is restricted pursuant to the terms of certain
debt agreements entered into by the Company's principal operating
subsidiary, Associates Corporation of North America. See NOTE 9 to the
supplemental combined financial statements for a summary of the most
significant of these restrictions.
(2) Notes payable and long-term debt bear interest at rates from 4.79% to
13.75%. The estimated maturities of the notes outstanding, at December 31,
1995, during subsequent years were as follows (in millions):
<TABLE>
<S> <C>
1996................................................ $ 279.5
1997................................................ 208.1
1998................................................ 142.2
1999................................................ 113.9
2000................................................ 92.2
--------
$ 835.9
========
</TABLE>
F-27
<PAGE> 131
[THE ASSOCIATES LOGO] ASSOCIATES FIRST CAPITAL CORPORATION
[PICTURE] [PICTURE]
EQUIPMENT FINANCING AND LEASING MANUFACTURED HOUSING FINANCING
[PICTURE] [PICTURE]
AUTO FLEET MANAGEMENT AND AUTO CLUBS PERSONAL LOANS AND RETAIL SALES FINANCE
OUR CORE VALUES
HARD WORK We work hard to exceed the expectations of our customers.
PRIDE We take pride in our work and our company.
INTEGRITY We conduct business with integrity and trust.
RESPOND QUICKLY We respond quickly to customer needs.
RESPECT We respect each other and recognize excellent performance.
PASSION We believe in constant improvement -- a passion to be better.
INTENSITY We believe intensity and competition fuel success.
EMPLOYEE CORE VALUES
<PAGE> 132
----------------------------------------------------------
----------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SALE IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 4
Prospectus Summary....................... 5
Risk Factors............................. 12
The Company.............................. 17
Use of Proceeds.......................... 17
Dividend Policy.......................... 18
Capitalization........................... 18
Selected Supplemental Combined Financial
Data................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Business................................. 30
Relationship with Ford................... 64
Management............................... 68
Ownership of Common Stock................ 84
Shares Available for Future Sale......... 84
Description of Capital Stock............. 85
Description of Certain Indebtedness...... 92
Certain United States Tax Consequences to
Non-United States Holders.............. 93
Underwriting............................. 95
Legal Matters............................ 97
Experts.................................. 97
Glossary................................. 98
Index to Supplemental Combined Financial
Statements............................. F-1
</TABLE>
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
60,000,000 SHARES
LOGO
LOGO
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
----------------------------------------------------------
----------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee................................................................ $ 666,207
NASD fee........................................................................ 30,500
NYSE listing fee................................................................ 99,480
Blue Sky fees and expenses...................................................... 40,000
Printing and engraving expenses................................................. 1,775,000
Legal fees and expenses......................................................... 530,000
Accounting fees and expenses.................................................... 750,000
Miscellaneous................................................................... 108,813
----------
Total................................................................. $4,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his or her conduct was illegal.
A Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in connection with the defense or settlement of an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such officer or director actually and reasonably incurred.
In accordance with the Delaware Law, the Restated Certificate of
Incorporation of the Company contains a provision to limit the personal
liability of the directors of the Company for violations of their fiduciary
duty. This provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware Law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Pursuant to underwriting agreements filed as exhibits to registration
statements relating to underwritten offerings of securities, the underwriters
parties thereto have agreed to indemnify each officer and director of the
Company and each person, if any, who controls the Company within the meaning of
the Securities Act of 1933, against certain liabilities, including liabilities
under said Act.
II-1
<PAGE> 134
The directors and officers of the Company are covered by directors' and
officers' insurance policies relating to Ford Motor Company and its
subsidiaries.
The Restated Certificate of Incorporation of the Company provides for
indemnification of the officers and directors of the Company to the full extent
permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Company has not sold any unregistered
securities required to be described pursuant to this item.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------------------
<C> <S>
1.1 -- Form of Underwriting Agreement (U.S. Version)+
3.1 -- Form of Restated Certificate of Incorporation of the Company+
3.2 -- Form of Restated By-laws of the Company+
3.3 -- Specimen Certificate of Class A Common Stock of the Company+
5.1 -- Opinion of Simpson Thacher & Bartlett regarding the legality of the
Class A Common Stock+
10.1 -- Form of Corporate Agreement between the Company and Ford+
10.2 -- Form of Tax-Sharing Agreement between the Company and Ford
10.3 -- Form of Management Services Agreement between the Company and Ford+
10.4 -- Form of Trademark License Agreement between the Company and Ford+
10.5(a) -- Form of Employment Agreement+
10.5(b) -- Form of Amended and Restated Employment Agreement
10.6 -- Employment Agreement between the Company and Reece A. Overcash, Jr.+
10.7 -- Form of Company's Equity Deferral Plan
10.8 -- Form of Company's Long-Term Equity Compensation Plan
10.9 -- The Company's Phantom Stock Appreciation Right Plan (1990-1993)+
10.10 -- The Company's Phantom Stock Appreciation Right Plan (1993-1995)+
10.11 -- The Company's Corporate Annual Performance Plan+
10.12 -- The Company's Long-Term Performance Plan+
10.13 -- The Company's Executive Deferred Salary Plan+
10.14 -- The Company's Deferred Compensation Unit Plan Agreement+
10.15 -- ACONA Executive Incentive Plan+
10.16 -- The Company's Supplemental Retirement Plan+
10.17 -- The Company's Excess Benefits Plan+
10.18 -- Ford Motor Company 1990 Long-Term Incentive Plan+
12 -- Computation of Ratio of Earnings to Fixed Charges+
21 -- Subsidiaries of the Company+
23.1 -- Consent of Independent Accountants
23.2 -- The consent of Simpson Thacher & Bartlett is included in the opinion
referred to in Exhibit 5.1 above+
</TABLE>
II-2
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------------------
<C> <S>
24 -- Power of Attorney+
27 -- Financial Data Schedule+
99 -- Form of Credit Agreement among the Company and Various Banks
</TABLE>
- ---------------
+ Previously filed
FINANCIAL STATEMENT SCHEDULES
All applicable financial statement schedule disclosure requirements are set
forth in the notes to the supplemental combined financial statements.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 27th day of March, 1996.
ASSOCIATES FIRST CAPITAL CORPORATION
By: /s/ ROY A. GUTHRIE
Title: Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
KEITH W. HUGHES* Chairman of the Board, March 27, 1996
(Keith W. Hughes) Principal Executive
Officer and Director
/s/ ROY A. GUTHRIE Executive Vice President, March 27, 1996
(Roy A. Guthrie) Principal Financial
Officer, Comptroller, and
Principal Accounting
Officer and Director
HAROLD D. MARSHALL* Director March 27, 1996
(Harold D. Marshall)
JOSEPH M. MCQUILLAN* Director March 27, 1996
(Joseph M. McQuillan)
</TABLE>
- ---------------
* By signing his name hereto, Roy A. Guthrie signs this document on behalf of
each of the persons indicated above pursuant to powers of attorney duly
executed by such persons.
By: /s/ ROY A. GUTHRIE
Attorney in Fact
II-4
<PAGE> 137
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ---------- -----------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement (U.S. Version)+
3.1 -- Form of Restated Certificate of Incorporation of the Company+
3.2 -- Form of Restated By-laws of the Company+
3.3 -- Specimen Certificate of Class A Common Stock of the Company+
5.1 -- Opinion of Simpson Thacher & Bartlett regarding the legality of the
Class A Common Stock+
10.1 -- Form of Corporate Agreement between the Company and Ford+
10.2 -- Form of Tax-Sharing Agreement between the Company and Ford
10.3 -- Form of Management Services Agreement between the Company and Ford+
10.4 -- Form of Trademark License Agreement between the Company and Ford+
10.5(a) -- Form of Employment Agreement+
10.5(b) -- Form of Amended and Restated Employment Agreement
10.6 -- Employment Agreement between the Company and Reece A. Overcash, Jr.+
10.7 -- Form of Company's Equity Deferral Plan
10.8 -- Form of Company's Long-Term Equity Compensation Plan
10.9 -- The Company's Phantom Stock Appreciation Right Plan (1990-1993)+
10.10 -- The Company's Phantom Stock Appreciation Right Plan (1993-1995)+
10.11 -- The Company's Corporate Annual Performance Plan+
10.12 -- The Company's Long-Term Performance Plan+
10.13 -- The Company's Executive Deferred Salary Plan+
10.14 -- The Company's Deferred Compensation Unit Plan Agreement+
10.15 -- ACONA Executive Incentive Plan+
10.16 -- The Company's Supplemental Retirement Plan+
10.17 -- The Company's Excess Benefits Plan+
10.18 -- Ford Motor Company 1990 Long-Term Incentive Plan+
12 -- Computation of Ratio of Earnings to Fixed Charges+
21 -- Subsidiaries of the Company+
23.1 -- Consent of Independent Accountants
23.2 -- The consent of Simpson Thacher & Bartlett is included in the opinion
referred to in Exhibit 5.1 above+
24 -- Power of Attorney+
27 -- Financial Data Schedule+
99 -- Form of Credit Agreement among the Company and Various Banks
</TABLE>
- ---------------
+ Previously filed
<PAGE> 1
EXHIBIT 10.2
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT dated as of _______________, 1996 is made
and entered into by Ford Motor Company, a Delaware corporation ("FORD") and
Associates First Capital Corporation, a Delaware corporation ("ASSOCIATES") and
the Associates Affiliates.
RECITALS
WHEREAS, Ford is the common parent corporation of an affiliated group
of corporations within the meaning of Section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "CODE") and of combined groups as defined under
similar laws of other jurisdictions ("FORD GROUP") and Associates and the
Associates Affiliates are members of such groups; and
WHEREAS, the groups of which Ford is the common parent and Associates
and the Associates Affiliates are members file or intend to file Consolidated
Returns and Combined Returns; and
WHEREAS, Ford and Associates desire to provide for the allocation of
liabilities, procedures to be followed, and other matters with respect to
certain taxes for taxable periods beginning after December 31, 1995.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS
1.1. "AMT PENALTY" means, with respect to any taxable year, the
amount determined under Section 2.3(d)(1) of this Agreement.
1.2. "ASSOCIATES AFFILIATE" means any corporation or other entity
directly or indirectly controlled by Associates which is includible in the
Associates Group.
1.3. "ASSOCIATES GROUP" means the affiliated group of corporations as
defined in Section 1504(a) of the Code, or similar group of entities as defined
under similar laws of other jurisdictions, of which Associates would be the
common parent if it were not a subsidiary of Ford, and any corporation or other
entity which may be or become a member of such group from time to time.
1.4. "ASSOCIATES GROUP COMBINED TAX LIABILITY" means, with respect to
any taxable year, the Associates Group's liability for Non-Federal Combined
Taxes as determined under Section 2.4 of this Agreement.
<PAGE> 2
1.5. "ASSOCIATES GROUP FEDERAL INCOME TAX LIABILITY" means, with
respect to any taxable year, the Associates Group's liability for Federal
Income Taxes as determined under Section 2.3 of this Agreement.
1.6. "AUDIT" includes any audit, assessment of Taxes, other
examination by any Tax Authority, proceeding, or appeal of such proceeding
relating to Taxes, whether administrative or judicial.
1.7. "CREDITABLE FOREIGN TAXES" means the foreign taxes paid, accrued
or deemed paid by members of the Associates Group that could be allowable as a
credit under Section 901 of the Code.
1.8. "COMBINED GROUP" means a group of corporations or other entities
that files a Combined Return.
1.9. "COMBINED RETURN" means any Tax Return with respect to
Non-Federal Taxes filed on a consolidated, combined (including nexus
combination, worldwide combination, domestic combination, line of business
combination or any other form of combination) or unitary basis wherein one or
more members of the Associates Group join in the filing of a Tax Return with
Ford or a Ford subsidiary that is not also a member of the Associates Group.
1.10. "CONSOLIDATED GROUP" means the affiliated group of corporations
within the meaning of Section 1504(a) of the Code of which Ford is the common
parent and which includes the Associates Group.
1.11. "CONSOLIDATED RETURN" means any Tax Return with respect to
Federal Income Taxes filed by Ford and its subsidiaries pursuant to Section
1501 of the Code.
1.12. "DECONSOLIDATION" means any event pursuant to which the
Associates and the Associates Group cease to be includible in the Consolidated
Group or the Combined Group.
1.13. "DECONSOLIDATION DATE" means the close of business on the day
on which a Deconsolidation occurs. Unless otherwise required by the relevant
Tax Authority or a court of competent jurisdiction, Ford and Associates, for
itself and the Associates Group, agree to file all Tax Returns, and to take all
other actions, relating to Federal Income Taxes or Non-Federal Combined Taxes
in a manner consistent with the position that the Associates and the Associates
Group are includible in the Consolidated Group and the Combined Group for all
days from the date hereof through and including a Deconsolidation Date.
1.14. "ESTIMATED TAX INSTALLMENT DATE" means the installments due
dates prescribed in Section 6655(c) of the Code (presently April 15, June 15,
September 15 and December 15).
1.15. "FEDERAL INCOME TAXES" means any tax imposed under Subtitle A
of the Code (including the taxes imposed by Sections 11, 55, 59A, and 1201(a)
of the Code), including any interest, additions to tax, or penalties applicable
thereto, and any other income based United States federal taxes which are
hereinafter imposed upon corporations.
2
<PAGE> 3
1.16. "FINAL DETERMINATION" means (a) the final resolution of any tax
(or other matter) for a taxable period, including any related interest or
penalties, that, under applicable law, is not subject to further appeal, review
or modification through proceedings or otherwise, including (1) by the
expiration of a statute of limitations (giving effect to any extension, waiver
or mitigation thereof) or a period for the filing of claims for refunds,
amended returns, appeals from adverse determinations, or recovering any refund
(including by offset), (2) by a decision, judgment, decree, or other order by a
court of competent jurisdiction, which has become final and unappealable, (3)
by a closing agreement or an accepted offer in compromise under Section 7121 or
7122 of the Code, or comparable agreements under laws of other jurisdictions,
(4) by execution of an Internal Revenue Service Form 870 or 870AD, or by a
comparable form under the laws of other jurisdictions (excluding, however, any
such form that reserves (whether by its terms or by operation of law) the right
of the taxpayer to file a claim for refund and/or the right of the Taxing
Authority to assert a further deficiency), or (5) by any allowance of a refund
or credit, but only after the expiration of all periods during which such
refund or credit may be recovered (including by way of offset) or (b) the
payment of tax by any member of the Consolidated Group or Combined Group with
respect to any item disallowed or adjusted by a Taxing Authority provided that
Ford determines that no action should be taken to recoup such payment.
1.17. "FOREIGN TAX AMOUNT" means, with respect to any taxable year,
the amount determined under Section 2.5 of this Agreement.
1.18. "NON-FEDERAL COMBINED TAXES" means any Non-Federal Taxes with
respect to which a Combined Return is filed.
1.19. "NON-FEDERAL SEPARATE TAXES" means any Non-Federal Tax that is
not a Non-Federal Combined Tax.
1.20. "NON-FEDERAL TAXES" includes all state and local charges, fees,
levies, imposts, duties, or other assessments of a similar nature, including
without limitation, income, alternative or add-on minimum, gross receipts,
excise, employment, sales, use, transfer, license, payroll, franchise,
severance, stamp, occupation, windfall profits, withholding, Social Security,
unemployment, disability, ad valorem, estimated, highway use, commercial rent,
capital stock, paid up capital, recording, registration, property, real
property gains, value added, business license, custom duties, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
any Tax Authority (excluding any governmental agency of the United States)
including any interest, additions to tax, or penalties applicable thereto.
1.21. "PRE-DECONSOLIDATION PERIOD" means a taxable period ending on
or prior to the Deconsolidation Date.
1.22. "PRO FORMA ASSOCIATES GROUP COMBINED RETURN" means a pro forma
non-federal combined tax return or other schedule prepared pursuant to Section
2.4 of this Agreement.
1.23. "PRO FORMA ASSOCIATES GROUP CONSOLIDATED RETURN" means a pro
forma consolidated federal income tax return prepared pursuant to Section 2.3
of this Agreement.
1.24. "POST-DECONSOLIDATION PERIOD" means a taxable period beginning
after the Deconsolidation Date.
3
<PAGE> 4
1.25. "REDETERMINATION AMOUNT" means, with respect to any taxable
year, the amount determined under Section 3.8 of this Agreement.
1.26. "STRADDLE PERIOD" means a taxable period beginning on or prior
to and ending after the Deconsolidation Date.
1.27. "TAX ASSET" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
deduction, credit or tax attribute which could reduce taxes (including without
limitation deductions and credits related to alternative minimum taxes).
1.28. "TAX AUTHORITY" includes the Internal Revenue Service and any
state, local, or other governmental authority responsible for the
administration of any Taxes.
1.29. "TAXES" means Federal Income Taxes and Non-Federal Taxes.
1.30. "TAX RETURN" means any return, declaration, statement, report,
schedule, certificate, form, information return or any other document (and any
related or supporting information) including an amended tax return required to
be supplied to, or filed with, a Tax Authority with respect to Taxes.
SECTION 2. TAX SHARING
2.1. ASSOCIATES LIABILITY FOR FEDERAL INCOME TAXES AND NON-FEDERAL
COMBINED TAXES. Each taxable year, Associates shall pay to Ford an amount
equal to the sum of the Associates Group Federal Income Tax Liability and the
Associates Group Combined Tax Liability for such taxable year.
2.2 FORD LIABILITY FOR FOREIGN TAX AMOUNT. With respect to each
taxable year, Ford shall pay to Associates an amount equal to the Foreign Tax
Amount for such taxable year.
2.3. ASSOCIATES GROUP FEDERAL INCOME TAX LIABILITY. (a) IN GENERAL.
With respect to any taxable year, the Associates Group Federal Income Tax
Liability shall be the sum, for such taxable year, of (1) the Associates
Group's liability for Federal Income Taxes as determined on the Pro Forma
Associates Group Consolidated Return, (2) any interest, penalties and other
additions to such taxes, and (3) any AMT Penalty, less any credit for any AMT
Penalty for a prior taxable year.
(b) PRO FORMA FEDERAL RETURN. Each taxable year, Ford shall prepare
or cause to be prepared a pro forma consolidated federal income tax return for
the Associates Group ("Pro Forma Associates Group Consolidated Return") as if
the Associates Group were not and never were part of the Consolidated Group,
but rather were a separate affiliated group of corporations of which the
Associates were the common parent filing a consolidated federal income tax
return pursuant to Section 1501 of the Code.
(c) OPERATING RULES. The Pro Forma Associates Group Consolidated
Return shall be prepared:
4
<PAGE> 5
(1) reflecting the elections, methods of accounting, and
positions with respect to specific items made or used in the Consolidated
Return;
(2) taking into account any deduction or credit for Tax
Assets, excluding Creditable Foreign Taxes;
(3) without regard to any graduated rates of tax; and
(4) reflecting transactions with members of the Consolidated
Group that are not also members of the Associates Group according to the
provisions of the consolidated return regulations promulgated under the Code
governing intercompany transactions (no item (including income, gains, losses,
deductions and credits) of any member of the Consolidated Group that is not a
member of the Associates Group shall otherwise be taken into account).
(d) AMT PENALTY. (1) IN GENERAL. For any taxable year with respect
to which the Consolidated Group is subject to the alternative minimum tax
imposed under Section 55 of the Code or is allowed any amount as a credit under
Section 53 of the Code, the AMT Penalty shall equal (i) the amount by which
(A) the sum of the Associates Group's adjustments, as defined in Section 56 of
the Code, and preferences, as defined in Section 57 of the Code, exceeds (B)
10% of the Associates Group's taxable income, as defined in Section 63(a) of
the Code, each as determined on the Pro Forma Associates Group Consolidated
Return for such taxable year, multiplied by (ii) the rate specified in Section
55(b)(1)(B)(i) of the Code.
(2) CREDIT FOR PRIOR AMT PENALTY. The AMT Penalty for any
taxable year shall be allowed as a credit in computing the Associates Group
Federal Income Tax Liability for any subsequent taxable year with respect to
which the Consolidated Group no longer has available any amount that could be
allowable as a credit under Section 53 of the Code.
2.4. ASSOCIATES GROUP COMBINED TAX LIABILITY. (a) IN GENERAL. With
respect to any taxable year, the Associates Group Combined Tax Liability shall
be the sum, for such taxable year, of (1) the Associates Group's liability for
Combined Taxes as determined on the Pro Forma Associates Group Combined Return,
(2) any interest, penalties and other additions to such taxes
(b) PRO FORMA COMBINED RETURN. Each taxable year, Ford shall prepare
or cause to be prepared a pro forma combined tax return or other schedule for
the Associates Group ("Pro Forma Associates Group Combined Return") determined
as if the Associates Group were not and never were part of the Combined Group,
but rather were a separate group of which the Associates were the common parent
filing a combined tax return.
(c) OPERATING RULES. The Pro Forma Associates Group Combined Return
shall be prepared by reference to:
(1) the Associates Group's taxable income or loss from Line
28 of the Pro Forma Associates Group Consolidated Return, adjusted to take into
account (i) those members of the Associates Group which are included in the
Combined Return, (ii) net operating loss carryforwards, and (iii) material
adjustments necessary to reflect the laws of the applicable jurisdiction (e.g.,
to exclude "subpart F income" and "gross-up");
5
<PAGE> 6
(2) apportionment factors determined by taking into account
only those members of the Associates Group which are included in the Combined
Return; and
(3) the highest applicable tax rate without regard to any graduated rates.
(d) ADDITIONAL OPERATING RULES. The following additional provisions
shall apply in determining the Associates Group Combined Tax Liability:
(1) Ford shall not pay the Associates Group for any Tax Asset
relating to any Non-Federal Combined Tax, including any net operating loss
carrybacks or carryovers, not otherwise taken into account under Section 2.4(b)
of this Agreement;
(2) the Associates Group liability with respect to
unemployment taxes for which a Combined Return is filed shall be the lesser of
(i) the liability for such taxes of the members of the Associates Group which
are included in the Combined Return determined utilizing the tax rate
applicable to the Combined Return and (ii) the liability for such taxes of the
members of the Associates Group which are included in the Combined Return
determined as if such members of the Associates Group were not and never were
part of the Combined Group, but rather were a separate group filing a combined
unemployment tax return.
2.5. FOREIGN TAX CREDIT. (a) IN GENERAL. With respect to each
taxable year, the Foreign Tax Amount shall be the amount of actual tax savings
(adjusted to reflect cumulative savings), if any, realized for such taxable
year by the Consolidated Group (taking into account carrybacks and
carryforwards) with respect to Creditable Foreign Taxes.
(b) AMOUNT. (1) GENERAL RULE. The amount of any such tax savings
for a taxable year shall be determined either (i) by comparing the Consolidated
Group's foreign tax credit computed by taking into account the Associates Group
to the Consolidated Group's foreign tax credit computed without taking into
account the Associates Group, or (ii) if a deduction is claimed for Creditable
Foreign Taxes, by comparing the Consolidated Group's liability for Federal
Income Taxes computed by taking into account such Creditable Foreign Taxes to
the Consolidated Group's liability for Federal Income Taxes computed without
taking into account such Creditable Foreign Taxes.
(2) LIMITATIONS. In no event shall the amount determined
under Section 2.5(b)(1)(i) of this Agreement for a taxable year exceed the
amount of Creditable Foreign Taxes taken into account during such taxable year.
In addition, the amount of Creditable Foreign Taxes taken into account during a
taxable year shall be reduced, as Ford determines may be appropriate, to the
extent such Creditable Foreign Taxes have been reflected in Ford's consolidated
financial statements for periods prior to the date of this Agreement.
(3) REDUCTION FOR DEFICIT IN OTHER TAXABLE YEARS. If, for
any taxable year, the Consolidated Group's foreign tax credit computed without
taking into account the Associates Group exceeds the Consolidated Group's
foreign tax credit computed by taking into account the Associates Group, the
amount of such excess shall be applied against and reduce the Foreign Tax
Amount for any other taxable year (after taking into account any reduction in
such Foreign Tax Amount by reason of such an excess in a prior taxable year)
covered by this Agreement. If Ford has already paid Associates the Foreign Tax
Amount for a taxable year and such amount is
6
<PAGE> 7
subsequently reduced under this Section 2.5(b)(3), Associates shall pay to Ford
the amount of such reduction.
SECTION 3. PAYMENT OF TAXES AND TAX SHARING AMOUNTS
3.1. FEDERAL INCOME TAXES. Ford shall pay to the Internal Revenue
Service all Federal Income Taxes, if any, of the Consolidated Group (including
the Associates Group) due and payable for all Pre-Deconsolidation Periods.
3.2. NON-FEDERAL COMBINED TAXES. Ford shall pay to the appropriate
Tax Authorities all Non-Federal Combined Taxes, if any, of the Combined Group
(including the Associates Group) due and payable for all Pre-Deconsolidation
Periods and Straddle Periods.
3.3. NON-FEDERAL SEPARATE TAXES. Associates shall pay to the
appropriate Tax Authorities all Non-Federal Separate Taxes, if any, of the
Associates Group due and payable for all Pre-Deconsolidation Periods and
Straddle Periods.
3.4. OTHER FEDERAL TAXES. The parties shall each pay to the
appropriate governmental authorities all of their respective Federal Taxes
(excluding Federal Income Taxes for Pre-Deconsolidation Periods, which are
governed by Section 3.1 of this Agreement), if any, due and payable for all
Pre-Deconsolidation Periods, Straddle Periods, and Post- Deconsolidation
Periods.
3.5. TAX SHARING INSTALLMENT PAYMENTS. (a) FEDERAL INCOME TAXES.
Not later than five business days prior to each Estimated Tax Installment Date
with respect to any Pre-Deconsolidation Period or Straddle Period, Ford shall
determine under Section 6655 of the Code the estimated amount of the related
installment of the Associates Group Federal Income Tax Liability. Associates
shall then pay to Ford not later than such Estimated Tax Installment Date the
amount thus determined.
(b) NON-FEDERAL COMBINED TAXES. Not later than November 15 of each
taxable year with respect to any Pre- Deconsolidation Period or Straddle
Period, Ford shall deliver to Associates an estimate of the Associates Group
Combined Tax Liability for the taxable year determined by using the previous
year's apportionment factors. Associates shall then pay to Ford, not later
than 10 business days after receipt of such estimate, the amount thus
determined.
3.6. TAX SHARING TRUE-UP PAYMENTS. (a) FEDERAL INCOME TAXES. Not
later than 30 business days after the Consolidated Return is filed with respect
to any Pre-Deconsolidation Period or Straddle Period, Ford shall deliver to
Associates a Pro Forma Associates Group Consolidated Return or other comparable
schedule reflecting the Associates Group Federal Income Tax Liability. Not
later than 5 business days after the date such pro forma or other schedule is
delivered, Associates shall pay to Ford, or Ford shall pay to Associates, as
appropriate, an amount equal to the difference, if any, between the Associates
Group Federal Income Tax Liability for the taxable year and the aggregate
amount paid by Associates with respect to such taxable year under Section
3.5(a) of this Agreement.
(b) NON-FEDERAL COMBINED TAXES. Not later than November 15 following
each taxable year with respect to any Pre-Deconsolidation Period or Straddle
Period, Ford shall deliver to Associates a Pro Forma Associates Group Combined
Return or other comparable schedule
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reflecting the Associates Group Combined Tax Liability for the taxable year.
Not later than 10 business days following delivery of such pro forma or other
schedule, Associates shall pay to Ford, or Ford shall pay to Associates, as
appropriate, an amount equal to the difference, if any, between the Associates
Group Combined Tax Liability for the taxable year and the amount paid by
Associates with respect to such taxable year under Section 3.5(b) of this
Agreement.
3.7. FOREIGN TAX AMOUNTS. (a) IN GENERAL. Not later than 30
business days after the Consolidated Return is filed with respect to any
Pre-Deconsolidation Period or Straddle Period, Ford shall deliver to Associates
a schedule reflecting the amounts required to be paid under this Section 3.7.
(b) GENERAL RULE. Ford shall pay to Associates the Foreign Tax
Amount, if any, with respect to a taxable year in two installments.
(1) Not later than 5 business days after the date the
schedule is delivered, Ford shall pay to Associates the first installment. The
first installment shall be an amount equal to the lesser of the amount of tax
savings for such taxable year computed (i) under the principles of Section
2.5(b) of this Agreement without taking into account carrybacks from, or
deficits in, succeeding taxable years, or (ii) under the principles of Section
2.5(b) of this Agreement as if the Associates Group were not and never were
part of the Consolidated Group, but rather were a separate affiliated group of
corporations of which the Associates were the common parent filing a
consolidated federal income tax return pursuant to Section 1501 of the Code,
applying the principles of Section 2.3(c) of this Agreement (other than the
exclusion of Creditable Foreign Taxes under Section 2.3(c)(2) of this
Agreement) and without taking into account carrybacks from, or deficits in,
succeeding taxable years.
(2) Ford shall pay Associates the second installment upon the
earlier of (i) the date at which the ability to claim a credit for such
Creditable Foreign Taxes for such taxable year would expire under Section
904(c) of the Code if unutilized, or (ii) the Deconsolidation Date. The second
installment shall be an amount equal to the difference, if any, between the
Foreign Tax Amount for such taxable year and the amount paid to Associates in
the first installment under Section 3.7(b)(1) of this Agreement for such
taxable year.
(c) TRUE-UP PAYMENTS. If, for any reason (including a carryback
from, or a deficit in, a succeeding taxable year, but excluding a
redetermination taken into account under Section 3.8 of this Agreement), the
Foreign Tax Amount for a taxable year is reduced, Associates shall pay to Ford,
not later than 5 business days after the date the schedule is delivered, an
amount equal to the difference, if any, between the amounts Ford has paid to
Associates for such taxable year under Section 3.7(b) of this Agreement and the
amount Ford would have paid to Associates under Section 3.7(b) of this
Agreement taking into account such reduction.
3.8. REDETERMINATION AMOUNTS. (a) IN GENERAL. In the event of any
redetermination of any item of income, gain, loss, deduction or credit of any
member of the Consolidated Group or Combined Group as a result of a Final
Determination or any settlement or compromise with any Tax Authority (including
any amended tax return or claim for refund filed by Ford), Associates shall pay
Ford or Ford shall pay Associates, as the case may be, the Redetermination
Amount.
(b) COMPUTATION. The Redetermination Amount shall be the difference,
if any, between all amounts previously determined under Section 2 of this
Agreement and all amounts that would
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have been determined under Section 2 of this Agreement taking such
redetermination into account (including any additions to tax or penalties
applicable thereto), together with interest for each day calculated (1) with
respect to redeterminations affecting Federal Income Taxes, at the rate
determined, in the case of payment by Associates, under Section 6621(a)(1) of
the Code and, in the case of payment by Ford, under Section 6621(a)(2) of the
Code, and (2) with respect to redeterminations affecting Non-Federal Combined
Taxes, under similar laws, if any, of other jurisdictions.
(c) PAYMENT. Ford shall deliver to Associates a schedule reflecting
the computation of any Redetermination Amount with respect to any taxable year.
Not later than 5 days after the date such schedule is delivered, Associates
shall pay Ford, or Ford shall pay Associates such Redetermination Amount,
provided however, that in no event shall any Redetermination Amount
attributable to any Foreign Tax Amount be paid earlier than the date provided
in Section 3.7 of this Agreement.
3.9. INTEREST. Payments under this Section 3 that are not made
within the prescribed period shall thereafter bear interest at the Federal
short-term rate established pursuant to Section 6621 of the Code.
SECTION 4. PROCEDURAL MATTERS
4.1. AGENT; PREPARATION AND FILING OF RETURNS. Ford shall be the
sole and exclusive agent of Associates and any member of the Associates Group
in any and all matters relating to (a) Federal Income Taxes of the Consolidated
Group and (b) any Non-Federal Combined Taxes for all Pre-Deconsolidation
Periods and Straddle Periods. Ford shall have the sole and exclusive
responsibility for the preparation and filing of any (a) Consolidated Return or
(b) Combined Return for all Pre-Deconsolidation Periods and Straddle Periods.
In its sole discretion, Ford shall have the exclusive right with respect to any
such Consolidated Return or Combined Return (a) to determine (1) the manner in
which such Tax Return shall be prepared and filed, including, without
limitation, the manner in which any item of income, gain, loss, deduction or
credit shall be reported, (2) whether any extensions may be requested, (3) the
elections that will be made by any member of the Consolidated Group or Combined
Group, and (4) whether any amended tax returns should be filed, (b) to control,
contest, and represent the interests of the Consolidated Group and Combined
Group in any Audit and to resolve, settle, or agree to any adjustment or
deficiency proposed, asserted or assessed as a result of any Audit, (c) to
file, prosecute, compromise or settle any claim for refund, and (d) to
determine whether any refunds, to which the Consolidated Group or Consolidated
Group may be entitled, shall be paid by way of refund or credited against the
tax liability of the Consolidated Group and Combined Group. Associates, for
itself and its subsidiaries, hereby irrevocably appoints Ford as its agent and
attorney-in-fact to take such action (including the execution of documents) as
Ford may deem appropriate to effect the foregoing.
4.2. FURNISHING INFORMATION. Each member of the Associates Group
shall (a) furnish to Ford in a timely manner such information and documents as
Ford may reasonably request for purposes of (1) preparing any original or
amended Consolidated Return or Combined Return, (2) contesting or defending any
Audit, and (3) making any determination or computation necessary or appropriate
under this Agreement, (b) cooperate in any Audit of any Consolidated Return or
Combined Return, (c) retain and provide on demand books, records, documentation
or other information relating to any tax return until the later of (1) the
expiration of the applicable statute
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of limitations (giving effect to any extension, waiver, or mitigation thereof)
and (2) in the event any claim is made under this Agreement for which such
information is relevant, until a Final Determination with respect to such
claim, and (d) take such action as Ford may deem appropriate in connection
therewith. Ford shall provide the Associates Group any assistance reasonably
required in providing any information requested pursuant to this Section 4.2.
4.3. EXPENSES. Associates shall reimburse Ford for any outside legal
and accounting expenses incurred by Ford in the course of the conduct of any
Audit regarding the tax liability of the Combined Group or Consolidated Group,
and for any other expense incurred by Ford in the course of any litigation
relating thereto, to the extent such costs are reasonably attributable to the
Associates Group and provided Ford has conferred with Associates as to the
portion of the Audit relating to the Associates Group. Notwithstanding the
foregoing, Ford shall have the sole discretion to control, contest, represent,
file, prosecute, challenge or settle any Audit.
SECTION 5. DECONSOLIDATION
5.1. CONTINUING COVENANTS. Associates, for itself and the Associates
Affiliates, covenants that on or after a Deconsolidation it will not, nor will
it cause or permit any member of the Associates Group to make or change any tax
election, change any accounting method, amend any tax return or take any tax
position on any tax return, take any action, omit to take any action or enter
into any transaction that results in any increased tax liability or reduction
of any Tax Asset of the Ford Group in respect of any Pre-Deconsolidation
Period or Straddle Period.
5.2 REATTRIBUTION OF TAX ASSETS. In the event of a Deconsolidation,
Ford may, at its option, elect to reattribute to itself certain Tax Assets of
the Associates Group pursuant to Treasury Regulations Section 1.1501-20(g) or
similar provisions of other jurisdictions. If Ford makes such an election,
Associates shall comply with any applicable requirements, including those of
Treasury Regulations Section 1.1502-20(g)(5).
5.3. CARRYBACKS. Ford agrees to pay to Associates the actual tax
benefit received by the Ford Group from the use in any Pre-Deconsolidation
Period of a carryback of any Tax Asset of the Associates Group from a Post-
Deconsolidation Period. Such benefit shall be considered equal to the lesser
of (a) the amount Ford would have paid Associates had such Tax Asset arisen in
a Pre-Deconsolidation Period and (b) the excess of (1) the amount of Federal
Income Taxes imposed on the Consolidated Group or the amount of Combined Taxes
imposed on the Combined Group, as the case may, that would have been payable by
the Consolidated Group or Combined Group in the absence of such carryback over
(2) the amount of Federal Income Taxes or Combined Taxes, as the case may be,
actually paid. Payment of the amount of such benefit shall be made within 90
days of the filing of the applicable tax return for the taxable year in which
the Tax Asset is utilized. If subsequent to the payment by Ford to Associates
of any such amount, there shall be (a) a Final Determination which results in a
disallowance or a reduction of the Tax Asset so carried back or (b) a reduction
in the amount of the benefit realized by the Ford Group as a result of any
other Tax Asset that arises in a Post- Deconsolidation Period, Associates shall
repay to Ford, within 90 days of such event any amount which would not have
been payable to Associates pursuant to this Section 5.3 had the amount of the
benefit been determined in light of these events. Associates shall hold Ford
harmless for any penalty, addition to tax or interest payable by any member of
the Ford Group as a result of any such event. Any such amount shall be paid by
Associates to Ford within 90 days of the payment by Ford or any member of the
Consolidated
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Group or Combined Group of any such penalty, addition to tax, or interest.
Nothing in this Section 5.3 shall require Ford to file a claim for refund of
Federal Income Taxes or Combined Taxes.
5.4. CREDIT FOR REMAINING AMT PENALTY. Ford agrees to pay to
Associates an amount equal to the aggregate AMT Penalties for all
Pre-Deconsolidation Periods that have not been allowed as a credit under
Section 2.3(d)(2) of this Agreement, reduced by the amounts allowable as a
credit under Section 53 of the Code attributable to the Associates Group, at
such time as a credit for such AMT Penalties would be allowed under the
principles of Section 2.3(d)(2) of this Agreement with respect to any
Post-Deconsolidation Period.
SECTION 6. MISCELLANEOUS
6.1. TERM. This Agreement shall expire upon the Deconsolidation
Date; provided, however, that all rights and obligations arising hereunder with
respect to a Pre-Deconsolidation Period or Straddle Period shall survive until
they are fully effectuated or performed and, provided, further, that
notwithstanding anything in this Agreement to the contrary, all rights and
obligations arising hereunder with respect to a Post-Deconsolidation Period
shall remain in effect and its provisions shall survive for the full period of
all applicable statutes of limitation (giving effect to any extension, waiver
or mitigation thereof).
6.2. ALLOCATIONS. All computations with respect to the
Pre-Deconsolidation Period ending on the Deconsolidation Date, the immediately
following taxable period of Associates and the Associates Group and any
Straddle Period shall be made pursuant to the principles of Treasury
Regulations Section 1.1502-76(b), taking into account such elections thereunder
as Ford, in its sole discretion, shall make.
6.3. CHANGES IN LAW. Any reference to a provision of the Code or a
similar law of another jurisdiction shall include a reference to any successor
provision to such provision.
6.4. CONFIDENTIALITY. Each party shall hold and cause its advisors
and consultants to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion of its counsel, by other
requirements of law, all information (other than any such information relating
solely to the business or affairs of such party) concerning the other parties
hereto furnished it by such other party or its representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by the party to which it was furnished, (b) in the public
domain through no fault of such party, or (c) later lawfully acquired from
other sources not under a duty of confidentiality by the party to which it was
furnished), and each party shall not release or disclose such information to
any other person, except its auditors, attorneys, financial advisors, bankers
and other consultants who shall be advised of and agree to be bound by the
provisions of this Section 6.4. Each party shall be deemed to have satisfied
its obligation to hold confidential information concerning or supplied by the
other party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
6.5. SUCCESSORS. This Agreement shall be binding on and inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including any
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successor of Ford and Associates succeeding to the tax attributes of such party
under Section 381 of the Code), to the same extent as if such successor had
been an original party.
6.6. AUTHORIZATION, ETC. Each of the parties hereto hereby
represents and warrants that it has the power and authority to execute, deliver
and perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of each such party and that
the execution, delivery and performance of this Agreement by such party does
not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.
6.7. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements. Notwithstanding the foregoing, the Tax
Allocation Agreement, dated August 31, 1992, and State Tax Allocation
Agreement, dated February 4, 1993, among Ford Holdings, Inc. and its
subsidiaries, shall continue to apply to taxable periods ending on or before
December 31, 1995.
6.8. SECTION CAPTIONS. Section captions used in this Agreement are
for convenience and reference only and shall not affect the construction of
this Agreement.
6.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan without giving
effect to laws and principles relating to conflicts of law.
6.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
6.11. WAIVERS AND AMENDMENTS. This Agreement shall not be waived,
amended or otherwise modified except in writing, duly executed by all of the
parties hereto.
6.12. SEVERABILITY. In case any one or more of the provisions in
this Agreement should be invalid, illegal or unenforceable, the enforceability
of the remaining provisions hereof will not in any way be effected or impaired
thereby.
6.13. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties to this Agreement and the other members of the
Affiliated Group and should not be deemed to confer upon third parties any
remedy, claim, liability, reimbursement, claim of action or other rights in
excess of those existing without this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first
above written.
FORD MOTOR COMPANY
By
-----------------------------------
Name:
Title:
ASSOCIATES FIRST CAPITAL CORPORATION
on behalf of itself and its subsidiaries
By
-----------------------------------
Name:
Title:
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Exhibit 10.5(b) Form of Amended and Restated Employment Agreement.
<PAGE> 2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of the [ th] day
of [month], 1996 (the "Agreement"), between ASSOCIATES CORPORATION OF NORTH
AMERICA (A Texas Corporation), a corporation existing under laws of the State
of Texas (the "Company"), and [Name of Executive] (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive have entered into an agreement
relating to the employment of the Executive for a period of three years from
__________________________________________, 1995 (the "Effective Date");
WHEREAS, the Company and the Executive desire to amend and restate the
Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT
1.1 Effective on the date of the Agreement, the Executive hereby
agrees to serve, upon the terms and conditions herein contained, as an
executive of the Company, an indirect subsidiary of Ford Motor Company. The
Executive shall have such duties as the Board of Directors of the Company may
determine.
1.2 Unless automatically renewed, the term of employment under
this Agreement shall commence on the Effective Date and, subject to the terms
hereof, shall terminate on the day prior to the third anniversary of such date.
This Agreement shall automatically renew for subsequent sequential one-year
periods unless terminated in writing by either party not later than 60 days
prior to the end of the initial three-year period or any
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subsequent one-year period. Each such one-year renewal period is referred to
as a "Renewal Period." The full three-year period and Renewal Periods are
referred to as the "Employment Term."
1.3 During the Executive's employment hereunder, the Executive
shall devote the Executive's best efforts and substantially all the Executive's
business time and services to the business and affairs of the Company.
2. SALARY
2.1 During the Executive's employment hereunder, the Executive
shall be entitled to receive a base salary at the rate of $[salary] per annum,
payable in accordance with the Company's payroll policy from time to time in
effect.
2.2 The Company may, in its sole discretion, increase the
Executive's per annum base salary.
3. BONUSES
During the Executive's employment hereunder, the Executive shall be
eligible to receive bonuses on the terms specified in any bonus plan applicable
to executives of the Company.
4. TERMINATION
4.1 The employment of the Executive hereunder may be terminated by
the Company by fifteen (15) days' written notice given at any time, with or
without Cause. As used herein, the term "Cause" shall be limited to (a) action
by the Executive involving willful malfeasance, (b) the Executive's
unreasonable neglect or refusal to perform the executive duties assigned to the
Executive under this Agreement, (c) the Executive being convicted of a felony,
(d) the Executive engaging in any activity that is directly or indirectly in
competition with the Company or any affiliate or in any activity that is
inimical to the best
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interests of the Company or any affiliate, or (e) the Executive's violation of
Company policy covering standards of corporate conduct; provided that the
determination of Cause shall be made by the Company's Board of Directors. If
the Company terminates the Executive's employment for Cause, all the Company's
obligations under this Agreement shall thereupon cease and terminate.
4.2. In the event that the Executive's employment is terminated by
the Company other than for Cause or a Change in Control occurs that results in
termination other than for Cause within 12 months of such Change in Control,
including "Constructive Termination," the Executive shall be entitled, in lieu
of any other compensation and benefits provided for herein, (i) to receive a
lump sum in an amount equal to (x) [three/two] times the sum of the Executive's
then current annual base salary and an amount equal to the average of the
amounts paid to the Executive under the Company's Corporate Annual Performance
Plan ("CAPP") during each of the three years immediately preceding the year of
termination, plus (y) a pro rata amount, based on the portion of the current
performance year preceding termination, equal to the average of the amounts
paid to the Executive under both the CAPP and the Company's Long-Term
Performance Plan ("LTPP") during each of the three years immediately preceding
the year of termination; (ii) to be immediately vested in full with respect to
any awards issued under the Company's Long-Term Equity Compensation Plan
("ECP"), subject to Section 8.7 of the ECP, if applicable; and (iii) to
continue to receive, for [three/two] years from the date of termination, at the
Company's expense, life insurance and medical, dental and disability benefits
at least comparable to those provided by the Company to the Executive on the
date of termination of employment, provided that such benefits shall cease if
the Executive obtains other employment with comparable benefits. If a Change
in Control occurs that results in
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termination within 12 months of a Change in Control, including Constructive
Termination, the Executive's accrued benefits under the Company's Excess
Benefit Plan ("EBP") and Supplemental Retirement Income Plan ("SRIP") shall
become 100% vested and the Executive shall also be entitled to receive
distribution of his account balance under the Company's Equity Deferral Plan
("EDP").
4.3 Notwithstanding any other provision, the right of the
Executive to any benefits provided in this Agreement shall cease if the Board
of Directors of the Company determines that the Executive has violated Section
8.3 herein, or has engaged in any activity that is inimical to the best
interests of the Company or any affiliate.
4.4 Notwithstanding any provision herein to the contrary, total
compensation paid to the Executive as a result of a Change in Control pursuant
to this Section 4 shall not exceed 2.99 times the average of the Executive's
Compensation during the five years preceding the termination. "Executive
Compensation" shall have the same meaning as the meaning given to "Annualized
Includable Compensation for Base Period" in Section 280G(d)(1) of the Internal
Revenue Code of 1986, as amended.
4.5 "Change in Control" means any of the following:
(i) Any merger, consolidation or similar combination with
or involving the Company, as of the date of the conclusion of such
event, other than a merger, consolidation or similar combination of
the Company with Ford or any of its affiliates;
(ii) Any transaction or series of transactions that
results in the sale or divestiture of all or substantially all of the
Company's assets, as of the conclusion or such transaction of series
of transactions;
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(iii) Any capital reorganization or series of transactions
that results in Ford and its affiliates owning common stock of the
Company having less than 50% of the combined voting power of
outstanding capital stock of the Company, as of the date of the
conclusion of such reorganization, transaction or series of
transactions; or
(iv) The successful completion of a public offering, or
distribution to the public by dividend or spinoff, that results in
Ford and its affiliates owning common stock of the Company having less
than 50% of the combined voting power of the outstanding capital stock
of the Company.
4.6 Unless consented to in writing by the Executive, "Constructive
Termination" shall occur if any of the following result from a Change in
Control:
(i) The assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirement), authority, duties
or responsibilities or any other action which results in a substantial
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the employer
promptly after receipt of notice thereof given by the Executive;
(ii) Any failure to (x) continue to provide the Executive
with the opportunity to participate, on terms substantially comparable
in the aggregate to those in effect immediately prior to the Change in
Control, in substantially the same benefit or compensation plans and
programs, including Company's life, disability, health and retirement
plans in which the Executive was participating immediately prior to
the date of the Change in Control, or their equivalent, or (y) provide
the Executive with all other fringe benefits (or their equivalent)
from time to time in
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effect for the benefit of any executive, management or administrative
group of the Company which customarily includes a person holding the
employment position with Company then held by the Executive; or
(iii) Without the Executive's express written consent, a
substantial reduction, without good business reasons, of the
facilities and perquisites available to the Executive immediately
prior to such reduction.
5. PERMANENT DISABILITY OR DEATH
In the event of the Executive's permanent disability as defined in the
long-term disability plan applicable to employees of the Company on the date
hereof ("Permanent Disability") while employed hereunder during the Employment
Term, the Executive shall receive monthly for a period of six months after the
determination of Permanent Disability an amount equal to the Executive's then
current monthly base salary plus one-twelfth of the average of the amounts paid
to the Executive under the CAPP during each of the three years immediately
preceding the year of Permanent Disability less any amounts received through
any disability or salary continuation plan provided pursuant to Section 7
hereof. In the event of the Executive's death while employed hereunder during
the Employment Term, the Executive's estate or designated beneficiaries shall
receive a lump sum equal to the Executive's then current annual base salary
plus the average of the amounts paid to the Executive under the CAPP during
each of the three years immediately preceding the year of death. In the event
of the Executive's Permanent Disability or death as specified in this Section
5, the employment of the Executive and all obligations of the Company hereunder
(other than the obligation (i) for the compensation specified in this Section
5, and (ii) to pay amounts for which the Company is responsible under
applicable benefit plans, policies and practices in the event of death or
Permanent Disability) shall terminate.
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6. EXPENSES
During the Executive's employment hereunder, the Executive is
authorized to incur reasonable expenses for promoting the business of the
Company, including expenses for travel and similar items, in accordance with
the Company's policy as in effect from time to time. The Company will
reimburse the Executive for all such reasonable expenses as determined by
management in accordance with Company policy upon presentation by the Executive
from time to time of an itemized account of such expenditure.
7. EXECUTIVE BENEFITS
7.1 During the Executive's employment hereunder, the Executive
shall be included in any and all plans providing benefits for (a) the Company's
employees generally and (b) the Company's executives of comparable status. In
furtherance and not in limitation of the foregoing, throughout the Employment
Term, the Company shall provide to the Executive life insurance, medical,
dental, disability and other employee welfare benefits and defined benefit
pension plan benefits which, on an overall basis, shall be no less favorable to
the Executive than those in effect for employees (of comparable pay grade or
status) of the Company from time to time.
7.2 During the Executive's employment hereunder, the Executive
shall remain eligible to participate in all incentive, profit sharing, bonus,
stock option, or other similar or comparable plans applicable to Company
executives of a similar class and station, in accordance with the terms thereof
in effect from time to time.
8. RESTRICTIVE COVENANTS
8.1 The Executive agrees to execute and deliver from time to time
the Company's standard confidentiality, conflict of interest and proprietary
information agreements.
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8.2 The Executive and the Executive's agents will not, during the
12-month period following any termination of employment hereunder, or in
contemplation of termination of employment, induce, entice or solicit any
employee of the Company or its affiliates, to leave employment with the Company
or its affiliates.
8.3 The Executive will not, either directly or indirectly, during
the Employment Term or for a period of two years thereafter, compete with the
Company, in any manner or capacity (e.g., as an advisor, principal, agent,
partner, officer, director, stockholder, employee, member of any association or
otherwise) in any phase of the business which the Company or any of its
subsidiaries conduct business during the term of this Agreement. The
obligations of this covenant not to compete ("Covenant") shall apply to any
geographic area in which the Company and its subsidiaries have engaged in
business during the Employment Term. The Executive agrees and acknowledges
that it would be difficult to fully compensate the Company for the damages
resulting from a breach of this Covenant, and that the Company will, therefore,
be entitled to temporary and permanent injunctive relief in the event of any
actual or threatened breach. Such relief may be granted without the necessity
of proving actual damages, but this provision does not diminish the Company's
right to recover damages in addition to injunctive relief.
9. NOTICE
All notices or communications hereunder shall be in writing, addressed
as follows:
To the Company:
Associates Corporation of North America (A Texas Corporation)
250 East Carpenter Freeway
Irving, Texas 75062
Attention: General Counsel
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To the Executive:
[Name of Executive]
[Address]
Any notice or communication shall be sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other
address as a party may designate in writing from time to time), and the actual
date of receipt, as shown by the receipt therefore, shall determine the time at
which notice was given.
10. SEPARABILITY
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such provision shall be modified, to the
extent practical, consistent with the intent of the parties, in order to render
it enforceable, but such invalidity or unenforceability shall not affect the
remaining provisions hereof, which shall remain in full force and effect.
11. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the assigns and successors of
the Company. Neither this Agreement nor any rights hereunder shall be
assignable or otherwise subject to hypothecation by the Executive, and any such
attempted assignment or hypothecation shall be void. This Agreement shall be
assignable by the Company in connection with any transfer of all or
substantially all of the Company's business or any transfer of a portion of the
Company's business for which the Executive has responsibility; provided,
however, that the Company shall remain responsible for all the obligations of
the Company set forth herein for the remainder of the initial three year period
of the Employment Term or the remainder of then current Renewal Period, as
applicable.
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<PAGE> 11
12. ENTIRE AGREEMENT; AMENDMENT
This Agreement represents the entire agreement of the parties relating
to its subject matter and shall supersede any and all previous written or oral
employment agreements between the Company or any of its affiliates and the
Executive. This Agreement may be modified or amended only by a writing signed
by both parties hereto.
13. GOVERNING LAW
This Agreement shall be construed, interpreted and governed in
accordance with the laws of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
______________________________________________
[Name of Executive]
ASSOCIATES CORPORATION OF NORTH AMERICA
(A Texas Corporation)
By:___________________________________________
Its:__________________________________________
11
<PAGE> 1
EXHIBIT 10.7
ASSOCIATES FIRST CAPITAL CORPORATION
EQUITY DEFERRAL PLAN
EFFECTIVE JANUARY 1, 1996
<PAGE> 2
Associates First Capital Corporation
EQUITY DEFERRAL PLAN
1. PURPOSE
The purpose of the Plan is to link the interests of Plan Participants
with the stockholders of the Company by crediting amounts required to
be deferred under the Company's PSAR Plan to Accounts established
under this Plan and treating the Accounts of such Participants as if
they were invested in shares of Class A Common Stock from the date of
the IPO to the date Accounts are paid in full or this Plan is
terminated.
2. DEFINITIONS
(a) "Account" means the unfunded bookkeeping record maintained by
the Company reflecting a Participant's Deferred Amount,
adjusted for earnings, gains, accretions, losses and all other
adjustments provided for in this Plan.
(b) "Account Balance" means, as of any specified date, the total
value of the Participant's Account.
(c) "Board" means the Board of Directors of the Company.
(d) "Class A Common Stock" means the Class A Common Stock of the
Company.
(e) "Change in Control" of the Company shall be deemed to have
occurred (as of a particular day, as specified by the Board)
upon the occurrence of any event described in this Section
2(e) as constituting a Change in Control.
A Change in Control will be deemed to have occurred as of the
first day any one (1) or more of the following have occurred.
(i) Any merger, consolidation or similar combination with
or involving the Company, as of the date of the
conclusion of such event, other than a merger,
consolidation or similar combination of the Company
with Ford or any of its affiliates.
(ii) Any transaction or series of transactions that
results in the sale or divestiture of all or
substantially all of the Company's assets, as of the
conclusion of such transaction or series of
transactions.
<PAGE> 3
(iii) Any capital reorganization, transaction or
series of transactions that results in Ford and its
affiliates owning common stock of the Company having
less than 50% of the combined voting power of the
outstanding capital stock of the Company, as of the
date of the conclusion of such reorganization,
transaction or series of transactions.
(iv) The successful completion of a public offering, or
distribution to the public by dividend or spinoff,
that results in Ford and its affiliates owning Common
Stock of the Company having less than 50% of the
combined voting power of the outstanding capital stock
of the Company.
(f) "Closing Date" means the first date on which the Company
issues its Class A Common Stock pursuant to the IPO.
(g) "Committee" means the Compensation Committee of the Board or
such other Committee appointed by the Board to administer the
Plan.
(h) "Company" means Associates First Capital Corporation, a
Delaware corporation.
(i) "Deferred Amount" means the amount credited to an Account
established under this Plan for the Participant under the
terms of the PSAR Plan and any accrued earnings or losses.
(j) "Disability" has the meaning ascribed to such term in a
Participant's governing long-term disability plan provided by
the Company.
(k) "Effective Date" means January 1, 1996, which is the effective
date of this Plan.
(l) "Employee" means any person (including an officer) actively
employed by the Company or an affiliate of the Company on a
full-time, salaried basis.
(m) "IPO" means the Company's initial public offering of its Class
A Common Stock occurring during 1996.
(n) "Participant" means, individually, a participant of the PSAR
Plan who was, pursuant the terms of the PSAR Plan, required to
defer to this Plan one-half of the amount to be cashed out for
such person's PSAR Shares granted in 1995. A list of such
Participants is attached hereto as Exhibit A.
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(o) "Plan" means the Associates First Capital Corporation Equity
Deferral Plan, as amended.
(p) "PSAR" means Phantom Stock Appreciation Right.
(q) "PSAR Shares" means PSAR Shares granted under the terms of
the PSAR Plan.
(r) "PSAR Plan" means the Associates First Capital Corporation
Phantom Stock Appreciation Right Plan, as amended.
(s) "Retirement" has the meaning ascribed to such term in the
Company's Pension Plan as it exists from time to time.
3. ADMINISTRATION
The Plan shall be administered by the Committee, which shall have full
authority and discretion to interpret the Plan, to establish
regulations and procedures relating to the Plan, and to make all other
determinations and take all other actions necessary or appropriate for
the proper administration of the Plan. The Committee's interpretation
of the Plan, and all actions taken within the scope of its authority,
shall be final and binding on the Company, its stockholders,
Participants, Employees, former Employees and their beneficiaries in
the absence of manifest error.
4. ELIGIBILITY AND PARTICIPATION
(a) Mandatory Deferral of PSAR Plan Amounts to This Plan.
The terms of this Plan shall apply with respect to deferred
amounts from the PSAR Plan attributable to Participants. If
Closing Date does not occur by December 31, 1996, Accounts
will be paid out as soon as practicable after December 31,
1996, with interest as described in Section 4(c).
(b) Crediting of Deferred Amounts to Participants' Accounts.
Each Participant's Deferred Amount will be credited, as of the
date such Amount would otherwise be distributed to each
Participant under the terms of the PSAR Plan, to an Account
established under this Plan for each Participant. Each
Participant's Account will be adjusted for earnings, gains,
accretions and losses as provided in Sections 4(c) and 4(d)
hereof until the date the Participant's Account Balance is
cashed out pursuant to Sections 4(e), 4(f) or 7(a) hereof.
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<PAGE> 5
(c) Crediting of Interest to the Closing Date of the IPO.
Each Participant's Account will be credited with interest at
the "prime rate" of interest in effect from time to time, as
determined by the Committee, during the period from the date
the Participant's Deferred Amount is credited to the
Participant's Account to the Closing Date or the termination
of employment of the Participant prior to such Closing Date
for any reason.
(d) Deemed Investment of Accounts in Class A Common Stock and
Value Determination.
(i) During the period commencing on the Closing Date and
ending on the date a Participant's Account Balance is
distributed in full, as determined under Sections
4(e), 4(f) or 7(a) hereof, each Participant's Account
shall be deemed to be invested in shares of Class A
Common Stock.
(ii) As of the Closing Date each Participant's Account
shall be deemed to be invested in the number of
shares of Class A Common Stock determined by dividing
(A) the Participant's Account Balance as of the
Closing Date, by (B) the offering price of one share
of Class A Common Stock under the IPO. Whole and
fractional phantom shares of Class A Common Stock
shall be credited to the Participant's Account.
(iii) The value of dividends paid and other distributions
made with respect to Class A Common Stock shall be
credited to a Participant's Account on the payment
date for such dividends or distributions based on the
number of whole and fractional phantom shares of
Class A Common Stock credited to the Participant's
Account as of the record date for the dividend or
other distribution. Cash dividend equivalents shall
be deemed to be immediately reinvested in additional
phantom shares of Class A Common Stock based on the
closing price of Class A Common Stock sold regular
way on the principal stock exchange on which Class A
Common Stock is traded on the day that such dividend
or distribution is paid or if such day is not a
trading day, the first trading day immediately
preceding such dividend or distribution payment date.
Stock dividends, stock distributions of any class of
stock other than Class A Common Stock, property
dividends or property distributions shall be valued
by the Committee as of the payment date thereof and
be deemed immediately reinvested in additional shares
of Class A Common Stock based on the closing price of
Class A Common Stock sold regular way on the
principal
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<PAGE> 6
stock exchange on which Class A Common Stock is
traded on the day that such dividend or distribution
is paid, or if such day is not a trading day, the
first trading day immediately preceding such dividend
or distribution payment date.
(iv) The value of a Participant's Account Balance as of
any date after the Closing Date shall be equal to the
number of shares of Class A Common Stock credited to
the Participant's Account as of such date multiplied
by the closing price of Class A Common Stock sold
regular way on the principal stock exchange on which
Class A Common Stock is traded on the trading day
immediately preceding such valuation date.
(v) In the event of any change in capitalization of the
Company, such as a stock split, stock dividend or
combination of shares or a corporate transaction,
such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock
or property of the Company, any reorganization
(whether or not such reorganization comes within the
definition of such term in Code Section 368) or any
partial or complete liquidation of the Company, such
adjustment shall be made in the number of shares of
Class A Common Stock in which each Account is deemed
to be invested, as may be determined to be
appropriate and equitable by the Committee, in its
sole discretion, to prevent dilution or enlargement
of Account Balances which would otherwise result from
any such change in the capitalization of the Company
in the absence of an adjustment.
(e) Payment of Account Balances.
Subject to Sections 4(f), 4(g) and 7(a) hereof, the Company
must pay each Participant's Account in a lump sum in cash
equivalent to the value of the Account Balance to such
Participant (or, in the event of such Participant's death, to
the Participant's beneficiary determined under Section 5
hereof), on the fifth (5th) anniversary of the Closing Date.
(f) Acceleration of Payment of Account Balances.
(x) The Company may distribute all or any portion of a
Participant's Account Balance at any time(s) prior to
the date specified in Section 4(e) hereof if the
Committee concludes, in its sole discretion, that
events such as changes in the federal tax laws or
applicable accounting principles or
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<PAGE> 7
practices have rendered continue deferral of such
amount undesirable either for the Company or the
Participant.
(y) The Company must distribute all of a Participant's
Account Balance at any time prior to the date
specified in Section 4(e) hereof under any of the
following circumstances:
(i) If the Company incurs a Change in Control and
the Participant's employment agreement with
the Company or a subsidiary that is or was in
effect on June 1, 1996, requires or would
have required distribution of the
Participant's Account Balance; or
(ii) If a Participant's employment with the
Company or a subsidiary is terminated for any
reason prior to the payment date described in
Section 4(e) hereof.
(g) Prohibition on Accelerated Payment of Account Balances.
In no event may payment of any portion of a Participant's
Account Balance be accelerated in any manner other than as
expressly provided herein.
5. DESIGNATION OF BENEFICIARY
A Participant may designate a beneficiary or beneficiaries who, in the
event of the Participant's death prior to full payment of the
Participant's Account Balance, shall receive payment of the
Participant's Account Balance due under the Plan. Such designation
shall be made by the Participant on a form prescribed by the
Committee. The Participant may, at any time, change or revoke such
designation. A beneficiary designation, or revocation of a prior
beneficiary designation, will be effective only if it is signed by the
Participant and received by the Company. If the Participant does not
designate a beneficiary or the beneficiary dies prior to receiving any
payment of the Account Balance, the Account Balance payable under the
Plan shall be paid to the Participant's estate. If the beneficiary
dies after receiving any payment of the Account Balance, any amounts
remaining to be paid shall be paid to the beneficiary's estate.
6. AMENDMENTS
The Board may at any time and from time to time in its sole discretion
alter, amend, suspend or terminate this Plan in whole or in part;
provided, however, that no such
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<PAGE> 8
amendment which adversely affects a Participant's rights to or
interest in the Account Balance credited prior to the date of the
amendment shall be effective unless the Participant shall have agreed
thereto.
7. TERMINATION
(a) The Board may terminate this Plan in whole or in part at any
time in its sole discretion for any reason. In the case of
such a termination, notwithstanding any other provisions of
the Plan to the contrary, the Company shall distribute the
Account Balance valued as of the date of termination in
accordance with Section 4(d) hereof, to each Participant in a
lump sum payment of cash not later than sixty (60) days after
the date of termination.
(b) This Plan terminates when no Accounts are outstanding under
the Plan.
8. MISCELLANEOUS PROVISIONS
(a) Nothing in this Plan will interfere with or limit in any way
the right of the Company or its affiliates to terminate any
Participant's employment at any time for any reason, nor
confer upon any Participant any right to continue in the
employ of the Company or its affiliates.
(b) A Participant's right and interest under the Plan may not be
assigned or transferred, except as provided in Section 5
hereof, and any attempted assignment or transfer shall be null
and void and shall extinguish, in the Committee's discretion,
the Company's obligation under the Plan to pay the portion of
the Participant's Account Balance subject to such attempted
assignment or transfer.
(c) The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund, or to make
any other segregation of assets, to assure payment of the
Account Balances.
9. WITHHOLDING AND PAYMENTS
The Company shall have the right to deduct from any amount to be paid
to any Participant or beneficiary hereunder any taxes or other amounts
required by law to be withheld.
10. GOVERNING LAW
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<PAGE> 9
To the extent not preempted by federal law, this Plan and all
agreements hereunder shall be construed in accordance with the
laws of the State of Texas.
8
<PAGE> 1
Exhibit 10.8
LONG-TERM EQUITY COMPENSATION PLAN
Associates First Capital Corporation
April 1, 1996
<PAGE> 2
CONTENTS
- --------------------------------------------------------------------------------
PAGE
Article 1. Establishment, Objectives, and Duration 1
Article 2. Definitions 1
Article 3. Administration 4
Article 4. Shares Subject to the Plan and Maximum Awards 5
Article 5. Eligibility and Participation 5
Article 6. Stock Options 6
Article 7. Stock Appreciation Rights 7
Article 8. Restricted Stock 9
Article 9. Performance Units and Performance Shares 10
Article 10. Performance Measures 12
Article 11. Beneficiary Designation 12
Article 12. Deferrals 13
Article 13. Rights of Employees 13
Article 14. Amendment, Modification, and Termination 13
Article 15. Withholding 14
Article 16. Successors 14
Article 17. Legal Construction 14
<PAGE> 3
ASSOCIATES FIRST CAPITAL CORPORATION
LONG-TERM EQUITY COMPENSATION PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. Associates First Capital Corporation, a
Delaware corporation (hereinafter referred to as the "Company"), hereby
establishes an incentive compensation plan to be known as the "Associates First
Capital Corporation Long-Term Equity Compensation Plan" (hereinafter referred
to as the "Plan"), as set forth in this document. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares and Performance Units.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of April 1, 1996 (the "Effective Date") and shall remain in effect
as provided in Section 1.3 hereof.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of the Company through incentives which are
consistent with the Company's goals and which link the personal interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3. DURATION OF THE PLAN. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 14 hereof, until all Awards granted hereunder are satisfied
by the issuance of Shares and/or the payment of cash. However, in no event may
an Award be granted under the Plan on or after March 31, 2006.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1. "AWARD" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares or Performance Units.
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<PAGE> 4
2.2. "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.3. "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4. "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.5. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
2.6. "COMMITTEE" means the Compensation Committee of the Board, as
specified in Article 3 herein, or such other Committee appointed by the Board
pursuant to Section 3.1 to administer the Plan with respect to grants of
Awards.
2.7. "COMPANY" means Associates First Capital Corporation, a Delaware
corporation, including any and all Subsidiaries, and any successor thereto as
provided in Article 18 herein.
2.8. "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.9. "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan, or if no such plan exists,
at the discretion of the Committee.
2.10. "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.11. "EMPLOYEE" means any full-time, active employee of the Company.
Directors who are not employed by the Company shall not be considered Employees
under this Plan.
2.12. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.13. "FAIR MARKET VALUE" shall be determined on the basis of the closing
sale price at which shares have been sold regular way on the principal
securities exchange on which the Shares are traded on the relevant date or, if
there is no sale on the relevant date, then on the last previous day on which
there was such a sale.
2.14. "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
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2.15. "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.16. "INSIDER" shall mean an individual who is, on the relevant date, an
officer, director or beneficial owner of ten percent (10%) or more of any class
of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.17. "NAMED EXECUTIVE OFFICER" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.18. "NONEMPLOYEE DIRECTOR" means an individual who is a member of the
Board of Directors of the Company but who is not an Employee of the Company.
2.19. "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.20. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.21. "OPTION PRICE" means the price at which a Share may be purchased by
a Participant pursuant to an Option.
2.22. "PARTICIPANT" means an Employee who has outstanding an Award granted
under the Plan. The term "Participant" shall not include Nonemployee Directors.
2.23. "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.24. "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 herein.
2.25. "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.
2.26. "PERIOD OF RESTRICTION" means the period during which the transfer
of Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Article 8 herein.
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<PAGE> 6
2.27. "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.28. "RESTRICTED STOCK" means an Award granted to a Participant pursuant
to Article 8 herein.
2.29. "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified retirement plan.
2.30. "SHARES" means the shares of Class A common stock of the Company.
2.31. "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant to the
terms of Article 7 herein.
2.32. "SUBSIDIARY" means any corporation, partnership, joint venture, or
other entity in which the Company has a majority voting interest (including all
divisions, affiliates, and related entities), provided that for ISOs
"Subsidiary" has the meaning set forth in Code Section 422.
2.33. "TANDEM SAR" means an SAR that is granted in connection with a
related Option pursuant to Article 7 herein, the exercise of which shall
require forfeiture of the right to purchase a Share under the related Option
(and when a Share is purchased under the Option, the Tandem SAR shall similarly
be canceled).
ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered initially by a
committee appointed by the Board. After the initial public offering of Shares
in 1996, the Plan shall be administered by the Compensation Committee of the
Board consisting of not less than two (2) Directors who meet the "disinterested
administration" requirements of Rule 16b-3 under the Exchange Act, or by any
other Committee appointed by the Board, provided the members of such Committee
meet such requirements.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to determine which
Employees shall be granted Awards under the Plan; determine the sizes and types
of Awards; determine the terms and conditions of Awards in a manner consistent
with the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan as they apply to Employees; establish, amend, or
waive rules and regulations for the Plan's administration as they apply to
Employees; and (subject to the provisions of Article 14 herein) amend the terms
and conditions of any outstanding Award to the extent such terms and conditions
are within the discretion of the Committee as provided in the Plan. Further,
the Committee shall make all other determinations which may be necessary or
advisable for
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<PAGE> 7
the administration of the Plan, as the Plan applies to Employees. As permitted
by law, the Committee may delegate its authority as identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants, and their
estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.3 herein, the maximum number of Shares with respect to
which Awards may be granted to Participants under the Plan shall be four
percent (4%) of the Company's total outstanding shares of all classes of common
stock of the Company as of the tenth (10th) day following the first day that
the Company issues Shares pursuant to its initial public offering. Shares
issued under the Plan may be either authorized but unissued Shares (subject to
a maximum of Shares), treasury Shares or any combination thereof. Any
Shares to be issued under this Plan in addition to the maximum number stated in
the immediately preceding sentence will be obtained by the Company either
through the application of Section 4.2 hereunder or from treasury Shares (to
the extent that the Company is permitted by applicable law to acquire Shares).
4.2. LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason without the issuance of Shares or
payment in respect therefor (with the exception of the termination of a Tandem
SAR upon exercise of the related Option, or the termination of a related Option
upon exercise of the corresponding Tandem SAR), any Shares subject to such
Award again shall be available for the grant of an Award under the Plan to the
fullest extent permitted under Rule 16b-3 of the Exchange Act and Sections 422
and 162(m) of the Code.
4.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, stock dividend or combination
of shares or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization (whether or not such reorganization comes
within the definition of such term in Code Section 368) or any partial or
complete liquidation of the Company, such adjustment shall be made in the
number and class of Shares which may be delivered under Section 4.1, in the
number and class of and/or price of Shares subject to outstanding Awards
granted under the Plan, and in the Award limits set forth in subsections 4.1(a)
and 4.1(b), as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that the number of Shares subject to any Award shall
always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan include
officers and certain key salaried Employees of the Company with potential to
contribute to the
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success of the Company or its Subsidiaries, including Employees who are members
of the Board.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6. STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Employees in such number, and upon such terms, and at
any time and from time to time as shall be determined by the Committee.
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO whose grant is intended not to fall under the provisions of Code Section
422.
6.3. OPTION PRICE. The Option Price for each grant of an Option under
this Plan shall be at least equal to one hundred percent (100%) of the Fair
Market Value of a Share on the date the Option is granted, except that initial
grants made under the Plan concurrent with or contingent upon the consummation
of the initial public offering of Shares in 1996 may be granted with an
exercise price equal to the initial public offering price of Shares covered by
such initial public offering.
6.4. DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than the tenth
(10th) anniversary date of its grant.
6.5. EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant.
6.6. PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), or (c) by a combination of
(a) and (b).
6
<PAGE> 9
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, the Company
shall deliver to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares purchased under the
Option(s).
6.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on the transfer of any Shares acquired pursuant to the exercise of
an Option granted under this Article 6 as it may deem advisable, including,
without limitation, restrictions under applicable Federal securities laws,
under the requirements of any stock exchange or market upon which such Shares
are then listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8. TERMINATION OF EMPLOYMENT. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant's employment with
the Company. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for termination of
employment.
6.9. NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such
Participant or the Participant's legal guardian or representative.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6
may be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a
Participant's Award Agreement, all NQSOs granted to a Participant
under this Article 6 shall be exercisable during his or her lifetime
only by such Participant or the Participant's legal guardian or
representative.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
may be granted to Employees at any time and from time to time as shall be
determined by the
7
<PAGE> 10
Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any
combination of these forms of SAR.
The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market Value of
a Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
7.2. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the
right to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related Option
is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one
hundred percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the
underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the Shares subject to
the ISO exceeds the Option Price of the ISO.
7.3. EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.
7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.5. TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed ten (10) years.
7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date
of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
8
<PAGE> 11
At the discretion of a Participant, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof, subject to
the availability of Shares to the Company.
7.7. RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on exercise of an SAR
(including, without limitation, the right of the Committee to limit the time of
exercise to specified periods) as may be required to satisfy the requirements
of any exemption from the liability provisions of Section 16 of the Exchange
Act (or any successor rule).
7.8. TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company or a
Subsidiary. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with a
Participant, need not be uniform among all SARs issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of
employment.
7.9. NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant or the Participant's legal guardian or representative.
ARTICLE 8. RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees in such amounts as the Committee shall determine.
8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine.
8.3. TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified in
the Restricted Stock Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
9
<PAGE> 12
8.4. OTHER RESTRICTIONS. Subject to Article 11 herein, the Committee
shall impose such other conditions and/or restrictions on any Shares of
Restricted Stock granted pursuant to the Plan as it may deem advisable
including, without limitation, a requirement that Participants pay a stipulated
purchase price for each Share of Restricted Stock, restrictions based upon the
achievement of specific performance goals (Company-wide, divisional, and/or
individual), time-based restrictions on vesting following the attainment of the
performance goals, and/or restrictions under applicable Federal or state
securities laws.
The Company or its designee shall retain the certificates representing
Shares of Restricted Stock in the Company's possession until such time as all
conditions and/or restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
8.5. VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares.
8.6. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate. Without limiting the generality
of the preceding sentence, if the grant or vesting of Restricted Shares granted
to a Named Executive Officer is designed to comply with the requirements of the
Performance-Based Exception, the Committee may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such
Restricted Shares, such that the dividends and/or the Restricted Shares
maintain eligibility for the Performance-Based Exception.
In the event that any dividend constitutes a "derivative security" or an
"equity security" pursuant to Rule 16(a) under the Exchange Act, such dividend
shall be subject to a vesting period equal to the remaining vesting period of
the Shares of Restricted Stock with respect to which the dividend is paid.
8.7. TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement
shall set forth the extent to which the Participant shall have the right to
receive unvested Restricted Shares following termination of the Participant's
employment with the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Shares of Restricted
Stock issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination of employment; provided, however that, except in the
cases of terminations by the Company connected with a Change in Control (as
defined in the Award Agreement) and terminations by reason of death or
Disability,
10
<PAGE> 13
the vesting of Shares of Restricted Stock which qualify for the
Performance-Based Exception and which are held by Named Executive Officers
shall occur at the time they otherwise would have, but for the employment
termination.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Employees in such
amounts and upon such terms, and at any time and from time to time, as shall be
determined by the Committee.
9.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have
an initial value that is established by the Committee at the time of grant.
Each Performance Share shall have an initial value equal to the Fair Market
Value of a Share on the date of grant. The Committee shall set performance
goals in its discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance Units/Shares that will be
paid out to the Participant. For purposes of this Article 9, the time period
during which the performance goals must be met shall be called a "Performance
Period."
9.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the number and
value of Performance Units/Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance goals have been achieved.
9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/ SHARES. Payment of
earned Performance Units/Shares shall be made in a single lump sum as soon as
practicable following the close of the applicable Performance Period. Subject
to the terms of this Plan, the Committee, in its sole discretion, may pay
earned Performance Units/Shares in the form of cash or in Shares (or in a
combination thereof) which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares at the close on the last day of
the applicable Performance Period. Such Shares may be granted subject to any
restrictions deemed appropriate by the Committee.
At the discretion of the Committee, Participants may be entitled to receive
dividend equivalents payable in cash representing any dividends declared with
respect to Shares in connection with grants of Performance Units and/or
Performance Shares which have not yet been distributed to Participants (such
equivalents shall be subject to the same accrual, forfeiture, and payout
restrictions as apply to dividends earned with respect to Shares of Restricted
Stock, as set forth in Section 8.6 herein).
9.5. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
Unless determined otherwise by the Committee and set forth in the Participant's
Award Agreement, in the event the employment of a Participant is terminated by
reason of death, Disability, or Retirement during a Performance Period, the
Participant shall receive a
11
<PAGE> 14
payout of the Performance Units/Shares which is prorated, as specified by the
Committee in its discretion.
Payment of earned Performance Units/Shares shall be made at a time
specified by the Committee in its sole discretion and set forth in the
Participant's Award Agreement. Notwithstanding the foregoing, with respect to
Named Executive Officers who retire during a Performance Period, payments shall
be made at the same time as payments are made to Participants who did not
terminate employment during the applicable Performance Period.
9.6. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment terminates for any reason other than those reasons set
forth in Section 9.5 herein, all Performance Units/Shares shall be forfeited by
the Participant to the Company unless determined otherwise by the Committee, as
set forth in the Participant's Award Agreement.
9.7. NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. Further, except as otherwise
provided in a Participant's Award Agreement, a Participant's rights under the
Plan shall be exercisable during the Participant's lifetime only by the
Participant or the Participant's legal representative.
ARTICLE 10. PERFORMANCE MEASURES
Unless and until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance measures set forth in
this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Named Executive Officers which are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such grants of Awards shall be chosen
from among profits, net income (either before or after taxes), share price,
earnings per share, total shareholder return, return on assets, return on
equity, operating income, return on capital or investments or economic value
added.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are made to or held by Named Executive Officers, may not
be adjusted upward (the Committee shall retain the discretion to adjust such
Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
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ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 12. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock, or the satisfaction of any requirements or goals with respect to
Performance Units/Shares. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
ARTICLE 13. RIGHTS OF EMPLOYEES
13.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of
the Company.
13.2. PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1. AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 14.3,
the Board may at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part; provided, however, that no amendment
which requires shareholder approval in order for the Plan to continue to comply
with Rule 16b-3 under the Exchange Act, including any successor to such Rule,
shall be effective unless such amendment shall be approved by the requisite
vote of shareholders of the Company entitled to vote thereon.
14.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. Subject to Section 14.3, the Committee may make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4.3 hereof) affecting the Company
or the financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution
13
<PAGE> 16
or enlargement of the benefits or potential benefits intended to be made
available under the Plan; provided that no such adjustment shall be authorized
to the extent that such authority would be inconsistent with the Plan's meeting
the requirements of Section 162(m) of the Code, as from time to time amended.
14.3. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
14.4. COMPLIANCE WITH CODE SECTION 162(M). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Committee may, subject to this
Article 14, make any adjustments it deems appropriate.
ARTICLE 15. WITHHOLDING
15.1. TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
15.2. SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event arising as a result of Awards granted
hereunder, Participants may elect, subject to the approval of the Committee, to
satisfy the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the statutory total tax (using the Federal Supplemental
wage rate, and state or local equivalent as well as any FICA or Medicare taxes)
which could be imposed on the transaction. All such elections shall be
irrevocable, made in writing, signed by the Participant, and shall be subject
to any restrictions or limitations that the Committee, in its sole discretion,
deems appropriate.
ARTICLE 16. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
14
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ARTICLE 17. LEGAL CONSTRUCTION
17.1. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
17.2. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
17.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.4. SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
17.5. GOVERNING LAW. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Texas.
15
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-817) of our report dated January 26, 1996, except for Note 18, as
to which the date is February 8, 1996, on our audits of the supplemental
combined financial statements of Associates First Capital Corporation and
Subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 27, 1996
<PAGE> 1
Exhibit 99 Form of Credit Agreement among the Company and Various Banks
======================================================================
U.S. $1,500,000,000
CREDIT AGREEMENT
AMONG
ASSOCIATES FIRST CAPITAL CORPORATION,
DEUTSCHE BANK AG
as Administrative Agent,
UNION BANK OF SWITZERLAND,
as Syndication Agent
COMMERZBANK AG
as Documentation Agent
and
THE SEVERAL BANKS NAMED HEREIN,
Dated as of March 31, 1996.
======================================================================
<PAGE> 2
TABLE OF CONTENTS*
<TABLE>
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2. AMOUNT AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1. The Commitments and the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2. Procedure for Borrowing and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3. TERMS OF UNCOMMITTED ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1. The Uncommitted Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2. Procedure for Borrowing and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3. Interest on Uncommitted Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. ADDITIONAL TERMS RELATING TO LOANS AND UNCOMMITTED ADVANCES . . . . . . . . . . . . 13
4.1. Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2. Change in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4. Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5. Facility, Utilization, Participation, Arrangement and Agency Fees . . . . . . . . . . . . . 15
4.6. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.8. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.9. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.10. Taxes on Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.11. Additional Action in Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.12. Indemnity for Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13. Purpose of Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.14. Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.1. Conditions of Initial Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2. Conditions to All Borrowings; Repetition of Representations . . . . . . . . . . . . . . . . 26
SECTION 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 9. THE AGENT; THE SYNDICATION AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.1. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.2. Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.4. Reliance by Agent, Syndication Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
9.6. Non-Reliance on Agent or Syndication Agent and Other Banks . . . . . . . . . . . . . . . . . 35
9.7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.8. Agent in its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.9. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.2. Expenses; Stamp Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.5. Successors and Assigns; Lending Offices; Lending Affiliates; Additional Banks . . . . . . . 40
10.6. Proration of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.8. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.9. Survival of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.10. No Third Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.12. Jurisdiction; Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.13. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.14. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.15. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.16. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
2
<PAGE> 4
CREDIT AGREEMENT, dated as of March 31, 1996, among ASSOCIATES FIRST
CAPITAL CORPORATION, a corporation organized under the laws of the State of
Delaware, United States of America, whose principal office is located at 250
East Carpenter Freeway, Irving, Texas 75062-2729, United States of America,
(the "Company"), the several banks which are parties hereto from time to time
(individually, a "Bank" and, collectively, the "Banks"), Union Bank of
Switzerland, as syndication agent (the "Syndication Agent"), Commerzbank AG, as
documentation agent (the "Documentation Agent"), and Deutsche Bank AG as
administrative agent for the Banks (in such capacity, the "Agent").
The parties to this Agreement hereby agree as follows:
SECTION 1. DEFINITIONS
1.1. DEFINED TERMS
As used in this Agreement, the following terms shall have the
following meanings:
"ACONA" shall mean Associates Corporation of North America, a Delaware
corporation.
"ACONA Agreement" shall mean the Credit Agreement, dated as of March
31, 1996, among ACONA, the Banks, Union Bank of Switzerland, as
syndication agent, Commerzbank AG, as documentation agent, and
Deutsche Bank AG, as administrative agent.
"Agreement" shall mean this Credit Agreement, as the same may be
amended, supplemented or modified from time to time.
"Applicable Laws" shall have the meaning as defined in Section 7.6.
"Base Rate" for any day shall mean the higher of (a) the rate of
interest announced by Deutsche Bank AG (or the successor Agent) in New
York City, New York from time to time as its prime rate (or in the
case of any successor Agent, its prime rate or other similar base
rate) (such prime rate, or other rate as the case may be, is not
intended to be the lowest rate of interest charged by Deutsche Bank AG
(or the successor Agent) in connection with extensions of credit to
debtors) and (b) the rate determined by Deutsche Bank AG (or the
successor Agent) to be the Federal Funds Rate plus 0.50% per annum.
"Base Rate Loans" shall mean those Loans (or portion thereof) as to
which interest is determined by reference to the Base Rate as elected
by the Company from time to time.
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<PAGE> 5
"Board" shall have the meaning as defined in subsection 4.9(c).
"Borrowing Date" shall mean the Business Day requested by the Company
in its notice of borrowing pursuant to sections 2.2 or 3.2 as the date
for the making of the relevant Loan or Uncommitted Advance.
"Business Day" shall mean a day on which dealings in U.S. Dollars
between banks may be carried on in London and New York, New York and a
day on which banks are open for business in London and are not
required or authorized to close in New York City.
"Commitment" shall mean, with respect to any Bank, the amount
designated as such set forth opposite the name of such Bank on the
signature pages hereof or, if applicable, in the Commitment Register,
and as such amount may be reduced or terminated as provided in this
Agreement; and "Commitments" shall mean the aggregate amount of the
Commitments of all Banks.
"Commitment Register" shall have the meaning as defined in subsection
10.5(f).
"Consolidated Subsidiary" shall mean every Subsidiary except any
Subsidiary the accounts of which are, with the approval of the
independent public accountants of the Company, excluded from the
consolidated financial statements of the Company, but any such
Subsidiary shall be deemed not to constitute a Consolidated Subsidiary
only during any period or periods for which its accounts are so
excluded.
"Dollars" and the sign "$" shall mean freely transferable lawful money
of the United States of America.
"Effective Date" shall mean March 31, 1996.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" shall have the meaning as defined in Section 8.
"Federal Funds Rate" means, for any period,
(a) a fluctuating interest rate per annum equal for each
day during such period to the weighted average of the rates on
overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as
2
<PAGE> 6
published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York;
or
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 11:00
a.m., New York time, for such day on such transactions received by
Deutsche Bank AG, from three federal funds brokers of recognized
standing selected by it.
"Finance Business" shall mean the business of making loans, extending
credit or providing financial accommodations to any person and such
activities as may be incidental thereto, including, but not limited
to: the purchase of obligations growing out of the sale or lease of
all types of consumer, commercial and industrial property; the making
of loans to individuals and business enterprises, including the
extension of wholesale or floor plan accommodations to permit
distributors and dealers to carry inventories of durable goods for
resale; factoring; leasing of tangible personal property to others;
mortgage brokerage and servicing; and other business of a similar
character to the extent that other companies similarly situated,
within the limits of sound trade practice, may have heretofore engaged
or may hereafter engage in such other business; but not including the
business of a federally insured deposit taking institution.
"Finance Subsidiary" shall mean a Subsidiary primarily engaged in the
Finance Business."
"Indebtedness" of any person shall mean all items (other than
stockholders' equity) which in accordance with generally accepted
accounting principles would be included in determining total
liabilities as shown on the liability side of a balance sheet of such
person as of the date on which such Indebtedness is to be determined.
"Interest Period" shall mean, with respect to any LIBOR Loan or any
Uncommitted Advance, the period commencing on the Borrowing Date with
respect to such Loan or Uncommitted Advance and ending on the Maturity
Date for such Loan or Uncommitted Advance; provided that Interest
Periods in respect of LIBOR Loans and Uncommitted Advances (or
portions thereof) not paid on their respective Maturity Dates shall,
for purposes of determining LIBOR, be such periods of one, two, three,
six, nine or twelve months' duration as the Agent shall select in its
sole discretion (the interest rate referred to in this proviso to be
recalculated and adjusted at the end of each such Interest Period for
the next succeeding Interest Period selected by the Agent).
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<PAGE> 7
"Interest Rate" shall mean either the Base Rate or LIBOR, as the case
may be, which the Company may elect with respect to Loans as provided
in this Agreement.
"Lending Affiliate" shall have the meaning as defined in subsection
10.5(c).
"Lending Office" shall mean, with respect to any Bank, (a) initially,
its office and that of its Lending Affiliate, if any, designated in
Schedule 1 as the office at which such Bank's Loans and/or Uncommitted
Advances will be maintained and for the account of which all payments
of principal of, and interest on, such Bank's Loans and/or Uncommitted
Advances will be made and (b) subsequently, such other office of such
Bank as it may designate to the Agent pursuant to subsection 10.5(b)
as the office at which such Bank's Loans and/or Uncommitted Advances
will thereafter be maintained and for the account of which all
payments of principal of, and interest on, such Bank's Loans and/or
Uncommitted Advances will thereafter be made.
"LIBOR" shall mean, with respect to any Interest Period for any LIBOR
Loan, a rate per annum equal to the average (rounded upward if
necessary to the nearest 1/16 of 1% per annum) of the respective rates
per annum notified to the Agent on the second Business Day prior to
the commencement of such Interest Period by the principal New York
City office of each Reference Bank as the rate at which deposits in
Dollars are offered by each such Reference Bank to prime banks in the
London interbank market for delivery for same day value on the first
day of such Interest Period and for the number of months or days
comprised therein in an amount approximately equal to the amount of
the Loan of such Reference Bank to be outstanding during such Interest
Period.
"LIBOR Loans" shall mean those Loans (or portion thereof) as elected
by the Company as to which the rate of interest is determined by
reference to LIBOR as elected by the Company for an Interest Period
from time to time.
"Loans" shall mean each amount which each Bank advances to the Company
pursuant to subsection 2.1(a).
"Majority Banks" shall mean Banks to which at least 66 2/3% of the
aggregate unpaid principal amount of the Loans are owing or, if no
Loans shall be outstanding at the time of determination, Banks having
at least 66 2/3% of the aggregate amount of the Commitments.
"Margin" shall mean 0.10 percent (0.10%) per annum.
4
<PAGE> 8
"Maturity Date" shall mean (a) for a LIBOR Loan a day numerically
corresponding to the Borrowing Date for such Loan one month, two
months, three months, six months, nine months or twelve months from
such Borrowing Date as the Company shall elect in a notice of
borrowing pursuant to subsection 2.2(a) and, in the case of Maturity
Dates of nine or twelve months from such Borrowing Date, for which the
Agent and the Banks have determined that funding is available in
accordance with said subsection, (b) for a Base Rate Loan the Business
Day selected by the Company as the Maturity Date for such Base Rate
Loan in a notice of borrowing pursuant to subsection 2.2(a), which in
no event shall be later than the 30th day following the Borrowing Date
for such Base Rate Loan and (c) for an Uncommitted Advance the
Business Day selected by the Company as the Maturity Date for such
Uncommitted Advance in a notice of borrowing pursuant to subsection
3.2(a), which in no event shall be shorter than 7 days or longer than
180 days following the Borrowing Date for such Uncommitted Advance;
provided that (x) in the event that any Maturity Date for a Loan or
Uncommitted Advance would otherwise be a day which is not a Business
Day or in the event that a Maturity Date for a Loan or Uncommitted
Advance shall be specified to be a day which, subsequent to such
specification, ceases to be a Business Day, such Maturity Date shall
be extended to the next succeeding Business Day unless, in the case of
a Loan or Uncommitted Advance, such Business Day falls in another
calendar month, in which case such Maturity Date shall be the next
preceding Business Day, and any extension of time pursuant to this
clause with respect to any payment of principal shall be included in
computing interest in connection with such payment, (y) any Maturity
Date for a Loan or Uncommitted Advance which falls on a day for which
there is no numerically corresponding day in the relevant calendar
month shall fall on the last Business Day of such calendar month and
(z) any Maturity Date for a Loan or Uncommitted Advance which would
otherwise fall on a day after the Termination Date shall fall on the
last Business Day which is or immediately precedes the Termination
Date.
"New Company" shall have the meaning as defined in Section 7.4.
"Optional Majority Banks" shall have the meaning as defined in
Section 8.
"Purchasing Bank" shall have the meaning as defined in subsection
10.5(d).
"Reference Banks" shall mean Union Bank of Switzerland, Deutsche Bank
AG and Commerzbank AG.
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<PAGE> 9
"Significant Subsidiary" shall mean a Subsidiary that meets all of the
following tests:
(a) The Company's and other Subsidiaries' investments in
and advances to, or their proportionate share of the total
assets (after intercompany eliminations) of, such Subsidiary
exceeds 15 percent (15%) of the total assets as shown by the
most recent consolidated balance sheet of the Company and
its Consolidated Subsidiaries;
(b) The total revenues (after intercompany eliminations)
of such Subsidiary reduced to the percentage of equity
interest held by the Company and its other Subsidiaries in
such Subsidiary exceeds 20 percent (20%) of the total
revenues as shown by the most recent consolidated income
statement of the Company and its Consolidated Subsidiaries;
and
(c) The Company's and other Consolidated Subsidiaries'
equity in the income before taxes and extraordinary items of
such Subsidiary exceeds 20 percent (20%) of such income of
the Company and Consolidated Subsidiaries for the most
recent fiscal year; provided that, if such income of the
Company and its Consolidated Subsidiaries for the last
fiscal year is at least 10 percent (10%) lower than the
average of such income for the last five fiscal years, such
average income may be substituted in the determination.
"Subsidiary" shall mean a corporation more than 50 percent (50%) of
the stock of which is directly or indirectly owned by the Company or
its Subsidiaries.
"Substituted Bank" shall have the meaning as defined in subsection
10.5(e).
"Termination Date" shall mean April 1, 1999, or such earlier date as
the Commitments shall terminate as provided in this Agreement.
"Uncommitted Advances" shall mean each amount which each Bank advances
to the Company pursuant to subsection 3.1.
1.2. OTHER DEFINITIONAL PROVISIONS
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto.
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<PAGE> 10
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting terms relating to the Company not defined
in subsection 1.1, and accounting terms partly defined in subsection 1.1 to the
extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles in the United States in effect from
time to time.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified. Unless the context otherwise requires, words denoting the
singular only shall include the plural and vice versa.
SECTION 2. AMOUNT AND TERMS OF LOANS
2.1. THE COMMITMENTS AND THE LOANS
(a) Subject to the terms and upon the conditions of this Agreement,
each Bank severally agrees to make Loans in Dollars through its Lending Office
to the Company from time to time during the period from, and including the
Effective Date, to, but excluding the Termination Date (individually, a "Loan"
and, collectively for all the Banks, the "Loans"), in an aggregate principal
amount at any one time outstanding, not to exceed, when added to the aggregate
principal amount of Uncommitted Advances made by it under this Agreement, and
Loans and Uncommitted Advances made by it under the ACONA Agreement, which are
then outstanding or to be outstanding on the Borrowing Date, the amount of its
Commitment at such time, with the Commitments of all the Banks not to exceed
$1,500,000,000.
(b) The Company may borrow, repay and reborrow hereunder subject to
the conditions and terms hereof.
(c) The Commitments shall terminate on the Termination Date, unless
terminated earlier in accordance with this Agreement.
2.2. PROCEDURE FOR BORROWING AND DISBURSEMENT
(a) The Company may request the making of Loans by giving the Agent
prior irrevocable notice of each borrowing pursuant to this subsection 2.2(a)
specifying (i) the Borrowing Date for such Loans, (ii) the aggregate amount of
the Loans requested to be made on such Borrowing Date which shall be at least
$10,000,000 and an integral multiple of $5,000,000 in excess thereof, and
which, when added to the aggregate principal amount of all Loans outstanding
hereunder and under the ACONA Agreement and the aggregate principal
7
<PAGE> 11
amount of the Uncommitted Advances hereunder and under the ACONA Agreement to
be outstanding on such Borrowing Date shall not exceed the Commitments on such
Borrowing Date, (iii) the Interest Rate selected by the Company and (iv) the
Maturity Date for such Loans as the Company shall select; provided that the
Company shall give the Agent such prior irrevocable notice (w) by 10:00 a.m.
(New York time) on the Borrowing Date when requesting Base Rate Loans, (x) by
11:00 a.m. (New York time) three Business Days prior to the Borrowing Date when
requesting LIBOR Loans hereunder having a duration of one, two, three or six
months, and (y) by 10:00 a.m. (New York time) four Business Days prior to the
Borrowing Date when requesting LIBOR Loans having a duration of nine or twelve
months. Upon receiving any such notice of borrowing, the Agent shall promptly
notify, and in any event on the same day, each Bank of the contents thereof and
of the principal amount of the Loan which such Bank shall be required to make
on the relevant Borrowing Date. In the event that the Company has requested a
LIBOR Loan of nine or twelve months' duration, each Bank shall notify the Agent
by facsimile or telex by 10:00 a.m. (New York time) on the date which is three
Business Days prior to the requested Borrowing Date if funds are not available
to such Bank on reasonable terms in the London interbank eurocurrency market
for such period. In the event that any Bank shall so notify the Agent, the
Company shall be deemed to have requested LIBOR Loans of six months duration
from all of the Banks and the Agent shall promptly notify the Banks thereof.
(b) Unless such Bank's Commitment on any Borrowing Date shall have
been terminated in accordance with the terms of this Agreement, each Bank shall
make available for the account of its Lending Office, on each Borrowing Date,
the amount of its Loan to be made on such Borrowing Date to the Agent not later
than 10:00 a.m. (New York time) in the case of LIBOR Loans and 12:00 noon (New
York time) in the case of Base Rate Loans to: Deutsche Bank AG, New York
Branch, ABA: 026 003 780, Account Name: Syndication Clearing Account, Account
Number: 100440240008, Ref: Associates First Capital Corporation, in Dollars
and in funds with same day value. Subject to the satisfaction of the
conditions set forth in Section 6, the Agent shall make available to the
Company on each Borrowing Date, the aggregate of the amounts so received by it
in like funds by credit not later than 12:00 noon (New York time) in the case
of LIBOR Loans and 2:00 p.m. (New York time) in the case of Base Rate Loans to:
The Account of Associates First Capital Corporation, at The First National Bank
of Chicago, Account #5389178, ABA #071 000 013, Reference: Associates, or to
such other account as the Company may direct; provided, however, that if the
Agent shall receive less than all the amounts payable by the Banks in
accordance with this Section 2.2 the Agent shall make available to the Company
as aforesaid such aggregate principal
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<PAGE> 12
amount as it shall actually have received, or at its option such greater amount
in accordance with subsection 4.6(b).
2.3. INTEREST ON LOANS
(a) Each Loan shall bear interest on the unpaid principal amount
thereof from the Borrowing Date until paid in full (both before and after
judgment) at a rate per annum equal to (1) for the Base Rate Loans, the Base
Rate, and (2) for LIBOR Loans, for any Interest Period, the sum of LIBOR and
the Margin. Interest on each Loan shall be payable (i) in the case of Base
Rate Loans, on the Maturity Date, (ii) in the case of LIBOR Loans, the
applicable Maturity Date of the LIBOR Loan, or if the Maturity Date is in
excess of three months from the Borrowing Date of such LIBOR Loan, interest
shall also be payable on the expiration of each three-month period from such
Borrowing Date, provided that, if any such date is not a Business Day, such
payment shall be made on the next succeeding Business Day unless such Business
Day falls in another calendar month, in which case such payment shall be made
on the preceding Business Day.
(b) Promptly after each determination of LIBOR, the Agent shall
notify the Company and the Banks of the rate of interest applicable to, and the
amount of interest payable for, each Interest Period for each such LIBOR Loan.
For Base Rate Loans, any change in the interest rate resulting from a change in
the Base Rate shall become effective as of the opening of business on the day
on which such change in the Base Rate is announced. The Agent shall also
notify the Company and the Banks of the effective date and the Base Rate on the
occurrence of each change in the Base Rate, provided, however, that the failure
to promptly give any such notice shall not affect the effective date of such
change in the Base Rate or the obligation of the Company to pay same. Interest
on Base Rate Loans shall be computed at the Base Rate based on a 365 or 366-day
year, as the case may be, for the actual number of days each Base Rate Loan is
outstanding. Interest on LIBOR Loans shall be computed at the per annum rate
for LIBOR specified in subsection 2.3(a) based on a 360-day year for the actual
number of days in the Interest Period. The determination set forth in such
notices shall be conclusive in the absence of manifest error.
SECTION 3. TERMS OF UNCOMMITTED ADVANCES
3.1. THE UNCOMMITTED ADVANCES
(a) From time to time during the period from and including the
Effective Date to but excluding the Termination Date, and subject to the terms
and upon the conditions of this Agreement, the Company may request the Banks to
bid to make Uncommitted Advances. Each Bank which at its option submits a bid
to make an Uncommitted Advance to the Company and has received a notice
pursuant to subsection 3.2(g) agrees to make an Uncommitted
9
<PAGE> 13
Advance through its Lending Office to the Company (individually, an
"Uncommitted Advance" and, collectively for all the Banks, the "Uncommitted
Advances") in such amount as notified to such Bank in the notice delivered
pursuant to subsection 3.2(g), but in no event to exceed the amount requested
by the Company in its notice of borrowing pursuant to subsection 3.2(a);
provided, however, in no event may the aggregate outstanding principal amount
of Loans and Uncommitted Advances made pursuant to this Agreement and the ACONA
Agreement exceed the Commitments.
(b) The Company may borrow, repay and reborrow hereunder subject to
the conditions and terms hereof.
3.2. PROCEDURE FOR BORROWING AND DISBURSEMENT
(a) The Company may request the Banks to submit bids for the making
of Uncommitted Advances by giving the Agent prior notice of each borrowing
pursuant to this subsection 3.2(a) by 10:00 a.m. (New York time) two Business
Days before the proposed Borrowing Date, specifying (i) the Borrowing Date for
such Uncommitted Advances, (ii) the aggregate amount of the Uncommitted
Advances requested to be made on such Borrowing Date, which shall be at least
$10,000,000 and an integral multiple of $5,000,000 in excess thereof, and (iii)
the Maturity Dates for such Uncommitted Advances as the Company shall select
which shall be not less than 7 days and shall not exceed 180 days from the
Borrowing Date; provided that the Company may not request more than three
Maturity Dates in bid requests made during any one Business Day. The Agent
shall promptly notify each Bank of the contents of such notice by the Company.
(b) Each Bank may irrevocably bid to make all or a portion of the
Uncommitted Advances requested by the Company in its notice of borrowing
pursuant to subsection 3.2(a) by giving the Agent an irrevocable bid, not later
than 12:00 noon (New York time) (11:00 a.m. [New York time] in the case of a
bid by the Bank which is the Agent) one Business Day before the Borrowing Date,
specifying (i) the aggregate principal amount of the Uncommitted Advances
requested by the Company which it bids to make, which shall be at least
$1,000,000 and an integral multiple of $1,000,000 in excess thereof, and (ii)
the per annum rate of interest to be in effect for the entire term of the
Uncommitted Advance.
(c) Any bid made by a Bank pursuant to subsection 3.2(b) shall be
irrevocable and each Bank agrees that if any bid made by it is accepted in
whole or in part it will make an Uncommitted Advance on the proposed Borrowing
Date in an aggregate principal amount equal to the aggregate principal amount
of the Uncommitted
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<PAGE> 14
Advances for which its bid is accepted as notified to such Bank pursuant to
subsection 3.2(g).
(d) The Agent shall give notice to the Company of bids made by the
Banks pursuant to subsection 3.2(b) no later than 1:00 p.m. (New York time)
one Business Day before the proposed Borrowing Date.
(e) No later than 3:00 p.m. (New York time) one Business Day before
the proposed Borrowing Date the Company shall notify the Agent by telephone
(confirmed by facsimile) which bids, if any, it wishes to accept in whole or in
part, in accordance with subsection 3.2(f), provided, however, that bids
accepted in part shall be in a minimum principal amount of $500,000 and greater
integral multiples of $100,000.
(f) The Company, in consultation with the Agent, shall accept bids
in whole or in part (which acceptance shall be irrevocable) on the following
basis:
(i) Bids shall be ranked on the basis of lowest to highest
per annum rates of interest and the Company shall accept the lowest
per annum rates of interest first and thereafter successively higher
per annum rates of interest until the aggregate principal amount of
Uncommitted Advances requested by the Company in its notice of
borrowing pursuant to subsection 3.2(a) is reached; provided that in
the event that bids are made by two or more Banks at the same per
annum rate of interest for a greater principal amount of Uncommitted
Advances than the amount in respect of which such bids are accepted at
that per annum rate of interest then the principal amount of the
Uncommitted Advances in respect of which such bids are accepted shall
be allocated between such Banks by the Agent in such amounts as it may
in its absolute discretion decide as being as nearly as may be in
proportion to the respective principal amounts of Uncommitted Advances
for which bids were made by such Banks at such per annum rates of
interest but rounded up or down as may be necessary to a multiple of
the minimum denomination of the Uncommitted Advances to be made on the
same Borrowing Date; and provided, further, that the Company shall
have the right to reject any or all bids made by the Banks in the
order of the highest to lowest per annum rates of interest; and
(ii) the Company may not accept bids for Uncommitted
Advances in an aggregate principal amount greater than that requested
by the Company in the notice of borrowing pursuant to subsection
3.2(a).
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(g) The Agent shall promptly notify (with a copy to the Company)
each Bank which has made a bid whether its bid has been accepted, and whether
in whole or in part, specifying the principal amount of the Uncommitted
Advances in respect of which its bid has been accepted, the applicable per
annum rates of interest, the aggregate amount of Uncommitted Advances from all
Banks, and the number of Banks having Uncommitted Advances accepted.
(h) Each Bank whose bid for Uncommitted Advances has been accepted
in whole or in part pursuant to subsection 3.2(g) shall make available for the
account of its Lending Office, on each applicable Borrowing Date, the amount of
its Uncommitted Advance to be made on such Borrowing Date in Dollars, not later
than 10:00 a.m. (New York time) to Deutsche Bank AG, New York Branch, ABA: 026
003 780, Account Name: Syndication Clearing Account, Account Number:
100440240008, Ref: Associates First Capital Corporation, in Dollars and in
funds with same day value. Subject to the satisfaction of the conditions set
forth in Section 6, the Agent shall make available to the Company as soon as
practical on the Borrowing Date, the aggregate of the amounts so received by it
in like funds by credit in Dollars, to The Account of Associates First Capital
Corporation, at The First National Bank of Chicago, Account #5389178, ABA #071
000 013, Reference: Associates, or to such other account as the Company may
direct.
(i) After receiving written notice from any Bank or the Company
that an Event of Default under Section 8 has occurred and is continuing, the
Agent shall notify each Bank having Uncommitted Advances outstanding of the
identity of each other Bank having Uncommitted Advances outstanding and the
respective amounts of such Banks' Uncommitted Advances.
3.3. INTEREST ON UNCOMMITTED ADVANCES
(a) Each Uncommitted Advance shall bear interest on the unpaid
principal amount thereof from the Borrowing Date until paid in full (both
before and after judgment) at a rate per annum (computed on the basis of a year
of 360 days for the actual number of days elapsed) equal to the per annum rate
of interest for the Interest Period with respect to such Uncommitted Advance.
Interest on each Uncommitted Advance shall be payable on the Maturity Date with
respect thereto in Dollars, or, if the Maturity Date is in excess of three
months from the Borrowing Date of such Uncommitted Advance, interest shall also
be payable on the expiration of each three-month period from such Borrowing
Date; provided that, if any such date is not a Business Day, such payment shall
be made on the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such payment shall be made on the next
preceding Business Day.
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(b) The Agent shall notify the Company and the relevant Banks of
the rate of interest applicable to, and the amount of interest payable for,
each Interest Period for an Uncommitted Advance promptly after determination of
the rate of interest for such Interest Period.
SECTION 4. ADDITIONAL TERMS RELATING TO LOANS AND UNCOMMITTED ADVANCES
4.1. LOAN ACCOUNTS
(a) Each Bank shall open and maintain in accordance with its usual
practice a loan account or accounts in the name of the Company in which shall
be recorded, in Dollars, the amounts in respect of Loans and Uncommitted
Advances from time to time advanced by, owing to and received or recovered by
such Bank hereunder.
(b) The Agent shall maintain a control account in the name of the
Company in which shall be recorded in Dollars, in accordance with its usual
practice (i) the amount of each Loan and Uncommitted Advance, (ii) the amount
of any other sum falling due hereunder and (iii) the amount of any sum received
or recovered by the Agent for the account of any Bank hereunder.
(c) Failure by the Agent or any Bank to make any notation with
respect to any Loan or Uncommitted Advance, or any error with respect thereto,
shall not limit or otherwise affect the obligations of the Company under this
Agreement with respect to such Loan or Uncommitted Advance. The entries made
in the account of the Agent and each Bank shall, in the absence of manifest
error, be conclusive evidence of the existence of the obligations of the
Company to pay the amounts therein recorded.
(d) Notwithstanding anything to the contrary, any Bank may request
the Company to execute one or more notes to evidence Loans and Uncommitted
Advances pursuant to the terms of this Agreement in such form as such Bank and
the Company shall agree.
4.2. CHANGE IN CIRCUMSTANCES
(a) If, with respect to proposed LIBOR Loans to be made on a
proposed Borrowing Date:
(i) the Agent, after consultation with the Reference Banks, shall
have determined (which determination shall be conclusive and binding
upon all parties hereto) that by reason of circumstances affecting the
London interbank market generally, adequate and reasonable means do
not exist for ascertaining the interest rate applicable to such LIBOR
Loans; or
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(ii) the Agent shall have received notice one Business Day prior to
the proposed Borrowing Date from each of such of the Banks as
constitute the Majority Banks that the interest rate to be applicable
to such Interest Period does not accurately reflect the cost to such
Banks (as conclusively certified by such Banks in writing to the Agent
and to the Company) of making its LIBOR Loans during such Interest
Period; or
(iii) the Agent shall have received notice one Business Day prior to
the proposed Borrowing Date from each of such of the Banks as
constitute the Majority Banks that deposits in Dollars are not
available to such Banks (as conclusively certified by such Banks in
writing to the Agent and to the Company) in the ordinary course of
business in the London interbank market in sufficient amounts to make
its LIBOR Loan;
then the Agent shall forthwith give notice by facsimile, confirmed by letter,
to the Company and to each of the Banks and, until such notice shall be
withdrawn by the Agent, no new LIBOR Loans shall be made by the Banks. During
the 30 days next succeeding the giving of such notice by the Agent to the
Company of such determination, the Company, the Agent and each Bank shall
negotiate in good faith in order to arrive at a mutually satisfactory interest
rate to be substituted for the interest rate which would otherwise have been
determined pursuant to Section 2.3 for the proposed Interest Period affected by
such circumstances as aforesaid.
(b) If within such 30 day period the Company, the Agent and all the
Banks shall agree in writing upon a substituted interest rate and the effective
date thereof, such substituted interest rate shall be applicable to a renewed
request by the Company for such proposed Loan to be made; provided that such
Loan is made prior to the determination referred to in paragraph (c) of this
Section 4.2.
(c) During any period when borrowings are suspended or when an
alternative interest rate is in force pursuant to this subsection, the Agent,
in consultation with the Banks, shall periodically, at least once a month,
determine whether circumstances are such that LIBOR may again be determined.
If such determination is made, the Agent shall forthwith give written notice to
the Company and each Bank, whereupon the Agent, the Company and the Banks shall
as promptly as possible establish a date on which to determine LIBOR.
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4.3. REPAYMENT
The Company promises to pay the principal of and interest on the Loans
and the Uncommitted Advances in Dollars on the respective interest payment
dates and Maturity Dates therefor. Interest accrued after the Maturity Date
for any Loan or Uncommitted Advance which has not been paid on such Maturity
Date shall be payable from time to time on demand from the Agent to the
Company.
4.4. TERMINATION OR REDUCTION OF COMMITMENTS
The Company shall have the right, upon not less than thirty Business
Days' irrevocable prior written notice to the Agent, to terminate the
Commitments or, from time to time, permanently reduce the amount of the
Commitments; provided that (a) any reduction of the amount of the Commitments
which does not terminate all the Commitments (i) shall be in an amount of at
least $10,000,000 and integral multiples of $5,000,000 in excess thereof, (ii)
may not reduce the amount of the Commitments to an amount less than the
aggregate principal amount of all Loans and Uncommitted Advances then
outstanding and amounts outstanding or to be outstanding on such date under the
ACONA Agreement and (iii) shall be applied ratably to reduce the amount of the
Commitment of each Bank and (b) no termination of the Commitments shall be
permitted if at such time there are any Loans or Uncommitted Advances
outstanding hereunder or under the ACONA Agreement.
4.5. FACILITY, UTILIZATION, PARTICIPATION, ARRANGEMENT AND
AGENCY FEES
(a) From and including the Effective Date, the Company agrees to
pay to the Banks a facility fee equal to 0.06 percent (0.06%) per annum on the
amount of the Commitments during the period in respect of which the facility
fee is paid. The facility fee shall (i) be computed on the basis of a year of
365 or 366 days, as the case may be, for the actual number of days elapsed,
(ii) be payable quarterly in arrears (or if any such day is not a Business Day,
on the next succeeding Business Day) from the Effective Date to and including
the Termination Date and on the Termination Date, commencing on the date which
is three months after the Effective Date, and (iii) be paid by the Company to
the Agent for the account of the Banks.
(b) From and including the Effective Date, the Company agrees to
pay to the Banks a utilization fee on the daily average outstanding principal
amount of all Loans during the period in respect of which the utilization fee
is payable, if such average outstandings during the three-month period in
respect of which such utilization fee is payable exceed fifty percent (50%) of
the Commitments. The utilization fee shall (i) be calculated at the
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rate per annum equal to 0.05% on the entire amount of such daily average
outstandings if such outstandings are equal to or greater than 50% of the
Commitments, (ii) be computed on the basis of a year of 365 or 366 days, as the
case may be, for the actual number of days elapsed, (iii) be payable quarterly
in arrears (or if any such day is not a Business Day, on the next succeeding
Business Day) from the Effective Date to and including the Termination Date and
on the Termination Date and (iv) be paid by the Company to the Agent for the
account of the Banks within 5 Business Days after each three-month anniversary
of the Effective Date hereof.
(c) The Company agrees to pay to the Syndication Agent, for its own
account, an arrangement fee in an amount heretofore agreed between the Company
and the Syndication Agent. The arrangement fee shall be payable the first
Business Day after completion of execution of this Agreement.
(d) The Company agrees to pay to the Agent, for its own account, an
agency fee in an amount and at the times heretofore agreed between the Company
and the Agent.
(e) The Company agrees to pay to the Documentation Agent, for its
own account, a documentation agent fee in an amount heretofore agreed between
the Company and the Documentation Agent. The documentation agent fee shall be
payable on the first Business Day after completion of execution of this
Agreement.
4.6. PAYMENTS
(a) Each payment by the Company on account of the principal of, or
interest on, the Loans and Uncommitted Advances and of any fees and other
amounts payable to the Banks under this Agreement shall be made without set-off
or counterclaim. Each such payment (other than amounts which are expressly
stated to be payable directly to a particular Bank) shall be made by 12:00 noon
(New York time) on the date specified for payment under this Agreement to
Deutsche Bank AG, New York Branch, ABA: 026 003 780, Account Name:
Syndication Clearing Account, Account Number: 100440240008, Ref: Associates
First Capital Corporation, in Dollars and in funds with same day value for the
account of the Banks (or, in the case of payments in respect of Uncommitted
Advances, for the account of the Bank that made such Uncommitted Advances).
Upon receipt of each such payment the Agent shall make prompt payment to each
Bank for the account of its Lending Office in like funds of all amounts
received by it for the account of such Bank in accordance with payment
instructions previously received by the Agent from such Bank.
(b) The Agent may assume that each Bank has made its Loans or
Uncommitted Advances available to the Agent on each Borrowing
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Date and the Agent may (but shall not be obligated to), in reliance upon such
assumption, make available to the Company a corresponding amount. If and to
the extent any such Bank shall not have so made any such Loan or Uncommitted
Advance available to the Agent, such Bank and the Company severally agree to
repay to the Agent forthwith on demand first, from such Bank, and if not
promptly paid, from the Company, such corresponding amount together with
interest thereon for each day from the date such amount is made available to
the Company until the date such amount is repaid to the Agent, which interest
shall be calculated (i) in the case of the Company, at the interest rate
applicable to such Loan or Uncommitted Advance at the time of such Loan or
Uncommitted Advance and (ii) in the case of such Bank, at a rate per annum
which reflects the cost of funds to the Agent as reasonably determined by the
Agent, in each case for the period from the date of such payment to the date of
such reimbursement. If such Bank shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Bank's Loan or Uncommitted
Advance, as the case may be, for purposes of this Agreement. The parties to
this Agreement understand and agree that failure on the part of any one Bank to
perform in accordance with Section 2.2 hereunder does not relieve other Banks
of their obligations under this Agreement.
(c) Unless the Agent shall have been notified by the Company prior
to the date on which any payment to be made by the Company under this Agreement
is due that the Company does not intend to remit such payment, the Agent may
assume that the Company has remitted such payment when so due and the Agent may
(but shall not be obligated to), in reliance upon such assumption, make
available to each Bank (for the account of its Lending Office) on such payment
date an amount equal to such Bank's share of such assumed payment. If the
Company has not in fact remitted such payment to the Agent each Bank shall
forthwith on demand repay to the Agent the amount of such assumed payment made
available to such Bank, together with interest thereon, in respect of each day
from and including the date such amount was made available by the Agent to such
Bank to the date such amount is repaid to the Agent at a rate per annum which
reflects the cost of funds to the Agent for the period from the date of such
payment to the date of reimbursement as reasonably determined by the Agent.
4.7. PRO RATA TREATMENT
Each borrowing by the Company from the Banks pursuant to Section 2.2
shall be made pro rata from the Banks on the basis of their respective
Commitments on each Borrowing Date. Each payment of principal of, and interest
on, the Loans and any other amounts payable hereunder (other than payments
which are expressly provided in this Agreement to be payable only to a
particular Bank, the Agent, the Documentation Agent or the Syndication Agent)
shall be
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made to the Agent for the account of the Banks pro rata on the basis of the
respective amounts of such outstanding Loans held by them immediately prior to
such payment or, in the case of the payment of facility, participation and
utilization fees, pro rata on the basis of the respective amounts of the
Commitments in effect during the period in respect of which such fees are
payable.
4.8. ILLEGALITY
Notwithstanding any other provision herein, if a Bank determines that
for such Bank to make, maintain or fund its Commitment or its Loans or
Uncommitted Advances as contemplated by this Agreement would be in violation of
applicable law, regulation, treaty, directive or guideline, whether or not
having the force of law, such Bank shall give the Company and the Agent prompt
written notice thereof, and thereupon the Commitment of such Bank shall
forthwith terminate, and the Company shall pay the outstanding Loans or
Uncommitted Advances of such Bank, with accrued interest thereon and any
amounts owing hereunder, on the respective Maturity Dates with respect thereto,
unless such Bank (because it would be in violation of applicable law,
regulation, treaty, directive or guideline, whether or not having the force of
law) shall require its Loans or Uncommitted Advances to be paid earlier, in
which case such Bank shall so notify the Company and the Agent and such Loans
or Uncommitted Advances shall be prepaid on the date required by such Bank,
together with accrued interest and other amounts payable hereunder to the date
of such prepayment.
4.9. INCREASED COSTS
(a) If the Agent or any Bank shall determine that by reason of (i)
the introduction of, or any change in, any applicable law or regulation or in
the interpretation thereof by any governmental or other regulatory authority
charged with the administration thereof or court of competent jurisdiction
and/or (ii) compliance by the Agent or such Bank with any request or directive
from any central bank or other fiscal, monetary or other regulatory authority
(whether having the force of law or not), which introduction, change,
interpretation, or request or directive occurs after the date hereof, there
shall be any increase in the cost to the Agent or such Bank of maintaining or
giving effect to its obligations under this Agreement, or any reduction in any
amount receivable by the Agent or such Bank under this Agreement, excluding,
however, in each case, any matter covered under subsection 4.9(b) below, then
the Company shall from time to time on receipt (whenever occurring) of a
certificate from the Agent or (as the case may be) such Bank pay to the Agent
or (as the case may be) such Bank such amounts as are certified therein to be
required to indemnify the Agent or (as the case may be) such Bank against such
increased cost and/or such reduction.
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(b) If compliance by any Bank or any corporation controlling such
Bank with (i) any amendment or a change in the Capital Adequacy Guidelines (as
defined below) adopted after the date of this Agreement, (ii) any law, rule or
regulation regarding capital adequacy of general applicability to all banks
subject to such law, rule or regulation, adopted after the date of this
Agreement, (iii) any request or directive of general applicability to all banks
subject to such request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or any other financial, monetary
or other governmental authority occurring after the date of this Agreement, or
(iv) any changes therein or in the interpretation or application thereof, does
or shall have the effect of reducing the rate of return on such Bank's or such
corporation's capital as a consequence of its obligations hereunder to a level
below that which such Bank or such corporation could have achieved but for such
adoption, change or compliance, by an amount reasonably determined by such Bank
to be material, then such Bank shall promptly notify the Company of such
determination. The Company shall from time to time on subsequent receipt
(whenever occurring) of a certificate from such Bank pay to such Bank such
amounts as are certified therein (such certificate to set forth in reasonable
detail the assumptions used by the Bank in determining such amounts and the
manner in which such amounts were calculated) to be required to compensate such
Bank for such reduced rate of return; provided, however, that the Company shall
not be required to (i) compensate any Bank for any such reduced rate of return
unless such Bank determines such amounts in good faith and uses reasonable
averaging and attribution methods which cover all loans and commitments
similarly situated, whether or not the documentation therefor permits such Bank
to receive a compensation of the kind described in this subsection 4.9(b), (ii)
compensate any Bank for any reduced rate of return by such Bank which arises
from any required increase in such Bank's level of capital and which increase
is not also required of all other banks under the same regulatory jurisdiction
as such Bank and which are in the same general regulatory category as such
Bank, or (iii) pay to such Bank any amount set forth in any such certificate
which relates to any period prior to the date (x) which is 30 days after the
date on which such Bank has notified the Company pursuant to the preceding
sentence or (y) which is more than 90 days prior to the date of each such
certificate.
As used in this Section, the term "Capital Adequacy Guidelines"
means any or all of (a) Appendix A to Part 225 -Capital Adequacy Guidelines for
Bank Holding Companies: Risk-Based Measure, 54 Fed. Reg. 4209 (1989) (12
C.F.R. Part 225), (b) Appendix A - Risk-Based Capital Guidelines, 54 Fed. Reg.
4177 (1989) (12. C.F.R. Part 3), (c) Appendix A to Part 208 - Capital Adequacy
Guidelines for State Member Banks: Risk-Based Measure, 54
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Fed. Reg. 4197 (1989) (12 C.F.R. Part 208), and/or (d) any reasonably
equivalent law, governmental rule, regulation, policy, guideline or directive
(whether or not having the force of law) applied to a Bank by any government
having jurisdiction over a Bank.
(c) Without limiting the obligations of the Company under
subsection 4.9(a), if Regulation D of the Board of Governors of the Federal
Reserve System (the "Board") shall require reserves actually to be maintained
against "Eurocurrency Liabilities" of any Bank, such Bank may require the
Company to pay, contemporaneously with each payment of interest on any Loan or
Uncommitted Advance made by such Bank, additional interest on such Loan or
Uncommitted Advance at a rate per annum equal to the Adjusted Rate (as
hereinafter defined). Any Bank wishing to require payment of such interest
shall give notice thereof at least three Business Days prior to (i) the making
of any subsequent Loan or Uncommitted Advance or (ii) the Maturity Date of any
Loan or Uncommitted Advance then outstanding with respect to which such
additional interest is requested. For the purposes of the foregoing:
(A) the "Adjusted Rate" applicable to any Loan or
Uncommitted Advance, means a rate per annum equal to the excess of (X)
(1) LIBOR as calculated in respect of such Loan or Uncommitted
Advance, divided by (2) 1.00 minus the Reserve Percentage over (Y) the
rate specified in (X) (1); and
(B) "Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board (or any successor) for determining the maximum
aggregate reserve requirement for Eurocurrency Liabilities.
4.10. TAXES ON PAYMENTS
(a) All payments (including fees) in respect of the Loans and
Uncommitted Advances shall be made free and clear of and without any deduction
for or on account of any present and future taxes or similar charges imposed by
the United States of America, or any political subdivision or taxing authority
thereof or therein (all such taxes being hereinafter called "Taxes"), except as
expressly provided in this Section 4.10. If any Taxes are imposed and required
by law to be paid or withheld from any amount payable to the Agent or any Bank
or its Lending Affiliate, then the Company shall (i) increase the amount of
such payment so that the Agent or such Bank will receive a net amount (after
deduction of all Taxes) equal to the amount due hereunder, (ii) pay such Taxes
to the appropriate taxing authority for the account of the Agent or such Bank,
and (iii) as promptly as possible thereafter, send such Bank evidence showing
payment thereof, together with such additional
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documentary evidence as such Bank may from time to time require. If the
Company fails to perform its obligations under (ii) or (iii) above, the Company
shall indemnify the Agent or such Bank for any incremental taxes, interest or
penalties that may become payable as a result of any such failure; provided,
however, that the Company will not be required to make any payment to the Agent
or any Bank or Lending Affiliate under this Section 4.10 if withholding is
required in respect of such Bank by reason of such Bank's or Lending
Affiliate's inability to furnish under subparagraph (b) immediately below an
extension or renewal of a Form 1001 or Form 4224 (or successor form), as
applicable, unless such inability results from a change in any applicable law
or regulation or in the interpretation thereof by any regulatory authority
(including, without limitation, any change in an applicable tax treaty)
occurring after the date hereof.
(b) Each Bank and each Lending Affiliate agrees that it shall
deliver to the Company and the Agent at least five Business Days prior to the
first Borrowing Date or, if such date does not occur within 30 days after the
date of execution of this Agreement, by the end of such 30 day period, either
(i) a statement that it is incorporated under the laws of the United States of
America or a state thereof or (ii) if it is not so incorporated, (A) a letter
in duplicate in the form of Exhibit A or Exhibit B, as appropriate, and two
duly completed copies of United States Internal Revenue Service Form 1001 or
4224 or successor applicable form, as the case may be, certifying in each case
that the Agent or such Bank or Lending Affiliate, as the case may be, is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (B) an Internal
Revenue Service Form W-8 or W-9 or successor applicable form, as the case may
be, to establish an exemption from United States backup withholding tax. Each
Bank and the Agent which delivers a Form 1001 or 4224 and Form W-8 and W-9
pursuant to the next preceding sentence further undertakes to deliver to the
Company and, in the case of such Bank, to the Agent, two further copies of the
said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable
forms, or other manner of certification, as the case may be, on or before the
date that any such letter or form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent letter and form
previously delivered by it, and such extensions or renewals thereof as may
reasonably be requested by the Company, certifying in the case of a Form 1001
or 4224 that such Bank or the Agent is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes, unless in any such cases an event (including, without limitation, any
change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent a Bank or the
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Agent from duly completing and delivering any such letter or form with respect
to it and such Bank or the Agent advises the Company that it is not capable of
receiving payments without any deduction or withholding of United States
federal income tax, and in the case of a Form W-8 or W-9, establishing an
exemption from United States backup withholding tax.
4.11. ADDITIONAL ACTION IN CERTAIN EVENTS
(a) If an event or condition described in Sections 4.8, 4.9, or
4.10(a) has occurred or exists, or, in the case of subsection (i) below, will
occur or exist, but without prejudice to the obligations of the Company under
Sections 4.8, 4.9 or 4.10, the Bank or Banks so affected by such event or
condition will, if so requested by the Company, (i) consult with the Company
and the Agent for up to 30 days from the date of such request with a view to
agreeing to a mutually acceptable alternative arrangement which will avoid or
minimize the payment of such additional amount in the future and which is not
prejudicial to that Bank or (ii) make a good faith effort (which shall not
require the Bank to incur any loss) to make within 30 days, subject to the
consent of the Company, an assignment, in accordance with subsection 10.5(d),
of all its rights and delegation of its obligations under this Agreement,
including the Commitments and the outstanding Loans or Uncommitted Advances to
one of its subsidiaries or affiliates or to another Bank or to a Purchasing
Bank, for the purpose of causing such event or condition to cease to exist or
to reduce the liability of the Company, so long as such assignment and
delegation does not, at the time of such assignment, result in another such
event or condition specified above under Section 4.8, or cause a condition or
event in the subsections specified above which results in no reduction in the
liability of the Company under such subsection.
(b) Subject to (a) above, the Company shall have the right to
prepay, if an event or condition described in Sections 4.9 or 4.10(a) has
occurred or exists, the outstanding Loans or Uncommitted Advances, if any, as
applicable, and terminate the Commitments, of the Bank or Banks so affected by
such event or condition, upon giving the Agent and such Bank or Banks at least
five Business Days' prior irrevocable notice thereof specifying the date of
prepayment, if any, and termination. Any such prepayment hereunder shall be
made by the Company, together with interest thereon and any other amounts
payable hereunder, on the date specified in such notice and, if not made on a
Maturity Date, shall be made together with the indemnity payment referred to in
subsection 4.12 hereof.
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4.12. INDEMNITY FOR LOSSES
The Company agrees, without prejudice to any other rights of the Banks
hereunder, to indemnify each Bank and to hold each Bank harmless from any loss
or expense (excluding loss of profit) which such Bank may sustain or incur as a
consequence of (a) default by the Company in payment of the principal of, or,
to the extent permitted by law, interest on, any Loan or Uncommitted Advances
of such Bank, (b) failure by the Company to comply with any condition set forth
in Section 6 after having given a notice of borrowing in accordance with
Section 2.2 or 3.2, or failure by the Company to borrow after having given a
notice of borrowing in accordance with Section 2.2 or having accepted a bid in
accordance with subsection 3.2(f), (c) any acceleration of the Loans or
Uncommitted Advances pursuant to Section 8, or (d) the Company making any
payment on a day which is not a Maturity Date with respect thereto, including,
in each case, but not limited to, any such loss or expense arising from
interest or charges payable by such Bank to lenders of funds obtained by it in
order to maintain its Loan or Uncommitted Advance.
4.13. PURPOSE OF CREDIT FACILITY
The Company agrees that the credit facility hereunder shall be used
for its general corporate purposes, including, but not limited to the payment
of dividends.
4.14. MAXIMUM INTEREST RATE
The interest rate on the Loans and Uncommitted Advances will in no
event be higher than the maximum rate permitted by New York law as the same may
be modified by United States law of general application.
SECTION 5. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Agent and each Bank
as follows:
5.1. The Company and each Subsidiary is a corporation duly organized
and in good standing under the laws of the jurisdiction of its incorporation,
has the power to conduct its business as now conducted and is duly qualified as
a foreign corporation and in good standing in all jurisdictions wherein the
nature of the business it transacts makes such qualification necessary.
5.2. The Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and quarterly report on Form 10-Q for the nine months ended
September 30, 1995, heretofore delivered to each Bank, as of the date of each,
was true and accurate in all material
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respects and did not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
5.3. The consolidated balance sheet of the Company and its
Subsidiaries as of December 31, 1994 and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows of the Company for the
fiscal year then ended certified by Coopers & Lybrand and contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994, and
the unaudited consolidated balance sheet of the Company as of September 30,
1995 and the related unaudited consolidated statements of earnings and cash
flows for the three months ended September 30, 1995 contained in the Company's
Form 10-Q Quarterly Reports for the three months ended September 30, 1995,
copies of which have been delivered to each Bank, were prepared in accordance
with generally accepted accounting principles, are complete and correct, and
fairly present the financial position of the Company and its Subsidiaries as of
said dates and the results of their operations for the periods then ended.
5.4. The execution, delivery and performance of this Agreement by
the Company and the borrowing of the Loans and the Uncommitted Advances are
within the Company's corporate authority, have been duly authorized by proper
corporate proceedings, will not contravene any provision of law or its charter
or by-laws or constitute a default under the terms of any agreement binding
upon it, and does not require the consent or approval of, or registration with,
any governmental authority, body or agency.
5.5. This Agreement constitutes a legal, valid and binding agreement
of the Company enforceable in accordance with its terms subject as to
enforcement, however, to bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
5.6. The obligations of the Company under the Agreement rank and
will rank at all times at least pari passu with all other unsecured and
unsubordinated Indebtedness of the Company.
5.7. Except as described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, there is no litigation, action, suit or
proceeding pending, or to the knowledge of the Company any investigation or
litigation, action, suit or proceeding threatened, against the Company or any
of its Subsidiaries before any court, arbitrator or administrator or
governmental body which is reasonably likely to result in any material adverse
change in the business or financial position of
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the Company and its Subsidiaries taken as a whole or the Company becoming
unable to perform its obligations under this Agreement.
5.8. No employee benefit plan established or maintained by, or to
which contributions have been made by, the Company or any Subsidiary or both,
which is subject to Part 3 of Subtitle B of Title 1 of ERISA had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA) as of the
last day of the most recent fiscal year of such plan ended prior to the date
hereof and no material liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any such plan by the Company or by any
Subsidiary.
5.9. Neither the Company nor any Subsidiary is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock within the meaning of such
term as defined in Regulations G, T, U and X of the Board and no Loan or
Uncommitted Advance hereunder will violate any provision of any of said
regulations. After application of the proceeds of any Loan or Uncommitted
Advance, the amount of margin stock (as defined in said Regulations) subject to
any restrictions contained in Sections 7.5 and 7.6 hereof will constitute less
than 25% of the total assets of the Company subject to such restrictions.
5.10. No event has occurred and is continuing which constitutes a
default under or in respect of any material agreement, undertaking or
instrument to which the Company is a party or by which the Company may be bound
and no event has occurred which, with giving of notice, lapse of time or other
condition, would constitute a default under or in respect of any such
agreement, undertaking or instrument.
SECTION 6. CONDITIONS PRECEDENT
6.1. CONDITIONS OF INITIAL BORROWINGS
The obligation of each Bank to make its initial Loan or Uncommitted
Advance hereunder is subject to the receipt by the Documentation Agent at its
offices in New York, New York, with copies to the Banks of each of the
following documents, in form and substance satisfactory to the Agent, on or
prior to the date which is at least four Business Days before the first
Borrowing Date:
(a) copies of the resolutions of the Board of Directors
or the Executive Committee of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement
and the borrowings hereunder, certified by the Secretary or an
Assistant Secretary of the
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Company as being true, correct and in full force and effect and as not
having been modified or rescinded;
(b) a certificate of incumbency, dated the first
Borrowing Date, with respect to the officers of the Company who are
authorized and who will execute and deliver this Agreement and any
other documents to be delivered in connection herewith;
(c) a copy of the charter and by-laws of the Company,
each certified, as of the first Borrowing Date, by the Secretary or an
Assistant Secretary of the Company as being true, complete and correct
and in full force and effect;
(d) the opinion of the General Counsel or Assistant
General Counsel to the Company, substantially in the form of Exhibit C
hereto, dated the first Borrowing Date; and
(e) such other documents as the Agent may reasonably
request.
6.2. CONDITIONS TO ALL BORROWINGS; REPETITION OF REPRESENTATIONS
(a) The obligation of each Bank to make its Loan or Uncommitted
Advance on any Borrowing Date is further subject to the conditions that (i) on
each such date, the representations and warranties of the Company contained in
this Agreement are true and correct on such date with the same effect as if
made on and as of such date and (ii) on each such date, no event has occurred,
or will result from the making of the Loans or Uncommitted Advances to be made
on such date, which constitutes an Event of Default, or which, with the giving
of notice or the lapse of time, or both, would constitute an Event of Default.
(b) By sending a notice of borrowing pursuant to Section 2.2 or
3.2, the Company shall be deemed to have made a representation that the
statements contained in subsection 6.2(a) are true and correct on the Borrowing
Date referred to in such notice.
SECTION 7. COVENANTS
So long as the Commitments remain in effect, or any Loan or
Uncommitted Advance or any other amount payable under this Agreement remains
outstanding and unpaid, the Company covenants and agrees as follows:
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7.1. The Company will deliver to each Bank:
(a) as soon as available and in any event within 60 days after the
end of the first, second and third quarterly accounting periods in each fiscal
year of the Company, beginning with the first such quarterly accounting period
ending on or after the date of this Agreement, copies of a consolidated balance
sheet of the Company and its Subsidiaries as of the end of each such accounting
period and copies of the related consolidated statements of earnings, changes
in stockholders' equity and cash flow for each such accounting period and
separate balance sheets, on a combined or consolidated basis of each Subsidiary
(except a Finance Subsidiary) that is a Significant Subsidiary, as of the end
of such accounting periods and of the related statements of earnings, changes
in stockholders' equity and cash flow for such accounting periods, all in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous fiscal year and all prepared in
accordance with generally accepted accounting principles, and certified by the
chief accounting officer of the Company;
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of the Company beginning with the fiscal year ending
December 31, 1995, copies of a consolidated balance sheet of the Company and
its Subsidiaries as of the end of each such accounting period and copies of the
related consolidated statements of earnings, stockholders' equity and cash flow
for each such accounting period, and a separate balance sheet, on a combined or
consolidated basis in accordance with generally accepted accounting principles
of each Subsidiary, except a Finance Subsidiary, that is a Significant
Subsidiary as of the end of each such accounting period and of the related
statements of income and stockholders' equity for each such accounting period,
all in reasonable detail and stating in comparative form the figures as of the
end of and for the previous period or fiscal year and with respect to the
consolidated financial statements of the Company and its Subsidiaries, the
statements shall be certified by independent accountants of nationally
recognized standing selected by the Company. With respect to financial
statements of a Significant Subsidiary, the statements may be certified by the
chief accounting officer of the Company;
(c) concurrently with each of the financial statements furnished
pursuant to the foregoing sub-clauses (a) and (b), a certificate of the
Chairman of the Board, a Vice Chairman, the President, a Vice President, the
Comptroller or the Treasurer of the Company stating that in the opinion of the
signer, based upon a review made under his supervision, no Event of Default or
event which with the giving of notice or the lapse of time, or both, would
constitute an Event of Default exists hereunder or, if such
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an event shall exist, specifying all such events, and the nature thereof, of
which the signer of such certificate may have knowledge;
(d) as soon as practicable, copies of such further financial
statements and reports as the Company shall send to the banks with which it has
lines of credit, or all such financial statements and reports as it shall send
to its stockholders (unless all of the outstanding shares of capital stock of
the Company are held by one person), and, upon request of any Bank, of all
registration statements and all regular or periodic reports which it is or may
be required to file with the Securities and Exchange Commission or any
governmental body or agency succeeding to the functions of the Securities and
Exchange Commission; and
(e) such other information relating to the performance of the
provisions of this Agreement and the affairs of the Company and its
Subsidiaries as any of the Banks may from time to time reasonably request.
7.2. The Company will and will cause each Significant Subsidiary to:
(a) pay and discharge or cause to be paid and discharged promptly
any tax, assessment or governmental charge as well as any claim of any kind
(including claims for labor, materials and supplies) which, if unpaid, might by
law become a lien or charge upon its property; provided, however, that neither
the Company nor any Subsidiary shall be required to pay and discharge or to
cause to be paid and discharged any such tax, assessment or governmental charge
or claim of any kind (including claims for labor, materials and supplies) if
the amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings and if the Company or such Subsidiary, as
the case may be, shall have set aside on its books reserves (segregated to the
extent required by sound accounting practice) deemed by it to be adequate with
respect thereto; and
(b) do all things necessary to preserve and keep in full force and
effect its corporate existence, licenses, rights and franchises; provided,
however, that nothing in this subsection 7.2(b) shall prevent (i) any merger or
consolidation permitted by section 7.5, (ii) the abandonment or termination of
the corporate existence, rights and franchises of any Subsidiary of the Company
if such abandonment or termination is in the interest of the Company and not
disadvantageous in any material respect to any of the Banks, or (iii) the
withdrawal by the Company or any Subsidiary from any jurisdiction of its
qualification as a foreign corporation and the relinquishment of its
authorization to do business in such jurisdiction if such withdrawal and
relinquishment
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is in the interest of the Company and not disadvantageous in any material
respect to any of the Banks.
7.3. The Company will, and will cause each Subsidiary to, maintain
and keep proper corporate books and financial records, in which full, true and
correct entries will be made of transactions in accordance with generally
accepted accounting principles and practices. The Company will permit
representatives of the Agent or any Bank to visit and inspect any of the
properties of, or examine the corporate books and financial records of, the
Company and its Subsidiaries at the Agent's or such Bank's expense, at such
reasonable times and as often as the Agent or any Bank may reasonably request.
7.4. The Company will not lease, sell, transfer or otherwise dispose
of all or substantially all of its assets to, or consolidate with, or merge
into any other person, or permit any other person to merge into the Company
unless the person to which such assets have been leased, sold, transferred or
otherwise disposed of or the corporation formed by such consolidation or the
corporation into which the Company shall have been merged, as the case may be
(any such person, other than the Company, being herein called the "New
Company"), shall be a solvent corporation incorporated within the United
States of America, and the New Company shall expressly assume in writing the
due and punctual payment of the principal of and interest on the Loans and the
Uncommitted Advances and the due and punctual performance of all of the
covenants and conditions of this Agreement and immediately after such
transaction, no Event of Default shall occur or exist under the covenants and
conditions of this Agreement.
7.5. In the case of any such consolidation, merger, sale or
conveyance and upon any such assumption by the New Company, such assumption
shall be to the same extent as if the New Company had been named herein as the
Company. No sale, lease, transfer or other disposition of assets permitted by
this sub-clause shall have the effect of releasing the Company (or any New
Company which shall at any time have assumed the liabilities or obligations of
the Company hereunder) from any liability or obligations hereunder.
7.6. The Company will, and will cause all its Subsidiaries to, use
their respective best efforts to be in substantial compliance with Applicable
Laws relating to equal employment opportunities and environmental standards and
controls, and be in substantial compliance (to the best knowledge of the
Company), in all respects material to the Company and its Subsidiaries on a
consolidated basis, with other Applicable Laws, in each case except such as are
being contested in good faith by proceedings being diligently pursued and
against which the Company or such Subsidiary has established adequate reserves
under generally accepted
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accounting principles. "Applicable Laws" means all applicable statutes,
regulations, orders and restrictions of the United States of America, foreign
countries, states and municipalities, and agencies and instrumentalities of the
foregoing, in respect of the conduct of the respective businesses of the
Company and its Subsidiaries and the ownership of their respective properties.
7.7 The Company's obligations hereunder, will be unconditional
and general obligations ranking pari passu with all other present and future
outstanding unsubordinated and unsecured Indebtedness issued, created or
assumed by it.
SECTION 8. EVENTS OF DEFAULT
Upon the occurrence of any of the following events ("Events of
Default"):
(a) The Company shall (i) fail to pay any principal of any Loan or
Uncommitted Advance when due; or (ii) fail to pay any interest on any Loan or
Uncommitted Advance or any other amount payable hereunder when due and such
failure shall continue for a period of five Business Days; or
(b) Any representation or warranty made or deemed to be made by the
Company under this Agreement or in any certificate, document or financial or
other statement furnished at any time under or in connection with this
Agreement shall prove to have been incorrect or misleading in any material
respect when made or deemed to be made; or
(c) The Company shall default in the performance or observance of
any agreement or covenant contained in Sections 7.4 or 7.7; or the Company
shall default in the performance or observance of any other agreement or
covenant contained in this Agreement and such default shall continue for a
period of 30 days; or
(d) The Company or any of its Significant Subsidiaries shall (i)
default in any payment of principal of or interest on any Indebtedness (other
than the Loans or Uncommitted Advances) in respect of money borrowed or
capitalized leases or incurred for the deferred purchase price of property or
services or evidenced by a note, debenture or other similar written obligation
to pay money, or in the payment of any guarantee thereof beyond the period of
grace (not to exceed 30 days), if any, provided in the instrument or agreement
under which such Indebtedness was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or guarantee or contained in any instrument or agreement
evidencing, securing or relating thereto, the effect of which is to cause, or
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to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such guarantee (or trustee or agent on behalf of such holder
or holders or beneficiary or beneficiaries) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated maturity or
such guarantee to become payable and any such default shall continue for more
than the applicable period of grace (not to exceed 60 days), if any, provided
in the instrument or agreement under which such Indebtedness was created; or
(e) (i) The Company or any of its Significant Subsidiaries
shall commence any case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or other relief of debtors, seeking to have an order
for relief entered on its behalf as debtor, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, winding-up,
liquidation, dissolution, composition, readjustment of debt or other relief
with respect to it or its debts, or seeking appointment of a receiver, trustee,
custodian, liquidator, conservator, sequestrator or other similar official for
it or for all or any substantial part of its assets; or
(ii) the Company or any of its Significant Subsidiaries
shall make a general assignment for the benefit of its creditors; or
(iii) there shall be commenced against the Company or any
of its Significant Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) or (ii) above which (A) results in the entry
of an order for relief or any such adjudication or appointment with respect to
the Company or such Subsidiary or all or any substantial part of its assets or
(B) remains undismissed, unstayed, undischarged or unbonded for a period of 60
days; or
(iv) there shall be commenced against the Company or any
of its Significant Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(v) the Company or any of its Significant Subsidiaries
shall take any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the acts set forth in clauses (i), (ii), (iii)
or (iv) above; or
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(vi) the Company or any of its Significant Subsidiaries
shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due; or
(f) a moratorium is declared on the payment of Indebtedness,
which Indebtedness includes some or all of the Indebtedness of the Company; or
(g) any governmental authority or agency condemns, seizes,
compulsorily purchases, nationalizes or expropriates all or a material part of
the property, assets, revenues or capital of the Company; or
(h) a final judgment for the payment of money in excess of
$10,000,000 is rendered by a court of record against the Company or any
Significant Subsidiary and the Company or any such Significant Subsidiary, as
the case may be, shall not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay of execution thereof within 60
days from the date of entry thereof and within said period of 60 days, or such
longer period during which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal; or
(i) except as permitted by subsections 7.2(b), 7.4 and 7.5, the
Company or any of its Significant Subsidiaries shall without the consent of the
Banks sell, lend, transfer or otherwise dispose of (otherwise than in the
ordinary course of trading or by the transfer or sale to the Company or any
Significant Subsidiary from, as the case may be, any Significant Subsidiary or
the Company) all or substantially all of its assets whether by one or a series
of transactions related or not; or
(j) an Event of Default shall occur and be continuing under the
ACONA Agreement; then, and in any event, (a) if such event is an Event of
Default specified in clause (i), (ii), (iii) or (iv) of paragraph (e) above,
automatically and without any further act the Commitments shall immediately
terminate and the Loans and Uncommitted Advances hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement shall
immediately become due and payable, and (b) if such event is any other Event of
Default, or if it becomes unlawful for the Company to perform any of its
obligations under this Agreement or in respect of the Loans or Uncommitted
Advances, or this Agreement shall cease to be in full force and effect then any
or all of the following actions may be taken: (i) upon the request of the
Majority Banks, the Agent shall, by notice to the Company, declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately
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terminate; (ii) with the consent of the Majority Banks, the Agent may, or upon
the request of the Majority Banks, the Agent shall, by notice of default to the
Company, declare the Loans (with accrued interest thereon) and all other
amounts owing under this Agreement to be due and payable forthwith, and (iii)
with the consent of Banks to which at least 66 2/3% of the aggregate unpaid
principal amount of the Uncommitted Advances are owing (the "Optional Majority
Banks"), the Agent may, or upon the request of the Optional Majority Banks, the
Agent shall, by notice of default to the Company declare the Uncommitted
Advances hereunder (with accrued interest thereon) to be due and payable
forthwith, whereupon in each case the same shall immediately become due and
payable. Except as expressly provided above in this Section 8, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 9. THE AGENT; THE SYNDICATION AGENT
9.1. AUTHORIZATION
Each Bank hereby irrevocably authorizes and designates Deutsche Bank
AG, as the Agent of such Bank under this Agreement and each such Bank hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and to exercise such powers and perform such
duties as are expressly delegated to the Agent and by the terms of this
Agreement, together with such other powers as are reasonably incidental
thereto. Neither the Agent, the Documentation Agent nor the Syndication Agent
shall have any duties or responsibilities, except those expressly set forth
herein (it being understood that the Syndication Agent and the Documentation
Agent shall have no duties or responsibilities subsequent to the execution and
delivery hereof except that the Documentation Agent will be responsible for
handling further documentation that may arise out of any amendment, waiver or
modification) or any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise exist against the Agent, the
Documentation Agent or the Syndication Agent.
9.2. DELEGATION OF DUTIES
Each of the Agent, the Documentation Agent and the Syndication Agent
may execute any of its duties under this Agreement by or through agents or
attorneys-in-fact and shall be entitled to rely upon the advice of counsel
concerning all matters pertaining to such duties. Neither the Agent, the
Documentation Agent nor the Syndication Agent shall be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected with
reasonable care.
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9.3. EXCULPATORY PROVISIONS
Neither the Agent, the Documentation Agent, the Syndication Agent nor
any of their officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such person under or in connection with this Agreement (except
for its or such person's own gross negligence or willful misconduct) or (b)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Company or any officer thereof
contained in this Agreement or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent, the
Documentation Agent or the Syndication Agent under or in connection with, this
Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or for any failure of the
Company to perform its obligations hereunder. Neither the Agent, the
Documentation Agent nor the Syndication Agent shall be under any obligation to
any Bank to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement, or to inspect
the properties, books or records of the Company.
9.4. RELIANCE BY AGENT, SYNDICATION AGENT
Each of the Agent, the Documentation Agent and the Syndication Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile, telex or teletype message, telephone message,
statement, order or other document or conversation reasonably believed by it to
be genuine and correct and to have been signed, sent or made by the proper
person or persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Company), independent accountants and other
experts selected by the Agent, the Documentation Agent or the Syndication
Agent. The Agent may deem and treat each Bank listed in Schedule 1 as the
owner of the Loans and Uncommitted Advances made by such Bank for all purposes
unless a written notice of assignment thereof as permitted by this Agreement
shall have been filed with the Agent. The Agent shall be fully justified in
failing or refusing to exercise any right or remedy under this Agreement unless
it shall first receive such notice, advice and agreement of the Majority Banks,
the Optional Majority Banks, or all Banks, as applicable, as provided for in
this Agreement or as it may deem appropriate including, without limitation,
indemnification to its satisfaction by the Banks against any and all liability
and expense which may be incurred by the Agent by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting or in refraining from acting in accordance with a request
from the
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Majority Banks, the Optional Majority Banks, or all Banks, as applicable, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Banks, their successors and their permitted assignees.
9.5. NOTICE OF DEFAULT
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Event of Default hereunder unless the Agent has received
written notice from a Bank or the Company referring to this Agreement,
describing such Event of Default and stating that such notice is a "notice of
default." In the event that the Agent receives such a notice, it shall give
notice thereof to the other Banks. The Agent shall take such lawful action
with respect to such Event of Default as shall be reasonably directed by the
Majority Banks, the Optional Majority Banks, or all Banks, as applicable;
provided that, unless the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Event of Default as it shall deem advisable
in the best interests of the Banks, except as otherwise provided herein.
9.6. NON-RELIANCE ON AGENT OR SYNDICATION AGENT AND OTHER BANKS
Each Bank expressly acknowledges that neither the Agent, the
Documentation Agent, the Syndication Agent nor any of their officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent, the
Documentation Agent or the Syndication Agent taken hereunder, including any
review of the affairs of the Company, shall be deemed to constitute any
representation or warranty by the Agent, the Documentation Agent or the
Syndication Agent to any Bank. Each Bank represents to the Agent, the
Documentation Agent and the Syndication Agent that it has, independently and
without reliance upon the Agent, the Documentation Agent or the Syndication
Agent, or any other Bank, and based upon such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
status, business, operations, property, financial and other condition and
credit-worthiness of the Company and made its own decisions to enter into this
Agreement and to make Loans or Uncommitted Advances, as the case may be,
hereunder. Each Bank also represents that it shall, independently and without
reliance upon the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the status, business, operations, property, financial and other
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condition and credit-worthiness of the Company. Except for notices, reports
and other documents expressly required to be furnished to the Banks by the
Company, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the status, business,
operations, property, financial and other condition or credit-worthiness of the
Company which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
9.7. INDEMNIFICATION
The Banks agree to indemnify the Agent, the Documentation Agent and
the Syndication Agent in its capacity as such (to the extent not reimbursed by
the Company and without limiting the obligation of the Company to do so),
ratably according to the respective amounts of their Commitments (unless any of
the following relate solely (in the opinion of the Agent) to an identifiable
Uncommitted Advance or identifiable group of Uncommitted Advances, in which
case such indemnification shall be made by the Bank which has made such
Uncommitted Advance or, in the case of such a group of Uncommitted Advances,
pro rata by the Banks which have made such Uncommitted Advances), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including without limitation at any time
following the payment of the Loans and Uncommitted Advances) be imposed on,
incurred by or asserted against it in any way relating to or arising out of
this Agreement, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by it under or
in connection with any of the foregoing; provided that no Bank shall be liable
to indemnify the Agent, the Documentation Agent or the Syndication Agent for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs expenses or disbursements resulting directly
from the Agent's, the Documentation Agent's or the Syndication Agent's, as the
case may be, gross negligence or willful misconduct. The agreements in this
subsection 9.7 shall survive the payment of the Loans and Uncommitted Advances
and all other amounts payable hereunder.
9.8. AGENT IN ITS INDIVIDUAL CAPACITY
The Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Company as though the
Agent were not Agent hereunder. With respect to Loans or Uncommitted Advances
made by it, the Agent shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though it were not the Agent
and the terms
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<PAGE> 40
"Bank" or "Banks" shall include the Agent in its individual capacity.
9.9. SUCCESSOR AGENT
The Agent may resign as such upon 30 days' notice to the Company and
the Banks. The Agent may be removed as such with the written consent of the
Majority Banks. If the Agent shall resign or be removed as such under this
Agreement, then the Majority Banks shall appoint from among the Banks a
successor agent for the Banks which successor agent shall be approved by the
Company (or, if the Majority Banks and the Company are unable to select such
successor agent within such 30-day period, a successor agent (which shall be a
reputable financial institution) shall be selected by the then Agent),
whereupon such successor agent shall succeed to the rights, powers and duties
of the Agent and the term "Agent" shall mean such successor agent effective
upon its appointment, and the former Agent's rights, powers and duties as such
shall be terminated, without any other or further act or deed on the part of
such former agent or any of the parties to this Agreement or any creditor of
the Loans or Uncommitted Advances. After any retiring agent's resignation or
removal hereunder, the provisions of this Section 9 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was agent under
this Agreement.
SECTION 10. MISCELLANEOUS
10.1. NOTICES
All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telegraph or
facsimile) and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered in writing by hand, or by mail, air
postage prepaid, or, in the case of telegraphic notice, when delivered to the
telegraph company, or, in the case of notice by facsimile, when received,
addressed as follows or to such other address as shall be hereafter notified by
any party in writing to the other parties hereto:
(a) if to the Company, to it at:
For mail delivery:
Associates First Capital Corporation
P. O. Box 660237
Dallas, TX 75266-0237
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<PAGE> 41
For delivery by courier:
Associates First Capital Corporation
250 East Carpenter Freeway
Irving, Texas 75062-2729
U.S.A.
In each case,
Attention: John F. Hughes
Executive Vice President and Treasurer
Telephone: 214-541-4384
Facsimile: 214-541-4629
(b) if to the Agent, to it at:
Deutsche Bank AG
31 West 52nd Street
New York, NY 10019
Attention: Doris E. Braun
Telephone: 212-474-8636
Facsimile: 212-474-7880
(c) if to a Bank, to it at its address set forth in Schedule 1;
provided that notices to the Agent shall not be effective until actually
received.
10.2. EXPENSES; STAMP TAXES
The Company agrees (a) to pay costs and expenses of any amendment,
supplement or modification to, or waiver or consent under or in respect of this
Agreement, (b) to pay or reimburse the Agent, the Documentation Agent, the
Syndication Agent and each Bank for its costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, including, without limitation, fees and disbursements of counsel to
the Agent, the Documentation Agent, the Syndication Agent, and to the several
Banks, and (c) to pay, indemnify, and hold each Bank, the Agent, the
Documentation Agent and the Syndication Agent harmless from, any and all
recording and filing fees and all liabilities with respect to, or resulting
from any omission to pay or delay in paying, any and all stamp, excise and
other taxes or charges imposed by the United States of America or any taxing
authority or political sub-division thereof or therein which may be payable or
determined to be payable in connection with the execution, delivery of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement,
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<PAGE> 42
the Loans, the Uncommitted Advances and any such other documents, and (d) to
pay, indemnify, and hold each Bank, the Agent, the Documentation Agent and the
Syndication Agent harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the Loans, the Uncommitted Advances and any such other documents
(all the foregoing, collectively, the "indemnified liabilities") provided, that
the Company shall have no obligation hereunder with respect to indemnified
liabilities arising from (i) the gross negligence or willful misconduct of any
such Bank, (ii) legal proceedings commenced against any such Bank by any
security holder or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its capacity as such,
or (iii) legal proceedings commenced against any such Bank by any other Bank.
The agreements in this subsection shall survive repayment of the Loans, the
Uncommitted Advances and all other amounts payable hereunder.
10.3. AMENDMENTS
With the prior written consent of the Majority Banks, the Agent and
the Company may, from time to time, enter into written amendments, supplements
or modifications hereto for the purpose of adding any provisions to this
Agreement or changing in any manner the rights of the Banks or of the Company
hereunder or thereunder, and with the prior written consent of the Majority
Banks, the Agent on behalf of the Banks may execute and deliver to the Company
a written instrument waiving or consenting to the departure from, on such terms
and conditions as the Agent may specify in such instrument, any of the
requirements of this Agreement or any Event of Default and its consequences;
provided, however, that no such waiver or consent and no such amendment,
supplement or modification shall (i) (A) extend the Termination Date, (B)
reduce the principal amount of, or extend the Maturity Date of, any Loan or
extend the date for payment of any fees or interest hereunder, (C) reduce the
rate of interest on any Loan or reduce any other amount, including fees (other
than amounts referred to in subsection (ii) below), owing to the Banks under
this Agreement, (D) amend, modify or waive or consent to the departure from any
provision of Sections 4.7, 4.8, 4.9, 4.10, 10.6 or of this Section 10.3, (E)
increase the Commitment of any Bank, or (F) change the percentage specified in
the definition of Majority Banks, in each case without the written consent of
all the Banks, (ii) (A) reduce the principal amount of, or extend the Maturity
Date of, any Uncommitted Advance, or (B) reduce the rate of interest on any
Uncommitted Advance, or change the definition of Optional Majority Banks in
each case without the written consent of each Bank whose Uncommitted Advances
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<PAGE> 43
would be affected thereby or (iii) amend, modify or waive any provision of
Section 9 without the written consent of the Agent.
10.4. NO WAIVER
The rights and remedies of the Agent and the Banks under this
Agreement shall be cumulative and not exclusive of any rights or remedies
provided by law, and no failure or delay by the Agent or the Banks or any of
them in exercising any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude its other or further
exercise or the exercise of any other right, remedy, power or privilege.
10.5. SUCCESSORS AND ASSIGNS; LENDING OFFICES; LENDING
AFFILIATES; ADDITIONAL BANKS
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Company may not transfer or assign any of its rights or
obligations under this Agreement without the prior written consent of all the
Banks and no Bank may assign or transfer any of its rights or obligations under
this Agreement except in accordance with this Section 10.5.
(b) Each Bank shall have the right at any time and from time to
time to change its Lending Office to a different office of itself and such
office shall thereupon become a Lending Office. Each Bank shall give notice to
the Company and the Agent of the address of each Lending Office other than its
initial Lending Office, but the failure to give notice of the address of an
office which has become a Lending Office shall not affect the status of that
office as a Lending Office hereunder. No such transfer shall result in any
liability on the part of the Company for increased costs or expenses resulting
solely from such transfer. Increased costs or expenses of the kind referred to
in subsection 4.9 occurring subsequent to any such transfer shall be deemed not
to result "solely from such transfer." The Company's liability for any such
increased costs and expenses of the kind referred to in subsection 4.9
occurring subsequent to such transfer shall in no event exceed that which would
have resulted had such transfer not occurred.
(c) Each Bank shall have a one time option to designate as a
Lending Office in respect of its Loans or Uncommitted Advances an office of one
of its subsidiaries or affiliates (a "Lending Affiliate") by causing such
Lending Affiliate to execute a counterpart of this Agreement concurrently with
the execution and delivery hereof by all the parties hereto. Such Lending
Affiliate shall thereupon be deemed to be a "Bank" hereunder solely for the
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<PAGE> 44
purpose of the making of, and other matters relating to, Loans or Uncommitted
Advances, as the case may be, (as designated on the signature pages hereof);
and the Bank which has so transferred a portion of its obligations shall be a
"Bank" hereunder for all other purposes of this Agreement, including, without
limitation, for the purposes of determining the "Majority Banks" and "Optional
Majority Banks" and for the purpose of the calculation and payment of
utilization, participation and facility fees (the Loans made by a Bank to be
added to the Loans by its Lending Affiliate to make such determination and
calculation). Notwithstanding the foregoing, no Bank may make any such
transfer if such transfer will result in any liability on the part of the
Company for increased costs or expenses which would not have been imposed had
such transfer not been made. Increased costs or expenses of the kind referred
to in Section 4.9 occurring subsequent to any such transfer shall be deemed not
to result "solely from such transfer." The Company's liability for any such
increased costs and expenses of the kind referred to in Section 4.9 subsequent
to such transfer shall in no event exceed that which would have resulted had
such transfer not occurred.
(d) Any Bank may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell and
transfer to (i) any of its subsidiaries or affiliates, (ii) any other Bank or
any subsidiary or affiliate thereof or (iii) any Federal Reserve Bank, and,
with the consent of the Company and the Agent, such consent not to be
unreasonably withheld, to one or more additional banks or financial
institutions (any such other Bank, subsidiary, affiliate, or bank or financial
institution, a "Purchasing Bank") all or any part of its rights and obligations
(including its Commitment and any and all outstanding Loans and Uncommitted
Advances) under this Agreement; provided that assignments in part shall be in
minimum amounts of $10,000,000 and integral multiples of $5,000,000 in excess
thereof. Upon the execution by the Company, the Agent, the transferor Bank and
the Purchasing Bank of an agreement satisfactory to the Agent and the Company,
setting forth the amount of the Commitment of the Purchasing Bank, the
effective date of such transfer and containing the agreement of the Purchasing
Bank that it will be bound by this Agreement with all the rights and
obligations of a Bank hereunder and upon recordation by the Agent of the
information contained in such agreement pursuant to subsection 10.5(f), (x) the
Purchasing Bank thereunder shall be a party hereto and, to the extent provided
in such agreement, have the rights and obligations of a Bank hereunder with a
Commitment as set forth therein, and (y) the transferor Bank thereunder shall,
to the extent provided in such agreement, be released from its obligations
under this Agreement (and, in the case of an assignment covering all or the
remaining portion of a transferor Bank's rights and obligations under this
Agreement, such transferor Bank shall cease to be a party hereto).
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<PAGE> 45
Such agreement shall be deemed to amend this Agreement to the extent, and only
to the extent, necessary to reflect the addition of such Purchasing Bank and
the resulting adjustment of the percentages of the Commitments arising from the
purchase by such Purchasing Bank of all or a portion of the rights and
obligations of such transferor Bank under this Agreement. If, pursuant to this
subsection 10.5(d), any interest under this Agreement is transferred to any
Purchasing Bank, the transferor Bank shall cause such Purchasing Bank,
concurrently with the effectiveness of such transfer, to comply with subsection
4.10(b) to the same extent as required of the Banks parties to this Agreement
on the date hereof except that any statements or forms required to be furnished
thereunder shall be furnished within 5 Business Days of such transfer.
Notwithstanding the foregoing, no Bank may make any assignment or transfer
pursuant to this subsection 10.5(d) if such transfer will result in any
additional liability for increased costs or expenses resulting solely from such
transfer. Increased costs or expenses of the kind referred to in Section 4.9
occurring subsequent to any such transfer shall be deemed not resulting "solely
from such transfer."
(e) If the Commitment of any Bank is terminated pursuant to
Section 4.8 or Section 4.11, the Company may add another bank or banks (a
"Substituted Bank") in substitution for the Bank or Banks whose Commitment has
been terminated, in each case without the necessity of any approval by the
Banks, provided that the aggregate amount of the Commitments of such
Substituted Bank or Banks does not exceed the amount of the Commitment of the
terminated Bank. Upon (i) the execution of an agreement reasonably
satisfactory to the Agent by the Company, the Agent and each such Substituted
Bank setting forth the Commitment of each such Substituted Bank and stating
that it shall be bound by this Agreement with all the benefits and obligations
of a Bank hereunder, (ii) recordation by the Agent of the information contained
in said agreement pursuant to subsection 10.5(f) and (iii) compliance by such
Substituted Bank with the requirements of subsection 4.10(b) to the same extent
as required of the Banks parties to this Agreement on the date hereof except
that any statements or forms required to be furnished thereunder shall be
furnished prior to the effectiveness of the addition of such Substituted Bank,
each such substituted Bank shall be deemed to be a "Bank" for all purposes of
this Agreement and the Agent shall notify each other Bank accordingly.
(f) The Agent shall maintain at its address referred to in
subsection 10.1 a copy of each agreement delivered to it pursuant to
subsections 10.5(d) and (e) and a register (the "Commitment Register") for the
recordation of the names and addresses of the Banks and the Commitment of each
Bank from time to time. The entries in the Commitment Register shall be
conclusive, in the absence of manifest error. The Commitment Register shall be
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<PAGE> 46
available for inspection by the Company or any Bank at any reasonable time and
from time to time upon reasonable prior notice. Upon its receipt of an
agreement pursuant to subsection 10.5(d) or (e), together with payment to the
Agent of a registration and processing fee of $3,000 for each Purchasing Bank
or Substituted Bank, as the case may be, named therein, the Agent shall (i)
promptly accept such agreement, (ii) on the effective date of the transfer or
substitution determined pursuant thereto record the information contained
therein in the Commitment Register and (iii) give notice of such acceptance and
recordation to the Banks and the Company.
(g) Notwithstanding anything hereinabove contained in this
section 10.5, (i) no Bank may make any assignment, pledge, conveyance or
transfer hereunder other than to a commercial bank or financial institution
whose ordinary business is or includes making loans to corporate borrowers and
(ii) this section 10.5 shall not affect the Banks' right to grant
participations in their rights and obligations under the Agreement.
(h) Nothing herein shall prohibit any Bank from pledging or
assigning its Loans or Uncommitted Advances to any Federal Reserve Bank in
accordance with applicable laws.
10.6. PRORATION OF PAYMENTS
Each Bank agrees that if any Bank (a "benefited Bank") shall at any
time receive any payment of all or part of its Loans and Uncommitted Advances
or interest thereon (except for regularly scheduled payments of principal and
interest), or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in clause (e) of Section 8, or otherwise) in a greater proportion
than any such payment to and collateral received by any other Bank, if any, in
respect of such other Bank's Loans or interest thereon, such benefited Bank
shall purchase for cash from other Banks such portion of each such other Bank's
Loans, or shall provide such other Banks with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
benefited Bank to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Banks; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefited Bank, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Company agrees that each Bank so purchasing a portion of another Bank's Loans
and Uncommitted Advances may exercise all rights of payment (including without
limitation rights of set-off) with respect to such portion as fully as if such
Bank were the direct holder of such portion. Any Bank which receives any
amount
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<PAGE> 47
by set-off shall promptly notify the Agent and the Company thereof and the
Agent shall promptly so notify the other Banks.
10.7. COUNTERPARTS
This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. A
set of the copies of this Agreement signed by all the parties shall be lodged
with the Company and the Agent.
10.8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made under this Agreement shall
survive, and not be waived by, the execution and delivery of this Agreement,
any investigation by the Agent or any Bank or the making of any Loan or
Uncommitted Advance.
10.9. SURVIVAL OF OBLIGATIONS
The obligation of the Company to make payments or to provide
indemnities to the Agent or any Bank as provided for in this Agreement shall
survive the payment in full of the Loans and Uncommitted Advances and the
termination of this Agreement.
10.10. NO THIRD PARTY RIGHTS
Nothing expressed in or to be implied from this Agreement is intended
or shall be construed to give any person, other than the parties hereto, any
legal or equitable right, remedy or claim under or by virtue of this Agreement
or under or by virtue of any agreement or provision herein.
10.11. GOVERNING LAW
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW
OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
10.12. JURISDICTION; PROCESS
THE COMPANY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK CITY OVER
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE LOANS OR THE UNCOMMITTED ADVANCES.
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<PAGE> 48
The Company consents to process being served in any such suit, action
or proceeding either by mailing a copy thereof to the Company or, if
applicable, by serving a copy thereof upon the agent for service of process
referred to below; provided that to the extent lawful and possible, written
notice of such service shall also be mailed to the Company as aforesaid. The
Company agrees that such service shall be deemed in every respect effective
service of process upon the Company in any such suit, action or proceeding and
shall, to the full extent permitted by law, be taken and held to be valid
personal service upon and personal delivery to the Company. Nothing in this
paragraph shall affect or limit any right to serve process in any manner
permitted by law, to bring proceedings in the courts of any jurisdiction or to
enforce in any lawful manner a judgment obtained in one jurisdiction in any
other jurisdiction.
The Company irrevocably waives, to the full extent permitted by law,
any objection which it may have to the laying of venue of any such suit, action
or proceeding brought in any such court and any claim that any such suit,
action or proceeding has been brought in an inconvenient forum. So long as any
of the Commitments remains in effect or any Loans, Uncommitted Advances or
other amounts remain outstanding hereunder and if and so long as the Company no
longer has a place of business in New York, the Company will at all times have
an authorized agent in New York upon whom process may be served in any action
or proceeding arising out of or relating to this Agreement, the Loans or the
Uncommitted Advances which at the date hereof is The Prentice-Hall Corporation
System, Inc., 15 Columbus Circle, New York, New York 10023-7773. The Company
will notify the Agent of any change in its authorized agent.
10.13. WAIVER OF TRIAL BY JURY
THE COMPANY, THE AGENT AND EACH BANK EACH HEREBY IRREVOCABLY WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.14. ENTIRE AGREEMENT
This Agreement, the ACONA Agreement and the agreements concerning the
fees of the Agent and Syndication Agent constitute the entire understanding
among the parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with respect thereto.
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<PAGE> 49
10.15. HEADINGS
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect any of the terms hereof.
10.16. SEVERABILITY
Every provision of this Agreement is intended to be severable; if any
term or provision hereof shall be invalid, illegal or unenforceable for any
reason whatsoever, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
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<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their duly authorized officer or
attorneys-in-fact, in several counterparts, all as of the day and year first
above written.
ASSOCIATES FIRST CAPITAL CORPORATION
By:______________________________________
John F. Hughes
Executive Vice President
and Treasurer
DEUTSCHE BANK AG
as Administrative Agent
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
UNION BANK OF SWITZERLAND
as Syndication Agent
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
47
<PAGE> 51
COMMERZBANK AG
as Documentation Agent
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
48
<PAGE> 52
Commitment Banks and Lending Affiliates
$300,000,000 DEUTSCHE BANK AG
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
$300,000,000 UNION BANK OF SWITZERLAND
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
$200,000,000 COMMERZBANK AG
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
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<PAGE> 53
$100,000,000 ABN AMRO BANK, N.V.
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
$100,000,000 BANK OF MONTREAL
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
$100,000,000 BANQUE NATIONAL DE PARIS
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
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<PAGE> 54
$100,000,000 CANADIAN IMPERIAL BANK OF COMMERCE
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
$100,000,000 CITIBANK, N.A.
By:______________________________________
Printed Name:
Title:
$100,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By:______________________________________
Printed Name:
Title:
$100,000,000 THE BANK OF NOVA SCOTIA
By:______________________________________
Printed Name:
Title:
By:______________________________________
Printed Name:
Title:
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<PAGE> 55
SCHEDULE I
Loan and Uncommitted Advances Lending
Office and Address for Notices
DEUTSCHE BANK AG
Ms. George-Ann Tobin-Dew
Managing Director
31 West 52nd Street
New York, NY 10019
(212) 474-8107
(212) 474-8108 (fax)
UNION BANK OF SWITZERLAND
Mr. James Broadus
Assistant Treasurer
299 Park Avenue
New York, NY 10171-0026
(212) 821-3227
(212) 821-3259 (fax)
COMMERZBANK AG
Mr. Harry P. Yergey
Vice President
1016 Peachtree, Suite 3500
Atlanta, GA 30309
(404) 888-6533
(404) 888-6539 (fax)
ABN AMRO BANK, N.V.
Mr. John M. Ellenwood
Group Vice President
135 S. LaSalle Street, Suite 425
Chicago, IL 60603
(312) 443-2735
(312) 606-8425 (fax)
BANK OF MONTREAL
Mr. Michael P. Joyce
Director
115 S. LaSalle Street, 12th Floor West
Chicago, IL 60603
(312) 750-4369
(312) 750-4314 (fax)
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<PAGE> 56
THE BANK OF NOVA SCOTIA
Ms. Rosine Matthews
Relationship Manager
1100 Louisiana, Suite 3000
Houston, TX 77002
(713) 759-3432
(713) 753-2425 (fax)
BANQUE NATIONAL DE PARIS, HOUSTON AGENCY
Mr. Henry F. Setina
Vice President
717 North Harwood St., Suite 2630
Dallas, TX 75201
(214) 969-7388
(214) 969-0060 (fax)
CANADIAN IMPERIAL BANK OF COMMERCE
Ms. Lu Ann Bowers
Director
425 Lexington Avenue, 8th Floor
New York, NY 10017
(212) 856-3638
(212) 856-3613 (fax)
CITIBANK, N.A.
Mr. Joseph M. Scoblic
Vice President
399 Park Avenue, 8th Floor
Zone 12
New York, NY 10043
(212) 559-6931
(212) 421-0063 (fax)
THE FIRST NATIONAL BANK OF CHICAGO
Mr. Raymond M. Neihengen, Jr.
Managing Director
One First National Plaza #0084
Chicago, IL 60670-0084
(312) 732-2968
(312) 732-6222 (fax)
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EXHIBIT A
(To be sent in DUPLICATE to each addressee
and accompanied by TWO executed copies
of Form 1001 of the U.S. Internal
Revenue Service)
(Bank's Letterhead)
________, 199_
Associates First Capital Corporation
250 East Carpenter Freeway
Irving, Texas 75062-2729
U.S.A.
Attention: Executive Vice President and Treasurer
,
as Agent
- -------------------------
- -------------------------
Dear Sirs,
Credit Agreement dated as of March 31, 1996
Providing a U.S. $1.5 Billion Facility for
Associates First Capital Corporation, as Borrower
with Deutsche Bank AG, as Administrative Agent
In connection with the above Agreement, we hereby certify that
[name of Bank] is a [name of country] corporation and is currently exempt from
any U.S. federal withholding tax on interest paid to it from U.S. sources by
virtue of compliance with the provisions of the Income Tax Convention between
the United States and [name of country] signed [date], [as amended]. Our
fiscal year is the twelve months ending [ ].
The undersigned (a) is a corporation organized under the laws of
[ ] whose business is managed or controlled in [ ]
(b) [does not have a permanent establishment in the United States] [does have a
permanent establishment in the United States but the above Agreement is not
effectively connected with such permanent establishment], (c) is not exempt
from tax on the income in [ ] and (d) is the actual owner of the
income.
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<PAGE> 58
We enclose herewith two copies of Form 1001 of the U.S. Internal Revenue
Service.
Yours faithfully,
(Name of Bank)
By:
--------------------------
55
<PAGE> 59
EXHIBIT B
(To be sent in DUPLICATE to each addressee
and accompanied by TWO executed copies
of Form 4224 of the U.S. Internal
Revenue Service)
(Bank's Letterhead)
________, 199_
Associates First Capital Corporation
250 East Carpenter Freeway
Irving, Texas 75062-2729
U.S.A.
Attention: Executive Vice President and Treasurer
,
as Agent
- -------------------------
- -------------------------
Dear Sirs,
Credit Agreement dated as of March 31, 1996
Providing a U.S. $1.5 Billion Facility for
Associates First Capital Corporation,as Borrower
with Deutsche Bank AG, as Administrative Agent
In connection with the above Agreement we hereby certify that [name of
Bank] is currently entitled to exemption from U.S. federal withholding tax on
payments to it under the above Agreement by virtue of Section 1441(c) of the
Internal Revenue Code of the United States of America.
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<PAGE> 60
We enclose herewith two copies of Form 4224 of the U.S. Internal Revenue
Service.
Yours faithfully,
(Name of Bank)
By:
---------------------
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EXHIBIT C
[Letterhead of Associates First Capital Corporation]
To: the Administrative Agent,
the Syndication Agent,
the Documentation Agent,
and the Banks parties to
the Credit Agreement referred to below.
c/o Deutsche Bank AG
New York, NY
__________, 199_
Dear Sirs,
I am Vice President and Assistant General Counsel of Associates
First Capital Corporation, (the "Company"), and have acted as such in
connection with the preparation, execution and delivery of the Credit
Agreement, dated as of March 31, 1996 (the "Agreement"), among the Company,
Deutsche Bank AG as Administrative Agent (the "Agent"), the several banks
parties thereto (the "Banks"), Union Bank of Switzerland as Syndication Agent
for the Banks (in such capacity, the "Syndication Agent"), and Commerzbank AG
as Documentation Agent for the Banks (in such capacity, the "Documentation
Agent"), which Agreement provides for the making of Loans in the maximum
aggregate principal amount of $1,500,000,000 at any one time outstanding and
for the making of Uncommitted Advances.
For the purpose of giving this opinion, I have examined:
(a) a copy of the Agreement;
(b) certified copies of each of the documents referred to in
subsections 6.1(a) and (c) of the Agreement;
(c) the specimen signatures and certificates referred to in
subsection 6.1(b) of the Agreement; and
(d) such other documents and such laws, regulations, decrees
and judicial decisions as I have considered necessary or
desirable for the purpose of giving this opinion and,
except as to item (v) below, I have made such other legal
inquiries as I deemed advisable.
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Based upon the foregoing and subject to the qualifications and
limitations set forth herein, I am of the opinion that:
(i) the Company and each Subsidiary is a corporation duly
organized and in good standing under the laws of the jurisdiction of its
incorporation, has the power to conduct its business as now conducted and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions wherein the nature of the business it transacts makes such
qualification necessary, except when the failure to so qualify would not result
in a material adverse effect on the financial condition, results of operations
or businesses of the Company and its Subsidiaries taken as a whole. The
Company is duly qualified as a foreign corporation in good standing under the
law of the State of New York;
(ii) the execution, delivery and performance of the Agreement
by the Company are within the Company's corporate authority, have been duly
authorized by proper corporate proceedings, will not contravene any provision
of law or its Restated Certificate of Incorporation or By-laws or constitute a
default under the terms of any agreement binding upon it, and does not require
the consent or approval of, or registration with, any governmental authority,
body or agency;
(iii) the Agreement constitutes a legal, valid and binding
agreement of the Company enforceable in accordance with its terms;
(iv) the obligations of the Company under the Agreement rank
and will rank at least pari passu with all other unsecured and unsubordinated
indebtedness of the Company;
(v) based solely upon my review of a certification of Coopers
& Lybrand, it being understood that I have made no independent investigation
into the financial condition of such plans, no employee benefit plan
established or maintained by, or to which contributions have been made by, the
Company or any Subsidiary or both, which is subject to Part 3 of Subtitle B of
Title 1 of ERISA had an accumulated funding deficiency (as such term is defined
in Section 302 or ERISA) as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof and no material liability to the
Pension Benefit Guaranty Corporation has been incurred with respect to any such
plan by the Company or by any Subsidiary;
(vii) the statements as to matters of law or legal conclusions
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 were correct as of the date such report was filed with the
United States Securities and Exchange Commission, and such statements fairly
present such matters or conclusions; and I have no reason to believe that such
Form 10-K, or any supplement or amendment thereto, as of their respective
dates, furnished to the Banks, contains any untrue statement of a material fact
or omitted to state a material fact
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necessary in order to make the statements therein, in the light of the
circumstances in which they were made, not misleading, except that I express no
opinion as to the financial statements or other financial or statistical data
contained therein;
(ix) the Company is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended; and
(x) assuming the accuracy and correctness of the
representations and warranties of the Company in Section 5.9 of the Agreement,
the making of the Loans and Uncommitted Advances will not violate Regulations
G, T, U and X of the Board of Governors of the Federal Reserve System.
I confirm that, as of the date hereof, there is no legal
proceeding pending, or overtly threatened in writing, before any court,
governmental agency, or arbitrator which would be required to be disclosed in
an Annual Report on Form 10-K or a quarterly report on Form 10-Q.
Except for the matters stated in paragraph (i) as to qualification
as a foreign corporation, this opinion is limited to the law of the State of
New York, the corporate law of the State of Delaware and the law of the United
States of America.
This opinion is qualified by and incorporates by reference the
General Qualifications, as defined in the Legal Opinion Accord of the ABA
Section of Business Law (1991).
This opinion is given as of the date hereof. I undertake no
obligation to advise you subsequently with respect to any change in law or
regulation or any factual matters on which such opinion is based.
This opinion is provided solely for the benefit of the Agent, the
Syndication Agent, the Banks, including such Banks and other financial
institutions which lawfully acquire an interest in any Loans or Uncommitted
Advances through a Bank, and their permitted successors and assigns and may not
be relied upon by any other person.
Very truly yours,
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