<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1996
REGISTRATION NO. 333-817
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
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............... $ $100,000,000 $34,483
=================================================================================================
</TABLE>
(1) Includes 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.
---------------------
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.
================================================================================
<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 , 1996
SHARES
LOGO
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
---------------------
Of the shares of Class A Common Stock offered, shares
are being offered hereby in the United States and 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 % of the outstanding Class A
Common Stock ( % 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 approximately % of the combined voting power of
all classes of voting stock and % of the economic interest (or rights of
holders of common equity to participate in distributions in respect of the
common equity) in the Company ( % and %, 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
$ and $ . 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 10, 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 $ payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 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 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".
-------------------------
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.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MERRILL LYNCH & CO.
J. P. MORGAN SECURITIES INC.
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.
2
<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 NYSE
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.
3
<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 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 9.5 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)
[GRAPH]
(1) 1990 and 1991 pre-tax earnings exclude non-recurring
interest expense. See the immediately following
financial information and note (4) thereto.
4
<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 9.5 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.
5
<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.
6
<PAGE> 11
THE OFFERINGS
<TABLE>
<S> <C>
Class A Common Stock Offered(1):
United States Offering........ shares
International Offering........ shares
Total................. shares
Common Stock Outstanding After
the Offerings(1)(2):
Class A Common Stock.......... shares
Class B Common Stock.......... shares
Total................. shares
Use of Proceeds................. The estimated 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"), after the deduction of underwriting
discounts, will 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".
NYSE 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 shares and shares subject to over-allotment
options granted by the Company to the U.S. Underwriters and the
International Underwriters, respectively. See "Underwriting".
(2) Excludes 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".
7
<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. per share (a
rate of $0. 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 Ford on February 8, 1996
in the form of an intercompany note. 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 % of the
outstanding Class A Common Stock ( % 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 approximately % of the combined voting power of all of the
outstanding Common Stock (or approximately % 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 shares of Class A Common Stock and
shares of Class B Common Stock. 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 on the cover page of this Prospectus.
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".
8
<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)..............
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)......
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 shares to be outstanding after the Offerings. Excludes up
to shares and 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 $ and $ , respectively. Also
excludes 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".
(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.
9
<PAGE> 14
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 lending spread. 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 lending spreads 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 39% 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".
10
<PAGE> 15
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
11
<PAGE> 16
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".
12
<PAGE> 17
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 % of
the outstanding Class A Common Stock (or approximately % 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
approximately % of the combined voting power of all the outstanding Common
Stock (or approximately % 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
13
<PAGE> 18
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%.
14
<PAGE> 19
THE COMPANY
The Company is a leading, diversified consumer and commercial finance
organization which provides finance, leasing and related services to
approximately 9.5 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 shares of Class A Common
Stock, which upon completion of the Offerings will represent approximately
% of the outstanding Class A Common Stock ( % if the Underwriters'
over-allotment options are exercised in full) and 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 estimated proceeds to the Company from the Offerings, after the
deduction of underwriting discounts, will 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 its immediate parent, Ford FSG, Inc., an indirect,
wholly-owned sudsidiary of Ford (FFSG"), in the amount of $1.75 billion on
February 8, 1996. See "Dividend Policy".
15
<PAGE> 20
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. per share (a
rate of $0. 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. 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 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 shares of Class B Common Stock, the
issuance to Ford of shares of Class A Common Stock and
shares of Class B Common Stock in connection with the Foreign Subsidiaries
Recontribution and the issuance and sale by the Company of shares of
Class A Common Stock in the Offerings at an assumed initial public offering
price of $ 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 (c), assuming
an initial public offering price of $ per share, the receipt of net
proceeds of $ billion from the sale by the Company of 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>
16
<PAGE> 21
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).........................
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).................
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 shares to be outstanding after the Offerings. Excludes up to
shares and 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 $ and $ , respectively. Also excludes 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".
(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.
17
<PAGE> 22
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.
18
<PAGE> 23
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.................................. 17.49% 16.86% 16.88% 16.92%
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
19
<PAGE> 24
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".
20
<PAGE> 25
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>
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.
21
<PAGE> 26
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 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.
22
<PAGE> 27
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>
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
23
<PAGE> 28
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 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.
24
<PAGE> 29
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.
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
25
<PAGE> 30
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.
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.
26
<PAGE> 31
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 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. Although the Company has not yet determined how it
will apply this new pronouncement, under any scenario, 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.
27
<PAGE> 32
BUSINESS
OVERVIEW
The Company is a leading, diversified consumer and commercial finance
organization which provides finance, leasing and related services to
approximately 9.5 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.
28
<PAGE> 33
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:
[GRAPH]
29
<PAGE> 34
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% 26.5% 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>
30
<PAGE> 35
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
31
<PAGE> 36
(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
32
<PAGE> 37
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 15.8 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 39% 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
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<PAGE> 38
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 2.7 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% 1.96% 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 38% 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 70% 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
34
<PAGE> 39
determining the ability of the customer to repay. In addition, the Company
reviews credit bureau 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.
35
<PAGE> 40
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 $1,820. 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% 3.25% 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
36
<PAGE> 41
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
37
<PAGE> 42
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.
- 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.
- Japan.United Kingdom.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.
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<PAGE> 43
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:
39
<PAGE> 44
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 6.1 million customers with 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.
40
<PAGE> 45
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% 2.94% 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.
41
<PAGE> 46
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
42
<PAGE> 47
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.
43
<PAGE> 48
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.
44
<PAGE> 49
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)........ 53 52 52 51 51
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
45
<PAGE> 50
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.
46
<PAGE> 51
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
47
<PAGE> 52
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.
48
<PAGE> 53
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).... 51 48 47 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.
49
<PAGE> 54
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
50
<PAGE> 55
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>
51
<PAGE> 56
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> 57
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> 58
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
54
<PAGE> 59
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 tables set 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
55
<PAGE> 60
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> 61
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% 1.96% 2.63%
Personal lending/retail sales finance........... 2.63 2.41 2.50 3.25 3.68
Credit card..................................... 3.46 2.94 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> 62
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..... $ 4,350.9 11.0% $ 3,138.5 11.4% $1,212.4 10.0%
Florida........ 2,396.0 6.0 1,876.2 6.8 519.8 4.3
Texas.......... 2,282.8 5.7 1,279.7 4.6 1,003.1 8.3
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... 1,582.6 4.0 1,006.4 3.6 576.2 4.7
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....... 1,531.5 3.9 929.4 3.4 602.1 5.0
Ohio........... 1,523.5 3.8 1,043.7 3.8 479.8 4.0
--------- ----- --------- ----- -------- -----
Total........ $20,592.0 51.9% $14,975.6 54.3% $5,616.4 46.4%
========= ===== ========= ===== ======== =====
</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> 63
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 higher concentration of lawsuits in the State of Alabama as
compared to the remainder of the United States. Management believes that the
aggregate amount of lawsuits instituted in Alabama represents additional
exposure to the Company because of the recent history of juries in Alabama to
award 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. In addition, a recent
59
<PAGE> 64
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. At February 28, 1996, the
Company was a defendant in 12 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 uniform,
understandable information with respect to the terms and conditions of loans and
credit
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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 powers. Generally, such laws
cover, among other things, types of insurance that may be sold, policy
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<PAGE> 66
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 % of the outstanding Class A Common Stock ( % 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 approximately %
of the combined voting power of all of the outstanding Common Stock (or
approximately % 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
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<PAGE> 67
Company's tax decisions, and conflicts of interest regarding tax matters between
the Company and Ford may arise. See "-- Tax-Sharing Agreement".
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
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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.
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 attributes, however, such as foreign
tax credits, the Company's right to reimbursement will be determined based on
the usage of such attributes 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 August 1991.
Harold D. Marshall......... 59 Vice Chairman of the Board and Director of the Company
since November 1988.
James E. Jack.............. 54 Senior Executive Vice President and Chief Financial Officer
of the Company since October 1993; Director of the Company
since December 1993; Executive Vice President and Chief
Financial Officer of the Company from March 1981 until
October 1993.
Roy A. Guthrie............. 42 Executive Vice President, Comptroller, Chief Accounting
Officer and Director of the Company since June 1995;
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 five 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
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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.
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 (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($) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ------------ ---------- ---------------
(4) (5) (6) (9)
<S> <C> <C> <C> <C> <C> <C> <C>
0 $1,088,050(7) $ 29,596(10)
Chairman and Chief
Executive Officer(1)
Reece A. Overcash, Jr...... 1995 92,863(3) 0 4,328 0 0 2,107,518(11)
Former Chairman and 1994 729,150 700,000 35,491 0 5,258,770 67,689(11)
Chief Executive 1993 675,925 650,000 28,140 0 765,000 64,496(11)
Officer(2)
Joseph M. McQuillan........ 1995 315,250 410,000 16,820 0 438,000 73,050(12)
Vice Chairman 1994 296,625 385,000 14,665 10,000 365,000 64,509(12)
1993 278,250 324,000 12,471 0 330,000 48,819(12)
Harold D. Marshall......... 1995 342,750 350,000 13,919 0 458,000 100,989(13)
Vice Chairman 1994 325,900 330,000 15,139 10,000 1,114,828 24,648(13)
1993 309,175 286,000 13,698 0 565,518 30,338(13)
James E. Jack.............. 1995 253,950 200,000 11,698 0 582,090(8) 43,103(14)
Senior Executive Vice 1994 238,500 224,000 11,374 0 572,880 16,574(14)
President and Chief 1993 221,525 200,000 7,962 0 276,960 15,296(14)
Financial Officer
Chester D. Longenecker..... 1995 216,250 127,000 7,298 0 121,000 159,046(15)
Executive Vice President 1994 205,500 113,000 8,667 0 541,701 13,238(15)
and General Counsel 1993 195,250 103,000 4,528 0 100,000 46,758(15)
</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) 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.
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(4) 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").
(5) 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 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).
(6) 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).
(7) For Mr. Hughes for 1995, the LTPP award was $700,000, and he received
$388,050 for PSARs exercised in 1995.
(8) For Mr. Jack for 1995, the LTPP award was $284,000, and he received
$298,090 for PSARs exercised in 1995.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) 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) $839 for 1993.
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<PAGE> 73
OPTIONS/STOCK APPRECIATION RIGHTS
The following table sets forth certain information regarding the exercise
of options to purchase common stock of Ford during the fiscal year ending
December 31, 1995 and exercisable/unexercisable options to purchase common stock
of Ford held at December 31, 1995 and the value thereof by the Named Executive
Officers. No options were exercised by the Named Executive Officers during 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
12/31/95(#) 12/31/95($)
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
$28.875.
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<PAGE> 74
LONG-TERM INCENTIVE PLANS
The following table sets forth certain information regarding awards made
during 1995 to the Named Executive Officers under the Company's long-term
incentive compensation plans: the PSAR Plan and the LTPP.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
NUMBER OF PERIOD ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNTIL NON-STOCK PRICE-BASED PLANS(3)
UNITS OR MATURATION ----------------------------------------
NAME OTHER RIGHTS(#) OR PAYOUT THRESHOLD($) 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> 75
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. While Messrs. Hughes,
McQuillan, Marshall, Jack and Longenecker are participants in the EBP, 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 participant in the SRIP at his death and his surviving spouse is
receiving a survivor benefit under the SRIP.
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<PAGE> 76
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....... 390,394
</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 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-one senior executives, including each Named Executive Officer
(individually, an "Employment Agreement" and collectively, 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
72
<PAGE> 77
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. 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, Jack and Longenecker of $440,000, $320,000, $347,000, $257,600 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 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 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
73
<PAGE> 78
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 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
74
<PAGE> 79
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.
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
75
<PAGE> 80
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.
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
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<PAGE> 81
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"). 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. 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 NYSE 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 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
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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 shares (including Awards granted prior to the
Offerings and subject to adjustment as provided in the ECP), or approximately
% of all outstanding Common Stock as of the tenth (10th) business day
following the Closing Date. Class A Common Stock issued under the ECP may be
either authorized but unissued shares (subject to a maximum limit of
shares), treasury shares or any combination thereof. Any shares of Class A
Common Stock in addition to 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). To the fullest extent permitted under Rule 16b-3 under the
Exchange Act and Section 422 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 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..................
Joseph M. McQuillan
Vice Chairman.........................................
Harold D. Marshall
Vice Chairman.........................................
James E. Jack
Senior Executive Vice President and Chief Financial
Officer............................................
Chester D. Longenecker
Executive Vice President and General Counsel..........
All Executive Officers as a Group (including those
listed above).........................................
Non-Employee Directors 0 0
All Other Employees as a Group.......................... 0
</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 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 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
NYSE 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
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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 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 NYSE on the date the SAR is granted), and (ii)
[the closing trading price of the Class A Common Stock on the NYSE 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 NYSE 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
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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, 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
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compensation income and possibly capital gain or loss in such amounts as are
prescribed by the 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 % of the outstanding
Class A Common Stock ( % if the Underwriters' over-allotment options are
exercised in full) and, accordingly, will in the aggregate own Common Stock
representing approximately % of the economic interest in the Company
( % if the Underwriters' over-allotment options are exercised in full) and
representing approximately % of the combined voting power of the Company's
outstanding Common Stock ( % 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 shares of
Class A Common Stock issued and outstanding ( if the Underwriters'
over-allotment options are exercised in full) and 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. All of the outstanding shares of Class B Common Stock
and shares of Class A Common Stock are beneficially owned by Ford and have
not 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)
shares of Class A Common Stock and shares of Class B Common Stock and
(ii) shares of Preferred Stock, par value $0.01 per share, none of
which is outstanding as of the date hereof. Of the shares of
Class A Common Stock, shares will have been issued to Ford in
connection with the Foreign Subsidiaries Recontribution, shares are
being offered in the Offerings, shares are reserved for issuance upon
conversion of Class B Common Stock into Class A Common Stock and
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 shares of
Class B Common Stock, shares will be outstanding and held by Ford or
one or more of its subsidiaries, including FFSG, upon consummation of the
Offerings. 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 Certificate of
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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,
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where a tax treaty applies, is attributable to a United States permanent
establishment of the Non-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.
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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.
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 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
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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 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
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 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 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, 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.
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. 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.
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.
94
<PAGE> 99
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.
95
<PAGE> 100
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 180 days contractually delinquent and secured
loans at the earlier of certain specific events or when
the account becomes one year contractually delinquent.
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.
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.
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.
</TABLE>
96
<PAGE> 101
<TABLE>
<S> <C>
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 to the value of the property (at the lower of
purchase price or appraised value) on the date of the
loan.
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 accounts charged off as a result of the
borrowers' failure to repay the amount owed on the account
after a payment has been past due for a specified period
of time. Net credit losses exclude interest and fees not
paid and include present period recoveries on loans
charged off in prior periods.
Net Finance Receivables......... Finance receivables net of unearned income.
Open-End Lease.................. A lease under which (i) the lessee bears the residual risk
of the property subject to the lease and (ii) the lessor
retains the benefit of depreciation for tax purposes.
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.
</TABLE>
97
<PAGE> 102
<TABLE>
<S> <C>
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 an
index.
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>
98
<PAGE> 103
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> 104
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> 105
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*................................... $ $ $
======== ======== ========
</TABLE>
- ---------------
* Based on an assumed million shares outstanding and in whole dollars.
See notes to supplemental combined financial statements.
F-3
<PAGE> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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 million shares outstanding after completion of the
Company's initial public offering.
F-9
<PAGE> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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...................... $ $ $ $
======== ======== ======== ========
</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...................... $ $ $ $
======== ======== ======== ========
</TABLE>
F-24
<PAGE> 127
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> 128
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> 129
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> 130
[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> 131
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.................... 3
Prospectus Summary....................... 4
Risk Factors............................. 10
The Company.............................. 15
Use of Proceeds.......................... 15
Dividend Policy.......................... 16
Capitalization........................... 16
Selected Supplemental Combined Financial
Data................................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 18
Business................................. 28
Relationship with Ford................... 62
Management............................... 66
Ownership of Common Stock................ 82
Shares Available for Future Sale......... 82
Description of Capital Stock............. 83
Description of Certain Indebtedness...... 90
Certain United States Tax Consequences to
Non-United States Holders.............. 91
Underwriting............................. 93
Legal Matters............................ 95
Experts.................................. 95
Glossary................................. 96
Index to Supplemental Combined Financial
Statements............................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MERRILL LYNCH & CO.
J.P. MORGAN SECURITIES INC.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee................................................................ $ 34,483
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................................................................... 140,537
----------
Total................................................................. $ 3,400,000
==========
</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> 133
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) -- Amended and Restated Form of 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> 134
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------------------
<C> <S>
24 -- Power of Attorney+
27 -- Financial Data Schedule+
</TABLE>
- ---------------
* To be filed by amendment
+ 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> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 19th 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. 1 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KEITH W. HUGHES* Chairman of the Board, March 19, 1996
- ------------------------------------------- Principal Executive
(Keith W. Hughes) Officer and Director
/s/ ROY A. GUTHRIE Executive Vice President, March 19, 1996
- ------------------------------------------- Comptroller, and Principal
(Roy A. Guthrie) Accounting Officer and
Director
/s/ JAMES E. JACK* Senior Executive Vice March 19, 1996
- ------------------------------------------- President, Principal
(James E. Jack) Financial Officer and
Director
/s/ HOWARD D. MARSHALL* Director March 19, 1996
- -------------------------------------------
(Harold D. Marshall)
/s/ JOSEPH M. MCQUILLAN* Director March 19, 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> 136
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) -- Amended and Restated Form of 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+
</TABLE>
- ---------------
* To be filed by amendment
+ Previously filed
<PAGE> 1
EXHIBIT 1.1
ASSOCIATES FIRST CAPITAL CORPORATION
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
___________________________________
Underwriting Agreement
(U.S. Version)
___________________________________
, 1996
Goldman, Sachs & Co.
CS First Boston Corporation
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan Securities Inc.
Bear, Stearns & Co. Inc.
Lehman Brothers Inc.
Salomon Brothers Inc
As representatives of the several Underwriters
named in Schedule I hereto
(the "Representatives")
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Associates First Capital Corporation, a Delaware corporation
(the "Company"), proposes, subject to the terms and conditions stated herein,
to issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of ........ shares (the "Firm Shares") and, at the
election of the Underwriters, up to ......... additional shares (the "Optional
Shares") of Class A Common Stock, par value $.01 per share ("Stock"), of the
Company (the Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 3 hereof being collectively called the "Shares").
The Company is a wholly-owned subsidiary of Ford FSG, Inc., a Delaware
corporation
<PAGE> 2
2
("FFSG"), and FFSG is an indirect, wholly-owned subsidiary of Ford Motor
Company, a Delaware corporation ("Ford"). As used herein, "Principal
Subsidiaries" shall mean those subsidiaries of the Company named in Schedule II
hereto.
It is understood and agreed to by all parties that the Company
and Ford are concurrently entering into an agreement (the "International
Underwriting Agreement") providing for the sale by the Company of up to a total
of ........ shares of Stock (the "International Shares"), including the
overallotment option thereunder, through arrangements with certain underwriters
outside the United States (the "International Underwriters"), for whom 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 are acting as lead managers. Anything herein or therein to the
contrary notwithstanding, the respective closings under this Agreement and the
International Underwriting Agreement are hereby expressly made conditional on
one another. The Underwriters hereunder and the International Underwriters are
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one
relating to the Shares hereunder and the other relating to the International
Shares. The latter form of prospectus will be identical to the former except
for certain substitute pages. Except as used in Sections 3, 4, 5, 10 and 12
herein, and except as the context may otherwise require, references hereinafter
to the Shares shall include all the shares of Stock which may be sold pursuant
to either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File No.
333-817) in respect of the Shares has been filed with the Securities
and Exchange Commission (the "Commission"); such registration
statement and any post-effective amendment thereto, each in the form
heretofore delivered to you, and, excluding exhibits thereto, to you
for each of the other Underwriters, have been declared effective by
the Commission in such form; other than the Current Reports on Form
8-K dated February 9, 1996 [and April ..... , 1996] filed by the
Company, no other document with respect to such registration statement
has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of such registration statement has been
issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
such registration statement or filed with the
<PAGE> 3
3
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Securities Act of 1933, as amended (the "Act"),
is hereinafter called a "Preliminary Prospectus"; the various parts of
such registration statement, including all exhibits thereto and
including the information contained in the form of final prospectus
filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 6(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the registration statement at the time it
was declared effective, each as amended at the time such part of the
registration statement became effective, are hereinafter collectively
called the "Registration Statement"; such final prospectus, in the
form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus");
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by an Underwriter through you expressly for use
therein;
(c) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will conform, in all material
respects, to the requirements of the Act and the rules and regulations
of the Commission thereunder and do not and will not, as of the
applicable effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through you expressly for use therein;
(d) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor any
of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into any transactions, not in the
ordinary course of business, which are material to the Company and its
subsidiaries, considered as a whole, and there has not been any
material adverse
<PAGE> 4
4
change, on a consolidated basis, in the capital stock, short-term debt
or long-term debt of the Company and its subsidiaries, or any material
adverse change, or any development involving a prospective material
adverse change, in the condition (financial or other), business, net
worth or results of operations of the Company and its subsidiaries,
considered as a whole;
(e) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus,
and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification, except to the extent
that the failure to so qualify or be in good standing would not have a
material adverse effect on the financial condition or results of
operations of the Company and its subsidiaries, considered as a whole;
and each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, except to the extent that the failure to so qualify or
be in good standing would not have a material adverse effect on the
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(f) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description of the
Stock contained in the Prospectus; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable (except with
respect to 12 U.S.C. Section 55 as it applies to national banks); and
the Company owns directly or indirectly all of the outstanding shares
of capital stock of each of the Principal Subsidiaries, free and clear
of all liens, encumbrances, equities or claims;
(g) This Agreement and the International Underwriting
Agreement have each been duly authorized, executed and delivered on
behalf of the Company;
(h) The Shares to be issued and sold by the Company to
the Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as
<PAGE> 5
5
provided herein and in the International Underwriting Agreement, will
be duly and validly issued and fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company
hereunder and under the International Underwriting Agreement, the
compliance by the Company with all of the provisions of this Agreement
and the International Underwriting Agreement and the consummation of
the transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under (in each case material to
the Company and its subsidiaries, considered as a whole), any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the certificate of
incorporation or by-laws of the Company or any of its subsidiaries,
nor will such action result in any violation (in each case material to
the Company and its subsidiaries, considered as a whole) of any
applicable statute or any applicable order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required
for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement and the
International Underwriting Agreement, except (i) the registration
under the Act of the Shares; (ii) the registration of the Shares under
the Securities Exchange Act of 1934, as amended (the "Exchange Act");
(iii) the listing of the Shares on the New York Stock Exchange; (iv)
such consents, approvals, authorizations, registrations or
qualifications as may be required under securities, insurance
securities or Blue Sky laws of any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters; and (v) such consents, approvals,
authorizations, registrations, qualifications or filings as may be
required under federal or state banking, insurance or other similar
laws, all of which have been obtained with respect to this Clause (v);
(j) Neither the Company nor any of its subsidiaries is
(i) in violation of its certificate of incorporation or by-laws, (ii)
in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any
of its properties may be bound or (iii) in violation of any applicable
statute or any applicable order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties, except, in the
case of Clauses (ii)
<PAGE> 6
6
and (iii), where such default or violation would not have a material
adverse effect on the financial condition or results of operations of
the Company and its subsidiaries, considered as a whole;
(k) The Company and its subsidiaries each owns or
possesses all governmental licenses, permits, certificates, consents,
orders, approvals and other authorizations issued by the appropriate
state, federal or foreign regulatory agencies or bodies (including,
without limitation, any license, permit, certificate, consent, order,
approval or authorization from any banking or insurance regulatory
agency or body) (collectively, "Governmental Licenses") necessary to
carry on its business as presently conducted, with such exceptions as
do not have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries, considered
as a whole, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to revocation or
modification of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding would have a material adverse effect on the financial
condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(l) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Certain United States Tax Consequences to Non-United States Holders",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate in all material respects;
(m) Other than as set forth or contemplated in the
Prospectus, there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
in which there is a reasonable possibility of an adverse decision
which, individually or in the aggregate, could have a material adverse
effect or prospective material adverse effect, on the financial
condition or results of operations of the Company and its subsidiaries
considered as a whole; and, to the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(n) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company"
or an entity "controlled" by an "investment company", as such terms
are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
<PAGE> 7
7
(o) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes; and
(p) The financial statements, including the notes
thereto, of the Company and its subsidiaries included in the
Registration Statement and Prospectus fairly present the financial
condition of the Company and its subsidiaries as of the dates
indicated and the results of operations and changes in financial
position for the periods therein specified in conformity with
generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise stated therein).
Coopers & Lybrand L.L.P., who have certified certain financial
statements of the Company and its subsidiaries included in the
Registration Statement and the Prospectus, as amended or supplemented,
are, to the best knowledge of the Company, independent public
accountants with respect to the Company and its subsidiaries as
required by the Act and the rules and regulations of the Commission
thereunder.
2. Ford represents and warrants to, and agrees with, each
of the Underwriters that:
(a) Ford has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware; and FFSG has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware;
(b) All of the issued shares of capital stock of FFSG
have been duly and validly authorized and issued and are fully paid
and non-assessable; all of the issued shares of capital stock of FFSG
are owned directly or indirectly by Ford, free and clear of all liens,
encumbrances, equities or claims; and all issued shares of capital
stock of the Company are owned directly by FFSG, free and clear of all
liens, encumbrances, equities or claims;
(c) This Agreement and the International Underwriting
Agreement have each been duly authorized, executed and delivered on
behalf of Ford;
(d) The issue and sale of the Shares by the Company
hereunder and under the International Underwriting Agreement, the
compliance by the Company and Ford with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under (in each case
material to Ford and its subsidiaries, considered as a whole), any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which Ford or FFSG is a party
<PAGE> 8
8
or by which Ford or FFSG is bound or to which any of the property or
assets of Ford or FFSG is subject, nor will such action result in any
violation of the provisions of the certificate of incorporation or
by-laws of Ford or FFSG, nor will such action result in any violation
(in each case material to Ford and its subsidiaries, considered as a
whole) of any applicable statute or any applicable order, rule or
regulation of any court or governmental agency or body having
jurisdiction over Ford or FFSG or any of their properties; and no
consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required
for the issue and sale of the Shares or the consummation by the
Company and Ford of the transactions contemplated by this Agreement
and the International Underwriting Agreement, except (i) the
registration under the Act of the Shares; (ii) the registration of the
Shares under the Exchange Act; (iii) the listing of the Shares on the
New York Stock Exchange; (iv) such consents, approvals,
authorizations, registrations or qualifications as may be required
under securities, insurance securities or Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters; and (v)
such consents, approvals, authorizations, registrations,
qualifications or filings as may be required of Ford or FFSG under
federal or state banking, insurance or other similar laws, all of
which have been obtained with respect to this Clause (v); and
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to (i) offer, sell, contract to sell or otherwise
dispose of any securities of the Company which are substantially
similar to the Shares, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the
right to receive, Stock or any such substantially similar securities
or (ii) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic
consequence of ownership of the Common Stock, without the prior
written consent of Goldman, Sachs & Co.
3. Subject to the terms and conditions herein set forth,
(a) the Company agrees to issue and sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at a purchase price per share of $................., the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto and (b) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at the purchase price per share set forth in Clause (a) of this Section 3, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to
<PAGE> 9
9
purchase as set forth opposite the name of such Underwriter in Schedule I
hereto and the denominator of which is the maximum number of Optional Shares
which all of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to
purchase at their election up to ............ Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to
the Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 5 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.
4. Upon the authorization by you of the release of the
Firm Shares and, if applicable, the Optional Shares, the several Underwriters
propose to offer the Firm Shares and, if applicable, the Optional Shares for
sale upon the terms and conditions set forth in the Prospectus.
5. (a) The Shares to be purchased by each Underwriter
hereunder, in temporary or definitive form, and in such authorized
denominations and registered in such names as Goldman, Sachs & Co. may request
upon at least forty-eight hours' prior notice to the Company, shall be
delivered by or on behalf of the Company to you, for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by certified or official bank check or checks, payable
to the order of the Company in immediately available funds. The Company will
cause the certificates representing the Shares to be made available for
checking and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of Goldman, Sachs & Co.,
85 Broad Street, New York, New York 10004 (the "Designated Office"). The time
and date of such delivery and payment shall be, with respect to the Firm
Shares, 9:30 a.m., New York City time, on ............., 1996 or such other
time and date as you and the Company may agree upon in writing, and, with
respect to the Optional Shares, 9:30 a.m., New York time, on the date specified
by you in the written notice given by you of the Underwriters' election to
purchase such Optional Shares, or such other time and date as you and the
Company may agree upon in writing. Such time and date for delivery of the Firm
Shares are herein called the "First Time of Delivery", such time and date for
delivery of the Optional Shares, if not the First Time of Delivery, are herein
called the "Second Time of Delivery", and each such time and date for delivery
are herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of
Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof,
including the cross receipt for the
<PAGE> 10
10
Shares and any additional documents requested by the Underwriters pursuant to
Section 8(k) hereof, will be delivered at the offices of Shearman & Sterling,
599 Lexington Avenue, New York, New York 10022 (the "Closing Location"), and
the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at .......p.m., New
York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 5 "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or obligated by
law or executive order to close.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form reasonably
approved by you and to file such Prospectus pursuant to Rule 424(b)
under the Act not later than the Commission's close of business on the
second business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
reasonably disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies
thereof; to advise you, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
Prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you
may reasonably request to qualify the Shares for offering and sale
under the securities laws or, to the extent applicable, the state
insurance securities laws of such states or territories of the United
States as you may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the
Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
<PAGE> 11
11
(c) To furnish the Underwriters with copies of the
Prospectus as amended or supplemented in such quantities as you may
from time to time reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine
months after the time of issue of the Prospectus in connection with
the offering or sale of the Shares and if at such time either (i) any
event shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or (ii) if for any other reason it shall be necessary
during such period to amend or supplement the Prospectus in order to
comply with the Act, to notify you and upon your request to prepare
and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time
nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act;
(d) To make generally available to security holders of
the Company as soon as practicable, but in any event not later than
eighteen months after the effective date of the Registration Statement
(as defined in Rule 158(c) under the Act), an earnings statement of
the Company and its subsidiaries (which need not be audited) complying
with Section 11(a) of the Act and the rules and regulations thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to (i) offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder and under the International
Underwriting Agreement, any securities of the Company which are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially
similar securities or (ii) enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, the
economic consequence of ownership of the Common Stock (other than
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 Agreement), without the prior
written consent of Goldman Sachs & Co.;
<PAGE> 12
12
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year, commencing with the fiscal year
ended December 31, 1996, an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent
public accountants);
(g) During a period of three years from the effective
date of the Registration Statement, to furnish to you copies of all
reports or other communications (financial or other) generally
furnished to stockholders, and to deliver to you as soon as they are
available, copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange on
which any class of securities of the Company is listed; [and during a
period of one year from the effective date of the Registration
Statement, to furnish Goldman, Sachs & Co. such additional information
concerning the business and financial condition of the Company as
Goldman, Sachs & Co. may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission),
it being understood that such information shall be subject to such
confidentiality and use restrictions as may be agreed upon from time
to time and that such information shall not require the preparation of
reports or other documents not otherwise prepared by the Company in
the normal course of its business;]
(h) To use the net proceeds received by it from the sale
of the Shares pursuant to this Agreement and the International
Underwriting Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds"; and
(i) To use its best efforts to list, subject to notice of
issuance, the Shares on the New York Stock Exchange (the "Exchange").
7. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants
in connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of producing any
Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreement and the Blue
Sky Memorandum; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws or, to the extent
applicable, the state insurance securities laws as provided in Section 6(b)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriters in
<PAGE> 13
13
connection with such qualification and in connection with the Blue Sky
Memorandum; (iv) all fees and expenses in connection with listing the Shares on
the Exchange; (v) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of the sale
of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost
and charges of any transfer agent or registrar; and (viii) all other reasonable
costs and expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this Section. It is
understood, however, that, except as provided in this Section, and Sections 9
and 12 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
8. The obligations of the Underwriters hereunder, as to
the Shares to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company and Ford herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and Ford shall have
performed all of their obligations in all material respects hereunder
theretofore to be performed and the following additional conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the Act
and in accordance with Section 6(a) hereof; no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time
of Delivery, with respect to the incorporation of the Company, the
validity of the Shares being delivered at such Time of Delivery, the
Registration Statement, the Prospectus, and other related matters as
you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them
to pass upon such matters;
(c) Simpson Thacher & Bartlett, special counsel for the
Company, shall have furnished to you their written opinion, dated such
Time of Delivery, in form and substance reasonably satisfactory to
you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing and in good standing as a corporation under
the laws of the State of Delaware
<PAGE> 14
14
and has full corporate power and authority to conduct its
business as described in the Registration Statement and
Prospectus;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus and the Shares have been duly
authorized and, upon payment and delivery in accordance with
this Agreement and with the International Underwriting
Agreement, will be validly issued, fully paid and
non-assessable;
(iii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by the Company;
(iv) The issue and sale of the Shares at such Time
of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the
International Underwriting Agreement will not breach or result
in a default under any of the agreements identified in Annex
II hereto, nor will such action violate the Restated
Certificate of Incorporation or By-laws of the Company or any
federal or New York statute or the Delaware General
Corporation Law or any rule or regulation that has been issued
pursuant to any federal or New York statute or the Delaware
General Corporation Law, except for violations of (i) federal
or state banking, insurance, consumer finance or other similar
laws and (ii) rules or regulations issued pursuant to federal
or state banking, insurance, consumer finance or other similar
laws, as to which such counsel need express no opinion;
(v) No consent, approval, authorization, order,
registration or qualification of or with any federal or New
York court or governmental agency or body or any Delaware
court or governmental agency or body acting pursuant to the
Delaware General Corporation Law is required for the issue and
sale of the Shares by the Company or the compliance by the
Company with all of the provisions of this Agreement and the
International Underwriting Agreement, except for (i) the
registration under the Act and the Exchange Act of the Shares;
(ii) the listing of the Shares on the Exchange; (iii) such
consents, approvals, authorizations, registrations or
qualifications as may be required under securities, insurance
securities or Blue Sky laws of any jurisdiction in connection
with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters; and (iv) such
consents, approvals, authorizations, registrations,
qualifications or filings as may be required under federal or
state banking, insurance, consumer finance or other similar
laws, as to each of which such counsel need express no
opinion;
(vi) The statements made in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute summaries
<PAGE> 15
15
of the terms of the Stock (including the Shares), constitute
accurate summaries of the terms of such Stock in all material
respects;
(vii) The statements made in the Prospectus under
the caption "Certain United States Tax Consequences to
Non-United States Holders", insofar as they purport to
constitute summaries of matters of United States federal tax
law and regulations or legal conclusions with respect thereto,
constitute accurate summaries of the matters described therein
in all material respects;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose
has been instituted or threatened by the Commission; and
[(ix) The Registration Statement (or, if
applicable, the Registration Statement as amended by any
post-effective amendment prior to such Time of Delivery) as of
its effective date and the Prospectus (or, if applicable, the
Prospectus as amended or supplemented prior to such Time of
Delivery) as of its date (other than the financial statements,
related schedules and other financial data contained therein
or omitted therefrom, as to which such counsel need express no
opinion) complied as to form in all material respects with the
requirements of the Act and the rules and regulations of the
Commission thereunder.]
[In passing on the form of the Registration Statement (or, if
applicable, the Registration Statement as amended by any
post-effective amendment prior to such Time of Delivery) and the
Prospectus (or, if applicable, the Prospectus as amended or
supplemented prior to such Time of Delivery), such counsel may state
that it has not independently verified the accuracy, completeness or
fairness of the statements made or included therein and takes no
responsibility therefor and that such opinion is based upon such
counsel's examination of the Registration Statement (or, if
applicable, the Registration Statement as amended by any
post-effective amendment prior to such Time of Delivery), the
Prospectus (or, if applicable, the Prospectus as amended or
supplemented prior to such Time of Delivery), its investigation made
in connection with the preparation of the Registration Statement (or,
if applicable, the Registration Statement as amended by any
post-effective amendment prior to such Time of Delivery) and the
Prospectus (or, if applicable, the Prospectus as amended or
supplemented prior to such Time of Delivery) and its participation in
conferences with certain officers and employees of the Company, with
representatives of Coopers & Lybrand L.L.P., with counsel to the
Company and any others referred to in such opinion; subject to the
same qualifications, such counsel shall also state that they have
<PAGE> 16
16
no reason to believe that the Registration Statement (or, if
applicable, the Registration Statement as amended by any
post-effective amendment prior to such Time of Delivery) as of its
effective date contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading or
that the Prospectus (or, if applicable, the Prospectus as amended or
supplemented prior to such Time of Delivery) contains or, as of its
date, contained any untrue statement of a material fact or omits or,
as of its date, omitted to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that in each case,
such counsel need not express a belief with respect to financial
statements, related schedules or other financial data.]
In rendering such opinion, such counsel may rely as to certain
matters of fact on certificates of officers of the Company and of
public officials and may state that they express no opinion as to the
laws of any jurisdiction other than the federal law of the United
States, the law of the State of New York and the Delaware General
Corporation Law.
(d) Chester D. Longenecker, Esq., Executive Vice
President and General Counsel of the Company, or such counsel
satisfactory to you in your reasonable judgment, shall have furnished
to you his written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with power and authority
(corporate and other) to own its properties and conduct its
business as described in the Prospectus;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus, and all of the issued shares
of capital stock of the Company (including the Shares being
delivered at such Time of Delivery) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description of the Stock contained in the
Prospectus;
(iii) The Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties or conducts any business so
as to require such qualification, except to the extent that
the failure to so qualify or be in good standing would not
have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries,
considered as a whole (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in
<PAGE> 17
17
respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they
believe that both you and they are justified in relying upon
such opinions and certificates);
(iv) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
with power and authority (corporate and other) to own its
properties and conduct its business as described in the
Prospectus and has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification, except to the extent that the
failure to so qualify or be in good standing would not have a
material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries, considered
as a whole; all of the issued shares of capital stock of each
such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable (except with respect
to 12 U.S.C. Section 55 as it applies to national banks); and
the Company owns directly or indirectly all of the outstanding
shares of capital stock of each of the Principal Subsidiaries,
free and clear of all liens, encumbrances, equities or claims
(such counsel being entitled to rely in respect of the opinion
in this clause upon opinions of local counsel and in respect
to matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall
state that they believe that both you and they are justified
in relying upon such opinions and certificates);
(v) To the best of such counsel's knowledge and
other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of
which any property of the Company or any of its subsidiaries
is the subject in which there is a reasonable possibility of
an adverse decision which, individually or in the aggregate,
could have a material adverse effect or prospective material
adverse effect, on the financial condition, or results of
operations of the Company and its subsidiaries, considered as
a whole; and, to such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others;
(vi) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being
delivered at such Time of Delivery by the Company, the
compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement
<PAGE> 18
18
and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under (in each case material to the Company and its
subsidiaries, considered as a whole), any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
provisions of the certificate of incorporation or by-laws of
the Company or any of its subsidiaries, nor will such action
result in any violation (in each case material to the Company
and its subsidiaries, considered as a whole) of any applicable
statute or any applicable order, rule or regulation known to
such counsel of any court or governmental agency or body
having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement and the
International Underwriting Agreement, except (i) the
registration under the Act of the Shares; (ii) the
registration of the Shares under the Exchange Act; (iii) the
listing of the Shares on the Exchange; (iv) such consents,
approvals, authorizations, registrations or qualifications as
may be required under securities, insurance securities or Blue
Sky laws of any jurisdiction in connection with the purchase
and distribution of the Shares by the Underwriters and the
International Underwriters; and (v) such consents, approvals,
authorizations, registrations, qualifications or filings as
may be required under federal or state banking, insurance or
other similar laws, all of which have been obtained with
respect to this Clause (v);
(ix) Neither the Company nor any of its
subsidiaries is (i) in violation of its certificate of
incorporation or by-laws, (ii) in default in the performance
or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties
may be bound or (iii) in violation of any applicable statute
or any applicable order, rule or regulation of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties,
except, in the case of Clauses (ii) and (iii), where such
default or violation would not have a material adverse effect
on the
<PAGE> 19
19
financial condition or results of operations of the Company
and its subsidiaries, considered as a whole;
(x) The statements set forth in the Prospectus
under the caption "Description of Capital Stock", insofar as
they purport to constitute a summary of the terms of the Stock
are accurate in all material respects;
(xi) The Registration Statement has become
effective under the Act and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for
that purpose has been instituted or threatened by the
Commission;
(xii) The Company is not an "investment company" or
an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act;
(xiii) The Company and its subsidiaries each owns or
possesses all Governmental Licenses necessary to carry on its
business as presently conducted, with such exceptions as do
not have a material adverse effect on the financial condition
or results of operations of the Company and its subsidiaries,
considered as a whole, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating
to revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding would have a
material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries, considered
as a whole;
(xiv) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements, related schedules and other financial
data contained therein or omitted therefrom, as to which such
counsel need express no opinion), as of their respective
effective dates or issue dates, as the case may be, complied
as to form in all material respects with the requirements of
the Act and the applicable rules and regulations of the
Commission thereunder, although he does not assume any
responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (x) of this Section 8(d); and
(xv) He has no reason to believe that, as of its
effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements,
<PAGE> 20
20
related schedules and other financial data contained therein
or omitted therefrom, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or
that, as of its date, the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements, related
schedules and other financial data contained therein or
omitted therefrom, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading or that, as of such Time
of Delivery, the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements, related
schedules and other financial data contained therein or
omitted therefrom, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; and he does not know of
any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character
required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described
as required.
With respect to paragraph (xv) above, such counsel may state
that such counsel's opinion and belief are based upon such counsel's
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof and such investigation as such counsel deems necessary or
appropriate.
(e) John M. Rintamaki, Esq., Secretary and Assistant
General Counsel of Ford, or such counsel satisfactory to you in your
reasonable judgment, shall have furnished to you his written opinion,
dated such Time of Delivery, in form and substance satisfactory to
you, to the effect that:
(i) Ford has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware;
(ii) FFSG has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware; all of the issued shares of
capital stock of FFSG have been duly and validly authorized
and issued and are fully paid and non-assessable; all of the
issued
<PAGE> 21
21
shares of capital stock of FFSG are owned directly or
indirectly by Ford, free and clear of all liens, encumbrances,
equities or claims; and all issued shares of capital stock of
the Company are owned directly by FFSG, free and clear of all
liens, encumbrances, equities or claims (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect to matters of fact
upon certificates of officers of Ford or FFSG, provided that
such counsel shall state that they believe that both you and
they are justified in relying upon such opinions and
certificates);
(iii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by Ford;
(iv) The issue and sale of the Shares being
delivered at such Time of Delivery by the Company, the
compliance by the Company and Ford with all of the provisions
of this Agreement and the International Underwriting Agreement
and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under (in each case material to Ford and its
subsidiaries, considered as a whole), any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which Ford or FFSG is a
party or by which Ford or FFSG is bound or to which any of the
property or assets of Ford or FFSG is subject, nor will such
action result in any violation of the provisions of the
certificate of incorporation or by-laws of Ford or FFSG, nor
will such action result in any violation (in each case
material to Ford and its subsidiaries, considered as a whole)
of any applicable statute or any applicable order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over Ford or FFSG or any of
their properties; and
(v) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required of Ford or FFSG or the
issue and sale of the Shares or the consummation by the
Company and Ford of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except
(i) the registration under the Act of the Shares; (ii) the
registration of the Shares under the Exchange Act; (iii) the
listing of the Shares on the Exchange; (iv) such consents,
approvals, authorizations, registrations or qualifications as
may be required under securities, insurance securities or Blue
Sky laws of any jurisdiction in connection with the purchase
and distribution of the Shares by the Underwriters and the
International Underwriters; and (v) such consents, approvals,
authorizations, registrations, qualifications or filings as
may be
<PAGE> 22
22
required of Ford or FFSG under federal or state banking,
insurance or other similar laws, all of which have been
obtained with respect to this Clause (v).
In rendering such opinion, such counsel may state that he
expresses no opinion as to the laws of any jurisdiction outside
the United States.
(f) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 10:00 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Coopers & Lybrand L.L.P. shall have furnished
to you a letter or letters, dated the respective date of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto;
(g) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor any
of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into any transactions, not in the
ordinary course of business, which are material to the Company and its
subsidiaries, considered as a whole, and there has not been any
material adverse change, on a consolidated basis, in the capital
stock, short-term debt or long-term debt of the Company and its
subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or other), business, net worth or results of operations of
the Company and its subsidiaries, considered as a whole the effect of
which, in any such case, is in the reasonable judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in
the manner contemplated in the Prospectus;
(h) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the Exchange; (ii) a
suspension or material limitation in trading in the Company's
securities on the Exchange; (iii) a general moratorium on commercial
banking activities declared by either Federal or New York State
authorities; or (iv) the outbreak or escalation of hostilities
involving the United States which have resulted in the declaration by
the United States of a national emergency or war, if the effect of any
such event specified in Clauses (i) through (iv), in the reasonable
judgment of the Representatives, makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
<PAGE> 23
23
(i) The Shares to be sold by the Company at such Time of
Delivery shall have been duly listed, subject to notice of issuance,
on the Exchange; and
(j) The Company shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of officers of
the Company satisfactory to you as to the accuracy of the
representations and warranties of the Company herein at and as of such
Time of Delivery, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (g) of
this Section and as to such other matters as you may reasonably
request.
9. (a) The Company and Ford, jointly and severally,
will indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and Ford shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you expressly
for use therein and provided further that the Company shall not be liable to
any Underwriter under the indemnity agreement in this subsection (a) with
respect to any Preliminary Prospectus to the extent that any such loss, claim,
damage or liability of such Underwriter results from the fact that such
Underwriter sold Shares to a person as to whom it shall be established that
there was not sent or given, at or prior to written confirmation of such sale,
a copy of the Prospectus or of the Prospectus as then amended or supplemented
in any case where such delivery is required by the Act if the Company
previously furnished copies thereof in the quantity requested in accordance
with Section 5(c) hereof to such Underwriter and the loss, claim, damage or
liability of such Underwriter results from an untrue statement or omission of a
material fact contained in the Preliminary Prospectus and corrected in the
Prospectus or the Prospectus as then amended or supplemented.
(b) Each Underwriter will indemnify and hold harmless the
Company and Ford against any losses, claims, damages or liabilities to which
the Company or Ford may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or
<PAGE> 24
24
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through you expressly
for use therein; and will reimburse the Company and Ford for any legal fees or
other expenses reasonably incurred by the Company or Ford in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. If the
indemnifying party does not assume the defense of such action, it is understood
that the indemnifying party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to one separate firm of local attorneys in each such jurisdiction)
at any time for all such indemnified parties, which firms shall be designated
in writing by you, if the indemnified parties under this Section consist of any
Underwriter or any of their respective controlling persons, or by the Company
or Ford, if the indemnified parties under this Section consist of the Company
or Ford or any of the Company's or Ford's directors, officers or controlling
persons. The indemnifying party shall not be liable for any settlement of an
action or claim for monetary damages which an indemnified party may effect
without the consent of the indemnifying party, which consent shall not be
unreasonably withheld.
<PAGE> 25
25
(d) If the indemnification provided for in this Section 9
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and Ford on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and Ford on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and Ford on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Shares purchased under this Agreement (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters with respect to the Shares purchased
under this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined (i) by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or Ford on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission
and (ii) with respect to any Underwriter, by reference to the extent (if any)
to which such losses, claims, damages or liabilities (or actions in respect
thereof) with respect to any Preliminary Prospectus result from the fact that
such Underwriter sold Shares to a person as to whom it shall be established
that there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the Act if the
Company previously furnished copies thereof in the quantity requested in
accordance with Section 5(c) hereof to such Underwriter and the loss, claim,
damage or liability or such Underwriter results from an untrue statement or
omission of a material fact contained in the Preliminary Prospectus and
corrected in the Prospectus or the Prospectus as then amended or supplemented.
The Company, Ford and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this subsection (d) shall be deemed to include any legal
<PAGE> 26
26
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and Ford under this
Section 9 shall be in addition to any liability which the Company and Ford may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section 9 shall be in addition
to any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Company (including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company) and of
Ford and to each person, if any, who controls the Company or Ford within the
meaning of the Act.
10. (a) If any Underwriter shall default in its
obligation to purchase the Shares which it has agreed to purchase hereunder at
a Time of Delivery, you may in your discretion arrange for you or another party
or other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In
the event that, within the respective prescribed periods, you notify the
Company that you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the purchase of such Shares,
you or the Company shall have the right to postpone such Time of Delivery for a
period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Company agrees to file promptly
any amendments to the Registration Statement or the Prospectus which in the
opinion of Shearman & Sterling, counsel for the Underwriters, and Simpson
Thacher & Bartlett, special counsel for the Company, may thereby be made
necessary. The term "Underwriter" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
<PAGE> 27
27
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have
not been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number
of all the Shares to be purchased at such Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Optional Shares) may thereupon be terminated either by the Company
or, through you, by such Underwriters as have agreed to purchase in the
aggregate 50% or more of the aggregate number of remaining Shares to be
purchased at such Time of Delivery (provided, however, that nothing herein
contained shall obligate any Underwriter to purchase additional Shares at such
Time of Delivery in excess of the amount required to be purchased by such
Underwriter pursuant to Section 10(b) hereof) without liability on the part of
any non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 7 hereof and
the indemnity and contribution agreements in Section 9 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
11. The respective indemnities, agreements,
representations, warranties and other statements of the Company, Ford and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company or Ford, or any officer or director or
controlling person of the Company or Ford, and shall survive delivery of and
payment for the Shares.
12. If this Agreement shall be terminated pursuant to
Section 10 hereof or as a result of the failure of any condition set forth in
Section 8(h) hereof, the Company and Ford shall not then be under any liability
to any Underwriter, except as provided in Sections 7 and 9 hereof; but, if for
any other reason, any Shares are not delivered by or on
<PAGE> 28
28
behalf of the Company as provided herein, the Company will reimburse the
Underwriters through you for all out-of-pocket expenses, including reasonable
fees and disbursements of counsel, as approved in writing by you, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and Ford shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 7 and 9 hereof.
13. In all dealings hereunder, you shall act on behalf of
each of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf
of you as the representatives.
All statements, requests, notices and agreements hereunder
shall be in writing, and if to the Underwriters shall be delivered or sent by
mail or facsimile transmission to you as the representatives in care of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Facsimile No.:
(212) 902-_______, Attention: Registration Department; if to the Company shall
be delivered or sent by mail or facsimile transmission to the Company at 250 E.
Carpenter Freeway, Irving, Texas 75062-2729, Facsimile No.: (214) 541-5798,
Attention: General Counsel; and if to Ford shall be delivered or sent by or
facsimile transmission to Ford at The American Road, Dearborn, Michigan 48121,
Facsimile No.: (313) 337-9591, Attention: Secretary; provided, however, that
any notice to an Underwriter pursuant to Section 9(c) hereof shall be delivered
or sent by mail or facsimile transmission directly to such Underwriter at its
address set forth in its Underwriters' Questionnaire, or telex constituting
such Questionnaire, which address will be supplied to the Company or Ford by
you upon request. Any such statements, requests, notices or agreements shall
take effect at the time of receipt thereof.
14. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company, Ford and, to the
extent provided in Sections 9 and 11 hereof, the officers and directors of the
Company and Ford and any person who controls the Company, Ford or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
15. Time shall be of the essence of this Agreement. As
used herein, the term "business day" shall mean any day when the Commission's
office in Washington, D.C. is open for business.
16. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 29
29
17. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with your understanding,
please sign and return to us .... counterparts hereof, and upon the acceptance
hereof by you, on behalf of each of the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and Ford. It is understood that
<PAGE> 30
30
your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among Underwriters
(U.S. Version), the form of which shall be submitted to the Company and Ford
for examination upon request, but without warranty on your part as to the
authority of the signers thereof.
Very truly yours,
ASSOCIATES FIRST CAPITAL
CORPORATION
By:
------------------------------
Name:
Title:
FORD MOTOR COMPANY
By:
------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
CS First Boston Corporation
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan Securities Inc.
Bear, Stearns & Co. Inc.
Lehman Brothers Inc.
Salomon Brothers Inc
By:
--------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
TOTAL NUMBER NUMBER OF OPTIONAL
OF FIRM SHARES TO BE
SHARES PURCHASED IF
TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
----------- --------- ---------
<S> <C> <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 . . . . . . . . . . . . . . . . . . . . . .
[NAMES OF OTHER UNDERWRITERS] . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
-------------- -------------
============== =============
</TABLE>
<PAGE> 32
SCHEDULE II
LIST OF PRINCIPAL SUBSIDIARIES
<PAGE> 33
ANNEX I
Pursuant to Section 8(f) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the meaning of
the Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined
by them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished separately to the
representatives of the Underwriters (the "Representatives");
(iii) if applicable, they have made a review in accordance
with standards established by the American Institute of Certified
Public Accountants of the unaudited condensed consolidated statements
of income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus as indicated in their reports
thereon copies of which have been separately furnished to the
Representatives and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with
respect to the consolidated results of operations and financial
position of the Company as of December 31, 1995 and 1994 and for the
three years in the period ended December 31, 1995 included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
1995, 1994 and 1993;
<PAGE> 34
Ann. I - 2
(v) They have compared the information in the Prospectus
under selected captions with the disclosure requirements of Regulation
S-K and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not
conform in all material respects with the disclosure requirements of
Items 301 and 402 of Regulation S-K;
(vi) On the basis of limited procedures, not constituting
an examination in accordance with generally accepted auditing
standards, consisting of a reading of the unaudited financial
statements and other information referred to below, a reading of the
latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were
not included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited consolidated financial statements
included in the Prospectus;
(D) if applicable, any unaudited pro forma
consolidated condensed financial statements included in the
Prospectus do not comply as to form in all
<PAGE> 35
Ann. I - 3
material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder
or the pro forma adjustments have not been properly applied to
the historical amounts in the compilation of those statements;
(E) as of a specified date not more than five
days prior to the date of such letter, there have been any
changes in the consolidated capital stock (other than
issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which
were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (D) there were any
decreases in consolidated net revenues or consolidated net
income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in
each case as compared with the comparable period of the
preceding year and with any other period of corresponding
length specified by the Representatives, except in each case
for decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus,
or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
<PAGE> 36
ANNEX II
LIST OF MATERIAL AGREEMENTS
1. Indenture, dated as of June 15, 1995, between the Company and
First Interstate Bank of Texas, N.A.
2. Indenture, dated as of October 1, 1982, between the Company
and Continental Illinois Bank and Trust Company of Chicago;
First Supplemental Indenture, dated as of September 15, 1983,
between the Company and Continental Illinois Bank and Trust
Company of Chicago; Second Supplemental Indenture, dated as of
March 1, 1987, between the Company and Continental Illinois
Bank and Trust Company of Chicago.
3. Indenture, dated as of October 15, 1994, between Associates
Corporation of North America ("ACONA") and NationsBank of
Texas, N.A.
4. Indenture, dated as of October 15, 1994, between ACONA and
Citibank, N.A.
5. Indenture, dated as of July 15, 1993, between ACONA and First
Fidelity Bank, N.A., New Jersey.
6. Indenture, dated as of October 15, 1992, between ACONA and The
First National Bank of Chicago.
7. Indenture, dated as of October 15, 1992, between ACONA and
State Street Bank and Trust Co. (as successor to First
National Bank of Boston).
8. Indenture, dated as of December 1, 1985, between ACONA and The
Chase Manhattan Bank, N.A.
9. Indenture, dated as of November 1, 1995, between ACONA and The
Chase Manhattan Bank, N.A.
10. Indenture, dated as of December 1, 1985, between ACONA and
Bankers Trust Company; First Supplemental Indenture, dated as
of June 15, 1989, between ACONA and Bankers Trust Company.
11. Indenture, dated as of June 15, 1981, between ACONA and Harris
Trust and Savings Bank.
12. Indenture, dated as of September 15, 1987, between ACONA and
Chemical Bank (as successor to Manufacturers Hanover Trust
Company); First Supplemental Indenture, dated June 15, 1989,
between ACONA and Chemical
<PAGE> 37
Ann. II - 2
Bank (as successor to Manufacturers Hanover Trust Company);
Second Supplemental Indenture, dated August 15, 1991, between
ACONA and Chemical Bank (as successor to Manufacturers Hanover
Trust Company).
13. Indenture, dated as of July 15, 1989, between ACONA and
Chemical Bank; First Supplemental Indenture, dated August 15,
1991, between ACONA and Chemical Bank.
14. Corporate Agreement, dated ________, 1996, between the Company
and Ford Motor Company.
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
ASSOCIATES FIRST CAPITAL CORPORATION
* * * * *
Associates First Capital Corporation, a Delaware corporation,
the original Certificate of Incorporation of which was filed with the Secretary
of State of the State of Delaware on December 22, 1971 under the name
Associates First National Corporation, HEREBY CERTIFIES that this Restated
Certificate of Incorporation restating, integrating and amending its
Certificate of Incorporation was duly adopted by its Board of Directors and its
stockholders in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
1. NAME OF CORPORATION. The name of the corporation is
ASSOCIATES FIRST CAPITAL CORPORATION (the "Corporation").
2. REGISTERED OFFICE AND REGISTERED AGENT. The address of
the Corporation's registered office in the State of Delaware is 1013 Centre
Road, in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is The Prentice-Hall Corporation
System, Inc.
3. PURPOSE. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law as the same exists or may hereafter be
amended.
4. CAPITAL STOCK. (a) The total number of shares of stock
that the Corporation shall have authority to issue is 1,600,000,000 of which
(i) 1,150,000,000 shares shall be shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), and 400,000,000 shares shall be
shares of Class B Common Stock, par value $.01 per share (the "Class B Common
Stock") (the Class A Common Stock and the Class B Common Stock being
collectively referred to herein as the "Common Stock"), and (ii) 50,000,000
shares shall be shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock").
(b) The number of authorized shares of any class or classes
of stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
of the votes entitled to be cast by the holders of the Common Stock of the
Corporation, voting together as a single class, irrespective of the provisions
<PAGE> 2
2
of Section 242(b)(2) of the Delaware General Corporation Law or any
corresponding provision hereinafter enacted.
(c) The following is a statement of the relative powers,
preferences and participating, optional or other special rights, and the
qualifications, limitations and restrictions of the Class A Common Stock and
Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this Article 4,
the relative powers, preferences and participating, optional or other
special rights, and the qualifications, limitations or restrictions of
the Class A Common Stock and Class B Common Stock shall be identical
in all respects.
(2) Subject to the rights of the holders of Preferred Stock,
and subject to any other provisions of this Restated Certificate of
Incorporation, holders of Class A Common Stock and Class B Common
Stock shall be entitled to receive such dividends and other
distributions in cash, stock of any corporation (other than Common
Stock of the Corporation) or property of the Corporation as may be
declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor and
shall share equally on a per share basis in all such dividends and
other distributions. In the case of dividends or other distributions
payable in Common Stock, including distributions pursuant to stock
splits or divisions of Common Stock of the Corporation, only shares of
Class A Common Stock shall be paid or distributed with respect to
Class A Common Stock and only shares of Class B Common Stock shall be
paid or distributed with respect to Class B Common Stock. The number
of shares of Class A Common Stock and Class B Common Stock so
distributed shall be equal in number on a per share basis. Neither
the shares of Class A Common Stock nor the shares of Class B Common
Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and
in the same proportion for each class.
(3)(A) At every meeting of the stockholders of the
Corporation every holder of Class A Common Stock shall be entitled to
one vote in person or by proxy for each share of Class A Common Stock
standing in his or her name on the transfer books of the Corporation,
and every holder of Class B Common Stock shall be entitled to five
votes in person or by proxy for each share of Class B Common Stock
standing in his or her name on the transfer books of the Corporation
in connection with the election of directors and all other matters
submitted to a vote of stockholders; provided, however, that with
respect to any proposed conversion of the shares of Class B Common
Stock into shares of Class A Common
<PAGE> 3
3
Stock pursuant to paragraph (c)(6)(B) below, every holder of a share
of Common Stock, irrespective of class, shall have one vote in person
or by proxy for each share of Common Stock standing in his or her name
on the transfer books of the Corporation. Except as may be otherwise
required by law or by this Article 4, the holders of Class A Common
Stock and Class B Common Stock shall vote together as a single class,
subject to any voting rights which may be granted to holders of
Preferred Stock, on all matters submitted to a vote of stockholders of
the Corporation.
(B) Except as otherwise provided by law, and subject to any
rights of the holders of Preferred Stock, the provisions of this
Restated Certificate of Incorporation shall not be modified, revised,
altered or amended, repealed or rescinded in whole or in part, without
the approval of a majority of the votes entitled to be cast by the
holders of the Class A Common Stock and the Class B Common Stock,
voting together as a single class; provided, however, that with
respect to any proposed amendment of this Restated Certificate of
Incorporation which would alter or change the powers, preferences or
special rights of the shares of Class A Common Stock or Class B Common
Stock so as to affect them adversely, the approval of a majority of
the votes entitled to be cast by the holders of the shares affected by
the proposed amendment, voting separately as a class, shall be
obtained in addition to the approval of a majority of the votes
entitled to be cast by the holders of the Class A Common Stock and the
Class B Common Stock voting together as a single class as hereinbefore
provided. Any increase in the authorized number of shares of any
class or classes of stock of the Corporation or creation,
authorization or issuance of any securities convertible into, or
warrants, options or similar rights to purchase, acquire or receive,
shares of any such class or classes of stock shall be deemed not to
affect adversely the powers, preferences or special rights of the
shares of Class A Common Stock or Class B Common Stock.
(C) Every reference in this Restated Certificate of
Incorporation to a majority or other proportion of shares of Common
Stock, Class A Common Stock or Class B Common Stock shall refer to
such majority or other proportion of the votes to which such shares of
Common Stock, Class A Common Stock or Class B Common Stock are
entitled.
(4) In the event of any dissolution, liquidation or winding
up of the affairs of the Corporation, whether voluntary or
involuntary, after payment in full of the amounts required to be paid
to the holders of Preferred Stock, the remaining assets and funds of
the Corporation shall be distributed pro rata to the holders of Class
A Common Stock and Class B Common Stock. For purposes of this
paragraph (c)(4), the voluntary sale, conveyance, lease,
<PAGE> 4
4
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the assets of the
Corporation or a consolidation or merger of the Corporation with one
or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
(5) In case of any reorganization or any consolidation of the
Corporation with one or more other corporations or a merger of the
Corporation with another corporation, each holder of a share of Class
A Common Stock shall be entitled to receive with respect to such share
the same kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reorganization,
consolidation or merger by a holder of a share of Class B Common Stock
and each holder of a share of Class B Common Stock shall be entitled
to receive with respect to such share the same kind and amount of
shares of stock and other securities and property (including cash)
receivable upon such reorganization, consolidation or merger by a
holder of a share of Class A Common Stock.
(6)(A) Prior to the date on which shares of Class B Common
Stock are issued to stockholders of Ford Motor Company (Ford Motor
Company, together with its successors, "Ford"), or the Class B
Transferee (as defined in paragraph (c)(6)(B) below) in a Tax-Free
Spin-Off (as defined in paragraph (c)(6)(B) below), each record holder
of shares of Class B Common Stock may convert such shares into an
equal number of shares of Class A Common Stock by surrendering the
certificates for such shares, accompanied by any required tax transfer
stamps and by a written notice by such record holder to the
Corporation stating that such record holder desires to convert such
shares of Class B Common Stock into the same number of shares of Class
A Common Stock for the purpose of the sale or other disposition of
such shares of Class A Common Stock and requesting that the
Corporation issue all of such shares of Class A Common Stock to
persons named therein, setting forth the number of shares of Class A
Common Stock to be issued to each such person and the denominations in
which the certificates therefor are to be issued. To the extent
permitted by law, such voluntary conversion shall be deemed to have
been effected at the close of business on the date of such surrender.
Following a Tax-Free Spin-Off, shares of Class B Common Stock shall no
longer be convertible into shares of Class A Common Stock except as
set forth in paragraph (c)(6)(B) below.
(B) Prior to a Tax-Free Spin-Off, each share of Class B
Common Stock shall automatically convert into one share of Class A
Common Stock upon the transfer of such share if, after such transfer,
such share is not beneficially owned by
<PAGE> 5
5
Ford or any subsidiary of Ford or, as set forth below in this
paragraph (c)(6)(B), the Class B Transferee or any subsidiary of the
Class B Transferee. Shares of Class B Common Stock shall not convert
into shares of Class A Common Stock (i) in any transfer effected in
connection with a distribution of Class B Common Stock to stockholders
of Ford or of the Class B Transferee as a dividend intended to be on a
tax-free basis under the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), (a "Tax-Free Spin-Off") or (ii) except
as otherwise set forth below in this paragraph (c)(6)(B), in any
transfer after a Tax-Free Spin- Off. For purposes of this paragraph
(c)(6), a Tax-Free Spin-Off shall be deemed to have occurred at the
time shares are first transferred to stockholders of Ford or to
stockholders of the Class B Transferee, as the case may be, following
receipt of an affidavit described in clauses (vi) or (vii) of the
first sentence of paragraph (c)(6)(D) below. For purposes of this
paragraph (c)(6), the term "beneficially owned" with respect to shares
of Class B Common Stock means ownership by a person or entity who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise controls the voting power
(which includes the power to vote or to direct the voting) of such
Class B Common Stock and the term "subsidiary" means as to any person
or entity, all corporations, partnerships, joint ventures,
associations and other entities in which such person or entity
beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interests or
similar voting interests. Prior to a Tax-Free Spin-Off, shares of
Class B Common Stock representing more than a 50% economic interest in
the then outstanding Common Stock taken as a whole transferred by Ford
or any of its subsidiaries in a single transaction to one unrelated
person (together with its successors, the "Class B Transferee") or any
subsidiary of the Class B Transferee shall not automatically convert
to Class A Common Stock upon the transfer of such shares. Any shares
of Class B Common Stock retained by Ford or any of its subsidiaries
following any such transfer of shares of Class B Common Stock to the
Class B Transferee shall automatically convert into shares of Class A
Common Stock upon such transfer. For purposes of this paragraph
(c)(6), each reference to a "person" shall be deemed to include not
only a natural person, but also a corporation, partnership, joint
venture, association, or legal entity of any kind; each reference to a
"natural person" (or to a "record holder" of shares, if a natural
person) shall be deemed to include in his or her representative
capacity a guardian, committee, executor, administrator or other legal
representative of such natural person or record holder.
In the event of a Tax-Free Spin-Off, shares of Class
B Common Stock shall automatically convert into shares of Class A
Common Stock on the fifth anniversary of the date
<PAGE> 6
6
on which shares of Class B Common Stock are first transferred to
stockholders of Ford or of the Class B Transferee, as the case may be,
in a 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
Corporation an opinion of counsel reasonably satisfactory to the
Corporation (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 under the Code. 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 Corporation an opinion
of counsel reasonably satisfactory to the Corporation (which, in the
case of Ford, shall include Ford's Chief Tax Officer) prior to such
anniversary to the effect that such vote would adversely affect the
status of the Tax-Free Spin-Off. At the meeting of stockholders
called for such purpose, every holder of Common Stock shall be
entitled to one vote in person or by proxy for each share of Common
Stock standing in his or her name on the transfer books of the
Corporation. Approval of such conversion shall require the approval
of a majority of the votes entitled to be cast by the holders of the
Class A Common Stock and Class B Common Stock present and voting,
voting together as a single class, and the holders of the Class B
Common Stock shall not be entitled to a separate class vote. Such
conversion shall be effective on the date on which such approval is
given at a meeting of stockholders called for such purpose.
Each share of Class B Common Stock shall
automatically convert into one share of Class A Common Stock if at any
time prior to a Tax-Free Spin-Off the number of outstanding shares of
Class B Common Stock owned by Ford or any of its subsidiaries or the
Class B Transferee or any of its subsidiaries, as the case may be, is
less than 45% of the aggregate number of shares of Common Stock then
outstanding.
The Corporation will provide notice of any automatic
conversion of all outstanding shares of Class B Common Stock to
holders of record of the Common Stock as soon as practicable following
such conversion, provided, however, that the Corporation may satisfy
such notice requirement by providing such notice prior to such
conversion. Such notice shall be provided by mailing notice of such
conversion first class postage prepaid, to each holder of record of
the Common Stock, at such holder's address as it appears on the
transfer books of the Corporation; provided, however, that no failure
to give such
<PAGE> 7
7
notice nor any defect therein shall affect the validity of the
automatic conversion of any shares of Class B Common Stock. Each such
notice shall state, as appropriate, the following:
(a) the automatic conversion date;
(b) that all outstanding shares of Class B Common
Stock are automatically converted;
(c) the place or places where certificates for such
shares are to be surrendered for conversion; and
(d) that no dividends will be declared on the shares
of Class B Common Stock converted after such conversion date.
Immediately upon such conversion, the rights of the
holders of shares of Class B Common Stock as such shall cease and such
holders shall be treated for all purposes as having become the record
owners of the shares of Class A Common Stock issuable upon such
conversion; provided, however, that such persons shall be entitled to
receive when paid any dividends declared on the Class B Common Stock
as of a record date preceding the time of such conversion and unpaid
as of the time of such conversion, subject to paragraph (c)(6)(F)
below.
(C) Prior to a Tax-Free Spin-Off, holders of shares of Class
B Common Stock may (i) sell or otherwise dispose of or transfer any or
all of such shares held by them, respectively, only in connection with
a transfer which meets the qualifications of paragraph (c)(6)(D)
below, and under no other circumstances, or (ii) convert any or all of
such shares into shares of Class A Common Stock for the purpose of
effecting the sale or disposition of such shares of Class A Common
Stock to any person as provided in paragraph (c)(6)(A) above. Prior
to a Tax-Free Spin-Off, no one other than those persons in whose names
shares of Class B Common Stock become registered on the original stock
ledger of the Corporation by reason of their record ownership of
shares of common stock of the Corporation which are reclassified into
shares of Class B Common Stock, or transferees or successive
transferees who receive shares of Class B Common Stock in connection
with a transfer which meets the qualifications set forth in paragraph
(c)(6)(D) below, shall by virtue of the acquisition of a certificate
for shares of Class B Common Stock have the status of an owner or
holder of shares of Class B Common Stock or be recognized as such by
the Corporation or be otherwise entitled to enjoy for his or her own
benefit the special rights and powers of a holder of shares of Class B
Common Stock.
<PAGE> 8
8
Holders of shares of Class B Common Stock may at any and all
times transfer to any person the shares of Class A Common Stock
issuable upon conversion of such shares of Class B Common Stock.
(D) Prior to a Tax-Free Spin-Off, shares of Class B Common
Stock shall be transferred on the books of the Corporation and a new
certificate therefor issued, upon presentation at the office of the
Secretary of the Corporation (or at such additional place or places as
may from time to time be designated by the Secretary or any Assistant
Secretary of the Corporation) of the certificate for such shares, in
proper form for transfer and accompanied by all requisite stock
transfer tax stamps, only if such certificate when so presented shall
also be accompanied by any one of the following:
(i) an affidavit from Ford stating that such
certificate is being presented to effect a transfer by Ford of
such shares to a subsidiary of Ford; or
(ii) an affidavit from Ford stating that such
certificate is being presented to effect a transfer by any
subsidiary of Ford of such shares to Ford or another
subsidiary of Ford; or
(iii) an affidavit from Ford stating that such
certificate is being presented to effect a transfer by Ford or
any of its subsidiaries of such shares to the Class B
Transferee or a subsidiary of the Class B Transferee as
contemplated by paragraph (c)(6)(B); or
(iv) an affidavit from the Class B Transferee
stating that such certificate is being presented to effect a
transfer by the Class B Transferee of such shares to a
subsidiary of the Class B Transferee; or
(v) an affidavit from the Class B Transferee
stating that such certificate is being presented to effect a
transfer by any subsidiary of the Class B Transferee of such
shares to the Class B Transferee or another subsidiary of the
Class B Transferee; or
(vi) an affidavit from Ford stating that such
certificate is being presented to effect a transfer by Ford of
such shares to the stockholders of Ford in connection with a
Tax-Free Spin-Off; or
(vii) an affidavit from the Class B Transferee
stating that such certificate is being presented to effect a
transfer by the Class B Transferee of such shares to the
stockholders of the Class B Transferee in connection with a
Tax-Free Spin-Off.
<PAGE> 9
9
Each affidavit of a record holder furnished pursuant to this
paragraph (c)(6)(D) shall be verified as of a date not earlier than
five days prior to the date of delivery thereof, and, where such
record holder is a corporation or partnership, shall be verified by an
officer of the corporation or by a general partner of the partnership,
as the case may be.
If a record holder of shares of Class B Common Stock shall
deliver a certificate for such shares, endorsed by him or her for
transfer or accompanied by an instrument of transfer signed by him or
her, to a person who receives such shares in connection with a
transfer which does not meet the qualifications set forth in this
paragraph (c)(6)(D), then such person or any successive transferee of
such certificate may treat such endorsement or instrument as
authorizing him or her on behalf of such record holder to convert such
shares in the manner above provided for the purpose of the transfer to
himself or herself of the shares of Class A Common Stock issuable upon
such conversion, and to give on behalf of such record holder the
written notice of conversion above required, and may convert such
shares of Class B Common Stock accordingly.
If such shares of Class B Common Stock shall improperly have
been registered in the name of such a person (or in the name of any
successive transferee of such certificate) and a new certificate
therefor issued, such person or transferee shall surrender such new
certificate for cancellation, accompanied by the written notice of
conversion above required, in which case (A) such person or transferee
shall be deemed to have elected to treat the endorsement on (or
instrument of transfer accompanying) the certificate so delivered by
such former record holder as authorizing such person or transferee on
behalf of such former record holder so to convert such shares and so
to give such notice, (B) the shares of Class B Common Stock registered
in the name of such former record holder shall be deemed to have been
surrendered for conversion for the purpose of the transfer to such
person or transferee of the shares of Class A Common Stock issuable
upon conversion, and (C) the appropriate entries shall be made on the
books of the Corporation to reflect such action.
In the event that the Board of Directors of the Corporation
(or any committee of the Board of Directors, or any officer of the
Corporation, designated for the purpose by the Board of Directors)
shall determine, upon the basis of facts not disclosed in any
affidavit or other document accompanying the certificate for shares of
Class B Common Stock when presented for transfer, that such shares of
Class B Common Stock have been registered in violation of the
provisions of paragraph (c)(6), or shall determine that a person is
enjoying for his or her own benefit the special
<PAGE> 10
10
rights and powers of shares of Class B Common Stock in violation of
such provisions, then the Corporation shall take such action at law or
in equity as is appropriate under the circumstances. An unforeclosed
pledge made to secure a bona fide obligation shall not be deemed to
violate such provisions.
(E) Prior to the occurrence of a Tax-Free Spin-Off, every
certificate for shares of Class B Common Stock shall bear a legend on
the face thereof reading as follows:
"The shares of Class B Common Stock represented by
this certificate may not be transferred to any person in
connection with a transfer that does not meet the
qualifications set forth in paragraph (c)(6)(D) of Article 4
of the Restated Certificate of Incorporation of this
corporation as amended and no person who receives such shares
in connection with a transfer which does not meet the
qualifications prescribed by paragraph (c)(6)(D) of said
Article 4 is entitled to own or to be registered as the record
holder of such shares of Class B Common Stock, but the record
holder of this certificate may at any time convert such shares
of Class B Common Stock into the same number of shares of
Class A Common Stock for purposes of effecting the sale or
other disposition of such shares of Class A Common Stock to
any person. Each holder of this certificate, by accepting the
same, accepts and agrees to all of the foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off,
shares of Class B Common Stock shall no longer bear the legend set
forth above in this paragraph (c)(6)(E).
(F) Upon any conversion of shares of Class B Common Stock
into shares of Class A Common Stock pursuant to the provisions of this
paragraph (c)(6), any dividend, for which the record date or payment
date shall be subsequent to such conversion, which may have been
declared on the shares of Class B Common Stock so converted shall be
deemed to have been declared, and shall be payable, with respect to
the shares of Class A Common Stock into or for which such shares of
Class B Common Stock shall have been so converted, and any such
dividend which shall have been declared on such shares payable in
shares of Class B Stock shall be deemed to have been declared, and
shall be payable, in shares of Class A Common Stock.
(G) The Corporation shall not reissue or resell any shares of
Class B Common Stock which shall have been converted into shares of
Class A Common Stock pursuant to or as permitted by the provisions of
this paragraph (c)(6), or any shares of Class B Common Stock which
shall have been acquired by the Corporation in any other manner. The
<PAGE> 11
11
Corporation shall, from time to time, take such appropriate action as
may be necessary to retire such shares and to reduce the authorized
amount of Class B Common Stock accordingly.
The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, such number of shares
of Class A Common Stock as would become issuable upon the conversion
of all shares of Class B Common Stock then outstanding.
(H) In connection with any transfer or conversion of any
stock of the Corporation pursuant to or as permitted by the provisions
of this paragraph (c)(6), or in connection with the making of any
determination referred to in this paragraph (c)(6):
(i) the Corporation shall be under no obligation to
make any investigation of facts unless an officer, employee or
agent of the Corporation responsible for making such transfer
or determination or issuing Class A Common Stock pursuant to
such conversion has substantial reason to believe, or unless
the Board of Directors (or a committee of the Board of
Directors designated for the purpose) determines that there is
substantial reason to believe, that any affidavit or other
document is incomplete or incorrect in a material respect or
that an investigation would disclose facts upon which any
determination referred to in paragraph (c)(6)(F) above should
be made, in either of which events the Corporation shall make
or cause to be made such investigation as it may deem
necessary or desirable in the circumstances and have a
reasonable time to complete such investigation; and
(ii) neither the Corporation nor any director,
officer, employee or agent of the Corporation shall be liable
in any manner for any action taken or omitted in good faith.
(I) The Corporation will not be required to pay any
documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Class A Common Stock on
the conversion of shares of Class B Common Stock pursuant to this
paragraph (c)(6), and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of
the Corporation, that such tax has been paid.
(d) All rights to vote and all voting power (including,
without limitation thereto, the right to elect directors) shall be vested
exclusively, in accordance with paragraph (c)(3) and paragraphs (d) through
(g), inclusive, in
<PAGE> 12
12
the holders of Common Stock, voting together as a single class, except as
otherwise expressly provided by the Board of Directors pursuant to Article 5 of
this Restated Certificate of Incorporation or as otherwise expressly required
by the law of the State of Delaware.
(e) No stockholder shall be entitled to exercise any right of
cumulative voting. If, however, any stockholder should at any time become
entitled to exercise a right of cumulative voting, whether by express
requirement of the law of the State of Delaware or otherwise, then at all
elections of directors each holder of Class A Common Stock shall be entitled to
cast one vote for each share of Class A Common Stock held by him or her, each
holder of Class B Common Stock shall be entitled to cast five votes for each
share of Class B Common Stock held by him or her and each holder of Full Voting
Preferred Stock (as defined in Article 5, paragraph (b)), if any, of any series
shall be entitled to cast the number of votes (which may be one vote or more or
less than one vote) for each share of Full Voting Preferred Stock held by him
or her which the Board of Directors shall have determined pursuant to Article 5
in establishing voting rights with respect to such series, in each case
multiplied by the number of directors to be elected, and each such holder shall
be entitled to cast all of his or her votes for a single director or to
distribute them among the number of directors to be voted for, or to cast his
or her votes for any two or more of them as he or she may see fit.
(f) At any meeting of stockholders, the presence in person or
by proxy of the holders of shares entitled to cast a majority of all the votes
which could be cast at such meeting by the holders of all of the outstanding
shares of stock of the Corporation entitled to vote on every matter that is to
be voted on without regard to class at such meeting shall constitute a quorum.
(g) At every meeting of stockholders, the holders of Class A
Common Stock, the holders of Class B Common Stock and the holders of Full
Voting Preferred Stock, if any, shall vote together as a class, and their votes
shall be counted and totalled together; and at any meeting of stockholders duly
called and held at which a quorum (determined in accordance with the provisions
of paragraph (f)) is present, (i) in all matters other than the election of
directors, a majority of the votes which could be cast at such meeting upon a
given question and (ii) in the case of the election of directors, a plurality
of the votes which could be cast at such meeting upon such election, by such
holders who are present in person or by proxy, shall be necessary, in addition
to any vote or other action that may be expressly required by the provisions of
this Restated Certificate of Incorporation or by the law of the State of
Delaware, to decide such question or election, and shall decide such question
or election if no such additional vote or other action is so required.
<PAGE> 13
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(h) Each holder of Preferred Stock shall be entitled to vote
to the extent, if any, provided by the Board of Directors pursuant to Article 5.
(i) Immediately upon the effectiveness of this Restated
Certificate of Incorporation, each share of stock of the Corporation, no par
value, issued and outstanding immediately prior to such effectiveness, shall be
changed into and reclassified as ____________ shares of Class B Common Stock.
5. PREFERRED STOCK. (a) Shares of Preferred Stock of the
Corporation may be issued from time to time in one or more series. Subject to
the limitations set forth in this Restated Certificate of Incorporation and any
limitations prescribed by the law of the State of Delaware, the Board of
Directors is expressly authorized, prior to issuance of any series of Preferred
Stock, to fix by resolution or resolutions providing for the issue of any
series, the number of shares included in such series and the designation,
relative powers, preferences and participating, optional or other special
rights, and the qualifications, limitations or restrictions of such series.
Pursuant to the foregoing general authority vested in the Board of Directors,
but (except as provided in the proviso to clause (v) of this Article 5) not in
limitation of the powers conferred on the Board of Directors thereby and by the
law of the State of Delaware, the Board of Directors is expressly authorized to
determine with respect to each series of Preferred Stock:
(i) the distinctive designation of such series and the
number of shares (which number from time to time may be decreased by
the Board of Directors, but not below the number of such shares then
outstanding, or may be increased by the Board of Directors unless
otherwise provided in creating such series) constituting such series;
(ii) the rate and time at which, and the preferences
and conditions under which, dividends shall be payable on shares of
such series, the status of such dividends as cumulative, or
non-cumulative, the date or dates from which dividends, if cumulative,
shall accumulate, and the status of such shares as participating or
non-participating after the payment of dividends as to which such
shares are entitled to any preference;
(iii) the right, if any, of holders of shares of such
series to convert such shares into, or to exchange such shares for,
shares of any other class or classes (other than Class B Common Stock)
or of any other series of the same class, the prices or rates of
conversion or exchange, and adjustments thereto, and any other terms
and conditions applicable to such conversion or exchange;
(iv) the rights and preferences,if any, of the holders
of shares of such series upon the liquidation,
<PAGE> 14
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dissolution or winding up of the affairs of, or upon any distribution
of the assets of, the Corporation, which amount may vary depending
upon whether such liquidation, dissolution, or winding up is voluntary
or involuntary, and, if voluntary, may vary at different dates, and
the status of the shares of such series as participating or
non-participating after the satisfaction of any such rights and
preferences;
(v) the voting powers, if any, of the holders of
shares of such series which may, without limiting the generality of
the foregoing, include (A) the general right to one vote (or more or
less than one vote) per share on every matter (including, without
limitation, the election of directors) voted on by the stockholders
without regard to class and (B) the limited right to vote, as a series
by itself or together with other series of Preferred Stock or together
with all series of Preferred Stock as a class, upon such matters,
under such circumstances and upon such conditions as the Board of
Directors may fix, including, without limitation, the right, voting as
a series by itself or together with other series of Preferred Stock
or together with all series of Preferred Stock as a class, to elect
one or more directors of the Corporation in the event there shall have
been a default in the payment of dividends on any one or more series
of Preferred Stock; provided, however, that notwithstanding the
provisions of the preceding subclause (B) or any other provisions of
this paragraph (a) to the contrary, the holders of Preferred Stock,
considered in the aggregate (whether voting by individual series or
together with other series of Preferred Stock or together with all
series of Preferred Stock as a class), shall not have the right to a
separate class vote for the election of one or more directors of the
Corporation except in the event there shall have been a default in the
payment of dividends on any one or more series of Preferred Stock and,
in such event, shall not have the right to a separate class vote for
more than a total of two directors;
(vi) the times, terms and conditions, if any, upon
which shares of such series shall be subject to redemption, including
the amount which the holders of shares of such series shall be
entitled to receive upon redemption (which amount may vary under
different conditions or at different redemption dates) and the amount,
terms, conditions and manner of operation of any purchase, retirement
or sinking fund to be provided for the shares of such series;
(vii) the limitations, if any, applicable while shares
of such series are outstanding on the payment of dividends or making
of distributions on, or the acquisition or redemption of, Class A
Common Stock or Class B Common Stock or any other class of shares
ranking junior, either as to dividends or upon liquidation, to the
shares of such series;
<PAGE> 15
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(viii) the conditions or restrictions, if any, upon the
issue of any additional shares (including additional shares of such
series or any other class) ranking on a parity with or prior to the
shares of such series either as to dividends or upon liquidation; and
(ix) any other relative powers, preferences and
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of shares of such
series;
in each case, so far as not inconsistent with the provisions of this
Restated Certificate of Incorporation or the Delaware General
Corporation Law. Unless otherwise provided by the Board of Directors,
all shares of Preferred Stock shall be identical and of equal rank
and, unless otherwise provided by the Board of Directors, all shares
of each series of Preferred Stock shall be identical and of equal rank
except as to the dates from which cumulative dividends, if any,
thereon shall be cumulative.
(b) As used in this Restated Certificate of
Incorporation, the term "Full Voting Preferred Stock" shall mean Preferred
Stock of any one or more series the holders of which shall be entitled to vote
on every matter (including, without limitation, the election of directors)
voted on by the stockholders without regard to class.
6. COMPUTATION; USE OF TERMS. (a) In determining the
number or the record holders of outstanding shares of any class of stock of the
Corporation for the purpose of computing or determining the method of computing
the vote or determining the right to vote at any meeting of stockholders or of
a class of stockholders, the original stock ledger of the Corporation as at the
close of business on the record date fixed for such meeting or, if the stock
transfer books of the Corporation shall have been closed for a period
immediately preceding the date of such meeting, then as at the close of
business on the date as of which such stock transfer books were so closed,
shall be conclusive for all purposes, and in determining the number or the
record holders of outstanding shares of any class of stock of the Corporation
for any other purpose, the original stock ledger of the Corporation as at the
close of business on the date as of which the determination is being made,
shall be conclusive for all purposes; all notwithstanding any other provision
of this Restated Certificate of Incorporation.
(b) Wherever a term shall be used in the singular in
this Restated Certificate of Incorporation, it shall be deemed in all
appropriate circumstances to include also the plural, and wherever a term shall
be so used in the plural, it shall similarly be deemed to include also the
singular.
<PAGE> 16
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7. DURATION. The Corporation is to have perpetual
existence.
8. PROPERTY OF STOCKHOLDERS NOT SUBJECT TO CORPORATE
DEBTS. The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
9. POWERS OF THE BOARD OF DIRECTORS. (a) In
furtherance, and not in limitation, of the powers conferred by statute, the
Board of Directors is expressly authorized:
To make, alter or repeal the By-laws of the Corporation; to
set apart out of any funds of the Corporation available for dividends
a reserve or reserves for any proper purpose and to abolish the same
in the manner in which it was created, and to fix and determine and to
vary the amount of the working capital of the Corporation; to
determine the use and disposition of the working capital and of any
surplus or net profits over and above the capital of the Corporation
determined as provided by law, and to fix the times for the
declaration and payment of dividends; to authorize and cause to be
executed mortgages and liens, without limit as to amount, upon the
real and personal property of the Corporation; and to fix and
determine the fees and other compensation to be paid by the
Corporation to its directors;
To determine from time to time whether and to what extent, and
at what times and places, and under what conditions and regulations,
the accounts and books of the Corporation (other than the stock
ledger), or any of them, shall be open to inspection of the
stockholders; and no stockholder shall have any right to inspect any
account, book or document of the Corporation except as conferred by
statute, unless authorized by a resolution of the stockholders or
directors;
To make donations for the public welfare or for charitable,
scientific or educational purposes; and to cause the Corporation to
cooperate with other corporations or with natural persons, or to act
alone, in the creation and maintenance of community funds or
charitable, scientific, or educational instrumentalities, and to make
donations for the public welfare or for charitable, scientific, or
educational purposes; and
To designate, by resolution passed by a majority of the entire
Board of Directors, one or more committees, each committee to consist
of two or more of the directors of the Corporation, which to the
extent provided in the resolution or in the By-laws of the
Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the
Corporation,
<PAGE> 17
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and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
As used in this Restated Certificate of Incorporation, the term
"entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
(b) The Corporation may in its By-laws confer powers upon
its directors in addition to the foregoing, and in addition to the powers and
authorities expressly conferred upon them by the laws of the State of Delaware.
10. BOARD OF DIRECTORS - NUMBER AND VACANCIES. (a) Subject
to any rights of holders of Preferred Stock to elect additional directors under
specified circumstances, the number of directors of the Corporation shall be
not more than twelve (12) nor less than three (3), with the exact number to be
fixed from time to time as provided in the By-laws of the Corporation.
(b) Subject to any rights of holders of Preferred Stock, and
unless the Corporation's Board of Directors otherwise determines, any vacancy
occurring in the Board of Directors caused by death, resignation, increase in
number of directors or otherwise may 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 of the Corporation.
(c) Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, 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, shall be required to amend,
repeal or adopt any provision inconsistent with this Article 10.
11. CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION. (a) In
anticipation that the Corporation will cease to be an indirect, wholly-owned
subsidiary of Ford, but that Ford will remain a substantial stockholder of the
Corporation, and in anticipation that the Corporation and Ford may engage in
the same or similar activities or lines of business and have an interest in the
same areas of corporate opportunities, and in recognition of the benefits to be
derived by the Corporation through its continued contractual, corporate and
business relations with Ford (including possible service of officers and
directors of Ford as officers and directors of the Corporation), the provisions
of this Article 11 are set forth to regulate and define the conduct of certain
affairs of the Corporation as they may involve Ford and its officers and
directors, and the powers, rights, duties and liabilities of the Corporation
and its officers, directors and stockholders in connection therewith.
<PAGE> 18
18
(b) Ford shall have no duty to refrain from engaging in the
same or similar activities or lines of business as the Corporation, and neither
Ford nor any officer or director thereof (except as provided in paragraph (c)
below) shall be liable to the Corporation 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 Corporation, Ford shall have no
duty to communicate or offer such corporate opportunity to the Corporation and
shall not be liable to the Corporation or its stockholders for breach of any
fiduciary duty as a stockholder of the Corporation 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 Corporation.
(c) In the event that a director or officer of the
Corporation 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 Corporation and Ford, such director or officer of the Corporation shall
have fully satisfied and fulfilled the fiduciary duty of such director or
officer to the Corporation 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 Corporation, and who is also a director but not
an officer of Ford, shall belong to the Corporation; (ii) a corporate
opportunity offered to any person who is a director but not an officer
of the Corporation, and who is also a director or officer of Ford
shall belong to the Corporation if such opportunity is expressly
offered to such person in writing solely in his or her capacity as a
director of the Corporation, and otherwise shall belong to Ford; and
(iii) a corporate opportunity offered to any person who is an officer
of both the Corporation and Ford shall belong to the Corporation if
such opportunity is expressly offered to such person in writing solely
in his or her capacity as an officer of the Corporation, and otherwise
shall belong to Ford.
(d) Any person purchasing or otherwise acquiring any interest
in shares of the capital stock of the Corporation shall be deemed to have
notice of and to have consented to the provisions of this Article 11.
(e) For purposes of this Article 11 only:
(1) A director of the Corporation who is Chairman of the
Board of Directors of the Corporation or of a committee thereof shall
not be deemed to be an officer of the Corporation by reason of holding
such position (without
<PAGE> 19
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regard to whether such position is deemed an office of the Corporation
under the By-laws of the Corporation), unless such person is a
full-time employee of the Corporation; and
(2) (A) The term "Corporation" shall mean the Corporation and
all corporations, partnerships, joint ventures, associations and other
entities in which the Corporation beneficially owns (directly or
indirectly) 50% or more of the outstanding voting stock, voting power,
partnership 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 Corporation,
defined in accordance with clause (A) of this paragraph (e)(2)) in
which Ford beneficially owns (directly or indirectly) 50% or more of
the outstanding voting stock, voting power, partnership interests or
similar voting interests.
(f) Notwithstanding anything in this Restated Certificate of
Incorporation to the contrary, (i) the foregoing provisions of this Article 11
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 of the Corporation and no person who is a director or
officer of the Corporation is also a director or officer of Ford; and (ii) in
addition to any vote of the stockholders required by this 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 of the Corporation, the affirmative vote of the
holders of more than 80% of the total voting power of all classes of
outstanding Common Stock of the Corporation shall be required to alter, amend
or repeal in a manner adverse to the interests of Ford, or adopt any provision
adverse to the interests of Ford and inconsistent with, any provision of this
Article 11. Neither the alteration, amendment or repeal of this Article 11 nor
the adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article 11 shall eliminate or reduce the effect of this
Article 11 in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article 11, would accrue or arise, prior to such
alteration, amendment, repeal or adoption.
12. MEETINGS. (a) If the By-laws so provide, the
stockholders and the directors may hold their meetings, and the Corporation may
have one or more offices, either inside or outside of the State of Delaware.
The books and records of the Corporation (subject to the provisions of the laws
of the State of Delaware) may be kept either inside or outside of the State of
Delaware at such places as from time to time may be determined by the Board of
Directors.
(b) Any corporate action required to be taken at any annual
or special meeting of stockholders of the Corporation, or
<PAGE> 20
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any corporate action which may be taken at any annual or special meeting of the
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent or consents in writing, setting forth the corporate action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware (either by hand or by certified or registered
mail, return receipt requested), its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded; provided, however, that on and after the
date on which neither Ford nor the Class B Transferee continues to beneficially
own 50% or more of the total voting power of all classes of outstanding Common
Stock, any corporate action required to be taken at any annual or special
meeting of the stockholders, or any corporate action which may be taken at any
annual or special meeting of the stockholders, may be taken only at a duly
called annual or special meeting of stockholders and may not be taken by
written consent of the stockholders in lieu of such meeting.
So long as stockholders are entitled to consent to
corporate action in writing without a meeting in accordance with this paragraph
(b), every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the date
the earliest dated consent is delivered to the Corporation, a written consent
or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in this paragraph (b).
(c) Unless otherwise prescribed by law or this Restated
Certificate of Incorporation, special meetings of stockholders may be held at
any time on call of the Chairman of the Board of Directors, a Vice Chairman of
the Board of Directors, the President or, at the request in writing of a
majority of the Board of Directors, any officer.
(d) Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, 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, shall be required to amend,
repeal or adopt any provision inconsistent with this Article 12.
13. LIMITATION ON LIABILITY OF DIRECTORS. (a) A
director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability
<PAGE> 21
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(i) for any breach of the director's duty of loyalty
to the Corporation 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 General
Corporation Law or
(iv) for any transaction from which the director
derived an improper personal benefit.
(b) If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article 13 to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
(c) Any repeal or modification of this Article 13 by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
14. INDEMNIFICATION AND INSURANCE. (a) Each person who
was or is made a party or is threatened to be made a party to or is involved in
any action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise (hereinafter a "proceeding"), by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is
or was a director, officer or employee of the Corporation or is or was serving
at the request of the Corporation as a director, officer or employee of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer or employee or in any other capacity while serving as a director,
officer or employee, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including penalties, fines, judgments, attorney's fees, amounts paid or to be
paid in settlement and excise taxes or penalties imposed on fiduciaries with
respect to (i) employee benefit plans, (ii) charitable organizations or (iii)
similar matters) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
<PAGE> 22
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to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person (other
than pursuant to paragraph (b) of this Article 14) only if such proceeding (or
part thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this paragraph (a) of Article 14 shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this paragraph (a)
of Article 14 or otherwise.
(b) If a claim which the Corporation is obligated to pay
under paragraph (a) of this Article 14 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(c) The provisions of this Article 14 shall cover claims,
actions, suits and proceedings, civil or criminal,
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whether now pending or hereafter commenced, and shall be retroactive to cover
acts or omissions or alleged acts or omissions which heretofore have taken
place. If any part of this Article 14 should be found to be invalid or
ineffective in any proceeding, the validity and effect of the remaining
provisions shall not be affected.
(d) The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Article 14 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of this
Restated Certificate of Incorporation, By-Law, agreement, vote of stockholders
or disinterred directors or otherwise.
(e) The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
(f) The Corporation may, to the extent authorized from
time to time by the Board of Directors, grant rights to indemnification, and
rights to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any agent of the Corporation
to the fullest extent of the provisions of this Article 14 with respect to the
indemnification and advancement of expenses of directors, officers and
employees of the Corporation.
15. LIMITATION OF ACTIONS. Every asserted right of
action by or on behalf of the Corporation or by or on behalf of any stockholder
against any past, present or future member of the Board of Directors, or any
committee thereof, or against any officer or employee of the Corporation or any
subsidiary thereof, arising out of or in connection with any bonus,
supplemental compensation, stock investment, stock option or other plan or
plans for the benefit of any employee, irrespective of the place where such
right of action may arise or be asserted and irrespective of the place of
residence of any such director, member, officer or employee, shall cease and be
barred upon the expiration of three years from the later of the following
dates: (a) the date of any alleged act or omission in respect of which such
right of action may be asserted to have arisen, or (b) the date upon which the
Corporation shall have made generally available to its stockholders information
with respect to, as the case may be, the aggregate amount credited for a fiscal
year to a bonus or supplemental compensation reserve, or the aggregate amount
of awards in a fiscal year of bonuses or supplemental compensation, or the
aggregate amount of stock optioned or made available for purchase during a
fiscal year, or the aggregate amount expended by the Corporation during a
fiscal year in
<PAGE> 24
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connection with any other plan for the benefit of such employees, to all or any
part of which such asserted right of action may relate; and every asserted
right of action by or on behalf of any employee, past, present or future, or
any spouse, child, or legal representative thereof, against the Corporation or
any subsidiary thereof arising out of or in connection with any such plan,
irrespective of the place where such asserted right of action may arise or be
asserted, shall cease and be barred by the expiration of three years from the
date of the alleged act or omission in respect of which such right of action
shall be asserted to have arisen.
16. BY-LAWS AMENDMENTS. The By-laws of the Corporation
may be altered, amended or repealed at any meeting of the Board of Directors or
of the stockholders, provided that notice of such alteration, amendment or
repeal be contained in the notice of such meeting of the Board of Directors or
stockholders (subject, in the case of meetings of stockholders, to the
provisions of Article II of the By-laws), as the case may be. All such
amendments must be approved 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),
or 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).
17. AMENDMENTS. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by the
law of the State of Delaware, and all rights of the stockholders herein are
granted subject to this reservation.
<PAGE> 25
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IN WITNESS WHEREOF, Associates First Capital Corporation has
caused this Restated Certificate of Incorporation to be signed on this ____ day
of ________, 1996 in its name.
ASSOCIATES FIRST CAPITAL
CORPORATION
By:
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
ASSOCIATES FIRST CAPITAL CORPORATION
(THE "COMPANY")
ADOPTED __________, 1996
ARTICLE I.
OFFICES
The registered office of the Company shall be in the City of
Wilmington, County of New Castle, State of Delaware. The Company may also have
one or more offices at such other places, either inside or outside of the State
of Delaware, as the Board of Directors may from time to time determine or as
the business of the Company may require. The books and records of the Company
may be kept (subject to the provisions of the laws of the State of Delaware) at
any place, either inside or outside of the State of Delaware, as from time to
time may be determined by the Board of Directors.
ARTICLE II.
STOCKHOLDERS
SECTION 1. PLACE OF MEETING.
Meetings of stockholders (whether annual or special) shall be held at
such place, either inside or outside of the State of Delaware, as the Board of
Directors shall from time to time determine.
SECTION 2. ANNUAL MEETING.
The annual meeting of stockholders shall be held on the last Thursday
of May of each year or at such other time as shall be determined by the Board
of Directors. Should said day be a legal holiday, such annual meeting shall be
held on the preceding regular business day. If, for any reason, the annual
meeting be not held at the time aforesaid, the directors shall fix another date
for such meeting.
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SECTION 3. SPECIAL MEETINGS.
Unless otherwise prescribed by law or by the Company's Restated
Certificate of Incorporation, as amended from time to time (the "Charter"),
special meetings of stockholders may be held at any time on call of the
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors,
the President, or, at the request in writing of a majority of the Board of
Directors, any officer. Such request shall state the purpose or purposes of
the proposed meeting.
SECTION 4. NOTICE OF MEETINGS.
Except as otherwise provided by law, at least twenty (20) days' notice
of stockholders' meetings stating the time and place and the objects thereof
shall be given by the Chairman of the Board of Directors, a Vice Chairman of
the Board of Directors, the President, the Secretary or an Assistant Secretary
to each stockholder of record having voting power in respect of the business to
be transacted thereat. Subject to Section 5 of this Article II, no business
other than that stated in the notice shall be transacted at any meeting.
SECTION 5. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of Directors and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Company's notice of meeting delivered pursuant to Section 4
of this Article II, (b) by or at the direction of the Board of Directors or (c)
by any stockholder of the Company who is entitled to vote at the meeting, who
complied with the notice procedures set forth in paragraphs (A)(2) and (A)(3)
of this Section 5 and who was a stockholder of record at the time such notice
is delivered to the Secretary of the Company.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 5, the stockholder must have given timely notice thereof
in writing to the Secretary of the Company and such business must be a proper
subject for stockholder action under the General Corporation Law of the State
of Delaware. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Company not less than sixty
(60) days nor more than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the ninetieth
day prior to such annual meeting and not later than the close of business on
the later of the sixtieth day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934,
<PAGE> 3
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as amended (the "Exchange Act"), (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial
owner and (ii) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 5 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Company at least seventy
(70) days prior to the first anniversary of the preceding year's annual
meeting, a stockholders's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Company not later than the close of business
on the tenth day following the day on which such public announcement is first
made by the Company.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting pursuant to
Section 4 of this Article II. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Company's notice of meeting (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Company who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Section 5 and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Company. Nominations
by stockholders of persons for election to the Board of Directors may be made
at such a special meeting of stockholders if the stockholder's notice required
by paragraph (A)(2) of this Section 5 shall be delivered to the Secretary at
the principal executive offices of the Company not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the sixtieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance
with the procedures set forth in this Section 5 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 5. Except as otherwise provided by
law, the Charter or these By-laws, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with this Section 5 and, if
any proposed
<PAGE> 4
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nomination or business is not in compliance with this Section 5, to declare
that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 5, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 5. Nothing in this Section 5 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the Company's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 6. QUORUM.
At any meeting of stockholders, the number of shares the holders of
which shall be present or represented by proxy in order to constitute a quorum
for, and the votes that shall be necessary for, the transaction of any business
shall be as expressly provided in Article 4 of the Charter. At any meeting of
stockholders at which a quorum is not present, the person serving as chairman
of the meeting or the holders of shares entitled to cast a majority of all of
the votes which could be cast at such meeting by the holders of outstanding
shares of stock of the Company who are present in person or by proxy and who
are entitled to vote on every matter that is to be voted on without regard to
class at such meeting may adjourn the meeting from time to time.
SECTION 7. ORGANIZATION AND CONDUCT OF BUSINESS.
The Chairman of the Board of Directors shall act as chairman of
meetings of the stockholders. The Board of Directors may designate any other
officer or director of the Company to act as chairman of any meeting in the
absence of the Chairman of the Board of Directors, and the Board of Directors
may further provide for determining who shall act as chairman of any
stockholders' meeting in the absence of the Chairman of the Board of Directors
and such designee. The person serving as chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.
The Secretary of the Company shall act as secretary of all meetings of
the stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
<PAGE> 5
5
SECTION 8. PROXIES AND VOTING.
At any meeting of stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
SECTION 9. STOCK LISTS.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
SECTION 10. RATIFICATION.
Any transaction questioned in any stockholders' derivative suit, or
any other suit to enforce alleged rights of the Company or any of its
stockholders, on the ground of lack of authority, defective or irregular
execution, adverse interest of any director, officer or stockholder,
nondisclosure, miscomputation or the application of improper principles or
practices of accounting may be approved, ratified and confirmed before or after
judgment by the Board of Directors or by the holders of the Company's Class A
Common Stock, par value $.01 per share ("Class A Common Stock") and the holders
of the Company's Class B Common Stock, par value $.01 per share ("Class B
Common Stock") voting as provided in paragraph (g) of Article 4 of the Charter,
and, if so approved, ratified or confirmed, shall have the same force and
effect as if the questioned transaction had been originally duly authorized,
and said approval, ratification or confirmation shall be binding upon the
Company
<PAGE> 6
6
and all of its stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
SECTION 11. INSPECTORS OF ELECTION.
The Board of Directors may, and to the extent required by law, shall,
in advance of any meeting of stockholders, appoint one or more inspectors to
act at the meeting, decide upon the qualification of voters, count the votes,
decide the results and make a written report thereof in accordance with the
General Corporation Law of the State of Delaware. The Board of Directors may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law, shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. Every vote taken
by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. NUMBER, TERM OF OFFICE AND ELIGIBILITY.
Subject to any rights of holders of Preferred Stock to elect
additional directors under specified circumstances, as provided in Article 5 of
the Charter, the number of directors of the Company shall 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 (12) nor less than three (3) directors. Each director shall be
elected annually by ballot by the holders of Class A Common Stock and the
holders of Class B Common Stock voting as provided in paragraph (g) of Article
4 of the Charter at the annual meeting of stockholders, to serve until his or
her successor shall have been elected and shall have qualified, except as
provided in this Section 1. No person may be elected or re-elected a director
of the Company if at the time of his or her election or re-election he or she
shall have attained the age of seventy years, and the term of any director who
shall have attained such age while serving as a director shall terminate as of
the time of the first annual meeting of stockholders following his or her
seventieth birthday; provided, however, that the Board of Directors by
resolution may waive such age limitation in any year and from year to year with
respect to any director or directors. Subject to any rights of holders of
Preferred Stock, and unless the Board of Directors otherwise determines, any
vacancy occurring in the Board of Directors caused by death, resignation,
increase in number of directors or otherwise may 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, and except as otherwise
provided by law, any such vacancy may
<PAGE> 7
7
not be filled by the stockholders of the Company, and any director so elected
shall hold office until the next election of directors and until his or her
successor is duly elected and qualified, or until his or her earlier death,
resignation or removal.
SECTION 2. MEETINGS.
Meetings of the Board of Directors may be held at such place, either
inside or outside of the State of Delaware, as may from time to time be
designated by the Chairman of the Board of Directors, a Vice Chairman of the
Board of Directors, the President or resolution of the Board of Directors or as
may be specified in the call of any meeting. In the absence of any such
designation, the meetings shall be held at the principal office of the Company
in Irving, Texas.
An annual meeting of the Board of Directors shall be held on the same
day as, and as soon as practicable following the annual meeting of stockholders
or at such other time or place as shall be determined by the Board of Directors
at its regular meeting next preceding said annual meeting of stockholders.
Regular meetings of the Board of Directors shall be held on the last Thursday
of February, May, August and November of each year or at such other time as
shall be determined by the Board of Directors. Should said day be a legal
holiday, such regular meeting shall be held on the next Thursday that is not a
legal holiday.
Special meetings of the Board of Directors may be held at any time on
the call of the Chairman of the Board of Directors, a Vice Chairman of the
Board of Directors, the President or the Board of Directors. Meetings may be
held at any time or place without notice if all the directors are present or if
those not present waive notice of the meeting in writing.
SECTION 3. NOTICE OF MEETINGS.
The Secretary or an Assistant Secretary shall give notice of the time
and place of meetings of the Board of Directors (excepting the annual meeting
of directors) by (i) mailing or sending via courier such notice not later than
during the second day preceding the day on which such meeting is to be held, or
(ii) by (a) sending a facsimile transmission or other form of electronic
communication containing such notice or (b) delivering such notice personally
or by telephone, in each case, not later than during the first day preceding
the day on which such meeting is to be held to each director. Unless otherwise
stated in the notice thereof any and all business may be transacted at any
meeting.
SECTION 4. QUORUM AND ORGANIZATION OF MEETINGS.
One-third of the total number of members of the Board of Directors as
constituted from time to time, but in no event less than three, shall
constitute a quorum for the transaction of business; but if at any meeting of
the Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time, and the meeting may be
held as adjourned without further notice or waiver. Except as otherwise
provided by law or by the Charter or these By-laws, a majority of the directors
present at any duly constituted meeting may decide any question brought before
such meeting.
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Meetings shall be presided over by the Chairman of the Board of Directors or,
in his or her absence, by such other person as the Board of Directors may
designate or the members present may select.
SECTION 5. POWERS
In addition to the powers and authorities by these By-laws expressly
conferred upon them, the Board of Directors shall have and may exercise all
such powers of the Company and do all such lawful acts and things that are not
by statute, the Charter or these By-laws directed or required to be exercised
or done by the stockholders. Without prejudice to or limitation of such
general powers and any other powers conferred by statute, the Charter or these
By- laws, the Board of Directors shall have the following powers:
(1) To determine, subject to the requirements of law and
of paragraph (c)(2) of Article 4 of the Charter, what, if any,
dividends shall be declared and paid to the stockholders out of net
profits, current or accumulated, or out of surplus or other assets of
the Company available for dividends.
(2) To fix, and from time to time to vary, the amount of
working capital of the Company, and to set aside from time to time out
of net profits, current or accumulated, or surplus of the Company such
amount or amounts as they in their discretion may deem necessary and
proper as, or as a safeguard to the maintenance of, working capital,
as a reserve for contingencies, as a reserve for repairs, maintenance,
or rehabilitation, as a reserve for revaluation of profits of the
Company or for such other proper purpose as may in the opinion of the
directors be in the best interests of the Company; and in their sole
discretion to abolish or modify any such provision for working capital
or any such reserve, and to credit the amount thereof to net profits,
current or accumulated, or to the surplus of the Company.
(3) To purchase, or otherwise acquire for the Company,
any business, property, rights or privileges which the Company may at
the time be authorized to acquire, at such price or consideration and
generally on such terms and conditions as they think fit; and at their
discretion to pay therefor either wholly or partly in money, stock,
bonds, debentures or other securities of the Company.
(4) To create, make and issue mortgages, bonds, deeds of
trust, trust agreements or negotiable or transferable instruments or
securities, secured by mortgage or otherwise, and to do every other
act and thing necessary to effect the same.
(5) To appoint any person or corporation to accept and
hold in trust for the Company any property belonging to the Company,
or in which it is interested, or for any other purpose, and to execute
such deeds and do all things requisite in relation to any such trust.
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(6) To remove any officer of the Company with or without
cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being.
(7) To confer upon any officer of the Company the power
to appoint, remove and suspend subordinate officers, agents and
employees.
(8) To determine who shall be authorized on the Company's
behalf, either generally or specifically, to make and sign bills,
notes, acceptances, endorsements, checks, releases, receipts,
contracts, conveyances, and all other written instruments executed on
behalf of the Company.
(9) To make and change regulations, not inconsistent with
these By-laws, for the management of the Company's business and
affairs.
(10) To adopt and, unless otherwise provided therein, to
amend and repeal, from time to time, bonus and supplemental
compensation plans for employees (including employees who are officers
or directors) of the Company or any subsidiary. Power to construe,
interpret, administer, modify or suspend any such plan shall be vested
in the Board of Directors or a committee thereof.
(11) To adopt a retirement plan, or plans, for the purpose
of making retirement payments to employees (including employees who
are officers or directors) of the Company or of any subsidiary
thereof; and to adopt a group insurance plan, or plans, for the
purpose of enabling employees (including employees who are officers or
directors) of the Company or of any subsidiary thereof to acquire
insurance protection; any such retirement plan or insurance plan,
unless otherwise provided therein, shall be subject to amendment or
revocation by the Board of Directors.
(12) To delegate any of the powers of the Board of
Directors in the course of the business of the Company to any officer,
employee or agent, and to appoint any person the agent of the Company,
with such powers (including the power to subdelegate) and upon such
terms as the Board of Directors may think fit.
SECTION 6. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each director, each member of any committee designated by the Board of
Directors and each officer, in the performance of his or her duties, shall be
fully protected in relying in good faith upon such information, opinions,
reports or statements presented to the Company by any of its officers or
employees, or by committees of the Board of Directors, or by any other person,
as to matters such director, member or officer, as the case may be, reasonably
believes are within such person's professional or expert competence and who has
been selected with reasonable care by the Board of Directors or by any such
committee, or in relying in good faith upon other records of the Company.
<PAGE> 10
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SECTION 7. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, services as members of committees of
the Board of Directors; provided, however, that nothing herein contained shall
be construed to preclude any director from serving the Company in any other
capacity and receiving compensation therefor.
SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE.
Unless otherwise provided by the Charter or these By-laws, members of
the Board of Directors, or any committee designated by the Board of Directors,
may participate in a meeting of the Board of Directors or such committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 8 shall constitute presence
in person at such meeting.
ARTICLE IV.
COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.
There are hereby established as committees of the Board of Directors
an Audit Committee, a Compensation Committee and a Nominating Committee, each
of which shall have the powers and functions set forth in Sections 2, 3 and 4
hereof, respectively, and such additional powers as may be delegated to it by
the Board of Directors. The Board of Directors may from time to time establish
additional standing committees or special committees of the Board of Directors,
each of which shall have such powers and functions as may be delegated to it by
the Board of Directors. The Board of Directors may abolish any committee
established by or pursuant to this Section 1 as it may deem advisable. Each
such committee shall consist of two or more directors, the exact number being
determined from time to time by the Board of Directors. Designations of the
chairman and members of each such committee, and, if desired, a vice chairman
and alternates for members, shall be made by the Board of Directors. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member. Each committee shall have a secretary who shall be designated by its
chairman. A vice chairman of a committee shall act as the chairman of the
committee in the absence or disability of the chairman.
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SECTION 2. AUDIT COMMITTEE.
The Audit Committee shall select and engage, on behalf of the Company,
independent public accountants to (1) audit the books of account and other
corporate records of the Company and (2) perform such other duties as the Audit
Committee may from time to time prescribe. The Audit Committee shall transmit
financial statements certified by such independent public accountants to the
Board of Directors after the close of each fiscal year. The selection of
independent public accountants for each fiscal year shall be made in advance of
the annual meeting of stockholders in such fiscal year and shall be submitted
for ratification or rejection at such meeting. The Audit Committee shall
confer with such accountants and review and approve the scope of the audit of
the books of account and other corporate records of the Company. The Audit
Committee shall have the power to confer with and direct the officers of the
Company to the extent necessary to review the internal controls, accounting
practices, financial structure and financial reporting of the Company. From
time to time the Audit Committee shall report to and advise the Board of
Directors concerning the results of its consultation and review and such other
matters relating to the internal controls, accounting practices, financial
structure and financial reporting of the Company as the Audit Committee
believes merit review by the Board of Directors. The Audit Committee also
shall perform such other functions and exercise such other powers as may be
delegated to it from time to time by the Board of Directors.
SECTION 3. COMPENSATION COMMITTEE.
The Compensation Committee shall fix from time to time the salaries of
members of the Board of Directors who are officers or employees of the Company
and of all Senior Executive Vice Presidents, Executive Vice Presidents and
Senior Vice Presidents of the Company. It also shall perform such functions as
may be delegated to it under the provisions of any bonus, supplemental
compensation, special compensation or stock option plan of the Company.
SECTION 4. NOMINATING COMMITTEE.
The Nominating Committee from time to time shall consider and make
recommendations to the Board of Directors with respect to nominations or
elections of directors and officers of the Company and the appointments of such
other employees of the Company as shall be referred to the Nominating
Committee.
The Nominating Committee from time to time shall consider the size and
composition of the Board of Directors and make recommendations to the Board of
Directors with respect to such matters. Prior to the annual meeting of
stockholders each year, and prior to any special meeting of stockholders at
which a director is to be elected, the Nominating Committee shall recommend to
the Board of Directors persons proposed to constitute the nominees whose
election at such meeting will be recommended by the Board of Directors.
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The authority vested in the Nominating Committee by this Section 4
shall not derogate from the power of individual members of the Board of
Directors to recommend or place in nomination persons other than those
recommended by the Nominating Committee.
The Nominating Committee also shall perform such other functions and
exercise such other powers as may be delegated to it from time to time by the
Board of Directors.
SECTION 5. OTHER COMMITTEES.
The Board of Directors, or any committee, officer or employee of the
Company may establish additional standing committees or special committees to
serve in an advisory capacity or in such other capacities as may be permitted
by law, the Charter and these By-laws. The members of any such committee need
not be members of the Board of Directors. Any committee established pursuant
to this Section 5 may be abolished by the Board of Directors or by the person
or body by whom it was established as he, she or it may deem advisable. Each
such committee shall consist of two or more members, the exact number being
determined from time to time by such person or body. Designations of members
of each such committee and, if desired, alternates for members, shall be made
by such person or body, at whose will all such members and alternates shall
serve. The chairman of each such committee shall be designated by such person
or body. Each such committee shall have a secretary who shall be designated by
the chairman.
SECTION 6. RULES AND PROCEDURES.
Each committee may fix its own rules and procedures and shall meet at
such times and places as may be provided by such rules, by resolution of the
committee or by call of the chairman or vice chairman. Notice of meeting of
each committee, other than of regular meetings provided for by its rules or
resolutions, shall be given to committee members. The presence of one-third of
its members, but not less than two, shall constitute a quorum of any committee,
and all questions shall be decided by a majority vote of the members present at
the meeting. All action taken at each committee meeting shall be recorded in
minutes of the meeting.
SECTION 7. APPLICATION OF ARTICLE.
Whenever any provision of any other document relating to any committee
of the Company named therein shall be in conflict with any provision of this
Article IV, the provisions of this Article IV shall govern, except that if such
other document shall have been approved by the stockholders, voting as provided
in the Charter, or by the Board of Directors, the provisions of such other
document shall govern.
<PAGE> 13
13
ARTICLE V.
OFFICERS
SECTION 1. OFFICERS.
The Officers of the Company shall include a Chairman of the Board of
Directors and may include one or more Vice Chairmen of the Board of Directors,
each of whom shall be chosen from among the directors, and a President, one or
more Senior Executive Vice Presidents, one or more Executive Vice Presidents,
one or more Senior Vice Presidents, one or more Vice Presidents, a Treasurer, a
Comptroller, a General Counsel and a Secretary, each of whom shall be elected
by the Board of Directors to hold office until his or her successor shall have
been chosen and shall have qualified. The Board of Directors, the Chairman of
the Board of Directors and the President may elect or appoint one or more
Assistant Vice Presidents, one or more Assistant Treasurers, one or more
Assistant Comptrollers, one or more Assistant General Counsels, one or more
Assistant Secretaries, and the Board of Directors may elect or appoint such
other officers as it may deem necessary, or desirable, each of whom shall have
such authority, shall perform such duties and shall hold office for such term
as may be prescribed by the Board of Directors from time to time. Any person
may hold at one time more than one office, excepting that the duties of the
President and Secretary shall not be performed by one person.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors shall be the Chief Executive
Officer of the Company. Subject to the provisions of these By-laws and to the
direction of the Board of Directors, he or she shall have ultimate authority
for decisions relating to the general management and control of the affairs and
business of the Company and shall perform all other duties and exercise all
other powers commonly incident to the position of Chief Executive Officer or
which are or from time to time may be delegated to him or her by the Board of
Directors, or which are or may at any time be authorized or required by law.
He or she shall preside at all meetings of the Board of Directors. He or she
may redelegate from time to time and to the full extent permitted by law, in
writing, to officers or employees of the Company any or all of such duties and
powers, and any such redelegation may be either general or specific. Whenever
he or she so shall delegate any of his or her authority, he or she shall file a
copy of the redelegation with the Secretary of the Company.
SECTION 3. VICE CHAIRMEN OF THE BOARD OF DIRECTORS.
Subject to the provisions of these By-laws and to the direction of the
Board of Directors and of the Chief Executive Officer, the Vice Chairmen of the
Board of Directors shall have such powers and shall perform such duties as from
time to time may be delegated to them by the Board of Directors or by the Chief
Executive Officer, or which are or may at any time be authorized or required by
law.
<PAGE> 14
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SECTION 4. PRESIDENT.
Subject to the provisions of these By-laws and to the direction of the
Board of Directors and of the Chief Executive Officer, the President shall have
such powers and shall perform such duties as from time to time may be delegated
to him or her by the Board of Directors or by the Chief Executive Officer, or
which are or may at any time be authorized or required by law.
SECTION 5. SENIOR EXECUTIVE VICE PRESIDENTS, EXECUTIVE VICE
PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS.
Each of the Senior Executive Vice Presidents, each of the Executive
Vice Presidents, each of the Senior Vice Presidents and each of the other Vice
Presidents shall have such powers and shall perform such duties as may be
delegated to him or her by the Board of Directors, the Chairman of the Board of
Directors, the President or such other officer or officers to whom he or she is
directly responsible.
SECTION 6. TREASURER AND ASSISTANT TREASURER.
The Treasurer, subject to the direction of the Board of Directors,
shall have the care and custody of all funds and securities of the Company
which may come into his or her hands. When necessary or proper he or she shall
endorse on behalf of the Company, for collection, checks, notes and other
obligations, and shall deposit all funds of the Company in such banks or other
depositaries as may be designated by the Board of Directors or by such officers
or employees as may be authorized by the Board of Directors so to designate.
He or she shall perform all acts incident to the office of Treasurer, subject
to the control of the Board of Directors and such other officer or officers to
whom he or she is directly
<PAGE> 15
15
responsible. He or she may be required to give a bond for the faithful
discharge of his or her duties, in such sum and upon such conditions as the
Board of Directors may require.
At the request and direction of the Treasurer or, in the case of his
or her absence or inability to act, any Assistant Treasurer may act in his or
her place. In the case of the death of the Treasurer, or in the case of his or
her absence or inability to act without having designated an Assistant
Treasurer to act temporarily in his or her place, the Assistant Treasurer so to
perform the duties of the Treasurer shall be designated by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the President or
an Executive Vice President.
SECTION 7. SECRETARY AND ASSISTANT SECRETARY.
The Secretary shall keep full and accurate minutes of the meetings of
the stockholders and of the Board of Directors in the proper record book of the
Company provided therefor, and, when required, the minutes of meetings of the
committees, and shall be responsible for the custody of all such minutes.
Subject to the direction of the Board of Directors, the Secretary shall have
custody of the stock ledgers and documents of the Company. He or she shall
have custody of the corporate seal of the Company and shall affix and attest
such seal to any instrument whose execution under seal shall have been duly
authorized. He or she shall give due notice of meetings and, subject to the
direction of the Board of Directors, shall perform all other duties commonly
incident to his or her office or as properly required of him or her by the
Chairman of the Board of Directors and such other officer or officers to whom
he or she is directly responsible and shall enjoy all other powers commonly
incident to his or her office.
At the request and direction of the Secretary or, in the case of his
or her absence or inability to act, any Assistant Secretary may act in his or
her place. In the case of the death of the Secretary, or in the case of his or
her absence or inability to act without having designated an Assistant
Secretary to act temporarily in his or her place, the Assistant Secretary or
other person so to perform the duties of the Secretary shall be designated by
the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President or an Executive Vice President.
SECTION 8. ASSISTANT VICE PRESIDENTS AND OTHER OFFICERS.
Each assistant vice president and other officers shall perform such
duties commonly incident to his or her office or as properly required of him or
her by the Chairman of the Board of Directors and such other officer or
officers to whom he or she is directly responsible.
SECTION 9. GENERAL COUNSEL.
The General Counsel shall have general supervision of all matters of a
legal nature concerning the Company. He or she shall perform all such duties
commonly incident to his
<PAGE> 16
16
or her office or as properly required of him or her by the Chairman of the
Board of Directors and such other officer or officers to whom he or she is
directly responsible.
SECTION 10. COMPTROLLER.
The Comptroller shall keep and maintain the books of account of the
Company in such manner that they fairly present the financial condition of the
Company and its subsidiaries. The Comptroller shall have such powers and shall
perform such duties as may be delegated to him or her by the Board of
Directors, the Chairman of the Board of Directors, the President or the
appropriate Executive Vice President, Senior Vice President or Vice President
or such other officer or officers to whom he or she is directly responsible.
SECTION 11. SALARIES.
Salaries of officers, agents or employees shall be fixed from time to
time by the Board of Directors or by such committee or committees, or person or
persons, if any, to whom such power shall have been delegated by the Board of
Directors. An employment contract, whether with an officer, agent or employee,
if expressly approved or specifically authorized by the Board of Directors, may
fix a term of employment thereunder; and such contract, if so approved or
authorized, shall be valid and binding upon the Company in accordance with the
terms thereof, provided that this provision shall not limit or restrict in any
way the right of the Company at any time to remove from office, discharge or
terminate the employment of any such officer, agent or employee prior to the
expiration of the term of employment under any such contract.
SECTION 12. VACANCIES.
A vacancy in any office filled by election of the Board of Directors
may be filled by the Board of Directors by the election of a new officer who
shall hold office, subject to the provisions of this Article V, until the
regular meeting of the directors following the next annual meeting of the
stockholders and until his or her successor is elected.
SECTION 13. REMOVAL OR DISCHARGE.
Any officer may be removed or discharged by the Chairman of the Board
of Directors at any time excepting an officer who is also a director. Any
officer who also is a director may be discharged at any time by the Board of
Directors.
ARTICLE VI.
RESIGNATIONS
Any director, officer or agent of the Company, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the Chairman of the Board of Directors, a Vice Chairman of the Board
of Directors, the President or the Secretary
<PAGE> 17
17
of the Company. Any such resignation shall take effect at the time specified
therein, or if the time be not specified therein, then upon receipt thereof.
The acceptance of such resignation shall not be necessary to make it effective.
ARTICLE VII.
CAPITAL STOCK - DIVIDENDS - SEAL
SECTION 1. CERTIFICATES OF SHARES.
The certificates for shares of the capital stock of the Company shall
be in such form, not inconsistent with the Charter, as shall be approved by the
Board of Directors. The certificates shall be numbered and signed by the
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors,
the President, an Executive Vice President, a Senior Vice President or a Vice
President, and also by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. Any and all signatures may be facsimiles.
All certificates shall bear the name of the persons owning the shares
represented thereby, shall state the number of shares represented by such
certificate and the date of issue; and such information shall be entered in the
Company's original stock ledger.
SECTION 2. ADDRESSES OF STOCKHOLDERS.
It shall be the duty of every stockholder to notify the Company of his
or her post office address and of any change therein. The latest address
furnished by each stockholder shall be entered on the original stock ledger of
the Company and the latest address appearing on such original stock ledger
shall be deemed conclusively to be the post office address and the last-known
post office address of such stockholder. If any stockholder shall fail to
notify the Company of his or her post office address, it shall be sufficient to
send corporate notices to such stockholder at the address, if any, understood
by the Secretary to be his or her post office address, or in the absence of
such address, to such stockholder, at the General Post Office in the City of
Wilmington, State of Delaware.
SECTION 3. LOST, DESTROYED OR STOLEN CERTIFICATE.
Any person claiming a stock certificate in lieu of one lost, destroyed
or stolen, shall give the Company an affidavit as to his, her or its ownership
of the certificate and of the facts which go to prove that it has been lost,
destroyed or stolen. If required by the Board of Directors, he, she or it also
shall give the Company a bond, in such form as may be approved by the Board of
Directors, sufficient to indemnify the Company against any claim that may be
made against it on account of the alleged loss of the certificate or the
issuance of a new certificate. A new certificate shall be issued upon receipt
of such an affidavit and, if required, upon the giving of such a bond.
<PAGE> 18
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SECTION 4. RECORD OF HOLDER OF SHARES.
The Company shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof, and accordingly shall not be
bound to recognize any equitable or other claims to or interest in such shares
on the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the General Corporation Law of
the State of Delaware. The Company shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends and to vote as such owner.
SECTION 5. RECORD DATE.
In order that the Company may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of stock (other
than conversions or exchanges pursuant to Article 4 of the Charter) or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock (other than
conversions or exchanges pursuant to Article 4 of the Charter) or for any other
purpose, the record date shall be at the close of business on the day on which
the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
If stockholders are entitled to consent to corporate action in writing
without a meeting in accordance with the General Corporation Law of the State
of Delaware and the Charter, in order that the Company may determine the
stockholders entitled to so consent, the Board of Directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
be not more than ten (10) days after the date upon which the resolution fixing
the record date is adopted and no record date has been fixed by the Board of
Directors and if no prior action by the Board of Directors is required by the
General Corporation Law of the State of Delaware, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company in the manner prescribed by
Article 12 of the Charter. If stockholders are entitled to consent to
corporate action in writing
<PAGE> 19
19
without a meeting in accordance with the General Corporation Law of the State
of Delaware and the Charter, and no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by the General
Corporation Law of the State of Delaware with respect to the proposed action by
written consent of the stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
SECTION 6. REGULATIONS.
The Board of Directors shall have power and authority to make all such
rules and regulations not inconsistent with any of the provisions of Article 4
of the Charter, as it may deem expedient, concerning the issue, transfer and
registration of certificates for shares of the stock of the Company.
SECTION 7. CORPORATE SEAL.
The corporate seal shall be in such form as shall from time to time be
approved by the Board of Directors. If and when so authorized by the Board of
Directors, a duplicate of the seal may be kept and used by the Secretary or
Treasurer or by any Assistant Secretary or Assistant Treasurer.
ARTICLE VIII.
EXECUTION OF CONTRACTS AND OTHER DOCUMENTS
SECTION 1. CONTRACTS, ETC.
Except as otherwise prescribed in these By-laws, such officers,
employees or agents of the Company as shall be specified by the Board of
Directors shall sign, in the name and on behalf of the Company, all deeds,
bonds, contracts, mortgages and other instruments or documents, the execution
of which shall be authorized by the Board of Directors; and such authority may
be general or confined to specific instances. Except as so authorized by the
Board of Directors, no officer, agent or employee of the Company shall have
power or authority to bind the Company by any contract or engagement or to
pledge, mortgage, sell or otherwise dispose of its credit or any of its
property or to render it pecuniarily liable for any purpose or in any amount.
SECTION 2. CHECKS, DRAFTS, ETC.
Except as otherwise provided in these By-laws, all checks, drafts,
notes, bonds, bills of exchange or other orders, instruments or obligations for
the payment of money shall be signed by such officer or officers, employee or
employees, or agent or agents, as the Board of Directors shall by resolution
direct. The Board of Directors may, in its discretion, also
<PAGE> 20
20
provide by resolution for the countersignature or registration of any or all
such orders, instruments or obligations for the payment of money.
ARTICLE IX.
FISCAL YEAR
The fiscal year of the Company shall begin the first day of January in each
year.
ARTICLE X.
MISCELLANEOUS
SECTION 1. ORIGINAL STOCK LEDGER.
As used in these By-laws and in the Charter, the words "original stock
ledger" shall mean the record maintained by the Secretary of the Company of the
name and address of each of the holders of shares of any class of stock of the
Company, and the number of shares and the numbers of the certificates for such
shares held by each of them, taking into account transfers at the time made by
and recorded on the transfer sheets of each of the Transfer Agents of the
Company although such transfers may not have been posted in the record
maintained by the Secretary.
SECTION 2. NOTICES AND WAIVERS THEREOF.
Whenever any notice whatever is required by these By-laws, the Charter
or any of the laws of the State of Delaware to be given to any stockholder,
director or officer, such notice, except as otherwise provided by the laws of
the State of Delaware, may be given personally or by telephone or be given by
facsimile transmission or other form of electronic communication, addressed to
such stockholder at the address set forth as provided in Section 2 of Article
VII of these By-laws, or to such director or officer at his or her Company
location, if any, or at such address as appears on the books of the Company, or
the notice may be given in writing by depositing the same in a post office, or
in a regularly maintained letter box, or by sending it via courier in a
postpaid, sealed wrapper addressed to such stockholder at the address set forth
in Section 2 of Article VII of these By-laws, or to such director or officer at
his or her Company location, if any, or such address as appears on the books of
the Company.
Any notice given by facsimile transmission or other form of electronic
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail or courier shall be deemed to have been
given when it shall have been mailed or delivered to the courier.
<PAGE> 21
21
A waiver of any such notice in writing, including by facsimile
transmission, signed or dispatched by the person entitled to such notice or by
his or her duly authorized attorney, whether before or after the time stated
therein, shall be deemed equivalent to the notice required to be given, and the
presence at any meeting of any person entitled to notice thereof shall be
deemed a waiver of such notice as to such person.
SECTION 3. VOTING UPON STOCKS.
The Board of Directors (whose authorization in this connection shall
be necessary in all cases) may from time to time appoint an attorney or
attorneys or agent or agents of the Company, or may at any time or from time to
time authorize the Chairman of the Board of Directors, any Vice Chairman of the
Board of Directors, the President, any Senior Executive Vice President, any
Executive Vice President, any Senior Vice President, any Vice President, the
Treasurer or the Secretary to appoint an attorney or attorneys or agent or
agents of the Company, in the name and on behalf of the Company, to cast the
votes which the Company may be entitled to cast as a stockholder or otherwise
in any other corporation or association, any of the stock or securities of
which may be held by the Company, at meetings of the holders of the stock or
other securities of such other corporation or association, or to consent in
writing to any action by any such other corporation or association and the
Board of Directors or any aforesaid officer so authorized may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and the Board of Directors or any aforesaid officer so authorized
may from time to time authorize the execution and delivery, on behalf of the
Company and under its corporate seal, or otherwise, of such written proxies,
consents, waivers or other instruments as may be deemed necessary or proper in
the premises.
ARTICLE XI.
AMENDMENTS
These By-laws may be altered, amended or repealed at any meeting of
the Board of Directors or of the stockholders, provided that notice of such
alteration, amendment or repeal be contained in the notice of such meeting of
the Board of Directors or stockholders (subject, in the case of meetings of
stockholders, to the provisions of Article II of these By-laws), as the case
may be. All such amendments must be approved 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), or 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 (if effected by
action of the Board of Directors).
<PAGE> 1
EXHIBIT 5.1
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NY 10017
TEL: (212) 455-2000
FAX: (212) 455-2502
March 19, 1996
Associates First Capital Corporation
250 E. Carpenter Freeway
Irving, Texas 75062-2729
Dear Sirs:
We have acted as special counsel to Associates First Capital
Corporation, a Delaware corporation (the "Company"), in connection with the
proposed sale of shares of Class A Common Stock, par value $.01 per share, of
the Company (the "Shares"), as described in the Registration Statement on Form
S-1 (the "Registration Statement") filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act").
The Shares are to be purchased by certain underwriters and offered for sale to
the public (the "Offering") pursuant to the terms of an Underwriting Agreement
(the "Underwriting Agreement"), the form of which will be filed as an exhibit
to the Registration Statement.
We have examined, and have relied upon as to matters of fact,
such documents, corporate records and other instruments as we have deemed
necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares
to be sold by the Company (including Shares, if any, registered in a
registration statement relating to the Offering filed by the Company pursuant
to Rule 462(b) under the Securities Act), upon the approval and effectiveness
in accordance with the Delaware General Corporation Law of an amendment to the
Company's Certificate of Incorporation
<PAGE> 2
Associates First Capital Corporation -2- March 19,1996
providing for a sufficient number of authorized but unissued Shares, will be
duly authorized by the Company and, upon payment and delivery in accordance
with the Underwriting Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to
the Registration Statement and to the reference to this firm under the heading
"LEGAL MATTERS" in the Registration Statement. We hereby also consent to the
incorporation by reference of this opinion and consent in a registration
statement, if any, relating to the Offering filed by the Company pursuant to
Rule 462(b) under the Securities Act.
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 10.1
CORPORATE AGREEMENT
THIS CORPORATE AGREEMENT ("Agreement") is entered into as of
_______________, 1996 by and between FORD MOTOR COMPANY, a Delaware corporation
("Ford"), and ASSOCIATES FIRST CAPITAL CORPORATION, a Delaware corporation
("Associates").
RECITALS
A. Ford, through its indirect, wholly owned subsidiary Ford
FSG, Inc., a Delaware corporation ("FFSG"), beneficially owns all of the issued
and outstanding Class B Common Stock, par value $.01 per share ("Class B Common
Stock"), of Associates and directly owns _____ shares of Class A Common Stock,
par value $.01 per share ("Class A Common Stock"), of Associates, and
Associates is a member of Ford's "affiliated group" of corporations (the "Ford
Group") for federal income tax purposes.
B. The parties are contemplating the possibility that
Associates will issue shares of Class A Common Stock in an initial public
offering (the "Initial Public Offering") registered under the Securities Act of
1933, as amended.
C. The parties desire to enter into this Agreement to set
forth their agreement regarding (i) Ford's rights to purchase additional shares
of Class B Common Stock upon any issuance of certain classes of capital stock
of Associates to any person to permit Ford to maintain its percentage ownership
interest in Associates, (ii) Ford's rights to purchase shares of non-voting
classes of capital stock of Associates to permit Ford to own 80 percent of each
class of such stock outstanding, (iii) certain registration rights with respect
to Class B Common Stock (and any other securities issued in respect thereof or
in exchange therefor) and (iv) certain representations, warranties, covenants
and agreements applicable so long as Associates is a subsidiary of Ford.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Ford and Associates,
for themselves, their successors, and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. As used in this Agreement, the following
terms will have the following meanings, applicable both to the singular and the
plural forms of the terms described:
<PAGE> 2
2
"Affiliate" means, with respect to a given Person, any Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to vote a
majority of the securities having voting power for the election of directors
(or other Persons acting in similar capacities) of such Person or otherwise to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement" has the meaning ascribed thereto in the preamble
hereto, as such agreement may be amended and supplemented from time to time in
accordance with its terms.
"Applicable Stock" means at any time the (i) shares of Common
Stock owned by the Ford Entities that were owned on the date hereof, plus (ii)
shares of Class B Common Stock purchased by the Ford Entities pursuant to
Article II of this Agreement, plus (iii) shares of Common Stock that were
issued to Ford Entities in respect of shares described in either clause (i) or
clause (ii) in any reclassification, share combination, share subdivision,
share dividend, share exchange, merger, consolidation or similar transaction or
event.
"Associates" has the meaning ascribed thereto in the preamble
hereto.
"Associates Entities" means Associates and its Subsidiaries,
and "Associates Entity" shall mean any of the Associates Entities.
"Class A Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock Option" has the meaning ascribed thereto
in Section 2.1(a).
"Class B Common Stock Option Notice" has the meaning ascribed
thereto in Section 2.2.
"Common Stock" means the Class B Common Stock, the Class A
Common Stock, any other class of Associates' capital stock representing the
right to vote generally for the election of directors and, for so long as
Associates continues to be a subsidiary corporation includable in a
consolidated federal income tax return of the Ford Group, any other security of
Associates treated as stock for purposes of Section 1504 of the Internal
Revenue Code of 1986, as amended.
<PAGE> 3
3
"Company Securities" has the meaning ascribed thereto in
Section 3.2(b).
"Disadvantageous Condition" has the meaning ascribed thereto
in Section 3.1(a).
"FFSG" has the meaning ascribed thereto in the preamble
hereto.
"Ford Entities" means Ford and Subsidiaries of Ford (other
than Subsidiaries that constitute Associates Entities), and "Ford Entity" shall
mean any of the Ford Entities.
"Ford Ownership Reduction" means any decrease at any time in
the Ownership Percentage to less than 45%.
"Ford Transferee" has the meaning ascribed thereto in Section
3.9.
"Ford" has the meaning ascribed thereto in the preamble
hereto.
"Ford Group" has the meaning ascribed thereto in the recitals
to this Agreement.
"Holder" means Ford, the other Ford Entities and any
Transferee.
"Holder Securities" has the meaning ascribed thereto in
Section 3.2(b).
"Initial Public Offering" has the meaning ascribed thereto in
the recitals to this Agreement.
"Initial Public Offering Date" means the date of completion of
the initial sale of Class A Common Stock in the Initial Public Offering.
"Issuance Event" has the meaning ascribed thereto in Section
2.2.
"Issuance Event Date" has the meaning ascribed thereto in
Section 2.2.
"Market Price" of any shares of Class A Common Stock on any
date means (i) the average of the last sale price of such shares on each of the
five trading days immediately preceding such date on the New York Stock
Exchange, Inc. or, if such shares are not listed thereon, on the principal
national securities exchange or automated interdealer quotation system on which
such shares are traded or (ii) if such sale prices are unavailable or such
shares are not so traded, the value of such shares on such date determined in
accordance with agreed-upon procedures reasonably satisfactory to Associates
and Ford.
<PAGE> 4
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"Nonvoting Stock" means any class of Associates' capital stock
not representing the right to vote generally for the election of directors.
"Nonvoting Stock Option" has the meaning ascribed thereto in
Section 2.1(c).
"Nonvoting Stock Option Notice" has the meaning ascribed
thereto in Section 2.2.
"Other Holders" has the meaning ascribed thereto in Section
3.2(b).
"Other Securities" has the meaning ascribed thereto in Section
3.2.
"Ownership Percentage" means, at any time, the fraction,
expressed as a percentage and rounded to the next highest thousandth of a
percent, whose numerator is the aggregate Value of the Applicable Stock and
whose denominator is the aggregate Value of outstanding shares of Common Stock
of Associates; provided, however, that any shares of Common Stock issued by
Associates in violation of its obligations under Article II of this Agreement
shall not be deemed outstanding for the purpose of determining the Ownership
Percentage. For purposes of this definition, "Value" means, with respect to
any share of stock, the value of such share determined by Ford under principles
applicable for purposes of Section 1504 of the Internal Revenue Code of 1986,
as amended.
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization,
government (and any department or agency thereof) or other entity.
"Registrable Securities" means shares of Class B Common Stock,
shares of Class A Common Stock and any stock or other securities into which or
for which such Common Stock may hereafter be changed, converted or exchanged
and any other shares or securities issued to Holders of such Common Stock (or
such shares or other securities into which or for which such shares are so
changed, converted or exchanged) upon any reclassification, share combination,
share subdivision, share dividend, share exchange, merger, consolidation or
similar transaction or event or pursuant to the Nonvoting Stock Option. As to
any particular Registrable Securities, such Registrable Securities shall cease
to be Registrable Securities when (i) a registration statement with respect to
the sale by the Holder thereof shall have been declared effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) they shall have been distributed to the
public in accordance with Rule 144, (iii) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been
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delivered by Associates and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act or any state
securities or blue sky law then in effect or (iv) they shall have ceased to be
outstanding.
"Registration Expenses" means any and all expenses incident to
performance of or compliance with any registration of securities pursuant to
Article III, including, without limitation, (i) the fees, disbursements and
expenses of Associates' counsel and accountants and the fees and expenses of
counsel selected by the Holders in accordance with this Agreement in connection
with the registration of the securities to be disposed of, such fees and
expenses of such counsel selected by the Holders to be reasonable in the
reasonable discretion of Associates; (ii) all expenses, including filing fees,
in connection with the preparation, printing and filing of the registration
statement, any preliminary prospectus or final prospectus, any other offering
document and amendments and supplements thereto and the mailing and delivering
of copies thereof to any underwriters and dealers; (iii) the cost of printing
or producing any underwriting agreements and blue sky or legal investment
memoranda and any other documents in connection with the offering, sale or
delivery of the securities to be disposed of; (iv) all expenses in connection
with the qualification of the securities to be disposed of for offering and
sale under state securities laws, including the fees and disbursements of
counsel for the underwriters or the Holders of securities in connection with
such qualification and in connection with any blue sky and legal investment
surveys; (v) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of
the securities to be disposed of; (vi) transfer agents' and registrars' fees
and expenses and the fees and expenses of any other agent or trustee appointed
in connection with such offering; (vii) all security engraving and security
printing expenses; (viii) all fees and expenses payable in connection with the
listing of the securities on any securities exchange or automated interdealer
quotation system or the rating of such securities, (ix) any other fees and
disbursements of underwriters customarily paid by the sellers of securities,
but excluding underwriting discounts and commissions and transfer taxes, if
any, and (x) other reasonable out-of-pocket expenses of Holders other than
legal fees and expenses referred to in clause (i) above.
"Rule 144" means Rule 144 (or any successor rule to similar
effect) promulgated under the Securities Act.
"Rule 415 Offering" means an offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
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"Securities Act" means the Securities Act of 1933, as amended,
or any successor statute.
"Selling Holder" has the meaning ascribed thereto in Section
3.4(e).
"Subsidiary" means, as to any Person, any corporation,
association, partnership, joint venture or other business entity of which more
than 50% of the voting capital stock or other voting ownership interests is
owned or controlled, directly or indirectly, by such Person or by one or more
of the Subsidiaries of such Person or by a combination thereof. "Subsidiary,"
when used with respect to Ford or Associates, shall also include any other
entity affiliated with Ford or Associates, as the case may be, that Ford and
Associates may hereafter agree in writing shall be treated as a "Subsidiary"
for the purposes of this Agreement.
"Transferee" has the meaning ascribed thereto in Section 3.9.
1.2. Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and
references to the parties shall mean the parties to this Agreement.
ARTICLE II
OPTIONS
2.1. Options. (a) Associates hereby grants to Ford, on the
terms and conditions set forth herein, a continuing right (the "Class B Common
Stock Option") to purchase from Associates, at the times set forth herein, such
number of shares of Class B Common Stock as is necessary to allow the Ford
Entities to maintain the Ownership Percentage. The Class B Common Stock Option
shall be assignable, in whole or in part and from time to time, by Ford to any
Ford Entity. The exercise price for the shares of Class B Common Stock
purchased pursuant to the Class B Common Stock Option shall be the Market Price
of the Class A Common Stock as of the date of first delivery of notice of
exercise of the Class B Common Stock Option by Ford (or its permitted assignee
hereunder) to Associates.
(b) The provisions of Section 2.1(a) hereof notwithstanding,
the Class B Common Stock Option granted pursuant to Section 2.1(a) shall not
apply and shall not be exercisable in connection with the issuance by
Associates of any shares of Common Stock pursuant to any stock option or other
executive or employee benefit or compensation plan maintained by Associates, so
long as, from and after the date hereof and prior to the issuance of such
shares, Associates has repurchased from shareholders and not subsequently
reissued a number of shares
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equal or greater to the number of shares to be issued in any such issuance.
(c) Associates hereby grants to Ford, on the terms and
conditions set forth herein, a continuing right (the "Nonvoting Stock Option"
and, together with the Class B Common Stock Option, the "Options") to purchase
from Associates, at the times set forth herein, such number of shares of
Nonvoting Stock as is necessary to allow the Ford Entities to own 80 percent of
each class of outstanding Nonvoting Stock. The Nonvoting Stock Option shall be
assignable, in whole or in part and from time to time, by Ford to any Ford
Entity. The exercise price for the shares of Nonvoting Stock purchased
pursuant to the Nonvoting Stock Option shall be the price at which such
Nonvoting Stock is then being sold to third parties, or, if no Nonvoting Stock
is being sold, the fair market value thereof as determined in good faith by the
Board of Directors of Associates.
2.2. Notice. At least 20 business days prior to the issuance
of any shares of Common Stock (other than in connection with the Initial Public
Offering, including the full exercise of all underwriters' over-allotment
options granted in connection therewith and other than issuances of Common
Stock to any Ford Entity) or the first date on which any event could occur
that, in the absence of a full or partial exercise of the Class B Common Stock
Option, would result in a reduction in the Ownership Percentage, Associates
will notify Ford in writing (a "Class B Common Stock Option Notice") of any
plans it has to issue such shares or the date on which such event could first
occur. At least 20 business days prior to the issuance of any shares of
Nonvoting Stock (other than issuances of Nonvoting Stock to any Ford entity) or
the first date on which any event could occur that, in the absence of a full or
partial exercise of the Nonvoting Stock Option, would result in the Ford
Entities owning less than 80 percent of each class of outstanding Nonvoting
Stock, Associates will notify Ford in writing (a "Nonvoting Stock Option
Notice" and, together with a Class B Common Stock Option Notice, an "Option
Notice") of any plans it has to issue such shares or the date on which such
event could first occur. Each Option Notice must specify the date on which
Associates intends to issue such additional shares or on which such event could
first occur (such issuance or event being referred to herein as an "Issuance
Event" and the date of such issuance or event as an "Issuance Event Date"), the
number of shares Associates intends to issue or may issue and the other terms
and conditions of such Issuance Event.
2.3. Option Exercise and Payment. The Class B Common Stock
Option may be exercised by Ford (or any Ford Entity to which all or any part of
the Class B Common Stock Option has been assigned) for a number of shares equal
to or less than the number of shares that are necessary for the Ford Entities
to maintain, in the aggregate, the then- current Ownership Percentage. The
Nonvoting Stock Option may be exercised by Ford (or any Ford
<PAGE> 8
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Entity to which all or any part of the Nonvoting Stock Option has been
assigned) for a number of shares equal to or less than the number of shares
that are necessary for the Ford Entities to own, in the aggregate, 80 percent
of each class of outstanding Nonvoting Stock. Each Option may be exercised at
any time after receipt of an applicable Option Notice and prior to the
applicable Issuance Event Date by the delivery to Associates of a written
notice to such effect specifying (i) the number of shares of Class B Common
Stock or Nonvoting Stock, as the case may be, to be purchased by Ford, or any
of the Ford Entities and (ii) a calculation of the exercise price for such
shares. Upon any such exercise of either Option, Associates will, prior to the
applicable Issuance Event Date, deliver to Ford (or any Ford Entity designated
by Ford), against payment therefor, certificates (issued in the name of Ford or
its permitted assignee hereunder or as directed by Ford) representing the
shares of Class B Common Stock or Nonvoting Stock, as the case may be, being
purchased upon such exercise. Payment for such shares shall be made by wire
transfer or intrabank transfer of immediately-available funds to such account
as shall be specified by Associates, for the full purchase price for such
shares.
2.4. Effect of Failure to Exercise. Except as provided in
Section 2.6, any failure by Ford to exercise either Option, or any exercise for
less than all shares purchasable under either Option, in connection with any
particular Issuance Event shall not affect Ford's right to exercise the
relevant Option in connection with any subsequent Issuance Event.
2.5. Initial Public Offering. Notwithstanding the foregoing,
Ford shall not be entitled to exercise the Class B Common Stock Option in
connection with the Initial Public Offering of the Class A Common Stock if,
upon the completion of the Initial Public Offering, including the full exercise
of all underwriters' over-allotment options granted in connection therewith,
the Ownership Percentage would be no less than 80%.
2.6. Termination of Options. The Options shall terminate
upon the occurrence of any Issuance Event that, after considering Ford's
response thereto and to any other Issuance Events, results in the Ownership
Percentage being less than 45%, other than any Issuance Event in violation of
this Agreement. Each Option, or any portion thereof assigned to any Ford
Entity other than Ford, also shall terminate in the event that the Person to
whom such Option, or such portion thereof has been transferred, ceases to be a
Ford Entity for any reason whatsoever.
<PAGE> 9
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ARTICLE III
REGISTRATION RIGHTS
3.1. Demand Registration - Registrable Securities.
(a) Upon written notice provided at any time after the Initial Public Offering
Date from any Holder of Registrable Securities requesting that Associates
effect the registration under the Securities Act of any or all of the
Registrable Securities held by such Holder, which notice shall specify the
intended method or methods of disposition of such Registrable Securities,
Associates shall use its best efforts to effect the registration under the
Securities Act and applicable state securities laws of such Registrable
Securities for disposition in accordance with the intended method or methods of
disposition stated in such request (including in a Rule 415 Offering, if
Associates is then eligible to register such Registrable Securities on Form S-3
(or a successor form) for such offering); provided that:
(i) with respect to any registration statement filed,
or to be filed, pursuant to this Section 3.1, if Associates shall
furnish to the Holders of Registrable Securities that have made such
request a certified resolution of the Board of Directors of Associates
(adopted by the affirmative vote of a majority of the directors not
designated by the Ford Entities) stating that in the Board of
Directors' good faith judgment it would (because of the existence of,
or in anticipation of, any acquisition or financing activity, or the
unavailability for reasons beyond Associates's reasonable control of
any required financial statements, or any other event or condition of
similar significance to Associates) be significantly disadvantageous
(a "Disadvantageous Condition") to Associates for such a registration
statement to be maintained effective, or to be filed and become
effective, and setting forth the general reasons for such judgment,
Associates shall be entitled to cause such registration statement to
be withdrawn and the effectiveness of such registration statement
terminated, or, in the event no registration statement has yet been
filed, shall be entitled not to file any such registration statement,
until such Disadvantageous Condition no longer exists (notice of which
Associates shall promptly deliver to such Holders). Upon receipt of
any such notice of a Disadvantageous Condition, such Holders shall
forthwith discontinue use of the prospectus contained in such
registration statement and, if so directed by Associates, each such
Holder will deliver to Associates all copies, other than permanent
file copies then in such Holder's possession, of the prospectus then
covering such Registrable Securities current at the time of receipt of
such notice; provided, that the filing of any such registration
statement may not be delayed for a period in excess of six months due
to the occurrence of any particular Disadvantageous Condition;
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(ii) after any Ford Ownership Reduction, the Holders of
Registrable Securities may collectively exercise their rights under
this Section 3.1 (through notice delivered by Holders owning in the
aggregate a majority in economic interest of the Registrable
Securities then held by Holders) on not more than three occasions (it
being acknowledged that prior to any Ford Ownership Reduction, there
shall be no limit to the number of occasions on which such Holders
(other than any Ford Transferees and their Affiliates (other than Ford
Entities)) may exercise such rights);
(iii) Except as otherwise provided herein, the Holders of
Registrable Securities shall not have the right to exercise
registration rights pursuant to this Section 3.1 within the 180-day
period following the registration and sale of Registrable Securities
effected pursuant to a prior exercise of the registration rights
provided in this Section 3.1; and
(iv) the Holders of Registrable Securities shall not have
the right to exercise registration rights pursuant to this Section 3.1
within the 180-day period following the effective date of the
Registration Statement in connection with the Initial Public Offering.
(b) Notwithstanding any other provision of this Agreement to
the contrary, a registration requested by a Holder of Registrable Securities
pursuant to this Section 3.1 shall not be deemed to have been effected (and,
therefore, not requested for purposes of paragraph (a) above), (i) unless it
has become effective, (ii) if after it has become effective such registration
is interfered with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder and, as a result thereof, the
Registrable Securities requested to be registered cannot be completely
distributed in accordance with the plan of distribution set forth in the
related registration statement or (iii) if the conditions to closing specified
in the purchase agreement or underwriting agreement entered into in connection
with such registration are not satisfied or waived other than by reason of some
act or omission by such Holder of Registrable Securities.
(c) In the event that any registration pursuant to this
Section 3.1 shall involve, in whole or in part, an underwritten offering, the
Holders of a majority of the Registrable Securities to be registered shall have
the right to designate an underwriter or underwriters reasonably acceptable to
Associates as the lead or managing underwriters of such underwritten offering
and, in connection with each registration pursuant to this Section 3.1, such
Holders may select one counsel reasonably acceptable to Associates to represent
all such Holders.
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(d) Associates shall have the right to cause the registration
of additional equity securities for sale for its account, the account of any
Associates Entity or any existing or former directors, officers or employees of
the Associates Entities in any registration of Registrable Securities requested
by the Holders pursuant to paragraph (a) above; provided, however, that if the
registration and sale of such additional equity securities would require Ford
or any Ford Entity to exercise the Options to maintain the then-current
Ownership Percentage or ownership of 80% of each class of outstanding Nonvoting
Stock, then the number of such additional equity securities shall be reduced so
that exercise of the Options would not be necessary for Ford or any Ford Entity
to maintain such ownership levels and, provided, further, that if such Holders
are advised in writing (with a copy to Associates) by a nationally recognized
investment banking firm selected by such Holders reasonably acceptable to
Associates (which shall be the lead underwriter or a managing underwriter in
the case of an underwritten offering) that, in such firm's good faith view, all
or a part of such additional equity securities cannot be sold and the inclusion
of such additional equity securities in such registration would be likely to
have an adverse effect on the price, timing or distribution of the offering and
sale of the Registrable Securities then contemplated by any Holder, the
registration of such additional equity securities or part thereof shall not be
permitted. The Holders of the Registrable Securities to be offered may require
that any such additional equity securities be included in the offering proposed
by such Holders on the same conditions as the Registrable Securities that are
included therein. In the event that the number of Registrable Securities
requested to be included in a registration statement by the Holders thereof
exceeds the number which, in the good faith view of such investment banking
firm, can be sold without adversely affecting the price, timing, distribution
or sale of securities in the offering, the number shall be allocated pro rata
among the requesting Holders on the basis of the relative number of Registrable
Securities then held by each such Holder (provided that any number in excess of
a Holder's request may be reallocated among the remaining requesting Holders in
a like manner).
3.2. Piggyback Registration. In the event that Associates at
any time after the Initial Public Offering Date proposes to register any of its
Common Stock, any other of its equity securities or securities convertible into
or exchangeable for its equity securities (collectively, including Common
Stock, "Other Securities") under the Securities Act, whether or not for sale
for its own account, in a manner that would permit registration of Registerable
Securities for sale for cash to the public under the Securities Act, it shall
at each such time give prompt written notice to each Holder of Registrable
Securities of its intention to do so and of the rights of such Holder under
this Section 3.2. Subject to the terms and conditions hereof, such notice
shall offer each such Holder the opportunity to
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include in such registration statement such number of Registerable Securities
as such Holder may request. Upon the written request of any such Holder made
within 15 days after the receipt of Associates' notice (which request shall
specify the number of Registrable Securities intended to be disposed of and the
intended method of disposition thereof), Associates shall use its best efforts
to effect, in connection with the registration of the Other Securities, the
registration under the Securities Act of all Registerable Securities which
Associates has been so requested to register, to the extent required to permit
the disposition (in accordance with such intended method of disposition
thereof) of the Registrable Securities so requested to be registered; provided,
that:
(a) if, at any time after giving such written notice of its
intention to register any Other Securities and prior to the effective date of
the registration statement filed in connection with such registration,
Associates shall determine for any reason not to register the Other Securities,
Associates may, at its election, give written notice of such determination to
such Holders and thereupon Associates shall be relieved of its obligation to
register such Registrable Securities in connection with the registration of
such Other Securities, without prejudice, however, to the rights of the Holders
of Registrable Securities immediately to request that such registration be
effected as a registration under Section 3.1 to the extent permitted
thereunder;
(b) if the registration referred to in the first sentence of
this Section 3.2 is to be an underwritten registration on behalf of Associates,
and a nationally recognized investment banking firm selected by Associates
advises Associates in writing that, in such firm's good faith view, all or a
part of such Registrable Securities cannot be sold and the inclusion of all or
a part of such Registrable Securities in such registration would be likely to
have an adverse effect upon the price, timing or distribution of the offering
and sale of the Other Securities then contemplated, Associates shall include in
such registration: (i) first, all Other Securities Associates proposes to sell
for its own account ("Company Securities"), (ii) second, up to the full number
of Registrable Securities held by Holders constituting Ford Entities that are
requested to be included in such registration (Registrable Securities that are
so held being sometimes referred to herein as "Holder Securities") in excess of
the number of Company Securities to be sold in such offering which, in the good
faith view of such investment banking firm, can be sold without adversely
affecting such offering (and (x) if such number is less than the full number of
such Holder Securities, such number shall be allocated by Ford among such Ford
Entities and (y) in the event that such investment banking firm advises that
less than all of such Holder Securities may be included in such offering, such
Ford Entities may withdraw their request for registration of their Registrable
Securities under this Section 3.2 and 90 days subsequent to the effective date
of
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the registration statement for the registration of such Other Securities
request that such registration be effected as a registration under Section 3.1
to the extent permitted thereunder), (iii) third, up to the full number of
Registrable Securities held by Holders (other than Ford Entities) of
Registrable Securities that are requested to be included in such registration
in excess of the number of Company Securities and Holder Securities to be sold
in such offering which, in the good faith view of such investment banking firm,
can be so sold without so adversely affecting such offering (and (x) if such
number is less than the full number of such Registrable Securities, such number
shall be allocated pro rata among such Holders on the basis of the number of
Registrable Securities requested to be included therein by each such Holder and
(y) in the event that such investment banking firm advises that less than all
of such Registrable Securities may be included in such offering, such Holders
may withdraw their request for registration of their Registrable Securities
under this Section 3.2 and 90 days subsequent to the effective date of the
registration statement for the registration of such Other Securities request
that such registration be effected as a registration under Section 3.1 to the
extent permitted thereunder) and (iv) fourth, up to the full number of the
Other Securities (other than Company Securities), if any, in excess of the
number of Company Securities and Registrable Securities to be sold in such
offering which, in the good faith view of such investment banking firm, can be
so sold without so adversely affecting such offering (and, if such number is
less than the full number of such Other Securities, such number shall be
allocated pro rata among the holders of such Other Securities (other than
Company Securities) on the basis of the number of securities requested to be
included therein by each such Holder);
(c) if the registration referred to in the first sentence of
this Section 3.2 is to be an underwritten secondary registration on behalf of
holders of Other Securities (the "Other Holders"), and the lead underwriter or
managing underwriter advises Associates in writing that in their good faith
view, all or a part of such additional securities cannot be sold and the
inclusion of such additional securities in such registration would be likely to
have an adverse effect on the price, timing or distribution of the offering and
sale of the Other Securities then contemplated, Associates shall include in
such registration the number of securities (including Registrable Securities)
that such underwriters advise can be so sold without adversely affecting such
offering, allocated pro rata among the Other Holders and the Holders of
Registrable Securities on the basis of the number of securities (including
Registrable Securities) requested to be included therein by each Other Holder
and each Holder of Registrable Securities; provided, that if such registration
statement is to be filed at any time after a Ford Ownership Reduction, if such
Other Holders have requested that such registration statement be filed pursuant
to demand registration rights granted to them by Associates, Associates
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shall include in such registration (i) first, Other Securities sought to be
included therein by the Other Holders pursuant to the exercise of such demand
registration rights, (ii) second, the number of Holder Securities sought to be
included in such registration in excess of the number of Other Securities
sought to be included in such registration by the Other Holders which in the
good faith view of such investment banking firm, can be so sold without so
adversely affecting such offering (and (x) if such number is less than the full
number of such Holder Securities, such number shall be allocated by Ford among
such Ford Entities and (y) in the event that such investment banking firm
advises that less than all of such Holder Securities may be included in such
offering, such Ford Entities may withdraw their request for registration of
their Registrable Securities under this Section 3.2 and 90 days subsequent to
the effective date of the registration statement for the registration of such
Other Securities request that such registration be effected as a registration
under Section 3.1 to the extent permitted thereunder) and (iii) third, the
number of Registrable Securities sought to be included in such registration by
Holders (other than Ford Entities) of Registrable Securities in excess of the
number of Other Securities and the number of Holder Securities sought to be
included in such registration which, in the good faith view of such investment
banking firm, can be so sold without so adversely affecting such offering (and
(x) if such number is less than the full number of such Registrable Securities,
such number shall be allocated pro rata among such Holders on the basis of the
number of Registrable Securities requested to be included therein by each such
Holder and (y) in the event that such investment banking firm advises that less
than all of such Registrable Securities may be included in such offering, such
Holders may withdraw their request for registration of their Registrable
Securities under this Section 3.2 and 90 days subsequent to the effective date
of the registration statement for the registration of such Other Securities
request that such registration be effected as a registration under Section 3.1
to the extent permitted thereunder);
(d) Associates shall not be required to effect any
registration of Registrable Securities under this Section 3.2 incidental to the
registration of any of its securities in connection with mergers, acquisitions,
exchange offers, subscription offers, dividend reinvestment plans or stock
option or other executive or employee benefit or compensation plans; and
(e) no registration of Registrable Securities effected under
this Section 3.2 shall relieve Associates of its obligation to effect a
registration of Registrable Securities pursuant to Section 3.1.
3.3. Expenses. Except as provided herein, Associates shall
pay all Registration Expenses with respect to a particular offering (or
proposed offering). Notwithstanding the foregoing, each Holder and Associates
shall be responsible for its own
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internal administrative and similar costs, which shall not constitute
Registration Expenses.
3.4. Registration and Qualification. If and whenever
Associates is required to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 3.1 or 3.2, Associates shall
as promptly as practicable:
(a) prepare, file and use its reasonable best efforts to
cause to become effective a registration statement under the Securities Act
relating to the Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities until the earlier of (A) such
time as all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition set forth in such registration
statement and (B) the expiration of six months after such registration
statement becomes effective; provided, that such six-month period shall be
extended for such number of days that equals the number of days elapsing from
(x) the date the written notice contemplated by paragraph (f) below is given by
Associates to (y) the date on which Associates delivers to the Holders of
Registrable Securities the supplement or amendment contemplated by paragraph
(f) below;
(c) furnish to the Holders of Registrable Securities and to
any underwriter of such Registrable Securities such number of conformed copies
of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each preliminary
prospectus and any summary prospectus), in conformity with the requirements of
the Securities Act, such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as the Holders
of Registrable Securities or such underwriter may reasonably request, and upon
request a copy of any and all transmittal letters or other correspondence to or
received from, the SEC or any other governmental agency or self-regulatory body
or other body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering;
(d) use its reasonable best efforts to register or qualify
all Registrable Securities covered by such registration statement under the
securities or blue sky laws of such U.S. jurisdictions as the Holders of such
Registrable Securities or any underwriter to such Registrable Securities shall
request, and use its reasonable best efforts to obtain all appropriate
registrations, permits and consents in connection therewith, and
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do any and all other acts and things which may be necessary or advisable to
enable the Holders of Registrable Securities or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided, that Associates shall not for
any such purpose be required to qualify generally to do business as a foreign
corporation in any such jurisdiction wherein it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) (i) use its best efforts to furnish to each Holder of
Registrable Securities included in such registration (each, a "Selling Holder")
and to any underwriter of such Registrable Securities an opinion of counsel for
Associates addressed to each Selling Holder and dated the date of the closing
under the underwriting agreement (if any) (or if such offering is not
underwritten, dated the effective date of the registration statement) and (ii)
use its best efforts to furnish to each Selling Holder a "cold comfort" letter
addressed to each Selling Holder and signed by the independent public
accountants who have audited the financial statements of Associates included in
such registration statement, in each such case covering substantially the same
matters with respect to such registration statement (and the prospectus
included therein) as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities and such other matters as the Selling Holders may
reasonably request and, in the case of such accountants' letter, with respect
to events subsequent to the date of such financial statements;
(f) as promptly as practicable, notify the Selling Holders in
writing (i) at any time when a prospectus relating to a registration pursuant
to Sections 3.1 or 3.2 is required to be delivered under the Securities Act of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (ii) of any request by the SEC
or any other regulatory body or other body having jurisdiction for any
amendment of or supplement to any registration statement or other document
relating to such offering, and in either such case, at the request of the
Selling Holders prepare and furnish to the Selling Holders a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
<PAGE> 17
17
(g) if reasonably requested by the lead or managing
underwriters, use its best efforts to list all such Registrable Securities
covered by such registration on each securities exchange and automated
inter-dealer quotation system on which a class of common equity securities of
Associates is then listed;
(h) to the extent reasonably requested by the lead or
managing underwriters, send appropriate officers of Associates to attend any
"road shows" scheduled in connection with any such registration, with all
out-of-pocket costs and expense incurred by Associates or such officers in
connection with such attendance to be paid by Associates; and
(i) furnish for delivery in connection with the closing of
any offering of Registrable Securities pursuant to a registration effected
pursuant to Sections 3.1 or 3.2 unlegended certificates representing ownership
of the Registrable Securities being sold in such denominations as shall be
requested by the Selling Holders or the underwriters.
3.5. Conversion of Other Securities, Etc. In the event that
any Holder offers any options, rights, warrants or other securities issued by
it or any other Person that are offered with, convertible into or exercisable
or exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall continue to
be eligible for registration pursuant to Sections 3.1 and 3.2.
3.6. Underwriting; Due Diligence. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant
to a registration requested under this Article III, Associates shall enter into
an underwriting agreement with such underwriters for such offering, which
agreement will contain such representations and warranties by Associates and
such other terms and provisions as are customarily contained in underwriting
agreements of Associates to the extent relevant and as are customarily
contained in underwriting agreements generally with respect to secondary
distributions to the extent relevant, including, without limitation,
indemnification and contribution provisions substantially to the effect and to
the extent provided in Section 3.7, and agreements as to the provision of
opinions of counsel and accountants' letters to the effect and to the extent
provided in Section 3.4(e). The Selling Holders on whose behalf the
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, Associates to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such Selling Holders. Such underwriting agreement shall also contain such
representations and warranties by such Selling Holders and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, when relevant, including, without limitation,
indemnification and
<PAGE> 18
18
contribution provisions substantially to the effect and to the extent provided
in Section 3.7.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act pursuant to this Article III, Associates shall give the Holders of such
Registrable Securities and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary access to its books and
records and such opportunities to discuss the business of Associates with its
officers and the independent public accountants who have certified the
financial statements of Associates as shall be necessary, in the opinion of
such Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
3.7. Indemnification and Contribution. (a) In the case of
each offering of Registrable Securities made pursuant to this Article III,
Associates agrees to indemnify and hold harmless, to the extent permitted by
law, each Selling Holder, each underwriter of Registrable Securities so offered
and each Person, if any, who controls any of the foregoing Persons within the
meaning of the Securities Act and the officers, directors, affiliates,
employees and agents of each of the foregoing, against any and all losses,
liabilities, costs (including reasonable attorney's fees and disbursements),
claims and damages, joint or several, to which they or any of them may become
subject, under the Securities Act or otherwise, including any amount paid in
settlement of any litigation commenced or threatened, insofar as such losses,
liabilities, costs, claims and damages (or actions or proceedings in respect
thereof, whether or not such indemnified Person is a party thereto) arise out
of or are based upon any untrue statement by Associates or alleged untrue
statement by Associates of a material fact contained in the registration
statement (or in any preliminary or final prospectus included therein) or in
any offering memorandum or other offering document relating to the offering and
sale of such Registrable Securities prepared by Associates or at its direction,
or any amendment thereof or supplement thereto, or in any document incorporated
by reference therein, or any omission by Associates or alleged omission by
Associates to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however that
Associates shall not be liable to any Person in any such case to the extent
that any such loss, liability, cost, claim or damage arises out of or relates
to any untrue statement or alleged untrue statement, or any omission, if such
statement or omission shall have been made in reliance upon and in conformity
with information relating to a Selling Holder, another holder of securities
included in such registration statement or underwriter furnished to Associates
by or on behalf of such Selling Holder, other holder or underwriter
specifically for use in the registration statement (or in any preliminary or
final prospectus
<PAGE> 19
19
included therein), offering memorandum or other offering document, or any
amendment thereof or supplement thereto. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of any
Selling Holder, any other holder or any underwriter and shall survive the
transfer of such securities. The foregoing indemnity agreement is in addition
to any liability that Associates may otherwise have to each Selling Holder,
other holder or underwriter of the Registrable Securities or any controlling
person of the foregoing and the officers, directors, affiliates, employees and
agents of each of the foregoing; provided, further, that, in the case of an
offering with respect to which a Selling Holder has designated the lead or
managing underwriters (or a Selling Holder is offering Registrable Securities
directly, without an underwriter), this indemnity does not apply to any loss,
liability, cost, claim or damage arising out of or relating to any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus or offering memorandum if a copy of a final prospectus
or offering memorandum was not sent or given by or on behalf of any underwriter
(or such Selling Holder or other holder, as the case may be) to such Person
asserting such loss, liability, cost, claim or damage at or prior to the
written confirmation of the sale of the Registrable Securities as required by
the Securities Act and such untrue statement or omission had been corrected in
such final prospectus or offering memorandum.
(b) In the case of each offering made pursuant to this
Agreement, each Selling Holder, by exercising its registration rights
hereunder, agrees to indemnify and hold harmless, and to cause each underwriter
of Registrable Securities included in such offering (in the same manner and to
the same extent as set forth in Section 3.7(a)) to agree to indemnify and hold
harmless, Associates, each other underwriter who participates in such offering,
each other Selling Holder or other holder with securities included in such
offering and in the case of an underwriter, such Selling Holder or other
holder, and each Person, if any, who controls any of the foregoing within the
meaning of the Securities Act and the officers, directors, affiliates,
employees and agents of each of the foregoing, against any and all losses,
liabilities, costs (including reasonable attorney's fees and disbursements),
claims and damages to which they or any of them may become subject, under the
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened, insofar as such losses, liabilities, costs,
claims and damages (or actions or proceedings in respect thereof, whether or
not such indemnified Person is a party thereto) arise out of or are based upon
any untrue statement or alleged untrue statement by such Selling Holder or
underwriter, as the case may be, of a material fact contained in the
registration statement (or in any preliminary or final prospectus included
therein) or in any offering memorandum or other offering document relating to
the offering and sale of such Registrable Securities prepared by
<PAGE> 20
20
Associates or at its direction, or any amendment thereof or supplement thereto,
or any omission by such Selling Holder or underwriter, as the case may be, or
alleged omission by such Selling Holder or underwriter, as the case may be, of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
such untrue statement of a material fact is contained in, or such material fact
is omitted from information relating to such Selling Holder or underwriter, as
the case may be, furnished to Associates by or on behalf of such Selling Holder
or underwriter, as the case may be, specifically for use in such registration
statement (or in any preliminary or final prospectus included therein),
offering memorandum or other offering document, or any amendment thereof or
supplement thereto. The foregoing indemnity is in addition to any liability
which such Selling Holder or underwriter, as the case may be, may otherwise
have to Associates, or controlling persons and the officers, directors,
affiliates, employees, and agents of each of the foregoing; provided, however,
that, in the case of an offering made pursuant to this Agreement with respect
to which Associates has designated the lead or managing underwriters (or
Associates is offering securities directly, without an underwriter), this
indemnity does not apply to any loss, liability, cost, claim, or damage arising
out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission in any preliminary prospectus or offering
memorandum if a copy of a final prospectus or offering memorandum was not sent
or given by or on behalf of any underwriter (or Associates, as the case may be)
to such Person asserting such loss, liability, cost, claim or damage at or
prior to the written confirmation of the sale of the Registrable Securities as
required by the Securities Act and such untrue statement or omission had been
corrected in such final prospectus or offering memorandum.
(c) Each party indemnified under paragraph (a) or (b) above
shall, promptly after receipt of notice of a claim or action against such
indemnified party in respect of which indemnity may be sought hereunder, notify
the indemnifying party in writing of the claim or action; provided, that the
failure to notify the indemnifying party shall not relieve it from any
liability that it may have to an indemnified party on account of the indemnity
agreement contained in paragraph (a) or (b) above otherwise than under such
subsection. If any such claim or action shall be brought against an
indemnified party, and it shall have notified the indemnifying party thereof,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified party and indemnifying parties may exist in respect of
such claim, the indemnifying party shall be entitled to participate therein,
and, to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel satisfactory to
the indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party). After notice from
the indemnifying party to the indemnified party
<PAGE> 21
21
of its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 3.7 for
any legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. If the indemnifying party does not assume the defense of such
claim or action, it is understood that the indemnifying party shall not, in
connection with any one such claim or action or separate but substantially
similar or related claims or actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to one
separate firm of local attorneys in each such jurisdiction) at any time for all
such indemnified parties. Any indemnifying party against whom indemnity may be
sought under this Section 3.7 shall not be liable to indemnify an indemnified
party if such indemnified party settles such claim or action without the
consent of the indemnifying party, which consent shall not be unreasonably
withheld.
(d) If the indemnification provided for in this Section 3.7
shall for any reason be unavailable (other than in accordance with its terms)
to an indemnified party in respect of any loss, liability, cost, claim or
damage referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, cost, claim or
damage in such proportion as shall be appropriate to reflect (i) the relative
benefits received by the indemnifying party on the one hand and the indemnified
party on the other hand or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law or if the indemnified party failed to give
the notice required under paragraph (c) above, the relative benefits and the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other with respect to the statements or omissions which resulted
in such loss, liability, cost, claim or damage as well as any other relevant
equitable considerations. The relative benefits received by the indemnifying
party and the indemnified party shall be deemed to be in the same respective
proportion as the net proceeds (before deducting expenses) of the offering
received by such party (or, in the case of an underwriter, such underwriter's
discounts and commissions) bear to the aggregate offering price of the
Registrable Securities or Other Securities. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party on the one hand or the
indemnified party on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in Associates. The amount paid or payable by an indemnified party as
a result of the loss, cost, claim, damage or liability, or action in respect
thereof,
<PAGE> 22
22
referred to above in this paragraph (d) shall be deemed to include, for
purposes of this paragraph (d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Indemnification and contribution similar to that
specified in the preceding paragraphs of this Section 3.7 (with appropriate
modifications) shall be given by Associates, the Selling Holders and
underwriters with respect to any required registration or other qualification
of securities under any state law or regulation or governmental authority.
(f) The obligations of the parties under this Section 3.7
shall be in addition to any liability which any party may otherwise have to any
other party.
3.8. Rule 144 and Form S-3. Commencing 90 days after the
Initial Public Offering Date, Associates shall use its best efforts to ensure
that the conditions to the availability of Rule 144 set forth in paragraph (c)
thereof shall be satisfied. Upon the request of any Holder of Registrable
Securities, Associates will deliver to such Holder a written statement as to
whether it has complied with such requirements. Associates further agrees to
use its reasonable efforts to cause all conditions to the availability of Form
S-3 (or any successor form) under the Securities Act of the filing of
registration statements under this Agreement to be met as soon as practicable
after the Initial Public offering Date. Notwithstanding anything contained in
this Section 3.8, Associates may deregister under Section 12 of the Securities
Exchange Act of 1934, as amended, if it then is permitted to do so pursuant to
said Act and the rules and regulations thereunder.
3.9. Transfer of Registration Rights. Any Holder may
transfer all or any portion of its rights under Article III to any transferee
of a number of Registrable Securities owned by such Holder exceeding three
percent (3%) of the outstanding class or series of such securities at the time
of transfer (each transferee that receives such minimum number of Registrable
Securities, a "Transferee"); provided, that each Transferee of Registrable
Securities (other than Ford Entities) to which Registrable Securities are
transferred, sold or assigned directly by a Ford Entity (such Transferee, a
"Ford Transferee"), together with any Affiliate of such Ford Transferee (and
any subsequent direct or indirect Transferees of Registrable Securities from
such Ford Transferee and any Affiliates thereof) shall be entitled to request
the registration of Registrable Securities pursuant to this Section 3.9 only
once prior to a Ford Ownership Reduction and thereafter shall only be entitled
to request the registration of Registrable Securities pursuant to Section
<PAGE> 23
23
3.1(a)(ii) and, provided, further, that no Transferee shall be entitled to
request registration pursuant to this Section 3.9 for an amount of Registrable
Securities equal to less than $50,000,000. Any transfer of registration
rights pursuant to this Section 3.9 shall be effective upon receipt by
Associates of (i) written notice from such Holder stating the name and address
of any Transferee and identifying the number of Registrable Securities with
respect to which the rights under this Agreement are being transferred and the
nature of the rights so transferred and (ii) a written agreement from such
Transferee to be bound by the terms of this Article III and Sections 5.3, 5.4,
5.9, 5.10, and 5.12 of this Agreement. The Holders may exercise their rights
hereunder in such priority as they shall agree upon among themselves.
3.10. Holdback Agreement. If any registration pursuant to
this Article III shall be in connection with an underwritten public offering of
Registrable Securities, each Selling Holder agrees not to effect any public sale
or distribution, including any sale under Rule 144, of any equity security of
Associates or any security convertible into or exchangeable or exercisable for
any equity security of Associates, in the case of Registrable Securities
(otherwise than through the registered public offering then being made), within
7 days prior to or 90 days (or such lesser period as the lead or managing
underwriters may permit) after the effective date of the registration statement
(or the commencement of the offering to the public of such Registrable
Securities in the case of Rule 415 offerings). Associates hereby also so
agrees; provided, that, subject to Section 3.6(a) hereof, Associates shall not
be so restricted from effecting any public sale or distribution of any security
in connection with any merger, acquisition, exchange offer, subscription offer,
dividend reinvestment plan or stock option or other executive or employee
benefit or compensation plan.
3.11. Registration of Preferred Stock. Associates agrees
that it shall from time to time enter into one or more agreements with Ford
and/or the Class B Transferee, if any, in form and substance reasonably
satisfactory to the parties thereto, granting to Ford or the Class B
Transferee, as the case may be, registration rights for the registration of any
shares of preferred stock of Associates that may hereafter be owned, directly
or indirectly, by Ford or the Class B Transferee, as the case may be,
substantially upon the same terms and conditions as those contained in Article
III for the benefit of Ford.
ARTICLE IV
CERTAIN COVENANT AND AGREEMENTS
4.1. No Violations. (a) For so long as the Ownership
Percentage is equal to or greater than 50%, Associates covenants and agrees
that it will 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
<PAGE> 24
24
or otherwise, in a contravention or event of default by any Ford Entity of (i)
any provisions of applicable law or regulation, including but not limited to
provisions pertaining to the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act of 1974, as amended, (ii) any provision
of Ford's, Ford Holdings, Inc.'s or FFSG's certificate of incorporation or
bylaws, (iii) any credit agreement or other material instrument binding upon
Ford, Ford Holdings, Inc. or FFSG 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.
(b) Associates and Ford agree to provide to the other any
information and documentation requested by the other for the purpose of
evaluating and ensuring compliance with Section 4.1(a) hereof.
(c) Notwithstanding the foregoing Sections 4.1(a) and 4.1(b),
nothing in this Agreement is intended to limit or restrict in any way Ford's
right's as a shareholder of Associates.
4.2. Confidentiality. Except as required by law, regulation
or legal or judicial process, Ford agrees that neither it nor any Ford Entity
nor any of their respective directors, officers or employees will without the
prior written consent of Associates disclose to any Person any material,
non-public information concerning the business or affairs of Associates
acquired from any director, officer or employee of Associates (including any
director, officer or employee of Associates who is also a director, officer or
employee of Ford).
ARTICLE V
MISCELLANEOUS
5.1. Limitation of Liability. Neither Ford nor Associates
shall be liable to the other for any special, indirect, incidental or
consequential damages of the other arising in connection with this Agreement.
5.2. Subsidiaries. Ford agrees and acknowledges that Ford
shall be responsible for the performance by each Ford Entity of the obligations
hereunder applicable to such Ford Entity.
5.3. Amendments. This Agreement may not be amended or
terminated orally, but only by a writing duly executed by or on behalf of the
parties hereto. Any such amendment shall be validly and sufficiently
authorized for purposes of this Agreement if it is signed on behalf of Ford and
Associates by any of their respective presidents or vice presidents.
5.4. Term. This Agreement shall remain in effect until all
Registrable Securities held by Holders have been transferred by them to Persons
other than Transferees; provided,
<PAGE> 25
25
that the provisions of Section 3.7 shall survive any such expiration.
5.5. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
of the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law
and shall not be affected thereby, unless such a construction would be
unreasonable.
5.6. Notices. All notices and other communications required
or permitted hereunder shall be in writing, shall be deemed duly given upon
actual receipt, and shall be delivered (a) in person, (b) by registered or
certified mail, postage prepaid, return receipt requested or (c) by facsimile
or other generally accepted means of electronic transmission (provided that a
copy of any notice delivered pursuant to this clause (c) shall also be sent
pursuant to clause (b)), addressed as follows:
(a) if to Associates, to:
Associates First Capital Corporation
250 East Carpenter Freeway
Irving, Texas 75062
Attention: General Counsel
Telecopy No.: 214-541-5798
(b) If to Ford, to:
Ford Motor Company
The American Road
Dearborn, Michigan 48121
Attention: Secretary
Telecopy No.: 313-337-9591
or to such other addresses or telecopy numbers as may be specified by
like notice to the other parties.
5.7. Further Assurances. Ford and Associates shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such instruments and take such other action as may be
necessary or advisable to carry out their obligations under this
Agreement and under any exhibit, document or other instrument
delivered pursuant hereto.
5.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original
instrument, but all of
<PAGE> 26
26
which together shall constitute but one and the same agreement.
5.9. Governing Law. This Agreement and the transactions
contemplated hereby shall be construed in accordance with, and
governed by, the laws of the State of Delaware.
5.10. Entire Agreement. This Agreement constitutes the
entire understanding of the parties hereto with respect to the subject
matter hereof.
5.11. Class B Transferee. Associates agrees that it shall
enter into an agreement with the Class B Transferee (as defined in
Associates' Restated Certificate of Incorporation), if any, in form
and substance reasonably satisfactory to the Class B Transferee and
Associates (i) granting to the Class B Transferee options for the
purchase of Class B Common Stock and Nonvoting Stock substantially
upon the same terms and conditions as those contained in Article II,
(ii) granting to the Class B Transferee registration rights for the
registration of Registrable Securities substantially upon the same
terms and conditions as those contained in Article III for the benefit
of Ford and (iii) containing other covenants and agreement for the
benefit of the Class B Transferee that are substantially similar to
the other covenants and agreements contained in this Agreement for the
benefit of Ford; provided, that such agreement shall contain terms
(including covenants and agreements of the Class B Transferee) for the
benefit of Associates that are substantially similar to the terms
(including the covenants and agreements of Ford) for the benefit of
Associates contained herein.
5.12. Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns. Nothing contained in this Agreement, express
or implied, is intended to confer upon any other person or entity any
benefits, rights or remedies.
5.13. Specific Performance. The parties hereto acknowledge
and agree that irreparable damage would occur in the event that any of
the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, it is
agreed that they shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction in the United States or
<PAGE> 27
27
any state thereof, in addition to any other remedy to which they may
be entitled at law or equity.
<PAGE> 28
28
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
Ford Motor Company
By:
------------------------------
Name:
Title:
Associates First Capital Corporation
By:
------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.5(a)
FORM OF EMPLOYMENT AGREEMENT
<PAGE> 2
AGREEMENT, dated as of the ___ day of ________, (the "Agreement"),
between ASSOCIATES CORPORATION OF NORTH AMERICA (A Texas Corporation), a
corporation existing under laws of the State of Texas (the "Company"), and 1~
(the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive desire to enter into an agreement
relating to the employment of the Executive for a period of three years from
date of this 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, a wholly-owned subsidiary of Ford Motor Company. The
Executive shall have such duties as the Board of Directors of the Company may
determine.
1.2 The term of employment under this Agreement shall commence on the
date of this Agreement and, subject to the terms hereof, shall terminate on the
day prior to the third anniversary of such date. The full three-year period is
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.
<PAGE> 3
2
2. SALARY
2.1 During the Executive's employment hereunder, the Executive shall
be entitled to receive a base salary at the rate of 2~ 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
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, or (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 interests of the Company or any affiliate; 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 shall thereupon cease and terminate. In the event that
the Executive's employment is terminated by the
<PAGE> 4
3
Company other than for Cause, the Executive (or in the event of the Executive's
death, the Executive's estate or designated beneficiary, but only as to (i)
below) shall be entitled to continue to receive, for the duration of the
Employment Term, in lieu of any other compensation and benefits provided for
herein, (i) an amount, payable monthly, equal to the Executive's then current
monthly base salary, plus an amount payable annually under the Company's
Corporate Annual Performance Plan (CAPP) and Long-Term Performance Plan (LTPP)
that averages performance over the three performance periods immediately
preceding the annual payment, in accordance with the terms thereof in effect
from time to time and (ii) 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. In
addition, the Company shall provide the Executive with an additional benefit
equal to the difference between (x) and (y), where (x) is the amount of benefit
that the Executive would have received from the Company's pension plan (the
"Plan") if the Executive had continued to participate in the Plan until the end
of the Employment Term, and (y) the amount of benefit that the Executive shall
actually receive from the Plan. Any additional pension benefit to which the
Executive may be entitled shall be payable at the same time and in the same
manner as permitted under the terms of the Plan. The additional benefit is not
subject to sale, transfer, or assignment by the Executive. All payments of the
additional benefit shall be payable from the general assets of the Company.
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 shall determine that the Executive either before or after
termination of employment has engaged in any activity that is directly or
indirectly in competition with any activity of the
<PAGE> 5
4
Company or any affiliate, unless waived by the Board of Directors of the
Company, or has engaged in any activity that is inimical to the best interests
of the Company or any affiliate.
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 continue to receive compensation equal to the
Executive's then current base salary plus the bonus referred to in Section 4(i)
for a period of six months after the determination of Permanent Disability or
until the end of the Employment Term, whichever shall last occur, 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 continue to receive compensation equal to the
Executive's then current base salary plus the bonus referred to in Section 4(i)
until the end of the Employment Term or one year from death, whichever is
later. 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.
<PAGE> 6
5
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 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 the Company from time to
time.
7.2 During the Executive's employment hereunder, the Executive shall
be a participant, to the extent eligible thereunder, 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.
<PAGE> 7
6
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.
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.
9. NOTICE
All notices or communications hereunder shall be in writing, addressed
as follows:
To the Company:
Associates Corporation of North America
250 East Carpenter Freeway
Irving, Texas 75062
Attention: General Counsel
To the Executive:
3~
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.
<PAGE> 8
7
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.
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.
<PAGE> 9
8
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.
---------------------------------------
1~
ASSOCIATES CORPORATION OF NORTH AMERICA
(A Texas Corporation)
By:____________________________________
Its: Chairman of the Board
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
BETWEEN
THE COMPANY AND REECE A. OVERCASH, JR.
<PAGE> 2
1
AGREEMENT, dated as of ________________ (the "Agreement"), between
ASSOCIATES CORPORATION OF NORTH AMERICA, a corporation existing under laws of
the State of Texas (the "Company"), ________________ (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive desire to enter into an agreement
relating to the employment of the Executive for a period of five years from
date of this 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, a wholly-owned subsidiary of Ford Motor Company. The
Executive shall have such duties as the Board of Directors of the Company may
determine.
1.2 The term of employment under this Agreement shall commence on the
date of this Agreement and, subject to the terms hereof, shall terminate on the
day prior to the fifth anniversary of such date. The full five year period is
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.
<PAGE> 3
2
2. SALARY
2.1 During the Executive's employment hereunder, the Executive shall
be entitled to receive a base salary at the rate of $________ 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
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, or (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 interests of the Company or any affiliate; 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 shall thereupon cease and terminate. In the event that
the Executive's employment is terminated by the Company other than for Cause,
the Executive (or in the event of the Executive's death, the Executive's estate
or designated
<PAGE> 4
3
beneficiary, but only as to (i) below) shall be entitled to continue to receive
for the duration of the Employment Term, in lieu of any other compensation and
benefits provided for herein, (i) an amount, payable monthly, equal to the
Executive's then current monthly base salary, plus an amount payable annually
under the Company's Corporate Annual Performance Plan (CAPP) and Long-Term
Performance Plan (LTPP) that averages performance over the three most recent
performance periods, in accordance with the terms thereof in effect from time
to time, and (ii) 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. In addition, the
Company shall provide the Executive with an additional benefit equal to the
difference between (x) and (y), where (x) is the amount of benefit that the
Executive would have received from the Company's pension plan (the "Plan") if
the Executive had continued to participate in the Plan until the end of the
Employment Term, and (y) the amount of benefit that the Executive shall
actually receive from the Plan. Any additional pension benefit to which the
Executive may be entitled shall be payable at the same time and in the same
manner as permitted under the terms of the Plan. The additional benefit is not
subject to sale, transfer, or assignment by the Executive. All payments of the
additional benefit shall be payable from the general assets of the Company.
Notwithstanding any other provision, the right of Executive to any
benefits provided in this Agreement shall cease if the Board of Directors of
the Company shall determine that the Executive either before or after
termination of employment has engaged in any activity that is directly or
indirectly in competition with any activity of the Company or any affiliate,
unless waived by the Board of Directors of the Company, or has engaged in any
activity that is inimical to the best interests of the Company or any
affiliate.
<PAGE> 5
4
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 continue to receive compensation equal to the
Executive's then current base salary plus the bonus referred to in Section 4(i)
for a period of six months after the determination of Permanent Disability or
until the end of the Employment Term, whichever shall last occur, 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 continue to receive compensation equal to the
Executive's then current base salary plus the bonus referred to in Section 4(i)
until the end of the Employment Term or one year from death, whichever is
later. 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.
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 in accordance with Company
<PAGE> 6
5
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 the Company from time to
time.
7.2 During the Executive's employment hereunder, the Executive shall
be a participant, to the extent eligible thereunder, 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.
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.
<PAGE> 7
6
9. NOTICE
All notices or communications hereunder shall be in writing, addressed
as follows:
To the Company:
Associates Corporation of North America
250 East Carpenter Freeway
Irving, Texas 75062
Attention: General Counsel
To the Executive:
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 therefor, 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 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
<PAGE> 8
7
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.
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 only be modified or amended 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.
ASSOCIATES CORPORATION OF NORTH AMERICA
(A Texas Corporation)
By:
<PAGE> 9
GUARANTY
Associates Corporation of North America, a Delaware Corporation, hereby
irrevocably and unconditionally guarantees to ___________ (the "Executive") the
performance by Associates Corporation of North America (A Texas Corporation)
(the "Company") of all of the Company's payment obligations under the Agreement
between the Executive and the Company dated October 25, 1991. This guaranty
shall be construed, interpreted and governed in accordance with the laws of
Texas.
Dated this 25th day of October 1991.
Associates Corporation of North America
By
<PAGE> 1
Exhibit 10.18
[LOGO]
FORD MOTOR COMPANY
1990 LONG-TERM INCENTIVE PLAN
(AMENDED AS OF JUNE 1, 1990)
<PAGE> 2
FORD MOTOR COMPANY
1990 LONG-TERM INCENTIVE PLAN
PURPOSE
1.(a) Purpose. This Plan, which shall be known as the 1990 Long-Term
Incentive Plan and is hereinafter referred to as the "Plan", is
intended to provide an incentive to certain salaried employees of
Ford Motor Company (the "Company"), and of its subsidiaries, in
order to encourage them to remain in the employ of the Company and
to increase their interest in the Company's success. It is intended
that this purpose be effected through awards or grants of stock
options and various other rights with respect to shares of the
Company's Common Stock (collectively, the "Plan Awards"), as
provided herein, to eligible employees ("Participants").
(b) Company; Subsidiary; Employee. The term "Company" when used in the
Plan with reference to employment shall include subsidiaries of the
Company. The term "subsidiary" as used herein shall mean any
corporation a majority of the voting stock of which is owned
directly or indirectly by the Company. The term "employee" as used
herein shall be deemed to include any person who is an employee of
any joint venture corporation or partnership, or comparable entity,
in which the Company has a substantial equity interest (a "Joint
Venture"), provided such person was an employee of the Company
immediately prior to becoming employed by such Joint Venture.
ADMINISTRATION
2.(a) Compensation and Option Committee. The Compensation and Option
Committee of the Company's Board of Directors (the "Committee")
shall administer the Plan and perform such other functions as are
assigned to it under the Plan. The Committee is authorized, subject
to the provisions of the Plan, from time to time to establish such
rules and regulations as it may deem appropriate for the proper
administration of the Plan, and to make such determinations under,
and such interpretations of, and to take such steps in connection
with, the Plan and the Plan Awards as it may deem necessary or
advisable, in each case in its sole discretion.
(b) Delegation of Authority. The Committee may delegate any or all of
its powers and duties under the Plan, including, but not limited
to, its authority to grant waivers pursuant to Article 8 hereof, to
one or more other committees as it shall appoint, pursuant to such
conditions or limitations as the Committee may establish; provided,
however, that the Committee shall not delegate its authority to (1)
make Plan Awards under the Plan, (2) act with respect to matters
affecting any Participant who is subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or the liability provisions
of Section 16(b) of the Exchange Act (any such Participant being
hereinafter called a "Section 16 Person") or (3) amend or modify
the Plan pursuant to the provisions of paragraph (b) of Article 14
hereof.
(c) Eligibility of Committee Members. No person while a member of the
Committee or any committee of the Board of Directors administering
the Plan shall be eligible to hold or receive a Plan Award.
<PAGE> 3
2
STOCK AVAILABLE FOR PLAN AWARDS
3.(a) Stock Subject to Plan. The stock to be subject to or related to
Plan Awards shall be shares of the Company's Common Stock of the
par value of $1.00 per share ("Stock"), and may be either
authorized and unissued or held in the treasury of the Company. The
maximum number of shares of Stock with respect to which Plan Awards
may be granted under the Plan, subject to adjustment in accordance
with the provisions of Article 11 hereof, in each calendar year
during any part of which the Plan is in effect shall be 1% of the
total number of issued shares of Stock as of December 31 of the
calendar year immediately preceding such year (the number of shares
determined by application of such percentage in any calendar year
being hereinafter called the "1% Limit" for such year); provided,
however, that such percentage may be increased to up to 2% in any
one or more calendar years, in which event the excess over 1% in any
such calendar year shall be applied to the reduction of the
aggregate number of shares that otherwise would have been available
for Plan Awards pursuant to this paragraph (a) and paragraph (c) of
this Article 3 in subsequent calendar years during the term of the
Plan, in inverse order commencing with the year 2000.
Notwithstanding the foregoing, the aggregate number of shares that
may be issued upon exercise of "incentive stock options" (as
defined in paragraph (a)(1) of Article 5 hereof) shall not exceed
2% of the number of shares authorized under the Company's
Certificate of Incorporation at the date of adoption of the Plan
(subject to adjustment in accordance with the provisions of Article
11 hereof).
(b) Computation of Stock Available for Plan Awards. For the purpose of
computing the total number of shares of Stock remaining available
for Plan Awards at any time in each calendar year during which the
Plan is in effect, there shall be debited against the total number
of shares determined to be available pursuant to paragraphs (a) and
(c) of this Article 3 (i) the maximum number of shares of Stock
subject to issuance upon exercise of Options (as hereinafter
defined) granted in such year, (ii) the number of shares of Stock
representing Target Awards under Contingent Stock Rights (as
hereinafter defined) granted in such year and (iii) the number of
shares of Stock related to Other Stock-Based Awards (as hereinafter
defined) granted in such year, as determined by the Committee in
each case as at the dates on which such Plan Awards were granted.
(c) Unused, Forfeited and Reacquired Shares. Any unused portion of the
1% Limit for any calendar year shall be carried forward and shall
be made available for Plan Awards in succeeding calendar years. The
shares involved in the unexercised or undistributed portion of any
terminated, expired or forfeited Plan Award (including, without
limitation, the shares involved in any Target Award (as hereinafter
defined) that are not included in the related Final Award (as
hereinafter defined)) also shall be made available for further Plan
Awards. Further, any shares of Stock that are used by a Participant
as full or partial payment to the Company of the purchase price of
shares of Stock acquired upon exercise of an Option (as hereinafter
defined) shall be made available for Plan Awards but shall not
affect the limitation in the last sentence of paragraph (a) of this
Article 3. Any shares of Stock made available for Plan Awards
pursuant to this paragraph (c) shall be in addition to the shares
available pursuant to paragraph (a) of this Article 3.
<PAGE> 4
3
CONTINGENT STOCK RIGHTS AND FINAL AWARDS
4.(a) Grant of Contingent Stock Rights. The term "Contingent Stock Right"
("Right"), as used in the Plan, shall mean the right to receive,
without payment to the Company, the number of shares of Stock
specified therein, subject to the terms and provisions of the Plan.
The Committee, at any time and from time to time while the Plan is
in effect, may grant, or authorize the granting of, Rights to such
officers and other key salaried employees of the Company, whether
or not members of the Board of Directors, as it may select and for
such numbers of shares as it shall designate, subject to the
provisions of this Article 4 and Article 3 hereof.
(b) Terms and Provisions of Contingent Stock Rights. The Committee
shall determine the terms and provisions of each Right, including,
without limitation, (i) the number of shares of Stock to be covered
initially by such Right (the "Target Award"), (ii) the nature and
level of the performance at which 100% of the Target Award could be
earned (the "Performance Target"), (iii) the period of time with
respect to which such performance is to be measured (the
"Performance Period"), which shall commence not earlier than 12
months prior to the date of grant of such Right, and (iv) the
period of time during which the disposition of shares of Stock
covered by any Final Award relating to such Right shall be
restricted as provided in paragraph (a) of Article 9 hereof (the
"Restriction Period"); provided, however, that the Committee may
establish the Restriction Period applicable to any Right at the
time of or at any time prior to the granting of the related Final
Award rather than at the time of granting such Right. If the
Committee shall so determine, the Performance Target provided in
any Right may be based in whole or in part on the performance of
the Company or any division, operation or subsidiary thereof during
a Performance Period compared with performance by other
corporations or other business units during such Performance
Period, and may reflect both quantitative and qualitative
standards. During the Performance Period relating to any Right, the
Committee may adjust the Performance Target provided in such Right
(upward or downward) and otherwise modify the terms and provisions
of such Right. Each Right shall be evidenced by a letter, an
agreement or such other document as the Committee may determine.
(c) Dividend Equivalents on Rights.
(1) If the Committee shall so determine, each Participant to whom
a Right has been granted shall be entitled to receive payment
of the same amount of cash that such Participant would have
received as cash dividends if, on each dividend record date
during the entire Performance Period relating to such Right,
such Participant had been the holder of record of a number of
shares of Stock equal to the number of shares then covered by
such Right (as adjusted pursuant to Article II hereof). In
the case of any Right granted to a Participant after the
commencement of the related Performance Period, any such
payment relating to any dividend payable prior to the date of
grant of such Right shall be made at the same time as the
payment relating to the first dividend paid after such date
of grant. The aforementioned cash payments relating to cash
dividends are hereinafter called "dividend equivalents".
<PAGE> 5
4
(2) Notwithstanding the provisions of paragraph (c)(1) of this
Article 4 relating to dividend equivalents, the Committee may
determine that, in lieu of receiving all or any portion of
any such dividend equivalent in cash, a Participant shall
receive an award of full shares of Stock having a value (as
determined by the Committee) approximately equal to the
portion of such dividend equivalent that was not paid in
cash. Certificates for shares of Stock so awarded shall be
issued as of the payment date for the related cash dividend,
and the shares of Stock covered thereby shall be treated in
the same manner as shares of Stock representing Final Awards,
subject to the terms and conditions of the Plan, including,
without limitation, the provisions of paragraphs (b), (d) and
(e) of Article 4 and Articles 8, 9, and 11 hereof.
(d) Final Awards.
(1) As soon as practicable following the completion of the
Performance Period relating to any Right, but not later than
12 months following such completion, the Committee shall
determine the percentage (which shall not exceed 100%) of the
Target Award (as adjusted pursuant to Article 11 hereof) that
shall be awarded finally to the Participant who holds such
Right (the number of shares of Stock resulting from the
application of such percentage being hereinafter called the
"Final Award"). Each Final Award shall represent only full
shares of Stock, and any fractional share that would result
from the application of such percentage shall be disregarded.
In making such determination, the Committee may take into
account (i) the extent to which the Performance Target
provided in such Right was, in the Committee's sole opinion,
achieved, (ii) the individual performance of such Participant
during the related Performance Period and (iii) such other
factors as the Committee may deem relevant, including,
without limitation, any change in circumstances or unforeseen
events, relating to the Company, the economy or otherwise,
since the date of grant of such Right. The Committee shall
notify such Participant of such Participant's Final Award as
soon as practicable following such determination.
(2) Following the determination of each Final Award, the Company
shall issue or cause to be issued certificates for the number
of shares of Stock representing such Final Award, registered
in the name of the Participant who received such Final Award.
Such Participant shall thereupon become the holder of record
of the number of shares of Stock evidenced by such
certificates, entitled to dividends, voting rights and other
rights of a holder thereof, subject to the terms and
provisions of the Plan, including, without limitation, the
provisions of paragraph (e) of this Article 4 and Articles 8,
9 and 11 hereof. If the Committee has determined that
dividends shall be payable to a Participant with respect to
any Right pursuant to paragraph (c) of this Article 4,
concurrently with the issuance of such certificates, the
Company shall deliver to such Participant an amount equal to
the amount of the cash dividends that such Participant would
have received with respect to the shares of Stock
representing such Final Award, prior to the date on which
such Participant shall have become the holder of record of
such shares, if such Participant had become such a holder of
record immediately following completion of the Performance
Period relating to such Final Award. The Committee may
require that such certificates bear such restrictive legend
as the Committee may specify and be held by the Company in
escrow or otherwise pursuant to any form of agreement or
instrument that the Committee may specify.
<PAGE> 6
5
(3) Notwithstanding the provisions of paragraphs (d)(1) and (2)
of this Article 4 or any other provision of the Plan, in the
case of any Right held by a Participant who is an employee of
a foreign subsidiary or foreign branch of the Company or of a
foreign Joint Venture, or held by a Participant who is in any
other category specified by the Committee, the Committee may
specify that such Participant's Final Award shall not be
represented by certificates for shares of Stock but shall be
represented by rights approximately equivalent (as determined
by the Committee) to the rights that such Participant would
have received if certificates for shares of Stock had been
issued in the name of such Participant in accordance with
paragraphs (d)(1) and (2) of this Article 4 (such rights
being hereinafter called "Stock Equivalents"). Subject to the
provisions of Article 11 hereof and the other terms and
provisions of the Plan, if the Committee shall so determine,
each Participant who holds Stock Equivalents shall be
entitled to receive the same amount of cash that such
Participant would have received as dividends if certificates
for shares of Stock had been issued in the name of such
Participant pursuant to paragraphs (d)(1) and (2) of this
Article 4 covering the number of shares equal to the number
of shares to which such Stock Equivalents relate.
Notwithstanding any other provision of the Plan to the
contrary, the Stock Equivalents representing any Final Award
may, at the option of the Committee, be converted into an
equivalent number of shares of Stock or, upon the expiration
of the applicable Restriction Period, into cash, under such
circumstances and in such manner as the Committee may
determine.
(4) If the Restriction Period relating to any Final Award shall
expire while the Participant who was granted such Award is
employed by the Company, the certificates for the shares of
Stock issued in such Participant's name with respect to such
Final Award, and certificates for a number of shares of Stock
equal to the number of shares represented by any Stock
Equivalents then held by such Participant with respect to
such Final Award, shall be delivered to such Participant as
soon as practicable, free of all restrictions and restrictive
legends.
(e) Effect of Termination of Employment or Death.
(1) If a Participant's employment with the Company shall be
terminated, prior to the expiration of the Restriction Period
relating to any Right granted to such Participant, by reason
of discharge, release in the best interest of the Company,
voluntary quit or retirement without the approval of the
Company, such Right, and any shares of Stock or Stock
Equivalents issued in the name of such Participant as a Final
Award relating to such Right, shall be forfeited and
cancelled forthwith unless the Committee shall grant an
appropriate waiver. Any such waiver shall be granted in
accordance with the procedure specified in paragraph (b) of
Article 8 hereof (in which event the reference in such
paragraph (b) to "the nonfulfillment of such condition" shall
be deemed to refer to such Participant's termination for any
of the reasons specified above).
(2) If a Participant's employment with the Company shall be
terminated for any reason other than a reason specified in
paragraph (e)(1) of this Article 4, except death, prior to or
concurrently with the expiration of the Restriction Period
relating to any Right granted to such Participant,
(i) certificates for any shares of Stock issued in such
Participant's name prior to such termination of
employment as a Final Award relating to such Right, and
certificates for a number of shares of Stock equal to
the number of shares represented by any Stock
Equivalents then held by such Participant with respect
to such Final Award, shall be delivered to such
Participant as soon as practicable, free of all
restrictions and restrictive legends; and
<PAGE> 7
6
(ii) subject to the provisions of Article 8 hereof,
certificates for any shares of Stock issued in such
Participant's name following such termination of
employment as a Final Award relating to such Right
(whether relating to a Performance Period ended prior
to such termination or subsequent thereto) shall be
delivered to such Participant as soon as practicable,
free of all restrictions and restrictive legends.
(3) If a Participant's employment with the Company shall be
terminated at any time by reason of a sale or other
disposition (including, without limitation, a transfer to a
Joint Venture) of the division, operation or subsidiary in
which such Participant was employed or to which such
Participant was assigned, unless the Committee shall specify
otherwise, any Rights then held by such Participant, and any
shares of Stock or Stock Equivalents issued in the name of
such Participant as a Final Award relating to such Rights,
shall be dealt with as provided in paragraph (e)(2) of this
Article 4.
(4) If a Participant shall die while in the employ of the
Company, any Rights then held by such Participant shall
remain in effect. Such Rights, and any shares of Stock then
issued in the name of such Participant (but not yet
distributed to such Participant), and any such shares
thereafter issuable with respect to such Rights, as Final
Awards under the Plan, shall be transferred or issued and
delivered to the beneficiary designated pursuant to Article
10 hereof or, if no such designation is in effect, to the
executor or administrator of the estate of such Participant,
free of all restrictions and restrictive legends. With regard
to any Stock Equivalents then held by such Participant,
certificates for a number of shares of Stock equal to the
number of shares represented thereby shall be issued and
delivered to such beneficiary, executor or administrator,
free of all restrictions and restrictive legends.
(5) Subject to the provisions of Article 8 hereof, if a
Participant shall die following termination of employment,
any Rights then held by such Participant shall remain in
effect. Such Rights, and any shares of Stock then issued in
the name of such Participant (but not yet distributed to such
Participant), and any such shares thereafter issuable with
respect to such Rights, as Final Awards under the Plan, shall
be transferred or issued and delivered to the beneficiary
designated pursuant to Article 10 hereof or, if no such
designation is in effect, to the executor or administrator of
the estate of such Participant, free of all restrictions and
restrictive legends. With regard to any Stock Equivalents
then held by such Participant, certificates for a number of
shares of Stock equal to the number of shares represented
thereby shall be issued and delivered to such beneficiary,
executor or administrator, free of all restrictions and
restrictive legends.
(6) Notwithstanding any other provision of the Plan to the
contrary, if a Participant's employment with the Company
shall for any reason terminate prior to the later of (a) the
date of expiration of the period of six months following the
commencement of the Performance Period relating to any Right
(or such other period as the Committee may specify) or (b)
the date six months following the date of grant of such
Right, such Right shall be forfeited and cancelled forthwith
unless the Committee shall determine otherwise.
<PAGE> 8
7
(7) Notwithstanding any provision of the Plan to the contrary,
(i) the Committee may at any time establish a Restriction
Period applicable to the Stock to be represented by any Final
Award, and such Restriction Period shall remain in effect
until such time (which may be later than the date of the
Participant's retirement or other termination of employment)
as the Committee may determine; and (ii) the Committee may
determine that no shares of Stock or certificates therefore
shall be delivered to any Participant until the date of
expiration of the applicable Restriction Period (or such
earlier date as the Committee may determine).
(f) Recommendations to Committee. Recommendations as to the employees
to be granted Rights, the Target Awards, Performance Periods,
Restriction Periods and other terms to be provided therein, and
adjustments, if any, in Performance Targets and any other
modifications of the terms and provisions of such Rights, and the
amounts of Final Awards, shall be made to the Committee by the
Chief Executive Officer, except that he or she shall not make any
such recommendation as to himself or herself.
OPTIONS AND STOCK APPRECIATION RIGHTS
5.(a) Grant of Options.
(1) The Board of Directors, at any time and from time to time while the
Plan is in effect, may authorize the granting of Options (as
hereinafter defined) to such officers and other key salaried
employees of the Company, whether or not members of the Board of
Directors, as it may select from among those nominated by the
Committee, and for such numbers of shares as it shall designate,
subject to the provisions of this Article 5 and Article 3 hereof;
provided, however, that no Option shall be granted to a Participant
for a larger number of shares than the Committee shall recommend
for such Participant. Each Option granted pursuant to the Plan
shall be designated at the time of grant as either an "incentive
stock option" ("ISO"), as such term is defined in the Internal
Revenue Code of 1986, as amended (the "Code"), or its successors
(or shall otherwise be designated as an option entitled to
favorable treatment under the Code) or as a "nonqualified stock
option" ("NQO") (ISOs and NQOs being herein referred to
individually as an "Option" and collectively as "Options").
(2) Without in any way limiting the authority provided in paragraph
(a)(1) of this Article 5, the Board of Directors may authorize the
Committee to authorize the granting of Options, at any time and
from time to time while the Plan is in effect, to such officers and
other key salaried employees of the Company, whether or not members
of the Board of Directors, as the Committee may select, subject to
the provisions of this Article 5 and Article 3 hereof and subject
to such other limitations as the Board of Directors may specify.
(3) The date on which an Option shall be granted shall be the date of
the Board of Directors' or Committee's authorization of such grant
or such later date as may be determined by the Board of Directors
or the Committee, as the case may be, at the time such grant is
authorized. Any individual may hold more than one Option.
<PAGE> 9
8
(b) Price. In the case of each Option granted under the Plan the option
price shall be the fair market value of Stock on the date of grant
of such Option; provided, however, that in the case of any Option
granted to an employee of a foreign subsidiary or a foreign branch
of the Company or of a foreign Joint Venture the Board of Directors
may in its discretion fix an option price in excess of the fair
market value of Stock on such date. The term "fair market value"
when used with reference to the option price shall mean the average
of the highest price and the lowest price at which Stock shall have
been sold regular way on the New York Stock Exchange on the date of
grant of such Option. In the event that any Option shall be granted
on a date on which there were no such sales of stock on such
Exchange, the fair market value of Stock on such date shall be
deemed to be the average of such highest price and lowest price on
the next preceding day on which there were such sales.
(c) Grant of Stock Appreciation Rights.
(1) The Board of Directors may authorize the granting of Stock
Appreciation Rights (as hereinafter defined) to such
Participants who are granted Options under the Plan as it may
select from among those nominated therefor by the Committee.
The Committee may authorize the granting of Stock
Appreciation Rights to such Participants as are granted
Options under the Plan pursuant to Paragraph (a) of this
Article 5. Each Stock Appreciation Right shall relate to a
specific Option granted under the Plan and may be granted
concurrently with the Option to which it relates or at any
time prior to the exercise, termination or expiration of such
Option.
(2) The term "Stock Appreciation Right" shall mean the right to
receive, without payment to the Company and as the
Participant may elect, either (a) that number of shares of
Stock determined by dividing (i) the total number of shares
of Stock subject to the related Option (or the portion or
portions thereof which the Participant from time to time
elects to use for purposes of this clause (a), multiplied by
the amount by which the fair market value of a share of Stock
on the day the right is exercised exceeds the option price
(such amount being hereinafter referred to as the "Spread"),
by (ii) the fair market value of a share of Stock on the
exercise date; or (b) cash in an amount determined by
multiplying (i) the total number of shares of Stock subject
to the related Option (or the portion or portions thereof
which the Participant from time to time elects to use for
purposes of this clause (b)), by (ii) the amount of the
Spread; or (c) a combination of shares of Stock and cash, in
amounts determined as set forth in clauses (a) and (b) above;
provided, however, that the total number of shares which may
be received upon exercise of a Stock Appreciation Right for
Stock shall not exceed the total number of shares subject to
the related Option or portion thereof, and the total amount
of cash which may be received upon exercise of a Stock
Appreciation Right for cash shall not exceed the fair market
value on the date of exercise of the total number of shares
subject to the related Option or portion thereof.
(3) The Committee may impose such conditions as it may deem
appropriate upon the exercise of an Option or a Stock
Appreciation Right, including, without limitation, a
condition that the Stock Appreciation Right may be exercised
only in accordance with rules and regulations adopted by the
Committee from time to time.
(4) The right of a Participant to exercise a Stock Appreciation
Right shall be cancelled if and to the extent the related
Option is exercised. The right of a Participant to exercise
an Option shall be cancelled if and to the extent that shares
covered by such Option are used to calculate shares or cash
received upon exercise of a related Stock Appreciation Right.
<PAGE> 10
9
(5) The fair market value of Stock on the date of exercise of a
Stock Appreciation Right shall be determined as of such
exercise date in the same manner as the fair market value of
Stock on the date of grant of an Option is determined
pursuant to paragraph (b) of this Article 5. Notwithstanding
the preceding sentence, if a Participant shall elect to
receive cash in full or partial settlement of a Stock
Appreciation Right related to an NQO, and shall exercise such
Stock Appreciation Right for cash, during any limited period
of time (commonly known as a "window period") provided for in
any rule or regulation of the Securities and Exchange
Commission applicable to cash settlements of stock
appreciation rights (such election and exercise having been
made during such window period because the Participant was
then, or previously was, an officer or director of the
Company), unless the Committee shall otherwise provide in any
form of Stock Option Agreement, the fair market value of
Stock on the exercise date, for purposes of the preceding
sentence, shall be deemed to be the highest fair market value
(determined as aforesaid) on any day during such window
period.
(6) If any fractional share of Stock would otherwise be payable
to a Participant upon the exercise of a Stock Appreciation
Right, the Participant shall be paid a cash amount equal to
the same fraction of the fair market value of the Stock on
the date of exercise.
(d) Stock Option Agreement. Each Option and related Stock Appreciation
Right shall be evidenced by a Stock Option Agreement in such form
and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve. Each
Stock Option Agreement shall provide that the Participant shall
agree to remain in the employ of the Company for such period from
the date of grant of such Option or combination of Options or
related Stock Appreciation Rights as shall be provided in the Stock
Option Agreement; provided, however, that the Company's right to
terminate the employment of the Participant at any time, with or
without cause, shall not be restricted by such agreement.
(e) Terms of Options and Stock Appreciation Rights. Each Option and
related Stock Appreciation Right granted under the Plan shall be
exercisable on such date or dates, during such period, for such
number of shares and subject to such further conditions as shall be
determined pursuant to the provisions of the Stock Option Agreement
with respect to such Option and related Stock Appreciation Right;
provided, however, that a Stock Appreciation Right shall not be
exercisable prior to or later than the time the related Option
could be exercised; and provided, further, that in any event no
Option or related Stock Appreciation Right shall be exercised
beyond ten years from the date of grant of the Option.
(f) Effect of Termination of Employment or Death.
(1) Except as provided in paragraphs (f)(2), (3) and (4) of this
Article 5, if, prior to the date that any Option or Stock
Appreciation Right shall first have become exercisable, the
Participant's employment with the Company shall be terminated
by the Company, with or without cause, or by the act, death,
incapacity or retirement of the Participant, the
Participant's right to exercise such Option or Stock
Appreciation Right shall terminate on the date of such
termination of employment and all rights thereunder shall
cease.
<PAGE> 11
10
(2) Notwithstanding the provisions of paragraph (f)(1) of this
Article 5, if the Participant's employment with the Company
shall be terminated by reason of retirement, release because
of disability or death, and the Participant had remained in
the employ of the Company for at least six months following
the date of any Stock Option Agreement under the Plan between
such Participant and the Company, and subject to the
provisions of Article 8 hereof, all such Participant's rights
under such Stock Option Agreement shall continue in effect or
continue to accrue for the period ending on the date ten
years from the date of grant of any Option (or such shorter
period as the Committee may specify), subject, in the event
of the Participant's death prior to such date, to the
provisions of paragraph (f)(7) of this Article 5 and subject
to any other limitation on the exercise of such rights in
effect at the date of exercise.
(3) Notwithstanding the provisions of paragraph (f)(1) of this
Article 5, if the Participant's employment with the Company
shall be terminated under mutually satisfactory conditions,
and the Participant had remained in the employ of the Company
for at least six months following the date of any Stock
Option Agreement under the Plan between the Participant and
the Company, and subject to the provisions of Article 8
hereof, all such Participant's rights under such Stock Option
Agreement shall continue in effect or continue to accrue
until the date three months after the date of such
termination (but not later than the date ten years from the
date of grant of any Option), subject, in the event of the
Participant's death during such three-month period, to the
provisions of paragraph (f)(7) of this Article 5 and subject
to any other limitation on the exercise of such rights in
effect at the date of exercise.
(4) Notwithstanding any other provision of the Plan to the
contrary, if a Participant's employment with the Company
shall be terminated at any time by reason of a sale or other
disposition (including, without limitation, a transfer to a
Joint Venture) of the division, operation or subsidiary in
which such Participant was employed or to which such
Participant was assigned, all such Participant's rights under
any Option and any related Stock Appreciation Right granted
to him or her shall continue in effect and continue to accrue
until the date five years after the date of such termination
or such earlier or later date as the Committee may specify
(but not later than the date ten years from the date of grant
of any Option), provided such Participant shall satisfy both
of the following conditions:
(a) such Participant, at the date of such termination, had
remained in the employ of the Company for at least
three months following the grant of such Option and
Stock Appreciation Right, and
(b) such Participant continues to be or becomes employed in
such division, operation or subsidiary following such
sale or other disposition and remains in such employ
until the date of exercise of such Option or Stock
Appreciation Right (unless the Committee, or any
committee appointed by it for the purpose, shall waive
this condition (b)).
<PAGE> 12
11
Upon termination of such Participant's employment with such
(former) division, operation or subsidiary following such
sale or other disposition, any then existing right of such
Participant to exercise any such Option or Stock Appreciation
Right shall be subject to the following limitations: (i) if
such Participant's employment is terminated by reason of
disability, death or retirement with the approval of his or
her employer, such Participant's rights shall continue as
provided in the preceding sentence with the same effect as if
his or her employment had not terminated; (ii) if such
Participant's employment is terminated by reason of discharge
or voluntary quit, such Participant's rights shall terminate
on the date of such termination of employment and all rights
under such Option and Stock Appreciation Right shall cease;
and (iii) if such Participant's employment is terminated for
any reason other than a reason set forth in the preceding
clauses (i) and (ii), such Participant shall have the right,
within three months after such termination, to exercise such
Option or Stock Appreciation Right to the extent that it or
any installment thereof shall have accrued at the date of
such termination and shall not have been exercised, subject
in the case of any such termination to the provisions of
Article 8 hereof and any other limitation on the exercise of
such Option and Stock Appreciation Right in effect at the
date of exercise.
(5) If, on or after the date that any Option or Stock
Appreciation Right shall first have become exercisable, a
Participant's employment with the Company shall be terminated
for any reason except retirement, release because of
disability, death, release because of a sale or other
disposition of the division, operation or subsidiary in which
such Participant was employed or to which such Participant
was assigned, release under mutually satisfactory conditions,
discharge, release in the best interest of the Company or
voluntary quit, such Participant shall have the right, within
three months after such termination, to exercise such Option
or Stock Appreciation Right to the extent that it or any
installment thereof shall have accrued at the date of such
termination of employment and shall not have been exercised,
subject to the provisions of Article 8 hereof and any other
limitation on the exercise of such Option or Stock
Appreciation Right in effect at the date of exercise.
(6) If a Participant's employment with the Company shall be
terminated at any time by reason of discharge, release in the
best interest of the Company or voluntary quit, the
Participant's right to exercise such Option or Stock
Appreciation Right shall terminate on the date of such
termination of employment and all rights thereunder shall
cease.
<PAGE> 13
12
(7) If a Participant shall die within the applicable period
specified in paragraph (f)(2), (3), (4) or (5) of this
Article 5, the beneficiary designated pursuant to Article 10
hereof or, if no such designation is in effect, the executor
or administrator of the estate of the decedent or the person
or persons to whom the Option or Stock Appreciation Right
shall have been validly transferred by the executor or
administrator pursuant to will or the laws of descent and
distribution shall have the right, within the same period of
time as the period during which the Participant would have
been entitled to exercise such Option or Stock Appreciation
Right (except that (a) in the case of a Participant to whom
paragraph (f)(5) of this Article 5 applies, such
Participant's Option or Stock Appreciation Right may be
exercised only to the extent that it or any installment
thereof shall have accrued at the date of death and shall not
have been exercised; and (b) the period of time within which
any Option or Stock Appreciation Right shall be exercisable
following the date of the Participant's death shall not be
less than one year (unless the Option by its terms expires
earlier)), subject to the provision that no Option or related
Stock Appreciation Right shall be exercised under any
circumstances beyond ten years from the date of grant of such
Option, and to any other limitation on the exercise of such
Option or Stock Appreciation Right in effect at the date of
exercise. No transfer of an Option or Stock Appreciation
Right by the Participant, other than by filing a written
designation of beneficiary pursuant to Article 10 hereof,
shall be effective to bind the Company unless the Company
shall have been furnished with written notice of such
transfer and a copy of the will and/or such other evidence as
the Committee may deem necessary to establish the validity of
the transfer. No transfer shall be effective without the
acceptance by the designated beneficiary or other transferee
of the terms and conditions of such Option or Stock
Appreciation Right.
(g) Payment for Option Shares.
(1) Payment for shares of Stock purchased upon exercise of an
Option granted hereunder shall be made, either in full or, if
the Committee shall so determine and at the election of the
Participant, in installments, in such manner as shall be
provided in the applicable Stock Option Agreement.
(2) Unless the Committee shall provide otherwise in any form of
Stock Option Agreement, any payment for shares of Stock
purchased upon exercise of an Option granted hereunder may be
made in cash, by delivery of shares of Stock beneficially
owned by the Participant or by a combination of cash and
Stock, at the election of the Participant; provided, however,
that any shares of Stock so delivered shall have been
beneficially owned by the Participant for a period of not
less than six months prior to the date of exercise. Any such
shares of Stock so delivered shall be valued at their fair
market value on the date of such exercise, which shall be
determined as of such date in the same manner as the fair
market value of Stock on the date of grant of an Option is
determined pursuant to paragraph (b) of this Article 5. The
Committee shall determine whether and if so the extent to
which actual delivery of share certificates to the Company
shall be required.
<PAGE> 14
13
STOCK AND OTHER STOCK-BASED AND COMBINATION AWARDS
6.(a) Grants of Other Stock-Based Awards. The Committee, at any time and
from time to time while the Plan is in effect, may grant to such
officers and other salaried employees of the Company, whether or
not members of the Board of Directors, as it may select, Plan
Awards pursuant to which Stock is or may in the future be acquired,
or Plan Awards valued or determined in whole or part by reference
to, or otherwise based on, Stock (including but not limited to Plan
Awards denominated in the form of "stock units", grants of
so-called "phantom stock" and options containing terms or
provisions differing in whole or in part from Options granted
pursuant to Article 5 hereof) (such Plan Awards being hereinafter
called "Other Stock-Based Awards"). Other Stock-Based Awards may be
granted either alone, in addition to, in tandem with or as an
alternative to any other kind of Plan Award, grant or benefit
granted under the Plan or under any other employee plan of the
Company, including a plan of any acquired entity.
(b) Terms and Conditions. Subject to the provisions of the Plan, the
Committee shall have authority to determine the time or times at
which Other Stock-Based Awards shall be made, the number of shares
of Stock or stock units and the like to be granted or covered
pursuant to such Plan Awards (subject to the provisions of Article
3 hereof) and all other terms and conditions of such Plan Awards,
including, but not limited to, whether such Plan Awards shall be
payable or paid in cash, Stock or otherwise.
(c) Consideration for Other Stock-Based Awards. In the discretion of
the Committee, any Other Stock-Based Award may be granted as a
Stock bonus for no consideration other than services rendered;
provided, however, that in the event an Other Stock-Based Award
shall be granted to a Participant who is a Section 16 Person under
which shares of Stock are or may in the future be issued for any
other type of consideration, the amount of such consideration shall
either be (i) equal to the amount (such as the par value of such
shares) required to be received by the Company in order to assure
compliance with applicable state law or (ii) equal to or greater
than 50% of the fair market value of such shares (as determined in
accordance with paragraph (b) of Article 5 hereof) on the date of
grant of such Other Stock-Based Award.
CASH AWARDS TO EMPLOYEES OF FOREIGN SUBSIDIARIES OR BRANCHES OR JOINT VENTURES
7. Notwithstanding any other provision of the Plan to the contrary,
the Committee may determine to permit a Participant, other than a
Section 16 Person, who is an employee of a foreign subsidiary or a
foreign branch of the Company or of a foreign Joint Venture to
receive cash in lieu of any Plan Award or shares of Stock that
would otherwise have been granted to or delivered to such
Participant under the Plan, in such amount as the Committee may
determine in its sole discretion.
<PAGE> 15
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PAYMENT OF PLAN AWARDS AND CONDITIONS THEREON
8.(a) Effect of Competitive Activity. Anything contained in the Plan to
the contrary notwithstanding, if the employment of any Participant
shall terminate, for any reason other than death, while any Plan
Award to such Participant is outstanding hereunder, and such
Participant has not yet received the Stock covered by such Plan
Award or otherwise received the full benefit of such Plan Award,
such Participant, if otherwise entitled thereto, shall receive such
Stock or benefit only if, during the entire period from the date of
such Participant's termination to the date of such receipt, such
Participant shall have earned out such Plan Award by (i) making
himself or herself available, upon request, at reasonable times and
upon a reasonable basis, to consult with, supply information to and
otherwise cooperate with the Company or any subsidiary thereof with
respect to any matter that shall have been handled by him or her or
under his or her supervision while he or she was in the employ of
the Company or of any subsidiary thereof, and (ii) refraining from
engaging in any activity that is directly or indirectly in
competition with any activity of the Company or any subsidiary
thereof.
(b) Nonfulfillment of Competitive Activity Conditions; Waivers Under
the Plan. In the event of a Participant's nonfulfillment of any
condition set forth in paragraph (a) of this Article 8 such
Participant's rights under any Plan Award shall be forfeited and
cancelled forthwith; provided, however, that the nonfulfillment of
such condition may at any time (whether before, at the time of or
subsequent to termination of employment) be waived in the following
manner:
(i) with respect to any such Participant who at any time shall
have been a Section 16 Person, such waiver may be granted by
the Committee upon its determination that in its sole
judgment there shall not have been and will not be any
substantial adverse effect upon the Company or any subsidiary
thereof by reason of the nonfulfillment of such condition;
and
(ii) with respect to any other such Participant, such waiver may
be granted by the Committee (or any committee appointed by it
for the purpose) upon its determination that in its sole
judgment there shall not have been and will not be any such
substantial adverse effect.
(c) Effect of Inimical Conduct. Anything contained in the Plan to the
contrary notwithstanding, all rights of a Participant under any
Plan Award shall cease on and as of the date on which it has been
determined by the Committee that such Participant at any time
(whether before or subsequent to termination of such Participant's
employment) acted in a manner inimical to the best interests of the
Company.
(d) Tax Withholding. Prior to any distribution of cash, Stock or Other
Stock-Based Awards (including payments under paragraph (c) of
Article 4 hereof) to any Participant, appropriate arrangements
(consistent with the Plan and any rules adopted hereunder) shall be
made for the payment of any taxes required to be withheld by
federal, state or local law.
(e) Substitution. The Committee, in its sole discretion, may substitute
a Plan Award (except ISOs) for another Plan Award or Plan Awards of
the same or different type.
<PAGE> 16
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NON-TRANSFERABILITY OF PLAN AWARDS; RESTRICTIONS ON DISPOSITION AND
EXERCISE OF PLAN AWARDS
9.(a) Restrictions on Transfer of Rights or Final Awards. (i) No Right or
(ii) until the expiration of the applicable Restriction Period, no
shares of Stock covered by any Final Award determined under
paragraph (d) of Article 4 hereof, shall be transferred, pledged,
assigned or otherwise disposed of by a Participant, except as
permitted by the Plan, without the consent of the Committee,
otherwise than by will or the laws of descent and distribution;
provided, however, that the Committee may permit, on such terms as
it may deem appropriate, use of Stock included in any Final Award
as partial or full payment upon exercise of an Option under the
Plan or a stock option under any Stock Option Plan of the Company
prior to the expiration of the Restriction Period relating to such
Final Award.
(b) Restrictions on Transfer of Options or Stock Appreciation Rights.
No Option or related Stock Appreciation Right shall be transferable
by a Participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of a Participant the Option
or Stock Appreciation Right shall be exercisable only by such
Participant or such Participant's guardian or legal representative.
(c) Restrictions on Transfer of Certain Other Stock-Based Awards. No
Other Stock-Based Award which constitutes an option or similar
right (as such terms are used in Rule 16b-3 under the Exchange Act)
shall be transferable by a Participant otherwise than by will or
the laws of descent and distribution, and during the lifetime of a
Participant any such Other Stock-Based Award shall be exercisable
only by such Participant or such Participant's guardian or legal
representative.
DESIGNATION OF BENEFICIARIES
10. Anything contained in the Plan to the contrary notwithstanding, a
Participant may file with the Company a written designation of a
beneficiary or beneficiaries under the Plan (subject to such
limitations as to the classes and number of beneficiaries and
contingent beneficiaries and such other limitations as the
Committee from time to time may prescribe), subject to the
provisions of paragraph (e) of Article 4 and paragraph (f) of
Article 5 hereof. A Participant shall be deemed to have designated
as beneficiary or beneficiaries under the Plan the person or
persons who receive such Participant's life insurance proceeds
under the Company-paid Life Insurance Plan unless such Participant
shall have assigned such life insurance or shall have filed with
the Company a written designation of a different beneficiary or
beneficiaries under the Plan. A Participant may from time to time
revoke or change any such designation of beneficiary. Any
designation of beneficiary under the Plan shall be controlling over
any other disposition, testamentary or otherwise; provided,
however, that if the Committee shall be in doubt as to the
entitlement of any such beneficiary to any Right, Final Award,
Option, Stock Appreciation Right or Other Stock-Based Award, the
Committee may determine to recognize only the legal representative
of such Participant, in which case the Company, the Committee and
the members thereof shall not be under any further liability to
anyone. In the event of the death of any Participant, the term
"Participant" as used in the Plan shall thereafter be deemed to
refer to the beneficiary designated pursuant to this Article 10 or,
if no such designation is in effect, the executor or administrator
of the estate of such Participant, unless the context otherwise
requires.
<PAGE> 17
16
MERGER, CONSOLIDATION, STOCK DIVIDENDS, ETC.
11.(a) Adjustments. In the event of any merger, consolidation,
reorganization, stock split, stock dividend or other event
affecting Stock, an appropriate adjustment shall be made in the
total number of shares available for Plan Awards and in all other
provisions of the Plan that include a reference to a number of
shares, and in the numbers of shares covered by, and other terms
and provisions of, outstanding Plan Awards.
(b) Committee Determinations. The foregoing adjustments and the manner
of application of the foregoing provisions shall be determined by
the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional share which might
otherwise become subject to a Plan Award.
ACCELERATION OF PAYMENT OR MODIFICATION OF PLAN AWARDS
12. Notwithstanding any other provision of the Plan, the Committee, in
the event of the death of a Participant or in any other
circumstance, may accelerate distribution of any Plan Award in its
entirety or in a reduced amount, in cash or in Stock, or modify any
Plan Award, in each case on such basis and in such manner as the
Committee may determine in its sole discretion.
RIGHTS AS A STOCKHOLDER
13. A Participant shall not have any rights as a stockholder with
respect to any share covered by any Plan Award until such
Participant shall have become the holder of record of such share.
TERM, AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN
14.(a) Term. The Plan shall terminate on May 1, 2000, except with respect
to Plan Awards then outstanding.
(b) Amendment, Modification and Termination. The Board of Directors,
upon recommendation of the Committee, at any time may amend, modify
or terminate the Plan, and the Committee at any time may amend or
modify the Plan; provided, however, that no such action of the
Board of Directors or the Committee, without approval of the
stockholders, may (a) increase the total number of shares of Stock
with respect to which Plan Awards may be granted under the Plan,
(b) extend the term of the Plan as set forth in paragraph (a) of
this Article 14 or (c) permit any person while a member of the
Committee or any committee of the Board of Directors administering
the Plan to be eligible to receive or hold a Plan Award; provided,
however, that neither the Board of Directors nor the Committee may
amend or modify the Plan so as to increase the maximum number of
shares determinable pursuant to the last sentence of paragraph (a)
of Article 3 hereof.
<PAGE> 18
17
INDEMNIFICATION AND EXCULPATION
15.(a) Indemnification. Each person who is or shall have been a member of
the Board of Directors or of the Committee or of any committee of
the Board of Directors administering the Plan or of any committee
appointed by the foregoing committees shall be indemnified and held
harmless by the Company against and from any and all loss, cost,
liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any
claim, action, suit or proceeding to which such person may be or
become a party or in which such person may be or become involved by
reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by such person in
settlement thereof (with the Company's written approval) or paid by
such person in satisfaction of a judgment in any such action, suit
or proceeding, except a judgment in favor of the Company based upon
a finding of such person's lack of good faith; subject, however, to
the condition that, upon the institution of any claim, action, suit
or proceeding against such person, such person shall in writing
give the Company an opportunity, at its own expense, to handle and
defend the same before such person undertakes to handle and defend
it on such person's behalf. The foregoing right of indemnification
shall not be exclusive of any other right to which such person may
be entitled as a matter of law or otherwise, or any power that the
Company may have to indemnify or hold such person harmless.
(b) Exculpation. Each member of the Board of Directors or of the
Committee or of any committee of the Board of Directors
administering the Plan or any committee appointed by the foregoing
committees, and each officer and employee of the Company, shall be
fully justified in relying or acting in good faith upon any
information furnished in connection with the administration of the
Plan by any appropriate person or persons other than such person.
In no event shall any person who is or shall have been a member of
the Board of Directors or of the Committee or of any committee of
the Board of Directors administering the Plan or of any committee
appointed by the foregoing committees, or an officer or employee of
the Company, be held liable for any determination made or other
action taken or any omission to act in reliance upon any such
information, or for any action (including the furnishing of
information) taken or any failure to act, if in good faith.
FINALITY OF DETERMINATIONS
16. Each determination, interpretation, or other action made or taken
pursuant to the provisions of the Plan by the Board of Directors or
the Committee or any committee of the Board of Directors
administering the Plan or any committee appointed by the foregoing
committees shall be final and shall be binding and conclusive for
all purposes and upon all persons, including, but without
limitation thereto, the Company, the stockholders, the Committee
and each of the members thereof, and the directors, officers, and
employees of the Company and its subsidiaries, the Participants,
and their respective successors in interest.
<PAGE> 19
18
AMENDMENTS TO 1990 LONG-TERM INCENTIVE PLAN
(Effective as of March 8, 1995)
(Bold face type identifies the proposed additions)
The third sentence of paragraph (a) of Article 3 of the Plan is hereby amended
to read as follows:
"Notwithstanding the foregoing, (i) the aggregate number of shares that may be
issued upon exercise of "incentive stock options" (as defined in paragraph
(a)(1) of Article 5 hereof) shall not exceed 2% of the number of shares
authorized under the Company's Certificate of Incorporation at the date of
adoption of the Plan (subject to adjustment in accordance with the provisions
of Article 11 hereof) and (ii) the maximum number of shares subject to Options
(as hereinafter defined), with or without any related Stock Appreciation Rights
(as hereinafter defined), that may be granted pursuant to Article 5 hereof to
any Participant during any calendar year during any part of which the Plan is
in effect shall be 2.5% of the maximum number of shares of Stock with respect
to which Plan Awards may be granted during such year under the Plan determined
in accordance with this paragraph (a) of this Article 3, subject to adjustment
in accordance with the provisions of Article 11 hereof."
<PAGE> 20
Attachment
19
AMENDMENT TO 1990 LONG-TERM INCENTIVE PLAN
(Effective as of October 1, 1990)
Article 3 of the Plan is amended by deleting the third sentence of
paragraph (c) thereof.
<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 18, 1996
