<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14(A) INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Associates First Capital Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[ASSOCIATES FIRST CAPITAL CORPORATION LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 6, 1998
TO OUR STOCKHOLDERS:
The annual meeting of stockholders of Associates First Capital Corporation
(the "Company") will be held at the Harvey Hotel, Highway 114 and Esters Road,
Irving, Texas, at 9:00 a.m., Central Daylight Savings Time, on Monday, April 6,
1998, to vote on the following:
1. The election of seven directors of the Company; and
2. The selection by the Audit Committee of Coopers & Lybrand L.L.P. as the
Company's independent public accountants for 1998.
The record date for the meeting, used to determine which stockholders are
entitled to vote at the meeting and receive these materials, is March 13, 1998.
If you plan to attend the meeting, please see the instructions on page 27 of the
proxy statement. If you will need special assistance at the meeting because of a
disability, please notify the Office of the General Counsel, P.O. Box 660237,
Dallas, Texas 75266-0237.
By Order of the Board of Directors,
/s/ C. Longenecker
Chester D. Longenecker
Secretary
Irving, Texas
March 18, 1998
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD
<PAGE> 3
TERMS USED
"401(k) Plan" means the Associates Savings and Profit-Sharing Plan.
"Amended and Restated Tax-Sharing Agreement" means the tax-sharing
agreement between the Company and Ford, which is described beginning on page 10
of this proxy statement.
"Annual Meeting" means the annual meeting of stockholders of the Company,
which will be held on April 6, 1998.
"Annual Report" means the Company's annual report to stockholders for the
year ended December 31, 1997.
"Board of Directors" means the board of directors of the Company.
"CAPP" means corporate annual performance pay, which is described beginning
on page 13 of this proxy statement.
"Class A Common Stock" or "Shares" means the Company's Class A Common
Stock, par value $.01 per share.
"Class B Common Stock" means the Company's Class B Common Stock, par value
$.01 per share.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" or "we" or "us" means Associates First Capital Corporation.
"Corporate Agreement" means the corporate agreement between the Company and
Ford, which is described beginning on page 9 of this proxy statement.
"EBP" means the Company's Excess Benefit Plan, which is described beginning
on page 21 of this proxy statement.
"EDP" means the Company's Equity Deferral Plan, which is described
beginning on page 15 of this proxy statement.
"Ford" means Ford Motor Company.
"Ford Common Stock" means Ford's common stock, par value $1.00 per share.
"Ford FSG" means Ford FSG, Inc., a wholly owned, indirect subsidiary of
Ford.
"Ford Holdings" means Ford Holdings, Inc., a wholly owned, indirect
subsidiary of Ford.
"ICP" or "Incentive Compensation Plan" means the Company's Incentive
Compensation Plan, which is described beginning on page 13 of this proxy
statement.
"IPO" means the initial public offering of the Class A Common Stock, which
occurred in May 1996.
"LTPP" means the Company's Long-Term Performance Plan, which is described
beginning on page 14 of this proxy statement.
"Named Executive Officers" means the Chief Executive Officer and the four
other most highly compensated executive officers of the Company as of December
31, 1997.
"NQSOs" means nonqualified stock options.
"NYSE" means the New York Stock Exchange.
"Pension Plan" means the Company's Pension Plan, which is described
beginning on page 21 of this proxy statement.
"PSARs" means phantom stock appreciation rights.
"PSAR Plan" means the Company's Phantom Stock Appreciation Right Plan,
which is described beginning on page 15 of this proxy statement.
<PAGE> 4
"Record Date" means March 13, 1998, the date established by the Board of
Directors for determining the stockholders of the Company entitled to vote at
the Annual Meeting.
"SEC" means the United States Securities and Exchange Commission.
"Spin Off" means the distribution of Ford's interest in the Company to
Ford's stockholders, as described beginning on page 12 of this proxy statement.
"SRIP" means the Company's Supplemental Retirement Income Plan, which is
described beginning on page 21 of this proxy statement.
"Stock Option" means the option to purchase capital stock of the Company
granted to Ford pursuant to the Corporate Agreement.
"Voting Stock" means the Class A Common Stock and the Class B Common Stock.
<PAGE> 5
ASSOCIATES FIRST CAPITAL CORPORATION
PROXY STATEMENT
The Board of Directors is soliciting proxies to be used at your Annual
Meeting, which will be held at the Harvey Hotel, Highway 114 and Esters Road,
Irving, Texas, at 9:00 a.m., Central Daylight Savings Time, on Monday, April 6,
1998. This proxy statement, the enclosed form of proxy and the Annual Report are
being mailed to you beginning March 18, 1998. The Annual Report does not
constitute a part of the proxy solicitation materials. Our mailing address is
P.O. Box 660237, Dallas, Texas 75266-0237.
Holders of record of Class A Common Stock and holders of record of Class B
Common Stock on the Record Date may vote at the Annual Meeting. On the Record
Date, 90,710,938 shares of Class A Common Stock and 255,881,180 shares of Class
B Common Stock were outstanding and entitled to vote at the Annual Meeting. No
other voting securities of the Company were outstanding. Each stockholder is
entitled to one vote for each share of Class A Common Stock and five votes for
each share of Class B Common Stock held on the Record Date. Holders of Class A
Common Stock and Class B Common Stock vote together without regard to class on
the matters that will come before the Annual Meeting.
If you return your executed proxy in time to permit its review and count,
your shares will be voted as you direct. You can specify whether shares
represented by the proxy are to be voted for the election of all nominees for
director or are to be withheld from some or all of them. You also can specify
approval, disapproval or abstention as to the selection of independent public
accountants.
IF YOUR PROXY CARD DOES NOT SPECIFY HOW YOU WANT TO VOTE YOUR SHARES, THEY
WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTOR, AS SET FORTH
UNDER "ELECTION OF DIRECTORS" BELOW, AND "FOR" THE SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANTS.
You may revoke your proxy at any time before it is exercised by written
notice to the Secretary, by timely submission of a properly executed later-dated
proxy or by voting in person at the Annual Meeting.
The election of directors requires a plurality of the votes that could be
cast by stockholders who are present in person or represented by proxy at the
Annual Meeting. The approval of the selection of independent public accountants
requires a majority of the votes that could be cast by stockholders who are
present in person or represented by proxy at the Annual Meeting.
The total number of votes that could be cast at the Annual Meeting is the
sum of votes cast and abstentions. Abstentions are counted as "shares present"
at the Annual Meeting for purposes of determining the presence of a quorum and
have the effect of a vote "against" any matter as to which they are specified.
Proxies submitted by brokers that do not indicate a vote for either or both of
the Items (so-called "broker nonvotes") are not considered "shares present" and
will not affect the outcome of the vote.
We do not know of any other matter to be presented at the Annual Meeting.
Under the Company's by-laws, no business other than that stated in the notice of
Annual Meeting may be transacted at the Annual Meeting. If any other matter is
presented at the Annual Meeting on which a vote properly may be taken, the
shares represented by proxies in the accompanying form will be voted in
accordance with the judgment of the person or persons voting those shares.
<PAGE> 6
ITEM 1.
ELECTION OF DIRECTORS
Seven directors will be elected at the Annual Meeting. All current board
members other than John M. Devine and Kenneth Whipple have been nominated for
reelection. Messrs. Devine and Whipple have elected not to stand for reelection
to the Board of Directors and will serve only until the date of the Annual
Meeting. Each director elected at the Annual Meeting will serve until the next
annual meeting of the stockholders or until he or she is succeeded by another
qualified director who has been elected.
We will vote your shares for the election of all the nominees named below,
unless you give a different direction on the proxy form. If unforeseen
circumstances (for example, death or disability) make it necessary for the Board
of Directors to substitute another person for any of the nominees, your shares
will be voted for that other person.
Each of the nominees is now a member of the Board of Directors. More
information on the nominees is provided below. This information has been given
to the Company by the nominees.
The Board of Directors met four times in 1997.
NOMINEES
<TABLE>
<S> <C>
KEITH W. HUGHES
Age: 51
Director Since: November 1988
Principal Occupation: Chairman of the Board and Chief Executive Officer of the
Company
Business Experience: Mr. Hughes has served as Chairman of the Board and Chief
Executive Officer of the Company since February 1995. He
served as President of the Company from August 1991 until
February 1995.
Other Directorships: Mr. Hughes is also a director of VISA USA, Inc. and VISA
International Service Association.
J. CARTER BACOT
Age: 65
Director Since: August 1996
Principal Occupation: Retired Chairman and Chief Executive Officer of The Bank of
New York Company, Inc.
Business Experience: Mr. Bacot served as Chairman and Chief Executive Officer of
The Bank of New York Company, Inc. from January 1982 to
February 1998.
Other Directorships: Mr. Bacot is also a director of Time Warner, Inc. and
Woolworth Corporation.
ERIC S. DOBKIN
Age: 55
Director Since: February 1998
Principal Occupation: Managing Director of Goldman, Sachs & Co.
Business Experience: Mr. Dobkin has been a Managing Director of Goldman, Sachs &
Co. since November 1996 and was a partner with Goldman,
Sachs & Co. from November 1982 until November 1996.
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
ROY A. GUTHRIE
Age: 44
Director Since: February 1998
Principal Occupation: Senior Executive Vice President and Chief Financial Officer
of the Company
Business Experience: Mr. Guthrie has been a Senior Executive Vice President of
the Company since February 1998 and Chief Financial
Officer since May 1996. He served as an Executive Vice
President from June 1995 until February 1998, as Senior
Vice President, Comptroller and Chief Accounting Officer
of the Company from December 1991 until June 1995 and as a
director from June 1995 until July 1996.
WILLIAM M. ISAAC
Age: 54
Director Since: February 1998
Principal Occupation: Chairman of The Secura Group and Secura/Burnett Partners
Business Experience: Mr. Isaac has been Chairman of The Secura Group since 1986.
He served as Chairman of the Federal Deposit Insurance
Corporation from 1981 until 1985.
Other Directorships: Mr. Isaac is also a director of Kistler Aerospace.
HAROLD D. MARSHALL
Age: 61
Director Since: November 1988
Principal Occupation: President and Chief Operating Officer of the Company
Business Experience: Mr. Marshall has served as President and Chief Operating
Officer of the Company since May 1996. He served as Vice
Chairman of the Company from November 1988 until May 1996.
H. JAMES TOFFEY, JR.
Age: 67
Director Since: August 1996
Principal Occupation: Retired Managing Director of First Boston, Inc.
Business Experience: Mr. Toffey served as a Managing Director of First Boston,
Inc. from 1978 until his retirement in 1986, and was a
director of First Boston, Inc. from 1984 until 1988.
</TABLE>
3
<PAGE> 8
<TABLE>
<S> <C>
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
Number of Members: 2
Members in 1997: J. Carter Bacot (Chairman)
H. James Toffey, Jr.
Number of Meetings in 1997: 4
Functions: Selects independent public accountants to audit the books of
account and other records of the Company, subject to
ratification by stockholders; consults with such
accountants and reviews and approves the scope of their
audit; reviews internal controls, accounting practices,
financial structure and financial reporting; and reports
to the Board of Directors as appropriate regarding these
consultations and reviews.
Members in 1998: Effective as of February 13, 1998, the following directors
were appointed as additional members of the Audit
Committee: Eric S. Dobkin and William M. Isaac.
COMPENSATION COMMITTEE
Number of Members: 2
Members in 1997: H. James Toffey, Jr. (Chairman)
J. Carter Bacot
Number of Meetings in 1997: 4
Functions: Considers and approves salaries, bonuses and stock-based
compensation for the Company's executive officers;
administers and makes awards under the Incentive
Compensation Plan; considers and makes recommendations on
the Company's executive compensation program.
Members in 1998: Effective as of February 13, 1998, the following director
was appointed as a member of the Compensation Committee:
William M. Isaac. Mr. Bacot resigned from the Compensation
Committee effective as of February 13, 1998.
</TABLE>
4
<PAGE> 9
<TABLE>
<S> <C>
NOMINATING COMMITTEE
Number of Members: 5
Members in 1997: Keith W. Hughes (Chairman)
J. Carter Bacot
John M. Devine
H. James Toffey, Jr.
Kenneth Whipple
Number of Meetings in 1997: 1
Functions: Makes recommendations on the management organization of the
Company, nominations for elections of directors and
officers of the Company, the size and composition of the
Board of Directors and the appointments of other employees
of the Company; considers stockholder suggestions for
nominees for director other than self-nomination
suggestions. Suggestions for consideration by the
Nominating Committee may be submitted to the Secretary of
the Company, P.O. Box 660237, Dallas, Texas 75266-0237.
The Nominating Committee will consider suggestions
received by the Secretary of the Company before December
31 at a regular meeting of the Nominating Committee during
the following year and before proxy materials are mailed
to stockholders.
Members in 1998: Effective as of February 13, 1998, the Board of Directors
reconstituted the Nominating Committee with the following
members: Keith W. Hughes (Chairman), J. Carter Bacot and
H. James Toffey, Jr.
</TABLE>
On February 12, 1998, the Board of Directors established the following
additional committee:
<TABLE>
<S> <C>
FINANCE COMMITTEE
Number of Members: 2
Functions: Makes recommendations on the Company's funding requirements
and sources, capital adequacy and asset and liability
management.
Members in 1998: Eric S. Dobkin (Chairman)
J. Carter Bacot
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES NAMED ABOVE.
5
<PAGE> 10
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF MANAGEMENT
The table below shows, as of December 31, 1997, the number of shares of
Class A Common Stock and Ford Common Stock beneficially owned by each director,
nominee and Named Executive Officer, and by the directors and executive officers
of the Company as a group. No director, nominee or Named Executive Officer
beneficially owned 1% or more of the total outstanding Class A Common Stock or
Ford Common Stock. As a group, the directors and executive officers (including
the Named Executive Officers) beneficially owned less than 1% of the total
outstanding Class A Common Stock and less than 1% of the total outstanding Ford
Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
--------------------------------------------------------
CLASS A COMMON STOCK FORD COMMON STOCK(1)
------------------------- ----------------------------
NAME OF UNRESTRICTED RESTRICTED UNRESTRICTED RESTRICTED
BENEFICIAL OWNER SHARES SHARES(2) SHARES SHARES(3)
---------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Keith W. Hughes............................. 7,848.03(4) 51,730 3,721(5) 0
J. Carter Bacot............................. 1,000 0 0 0
John M. Devine.............................. 1,000 0 15,972(6) 12,000
Eric S. Dobkin.............................. 0(7) 0 0(7) 0
Roy A. Guthrie.............................. 2,500(8) 8,110 0 0
William M. Isaac............................ 0(9) 0 0 0
Harold D. Marshall.......................... 6,900(10) 17,250 200 0
H. James Toffey, Jr. ....................... 3,000 0 15,000 0
Kenneth Whipple............................. 15,000 0 67,192(11) 314,313
Wilfred Y. Horie............................ 1,000(12) 6,130 1,500 0
Lawrence J. Pelka........................... 5,000(13) 6,130 5,000 0
Joseph N. Scarpinato........................ 3,000(14) 6,130 0 0
All directors and executive officers as a
group (20 persons)........................ 70,041.1(15) 121,870 117,553 326,313
</TABLE>
- ---------------
(1) The following individuals have currently exercisable options to acquire
shares of Ford Common Stock through the exercise of options awarded under
Ford's 1990 Long-Term Incentive Plan as follows: Mr. Hughes -- 11,250
shares; Mr. Devine -- 205,000 shares; Mr. Marshall -- 7,500 shares; and Mr.
Whipple -- 342,250 shares.
(2) Awarded under the ICP and subject to restrictions as described in the
Report from the Compensation Committee Regarding Executive Compensation
beginning on page 13 of this proxy statement.
(3) Includes shares awarded under Ford's 1990 Long-Term Incentive Plan and
shares contingently credited under Ford's Supplemental Compensation Plan.
(4) Includes units in the Associates Stock Fund credited to Mr. Hughes under
the 401(k) Plan, representing approximately 2,595.60 shares of Class A
Common Stock. The Security Ownership of Management table does not include
(a) a deemed investment in 30,213.9099 shares of Class A Common Stock
pursuant to the Company's various nonqualified deferred compensation plans
or (b) options to acquire 344,900 shares of Class A Common Stock pursuant
to the ICP, 31,596 of which had vested as of December 31, 1997.
(5) Includes units in the Ford Stock Fund credited to Mr. Hughes under the
401(k) Plan, representing approximately 8,456.62 shares of Ford Common
Stock.
(6) Includes units in the Ford Stock Fund credited to Mr. Devine under Ford's
Savings and Stock Investment Plan, representing approximately 13,722 shares
of Ford Common Stock.
(7) Mr. Dobkin was elected as a director of the Company effective as of
February 13, 1998, and, as of March 1, 1998, owned 2,000 shares of Class A
Common Stock. The Security Ownership of Management table does not include
shares of Class A Common Stock or Ford Common Stock held by Goldman, Sachs
& Co. in the ordinary course of business.
(8) The Security Ownership of Management table does not include (a) a deemed
investment in 5,179.9915 shares of Class A Common Stock pursuant to the
Company's various nonqualified deferred compensation plans or (b) options
to acquire 59,840 shares of Class A Common Stock pursuant to the ICP, 5,746
of which had vested as of December 31, 1997.
(9) Mr. Isaac was elected as a director effective as of February 13, 1998, and,
as of March 1, 1998, owned 2,000 shares of Class A Common Stock.
6
<PAGE> 11
(10) The Security Ownership of Management table does not include (a) a deemed
investment in 11,222.1238 shares of Class A Common Stock pursuant to the
Company's various nonqualified deferred compensation plans or (b) options
to acquire 131,180 shares of Class A Common Stock pursuant to the ICP,
11,490 of which had vested as of December 31, 1997.
(11) Includes units in the Ford Stock Fund credited to Mr. Whipple under Ford's
Savings and Stock Investment Plan, representing approximately 1,526 shares
of Ford Common Stock.
(12) The Security Ownership of Management table does not include (a) a deemed
investment in 481.8215 shares of Class A Common Stock pursuant to the
Company's various nonqualified deferred compensation plans or (b) options
to acquire 49,400 shares of Class A Common Stock pursuant to the ICP, 5,173
of which had vested as of December 31, 1997.
(13) The Security Ownership of Management table does not include (a) a deemed
investment in 5,093.1175 shares of Class A Common Stock pursuant to the
Company's various nonqualified deferred compensation plans or (b) options
to acquire 48,400 shares of Class A Common Stock pursuant to the ICP, 5,173
of which had vested as of December 31, 1997.
(14) The Security Ownership of Management table does not include (a) a deemed
investment in 6,042.6808 shares of Class A Common Stock pursuant to the
Company's various nonqualified deferred compensation plans or (b) options
to acquire 48,400 shares of Class A Common Stock pursuant to the ICP, 5,173
of which had vested as of December 31, 1997.
(15) Includes units in the Associates Stock Fund credited under the 401(k) Plan,
representing approximately 6,021.57 shares of Class A Common Stock. The
Security Ownership of Management Table does not include (a) a deemed
investment in 77,742.8737 shares of Class A Common Stock pursuant to the
Company's various nonqualified deferred compensation plans or (b) options
to purchase an aggregate of approximately 876,920 shares of Class A Common
Stock held by the directors and executive officers pursuant to the ICP,
80,099 of which had vested as of December 31, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's records and other information, the Company believes
that all SEC filing requirements applicable to its directors and officers for
1997 and prior fiscal years were complied with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below shows, as of December 31, 1997, the name and address of
each person known to the Company that beneficially owns in excess of 5% of any
class of Voting Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
------------------------------------------
SOLE
NAME AND ADDRESS SOLE VOTING INVESTMENT PERCENT
TITLE OF CLASS OF STOCK OF BENEFICIAL OWNER POWER POWER OF CLASS
----------------------- -------------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Class A Common Stock............................ Ford Motor Company 23,603,669 23,603,669 26%(1)
The American Road
Dearborn, Michigan
48121-1899
Class A Common Stock............................ FMR Corp. 342,800(2) 6,791,300(2) 7.5%(2)
82 Devonshire Street
Boston,
Massachusetts
02109
Class A Common Stock............................ Edward C. Johnson 3d 0 6,791,300(2) 7.5%(2)
82 Devonshire Street
Boston,
Massachusetts
02109
Class A Common Stock............................ Abigail P. Johnson 0 6,791,300(2) 7.5%(2)
82 Devonshire Street
Boston,
Massachusetts
02109
Class B Common Stock............................ Ford Motor Company 255,881,180 255,881,180 100%(1)
The American Road
Dearborn, Michigan
48121-1899
</TABLE>
- ---------------
(1) The Class A Common Stock and Class B Common Stock will be voted as a single
class at the Annual Meeting for purposes of the Items set forth in this
proxy statement. Because the holder of the Class B Common Stock is entitled
to five votes per share, Ford holds 95.1% of the aggregate voting power of
the Class A Common Stock and Class B Common Stock. Ford intends to
distribute its interest in the Company on April 7, 1998, to Ford
stockholders of record as of March 12, 1998. See "Certain Relationships and
Related Transactions -- Initial Public Offering and Spin Off."
7
<PAGE> 12
(2) Based on Schedule 13G, dated February 14, 1998, which indicates that (a)
Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp. and an investment adviser registered under Section
203 of the Investment Advisers Act of 1940, is the beneficial owner of
6,247,300 shares of Class A Common Stock as a result of acting as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940, (b) Edward C. Johnson 3d and FMR Corp.,
through its control of Fidelity and the funds described above, each has sole
power to dispose of the 6,247,300 shares of Class A Common Stock owned by
such funds, (c) neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR
Corp., has the sole power to vote or direct the voting of shares owned
directly by the funds described above, which power resides with the funds'
boards of trustees; Fidelity carries out the voting of such shares under
written guidelines established by the funds' boards of trustees, (d)
Fidelity Management Trust Company, a wholly owned subsidiary of FMR Corp.
and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of
1934, is the beneficial owner of 544,000 shares of Class A Common Stock as a
result of its serving as investment manager of the institutional account(s),
(e) Edward C. Johnson 3d and FMR Corp., through its control of Fidelity
Management Trust Company, each has sole dispositive power over 544,000
shares of Class A Common Stock, sole power to vote or direct the voting of
342,800 shares of Class A Common Stock and no power to vote or direct the
voting of 201,200 shares of Class A Common Stock owned by institutional
account(s), as described above, and (f) members of the Edward C. Johnson 3d
family and trusts for their benefit are the predominant owners of Class B
shares of common stock of FMR Corp., representing approximately 49% of the
voting power of FMR Corp. Mr. Johnson 3d owns 12% and Abigail Johnson owns
24.5% of the aggregate voting stock of FMR Corp. Mr. Johnson 3d is the
Chairman of FMR Corp. and Abigail Johnson is a director of FMR Corp. The
Johnson family group and all other Class B shareholders of FMR Corp. have
entered into a shareholders' voting agreement under which all such Class B
shares will be voted in accordance with the majority of such Class B shares.
Accordingly, through their ownership of voting common stock and the
execution of the shareholders' voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR Corp.
8
<PAGE> 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH FORD
As of the date of this proxy statement, Ford beneficially owned
approximately 26% of the outstanding Class A Common Stock and 100% of the
outstanding Class B Common Stock (which Class B Common Stock is entitled to five
votes per share on any matter submitted to a vote of the Company's
stockholders). The Voting Stock beneficially owned by Ford represented in the
aggregate 95.1% of the combined voting power of all of the outstanding Voting
Stock. For as long as Ford continues to beneficially own shares of Voting Stock
representing more than 50% of the combined voting power of the Voting Stock,
Ford will be able to direct the election of all of the members of the 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 Voting Stock or other equity securities and the
payment of dividends with respect to Voting 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. Ford intends to distribute its interest in the
Company on April 7, 1998, to Ford stockholders of record as of March 12, 1998.
See "Initial Public Offering and Spin Off."
In addition, by virtue of its controlling beneficial ownership and the
terms of the Amended and Restated Tax-Sharing Agreement between the Company and
Ford, Ford effectively controls all of the Company's tax decisions, and
conflicts of interest regarding tax matters between the Company and Ford may
arise.
Certain agreements, relationships and transactions between the Company and
Ford are described below.
CORPORATE AGREEMENT
The Company and Ford have entered into a Corporate Agreement under which
the Company granted to Ford a continuing Stock 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 may be exercised (i) simultaneously with the issuance of any equity
security of the Company, (ii) 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 (iii) 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 Voting Stock in the Company to less than 45% of the
outstanding shares of Voting Stock.
The Corporate Agreement further provides that, upon the request of Ford,
the Company will use its best efforts to effect the registration under
applicable federal and state securities laws of any of the shares of Voting
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 of the shares, and will take any
other actions that are necessary to permit the sale of the shares in other
jurisdictions, subject to certain specified limitations. Ford also has the
right, which, subject to certain limitations, it may exercise at any time and
from time to time, to include the shares of Voting 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 has agreed 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, these registration rights are assignable
by Ford and its assigns. The Corporate Agreement contains 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
9
<PAGE> 14
of Ford, the other persons entitled to effect registrations of Voting Stock (and
other securities) pursuant to the terms of the Corporate Agreement and related
persons.
The Corporate Agreement also provides that for so long as Ford maintains
beneficial ownership of a majority of the outstanding shares of Voting 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' or Ford FSG's certificates of incorporation or by-laws;
(iii) any credit agreement or other material instrument binding upon Ford, Ford
Holdings or Ford FSG or any of their respective assets; or (iv) any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over Ford, Ford Holdings or Ford FSG or any of their respective assets.
The Corporate Agreement provides that the Company will enter into a similar
agreement for the benefit of any transferee of the Class B Common Stock.
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 Ford Consumer Finance Company,
Inc., an indirect subsidiary of the Company, 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 Voting Stock. Within 90 days following termination of the agreement,
the Company must cease using Ford's name and trademark; provided that it will
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 two years of the date of termination. The Company has agreed to pay
to Ford an annual royalty for the license in an amount equal to 0.01% of the
Company's total domestic assets at December 31 of each year. Such payment was
approximately $4.3 million for 1997.
AMENDED AND RESTATED TAX-SHARING AGREEMENT
The Company will continue to be included in Ford's federal consolidated
income tax group until the completion of the Spin Off, and the Company's federal
income tax liability will be included in the consolidated federal income tax
liability of Ford and its subsidiaries for periods ending on or prior to the
completion of the Spin Off. In certain circumstances, certain of the Company's
subsidiaries will also continue to be included with certain Ford subsidiaries in
combined, consolidated or unitary income tax groups for state and local tax
purposes until the completion of the Spin Off.
Pursuant to an Amended and Restated Tax-Sharing Agreement, the Company and
Ford 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, is
determined as though the Company filed 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 affiliated 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 foreign tax
credits, however, the Company's right to reimbursement is determined based on
the usage of such foreign tax credits.
The amount of tax-sharing payments under the Amended and Restated
Tax-Sharing Agreement are computed on the basis of the same positions and
elections used by Ford in preparing the returns for Ford's consolidated group
and other applicable groups. Ford has 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,
10
<PAGE> 15
consolidated or unitary group), is the sole and exclusive agent for the Company
in any and all matters relating to the income, franchise and similar liabilities
of the Company, has 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 generally has the power, subject to
certain rights of the Company, 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 connection with the Spin Off, the Company and Ford have agreed in the
Amended and Restated Tax-Sharing Agreement to settle, as between them, (i) all
liabilities for taxes through the year ending December 31, 1996 (subject to
adjustment by the relevant taxing authority), (ii) all amounts payable by Ford
to the Company in respect of foreign tax credits through the year ending
December 31, 1997, and (iii) all offsets claimed by Ford in respect of certain
foreign taxes that were reflected in Ford's consolidated financial statements
for periods prior to May 6, 1996. In connection with such settlement, the
Company will make a net payment to Ford of $22.4 million. However, under the
Amended and Restated Tax-Sharing Agreement, the Company may be required to make
payments to Ford as a result of a redetermination of tax liabilities by a taxing
authority following the completion of the Spin Off.
While the Spin Off is expected to be tax free for U.S. federal income tax
purposes, the Amended and Restated Tax-Sharing Agreement also allocates
liability between Ford and the Company in the event of a determination by a
taxing authority that the Spin Off is taxable. In that event, the Company is
responsible for all corporate taxes imposed upon Ford or a Ford affiliate (but
not taxes imposed upon Ford shareholders) (i) that are attributable to or result
from any act, or failure to act, by the Company or its affiliates that is
inconsistent with any information or representation contained in documents
relating to a tax ruling received by Ford in connection with the Spin Off or any
document submitted in connection therewith, (ii) if any taxing authority
withdraws any portion of a tax ruling issued to Ford in connection with the Spin
Off because any information relating to the Company or an affiliate contained in
such ruling or any document submitted in connection therewith is not true,
correct and complete in all material respects or (iii) that are attributable to
an acquisition of stock or assets of the Company or an affiliate.
Following the completion of the Spin Off, the Company will no longer be
included in Ford's consolidated group for federal income tax purposes. However,
because 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,
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
for any period while the Company was a member of Ford's consolidated group for
federal income tax purposes. At December 31, 1997, the Company's current income
taxes payable to Ford were approximately $24.7 million.
MANAGEMENT SERVICES AGREEMENT
Ford has provided 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 is 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 will
terminate automatically. Following any termination of the management services
agreement, the Company will remain liable for any retroactive
11
<PAGE> 16
insurance premium adjustment for the periods during which the Company
participated in Ford's insurance programs. The Company paid approximately $3.6
million in fees for such services in 1997.
OTHER SERVICES
The Company also provides relocation services to Ford and, through its auto
club operations, administers Ford's roadside assistance program. Ford is the
Company's largest corporate client for relocation services and roadside
assistance services. Revenue related to these services was approximately $36.0
million in 1997. In addition, the Company operates a computer system that
supports the term-funding operations of a Ford subsidiary.
INITIAL PUBLIC OFFERING AND SPIN OFF
On May 8, 1996, the Company made an initial public offering of 67 million
shares of its Class A Common Stock, representing a 19.3 percent interest in the
Company. Since the IPO, Ford has continued to own a controlling interest in the
Company's Voting Stock. Ford intends to distribute its interest in the Company
in the form of a dividend, consisting of the Company's Class A Common Stock, to
Ford's stockholders. On March 2, 1998, Ford's board of directors declared a
dividend payable on April 7, 1998, to Ford stockholders of record as of March
12, 1998. Immediately before the dividend, Ford will convert all of its shares
of Class B Common Stock into Class A Common Stock and distribute 279,484,849
shares of Class A Common Stock. Each Ford stockholder will receive one share of
Class A Common Stock for approximately every 3.82 shares of Ford Common Stock
held as of March 12, 1998. Simultaneously with the Spin Off, the Corporate
Agreement, the trademark license agreement and the management services agreement
will terminate in accordance with their respective terms. Following the Spin
Off, the Company will no longer be a subsidiary of Ford.
ACQUISITION OF RECEIVABLES FROM THE BANK OF NEW YORK
In March 1997, the Company purchased approximately $800 million in credit
card receivables from The Bank of New York. See "Compensation of Directors and
Executive Officers -- Compensation Committee Interlocks and Insider
Participation" on page 16 of this proxy statement.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Directors who did not receive compensation as officers or employees of the
Company or any of its affiliates (Messrs. Bacot and Toffey) were paid in 1997 an
annual membership fee of $25,000, an attendance fee of $1,000 for each meeting
of the Board of Directors the directors attended and an annual membership fee of
$5,000 for service on each of the Audit Committee and the Compensation
Committee. The Company did not pay in 1997 any additional compensation to
directors who received compensation as officers or employees of the Company or
any of its affiliates.
Under the Company's Deferred Compensation Plan for Non-Employee Directors,
as in effect for 1997, non-employee directors could make irrevocable elections
to defer all or part of 1997's annual membership fee, attendance fees and
committee membership fees. Deferred amounts were deemed invested as each
director elected among available investment measures. Each director's account
was adjusted at least quarterly to reflect changes in the underlying investment
measures, but no actual investments were made. Deferred amounts are held in the
general funds of the Company, and each director's account is payable in cash,
generally after the director's service on the Board of Directors ends. Each
director has the option to receive payment of his or her account in a lump sum
or in annual installments over a period of up to 15 years.
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<PAGE> 17
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Company's executive compensation program provides salary and incentive
and stock-based compensation to the Named Executive Officers and other
executives of the Company and its subsidiaries. Since its organization in April
1996 in connection with the IPO, the Compensation Committee has reviewed the
Company's overall executive compensation program, considered the Company's
recommendations as to compensation for the executive officers and approved such
compensation for the executive officers as furthering stockholder interests.
The Compensation Committee has prepared this report to provide an overview
of the Company's executive compensation program. This report includes a
discussion of the relationship of the Company's performance to executive
officers' compensation and the factors and criteria considered in determining
the Chief Executive Officer's compensation for 1997. No current member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its affiliates. The members of the Compensation Committee for 1997
were elected effective August 1, 1996.
The Compensation Committee has adopted an executive compensation program
designed to attract, retain and reward exceptional executives by compensating
superior performance in a manner competitive with that of other well-managed
organizations in the financial services industry and in general industry. The
executive compensation program is designed also to link executives' interests
with stockholders' interests by emphasizing equity-based and other incentive
compensation.
The Company's executive compensation program has been developed with input
from an independent compensation consulting firm, including a report prepared
every two years (in 1991, 1993, 1995 and 1997) by the consulting firm that
compares the Company's executive compensation to the compensation paid to
corresponding officers of a number of diversified financial services
organizations within the Company's industry. For 1997, the consulting firm
compared the Company to 22 other organizations. Organizations selected by the
consulting firm were money center and large regional banks and nationally
diversified financial institutions with assets comparable in amount to those
managed by the Company, which include some, but not all, of the organizations
used in developing the Company's performance graph shown in the "Comparative
Stock Performance" section on page 25 of this proxy statement.
INCENTIVE COMPENSATION
The Company's executive compensation program emphasizes performance, both
by the individual and by the Company. Although each executive receives a salary
competitive within the industry, the amount of each executive's compensation in
any year depends significantly upon awards of incentive compensation. The
Company pays annual and long-term incentive compensation awards from incentive
pools, the size of each of which depends on whether and the degree to which the
Company's profits meet or exceed target levels established for each fiscal year.
The amount of each executive's incentive compensation award relative to other
executives' awards depends largely on each executive's individual performance
for the year. The Company's incentive compensation plans are as follows:
Incentive Compensation Plan. The Company rewards performance by executives,
including each Named Executive Officer, by payment of annual cash bonuses
(called "corporate annual performance pay" or "CAPP" bonuses) under the ICP. The
Company pays CAPP bonuses each year from one of two incentive pools, one of
which funds CAPP bonuses for the Named Executive Officers only and the other of
which funds CAPP bonuses for other executives. Within the first 90 days of each
fiscal year, the Compensation Committee approves performance targets for the
Company's profitability for the year. The size of each incentive pool is
determined by a formula that takes into account the degree to which the Company
meets or exceeds those performance targets, subject to a specified maximum
profit level that may be taken into account. For the Named Executive Officers,
the Compensation Committee specifies, at the same time as it sets the
performance targets for the year, the percentage of the incentive pool that may
be paid to each individual. At the end of the fiscal year, the Compensation
Committee reviews each Named Executive
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<PAGE> 18
Officer's performance for the year and may adjust the CAPP bonus generated by
formula downward if the Compensation Committee considers an adjustment
appropriate. Also at the end of the fiscal year, the Compensation Committee
reviews the Company's recommendations as to CAPP bonuses for all other
executives and determines the amount of CAPP bonuses payable to the executives,
taking into account the Company's and the individuals' performances during the
fiscal year.
Long-Term Performance Plan. The Company also rewards performance by certain
executives of the Company, including each Named Executive Officer, by payment of
annual cash bonuses under the LTPP. Annual target profit levels for the LTPP are
the same as used to determine CAPP bonuses under the ICP, but a higher maximum
profit level may be considered under the LTPP. The Company funds the LTPP
incentive pool based on the Company's performance over a four-year period,
instead of only one year as used for CAPP bonuses. To fund the LTPP incentive
pool, the Company applies a formula that takes into account the Company's
overall success in meeting or exceeding the LTPP target levels over the
four-year performance period. Once the size of the LTPP pool is determined by
formula, the Company evaluates the performance of each executive eligible for an
LTPP bonus. The Compensation Committee reviews and approves LTPP bonuses for
executive officers of the Company, taking into account the Company's and
individual's performance during the applicable performance period.
EQUITY-BASED COMPENSATION
The Company further links executives' interests with stockholders'
interests by emphasizing equity-based compensation. All executives are eligible
for stock option awards each year, and certain key executives, including the
Named Executive Officers, have received awards of restricted stock. In addition,
the Company has implemented stock ownership guidelines for executives. The
Company also provides under the 401(k) Plan an investment option that invests
principally in Class A Common Stock. Finally, the Company includes Class A
Common Stock as a deemed investment measure under all of the Company's
nonqualified deferred compensation plans. The Company's equity-based
compensation programs are summarized as follows:
Incentive Compensation Plan. The ICP provides for awards of incentive stock
options, NQSOs, performance shares, restricted stock and stock appreciation
rights, all based on shares of Class A Common Stock. (The ICP also permits
awards of performance units, which are not necessarily based on shares of Class
A Common Stock. No awards of performance units have been made.) While the amount
of an award under the ICP reflects and rewards an individual's performance with
the Company, the equity-based nature of most such awards makes their long-term
value dependent upon the performance of the Class A Common Stock. The
Compensation Committee administers the ICP and has discretion as to the
recipients, type, amount, terms and conditions of such awards, subject to the
terms of the ICP. Awards may be made to any of the Company's salaried employees
or officers, including the Named Executive Officers and other executive
officers, and reflect each individual's ongoing performance. During 1997,the
Compensation Committee awarded restricted Class A Common Stock to a number of
key executives and NQSOs to purchase Class A Common Stock to a much broader
group of officers and salaried employees of the Company and its subsidiaries.
Restrictions on transferability of the restricted stock generally lapse after
five years, assuming continued employment; the NQSOs vest over periods from
three to five years, depending on the terms of each award.
Stock Ownership Guidelines. To encourage and further emphasize integrating
executives' interests with those of the Company's stockholders, the Compensation
Committee has approved Class A Common Stock ownership guidelines for the Named
Executive Officers and certain other executives of the Company. The Chief
Executive Officer is required to meet minimum ownership levels of Class A Common
Stock with an estimated market value at least equal to three times the Chief
Executive Officer's annual base salary. The President is required to meet value
guidelines equal to two times annual base salary. The other Named Executive
Officers are required to meet value guidelines equal to annual base salary. In
addition to Class A Common Stock purchased directly by executives in the open
market or obtained through exercises of incentive stock options, NQSOs or stock
appreciation rights or by awards of restricted stock under the ICP, executives
may satisfy the value guidelines through investments in Class A Common Stock
under the 401(k)
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<PAGE> 19
Plan and deemed investments in Class A Common Stock under the Company's
nonqualified deferred compensation plans.
Equity Deferral Plan. Before the IPO, the Company traditionally sought to
link executives' compensation with the Company's long-term performance through
awards of PSARs under the PSAR Plan. In preparation for the IPO, the Company
terminated the PSAR Plan effective December 31, 1995, and cashed out all
employees' interests. To preserve and emphasize the connection between certain
key executives' compensation and the Company's long-term performance, the
Company required the Named Executive Officers and 15 other executives to defer
under the EDP for a minimum of five years (assuming continued employment)
certain amounts otherwise payable to them upon termination of the PSAR Plan.
Deferred amounts are deemed invested in Class A Common Stock although no actual
investment is made, and the value of each executive's interest in the EDP is
adjusted to reflect the performance of Class A Common Stock over the deferral
period. In general, the deferred amounts, as adjusted, will be distributed in
cash on the fifth anniversary of the IPO or upon termination of employment, if
earlier.
Elective Deferred Compensation Programs. Executives, including the Named
Executive Officers, may elect to defer payment of current cash compensation
(i.e., base salary, CAPP bonuses and LTPP awards) through nonqualified deferred
compensation plans sponsored by the Company. Deferred amounts are deemed
invested as the executives elect among available investment measures, but no
actual investments are made. Among the available investment measures is a deemed
investment in Class A Common Stock, with the value of the deferred amount
adjusted to reflect the performance of Class A Common Stock. Executives, as well
as all employees of the Company, may also elect to defer compensation under the
401(k) Plan, under which the Company provides as an investment option the
Associates Stock Fund, which invests principally in Class A Common Stock.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee approved a salary for Mr. Hughes for 1997 that
took into account (a) the consulting firm's most recent report of competitive
compensation levels for chief executive officers of comparable companies, (b)
Mr. Hughes' substantial experience and his performance in prior positions with
the Company, (c) the Company's performance and (d) the extent to which the
Company emphasizes performance-oriented compensation through incentive and
equity-based plans. The Compensation Committee believes that Mr. Hughes' 1997
base salary was below the median of competitive data but appropriate,
considering the CAPP bonuses, the LTPP bonuses and the ICP awards, to support a
performance-based total compensation package.
After considering the Company's growth and profit performance for 1997 and
for the four-year performance period of the LTPP, the Compensation Committee
approved Mr. Hughes' 1997 CAPP and LTPP bonuses, and awards to Mr. Hughes of
NQSOs and restricted stock effective January 2, 1998. The Compensation Committee
also considered Mr. Hughes' individual performance in providing strategic
direction for the Company. The Compensation Committee believes that Mr. Hughes'
1997 total annual compensation was below the median of competitive data but
appropriate, based on discussion regarding compensation of peer executives.
The value of Mr. Hughes' restricted stock and NQSO awards made under the
ICP depends on the long-term performance of Class A Common Stock. See
"Equity-Based Compensation -- Incentive Compensation Plan" on page 14 of this
proxy statement. The value of CAPP and LTPP bonuses may also depend on the
long-term performance of Class A Common Stock to the extent that Mr. Hughes
defers any or all of the awards and elects a deemed investment of the deferred
amount in Class A Common Stock. See "Equity-Based Compensation -- Elective
Deferred Compensation Programs" above.
15
<PAGE> 20
TAX DEDUCTIBILITY
The Code limits the extent to which compensation paid to Named Executive
Officers of publicly traded companies may be deducted by the companies. Certain
types of compensation may be exempted from the deduction limit if they qualify
as "performance-based compensation" as defined in the Code and the underlying
regulations. The Company believes that the ICP meets all of the current tests
required for compensation attributable to NQSOs awarded under the ICP and for
CAPP bonuses awarded to Named Executive Officers under the ICP to be deductible
by the Company for federal income tax purposes. The Company has reserved the
right with respect to other executive compensation to use good independent
judgment, on a case by case basis, to attract and retain qualified executives to
manage the Company and to reward its employees for service while taking into
consideration the financial effects such action may have on the Company.
Compensation Committee
H. JAMES TOFFEY, JR. (Chairman)
J. CARTER BACOT
February 12, 1998
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In March 1997, the Company purchased approximately $800 million in credit
card receivables from The Bank of New York. J. Carter Bacot, a director and
member of the Compensation Committee for 1997, was Chairman and Chief Executive
Officer of The Bank of New York during 1997. Mr. Bacot did not receive any
individual remuneration or other benefit from the Company as a result of this
transaction. The Bank of New York and the Company are not otherwise affiliated.
16
<PAGE> 21
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS
The following table shows certain information concerning the executive
officers of the Company as of March 1, 1998:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
---- --- ------------------------------------------
<S> <C> <C>
Keith W. Hughes................ 51 Chairman of the Board and Chief Executive Officer since
February 1995 and a director since November 1988;
President from August 1991 until February 1995
Harold D. Marshall............. 61 President and Chief Operating Officer since May 1996 and a
director since November 1988; Vice Chairman of the Board
from November 1988 until May 1996
Timothy W. Bellows............. 48 Executive Vice President -- Insurance Operations since May
1997; President and a director of Associates Insurance Group
since May 1994
David A. Brooks................ 58 Executive Vice President -- Business Development since June
1997; President and Chief Operating Officer of Advanta Corp.
from January 1997 to March 1997; Executive Vice
President -- Business Development of VISA USA, Inc. from
March 1996 to January 1997; various executive positions
with Citicorp from 1985 to 1994
Walter B. Copeland............. 44 Executive Vice President -- Corporate Administration since
May 1997; President of Associates Information Services,
Inc. since November 1994; Executive Vice President and
Controller of Associates Financial Services Company, Inc.
from August 1989 until November 1994
Roy A. Guthrie................. 44 Senior Executive Vice President and a director since
February 1998 and Chief Financial Officer since May 1996;
Executive Vice President from June 1995 until February
1998; a director from June 1995 until July 1996; Senior
Vice President, Comptroller and Chief Accounting Officer
from December 1991 until June 1995
Wilfred Y. Horie............... 52 Executive Vice President -- International since May 1996;
Chairman, Resident Director and President of AIC Corporation
(Japan) from April 1980 until July 1996
Chester D. Longenecker......... 51 Executive Vice President and General Counsel since June
1986; Secretary since May 1997
Michael E. McGill.............. 53 Executive Vice President -- Human Resources since May 1997;
Dean ad interim of Edwin L. Cox School of Business, Southern
Methodist University, from 1996 to 1997; Professor and
organizational consultant at Southern Methodist University
since 1971
Lawrence J. Pelka.............. 55 Executive Vice President -- Commercial since May 1996;
Executive Vice President of Associates Commercial
Corporation since October 1981
Joseph N. Scarpinato........... 53 Executive Vice President -- Credit Card since May 1996;
President of Associates Credit Card Services, Inc. since
October 1991
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
---- --- ------------------------------------------
<S> <C> <C>
Thomas R. Slone................ 55 Executive Vice President -- U.S. Consumer Branch Systems
since May 1996; Executive Vice President -- Continental
Branch Operations of Associates Financial Services
Company, Inc. since 1986
Fredrick H. Stern.............. 45 Senior Vice President -- Corporate Communications since
February 1995; Senior Vice President of Associates
Corporation of North America (A Texas Corporation) since
February 1987
John F. Stillo................. 44 Senior Vice President since May 1997; Comptroller and
Principal Accounting Officer since September 1997; Senior
Vice President and Assistant Controller of Associates
Commercial Corporation from February 1991 until February
1996; Executive Director -- Finance of Ford Motor Company
from February 1996 until May 1997
</TABLE>
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<PAGE> 23
SUMMARY COMPENSATION TABLE
The following table shows the compensation for the Company's last three
fiscal years received by the Company's Chairman and Chief Executive Officer and
by the four other most highly compensated executive officers who were serving as
executive officers as of December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ----------------------------------------
AWARDS PAYOUTS
----------------------- --------------
RESTRICTED SECURITIES LONG-TERM
NAME AND BASE OTHER ANNUAL STOCK UNDERLYING INCENTIVE PLAN ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
------------------ ---- ------- ------- ------------ ---------- ---------- -------------- ------------
($) ($) ($)(2) ($)(3) (#)(4) ($)(6) ($)(12)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Keith W. Hughes(1)......... 1997 556,250 900,000 125,691 0 95,000(5) 1,100,000(7) 40,794(13)
Chairman and Chief 1996 485,000 750,000 125,316 1,500,170 249,900(5) 3,154,022(7) 36,270(13)
Executive Officer 1995 431,667 700,000 17,176 0 0 1,088,050(7) 29,777(13)
Harold D. Marshall......... 1997 485,012 483,000 21,951 0 45,000(5) 690,000(8) 43,027(14)
President and Chief 1996 406,917 420,000 24,003 500,250 86,180(5) 1,222,377(8) 36,229(14)
Operating Officer 1995 342,750 350,000 13,919 0 0 458,000(8) 26,583(14)
Wilfred Y. Horie........... 1997 282,500 260,000 19,599 0 17,500(5) 286,000(9) 20,589(15)
Executive Vice President 1996 229,833 215,000 83,543 177,770 31,900(5) 354,310(9) 16,610(15)
1995 178,600 200,000 0 0 0 739,836(9) 12,228(15)
Lawrence J. Pelka.......... 1997 311,500 231,000 16,351 0 16,500(5) 225,000(10) 23,893(16)
Executive Vice President 1996 265,158 185,000 17,372 177,770 31,900(5) 474,001(10) 19,031(16)
1995 230,450 135,000 5,140 0 0 175,000(10) 16,184(16)
Joseph N. Scarpinato....... 1997 308,750 233,000 6,523 0 16,500(5) 214,000(11) 22,244(17)
Executive Vice President 1996 257,083 188,000 13,050 177,770 31,900(5) 509,399(11) 18,687(17)
1995 216,250 185,000 8,591 0 0 384,300(11) 15,474(17)
</TABLE>
- ---------------
(1) Mr. Hughes was elected Chairman and Chief Executive Officer on February 1,
1995. The compensation information provided for 1995 includes the period
before Mr. Hughes was elected Chairman and Chief Executive Officer.
(2) Compensation reported in the "Other Annual Compensation" column is the
Company's payment to cover each 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"). Compensation reported for Mr. Hughes in 1997 and 1996
includes $72,698 and $72,501.32, respectively, which represents the value
of perquisites and other personal benefits provided by the Company to Mr.
Hughes. These amounts include $42,277.98 in 1997 for personal use of the
corporate aircraft (used for security purposes) and $39,715.31 in 1996 for
club membership dues and expenses. The value of any other single perquisite
or personal benefit the Company provided to Mr. Hughes in 1997 or 1996 did
not exceed 25 percent of the aggregate value of all such perquisites and
personal benefits. Compensation reported for Mr. Horie in 1996 includes
$56,337, which represents the value of perquisites and other personal
benefits provided by the Company to Mr. Horie. This amount includes $20,964
for moving expenses and $24,735 for club membership dues and expenses. The
value of any other single perquisite or personal benefit the Company
provided to Mr. Horie in 1996 did not exceed 25 percent of the aggregate
value of all such perquisites and personal benefits. The Company provides
similar perquisites and personal benefits to the other Named Executive
Officers. The aggregate value of perquisites and personal benefits provided
to each of the other Named Executive Officers in any year reported, to Mr.
Hughes in 1995 and to Mr. Horie in 1997 and 1995, did not exceed the lesser
of $50,000 or 10 percent of such Named Executive Officer's salary and bonus
reported for such year.
(3) The compensation reported in the "Restricted Stock Awards" column is the
value on the date of issuance of shares of restricted Class A Common Stock
awarded under the ICP. The value at December 31, 1997, for each such
restricted stock award was as follows: Mr. Hughes, $3,682,529; Mr.
Marshall, $1,227,984; Mr. Horie, $436,379; Mr. Pelka, $436,379; and Mr.
Scarpinato, $436,379. Subject to the terms of the ICP, dividends will be
paid on such shares of restricted stock although risk of forfeiture exists
and restrictions on transferability of such restricted stock have not yet
lapsed.
(4) Until 1996, the Company awarded PSARs under 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 determined by a profit-based formula
rather than appreciation in the Company's stock price.
(5) NQSOs to purchase Class A Common Stock awarded under the ICP.
(6) Compensation reported in the "Long-Term Incentive Plan Payouts" column is
the amount awarded to each Named Executive Officer under the LTPP for the
performance period ending in the year reported and, if specifically noted,
the amount paid under the PSAR Plan with respect to PSARs exercised by the
Named Executive Officer during the year reported or, for 1996 only,
payments made following termination of the PSAR Plan effective December 31,
1995.
(7) For Mr. Hughes, the LTPP award was $1,100,000 in 1997, $900,000 in 1996 and
$700,000 in 1995. He received $3,108,722 (of which approximately $854,700
was deferred under the EDP and is adjusted to reflect the performance of
29,990.545 shares of the Class A Common Stock over the deferral period and
is not included in the amount reported) in 1996 upon termination of his
interest in the PSAR Plan, and $388,050 in 1995 for PSARs exercised in
1995.
(8) For Mr. Marshall, the LTPP award was $690,000 in 1997, $600,000 in 1996 and
$458,000 in 1995. He received $939,837 (of which approximately $317,460 was
deferred under the EDP and is adjusted to reflect the performance of
11,139.346 shares of the Class A Common Stock over the deferral period and
is not included in the amount reported) in 1996 upon termination of his
interest in the PSAR Plan.
(9) For Mr. Horie, the LTPP award was $286,000 in 1997, $220,000 in 1996 and
$170,000 in 1995. He received $268,620 (of which approximately $134,310 was
deferred under the EDP and is adjusted to reflect the performance of
4,691.060 shares of the Class A
19
<PAGE> 24
Common Stock over the deferral period and is not included in the amount
reported) in 1996 upon termination of his interest in the PSAR Plan.
(10) For Mr. Pelka, the LTPP award was $225,000 in 1997, $188,000 in 1996 and
$175,000 in 1995. He received $430,079 (of which approximately $144,078 was
deferred under the EDP and is adjusted to reflect the performance of
5,055.549 shares of the Class A Common Stock over the deferral period and
is not included in the amount reported) in 1996 upon termination of his
interest in the PSAR Plan.
(11) For Mr. Scarpinato, the LTPP award was $214,000 in 1997, $186,000 in 1996
and $155,000 in 1995. He received $494,339 (of which approximately $170,940
was deferred under the EDP and is adjusted to reflect the performance of
5,970.440 shares of the Class A Common Stock over the deferral period and
is not included in the amount reported) in 1996 upon termination of his
interest in the PSAR Plan.
(12) Compensation reported in the "All Other Compensation" column includes (i)
matching and profit-sharing contributions and values of certain credits
made by the Company on behalf of each Named Executive Officer pursuant to
the Company's tax-qualified and nonqualified supplemental defined
contribution plans ("DCP Contributions"), and (ii) amounts includable in
compensation for premiums paid by the Company for term life insurance
("Term Insurance Compensation").
(13) For Mr. Hughes, DCP Contributions were (i) $35,322 for 1997, (ii) $30,798
for 1996 and (iii) $26,979 for 1995. Term Insurance Compensation was (i)
$5,472 for 1997, (ii) $5,472 for 1996 and (iii) $2,798 for 1995.
(14) For Mr. Marshall, DCP Contributions were (i) $30,798 for 1997, (ii) $25,839
for 1996 and (iii) $20,940 for 1995. Term Insurance Compensation was (i)
$12,229 for 1997, (ii) $10,390 for 1996 and (iii) $5,643 for 1995.
(15) For Mr. Horie, DCP Contributions were (i) $17,939 for 1997, (ii) $14,594
for 1996 and (iii) $11,163 for 1995. Term Insurance Compensation was (i)
$2,650 for 1997, (ii) $2,016 for 1996 and (iii) $1,065 for 1995.
(16) For Mr. Pelka, DCP Contributions were (i) $19,780 for 1997, (ii) $16,929
for 1996 and (iii) $14,410 for 1995. Term Insurance Compensation was (i)
$4,113 for 1997, (ii) 2,102 for 1996 and (iii) $1,774 for 1995.
(17) For Mr. Scarpinato, DCP Contributions were (i) $19,606 for 1997, (ii)
$16,325 for 1996 and (iii) $13,516 for 1995. Term Insurance Compensation
was (i) $2,638 for 1997, (ii) $2,362 for 1996 and (iii) $1,958 for 1995.
STOCK OPTION AWARDS DURING 1997
Stock options and other rights related to Class A Common Stock may be
awarded to executives under the ICP. Stock options and other rights related to
Ford Common Stock may be awarded under Ford's 1990 Long-Term Incentive Plan. The
following table shows the stock options awarded under the ICP to the Named
Executive Officers in 1997. No stock options were awarded to the Named Executive
Officers under Ford's 1990 Long-Term Incentive Plan in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
% OF TOTAL
OPTIONS POTENTIALLY REALIZABLE VALUE
NUMBER OF GRANTED AT ASSUMED ANNUAL RATES
SECURITIES TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL BASE EXPIRATION -----------------------------
NAME GRANTED(1) YEAR PRICE DATE 0% 5% 10%
---- ---------- ---------- -------- ---------- --- ---------- ----------
(#) ($/SH)
<S> <C> <C> <C> <C> <C> <C> <C>
Keith W. Hughes........... 95,000 3.98% $43.25 1/1/2007 $0 $2,583,971 $6,548,289
Chairman and Chief
Executive Officer
Harold D. Marshall........ 45,000 1.89% 43.25 1/1/2007 0 1,223,986 3,101,821
President and Chief
Operating Officer
Wilfred Y. Horie.......... 17,500 0.73% 43.25 1/1/2007 0 475,995 1,206,264
Executive Vice President
Lawrence J. Pelka......... 16,500 0.69% 43.25 1/1/2007 0 448,795 1,137,334
Executive Vice President
Joseph N. Scarpinato...... 16,500 0.69% 43.25 1/1/2007 0 448,795 1,137,334
Executive Vice President
</TABLE>
- ---------------
(1) NQSOs awarded under the ICP. One-third of the NQSOs vests on each of the
first, second and third anniversary of the date of grant.
20
<PAGE> 25
The following table and notes have additional information on stock options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT 12/31/97 12/31/97
(#) ($)
SHARES ------------------- ----------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Keith W. Hughes
Chairman and Chief Executive
Officer
Class A Common Stock(1)........... 0 $0 31,596/313,304 $1,332,956/$11,863,763
Ford Common Stock(2).............. 0 0 11,250/ 3,750 224,297/ 74,766
Harold D. Marshall
President and Chief Operating
Officer
Class A Common Stock(1)........... 0 0 11,490/119,690 484,734/ 4,408,172
Ford Common Stock(2).............. 0 0 7,500/ 2,500 149,531/ 49,844
Wilfred Y. Horie
Executive Vice President
Class A Common Stock(1)........... 0 0 5,173/ 44,227 218,236/ 1,616,452
Ford Common Stock(2).............. 0 0 0/ 0 0/ 0
Lawrence J. Pelka
Executive Vice President
Class A Common Stock(1)........... 0 0 5,173/ 43,227 218,236/ 1,588,514
Ford Common Stock(2).............. 0 0 0/ 0 0/ 0
Joseph N. Scarpinato
Executive Vice President
Class A Common Stock(1)........... 0 0 5,173/ 43,227 218,236/ 1,588,514
Ford Common Stock(2).............. 0 0 0/ 0 0/ 0
</TABLE>
- ---------------
(1) The options reported in this line item are NQSOs awarded under the ICP to
purchase shares of Class A Common Stock. The exercise price of the options
awarded in 1996 is $29.00 per share, and the exercise price of the options
awarded in 1997 is $43.25 per share. The closing trading price on the NYSE
of Class A Common Stock at December 31, 1997, was $71.1875.
(2) The options reported in this line item are incentive stock options and NQSOs
awarded under Ford's 1990 Long-Term Incentive Plan to purchase shares of
Ford Common Stock. The exercise price of the options is $28.625 per share,
and the closing trading price on the NYSE of Ford Common Stock at December
31, 1997, was $48.5625. These options will be adjusted to reflect the change
in value of Ford Common Stock resulting from the Spin Off.
DEFINED BENEFIT RETIREMENT PLANS
The Company sponsors three defined benefit retirement plans pursuant to
which retirement income is payable to covered employees, including the Named
Executive Officers: the Pension Plan, the EBP and the SRIP. The Pension Plan is
a tax-qualified defined benefit plan covering all eligible employees of the
Company. The EBP covers certain executives whose retirement income from the
Pension Plan and the 401(k) Plan is affected by (i) elections to defer
compensation and (ii) limitations imposed on tax-qualified retirement plans by
certain Code sections. The EBP restores benefits that, if it were not for such
limitations, would otherwise be available under the Pension Plan and the 401(k)
Plan.
The SRIP covers only certain designated 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 benefits
21
<PAGE> 26
under the Pension Plan do not achieve the target level of retirement income. All
of the Named Executive Officers are participants in the SRIP and, based on
assumed retirement on or after age 55, will receive a benefit under the SRIP
commencing at age 62.
The SRIP provides each participant with an annuity, commencing upon
retirement on or after age 62, equal to 50% of the participant's "average
monthly compensation," offset by the monthly equivalent of any benefits payable
to the participant under the Pension Plan and other employers' qualified pension
plans and by 50% of the participant's Social Security monthly benefit. For
purposes of the SRIP, "average monthly compensation" means, generally, the
average monthly compensation for a participant's highest five consecutive years
of the 10 years immediately preceding retirement, with compensation determined
for these purposes as under the Pension Plan (which includes for each calendar
year annual bonuses and base pay before any pre-tax contributions to the 401(k)
Plan or other Company-sponsored plans, but excludes such other items as
severance pay, vacation pay paid on termination, moving expenses, long-term
disability insurance payments, fringe benefits, LTPP bonuses, deferred
compensation and retention bonuses).
The table below illustrates the annual pension commencing at age 65 for the
Named Executive Officers under the Pension Plan, the EBP and the SRIP:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)(3)
------------------------------------
REMUNERATION($)(1) 30 OR LESS 35 40
- ------------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
$ 500,000................................................. $250,000 $275,000 $ 300,000
550,000................................................. 275,000 302,500 330,000
700,000................................................. 350,000 385,000 420,000
900,000................................................. 450,500 495,000 540,000
1,000,000................................................. 500,000 550,000 600,000
1,200,000................................................. 600,000 660,000 720,000
1,400,000................................................. 700,000 770,000 840,000
1,600,000................................................. 800,000 880,000 960,000
1,800,000................................................. 900,000 990,000 1,080,000
</TABLE>
- ---------------
(1) Remuneration is the sum of a participant's base salary plus any CAPP bonus
paid or payable for a fiscal year, including amounts that the recipient
elects to defer.
(2) The estimated credited service at December 31, 1997, for the Named Executive
Officers is as follows: Mr. Hughes, 17 years; Mr. Marshall, 37 years; Mr.
Horie, 25 years; Mr. Pelka, 19 years; and Mr. Scarpinato, 6 years.
(3) The estimated annual benefits illustrated in the table are subject to 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 Pension Plan Table are in the
form of a life annuity.
EMPLOYMENT, SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has entered into individual employment agreements with all of
the Company's executive officers, including each Named Executive Officer. All
Named Executive Officers' employment agreements are substantially identical,
except as specifically described below. The employment agreements covering
executive officers who are not Named Executive Officers are generally similar to
the employment agreements for Named Executive Officers. The Named Executive
Officers' employment agreements are described below.
Each Named Executive Officer's employment agreement has an initial
three-year term beginning October 15, 1997. The three-year term renews
automatically on the first day of each month unless either party provides notice
of non-renewal before the first day of the month. During the term of the
agreement, including any renewal periods, each employment agreement provides for
certain compensation and benefits. The agreements guarantee minimum annual base
salaries for Messrs. Hughes, Marshall, Horie, Pelka and Scarpinato of at least
$575,000, $500,000, $295,000, $322,000 and $320,000, respectively. If a "change
in control" (other than a spin off from Ford) occurs during the term of the
agreement, each agreement
22
<PAGE> 27
guarantees a minimum bonus for the remainder of the term equal to 80 percent of
the CAPP bonus and LTPP bonus norm award for the individual.
The Company may terminate any Named Executive Officer at any time with 15
days prior written notice, with or without "cause." Each employment agreement
defines "cause" as, generally, the Named Executive Officer's willful
malfeasance, unreasonable neglect or refusal to perform his duties, conviction
of a felony, engaging in activity competitive with the Company or adverse to the
Company's best interests, or violation of Company policy regarding corporate
conduct, in all cases as determined by the Board of Directors. If the Company
terminates a Named Executive Officer with "cause," the Company's obligations
under that Named Executive Officer's employment agreement cease.
If the Company terminates a Named Executive Officer without "cause" or if a
"constructive termination" (without "cause") occurs within the period beginning
six months before and ending 15 months after a "change in control," the Named
Executive Officer will receive the following in lieu of any other compensation
or benefits under his employment agreement:
(a) A cash payment equal to the sum of (i) the Named Executive Officer's
annual base salary then in effect multiplied by three for Messrs. Hughes
and Marshall and two for Messrs. Horie, Pelka and Scarpinato, plus (ii) the
average of the CAPP bonuses paid to the Named Executive Officer during each
of the three years immediately preceding the year of termination multiplied
by three for Messrs. Hughes and Marshall and two for Messrs. Horie, Pelka
and Scarpinato, 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 CAPP and LTPP bonuses during each of the three
years preceding the year of termination.
(b) Immediate 100% vesting or lapse of restrictions, as applicable, with
respect to any outstanding awards to the Named Executive Officer under the
ICP.
(c) Coverage under the Company's life, medical, dental, disability and
other welfare plans for three years for Messrs. Hughes and Marshall and two
years for Messrs. Horie, Pelka and Scarpinato. Coverage will terminate
earlier, however, if the Named Executive Officer becomes covered by similar
coverage provided by a successor employer.
If a "change in control" (other than a spin off from Ford) occurs, as of the
date of the "change in control," each Named Executive Officer will become 100%
vested in any outstanding stock options under the ICP and in any benefits
payable under any of the Company's nonqualified plans, and any restrictions on
that Named Executive Officer's restricted stock under the ICP will lapse. The
Company will also fund a trust to guarantee payment of funds under the
nonqualified plans to the Named Executive Officer. If a "change in control" for
purposes of the employment agreements occurs and such "change in control"
constitutes a change in control within the meaning of Code Section 280G, the
total compensation payable as determined above to any Named Executive Officer as
a result of the "change in control" may not exceed 2.99 times the Named
Executive Officer's "annualized includible compensation for the base period" (as
defined in Code Section 280G(d)(1)).
Each employment agreement defines "constructive termination" as, generally,
any of the following that results from a "change in control" (other than a spin
off from Ford), unless the Named Executive Officer consents in writing:
(a) Assignment to the Named Executive Officer of any duties inconsistent
in any respect with the Executive's position, authority, duties or
responsibilities or any other action that results in a substantial
diminution in such position, authority, duties or responsibilities.
(b) Failure (i) to allow the Named Executive Officer to continue to
participate, on substantially the same terms as before the "change in
control," in substantially the same benefit or compensation plans as the
Named Executive Officer participated in before the "change in control" or
(ii) to provide the Named Executive Officer with the fringe benefits
generally provided to employees at the Named Executive Officer's level
within the Company.
23
<PAGE> 28
(c) Substantial reduction, without good business reasons and the Named
Executive Officer's express written consent, of the facilities and
perquisites available to the Named Executive Officer immediately before the
reduction.
Each employment agreement defines "change in control" as, generally, any of
the following:
(a) 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.
(b) 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.
(c) 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 outstanding capital
stock of the Company (other than a transaction described in (d) below), as
of the date of the conclusion of such reorganization, transaction or series
of transactions.
(d) The successful completion of a public offering, or distribution to
the public by dividend or spin off, 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.
(e) Any transaction or series of transactions that results in the
transfer of management control of the Company to any third party
unaffiliated with the Company or Ford, regardless of whether Ford and its
affiliates continue to own common stock of the Company having 50% or more
of the combined voting power of the Company's outstanding capital stock, as
of the date the transfer of management control becomes effective.
If a Named Executive Officer becomes permanently disabled (as determined
under the Company's long-term disability plan) during the term of his agreement,
including any renewal periods, the Named Executive Officer will receive monthly
for six months after the determination of disability both his then-current
monthly base salary and an amount equal to one-twelfth of the average of the
Named Executive Officer's CAPP bonuses during the three years immediately
preceding the year of disability, reduced by any amounts received through any
disability or other salary continuation plan generally provided by the Company.
If a Named Executive Officer dies during the term of his agreement,
including any renewal periods, his estate or designated beneficiaries will
receive a cash payment equal to the Named Executive Officer's then-current
annual base salary plus the average of the Named Executive Officer's CAPP
bonuses during the three years immediately preceding the year of death.
Each Named Executive Officer agrees under his employment agreement to
execute the Company's standard confidentiality, conflicts of interest and
proprietary property agreements. Each Named Executive Officer also agrees under
his employment agreement not to solicit, for 12 months following the Named
Executive Officer's termination of employment, any of the Company's employees to
leave employment with the Company. Finally, each Named Executive Officer agrees
under his employment agreement, during the term of the agreement (including any
renewal periods) and for one year following the Named Executive Officer's
termination of employment, not to compete with the Company, either directly or
indirectly. Each employment agreement provides that a Named Executive Officer's
right to any benefits under the agreement will cease if the Board of Directors
determines that the Named Executive Officer has either violated the agreement's
non-solicitation and non-competition clauses or engaged in activity adverse to
the best interests of the Company or any affiliate. Each employment agreement
provides that any disputes will be resolved through binding arbitration, with
expenses paid by the Company.
24
<PAGE> 29
COMPARATIVE STOCK PERFORMANCE
SEC rules require proxy statements to contain a performance graph that
compares the performance of the Class A Common Stock against Standard & Poor's
500 Stock Index and a published industry or line of business index or group of
"peer issuers" covering a five-year period. The Company selected the S&P
Financials Index as the appropriate line of business index for purposes of this
comparison. Because the Class A Common Stock did not begin trading on the NYSE
until May 8, 1996, the graph compares performance from that date forward through
December 31, 1997. The graph assumes an investment of $100 at the beginning of
the period at the IPO price of $29 per share of Class A Common Stock and
quarterly reinvestment of dividends:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
THE COMPANY, S&P 500 AND S&P FINANCIALS
(PERFORMANCE RESULTS THROUGH DECEMBER 31, 1997)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P
(FISCAL YEAR COVERED) AFS S&P 500 FINANCIAL
<S> <C> <C> <C>
5/8/96 100 100 100
6/30/96 132 104 105
9/30/96 142 108 114
12/31/96 153 117 129
3/31/97 149 120 135
6/30/97 193 141 160
9/30/97 217 151 179
12/31/97 248 155 191
</TABLE>
25
<PAGE> 30
ITEM 2.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee selects and hires independent public accountants to
audit the books of account and other records of the Company. You must ratify or
reject the Audit Committee's selection for 1998.
The Audit Committee has selected Coopers & Lybrand L.L.P. to audit the
books of account and other records of the Company for 1998. This firm has
audited the Company's books since 1989, and is considered to be well-qualified.
Representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting with the opportunity to make a statement and answer questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2.
---------------------
STOCKHOLDER PROPOSALS FOR 1999
Stockholders may propose matters to be presented at stockholders' meetings
and may also nominate persons to be directors. Any stockholder proposal intended
for inclusion in the proxy materials for the 1999 annual meeting must be
received by the Company, addressed to the Secretary of the Company, P.O. Box
660237, Dallas, Texas 75266-0237, no later than November 18, 1998.
ANNUAL REPORT AND OTHER MATTERS
The Company's Annual Report, including financial statements, was mailed to
you with this proxy statement. A list of stockholders of record entitled to vote
at the Annual Meeting will be available for review by any stockholder, for any
purpose related to the Annual Meeting, between 9:00 a.m. and 5:00 p.m. at the
corporate offices of the Company, 250 East Carpenter Freeway, Irving, Texas, for
10 days prior to the Annual Meeting.
EXPENSES OF SOLICITATION
The cost of soliciting proxies in the accompanying form will be paid by the
Company. We do not expect to pay any fees for the solicitation of proxies, but
may pay brokers, nominees, fiduciaries and other custodians their reasonable
fees and expenses for sending proxy materials to beneficial owners and obtaining
their instructions. In addition to solicitation by mail, proxies may be
solicited in person, or by telephone, facsimile transmission or other means of
electronic communication, by directors, officers and other employees of the
Company.
By Order of the Board of Directors,
/s/ C. Longenecker
Chester D. Longenecker
Secretary
Irving, Texas
March 18, 1998
26
<PAGE> 31
HOW TO ATTEND THE ANNUAL MEETING
Stockholders of Record
When you complete your proxy, if you plan to attend the Annual Meeting,
please check the box to let us know. We will issue an admission ticket to you at
the door.
"Street Name" Holders
If you plan to attend the Annual Meeting, tell your broker you plan to
attend and would like a proxy. Simply bring that form to the Annual Meeting, and
we will give you a ticket at the door. If you cannot get a proxy in time, we
will give you a ticket at the door if you bring a copy of your most recent
brokerage account statement showing that you own Voting Stock.
27
<PAGE> 32
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<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Please mark your - 7947
votes as indicated - - -
[X] in this example.
This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder.
If no direction is made, this proxy will be voted FOR (i) the election of the nominated directors, and (ii)
ratification of the selection of Coopers & Lybrand LLP, as independent public accountants of the Company for 1998.
1. Election of FOR WITHHOLD Keith W. Hughes, J. Carter Bacot, 2. RATIFICATION OF THE SELECTION FOR AGAINST ABSTAIN
Directors. Eric S. Dobkin, Roy A. Guthrie, OF COOPERS & LYBRAND LLP, AS
(See Reverse) [ ] [ ] William M. Isaac, Harold D. Marshall, INDEPENDENT PUBLIC ACCOUNTANTS [ ] [ ] [ ]
H. James Toffey, Jr. OF THE COMPANY
For, except vote withheld from
the foregoing nominee(s): CHECK HERE IF YOU PLAN TO ATTEND
THE STOCKHOLDERS MEETING ON APRIL 6, 1998. [ ]
---------------------------------
Please sign exactly as name appears below. When
shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by president or authorized person. If a partnership,
please sign in full partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINATED DIRECTORS, AND RATIFICATION OF THE SELECTION
OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT PUBLIC
ACCOUNTANTS OF THE COMPANY FOR 1998.
SIGNATURE(S) DATE
------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>
[ASSOCIATES FIRST CAPITAL CORPORATION LOGO]
ANNUAL MEETING OF STOCKHOLDERS
APRIL 6, 1998
<PAGE> 33
CLASS A COMMON STOCK
ASSOCIATES FIRST CAPITAL CORPORATION
P.O. BOX 660237, DALLAS, TEXAS 75266-0237
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominates and appoints Chester D. Longenecker and
Timothy M. Hayes, and each of them, proxies with full power of substitution
to each, and hereby authorizes them to represent and to vote, as designated
hereon, all shares of Class A Common Stock of ASSOCIATES FIRST CAPITAL
CORPORATION (the "Company") which the undersigned is entitled to vote on all
matters that come before the Annual Meeting of Stockholders to be held on
April 6, 1998, and any adjournments thereof.
(Continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 34
STOCK CERTIFICATE - PCNS 15-16 - EDGAR PICKUP
EXHIBIT ___
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<S> <C> <C>
[ ] XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX [SHARES]
INCORPORATED UNDER THE LAWS THIS CERTIFICATES TRANSFERABLE IN ________, ______________________, _______ SEE REVERSE FOR
OF THE STATE OF ________ CERTAIN LEGENDS
CUSIP ______
THIS CERTIFIES THAT
is the registered holder of
FULLY-PAID AND NON-ASSESSABLE SHARES OF SERIES A CUMULATIVE PREFERRED STOCK, PAR VALUE $.001 PER SHARE OF
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its duly authorized officers and the facsimile
of its seal to be printed hereon.
Dated:
/s/ /s/
Coregistered and Regulated
By Transfer Agent
and Registrar,
Authorized Signature
</TABLE>
