<PAGE> 1
Pursuant to Rule 424(b)(5)
Registration No. 33-56747
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 12, 1994)
(FORD LOGO)
FORD HOLDINGS, INC.
2,150 SHARES OF
FLEXIBLE RATE AUCTION PREFERRED STOCK
(PAR VALUE $1.00 PER SHARE, LIQUIDATION PREFERENCE $100,000 PER SHARE),
CONSISTING OF 750 SHARES OF SERIES L, 750 SHARES OF SERIES M,
AND 650 SHARES OF SERIES N
The 2,150 shares of Preferred Stock of Ford Holdings, Inc. (the "Company")
offered hereby consist of 750 shares of Flexible Rate Auction Preferred Stock
Series L ("Series L Flexible Rate Auction Preferred Stock"), 750 shares of
Flexible Rate Auction Preferred Stock Series M ("Series M Flexible Rate Auction
Preferred Stock") and 650 shares of Flexible Rate Auction Preferred Stock Series
N ("Series N Flexible Rate Auction Preferred Stock" and, together with the
Series L Flexible Rate Auction Preferred Stock and the Series M Flexible Rate
Auction Preferred Stock, "New Auction Preferred Stock").
The Company presently has outstanding 8,000 shares of its Flexible Rate
Auction Preferred Stock (Exchange), consisting of 750 shares of Flexible Rate
Auction Preferred Stock (Exchange) Series A ("Exchange Series A"), 750 shares of
its Flexible Rate Auction Preferred Stock (Exchange) Series B ("Exchange Series
B"), 500 shares of its Flexible Rate Auction Preferred Stock (Exchange) Series C
("Exchange Series C"), 750 shares of its Flexible Rate Auction Preferred Stock
(Exchange) Series D ("Exchange Series D"), 750 shares of its Flexible Rate
Auction Preferred Stock (Exchange) Series E ("Exchange Series E"), 750 shares of
its Flexible Rate Auction Preferred Stock (Exchange) Series F ("Exchange Series
F"), 750 shares of its Flexible Rate Auction Preferred Stock (Exchange) Series G
("Exchange Series G"), 750 shares of its Flexible Rate Auction Preferred Stock
(Exchange) Series H ("Exchange Series H"), 750 shares of its Flexible Rate
Auction Preferred Stock (Exchange) Series I ("Exchange Series I"), 750 shares of
its Flexible Rate Auction Preferred Stock (Exchange) Series J ("Exchange Series
J") and 750 shares of its Flexible Rate Auction Preferred Stock (Exchange)
Series K ("Exchange Series K" and, together with Exchange Series A, Exchange
Series B, Exchange Series C, Exchange Series D, Exchange Series E, Exchange
Series F, Exchange Series G, Exchange Series H, Exchange Series I and Exchange
Series J, "Existing Auction Preferred Stock"). The Company also has outstanding
certain other series of preferred stock. See "Description of New Auction
Preferred Stock--General".
------------------------------ (Continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share
Series L Flexible Rate Auction Preferred Stock...... $100,000 $1,375 $98,625
- -----------------------------------------------------------------------------------------------------------------------------
Series M Flexible Rate Auction Preferred Stock...... $100,000 $1,375 $98,625
- -----------------------------------------------------------------------------------------------------------------------------
Series N Flexible Rate Auction Preferred Stock...... $100,000 $1,250 $98,750
- -----------------------------------------------------------------------------------------------------------------------------
Total................................................. $215,000,000 $2,875,000 $212,125,000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $370,838 payable by the Company.
------------------------------
The shares of New Auction Preferred Stock offered hereby are offered by the
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the several
Underwriters and to certain further conditions. It is expected that delivery of
the shares of New Auction Preferred Stock will be made at the offices of Bear,
Stearns & Co. Inc., New York, New York, on or about December 22, 1994.
------------------------------
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS DECEMBER 12, 1994.
<PAGE> 2
(Continued from previous page)
With the exception of dividend periods and rates (discussed herein), shares
of each series of New Auction Preferred Stock are identical in all respects with
each other (including voting rights and preferences as to payments of dividends
and amounts in liquidation) and are substantially similar to shares of each
series of Existing Auction Preferred Stock.
Dividends on the shares of the New Auction Preferred Stock will be
cumulative from the date of original issue thereof (the "Issue Date") and will
be payable as described herein. See "Description of New Auction Preferred
Stock--Dividends".
Holders of each series of New Auction Preferred Stock will have certain
general and class voting rights, including the right, voting together as a
single class with holders of Voting Preferred and Parity Preferred (as defined
herein), to elect not less than 25% of the directors of the Company. See
"Description of New Auction Preferred Stock--Voting Rights".
Shares of New Auction Preferred Stock are not redeemable. However, in any
merger or consolidation of the Company with or into any other corporation
(including any affiliated corporation) which by its terms provides for the
payment of only cash to holders of New Auction Preferred Stock, the holders of
New Auction Preferred Stock will be entitled to receive an amount equal to the
liquidation preference of the New Auction Preferred Stock, any Merger Premium
(as herein defined), plus an amount equal to accumulated and unpaid dividends
thereon, and no more. Such a merger or consolidation will be deemed to be a
liquidation of the Company solely for purposes of determining the rights of the
holders of New Auction Preferred Stock in respect of such merger or
consolidation. See "Description of New Auction Preferred Stock--Rights on
Liquidation or Cash-Out Merger". A merger or consolidation in which the holders
of New Auction Preferred Stock, Voting Preferred and Parity Preferred receive an
amount equal to the liquidation preference, premium, if any, and accumulated and
unpaid dividends on their shares may be approved at any time without a class
vote by the holders of such shares. See "Description of New Auction Preferred
Stock--Voting Rights".
-------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------------
The following information, which is being disclosed pursuant to Florida
law, is accurate as of the date of this Prospectus Supplement: Autolatina
Comercio, Negocios e Participacoes Ltda., a Brazilian company ("Autolatina"), is
a joint venture between Ford Motor Company ("Ford") and Volkswagen AG in which
Ford has a 49% ownership interest. Autolatina occasionally sells vehicles to
persons located in Cuba. Each such sale is made pursuant to a specific license
granted to Ford by the U.S. Department of Treasury. The last such sale, which
involved one medical supply vehicle, was made to Cubanacan in April 1991.
Current information concerning Autolatina's or its Ford-related affiliates'
business dealings with the government of Cuba or with persons located in Cuba
may be obtained from the State of Florida Department of Banking and Finance at
The Capitol Building, Suite 1401, Tallahassee, Florida 32399-0350 (telephone
number 904-488-0545).
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere or incorporated by reference in this
Prospectus Supplement and the Prospectus to which it is attached.
THE COMPANY
The Company is a holding company whose subsidiaries are engaged primarily
in consumer and commercial financing operations, insurance underwriting and
equipment leasing.
USE OF PROCEEDS
The net proceeds from the sale of New Auction Preferred Stock will be used
for general corporate purposes of the Company and its subsidiaries.
RATINGS
On the date of issuance of the New Auction Preferred Stock, it is expected
that each series will be rated "a3" by Moody's Investor's Service, Inc.
("Moody's") and A- by Standard & Poor's Ratings Group ("S&P").
NEW AUCTION PREFERRED STOCK
Securities Offered
2,150 shares of preferred stock of the Company, consisting of 750 shares of
Series L Flexible Rate Auction Preferred Stock, 750 shares of Series M Flexible
Rate Auction Preferred Stock and 650 shares of Series N Flexible Rate Auction
Preferred Stock.
Dividends
Dividends on shares of New Auction Preferred Stock will be cumulative from
the Issue Date.
The Initial Dividend Period, next Auction Date and the Initial Dividend
Rate for each series of New Auction Preferred Stock is set forth below:
<TABLE>
<CAPTION>
INITIAL NEXT INITIAL
SERIES DIVIDEND PERIOD AUCTION DATE DIVIDEND RATE
------------------- --------------- ----------------- ------------------
<S> <C> <C> <C>
Series L........... 53 days February 10, 1995 4.792% per annum
Series M........... 76 days March 7, 1995 4.917% per annum
Series N........... 1,085 days December 10, 1997 7.500% per annum
</TABLE>
After the Initial Dividend Period, except as described in "The
Auction--Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate", the dividend rate on the shares of each series of New Auction
Preferred Stock will be the Applicable Rate per annum for such series that the
Auction Agent (The Bank of New York or any successor) advises the Company has
resulted from an Auction relating to such series. Separate Auctions will be
conducted for each series of New Auction Preferred Stock. See "Description of
New Auction Preferred Stock--Determination of Dividend Rate".
S-3
<PAGE> 4
As of the date of this Prospectus Supplement, the current dividend rate and
the next Auction Date for each series of Existing Auction Preferred Stock are as
follows:
<TABLE>
<CAPTION>
NEXT CURRENT
SERIES AUCTION DATE DIVIDEND RATE
-------------------------------------------- ----------------- -------------
<S> <C> <C>
Exchange Series A........................... January 3, 1995 4.436%
Exchange Series B........................... January 16, 2001 5.250%
Exchange Series C........................... December 20, 1994 3.820%
Exchange Series D........................... December 27, 1994 3.975%
Exchange Series E........................... July 22, 1997 6.000%
Exchange Series F........................... January 10, 1995 4.490%
Exchange Series G........................... February 10, 2004 6.100%
Exchange Series H........................... November 13, 1998 5.500%
Exchange Series I........................... October 20, 1995 9.125%
Exchange Series J........................... January 20, 1995 4.630%
Exchange Series K........................... May 3, 1996 4.950%
</TABLE>
Each series of New Auction Preferred Stock (and Existing Auction Preferred
Stock) will likely have different Dividend Payment Dates, different Auction
Dates and different dividend rates.
Dividends on the shares of New Auction Preferred Stock will be cumulative
from the Issue Date and will be payable, when, as and if declared by the Board
of Directors of the Company, out of surplus (as defined in the General
Corporation Law of the State of Delaware) or net profits for the fiscal year in
which the dividend was declared and for the preceding fiscal year, commencing on
the Initial Dividend Payment Date for each series. Thereafter, dividends will be
payable (a) for any series with a Short-Term Dividend Period (currently a period
of 49 days), on each seventh Monday with respect to Series L Flexible Rate
Auction Preferred Stock, each seventh Wednesday with respect to Series M
Flexible Rate Auction Preferred Stock and each seventh Thursday with respect to
Series N Flexible Rate Auction Preferred Stock following the commencement of
such Short-Term Dividend Period and (b) for any series with a Long-Term Dividend
Period (any period designated by the Term Selection Agent greater than the
Short-Term Dividend Period and consisting of a whole number of weeks), on the
last day of such Long-Term Dividend Period, and, if occurring prior to the last
day of such Long-Term Dividend Period, on the first day of the fourth month
after the commencement of such Long-Term Dividend Period and quarterly
thereafter on the first day of each succeeding third month, in each case subject
to certain adjustments.
In the event that the Company for any reason fails to pay dividends on the
New Auction Preferred Stock, the sole remedy of the holders will be the right to
elect additional directors as described under "Description of New Auction
Preferred Stock--Voting Rights".
As described in the following paragraph, the term of each subsequent
Dividend Period for each series of New Auction Preferred Stock will be a
Short-Term Dividend Period or, if established by the Term Selection Agent, a
Long-Term Dividend Period.
The Term Selection Agent may, based upon certain factors, give a Notice of
Long-Term Dividend Period not less than 10 and not more than 20 days prior to an
Auction Date for any series to the Company, the Auction Agent, the Paying Agent
and the Securities Depository. Such notice will specify, among other things, (i)
that the next succeeding Dividend Period for such series will be a Long-Term
Dividend Period and (ii) the term thereof. However, the Term Selection Agent may
not give a Notice of Long-Term Dividend Period for such series unless Sufficient
Clearing Bids were made in the last occurring Auction for such series and full
cumulative dividends for all series of New Auction Preferred Stock and Existing
Auction Preferred Stock (New Auction Preferred Stock and Existing Auction
Preferred Stock are collectively "Flex APS") payable prior to such date have
been paid in full. Any Notice of Long-Term Dividend Period may be revoked by the
Term Selection Agent on or prior to the second Business Day prior to the related
Auction by giving a Notice of Revocation to the Company, the Auction Agent, the
Paying Agent and the Securities Depository, and shall be
S-4
<PAGE> 5
deemed to have been revoked if on or prior to the second Business Day prior to
the related Auction, the Term Selection Agent shall have been removed and the
Company shall have given a Notice of Removal to the Auction Agent, the Paying
Agent and the Securities Depository. Except as set forth above, Notices of
Long-Term Dividend Period and Notices of Revocation given by the Term Selection
Agent will be conclusive and binding upon the Company and holders of shares of
affected series of New Auction Preferred Stock. If the Term Selection Agent does
not give a Notice of Long-Term Dividend Period with respect to the next
succeeding Dividend Period for any series or gives a Notice of Revocation with
respect thereto or such Notice of Long-Term Dividend Period shall be deemed to
have been revoked, such next succeeding Dividend Period will be a Short-Term
Dividend Period. In addition, in the event the Term Selection Agent has given a
Notice of Long-Term Dividend Period with respect to the next succeeding Dividend
Period for any series and has not given a Notice of Revocation with respect
thereto and such Notice of Long-Term Dividend Period shall not have been deemed
revoked, but Sufficient Clearing Bids are not made in the related Auction or
such Auction is not held for any reason, (i) such next succeeding Dividend
Period will, notwithstanding such Notice of Long-Term Dividend Period, be a
Short-Term Dividend Period, (ii) Existing Holders that submitted Sell Orders
with respect to shares of such series for purposes of such Auction may continue
to hold such shares and (iii) the Term Selection Agent may not again give a
Notice of Long-Term Dividend Period (and any such notice shall be null and void)
for such series until Sufficient Clearing Bids have been made in an Auction with
respect to a Short-Term Dividend Period for such series. See "Description of New
Auction Preferred Stock--Dividends--Extension of Dividend Period" and "The
Auction--Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate".
Each Broker-Dealer will be required to notify promptly each person that has
purchased shares of New Auction Preferred Stock from or through such
Broker-Dealer and, to the knowledge of such Broker-Dealer, remains an Existing
Holder of any such shares as to any Notice of Long-Term Dividend Period or
Notice of Revocation given by the Term Selection Agent or Notice of Removal
given by the Company. Holders of shares of any series of New Auction Preferred
Stock for which a Notice of Long-Term Dividend Period has been delivered should
contact their respective Broker-Dealers for further information. See "The
Auction--Broker-Dealers".
With respect to any series with a Short-Term Dividend Period, the Maximum
Applicable Rate on any Auction Date will be the rate obtained by multiplying the
60-day "AA" Composite Commercial Paper Rate on such Auction Date, and with
respect to any series with a Long-Term Dividend Period, the Maximum Applicable
Rate on any Auction Date will be the rate obtained by multiplying the Reference
Rate on such Auction Date, in each case, by a percentage determined as set forth
below based on the credit rating or ratings assigned to New Auction Preferred
Stock by Moody's and S&P (or if Moody's or S&P or both shall not make such
rating available, the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in the event that
only one such rating shall be available, the percentage will be based on such
rating).
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF
CREDIT RATING 60-DAY "AA" COMPOSITE
- ----------------------------------------------- COMMERCIAL PAPER
MOODY'S S&P RATE OR REFERENCE RATE
- --------------------- --------------------- ------------------------
<S> <C> <C>
"aa3" or Above AA-or Above 150%
"a3" to "a1" A-to A+ 200%
"baa3" to "baa1" BBB-to BBB+ 225%
Below "baa3" Below BBB- 250%
</TABLE>
If the ratings for any series of New Auction Preferred Stock are split
between two of the foregoing categories, the lower rating will determine the
prevailing rating.
If all shares of a series of New Auction Preferred Stock are subject to
Hold Orders on an Auction Date, the Minimum Applicable Rate for the next
Dividend Period for such series will be (i) in the case of a series with a
Short-Term Dividend Period, 59% of the 60-day "AA" Composite
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<PAGE> 6
Commercial Paper Rate in effect on such Auction Date and (ii) in the case of a
series with a Long-Term Dividend Period, 59% of the Reference Rate in effect on
such Auction Date. See "Description of New Auction Preferred
Stock--Dividends--Determination of Dividend Rate" and "The
Auction--Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate".
In the event that an Auction for any Dividend Period for any series is not
held for any reason (other than as a result of the existence of a Failure to
Deposit on the Auction Date for such Dividend Period), the dividend rate on the
shares of such series for such Dividend Period will be the Non-Auction Rate on
the Auction Date with respect to such Dividend Period. The Non-Auction Rate for
any series on an Auction Date for such series shall be the greater of (A) the
Applicable Rate in effect for such series immediately prior to such Auction Date
or (B) the Maximum Applicable Rate on such Auction Date for a Short-Term
Dividend Period, regardless of whether an Auction is held.
If the Company fails to deposit in a timely manner with the Auction Agent
the full amount of any dividend on any shares of New Auction Preferred Stock of
any series ("Failure to Deposit"), such Failure to Deposit occurs prior to the
beginning of a Dividend Period and is not cured within three Business Days after
such failure as set forth herein, Auctions for such series will be suspended,
until such time as set forth below, and the Applicable Rate for shares of such
series for each Dividend Period (until Auctions are resumed) commencing after
such Failure to Deposit will be equal to 200% of LIBOR on the first day of each
such Dividend Period and each such Dividend Period shall be a Short-Term
Dividend Period.
In the event a Failure to Deposit occurs during a Long-Term Dividend
Period, the Applicable Rate for such Dividend Period shall remain unchanged, and
an additional amount computed by multiplying (i) 200% of LIBOR on the date on
which such Failure to Deposit occurred by (ii) a fraction, the numerator of
which shall be the number of days for which such Failure to Deposit is not cured
(including the date such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 360 days, and
applying the rate obtained against accumulated dividends not paid when due,
shall accumulate as additional dividends on the shares of such series of New
Auction Preferred Stock. In the event that such Failure to Deposit is not cured
prior to the next succeeding Auction Date for shares of such series, Auctions
for such series will be suspended, the next succeeding Dividend Period will be a
Short-Term Dividend Period and the Applicable Rate will be equal to 200% of
LIBOR on the first day of such Dividend Period. Thereafter until such Failure to
Deposit shall have been cured and full and cumulative dividends on the shares of
such series shall have been paid in full or the Company shall have declared a
dividend in such amount and funds sufficient for the payment thereof shall have
been irrevocably deposited with the Paying Agent, each subsequent Dividend
Period and Applicable Rate for such Service will be determined pursuant to the
next preceding paragraph.
In the event such Failure to Deposit is cured and if prior to an Auction
Date for shares of New Auction Preferred Stock of such series, full and
cumulative dividends shall have been paid in full or the Company shall have
declared a dividend in such amount and funds sufficient for the payment thereof
shall have been irrevocably deposited with the Paying Agent, Auctions for such
series will resume. See "Description of New Auction Preferred
Stock--Dividends--Determination of Dividend Rate".
Dividends will be paid through the Securities Depository (The Depository
Trust Company or a successor securities depository) on each Dividend Payment
Date. The Securities Depository's normal procedures now provide for it to
distribute dividends in next-day funds settled through the New York Clearing
House to Agent Members who are in turn expected to distribute such dividends to
the persons for whom they are acting as agents. See "The Auction--Securities
Depository".
S-6
<PAGE> 7
Auction Procedures
Separate Auctions will be conducted for each series of New Auction
Preferred Stock (and for each series of Existing Auction Preferred Stock). As
used in the following description of the Auction Procedures, all references to
"Flex APS" are to a single series of New Auction Preferred Stock.
Prior to the Submission Deadline on each Auction Date for the applicable
series (the Business Day prior to the beginning of each Dividend Period for such
series), each Existing Holder may submit Orders through a Broker-Dealer to the
Auction Agent as follows:
Hold Order--indicating its desire to hold shares of Flex APS without
regard to the Applicable Rate for the next Dividend Period.
Bid--indicating its desire to sell shares of Flex APS if the
Applicable Rate for the next Dividend Period shall be less than the rate
specified in such Bid.
Sell Order--indicating its desire to sell shares of Flex APS without
regard to the Applicable Rate for the next Dividend Period.
An Existing Holder may submit different types of Orders in an Auction with
respect to shares then held by such Existing Holder. If an Existing Holder
offers to purchase additional shares of Flex APS, such an Existing Holder, for
purposes of such offer to purchase additional shares, will be treated as a
Potential Holder as described below. Bids by Existing Holders with rates higher
than the Maximum Applicable Rate will be treated as Sell Orders. A Hold Order
shall be deemed to have been submitted on behalf of an Existing Holder if an
Order is not submitted on behalf of such Existing Holder for any reason,
including the failure of a Broker-Dealer to submit such Existing Holder's Order
to the Auction Agent.
The Maximum Applicable Rate at any Auction for a series subject to a
Short-Term Dividend Period will be based upon the 60-day "AA" Composite
Commercial Paper Rate in effect on such Auction Date and the Maximum Applicable
Rate at any Auction for a series subject to a Long-Term Dividend Period will be
based upon the Reference Rate in effect on such Auction Date. See "Description
of New Auction Preferred Stock--Dividends" and "The Auction--Determination of
Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate".
Potential Holders of shares of Flex APS may submit Bids in which they will
offer to purchase shares of Flex APS if the Applicable Rate for the next
Dividend Period is not less than the rate specified in such Bid. A Bid by a
Potential Holder with a rate higher than the Maximum Applicable Rate will not be
accepted.
If Sufficient Clearing Bids exist (that is, the number of shares of Flex
APS subject to Bids by Potential Holders is at least equal to the number of
shares of Flex APS subject to Sell Orders by Existing Holders), the Applicable
Rate will be the lowest rate specified in the Submitted Bids that, taking into
account such rate and all lower rates bid by Existing Holders and Potential
Holders, would result in Existing Holders and Potential Holders owning all of
the shares of Flex APS available for purchase in the Auction. If Sufficient
Clearing Bids do not exist, then (a) if the Term Selection Agent has not given a
Notice of Long-Term Dividend Period with respect to the next succeeding Dividend
Period for a series or has given a Notice of Revocation with respect thereto or
such Notice of Long-Term Dividend Period shall be deemed to have been revoked,
the Applicable Rate for such series for such next succeeding Dividend Period
will be the Maximum Applicable Rate on the Auction Date for a Short-Term
Dividend Period and (b) if the Term Selection Agent has given a Notice of
Long-Term Dividend Period with respect to the next succeeding Dividend Period
for a series and has not given a Notice of Revocation with respect thereto and
such Notice of Long-Term Dividend Period shall not have been deemed revoked,
such next succeeding Dividend Period will, notwithstanding such Notice of
Long-Term Dividend Period, be a Short-Term Dividend Period, and the Applicable
Rate for such next succeeding Dividend Period will be the greatest of (i) the
Applicable Rate for such series in effect immediately prior to the applicable
Auction, (ii) the Maximum Applicable Rate on the Auction Date for a Short-Term
Dividend Period or (iii) the
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<PAGE> 8
Maximum Applicable Rate on the Auction Date for the specified Long-Term Dividend
Period. If all existing Holders submit (or are deemed to have submitted) only
Hold Orders, the Applicable Rate will be the Minimum Applicable Rate for a
Short-Term Dividend Period or a Long-Term Dividend Period, as applicable. See
"Description of New Auction Preferred Stock--Dividends".
If Sufficient Clearing Bids have not been made, existing Holders that have
submitted Sell Orders will not be able to sell in the Auction all or any of such
series subject to such Submitted Sell Orders. Thus, it is possible that there
may not always be a liquid market for the Flex APS. See "The Auction--Acceptance
and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of
Shares" below.
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder selling or holding, or a
Potential Holder purchasing, a number of shares of Flex APS that is less than
the number of shares of Flex APS specified in its Order. See "The
Auction--Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares".
A Sell Order by an Existing Holder will constitute an irrevocable offer to
sell the shares of Flex APS subject thereto, and a Bid placed by an Existing
Holder will also constitute an irrevocable offer to sell the shares of Flex APS
subject thereto if the rate specified in such Bid is higher than the Applicable
Rate determined in the Auction, in each case at a price per share equal to
$100,000. A Bid placed by a Potential Holder shall constitute an irrevocable
offer to purchase the shares of Flex APS subject thereto, if the rate specified
in such Bid is less than or equal to the Applicable Rate determined in such
Auction, at a price per share equal to $100,000. Settlement of purchases and
sales will be made on the next Business Day (also a Dividend Payment Date) after
the Auction Date through the Securities Depository. Purchasers will make payment
through their Agent Members in same-day funds to the Securities Depository
against delivery of the Shares by book entry to their Agent Members. The
Securities Depository will make payment to the sellers' Agent Members in
accordance with the Securities Depository's normal procedures, which now provide
for payment in same-day funds settled through the New York Clearing House. See
"The Auction".
Liquidation Preference
The liquidation preference of each share of New Auction Preferred Stock
will be $100,000, plus an amount equal to accumulated and unpaid dividends
thereon. See "Description of New Auction Preferred Stock--Rights on Liquidation
or Cash-Out Merger".
Voting Rights
Holders of record of the shares of New Auction Preferred Stock and Voting
Preferred will have the right, voting as a single class together with holders of
all other shares of preferred stock (including the Existing Auction Preferred
Stock, Series A Cumulative Preferred Stock (Series A Preferred Stock), Series B
Cumulative Preferred Stock (Series B Preferred Stock), Series C Cumulative
Preferred Stock (Series C Preferred Stock) and Series D Cumulative Preferred
Stock (Series D Preferred Stock)), ranking on parity as to dividends with shares
of New Auction Preferred Stock ("Parity Preferred") to elect not less than 25%
of the directors of the Company. On all matters other than the election of
directors as to which stockholders generally have a vote, each share of New
Auction Preferred Stock and Voting Preferred will be entitled to the number of
votes determined as described under "Description of New Auction Preferred
Stock--Voting Rights" and each share of Common Stock will be entitled to one
vote.
Based on the current number of directors on the Board of Directors of the
Company, holders of New Auction Preferred Stock and Voting Preferred will be
entitled to nominate and elect two directors, and based on the number of
outstanding shares of Voting Preferred and Common Stock as of the date of this
Prospectus Supplement, each share of New Auction Preferred Stock will be
entitled to 0.0195399 votes.
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During any Default Period that dividend payments on any series of New
Auction Preferred Stock or Parity Preferred have not been paid or declared and a
sum sufficient for the payment thereof set aside for payment for such number of
Dividend Periods, or portions thereof (or the equivalent thereof in the case of
Parity Preferred), which in the aggregate contain at least 540 days, then the
holders of record of the shares of all series of New Auction Preferred Stock and
Parity Preferred will possess full voting powers (to the exclusion of the
holders of all other series and classes of capital stock of the Company), voting
as a single class, to elect two additional directors of the Company. The Company
will be obligated to call or cause to be called a special meeting for the
election of such directors as soon as practicable on not less than 10 days' nor
more than 45 days' notice. See "Description of New Auction Preferred
Stock--Voting Rights".
In addition, approval of the holders of at least two-thirds in some cases
and a majority in other cases of the outstanding shares of New Auction Preferred
Stock, Voting Preferred and Parity Preferred, voting together as a single class,
or of the outstanding shares of New Auction Preferred Stock and Parity
Preferred, voting together as a single class, or of the outstanding shares of
New Auction Preferred Stock voting alone, as the case may be, will be required
to authorize certain actions of the Company. See "Description of New Auction
Preferred Stock--Voting Rights".
Redemption
Shares of New Auction Preferred Stock are not redeemable.
Merger or Consolidation
In any merger or consolidation of the Company with or into any other
corporation (including any affiliated corporation), or any merger or
consolidation of any other corporation (including any affiliated corporation)
with or into the Company, which merger or consolidation by its terms provides
for the payment of only cash to holders of New Auction Preferred Stock, the
holders of New Auction Preferred Stock will be entitled to receive an amount
equal to the liquidation preference of New Auction Preferred Stock, any Merger
Premium (as defined herein), plus an amount equal to accumulated and unpaid
dividends thereon, and no more. Such a merger or consolidation will be deemed to
be a liquidation of the Company solely for purposes of determining the rights of
the holders of New Auction Preferred Stock in respect of such merger or
consolidation. See "Description of New Auction Preferred Stock--Rights on
Liquidation or Cash-Out Merger". A merger or consolidation in which the holders
of New Auction Preferred Stock. Voting Preferred and Parity Preferred receive an
amount equal to the liquidation preference, premium, if any, and accumulated and
unpaid dividends on their shares may be approved at any time without a class
vote by the holders of such shares. See "Description of New Auction Preferred
Stock--Voting Rights".
Ranking
New Auction Preferred Stock will rank senior to the Company's Common Stock
and on a parity with the Existing Auction Preferred Stock, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock with respect to dividends and upon liquidation,
dissolution or winding up. See "Description of Preferred Stock--General" in the
Prospectus to which this Prospectus Supplement is attached.
Purchaser's Letters and Restrictions on Transfer
Each prospective purchaser of any shares of any series of New Auction
Preferred Stock will be required to sign and deliver a Purchaser's Letter in
which such prospective purchaser will represent and agree, among other things,
that (i) any Bid or Sell Order placed by such purchaser will constitute an
irrevocable offer to purchase or sell the shares of New Auction Preferred Stock
subject to such Bid or Sell Order, or such lesser number of shares of such
series as such purchaser will be required to sell or purchase in accordance with
the terms set forth in this Prospectus; that a failure
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by such purchaser or its Broker-Dealer to place a Bid or Sell Order will be
deemed to constitute a Hold Order with respect to shares of New Auction
Preferred Stock owned by such purchaser; (ii) it will sell, transfer or
otherwise dispose of shares of a series of New Auction Preferred Stock only (A)
to the Company or (B) pursuant to a Bid or Sell Order in an Auction, or (C) to
or through a Broker-Dealer or (D) to a person who has delivered a signed
Purchaser's Letter for such series to the Auction Agent, provided, that in the
case of (A), (C) or (D), such purchaser, its Broker-Dealer or its Agent Member
of the Securities Depository advises the Auction Agent of such disposition; and
(iii) all of the outstanding shares of each series of New Auction Preferred
Stock will be represented by a certificate or certificates registered in the
name of the nominee of the Securities Depository; that such purchaser will not
be entitled to receive any certificate representing any shares of New Auction
Preferred Stock acquired by it; that the ownership of such shares of New Auction
Preferred Stock as to which the purchaser is the Existing Holder will be
maintained in book entry form by the Securities Depository, in the account of
its Agent Member which in turn will maintain such records of such purchaser's
beneficial ownership; and that such Agent Member is authorized to disclose to
the Auction Agent such information relating to the purchaser's beneficial
ownership as the Auction Agent shall require.
EXECUTION OF A PURCHASER'S LETTER IS NOT A COMMITMENT TO PURCHASE SHARES OF
NEW AUCTION PREFERRED STOCK IN ANY AUCTION OR OTHERWISE, BUT IS A CONDITION
PRECEDENT TO PURCHASING SHARES OF NEW AUCTION PREFERRED STOCK.
Federal Income Tax Considerations
The Company has received an opinion of its tax counsel that, for federal
income tax purposes, the shares of New Auction Preferred Stock constitute stock
of the Company, distributions made by the Company with respect to the shares of
New Auction Preferred Stock during a taxable year of the Company will constitute
dividends to the extent made out of current or accumulated earnings and profits
of the Company as calculated for federal income tax purposes and, accordingly,
any corporate holder of shares of New Auction Preferred Stock otherwise entitled
to the Dividends Received Deduction will be entitled to such deduction for
dividends received on the shares of New Auction Preferred Stock, provided
certain requirements are met. See "Tax Considerations".
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CAPITALIZATION
The following table sets forth the capitalization of the Company and its
subsidiaries at September 30, 1994 and as adjusted to give effect to the
proceeds from the sale of New Auction Preferred Stock offered hereby, net of the
estimated expenses in connection with such sale:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
--------------------
AS AS
REPORTED ADJUSTED
-------- --------
(IN MILLIONS)
<S> <C> <C>
Debt payable within one year, including the current portion of long-term
debt.................................................................. $ 15,364 $ 15,364
Long-term debt.......................................................... 17,135 17,135
Minority interests in net assets of subsidiaries........................ 19 19
Stockholders' Equity
Preferred stock, $1.00 a share par value, 100,000 shares authorized
Flex APS, $800 million aggregate liquidation preference
Issued and outstanding--8,000 shares..................... 800 800
Series A Preferred Stock, $286 million aggregate liquidation
preference
Issued and outstanding--2,856.7719 shares................ 286 286
Series B Preferred Stock, $173 million aggregate liquidation
preference
Issued and outstanding--1,730.0617 shares................ 173 173
Series C Preferred Stock, $200 million aggregate liquidation
preference
Issued and outstanding--2,000.5462 shares................ 200 200
Series D Preferred Stock, $200 million aggregate liquidation
preference
Issued and outstanding--2,000 shares..................... 200 200
New Auction Preferred Stock, $215 million aggregate
liquidation preference
Issued and outstanding--2,150 shares (as adjusted)....... -- 215
Common stock, $1.00 a share par value, 10,000 shares authorized
Issued and outstanding--1,099 shares.......................... * *
Capital in excess of par value of stock............................ 969 966
Unrealized loss on marketable securities, net of taxes............. (120) (120)
Foreign currency translation adjustments........................... (3) (3)
Earnings retained for use in business.............................. 2,189 2,189
-------- --------
Total Stockholders' Equity.............................................. 4,694 4,906
-------- --------
Total Capitalization.................................................... $ 37,212 $ 37,424
======== ========
</TABLE>
- -------------------------
* Less than $50,000.
USE OF PROCEEDS
The net proceeds from the sale of New Auction Preferred Stock will be used
for general corporate purposes, including financing operations of the Company or
its subsidiaries. Additional equity financing, as well as short-term and
long-term debt financing, may be undertaken at such times, and through such
means, as the Company deems appropriate.
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DESCRIPTION OF NEW AUCTION PREFERRED STOCK
The following is a brief description of the terms of the shares of New
Auction Preferred Stock, which supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of
Preferred Stock set forth in the Prospectus to which this Prospectus Supplement
is attached. The 2,150 shares of New Auction Preferred Stock offered hereby are
part of the 5,000 shares of Preferred Stock of the Company registered with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities Act of
1933, as amended, in December 1994 to be issued on terms to be determined at the
time of sale. This description does not purport to be complete and is subject to
and qualified in its entirety by reference to the Company's Certificate of
Incorporation and the Certificate of Designations with respect to the shares of
New Auction Preferred Stock (the "Certificate of Designations"), the Auction
Agent Agreement, the Broker-Dealer Agreements, the Term Selection Agent
Agreement, the Purchaser's Letters and certain other agreements referred to or
described herein, copies or forms of which have been or will be filed with the
SEC. Copies of such documents may be obtained from the Company or the Auction
Agent.
GENERAL
The authorized capital stock of the Company consists of 10,000 shares of
Common Stock, par value $1.00 per share (the "Common Stock"), and 100,000 shares
of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), issuable
from time to time in series with such designations, preferences and rights as
are determined by the Board of Directors of the Company (the "Board of
Directors"). At December 1, 1994, there were outstanding 1,099 shares of Common
Stock and 16,597.9718 shares of Preferred Stock, of which 8,000 consisted of
Flex APS, 2,864.9489 consisted of Series A Preferred Stock, 1,731.7872 consisted
of Series B Preferred Stock, 2,001.1632 consisted of Series C Preferred Stock
and 2,000.0725 consisted of Series D Preferred Stock. In August, 1994 the Board
of Directors authorized the issuance of up to 82,899.5 shares of Preferred Stock
in series and authorized the Certificate of Designations Committee of the Board
of Directors (the "Committee") to establish and designate series and to fix the
number of shares and the relative rights, preferences and limitations of the
respective series of Preferred Stock (except for the voting rights and the
aggregate liquidation preference of the Preferred Stock which the Board of
Directors has fixed).
The shares of New Auction Preferred Stock have a liquidation preference of
$100,000 per share plus an amount equal to accumulated and unpaid dividends and
will be fully paid and nonassessable. The shares of New Auction Preferred Stock
will not be convertible into shares of Common Stock or other capital stock of
the Company and will have no preemptive rights. The shares of New Auction
Preferred Stock will not be subject to any sinking fund and will not be subject
to redemption.
In addition to serving as the Auction Agent in connection with the Auction
Procedures described below, the Auction Agent will be the transfer agent,
registrar and dividend disbursing agent for New Auction Preferred Stock (the
"Paying Agent"). The Auction Agent, however, will serve merely as the agent of
the Company, acting in accordance with the Company's instructions, and will not
be responsible for any evaluation or verification of the various matters
required to be certified to it.
Except in an Auction, the Company shall have the right to purchase or
otherwise acquire any shares of New Auction Preferred Stock at any price so long
as the Company is current in the payment of dividends on New Auction Preferred
Stock. Any shares of New Auction Preferred Stock purchased or otherwise acquired
by the Company shall not be resold and shall be retired.
DIVIDENDS
General. The holders of shares of each series of New Auction Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors of the Company, out of surplus (as defined in the General Corporation
Law of the State of Delaware) or net profits for the fiscal year in
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which the dividend was declared and for the preceding fiscal year, cumulative
cash dividends at the Applicable Rate per annum, determined as set forth below
under "Determination of Dividend Rate", payable on the respective dates set
forth below. In the event that the Company for any reason fails to pay dividends
on New Auction Preferred Stock, the sole remedy of the holder will be the right
to elect additional directors as described under "Voting Rights" below.
So long as any shares of a series of New Auction Preferred Stock are
outstanding, the Company may not declare, pay or set apart for payment any
dividend (other than a dividend in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Common Stock or Junior Stock (as defined
below)) or other distribution in respect of its Common Stock or any other stock
of the Company ranking junior to the shares of New Auction Preferred Stock as to
dividends or upon liquidation ("Junior Stock"), or call for redemption, redeem,
purchase or otherwise acquire for consideration any shares of its Common Stock
or Junior Stock (except by conversion into or exchange for other shares of
Common Stock or Junior Stock) unless full cumulative dividends on all shares of
New Auction Preferred Stock for all past dividend periods shall have been
declared and paid (or declared and a sum sufficient for the payment of the
dividends set apart for payment). No dividends may be declared or paid or set
apart for payment on any shares of New Auction Preferred Stock unless full
cumulative dividends have been or contemporaneously are declared and paid on
each of the shares of New Auction Preferred Stock and the shares of all other
Parity Preferred through the most recent applicable dividend payment date for
such shares. In addition, the Company may not purchase or otherwise acquire any
shares of New Auction Preferred Stock during any period when dividend payments
on any outstanding shares of New Auction Preferred Stock or Parity Preferred are
in arrears.
Dividends on the shares of New Auction Preferred Stock will accumulate
(whether or not declared) from the Issue Date. Dividends on the shares of each
series of New Auction Preferred Stock with a Short-Term Dividend Period will be
payable commencing on the Initial Dividend Payment Date for such series and
thereafter, except as provided below, on each seventh Monday with respect to
Series L Flexible Rate Auction Preferred Stock, each seventh Wednesday with
respect to Series M Flexible Rate Auction Preferred Stock and each seventh
Thursday with respect to Series N Flexible Rate Auction Preferred Stock
following the preceding Dividend Payment Date for such series. Dividends on the
shares of each series of New Auction Preferred Stock with a Long-Term Dividend
Period will be payable on the last day of such Long-Term Dividend Period and, if
occurring prior to the last day of such Long-Term Dividend Period, on the first
day of the fourth month after the commencement of such Long-Term Dividend Period
and quarterly thereafter on the first day of each succeeding third month. Each
day on which dividends on shares of a series of New Auction Preferred Stock
would be payable as determined as set forth in this paragraph but for
adjustments set forth below is referred to herein as a "Normal Dividend Payment
Date".
In the case of dividends payable with respect to a series of New Auction
Preferred Stock with a Short-Term Dividend Period, if:
(a) (i) The Securities Depository shall continue to make available to
its members and participants the amounts due as dividends on the shares of
such series of New Auction Preferred Stock in next-day funds on the dates
on which such dividends are payable and (ii) a Normal Dividend Payment Date
for such series is not a Business Day, or the day next succeeding such
Normal Dividend Payment Date is not a Business Day, then dividends shall be
payable on the first Business Day preceding such Normal Dividend Payment
Date that is next succeeded by a Business Day; or
(b) (i) The Securities Depository shall make available to its members
and participants the amounts due as dividends on the shares of such series
of New Auction Preferred Stock in immediately available funds on the dates
on which such dividends are payable (and the Securities Depository shall
have so advised the Auction Agent) and (ii) a Normal Dividend
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<PAGE> 14
Payment Date for such series is not a Business Day, then dividends shall be
payable on the first Business Day following such Normal Dividend Payment
Date.
In the case of dividends payable with respect to a series of New Auction
Preferred Stock with a Long-Term Dividend Period, if:
(a) (i) The Securities Depository shall continue to make available to
its members and participants the amounts due as dividends on the shares of
such series of New Auction Preferred Stock in next-day funds on the dates
on which such dividends are payable and (ii) a Normal Dividend Payment Date
for such series is not a Business Day, or the day next succeeding such
Normal Dividend Payment Date is not a Business Day, then dividends shall be
payable on the first Business Day following such Normal Dividend Payment
Date that is next succeeded by a Business Day; or
(b) (i) The Securities Depository shall make available to its members
and participants the amounts due as dividends on the shares of such series
of New Auction Preferred Stock in immediately available funds on the dates
on which such dividends are payable (and the Securities Depository shall
have so advised the Auction Agent) and (ii) a Normal Dividend Payment Date
for such series is not a Business Day, then dividends shall be payable on
the first Business Day following such Normal Dividend Payment Date.
Notwithstanding the foregoing, if the date on which dividends on the shares
of any series of New Auction Preferred Stock would be payable as determined as
set forth in the preceding three paragraphs is a day that would result in the
number of days between successive Auction Dates for such series (determined by
including the first Auction Date and excluding the second Auction Date) not
being at least equal to the then current minimum holding period for purposes of
the Dividends Received Deduction, then dividends on such shares shall be
payable, if clause (a) of either of the two preceding paragraphs would be
applicable to such series, on the first Business Day following such date on
which dividends would be so payable that is next succeeded by a Business Day or,
if clause (b) of either of the two preceding paragraphs would be applicable to
such series, on the first Business Day following such day on which dividends
would be so payable, that in either case results in the number of days between
such successive Auction Dates for such series (determined as set forth above)
being at least equal to the then current minimum holding period.
In addition, notwithstanding the foregoing, in the event of a change in law
altering the minimum holding period (currently found in Section 246(c) of the
Code) required for taxpayers to be entitled to the Dividends Received Deduction
on preferred stock held by nonaffiliated corporations (currently found in
Section 243(a) of the Code), the Board of Directors of the Company may adjust
the period of time between Dividend Payment Dates so as to adjust uniformly the
number of days (such number of days without giving effect to the adjustments
referred to above being referred to herein as "Dividend Period Days") in
Dividend Periods commencing after the date of such change in law to equal or
exceed the then current minimum holding period, provided that the number of
Dividend Period Days shall not exceed by more than nine days the length of such
then current minimum holding period and shall be evenly divisible by seven, and
the maximum number of Dividend Period Days, as adjusted pursuant to this
provision, in no event shall exceed 98 days. Upon any such change in the number
of Dividend Period Days as a result of a change in law, the Company will give
notice of such change to all Existing Holders of New Auction Preferred Stock.
In addition, in the event that the time between Dividend Payment Dates is
adjusted as described in the preceding paragraph for any series, each
Broker-Dealer is required under the Broker-Dealer Agreements to mail notice to
each Existing Holder who acquired shares of such series through such
Broker-Dealer and, to the knowledge of such Broker-Dealer, has not disposed of
such shares, at the address specified in such Existing Holder's Purchaser's
Letter, at least 10 Business Days prior to the first day of the Dividend Period
for which such change is to be effective.
Each date on which dividends on the shares of a series shall be payable as
determined as set forth above is referred to herein as a "Dividend Payment Date"
for such series. If applicable, the period from the preceding Dividend Payment
Date to the next Dividend Payment Date for any series
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<PAGE> 15
with a Long-Term Dividend Period is herein referred to as a "Dividend Quarter".
Although any particular Dividend Payment Date for a series may not occur on the
originally scheduled Normal Dividend Payment Date for such series because of the
adjustments set forth above, each succeeding Dividend Payment Date for such
series will be, subject to such adjustments, the date determined as set fourth
above in the third paragraph under "Dividends--General" as if each preceding
Dividend Payment Date had occurred on the respective originally scheduled Normal
Dividend Payment Date.
After the Initial Dividend Period for each series of New Auction Preferred
Stock, each subsequent Dividend Period for such series will (except for the
adjustments for non-Business Days described above) be 49 days (each such 49-day
period, subject to any adjustment as a result of a change in law lengthening the
minimum holding period as described above, being herein referred to as a
"Short-Term Dividend Period"), unless, as described under "Extension of Dividend
Period" below, the Term Selection Agent specifies that any such subsequent
Dividend Period will be a Long-Term Dividend Period (each such Short-Term
Dividend Period and Long-Term Dividend Period, together with the periods
commencing on the Issue Date and ending on the respective Initial Dividend
Payment Dates for each series of New Auction Preferred Stock, being referred to
herein as a "Dividend Period"). After the Initial Dividend Period for a series,
each successive Dividend Period for such series will commence on the Dividend
Payment Date ending the preceding Dividend Period and will end (i) in the case
of any series with a Short-Term Dividend Period, on the next Dividend Payment
Date for such series and (ii) in the case of any series with a Long-Term
Dividend Period, on the last day of the Long-Term Dividend Period specified by
the Term Selection Agent in the related notice of Long-Term Dividend Period.
On the Business Day prior to each Dividend Payment Date, the Company is
required to deposit with the Paying Agent sufficient funds for the payment of
declared dividends. The Company does not intend to establish any reserves for
the payment of dividends.
Each dividend will be payable to the holder or holders of record of the New
Auction Preferred Stock as they appear on the stock books of the Company on the
Business Day next preceding the applicable Dividend Payment Date. Dividends in
arrears for any past Dividend Period (and for any past Dividend Quarter during a
Long-Term Dividend Period) may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to the Securities Depository.
Any dividend payment made on shares of New Auction Preferred Stock shall first
be credited against the dividends accumulated with respect to the earliest
Dividend Period (or, if applicable, the earliest Dividend Quarter) for which
dividends have not been paid. So long as the shares of New Auction Preferred
Stock are held of record by the nominee of the Securities Depository, dividends
will be paid to the nominee of the Securities Depository on each Dividend
Payment Date. The Securities Depository will credit the accounts of the Agent
Members of Existing Holders in accordance with the Securities Depository's
normal procedures, which now provide for payments in next-day funds settled
through the New York Clearing House. The Agent Member of an Existing Holder will
be responsible for holding or disbursing such payments to Existing Holders in
accordance with the instructions of such Existing Holders. See "The
Auction--Purchaser's Letter".
Holders of shares of New Auction Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the shares of New
Auction Preferred Stock which may be in arrears.
The amount of dividends per share of any series of the New Auction
Preferred Stock payable for each Dividend Period (or for each Dividend Quarter
during any Long-Term Dividend Period) for any such series shall be computed by
multiplying the Applicable Rate for each Dividend Period (or Dividend Quarter)
by a fraction the numerator of which shall be the number of days in the Dividend
Period (or Dividend Quarter) (calculated by counting the first day thereof but
excluding the last day thereof) such share was outstanding and the denominator
of which shall be 360 and multiplying the amount so obtained by $100,000.
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Extension of Dividend Period. Not less than 10 and not more than 20 days
prior to an Auction Date for any series and based on the criteria set forth
below, the Term Selection Agent may give telephonic and written notice to the
Company, the Auction Agent, the Paying Agent and the Securities Depository that
the next succeeding Dividend Period will be longer than a Short-Term Dividend
Period (a "Notice of Long-Term Dividend Period"). Such notice will specify the
next succeeding Dividend Period for such series as a Long-Term Dividend Period,
which may be any period designated by the Term Selection Agent greater than the
Short-Term Dividend Period (currently 49 days) and consisting of a whole number
of weeks (a "Long-Term Dividend Period") and whether such shares shall be
entitled under certain circumstances to a premium upon consolidation or merger
of the Company with or into any other corporation ("Merger Premium"), provided
that the Term Selection Agent may not give Notice of Long-Term Dividend Period
for such series (and any such notice shall be null and void) unless Sufficient
Clearing Bids were made in the last occurring Auction for such series and full
cumulative dividends for all series of Flex APS payable prior to such date have
been paid in full. The Term Selection Agent may establish a Long-Term Dividend
Period (including any Merger Premium) for the shares of a series of New Auction
Preferred Stock, if the Term Selection Agent determines that such Long-Term
Dividend Period (including any Merger Premium), in its sole opinion, provides
the Company with the most favorable financing alternative based upon the
following: (i) short-term and long-term market rates and indices of such
short-term and long-term rates, (ii) the amounts, maturities and interest or
dividend rates on the then outstanding securities of the Company or its
subsidiaries, (iii) market supply and demand for short-term and long-term
securities, (iv) yield curves for short-term and long-term securities comparable
to the shares of New Auction Preferred Stock, (v) industry and financial
conditions which may affect the shares of New Auction Preferred Stock, including
the Term Selection Agent's expectations with respect thereto, (vi) current tax
laws and administrative interpretations with respect thereto, (vii) the number
of shares of Flex APS outstanding on the next Auction Date and (viii) the number
of potential purchasers. Any Notice of Long-Term Dividend Period may be revoked
by the Term Selection Agent on or prior to the second Business Day prior to the
related Auction by telephonic and written notice (a "Notice of Revocation") to
the Company, the Auction Agent, the Paying Agent and the Securities Depository,
specifying that the Term Selection Agent has determined that because of
subsequent changes in any of the foregoing factors, such Long-Term Dividend
Period would not result in the most favorable financing alternatives for the
Company, and shall be deemed to have been revoked if on or prior to the second
Business Day prior to the related Auction, the Term Selection Agent shall have
been removed and the Company shall have given notice of such removal ("Notice of
Removal") to the Auction Agent, the Paying Agent and the Securities Depository.
See "Voting Rights" below.
If the Term Selection Agent does not give a Notice of Long-Term Dividend
Period with respect to the next succeeding Dividend Period for any series or
gives a Notice of Revocation with respect thereto or such Notice of Long-Term
Dividend Period shall be deemed to have been revoked, such next succeeding
Dividend Period will be a Short-Term Dividend Period. In addition, in the event
the Term Selection Agent has given a Notice of Long-Term Dividend Period with
respect to the next succeeding Dividend Period for any series and has not given
a Notice of Revocation with respect thereto and such Notice of Long-Term
Dividend Period shall not have been deemed revoked, but Sufficient Clearing Bids
are not made in the related Auction for such series or such Auction is not held
for any reason, such next succeeding Dividend Period will, notwithstanding such
Notice of Long-Term Dividend Period, be a Short-Term Dividend Period and the
Term Selection Agent may not again give a Notice of Long-Term Dividend Period
(and any such notice shall be null and void) for such series until Sufficient
Clearing Bids have been made in an Auction with respect to a Short-Term Dividend
Period for such series.
The Auction Agent will be required to notify promptly each Broker-Dealer,
and each Broker-Dealer will be required to notify promptly each person that has
purchased shares of New Auction Preferred Stock from or through such
Broker-Dealer and, to the knowledge of such Broker-Dealer, remains an Existing
Holder of any such shares, as to any Notice of Long-Term Dividend Period or
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any Notice of Revocation given by the Term Selection Agent or Notice of Removal
given by the Company. Holders of shares of any series for which a Notice of
Long-Term Dividend Period has been delivered should contact their respective
Broker-Dealers for further information.
Term Selection Agent Agreement. On or prior to the Issue Date, the Company
will enter into an agreement with Bear, Stearns & Co. Inc., Goldman, Sachs & Co.
and Lehman Brothers Inc., or an amendment to the existing Term Selection Agent
Agreement in respect of the Existing Auction Preferred Stock between the Company
and Goldman, Sachs & Co. and Lehman Brothers Inc., (such new agreement or such
amendment is hereinafter called the Term Selection Agent Agreement and Bear,
Stearns & Co. Inc., Goldman, Sachs & Co. and Lehman Brothers Inc. are
hereinafter, collectively, the "Term Selection Agent"), providing that the Term
Selection Agent will establish the length of any Long-Term Dividend Period for
any series of New Auction Preferred Stock in accordance with the provisions of
the Certificate of Designations and such Agreement. The Certificate of
Designations provides that any Long-Term Dividend Period specified by the Term
Selection Agent for each series of New Auction Preferred Stock and any
revocation thereof will be conclusive and binding on the Company and the holders
of the shares of such series of New Auction Preferred Stock.
The Term Selection Agent will act solely as agent for the Company. In the
absence of bad faith or gross negligence on its part, the Term Selection Agent
will not be liable for any action taken, suffered, or omitted or for any error
of judgment made by it in the performance of its duties under the Term Selection
Agent Agreement. The Company will indemnify the Term Selection Agent for, and
hold it harmless against, any loss, liability or expense incurred without gross
negligence or bad faith on its part arising out of or in connection with its
agency, duties or functions under the Term Selection Agent Agreement.
The Term Selection Agent may resign and terminate the Term Selection Agent
Agreement with respect to a series of New Auction Preferred Stock upon 20 days'
written notice to the Company; provided that no such resignation may become
effective within 25 days prior to an Auction Date for a series of New Auction
Preferred Stock. The Company may remove the Term Selection Agent for any series
of New Auction Preferred Stock upon 5 days' written notice. The Certificate of
Designations provides that if there is no Term Selection Agent with respect to a
subsequent Dividend Period, then such Dividend Period will be a Short-Term
Dividend Period. The Certificate of Designations provides that the Company will
use its best efforts to maintain a Term Selection Agent to act in accordance
with the provisions described above for each series.
Determination of Dividend Rate. The initial dividend rate for the initial
Dividend Period for each series of New Auction Preferred Stock is set forth
under "Prospectus Supplement Summary". The dividend rate for each subsequent
Dividend Period commencing for each series will be at a rate per annum, except
as provided below (the "Applicable Rate"), that results from the related
Auction. See "The Auction--Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate".
In the event that an Auction for any Dividend Period for any series is not
held for any reason (other than as a result of the existence of a Failure to
Deposit (as defined below) on the Auction Date for such Dividend Period), the
dividend rate on the shares of such series for such Dividend Period will be the
Non-Auction Rate on the Auction Date with respect to such Dividend Period. The
"Non-Auction Rate" for any series on an Auction Date for such series shall be
the greater of (A) the Applicable Rate in effect for such series immediately
prior to such Auction Date or (B) the Maximum Applicable Rate in effect on such
Auction Date for a Short-Term Dividend Period, regardless of whether an Auction
is held.
In the event a Failure to Deposit occurs prior to the beginning of a
Dividend Period and is not cured in accordance with the next succeeding
sentence, Auctions for such series will be suspended, until such time as set
forth below, and the Applicable Rate for shares of such series for each Dividend
Period (until Auctions are resumed) commencing after such Failure to Deposit
will be
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equal to 200% of LIBOR on the first day of each such Dividend Period and each
such Dividend Period shall be a Short-Term Dividend Period. Any such Failure to
Deposit with respect to the shares of any series of New Auction Preferred Stock
shall be deemed cured if by 12:00 noon, New York City time, on the third
Business Day next succeeding any such Failure to Deposit, the Company shall have
deposited with the Auction Agent all accumulated and unpaid dividends on the
shares of such series, including the full amount of any dividends to be paid
with respect to the Dividend Period with respect to which such Failure to
Deposit occurred, plus an amount computed by multiplying (i) 200% of the 60-Day
"AA" Composite Commercial Paper Rate for the Dividend Period during which such
Failure to Deposit occurred on the Dividend Payment Date for such Dividend
Period by (ii) a fraction, the numerator of which shall be the number of days
for which such Failure to Deposit is not cured in accordance with this sentence
(including the day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 360, and
applying the rate obtained against the aggregate liquidation preference of the
shares of such series of New Auction Preferred Stock then outstanding.
In the event a Failure to Deposit occurs during a Long-Term Dividend
Period, the Applicable Rate for such Dividend Period shall remain unchanged, and
an additional amount computed by multiplying (i) 200% of LIBOR on the date on
which such Failure to Deposit occurred by (ii) a fraction, the numerator of
which shall be the number of days for which such Failure to Deposit is not cured
(including the day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 360, and
applying the rate obtained against accumulated dividends not paid when due,
shall accumulate as additional dividends on the shares of such series of New
Auction Preferred Stock. In the event that such Failure to Deposit is not cured
prior to the next succeeding Auction Date for shares of such series, Auctions
for such series will be suspended, the next succeeding Dividend Period will be a
Short-Term Dividend Period and the Applicable Rate will be equal to 200% of
LIBOR on the first day of such Dividend Period. Thereafter, until such Failure
to Deposit shall have been cured and full and cumulative dividends on the shares
of such series shall have been paid in full or the Company shall have declared a
dividend in such amount and funds sufficient for the payment thereof shall have
been irrevocably deposited with the Paying Agent, each subsequent Dividend
Period and the Applicable Rate for such series will be determined pursuant to
the next preceding paragraph.
If the Company shall have cured such Failure to Deposit by making timely
payment to the Auction Agent, the Auction Agent will mail notice of such cure to
each holder of shares of New Auction Preferred Stock of such series at the
address specified in such holder's Purchaser's Letter and to each Broker-Dealer
for such series as promptly as practicable after its receipt of such payment. If
prior to an Auction Date for shares of New Auction Preferred Stock of such
series, full and cumulative dividends shall have been paid in full or the
Company shall have declared a dividend in such amount and funds sufficient for
the payment thereof shall have been irrevocably deposited with the Paying Agent,
Auctions for such series will resume.
"60-day "AA" Composite Commercial Paper Rate," on any date, means (i) the
interest equivalent of the 60-day rate on commercial paper placed on behalf of
issuers whose corporate bonds are rated "aa" by Moody's or AA by S&P or the
equivalent of such rating by another rating agency, as such 60-day rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York for the Business Day immediately preceding such date, or (ii) in the event
that the Federal Reserve Bank of New York does not make available such a rate,
then the arithmetic average of the interest equivalent of the 60-day rate on
commercial paper placed on behalf of such issuers, as quoted on a discount basis
or otherwise by the Commercial Paper Dealers to the Auction Agent for the close
of business on the Business Day immediately preceding such date. If any
Commercial Paper Dealer does not quote a rate required to determine the 60-day
"AA" Composite Commercial Paper Rate, the 60-day "AA" Composite Commercial Paper
Rate shall be determined on the basis of the quotation or quotations furnished
by the remaining Commercial Paper Dealer or Commercial Paper Dealers and any
Substitute Commercial Paper Dealer or
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Substitute Commercial Paper Dealers selected by the Company to provide such rate
or rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Company does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer or Commercial Paper Dealers. If the Board
of Directors of the Company, however, shall adjust the number of Dividend Period
Days, in the event of a change in the Dividends Received Deduction minimum
holding period contained in the Code (see "Dividends--General" above), then (i)
if the Dividend Period Days shall be fewer than 70 days, such rate shall be the
interest equivalent of the 60-day rate on such commercial paper, (ii) if the
Dividend Period Days shall be 70 or more days but fewer than 85 days, such rate
shall be the arithmetic average of the interest equivalent of the 60-day and
90-day rates on such commercial paper and (iii) if the Dividend Period Days
shall be 85 or more days but fewer than 99 days, such rate shall be the interest
equivalent of the 90-day rate on such commercial paper. For the purposes of such
definition, "interest equivalent" of a rate stated on a discount basis (a
"discount rate") for commercial paper of a given day's maturity shall be equal
to the quotient of (A) the discount rate divided by (B) the difference between
(x) 1.00 and (y) a fraction the numerator of which shall be the product of the
discount rate times the number of days in which such commercial paper matures
and the denominator of which shall be 360.
"LIBOR" means, on any date for any Dividend Period, the arithmetic average
(rounded to the next higher 1/16 of 1%), computed by the Auction Agent of the
following rates per annum or arithmetic averages thereof quoted by each of the
principal London offices of The Chase Manhattan Bank (National Association),
Morgan Guaranty Trust Company of New York and National Westminster Bank PLC, or,
in lieu thereof, their respective successors (the "Reference Banks"), at which
United States dollar deposits in the amount of U.S. $10,000,000 are offered by
such Reference Banks (i) in the case of any Dividend Period with Dividend Period
Days of less than 30 days, the one-month rate, (ii) in the case of any Dividend
Period with Dividend Period Days of 30 days or more but less than 70 days, the
two-month rate, (iii) in the case of any Dividend Period with Dividend Period
Days of 70 or more days but less than 85 days, the two-month and three-month
rates and (iv) in the case of any Dividend Period Days of 85 or more but less
than 98 days or in the case that a Failure to Deposit occurs during a Long-Term
Dividend Period, the three-month rate, to leading banks in the London interbank
market at approximately 11:00 a.m. (London time) on the first day of such
Dividend Period or Dividend Quarter, or if such day is not a day on which
dealings in United States dollars are transacted in the London interbank market,
then on the next preceding day on which such dealings are transacted in such
market. If any Reference Bank does not quote a rate required to determine LIBOR,
LIBOR shall be determined on the basis of the quotations furnished by the
remaining Reference Bank or Reference Banks and any Substitute Reference Bank or
Substitute Reference Banks (as defined below) selected by the Company to provide
such quotation or quotations not being supplied by any Reference Bank or
Reference Banks, as the case may be, or, if the Company does not select any
Substitute Reference Bank or Substitute Reference Banks, by the remaining
Reference Bank or Reference Banks. For the purposes of the foregoing,
"Substitute Reference Bank" shall mean the principal London offices of any of
Citibank, N.A., Deutsche Bank Aktiengesellschaft or Swiss Bank Corporation or,
in lieu thereof, their respective successors, or, if none of such Substitute
Reference Banks are engaged in dealings in United States dollars in the London
interbank market, then a bank or banks selected by the Company, engaged in
dealings in United States dollars in the London interbank market.
For each Dividend Period or Dividend Quarter for which the rate is
determined with reference to 200% of LIBOR, the Auction Agent will obtain rates
from the Reference Banks and determine LIBOR and notify the Company of such
determination.
RIGHTS ON LIQUIDATION OR CASH-OUT MERGER
Upon the liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of New Auction Preferred Stock will be
entitled to receive, out of assets of the
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<PAGE> 20
Company available for distribution to stockholders after satisfying claims of
creditors but before any payment or distribution of assets is made to holders of
Common Stock or another stock of the Company ranking junior to such series of
New Auction Preferred Stock upon liquidation ("Junior Liquidation Stock"), a
liquidating distribution in the amount of $100,000 per share of such New Auction
Preferred Stock, plus an amount per share equal to accumulated and unpaid
dividends thereon (whether or not declared) to and including the date of final
dissolution. If upon the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the assets of the Company available for
distribution to the holders of New Auction Preferred Stock and all other
Preferred Stock (including the Existing Auction Preferred Stock, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock) ranking, upon liquidation, on a parity with New
Auction Preferred Stock are insufficient to pay the full amount of the
liquidating distribution to which they are entitled, then the holders of New
Auction Preferred Stock and such other Preferred Stock will share ratably in any
such distribution. Unless and until payment in full has been made to the holders
of New Auction Preferred Stock of the liquidating distributions to which they
are entitled, no dividends or distributions will be made to the holders of the
Common Stock or Junior Liquidation Stock, no payment or delivery or commitment
to make payment or delivery of any money or assets to an affiliate of the
Company will be made and no purchase, redemption or other acquisition for any
consideration by the Company will be made in respect of the Common Stock or
Junior Liquidation Stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of New Auction Preferred
Stock (in their capacities as such holders) will have no right or claim to any
of the remaining assets of the Company.
In any merger or consolidation of the Company with or into any other
corporation (including any affiliated corporation), or any merger or
consolidation of any other corporation (including any affiliated corporation)
with or into the Company, which merger or consolidation by its terms provides
for the payment of only cash to holders of New Auction Preferred Stock, each
holder of such New Auction Preferred Stock will be entitled to receive an amount
equal to the liquidation preference of the shares of New Auction Preferred Stock
held by such holder, any Merger Premium (as described under
"Dividends--Extension of Dividend Period" above), plus an amount equal to
accumulated and unpaid dividends on such shares to the date of payment thereof,
and no more, in exchange for such shares of New Auction Preferred Stock (a
"cash-out merger transaction").
Neither the sale, lease or exchange (for cash, stock, securities or other
consideration) of all or substantially all of the property and assets of the
Company, nor the merger or consolidation of the Company with or into any other
corporation, nor the merger or consolidation of any other corporation with or
into the Company, shall be deemed to be a dissolution, liquidation or winding
up, voluntary or involuntary; provided, however, that a cash-out merger
transaction will be deemed to be a liquidation of the Company solely for
purposes of determining the rights of the holders of New Auction Preferred Stock
in respect of such cash-out merger transaction.
VOTING RIGHTS
Election of Directors. Holders of record of New Auction Preferred Stock and
Voting Preferred (as defined below) will have the right, voting as a single
class together with all Parity Preferred, to elect a number of directors of the
Company (the "Regular Preferred Directors") which is equal to the smallest whole
number that is not less than 25% of the directors of the Company. Holders of all
such stock will vote in such elections on the basis of one vote per $100,000
liquidation preference and not cumulatively and the holder or holders of
one-third of the shares of such stock then outstanding, present in person or by
proxy, will constitute a quorum for the election of directors by them.
Other Matters. On all matters other than the election of directors as to
which stockholders generally have a vote, each share of New Auction Preferred
Stock and Voting Preferred will be entitled to such number of votes as
determined below and each share of Common Stock will be
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<PAGE> 21
entitled to one vote. The shares of New Auction Preferred Stock will vote
together as a single class with all shares of Common Stock and all other shares
of Preferred Stock (including the Existing Auction Preferred Stock, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock) having the same voting rights as conferred upon
the New Auction Preferred Stock in the Certificate of Designations thereof as
described in this paragraph and the next preceding paragraph (the "Voting
Preferred"). Holders of shares of New Auction Preferred Stock and Voting
Preferred will be entitled to the number of votes determined pursuant to the
following formula per $100,000 liquidation preference:
X = [(Y divided by .75) minus Y] divided by Z
X: number of votes per share of New Auction Preferred Stock and Voting
Preferred per $100,000 liquidation preference.
Y: number of shares of outstanding Common Stock on the applicable record
date.
Z: amount equal to (I) number of shares of New Auction Preferred Stock
outstanding on the applicable record date plus (II) sum of the
liquidation preference of all outstanding Voting Preferred on the
applicable record date divided by 100,000.
The Company will mail or cause the Auction Agent to mail to registered holders
of New Auction Preferred Stock notice of any meeting of stockholders not less
than 20 days nor more than 60 days prior to the date fixed for such meeting.
Based on the current number of directors on the Board of Directors of the
Company, the holders of New Auction Preferred Stock, Voting Preferred and Parity
Preferred will be entitled to nominate and elect two directors, and assuming all
of the shares of New Auction Preferred Stock offered hereby are issued and
outstanding and based on the number of outstanding shares of Common Stock,
Existing Auction Preferred Stock, Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock as of December 1,
1994, each share of New Auction Preferred Stock (and each share of Existing
Auction Preferred Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock) will be entitled to
0.0195399 votes on matters other than elections of directors as to which
stockholders generally have a vote.
Right to Elect Two Additional Directors. In addition, during any period
(referred to herein as a "Default Period") when dividend payments on any shares
of a series of New Auction Preferred Stock or Parity Preferred for such number
of dividend periods or portions thereof (or the equivalent thereof in the case
of Parity Preferred), which in the aggregate contain at least 540 days, shall
not have been paid or declared and a sum sufficient for the payment thereof set
aside for payment, then in any such case the number of directors of the Company
will automatically be increased by two additional directors and the holders of
record of the shares of all series of New Auction Preferred Stock and Parity
Preferred will possess full voting powers (to the exclusion of the holders of
all other series and classes of capital stock of the Company), voting as a
single class, to elect such two directors (the "Special Preferred Directors").
The Default Period and voting rights created by the occurrence of the
circumstances described in the next preceding paragraph will continue unless and
until all accumulated and unpaid dividends on such series of New Auction
Preferred Stock and Parity Preferred then outstanding shall have been paid or
sufficient funds for the payment thereof shall have been set apart, at which
time the voting rights described in the next preceding paragraph will cease,
subject always, however, to the revesting of such voting power in the holders of
all series of New Auction Preferred Stock and Parity Preferred upon the further
occurrence of any of the circumstances described in the next preceding
paragraph.
Within five days following the accrual of any right of the holders of New
Auction Preferred Stock and Parity Preferred to elect directors upon the
occurrence of a Default Period as described above, the Company will mail or
cause to be mailed to the holders of New Auction Preferred Stock and
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Parity Preferred notice of a special meeting of stockholders for a date not less
than 20 days nor more than 60 days after the date of such notice. If the Company
does not mail or cause to be mailed notice of such meeting as provided in the
next preceding sentence, a meeting may be called by any holder of New Auction
Preferred Stock or Parity Preferred. The Company will notify the Auction Agent
of the date on which such right accrued, and such date will be the record date
for determining the holders of stock entitled to notice of and to vote at the
special meeting. Holders of all such stock will vote in such elections on the
basis of one vote per $100,000 liquidation preference and not cumulatively, and
the holder or holders of one-third of the shares of such stock then outstanding,
present in person or by proxy, will constitute a quorum for the election of
directors by them. At any such meeting or adjournment thereof in the absence of
a quorum, a majority of the holders of such stock present in person or by proxy
will have the power to adjourn the meeting for the election of directors without
notice, other than an announcement at the meeting, until a quorum is present.
The term of office of all persons who are directors of the Company at the
time of such meeting will continue, notwithstanding the election of Special
Preferred Directors at such meeting by the holders of New Auction Preferred
Stock and Parity Preferred. The Regular Preferred Directors and the Special
Preferred Directors, together with the incumbent directors elected by the
holders of the Common Stock, will constitute the duly elected directors of the
Company.
Simultaneously with the expiration of the Default Period, the term of
office of the Special Preferred Directors elected by the holders of New Auction
Preferred Stock and Parity Preferred at the special meeting referred to above
will terminate, the number of directors of the Company will automatically be
decreased by two, only the Regular Preferred Directors and the incumbent
directors otherwise elected by the holders of the Common Stock will constitute
the duly elected directors of the Company, and the right of the holders of New
Auction Preferred Stock and Parity Preferred to elect directors during a Default
Period as provided above will cease.
Removal of Directors. Except as provided in the next preceding paragraph,
Regular Preferred Directors and Special Preferred Directors will (subject to the
provisions of any applicable law) be subject to removal only by the vote of the
holders of a majority of the outstanding shares of New Auction Preferred Stock,
Voting Preferred and Parity Preferred in the case of Regular Preferred Directors
and a majority of the outstanding shares of New Auction Preferred Stock and
Parity Preferred in the case of Special Preferred Directors, in each case,
voting together as a single class. Any vacancy in the Board of Directors
occurring by reason of such removal or otherwise may be filled by vote of a
majority of the outstanding shares of New Auction Preferred Stock, Voting
Preferred and Parity Preferred in respect of any Regular Preferred Director and
by a vote of a majority of the outstanding shares of New Auction Preferred Stock
and Parity Preferred in respect of any Special Preferred Director, in each case,
voting together as a single class, in person or by proxy at a special meeting of
stockholders called and held in accordance with the provisions set forth above,
and, if not so filled, such vacancy will (subject to the provisions of any
applicable law) be filled by a vote of a majority of the remaining Regular
Preferred Directors and any Special Preferred Directors.
Right to Vote in Certain Events. Without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of all series of New
Auction Preferred Stock voting in person or by proxy at a special meeting for
the purpose, or the unanimous written consent of the holders of the outstanding
shares of all series of New Auction Preferred Stock acting without such a
meeting (subject to the provisions of any applicable law), the Company may not
amend, alter or repeal any provisions of the Certificate of Designations or the
Certificate of Incorporation so as to affect adversely the preferences, special
rights or powers of the shares of New Auction Preferred Stock. Any increase in
the authorized number of any series of capital stock ranking on a parity with
New Auction Preferred Stock with respect to the payment of dividends or the
distribution of assets, or creation, authorization or issuance of any securities
convertible into, or warrants, options or similar rights to purchase, acquire or
receive, shares of such capital stock or reclassification of any authorized
capital stock of the Company into any share ranking on a parity with New Auction
Preferred Stock with respect to the payment of dividends or the distribution of
assets shall be
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deemed not to affect adversely the preferences, special rights or powers of the
shares of New Auction Preferred Stock.
In addition, without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of all series of New Auction Preferred
Stock and Parity Preferred, voting together as a single class, in person or by
proxy at a special meeting for the purpose, or the unanimous written consent of
the holders of the outstanding shares of all series of New Auction Preferred
Stock and Parity Preferred acting without such a meeting (subject to the
provisions of any applicable law), the Company may not create, authorize or
issue shares of any class or series of capital stock ranking senior to the
shares of New Auction Preferred Stock and Parity Preferred with respect to the
payment of dividends or the distribution of assets, or create, authorize or
issue any securities convertible into, or warrants, options or similar rights to
purchase, acquire or receive, shares of capital stock ranking senior to the
shares of New Auction Preferred Stock and Parity Preferred with respect to the
payment of dividends or the distribution of assets or reclassify any authorized
capital stock of the Company into any shares ranking senior to the shares of New
Auction Preferred Stock and Parity Preferred with respect to the payment of
dividends or the distribution of assets.
Without the affirmative vote of the holders of a majority of the
outstanding shares of all series of New Auction Preferred Stock, Voting
Preferred and Parity Preferred, voting together as a single class, in person or
by proxy at a special meeting for the purpose, or the unanimous written consent
of the holders of the outstanding shares of all series of New Auction Preferred
Stock, Voting Preferred and Parity Preferred acting without such a meeting
(subject to the provisions of any applicable law), the Company may not sell,
lease or convey all or substantially all of the assets of the Company, or
consolidate or merge with or into any other corporation unless, in the case of a
consolidation or merger, each holder of shares of New Auction Preferred Stock,
Voting Preferred and Parity Preferred shall receive, upon such consolidation or
merger, an amount in cash equal to the liquidation preference, Merger Premium,
if any, as established by the Term Selection Agent, and accumulated and unpaid
dividends through the date of payment of such shares of New Auction Preferred
Stock, Voting Preferred and Parity Preferred in exchange for such shares of New
Auction Preferred Stock, Voting Preferred and Parity Preferred. As discussed
under "Rights on Liquidation or Cash-Out Merger" above, a cash-out merger
transaction shall be deemed to be a liquidation solely for purposes of
determining the rights of holders of New Auction Preferred Stock in respect of
such cash-out merger transaction.
No Right to Vote in Certain Events. With respect to any right of the
holders of shares of New Auction Preferred Stock to vote on any matter, whether
such right is created by the Certificate of Designations thereof, by applicable
law or otherwise, no holder of any share of New Auction Preferred Stock will be
entitled to vote and no share of New Auction Preferred Stock will be deemed to
be outstanding for the purpose of voting or determining the number of shares
required to constitute a quorum, if prior to or concurrently with a
determination of shares entitled to vote or of shares deemed outstanding for
quorum purposes, as the case may be, such share is held beneficially or of
record by the Company or any affiliate of the Company.
Voting by Securities Depository. Whenever the shares of a series of New
Auction Preferred Stock are held of record by the nominee of the Securities
Depository in accordance with its normal procedures, the Securities Depository
will extend voting rights with respect to such series of New Auction Preferred
Stock to the Agent Members whose accounts are credited with shares of such
series of New Auction Preferred Stock. In accordance with their normal
procedures, such Agent Members are expected in turn to extend such voting rights
to Existing Holders.
Exclusive Remedy. If the Company fails to pay any dividends on the shares
of any series of New Auction Preferred Stock as required, the exclusive remedy
of the holders of New Auction Preferred Stock will be the right to vote for
directors, as described under "Voting Rights". In no event shall holders of New
Auction Preferred Stock have any right to sue for, or maintain a proceeding with
respect to, such dividends or damages for the failure to receive the same.
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THE AUCTION
GENERAL
Holders of the shares of each series of New Auction Preferred Stock will be
entitled to receive cumulative cash dividends when and as declared by the Board
of Directors of the Company out of surplus (as defined in the General
Corporation Law of the State of Delaware), on each Dividend Payment Date for
such series with respect to a Short-Term Dividend Period or a Long-Term Dividend
Period, as applicable, then ending at the rate per share equal to the Applicable
Rate per annum for each such Dividend Period.
The Certificate of Designations authorizing the issuance of the shares of
New Auction Preferred Stock will provide that, except as provided under
"Description of New Auction Preferred Stock--Determination of Dividend Rate",
the Applicable Rate per annum for each series of New Auction Preferred Stock for
each Dividend Period after the initial Dividend Period shall be equal to the
rate per annum that the Auction Agent advises results on the Business Day
preceding the first day of such Dividend Period from implementation of auction
procedures (the "Auction Procedures") set forth in the Certificate of
Designations, in which persons determine to hold or offer to purchase or sell
shares of New Auction Preferred Stock. The Auction Procedures are attached as
Appendix B to this Prospectus Supplement.
AUCTION AGENT AGREEMENT
The Company will enter into an agreement with The Bank of New York or an
amendment to the existing Auction Agent Agreement in respect of the Existing
Auction Preferred Stock between the Company and The Bank of New York (such new
agreement or such amendment is hereinafter called the "Auction Agent Agreement",
and The Bank of New York and any successor bank or trust company or other entity
entering into a similar agreement with the Company is hereinafter called the
"Auction Agent") which will provide, among other things, that the Auction Agent
will follow the Auction Procedures for the purposes of determining the
Applicable Rate for each series of New Auction Preferred Stock. Each periodic
operation of such procedures is hereinafter referred to as an "Auction". The
Company will pay the Auction Agent compensation for its services under the
Auction Agent Agreement.
The Auction Agent is acting as agent for the Company in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered or omitted or for any
error of judgment made by it in the performance of its duties under the Auction
Agent Agreement and will not be liable for any error of judgment made in good
faith unless the Auction Agent has been negligent in ascertaining the pertinent
facts. Pursuant to the Auction Agent Agreement, the Company is required to
indemnify the Auction Agent for certain losses and liabilities incurred by the
Auction Agent without negligence or bad faith on its part in connection with the
performance of its duties under such agreement.
The Auction Agent may terminate the Auction Agent Agreement upon written
notice to the Company on the date specified in such notice which may be no
earlier than the Business Day following the later of (a) six months from the
date the Auction Agent Agreement is entered into (expected to be the Issue Date)
and (b) 60 days following the delivery of such notice. If the Auction Agent
should resign, the Company will use its best efforts to enter into an agreement
with a successor Auction Agent containing substantially the same terms and
conditions as the Auction Agent Agreement. The Company may remove the Auction
Agent, provided that, prior to such removal, the Company shall have entered into
such an agreement with a successor Auction Agent.
BROKER-DEALER AGREEMENTS
The Auctions require the participation of one or more broker-dealers. The
Auction Agent will enter into agreements with various broker-dealers (or amend
agreements covering the Existing Auction Preferred Stock to cover the New
Auction Preferred Stock) and may enter into similar
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<PAGE> 25
agreements (collectively, the "Broker-Dealer Agreements") with one or more
additional broker-dealers (collectively, the "Broker-Dealers") selected by the
Company which provide for the participation of such Broker-Dealers in Auctions.
PURCHASER'S LETTERS
As a condition to acquiring shares of New Auction Preferred Stock and to
participating in any Auction, each prospective purchaser of shares of any series
of New Auction Preferred Stock will be required to sign and deliver a copy of a
letter, the form of which is attached to this Prospectus Supplement as Appendix
C (the "Purchaser's Letter"), in which such prospective purchaser will agree,
among other things, that:
(i) it will participate in Auctions for New Auction Preferred Stock of
such series on the terms set forth in Exhibit B to this Prospectus
Supplement;
(ii) it will sell, transfer or otherwise dispose of shares of a series
of New Auction Preferred Stock only (A) pursuant to a Bid or a Sell Order
(as hereinafter defined) in an Auction or (B) to or through a Broker-Dealer
or (C) to a person that has delivered a signed Purchaser's Letter for such
series to the Auction Agent, provided that, in the case of all transfers
other than those pursuant to Auctions, such purchaser, its Broker-Dealer or
its Agent Member (the "Agent Member") of the Securities Depository (The
Depository Trust Company, together with any successor securities depository
selected by the Company, the "Securities Depository") must advise the
Auction Agent of such transfer;
(iii) all of the outstanding shares of such series will be represented
by a certificate or certificates registered in the name of the nominee of
the Securities Depository; that such purchaser will not be entitled to
receive any certificate representing any such shares of New Auction
Preferred Stock which it acquires; that the ownership of such shares of New
Auction Preferred Stock as to which such purchaser is the Existing Holder
(as defined below) will be maintained in book entry form by the Securities
Depository, in the account of its Agent Member, which in turn will maintain
such records of such purchaser's beneficial ownership; and that such Agent
Member is authorized to disclose to the Auction Agent such information with
respect to such purchaser's beneficial ownership as the Auction Agent shall
require.
EXECUTION OF A PURCHASER'S LETTER IS NOT A COMMITMENT TO PURCHASE SHARES OF
NEW AUCTION PREFERRED STOCK IN ANY AUCTION OR OTHERWISE, BUT IS A CONDITION
PRECEDENT TO PURCHASING SHARES OF NEW AUCTION PREFERRED STOCK.
As used herein, "Existing Holder" of any shares of a series means a person
who has signed a Purchaser's Letter and is listed as the beneficial owner of
such shares of New Auction Preferred Stock in the records of the Auction Agent.
The Auction Agent may rely upon, as evidence of the identities of the Existing
Holders, the results of Auctions and notices from any Existing Holder, the Agent
Member of any Existing Holder or the Broker-Dealer of any Existing Holder with
respect to such Existing Holder's transfer of shares of New Auction Preferred
Stock to another person.
An execution copy of the Purchaser's Letter to be sent to a Broker-Dealer
is attached at the back of this Prospectus Supplement. Once executed, a copy of
a Purchaser's Letter must be delivered to a Broker-Dealer who will deliver
copies thereof to the Auction Agent.
The Auction Agent will be required to register on lists maintained pursuant
to the Auction Agent Agreement a transfer of shares of any series of New Auction
Preferred Stock from an Existing Holder to another person only if such transfer
is made to a person that has delivered a signed Purchaser's Letter to the
Auction Agent and if (i) such transfer is pursuant to an Auction or (ii) the
Auction Agent has been notified in writing (A) by such Existing Holder, the
Agent Member of such Existing Holder or the Broker-Dealer of such Existing
Holder of such transfer or (B) by the Broker-Dealer of any person that purchased
or sold such shares of New Auction Preferred Stock in
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<PAGE> 26
an Auction of the failure of such shares of New Auction Preferred Stock to be
transferred as a result of the Auction.
Any transfer of shares of New Auction Preferred Stock contrary to the terms
of a Purchaser's Letter may affect the right of the person acquiring such shares
to participate in future Auctions.
SECURITIES DEPOSITORY
The Depository Trust Company will act as Securities Depository for the
Agent Members with respect to shares of New Auction Preferred Stock. One single
certificate for all of the shares of each series will be registered in the name
of Cede & Co., as nominee of the Securities Depository. Such certificate will
bear a legend to the effect that such certificate is issued subject to the
provisions restricting transfers of shares of New Auction Preferred Stock
contained in the Certificate of Incorporation and the Purchaser's Letters. The
Company will also issue stop-transfer instructions to the transfer agent for New
Auction Preferred Stock. Cede & Co. will be the initial holder of record of all
shares of New Auction Preferred Stock, and Existing Holders of the shares of New
Auction Preferred Stock will not receive certificates representing their
ownership interest in such shares. The Securities Depository will maintain lists
of its participants and will maintain the positions (ownership interests) held
by each Agent Member in New Auction Preferred Stock, whether as an Existing
Holder for its own account or as nominee for another Existing Holder. Payments
and communications made by the Company to holders of New Auction Preferred Stock
will be duly made by making payments to, and communicating with, the Securities
Depository, whose nominee is the record holder of all shares of New Auction
Preferred Stock.
The following is a brief summary of the procedures to be used in conducting
Auctions. Unless the context otherwise requires, all references to New Auction
Preferred Stock in the description of the Auction Procedures appearing below are
deemed to refer to a single series of New Auction Preferred Stock. This summary
is qualified by reference to the Auction Procedures set forth in Appendix B
hereto.
AUCTION DATES
After each respective initial Dividend Period, an Auction to determine the
Applicable Rate for a series for a given Dividend Period for such series will be
held on the first Business Day (as hereinafter defined) preceding the first day
of such Dividend Period (the date of each Auction being referred to herein as an
"Auction Date"). "Business Day" means a day on which the New York Stock Exchange
is open for trading and which is not a day on which banks in New York City are
authorized by law to close. Auctions for shares of each series of New Auction
Preferred Stock will normally be held, in the case of a series with a Short-Term
Dividend Period, each seventh Friday with respect to Series L Flexible Rate
Auction Preferred Stock, each seventh Tuesday with respect to Series M Flexible
Rate Auction Preferred Stock and each seventh Wednesday with respect to Series N
Flexible Rate Auction Preferred Stock, or in the case of a series with a
Long-Term Dividend Period the Friday, Tuesday or Wednesday which is the last day
of such Long-Term Dividend Period.
ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS
On or prior to each Auction Date:
(a) Each Existing Holder may submit to a Broker-Dealer by telephone or
otherwise a:
(i) Hold Order--indicating the number of outstanding shares, if
any, of New Auction Preferred Stock that such Existing Holder desires to
continue to hold without regard to the Applicable Rate for the next
Dividend Period;
(ii) Bid--indicating the number of outstanding shares, if any, of
New Auction Preferred Stock that such Existing Holder desires to sell,
if the Applicable Rate for the next Dividend Period shall be less than
the rate specified in such Bid; and/or
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<PAGE> 27
(iii) Sell Order--indicating the number of outstanding shares, if
any, of New Auction Preferred Stock that such Existing Holder offers to
sell without regard to the Applicable Rate for the next Dividend Period.
(b) Broker-Dealers will contact prospective purchasers of shares of
New Auction Preferred Stock (each such prospective purchaser is hereinafter
referred to as a "Potential Holder" and the term Potential Holder includes
an Existing Holder with respect to an offer by such Existing Holder to
purchase additional shares) by telephone to determine whether such
Potential Holders desire to submit Bids in which such Potential Holders
will indicate the number of shares of New Auction Preferred Stock which
they offer to purchase, provided that the Applicable Rate for the next
Dividend Period shall not be less than the rates per annum specified in
such Bids.
The communication to a Broker-Dealer of the foregoing information is
hereinafter referred to as an "Order" and, collectively, as "Orders". An
Existing Holder or a Potential Holder placing an Order is hereinafter referred
to as a "Bidder" and, collectively, as "Bidders".
An Existing Holder may submit different types of Orders in an Auction with
respect to shares of New Auction Preferred Stock then held by such Existing
Holder, provided that the total number of shares of New Auction Preferred Stock
covered by such Orders does not exceed the number of shares of New Auction
Preferred Stock held by such Existing Holder. For information concerning the
priority given to different types of Orders placed by an Existing Holder, see
"Submission of Orders by Broker-Dealers to Auction Agent" below.
Any Bid for shares of a series by an Existing Holder with a rate higher
than the Maximum Applicable Rate for such series will be treated as a Sell
Order, and a Bid by a Potential Holder with a rate higher than such Maximum
Applicable Rate will not be accepted. See "Determination of Sufficient Clearing
Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and Rejection of
Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
With respect to any series with a Short-Term Dividend Period, the "Maximum
Applicable Rate" on any Auction Date will be the rate obtained by multiplying
the 60-day "AA" Composite Commercial Paper Rate on such Auction Date, and with
respect to any series with a Long-Term Dividend Period, the "Maximum Applicable
Rate" on any Auction Date will be the rate obtained by multiplying the Reference
Rate on such Auction Date, in each case, by a percentage determined as set forth
below based on the credit rating or ratings assigned to the New Auction
Preferred Stock by Moody's and S&P (or if Moody's or S&P or both shall not make
such rating available the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in the event that
only one such rating shall be available, the percentage will be based on such
rating).
<TABLE>
<CAPTION>
CREDIT RATING APPLICABLE PERCENTAGE OF
- ------------------------------------------- 60-DAY "AA" COMPOSITE
COMMERCIAL PAPER
MOODY'S S&P RATE OR REFERENCE RATE
- ------------------- ------------------- ------------------------
<S> <C> <C>
"aa3" or Above AA- or Above 150%
"a3" to "a1" A- to A+ 200%
"baa3" to "baa1" BBB- to BBB+ 225%
Below "baa3" Below BBB- 250%
</TABLE>
If the ratings for any series of New Auction Preferred Stock are split
between two of the foregoing categories, the lower rating will determine the
prevailing rating.
The Company will take all reasonable action necessary to enable Moody's and
S&P to provide a rating for each series of New Auction Preferred Stock. If
either Moody's or S&P shall not make such rating available or neither Moody's
nor S&P shall make such a rating available, Bear, Stearns & Co. Inc., Goldman,
Sachs & Co. and Lehman Brothers Inc. or their affiliates and successors, after
consultation with the Company, will select a nationally recognized statistical
rating organization (a
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<PAGE> 28
"Substitute Rating Agency") or two nationally recognized statistical rating
organizations ("Substitute Rating Agencies") to act as a Substitute Rating
Agency or Substitute Rating Agencies, as the case may be.
"Reference Rate" means for Long-Term Dividend Periods (i) from 50 days to
270 days, the Applicable "AA" Composite Commercial Paper Rate, (ii) from 270
days to one year, the higher of the 270-day Applicable "AA" Composite Commercial
Paper Rate and the one-year Applicable Treasury Rate and (iii) from one year to
10 years, the Applicable Treasury Rate.
"Applicable "AA" Composite Commercial Paper Rate," for any Long-Term
Dividend Period on any date, shall mean (A) in the case of any Long-Term
Dividend Period of less than 70 days, the interest equivalent of the 60-day
rate, (B) in the case of any Long-Term Dividend Period of 70 days or more but
less than 85 days, the arithmetic average of the interest equivalent of the
60-day and 90-day rates, (C) in the case of any Long-Term Dividend Period of 85
days or more but less than 120 days, the interest equivalent of the 90-day rate,
(D) in the case of any Long-Term Dividend Period of 120 days or more but less
than 148 days, the arithmetic average of the interest equivalent of the 90-day
and 180-day rates, (E) in the case of any Long-Term Dividend Period of 148 days
or more but less than 210 days, the interest equivalent of the 180-day rate, (F)
in the case of any Long-Term Dividend Period of 210 days or more but less than
238 days, the arithmetic average of the interest equivalent of the 180-day and
270-day rates, and (G) in the case of any Long-Term Dividend Period of 238 or
more days, the interest equivalent of the 270-day rate, on commercial paper
placed on behalf of issuers whose corporate bonds are rated "aa" by Moody's or
AA by S&P, or the equivalent of such rating by another rating agency, as made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York for the Business Day immediately preceding such date or in the event that
the Federal Reserve Bank of New York does not make available any such rate, then
the arithmetic average of such rates, as quoted on a discount basis or
otherwise, by Goldman, Sachs & Co., Lehman Commercial Paper Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co.
Incorporated, or, in lieu thereof, their respective affiliates or successors
(the "Commercial Paper Dealers"), to the Auction Agent for the close of business
on the Business Day next preceding such date. If any Commercial Paper Dealer
does not quote a rate required to determine the "AA" Composite Commercial Paper
Rate, the "AA" Composite Commercial Paper Rate shall be determined on the basis
of the quotation or quotations furnished by the remaining Commercial Paper
Dealer or Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Company to provide such rate
or rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Company does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes
of this definition, the "interest equivalent" means the equivalent yield on a
360-day basis of a discount-basis security to an interest-bearing security and
"Substitute Commercial Paper Dealer" means CS First Boston Corporation or
PaineWebber Incorporated, or, in lieu thereof, their respective affiliates or
successors.
"Applicable Treasury Rate" on any date with respect to any series of New
Auction Preferred Stock with a Long-Term Dividend Period of one year or more,
means the interest equivalent of the rate for direct obligations of the United
States Treasury having an original maturity which is equal to, or next lower
than, the length of such Long-Term Dividend Period, as published weekly by the
Federal Reserve Board in "Federal Reserve Statistical Release H.15
(519)--Selected Interest Rates", or any successor publication by the Federal
Reserve Board within five Business Days preceding such date. In the event that
the Federal Reserve Board does not publish such weekly per annum interest rate,
or if such release is not yet available, the Applicable Treasury Rate will be
the arithmetic mean of the secondary market bid rates as of approximately 3:30
p.m., New York City time, on the Business Day next preceding such date of
Goldman, Sachs & Co., Lehman Government Securities Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated or, in
lieu thereof, their respective affiliates or successors (collectively, the "U.S.
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<PAGE> 29
Government Securities Dealers") obtained by the Auction Agent (or, under certain
circumstances, the Company) for the issue of direct obligations of the United
States Treasury, in an aggregate principal amount of at least $1,000,000, with a
remaining maturity equal to, or next lower than, the length of such Long-Term
Dividend Period. If any U.S. Government Securities Dealer does not quote a rate
required to determine the Applicable Treasury Rate, the Applicable Treasury Rate
shall be determined on the basis of the quotation or quotations furnished by the
remaining U.S. Government Securities Dealer or Dealers or any Substitute U.S.
Government Securities Dealer or Dealers selected by the Company to provide such
rate or rates not being supplied by any U.S. Government Securities Dealer or
Dealers, as the case may be, or, if the Company does not select any such
Substitute U.S. Government Securities Dealer or Dealers, by the remaining U.S.
Government Securities Dealer or Dealers; provided that in the event that the
Company is unable to cause such quotations to be furnished to the Auction Agent
(or, if applicable, to the Company) by such sources, the Company may cause such
rates to be furnished to the Auction Agent (or, if applicable, to the Company)
by such alternative source as the Company in good faith deems to be reliable.
"Substitute U.S. Government Securities Dealers" means CS First Boston
Corporation or PaineWebber Incorporated or their respective affiliates or
successors. For purposes of this definition, the "interest equivalent" of a rate
stated on a discount basis shall be equal to the quotient of (A) the discount
rate divided by (B) the difference between 1.00 and the discount rate.
The Purchaser's Letter signed by each Existing Holder and each Potential
Holder provides that a Sell Order submitted by an Existing Holder shall
constitute an irrevocable offer to sell and a Bid submitted by an Existing
Holder shall constitute an irrevocable offer to sell the shares of New Auction
Preferred Stock subject thereto, if the rate specified in such Bid is higher
than the Applicable Rate determined in the Auction. A Bid submitted by a
Potential Holder shall constitute an irrevocable offer to purchase the number of
shares of New Auction Preferred Stock subject thereto if the rate specified in
the Bid is less than or equal to the Applicable Rate determined in accordance
with the Auction Procedures. The number of shares purchased or sold may be
subject to proration procedures. See "Acceptance or Rejection of Submitted Bids
and Sell Orders and Allocation of Shares" below. Each purchase or sale shall be
made for settlement on the Business Day next succeeding the Auction Date at a
price per share equal to $100,000. See "Notification of Results; Settlement"
below.
If an Order or Orders covering all of the outstanding shares of New Auction
Preferred Stock held by an Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, either because a Broker-Dealer failed to
contact such Existing Holder or otherwise, the Auction Agent shall deem a Hold
Order to have been submitted on behalf of such Existing Holder covering the
number of outstanding shares of New Auction Preferred Stock held by such
Existing Holder and not subject to Orders submitted to the Auction Agent.
Pursuant to the Certificate of Designations, the Company is required to
cancel any shares of New Auction Preferred Stock it may acquire. Neither the
Company nor the affiliate of the Company may submit an Order in any Auction
except as described under the caption "Broker-Dealers" below.
SUBMISSIONS OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
Prior to 12:30 p.m., New York City time, on each Auction Date, or such
other time on the Auction Date specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction Date.
If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the Auction Agent shall round such rate up to the
next highest one-thousandth (.001) of 1%.
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<PAGE> 30
If one or more Orders covering in the aggregate more than the number of
outstanding shares of a series held by an Existing Holder are submitted to the
Auction Agent, such Orders shall be considered valid in the following order of
priority:
(i) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of outstanding shares of
such series held by such Existing Holder, provided that if more than one
Hold Order is submitted on behalf of such Existing Holder and the number of
shares subject to such Hold Order exceeds the number of outstanding shares
held by such Existing Holder, the number of shares subject to such Hold
Orders shall be reduced pro rata so that such Hold Orders shall cover the
number of shares of such series held by such Existing Holder;
(ii) (A) any Bid shall be considered valid up to and including the
excess of the number of outstanding shares of such series held by such
Existing Holder over the number of shares subject to any Hold Order
referred to in clause (i) above, and (B) subject to subclause (A), if more
than one Bid with the same rate is submitted on behalf of such Existing
Holder and the number of shares subject to such Bids is greater than such
excess, the number of shares subject to such Bids shall be reduced pro rata
so that such Bids shall cover the number of shares equal to such excess,
and (C) subject to subclause (A), if two or more Bids with different rates
are submitted on behalf of such Existing Holder, such Bids shall be
considered valid in the ascending order of their respective rates and in
any such event the number, if any, of such shares subject to Bids not valid
under this clause (ii) shall be treated as a subject of a Bid by a
Potential Holder; and
(iii) any Sell Order shall be considered valid up to and including the
excess of the number of outstanding shares of such series held by such
Existing Holder over the sum of the shares subject to Hold Orders referred
to in clause (i) and valid Bids by such Existing Holder referred to in
clause (ii) above, provided that if more than one Sell Order is submitted
on behalf of any Existing Holder and the number of shares subject to such
Sell Orders is greater than such excess, the number of shares subject to
such Sell Orders shall be reduced pro rata so that such Sell Orders shall
cover the number of shares equal to such excess.
If more than one Bid is submitted on behalf of any Potential Holder, each
Bid submitted shall be a separate Bid with the rate and number of shares of New
Auction Preferred Stock specified.
DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE
Not earlier than the Submission Deadline, the Auction Agent will assemble
all Orders submitted or deemed submitted to it by the Broker-Dealers (each such
"Hold Order," "Bid" or "Sell Order" as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to as a "Submitted Hold Order," a
"Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a
"Submitted Order") and will determine the excess of the number of outstanding
shares of a series over the number of outstanding shares of a series subject to
Submitted Hold Orders (such excess, the "Available New Auction Preferred Stock")
and whether Sufficient Clearing Bids have been made in the Auction. "Sufficient
Clearing Bids" will have been made if the number of outstanding shares of a
series that are the subject of Submitted Bids by Potential Holders with rates
not higher than the Maximum Applicable Rate for such series equals or exceeds
the number of outstanding shares that are the subject of Submitted Sell Orders
(including the number of shares subject to Submitted Bids by Existing Holders
specifying rates higher than the Maximum Applicable Rate) unless such excess or
such equality exists because the number of shares subject to such Submitted Sell
Orders and Submitted Bids are each zero because all of the outstanding shares
are the subject of Submitted Hold Orders.
If Sufficient Clearing Bids have been made, the Auction Agent will
determine the lowest rate specified in the Submitted Bids of Existing Holders
and Potential Holders (the "Winning Bid Rate") which will cause the number of
shares subject to Submitted Bids specifying a rate less than or equal
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<PAGE> 31
to the Winning Bid Rate to be not less than the number of shares of Available
New Auction Preferred Stock. If Sufficient Clearing Bids have been made, the
Winning Bid Rate will be the Applicable Rate for the next Dividend Period for
all shares of such series then outstanding.
If Sufficient Clearing Bids exist (that is, the number of shares of New
Auction Preferred Stock subject to Bids by Potential Holders is at least equal
to the number of shares of New Auction Preferred Stock subject to Sell Orders by
Existing Holders), the Applicable Rate will be the lowest rate specified in the
Submitted Bids that, taking into account such rate and all lower rates bid by
Existing Holders and Potential Holders, would result in Existing Holders and
Potential Holders owning all of the shares of New Auction Preferred Stock
available for purchase in the Auction. If Sufficient Clearing Bids do not exist,
then (a) if the Term Selection Agent has not given a Notice of Long-Term
Dividend Period with respect to the next succeeding Dividend Period for a series
or has given a Notice of Revocation with respect thereto or such Notice of
Long-Term Dividend Period shall be deemed to have been revoked, the Applicable
Rate for such series for such next succeeding Dividend Period will be the
Maximum Applicable Rate on the Auction Date for a Short-Term Dividend Period and
(b) if the Term Selection Agent has given a Notice of Long-Term Dividend Period
with respect to the next succeeding Dividend Period for a series and has not
given a Notice of Revocation with respect thereto and such Notice of Long-Term
Dividend Rate shall not have been deemed revoked, such next succeeding Dividend
Period will, notwithstanding such Notice of Long-Term Dividend Period, be a
Short-Term Dividend Period, and the Applicable Rate for such next succeeding
Dividend Period will be the greatest of (i) the Applicable Rate in effect
immediately prior to the applicable Auction, (ii) the Maximum Applicable Rate on
the Auction Date for a Short-Term Dividend Period or (iii) the Maximum
Applicable Rate on the Auction Date for the specified Long-Term Dividend Period.
If Sufficient Clearing Bids have not been made, Existing Holders that have
submitted Sell Orders will not be able to sell in the Auction all or any shares
of such series subject to such Submitted Sell Orders. Thus, it is possible that
there may not always be a liquid market for the New Auction Preferred Stock. See
"Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares" below.
If all of the outstanding shares of such series are subject to Submitted
Hold Orders, the Applicable Rate for the next Dividend Period for all such
shares will be the Minimum Applicable Rate. For purposes of the foregoing, the
"Minimum Applicable Rate" means, in the case of a series with a Short-Term
Dividend Period, 59% of the 60-day "AA" Composite Commercial Paper Rate in
effect on the date of the Auction or, in the case of a series with a Long-Term
Dividend Period, 59% of the Reference Rate in effect on the date of the Auction.
ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES
Based on the determinations made under "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" above and subject to the
discretion of the Auction Agent to round as described below, Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the order of priority set
forth in the Auction Procedures with the result that Existing Holders and
Potential Holders of New Auction Preferred Stock shall sell, continue to hold
and/or purchase shares of New Auction Preferred Stock as set forth below.
Existing Holders that submitted or were deemed to have submitted Hold Orders
shall continue to hold the shares of New Auction Preferred Stock subject to such
Hold Orders.
If Sufficient Clearing Bids have been made, Submitted Bids and Submitted
Sell Orders shall be accepted or rejected in the following order of priority and
all other Submitted Bids shall be rejected:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
higher than the Winning Bid Rate or a Submitted Sell Order will sell the
outstanding shares of New Auction Preferred Stock subject to such Submitted
Bid or Submitted Sell Order;
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<PAGE> 32
(b) each Existing Holder that placed a Submitted Bid specifying a rate
lower than the Winning Bid Rate will continue to hold the outstanding
shares of New Auction Preferred Stock subject to such Submitted Bid;
(c) each Potential Holder that placed a Submitted Bid specifying a
rate lower than the Winning Bid Rate will purchase the number of shares of
New Auction Preferred Stock subject to such Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid specifying a rate
equal to the Winning Bid Rate shall continue to hold the outstanding shares
of New Auction Preferred Stock subject to such Submitted Bid, unless the
number of outstanding shares of New Auction Preferred Stock subject to all
such Submitted Bids is greater than the excess of the Available New Auction
Preferred Stock over the number of shares of New Auction Preferred Stock
accounted for in clauses (b) and (c) above, in which event each Existing
Holder with such a Submitted Bid shall sell a number of outstanding shares
of New Auction Preferred Stock determined on a pro rata basis based on the
number of outstanding shares of New Auction Preferred Stock subject to all
such Submitted Bids by such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid specifying a
rate equal to the Winning Bid Rate shall purchase any Available New Auction
Preferred Stock not accounted for in clause (b), (c) or (d) above on a pro
rata basis based on the shares of such series subject to all such Submitted
Bids.
If Sufficient Clearing Bids have not been made Submitted Bids and Submitted
Sell Orders shall be accepted or rejected in the following order of priority and
all other Submitted Bids shall be rejected:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
equal to or lower than the Maximum Applicable Rate shall continue to hold
the outstanding shares of such series subject to such Submitted Bid;
(b) each Potential Holder that placed a Submitted Bid specifying a
rate equal to or lower than the Maximum Applicable Rate shall purchase the
number of shares of such series subject to such Submitted Bid; and
(c) each Existing Holder that placed a Submitted Bid specifying a rate
higher than the Maximum Applicable Rate or a Submitted Sell Order shall
sell a number of outstanding shares of such series determined on a pro rata
basis based on the outstanding shares of such series subject to all such
Submitted Bids and Submitted Sell Orders.
If as a result of the Auction Procedures described above any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of such series, the
Auction Agent shall, in such manner as, in its sole discretion, it shall
determine, (i) round up or down the number of shares of the series being sold or
purchased on such Auction Date so that the number of shares sold or purchased by
each Existing Holder or Potential Holder shall be whole shares of New Auction
Preferred Stock and (ii) allocate such whole shares of New Auction Preferred
Stock for purchase among Potential Holders even if such allocation results in
one or more of such Potential Holders not purchasing shares of such series of
New Auction Preferred Stock.
NOTIFICATION OF RESULTS; SETTLEMENT
The Auction Agent will advise each Broker-Dealer that submitted a Bid or
Sell Order on behalf of a Bidder whether such Bid or Sell Order was accepted or
rejected in whole or in part and the Applicable Rate for the next Dividend
Period by telephone at approximately 3:00 p.m., New York City time, on each
Auction Date. Each Broker-Dealer that submitted a Bid or Sell Order on behalf of
a Bidder will then advise such Bidder whether such Bid or Sell Order was
accepted or rejected, will
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confirm purchases and sales with each Bidder purchasing or selling shares of New
Auction Preferred Stock as a result of the Auction and will advise each Bidder
purchasing or selling shares of New Auction Preferred Stock to give instructions
to its Agent Member of the Securities Depository to pay the purchase price
against delivery of such shares by book entry or to deliver such shares by book
entry against payment therefor as appropriate. If an Existing Holder selling
shares of New Auction Preferred Stock as a result of an Auction fails to
instruct its Agent Member to deliver such shares, the Broker-Dealer that
submitted the Bid or Sell Order of such Existing Holder shall instruct such
Agent Member to deliver such shares by book entry on behalf of such Existing
Holder against payment therefor. Each Broker-Dealer that submitted a Hold Order
on behalf of an Existing Holder will also advise such Existing Holder of the
Applicable Rate for the next Dividend Period. The Auction Agent will record each
transfer of beneficial ownership of shares of New Auction Preferred Stock on the
registry of Existing Holders to be maintained by the Auction Agent.
The Auction Agent will also send an administrative message through the
Securities Depository advising the Agent Member of each Bidder purchasing shares
of the amount ($100,000 for each share of New Auction Preferred Stock purchased)
that it will be required to pay against registration of transfer of shares of
New Auction Preferred Stock to be purchased. The Auction Agent will also advise
the Agent Member of each Existing Holder selling shares of the number of shares
that it will be required to authorize registration of transfer against payment
therefor.
Pursuant to the Auction Agent Agreement, based on the results of each
Auction, the Auction Agent shall determine the aggregate number of shares of New
Auction Preferred Stock to be purchased and the aggregate number of shares of
New Auction Preferred Stock to be sold by Potential Holders and Existing Holders
on whose behalf each Broker-Dealer submitted Bids or Sell Orders, and, with
respect to each Broker-Dealer, to the extent that such aggregate number of
shares to be purchased and such aggregate number of shares to be sold differ,
determine to which other Broker-Dealer or Broker-Dealers such Broker-Dealer
shall deliver, or from which other Broker-Dealer or Broker-Dealers such
Broker-Dealer shall receive, as the case may be, shares of such series of New
Auction Preferred Stock. Pursuant to the Broker-Dealer Agreements, each
Broker-Dealer shall, in such manner and at such time or times as in its sole
discretion it may determine, allocate purchases and sales of shares of New
Auction Preferred Stock among the Potential Holders, if any, and Existing
Holders, if any, on whose behalf such Broker-Dealer submitted Bids or Sell
Orders and any Broker-Dealer or Broker-Dealers identified to it by the Auction
Agent.
In accordance with the Securities Depository's normal procedures, on the
Business Day next succeeding the Auction Date, the transactions described above
will be executed through the Securities Depository and the accounts of the
respective Agent Members at the Securities Depository will be debited and
credited as necessary to effect the purchases and sales of shares of New Auction
Preferred Stock as determined in the Auction. Purchasers will make payment to
the Securities Depository through their Agent Members in same-day funds; the
Securities Depository will make payment in accordance with its normal
procedures, which now provide for payment in same-day funds.
BROKER-DEALERS
The Auction Agent, after each Auction, will pay a service charge, from
funds provided by the Company, to each Broker-Dealer at an annual rate equal to
(a) in the case of shares of a series with a Dividend Period of one year or
less, .25% of the purchase price of such shares placed by such Broker-Dealer at
such Auction, or (b) in the case of shares of a series with a Dividend Period
greater than one year, as agreed to from time to time by the Company and the
Term Selection Agent. For the purposes of the preceding sentence, shares of New
Auction Preferred Stock will be placed by a Broker-Dealer if such shares were
(x) the subject of Hold Orders deemed to have been made by Existing Holders of
shares of New Auction Preferred Stock that were acquired by such Existing
Holders through such Broker-Dealer or (y) the subject of an Order of the
following types
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submitted by such Broker-Dealer: (i) a Submitted Bid of an Existing Holder that
was accepted so that such Existing Holder continues to hold such shares as a
result of the Auction, (ii) a Submitted Bid of a Potential Holder that was
accepted so that such Potential Holder purchases such shares as a result of the
Auction or (iii) a Hold Order.
The Broker-Dealer Agreements provide that (i) if any Potential Holder on
whose behalf a Broker-Dealer submitted an Order fails to pay the purchase price
for such shares, such Broker-Dealer shall promptly pay the purchase price to the
party entitled thereto, and (ii) if any Existing Holder on whose behalf a
Broker-Dealer submitted an Order fails to instruct its Agent Member to deliver
shares by book entry against payment therefor, such Broker-Dealer shall instruct
such Agent Member to deliver such shares by book entry on behalf of such
Existing Holder against payment therefor. The delivery of funds by a
Broker-Dealer for the purchase of shares of New Auction Preferred Stock by a
Potential Holder on behalf of whom such Broker-Dealer submitted an Order shall
not relieve such Potential Holder of any liability to such Broker-Dealer for
payment for such shares. Each Broker-Dealer Agreement provides that neither the
Company nor the Auction Agent shall have any responsibility or liability with
respect to the failure of a Potential Holder, Existing Holder or their
respective Agent Members to deliver shares of New Auction Preferred Stock or to
pay for shares of New Auction Preferred Stock purchased or sold pursuant to an
Auction or otherwise. As long as Cede & Co., or any other Securities Depository
or nominee therefor, continues to hold the shares of New Auction Preferred
Stock, no share certificates will need to be delivered by any Existing Holder to
reflect any transfer of shares effected by any Auction.
The Broker-Dealer Agreements provide that a Broker-Dealer (other than an
affiliate of the Company) who signs a Purchaser's Letter may submit Orders in
Auctions for its own account, unless the Company notifies all Broker-Dealers
that they may no longer do so, in which case Broker-Dealers may continue to
submit only Hold Orders and Sell Orders for their own accounts. Any
Broker-Dealer that is an affiliate of the Company may submit Orders in Auctions
but only if such Orders are not for its own account, except that if such
affiliated Broker-Dealer holds shares of New Auction Preferred Stock for its own
account, it must submit a Sell Order in the next Auction with respect to such
shares of New Auction Preferred Stock. If a Broker-Dealer submits an Order for
its own account in any Auction, it may have knowledge of Orders placed through
it in that Auction and therefore have an advantage over other Bidders; such
Broker-Dealer, however, would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction. In the Broker-Dealer Agreements, Broker-Dealers
agree to handle customer orders in accordance with their respective duties under
applicable securities laws and rules. Additionally, each Broker-Dealer is
required to notify promptly each person that has purchased shares of New Auction
Preferred Stock from or through such Broker-Dealer and, to the knowledge of such
Broker-Dealer, remains an Existing Holder of any such shares as to any Notice of
Long-Term Dividend Period and Notice of Revocation given by the Company.
TAX CONSIDERATIONS
The following discussion of certain federal income tax consequences to
holders of shares of New Auction Preferred Stock who are U.S. persons is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated thereunder, published revenue
rulings and judicial decisions in effect at the date of this Prospectus. Future
legislative, regulatory, judicial or administrative changes or interpretations,
which may or may not be retroactive, could modify any such tax consequences, and
the conclusions reached below. The Company has not requested, and does not plan
to request, any rulings from the IRS concerning the federal income tax
consequences of an investment in shares of New Auction Preferred Stock.
THE DISCUSSION BELOW DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF FEDERAL
INCOME TAXATION THAT MAY AFFECT PARTICULAR INVESTORS IN SHARES OF NEW AUCTION
PREFERRED STOCK IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES, NOR CERTAIN
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<PAGE> 35
TYPES OF INVESTORS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME
TAX LAWS. EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT A TAX ADVISOR AS TO
THE FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF ACQUIRING,
HOLDING AND DISPOSING OF SHARES OF NEW AUCTION PREFERRED STOCK.
TAXATION OF CORPORATE DISTRIBUTIONS
Dividends Received Deduction. In the opinion of the Company's tax counsel,
B. B. Smoliar, the shares of New Auction Preferred Stock will constitute stock
and distributions thereon will constitute dividends for Federal income tax
purposes to the extent made out of current or accumulated earnings and profits
of the Company as determined under Federal income tax principles.
Under Section 243 of the Code, most corporations which receive dividends
with respect to shares of New Auction Preferred Stock will be entitled to deduct
70% of the value of the dividends received on their federal income tax return
filed for the year of receipt (the "Dividends Received Deduction"), provided
that such corporate shareholder satisfies the minimum holding period requirement
and other requirements applicable to the Dividends Received Deduction.
Section 246A of the Code reduces the Dividends Received Deduction with
respect to "debt-financed portfolio stock". The shares of New Auction Preferred
Stock will constitute "portfolio stock" as defined in Section 246A. Portfolio
stock will be considered "debt-financed" if any indebtedness is directly
attributable to investment in the portfolio stock. The scope of Section 246A is
not in all respects clear and regulations have not yet been issued thereunder.
Individuals, partnerships and certain corporations are not eligible for the
Dividends Received Deduction.
Section 246(c) of the Code disallows the Dividends Received Deduction in
its entirety if the stock with respect to which the dividend is paid is not held
for at least 46 days (91 days in the event dividends are attributable to
arrearages of more than 366 days). A holder may not count towards this minimum
holding period any period in which the holder (a) has an option to sell, is
under a contractual obligation to sell or has made (and not closed) a short sale
of the shares of New Auction Preferred Stock or substantially identical stock or
securities, (b) is the grantor of an option to buy (other than a qualified cover
call) such shares or substantially identical stock or securities or (c) under
regulations to be prescribed by the Secretary of the Treasury, otherwise has
diminished its risk of loss by holding one or more other positions with respect
to substantially similar or related property. In addition, Code Section 246(c)
disallows the Dividends Received Deduction for a dividend if the holder of the
shares of New Auction Preferred Stock is obligated to make related payments with
respect to positions in substantially similar or related property. This
disallowance applies even if the minimum holding period has been met.
Alternative Minimum Tax. Corporations currently are subject to a 20%
alternative minimum tax, applied to a base of regular taxable income plus
certain tax preferences and adjustments. Under certain circumstances, an amount
equal to a portion of the Dividends Received Deduction will effectively be
included in the adjusted current earnings computation under these rules and
increase the holder's minimum tax base. A dividend may be taken into account for
this purpose on the date it accrues, regardless of when paid.
BASIS REDUCTION FOR EXTRAORDINARY DIVIDENDS
Under certain circumstances, Section 1059 of the Code reduces the basis of
stock for purposes of calculating gain or loss in a subsequent disposition by
the portion of any "extraordinary dividend" that is eligible for the Dividends
Received Deduction. Generally, dividends on New Auction Preferred Stock would
not be extraordinary dividends.
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<PAGE> 36
STATE AND LOCAL TAXES
Holders of shares of New Auction Preferred Stock may be liable for state
and local income taxes on distributions with respect to such shares. Certain
states and localities may not permit the Dividends Received Deduction.
LEGAL OPINIONS
The legality of the shares of New Auction Preferred Stock to be issued
hereby is being passed on for the Company by John M. Rintamaki, Secretary of the
Company and of Ford and an Assistant General Counsel of Ford and by Morris,
Nichols, Arsht & Tunnell, Twelfth and Market Streets, Wilmington, Delaware and
for the underwriters by Shearman & Sterling, 599 Lexington Avenue, New York, NY.
With respect to certain matters of Delaware law, Mr. Rintamaki and Shearman &
Sterling will rely upon the opinion of Morris, Nichols, Arsht & Tunnell. Certain
tax matters with respect to New Auction Preferred Stock will be passed on for
the Company by Burton B. Smoliar, an Associate General Counsel of Ford. Mr.
Rintamaki and Mr. Smoliar are full-time employees of Ford and own, and hold
options to purchase, shares of Common Stock of Ford and Mr. Rintamaki owns
depositary shares, each representing 1/1,000 of a share of Series A Cumulative
Convertible Preferred Stock of Ford. Shearman & Sterling act as counsel to the
Compensation and Option Committee and the Audit Committee of the Board of
Directors of Ford and occasionally act as counsel to Ford and its subsidiaries
in connection with certain transactions.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement and the
Pricing Agreement relating to New Auction Preferred Stock, the Company has
agreed to sell to each of the Underwriters named below (the "Underwriters"), and
each of the Underwriters has severally agreed to purchase from the Company, the
respective number of shares of New Auction Preferred Stock set forth opposite
its name below:
<TABLE>
<CAPTION>
UNDERWRITERS SERIES NUMBER OF SHARES
------------------------------------------------- ------ ----------------
<S> <C> <C>
Bear, Stearns & Co. Inc. ........................ L 250
M 250
N 220
Goldman, Sachs & Co. ............................ L 250
M 250
N 215
Lehman Brothers Inc. ............................ L 250
M 250
N 215
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares of New Auction
Preferred Stock offered hereby, if any are taken.
The Underwriters propose to offer the shares in total to certain securities
dealers at such price less a concession not in excess of $750 per share of
Series L Flexible Rate Auction Preferred Stock and Series M Flexible Rate
Auction Preferred Stock and $625 per share of Series N Flexible Rate Auction
Preferred Stock. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $250 per share of New Auction Preferred Stock to
certain brokers and dealers. After the shares are released for sale, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
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APPENDIX A
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix A constitutes a
representation by the Company that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the forepart of this Prospectus Supplement or Appendix B hereto, as
the case may be.
(a) On each Auction Date, the Auction Agent shall notify by telephone
the Broker-Dealers that participated in the Auction held on such Auction
Date and submitted an Order on behalf of any Existing Holder or Potential
Holder of:
(i) the Applicable Rate fixed for the next succeeding Dividend
Period;
(ii) whether Sufficient Clearing Bids existed for the determination
of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted
a Bid or a Sell Order on behalf of an Existing Holder, the number of
shares, if any, of New Auction Preferred Stock then outstanding to be
held or sold by such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a
Bid on behalf of a Potential Holder, the number of shares, if any, of
New Auction Preferred Stock to be purchased by such Potential Holder;
(v) if the aggregate number of shares of New Auction Preferred
Stock to be sold by all Existing Holders on whose behalf such
Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate
number of shares of New Auction Preferred Stock to be purchased by all
Potential Holders on whose behalf such Broker-Dealer submitted a Bid,
the name or names of one or more Buyer's Broker-Dealers (and the Agent
Member, if any, of each such Buyer's Broker-Dealer) acting for one or
more purchasers of such excess number of shares of New Auction Preferred
Stock and the number of such shares to be purchased from one or more
Existing Holders on whose behalf such Broker-Dealer acted by one or more
Potential Holders on whose behalf each of such Buyer's Broker-Dealer
acted;
(vi) if the aggregate number of shares of New Auction Preferred
Stock to be purchased by all Potential Holders on whose behalf such
Broker-Dealer submitted a Bid exceeds the aggregate number of shares of
New Auction Preferred Stock to be sold by all Existing Holders on whose
behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or
names of one or more Seller's Broker-Dealers (and the name of the Agent
Member, if any, of each such Seller's Broker-Dealer) acting for one or
more sellers of such excess number of shares of New Auction Preferred
Stock and the number of such shares to be sold to one or more Potential
Holders on whose behalf such Broker-Dealer acted by one or more Existing
Holders on whose behalf each of such Seller's Broker-Dealer acted; and
(vii) the Auction Date of the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Holder or Potential Holder shall:
(i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
instruct each Potential Holder on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct such
Potential Holder's Agent Member to pay to such Broker-Dealer (or its
Agent Member) through the Securities Depository the amount necessary to
purchase the number of shares of New Auction Preferred Stock to be
purchased pursuant
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<PAGE> 38
to such Bid against receipt of such shares and advise such Potential
Holder of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Holder on whose behalf such
Broker-Dealer submitted a Sell Order that was accepted, in whole or in
part, or a Bid that was rejected, in whole or in part, to instruct such
Existing Holder's Agent Member to deliver to such Broker-Dealer (or its
Agent Member) through the Securities Depository the number of shares of
New Auction Preferred Stock to be sold pursuant to such Order against
payment therefor and advise any such Existing Holder that will continue
to hold shares of New Auction Preferred Stock of the Applicable Rate for
the next succeeding Dividend Period;
(iii) advise each Existing Holder on whose behalf such
Broker-Dealer submitted a Hold Order of the Applicable Rate for the next
succeeding Dividend Period;
(iv) advise each Existing Holder on whose behalf such Broker-Dealer
submitted an Order of the Auction Date of the next succeeding Auction;
and
(v) advise each Potential Holder on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, of the Auction
Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a)
above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of
a Potential Holder or an Existing Holder shall, in such manner and at such
time or times as in its sole discretion it may determine, allocate any
funds received by it pursuant to (b)(i) above and any shares of New Auction
Preferred Stock received by it pursuant to (b)(ii) above among the
Potential Holders, if any, on which behalf such Broker-Dealer submitted
Bids, the Existing Holders, if any, on whose behalf such Broker-Dealer
submitted Bids that were rejected or Sell Orders, and any Broker-Dealer or
Broker-Dealers identified to it by the Auction Agent pursuant to (a)(v) or
(a)(vi) above.
(d) On each Auction Date,
(i) each Potential Holder and Existing Holder shall instruct its
Agent Member as provided in (b)(i) or (b)(ii) above, as the case may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay
through the Securities Depository to the Agent Member of the Existing
Holder delivering shares to such Broker-Dealer pursuant to (b)(ii) above
the amount necessary to purchase such shares against receipt of such
shares and (B) deliver such shares through the Securities Depository to
a Buyer's Broker-Dealer (or its Agent Member) identified to such
Seller's Broker-Dealer pursuant to (a)(v) above against payment
therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay
through the Securities Depository to a Seller's Broker-Dealer (or its
Agent Member) identified pursuant to (a)(vi) above the amount necessary
to purchase the shares to be purchased pursuant to (b)(i) above against
receipt of such shares and (B) deliver such shares through the
Securities Depository to the Agent Member of the purchaser thereof
against payment therefor.
(e) On the Business Day next succeeding the Auction Date,
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described
under (b)(i) or (b)(ii) above, and the Securities Depository shall
execute such transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in
(d)(ii) above, and the Securities Depository shall execute such
transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in
(d)(iii) above, and the Securities Depository shall execute such
transactions.
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<PAGE> 39
APPENDIX B
AUCTION PROCEDURES
The following procedures will be set forth in paragraph 8 of the
Certificate of Designations establishing the New Auction Preferred Stock. The
terms not defined below are defined in the forepart of this Prospectus
Supplement, except that the term "Corporation" means the Company and the term
"Auction Preferred" means New Auction Preferred Stock. Nothing contained in this
Appendix B constitutes a representation by the Company that in each Auction each
party referred to herein will actually perform the procedures described herein
to be performed by such party.
(a) Certain Definitions. Capitalized terms not defined in this
paragraph 8 shall have the respective meanings specified in paragraphs 1
through 7 of this Certificate of Designations. As used in this paragraph 8,
the following terms shall have the following meanings, unless the context
otherwise requires:
(i) "Affiliate" shall mean any Person known to the Auction Agent to
be controlled by, in control of or under common control with the
Corporation and shall include, for purposes of this paragraph, Ford
Motor Company and its affiliates other than the Corporation.
(ii) "Agent Member" shall mean the member of the Securities
Depository that will act on behalf of a Bidder and is identified as such
in such Bidder's Purchaser's Letter.
(iii) "Auction" shall mean the periodic operation of the procedures
set forth in this paragraph 8.
(iv) "Auction Date" shall mean the Business Day next preceding the
first day of each Dividend Period for a series after the initial
Dividend Period for such series.
(v) "Auction Preferred" shall mean shares of a series subject to an
Auction on any Auction Date.
(vi) "Available Auction Preferred" shall have the meaning specified
in paragraph 8(d)(i) below.
(vii) "Bid" shall have the meaning specified in paragraph 8(b)(i)
below.
(viii) "Bidder" shall have the meaning specified in paragraph
8(b)(i) below.
(ix) "Broker-Dealer" shall mean any broker-dealer, or other entity
permitted by law to perform the functions required of a Broker-Dealer in
this paragraph 8, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that
remains effective.
(x) "Broker-Dealer Agreement" shall mean an agreement between the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in this paragraph 8.
(xi) "Existing Holder," when used with respect to shares of Auction
Preferred, shall mean a Person who has signed a Purchaser's Letter and
is listed as the beneficial owner of such shares of Auction Preferred in
the records of the Auction Agent.
(xii) "Hold Order" shall have the meaning specified in paragraph
8(b)(i) below.
(xiii) "Order" shall have the meaning specified in paragraph
8(b)(i) below.
(xiv) "Outstanding" shall mean, as of any date, shares of Auction
Preferred theretofore issued by the Corporation except, without
duplication, (A) any shares of Auction Preferred theretofore cancelled
or delivered to the Auction Agent for cancellation, (B) any shares of
Auction Preferred as to which the Corporation or any Affiliate thereof
shall be an
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<PAGE> 40
Existing Holder and (C) any shares of Auction Preferred represented by
any certificate in lieu of which a new certificate has been executed and
delivered by the Corporation.
(xv) "Person" shall mean and include an individual, a partnership,
a corporation, a trust, an unincorporated association, a joint venture
or other entity or a government or any agency or political subdivision
thereof.
(xvi) "Potential Holder" shall mean any Person, including any
Existing Holder, (A) who shall have executed a Purchaser's Letter and
(B) who may be interested in acquiring shares of Auction Preferred (or,
in the case of an Existing Holder, additional shares of Auction
Preferred).
(xvii) "Purchaser's Letter" shall mean a letter addressed to the
Corporation, the Auction Agent and a Broker-Dealer in which a Person
agrees, among other things, to offer to purchase, purchase, offer to
sell and/or sell shares of Auction Preferred as set forth in this
paragraph 8.
(xviii) "Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities
depository selected by the Corporation which agrees to follow the
procedures required to be followed by such securities depository in
connection with shares of Auction Preferred.
(xix) "Sell Order" shall have the meaning specified in paragraph
8(b)(i) below.
(xx) "shares," for the purposes of this paragraph 8, shall mean
shares of Auction Preferred.
(xxi) "Submission Deadline" shall mean 12:30 p.m., New York City
time, on any Auction Date or such other time on any Auction Date by
which Broker-Dealers are required to submit Orders to the Auction Agent
as specified by the Auction Agent from time to time.
(xxii) "Submitted Bid" shall have the meaning specified in
paragraph 8(d)(i) below.
(xxiii) "Submitted Hold Order" shall have the meaning specified in
paragraph 8(d)(i) below.
(xxiv) "Submitted Order" shall have the meaning specified in
paragraph 8(d)(i) below.
(xxv) "Submitted Sell Order" shall have the meaning specified in
paragraph 8(d)(i) below.
(xxvi) "Sufficient Clearing Bids" shall have the meaning specified
in paragraph 8(d)(i) below.
(xxvii) "Winning Bid Rate" shall have the meaning specified in
paragraph 8(d)(i) below.
(b) Orders by Existing Holders and Potential Holders. (i) On or prior
to each Auction Date:
(A) each Existing Holder may submit to a Broker-Dealer information
as to:
(1) the number of Outstanding shares, if any, of Auction
Preferred held by such Existing Holder which such Existing Holder
desires to continue to hold without regard to the Applicable Rate for
the next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of Auction
Preferred that such Existing Holder desires to continue to hold,
provided that the Applicable Rate for the next succeeding Dividend
Period shall not be less than the rate per annum specified by such
Existing Holder; and/or
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(3) the number of Outstanding shares, if any, of Auction
Preferred held by such Existing Holder which such Existing Holder
offers to sell without regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Holders that
shall be maintained by such Broker-Dealer in good faith for the purpose
of conducting a competitive Auction, shall contact Potential Holders,
including Persons that are not Existing Holders, on such list to
determine the number of shares, if any, of Auction Preferred that each
such Potential Holder offers to purchase, provided that the Applicable
Rate for the next succeeding Dividend Period shall not be less than the
rate per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of the
information referred to in this paragraph 8(b)(i) is hereinafter referred
to as an "Order" and each Existing Holder and each Potential Holder placing
an Order is hereinafter referred to as a "Bidder"; an Order containing the
information referred to in clause (A)(1) of this paragraph 8(b)(i) is
hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 8(b)(i)
is hereinafter referred to as a "Bid"; and an Order containing the
information referred to in clause (A)(3) of this paragraph 8(b)(i) is
hereinafter referred to as a "Sell Order."
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of Auction Preferred specified
in such Bid if the Applicable Rate determined on such Auction Date shall
be less than such specified rate; or
(2) such number or a lesser number of Outstanding shares of Auction
Preferred to be determined as set forth in paragraph 8(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to such
specified rate; or
(3) such number or a lesser number of Outstanding shares of Auction
Preferred to be determined as set forth in paragraph 8(e)(ii)(C) if such
specified rate shall be higher than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of Auction Preferred specified
in such Sell Order; or
(2) such number or a lesser number of Outstanding shares of Auction
Preferred as set forth in paragraph (8)(e)(ii)(C) if Sufficient Clearing
Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding shares of Auction Preferred specified
in such Bid if the Applicable Rate determined on such Auction Date shall
be higher than such specified rate; or
(2) such number or a lesser number of Outstanding shares of Auction
Preferred as set forth in paragraph 8(e)(i)(E) if the Applicable Rate
determined on such Auction Date shall be equal to such specified rate.
(c) Submission of Orders by Broker-Dealers to Auction Agent. (i) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and specifying with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of shares of Auction Preferred that are
the subject of such Order;
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(C) to the extent that such Bidder is an Existing Holder:
(1) the number of shares, if any, of Auction Preferred subject
to any Hold Order placed by such Existing Holder;
(2) the number of shares, if any, of Auction Preferred subject
to any Bid placed by such Existing Holder and the rate specified in
such Bid; and
(3) the number of shares, if any, of Auction Preferred subject
to any Sell Order placed by such Existing Holder; and
(D) to the extent that such Bidder is a Potential Holder, the rate
and the number of shares of Auction Preferred specified in such
Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent shall round such rate
up to the next highest one thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of
Auction Preferred held by an Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall
deem a Hold Order to have been submitted on behalf of such Existing Holder
covering the number of Outstanding shares of Auction Preferred held by such
Existing Holder and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders covering in the aggregate more than the
number of Outstanding shares of Auction Preferred held by the Existing
Holder are submitted to the Auction Agent, such Orders shall be considered
valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of Outstanding
shares of Auction Preferred held by such Existing Holder; provided that
if more than one Hold Order is submitted on behalf of such Existing
Holder and the number of shares of Auction Preferred subject to such
Hold Orders exceeds the number of Outstanding shares of Auction
Preferred held by such Existing Holder, the number of shares of Auction
Preferred subject to such Hold Orders shall be reduced pro rata so that
such Hold Orders shall cover the number of Outstanding shares of Auction
Preferred held by such Existing Holder.
(B) (1) any Bid shall be considered valid up to and including the
excess of the number of Outstanding shares of Auction Preferred held by
such Existing Holder over the number of shares of Auction Preferred
subject to Hold Orders referred to in paragraph 8(c)(iv)(A);
(2) subject to clause (1) above, if more than one Bid with the same
rate is submitted on behalf of such Existing Holder and the number of
Outstanding shares of Auction Preferred subject to such Bids is greater
than such excess, the number of shares of Auction Preferred subject to
such Bids shall be reduced pro rata so that such Bids shall cover the
number of shares of Auction Preferred equal to such excess; and
(3) subject to clause (1) above, if more than one Bid with
different rates is submitted on behalf of such Existing Holder, such
Bids shall be considered valid in the ascending order of their
respective rates and in any such event the number, if any, of such
Outstanding shares subject to Bids not valid under this clause (B) shall
be treated as the subject of a Bid by a Potential Holder; and
(C) (1) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding shares of Auction
Preferred held by such Existing Holder over the number of shares of
Auction Preferred subject to Hold Orders referred to in paragraph
8(c)(iv)(A) and Bids referred to in paragraph 8(c)(iv)(B); and
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(2) subject to clause (1) above, if more than one Sell Order is
submitted on behalf of such Existing Holder and the number of
Outstanding shares of Auction Preferred subject to such Sell Orders is
greater than such excess, the number of shares of Auction Preferred
subject to such Sell Orders shall be reduced pro rata so that such Sell
Orders shall cover the number of shares of Auction Preferred equal to
such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate and number
of shares of Auction Preferred therein specified.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate. (i) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all Orders submitted or
deemed submitted to it by the Broker-Dealers (each such Order as submitted
or deemed submitted by a Broker-Dealer being hereinafter referred to
individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted
Sell Order," as the case may be, or as a "Submitted Order") and shall
determine:
(A) the excess of the total number of Outstanding shares of Auction
Preferred over the number of Outstanding shares of Auction Preferred
that are the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Auction Preferred");
(B) from the Submitted Orders whether:
(1) the number of Outstanding shares of Auction Preferred that
are the subject of Submitted Bids by Potential Holders specifying one
or more rates equal to or lower than the Maximum Applicable Rate
exceeds or is equal to the sum of:
(2) (x) the number of Outstanding shares of Auction Preferred
that are the subject of Submitted Bids by Existing Holders specifying
one or more rates higher than the Maximum Applicable Rate; and
(y) the number of Outstanding shares of Auction Preferred that
are subject to Submitted Sell Orders
(if such excess or such equality exists (other than because the
number of shares of Auction Preferred in clauses (x) and (y) are
each zero because all of the Outstanding shares of Auction
Preferred are the subject of Submitted Hold Orders), such
Submitted Bids in clause (1) being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate specified in
the Submitted Bids (the "Winning Bid Rate") which if the Auction Agent
accepted:
(1) each Submitted Bid from Existing Holders specifying such
lowest rate and all other Submitted Bids from Existing Holders
specifying lower rates, and
(2) each Submitted Bid from Potential Holders specifying such
lowest rate and all other Submitted Bids from Potential Holders
specifying lower rates;
would result in such Existing Holders continuing to hold an
aggregate number of Outstanding shares of Auction Preferred that,
when added to the number of Outstanding shares of Auction Preferred
to be purchased by such Potential Holders, would equal not less than
the Available Auction Preferred.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to paragraph 8(d)(i), the Auction Agent shall advise the
Corporation of the Maximum
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Applicable Rate and, based on such determinations, the Applicable Rate
for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate
for the next succeeding Dividend Period shall be equal to the Winning
Bid Rate so determined;
(B) if Sufficient Clearing Bids do not exist (other than because
all of the Outstanding shares of Auction Preferred are the subject of
Submitted Hold Orders), then (a) if the Term Selection Agent has not
given a Notice of Long-Term Dividend Period with respect to the next
succeeding Dividend Period for a series or has given a Notice of
Revocation with respect thereto or such Notice of Long-Term Dividend
Period shall be deemed to have been revoked, the Applicable Rate for
such series for such next succeeding Dividend Period shall be the
Maximum Applicable Rate on the Auction Date for a Short-Term Dividend
Period and (b) if the Term Selection Agent has given a Notice of
Long-Term Dividend Period with respect to the next succeeding
Dividend Period for a series and has not given a Notice of Revocation
with respect thereto and such Notice of Long-Term Dividend Period
shall not have been deemed revoked, such next succeeding Dividend
Period shall, notwithstanding such Notice of Long-Term Dividend
Period, be a Short-Term Dividend Period, and the Applicable Rate for
such next succeeding Dividend Period shall be the greatest of (i) the
Applicable Rate in effect immediately prior to the applicable
Auction, (ii) the Maximum Applicable Rate on the Auction Date for a
Short-Term Dividend Period or (iii) the Maximum Applicable Rate on
the Auction Date for the specified Long-Term Dividend Period; or
(C) if all the Outstanding shares of Auction Preferred are the
subject of Submitted Hold Orders, that the Applicable Rate for the
next succeeding Dividend Period shall (1) in the case of a series of
Auction Preferred with a Short-Term Dividend Period, be equal to 59%
of the 60-day "AA" Composite Commercial Paper Rate in effect on the
date of such Auction; and (2) in the case of a series of Auction
Preferred with a Long-Term Dividend Period, 59% of the Reference Rate
in effect on the date of such Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Existing Holders shall continue to hold
shares of Auction Preferred that are the subject of Submitted Hold Orders
and, based on the determinations made pursuant to paragraph 8(d)(i), the
Submitted Bids and the Submitted Sell Orders shall be accepted or rejected
and the Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 8(e)(iii), Submitted Bids and Submitted Sell
Orders shall be accepted or rejected in the following order of priority
and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to sell the shares
of Auction Preferred that are the subject of such Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying
any rate that is lower than the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
shares of Auction Preferred that are the subject of such Submitted
Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying
a rate that is equal to the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the shares of
Auction Preferred that are the subject of such
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<PAGE> 45
Submitted Bid, unless the number of Outstanding shares of Auction
Preferred subject to all such Submitted Bids shall be greater than
the number of shares of Auction Preferred ("remaining shares") equal
to the excess of the Available Auction Preferred over the number of
shares of Auction Preferred subject to Submitted Bids described in
paragraphs 8(e)(i)(B) and 8(e)(i)(C), in which event the Submitted
Bids of each such Existing Holder shall be accepted, and each such
Existing Holder shall be required to sell shares of Auction
Preferred, but only in an amount equal to the difference between (1)
the number of Outstanding shares of Auction Preferred then held by
such Existing Holder subject to such Submitted Bid and (2) the number
of shares of Auction Preferred obtained by multiplying (x) the number
of remaining shares by (y) a fraction the numerator of which shall be
the number of Outstanding shares of Auction Preferred held by such
Existing Holder subject to such Submitted Bid and the denominator of
which shall be the sum of the number of Outstanding shares of Auction
Preferred subject to such Submitted Bids made by all such Existing
Holders that specified a rate equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate that is equal to the Winning Bid Rate shall be
accepted but only in an amount equal to the number of shares of
Auction Preferred obtained by multiplying the difference between the
Available Auction Preferred and the number of shares of Auction
Preferred subject to Submitted Bids described in paragraphs
8(e)(i)(B), 8(e)(i)(C) and 8(e)(i)(D) by a fraction the numerator of
which shall be the number of Outstanding shares of Auction Preferred
subject to such Submitted Bids and the denominator of which shall be
the sum of the number of Outstanding shares of Auction Preferred
subject to such Submitted Bids made by all such Potential Holders
that specified rates equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding shares of Auction Preferred are subject
to Submitted Hold Orders), subject to the provisions of paragraph
8(e)(iii), Submitted Orders shall be accepted or rejected as follows in
the following order of priority and all other Submitted Bids shall be
rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate that is equal to or lower than the Maximum Applicable Rate shall
be rejected, thus entitling such Existing Holder to continue to hold
the shares of Auction Preferred that are the subject of such
Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate that is equal to or lower than the Maximum Applicable Rate shall
be accepted, thus requiring such Potential Holder to purchase the
shares of Auction Preferred that are the subject of such Submitted
Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall
be accepted, in both cases only in an amount equal to the difference
between (1) the number of Outstanding shares of Auction Preferred
then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of Auction
Preferred obtained by multiplying (x) the difference between the
Available Auction Preferred and the aggregate number of shares of
Auction Preferred subject to Submitted Bids described in paragraphs
8(e)(ii)(A) and 8(e)(ii)(B) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of Auction Preferred held
by such Existing Holder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which shall be the number of
Outstanding shares of Auction Preferred subject to all such Submitted
Bids and Submitted Sell Orders.
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<PAGE> 46
(iii) If, as a result of the procedures described in paragraph
8(e)(i) or 8(e)(ii), any Existing Holder would be entitled or required
to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of Auction Preferred on any Auction
Date, the Auction Agent shall, in such manner as, in its sole
discretion, it shall determine, round up or down the number of shares of
Auction Preferred to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date so that the number of shares
purchased or sold by each Existing Holder or Potential Holder on such
Auction Date shall be whole shares of Auction Preferred.
(iv) Based on the results of each Auction, the Auction Agent shall
determine the aggregate number of shares of Auction Preferred to be
purchased and the aggregate number of shares of Auction Preferred to be
sold by Potential Holders and Existing Holders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders, and, with respect to each
Broker-Dealer, to the extent that such aggregate number of shares to be
purchased and such aggregate number of shares to be sold differ,
determine to which other Broker-Dealer or Broker-Dealers acting for one
or more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, shares of Auction
Preferred.
(f) Miscellaneous. The Board of Directors of the Corporation may
interpret the provisions of this paragraph 8 to resolve any inconsistency
or ambiguity, remedy any formal defect or make any other change or
modification which does not adversely affect the rights of Existing Holders
of Auction Preferred. An Existing Holder (A) may sell, transfer or
otherwise dispose of shares of Auction Preferred only pursuant to a Bid or
Sell Order in accordance with the procedures described in this paragraph 8
or to or through a Broker-Dealer or to a Person that has delivered a signed
copy of a Purchaser's Letter to the Auction Agent, provided that in the
case of all transfers other than pursuant to Auctions such Existing Holder,
its Broker-Dealer or its Agent Member advises the Auction Agent of such
transfer and (B) shall have the beneficial ownership of the shares of
Auction Preferred held by it maintained in book-entry form by the
Securities Depository in the account of its Agent Member, which in turn
shall maintain records of such Existing Holder's beneficial ownership. The
Corporation and its Affiliates shall not submit any Order in any Auction
except as set forth in the next sentence. Any Broker-Dealer that is an
affiliate of the Corporation may submit Orders in Auctions but only if such
Orders are not for its own account, except that if such affiliated
Broker-Dealer holds shares of Auction Preferred for its own account, it
must submit a Sell Order in the next Auction with respect to such shares of
Auction Preferred.
(g) Headings of Subdivisions. The headings of the various subdivisions
of this paragraph 8 are for convenience of reference only and shall not
affect the interpretation of any of the provisions hereof.
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<PAGE> 47
APPENDIX C
TO BE SUBMITTED TO YOUR BROKER-DEALER WHO WILL THEN
DELIVER COPIES ON YOUR BEHALF TO THE AUCTION AGENT.
PURCHASER'S LETTER
RELATING TO FLEXIBLE RATE AUCTION PREFERRED STOCK OF
FORD HOLDINGS, INC.
Ford Holdings, Inc.
The Auction Agent
A Broker-Dealer
An Agent Member
Other Persons
Ladies and Gentlemen:
We may from time to time purchase, offer to purchase, offer to sell and/or
sell shares of one or more series of Flexible Rate Auction Preferred Stock
(Exchange) and/or Flexible Rate Auction Preferred Stock (together, "Flex APS"),
issued by Ford Holdings, Inc. (the "Company"), as described in one or more
prospectuses and prospectus supplements relating to the Flex APS, including the
appendices thereto (the "Prospectus"). We agree that this Letter shall apply to
such purchases, sales and offers and to shares of Flex APS owned by us. We
understand that the dividend rate for each series of Flex APS will generally be
based on the results of Auctions as set forth in the applicable Prospectus.
Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Prospectus.
We represent and agree as follows:
1. We agree that any Bid or Sell Order placed by us shall constitute
an irrevocable offer by us to purchase or sell the shares of Flex APS
subject to such Bid or Sell Order, or such lesser number of shares of Flex
APS as we shall be required to sell or purchase as a result of such
Auction, as set forth in the Prospectus, and that, if we fail to place a
Bid or Sell Order with respect to shares of Flex APS owned by us with a
Broker-Dealer on any Auction Date for such shares or a Broker-Dealer to
which we communicate a Bid or Sell Order fails to submit such Bid or Sell
Order to the Auction Agent, we shall be deemed to have placed a Hold Order
with respect to such shares of Flex APS as described in the Prospectus. We
authorize any Broker-Dealer that submits a Bid or Sell Order as our agent
in Auctions to execute contracts for the sale of shares of Flex APS covered
by such Bid or Sell Order.
2. We agree that we will sell, transfer or otherwise dispose of any
shares of Flex APS held by us from time to time only (i) to the Company or
(ii) pursuant to a Bid or Sell Order placed in an Auction or (iii) to or
through a Broker-Dealer or (iv) to a person who has signed and delivered a
Purchaser's Letter in the form of this Letter for such series to the
Auction Agent, provided that in the case of all dispositions other than
pursuant to Auctions, we, our Broker-Dealer or our Agent Member of the
Securities Depository shall advise the Auction Agent of such disposition.
3. We agree that ownership of shares of Flex APS shall be represented
by a global certificate registered in the name of the Securities Depository
or its nominee, that we will not be entitled to receive any certificate
representing shares of Flex APS and that our ownership of any shares of
Flex APS will be maintained in book entry form by the Securities Depository
for the account of our Agent Member, which in turn will maintain records of
our beneficial ownership. We authorize and instruct our Agent Member to
disclose to the Auction Agent such information concerning our beneficial
ownership of shares of Flex APS as the Auction Agent shall request.
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<PAGE> 48
4. Our Agent Member of the Securities Depository, now The Depository
Trust Company, currently is .
5. We understand that a restrictive legend will be placed on
certificates for the shares of Flex APS reflecting the restriction in
paragraph 3 of this Letter.
6. Our personnel authorized to place Orders with Broker-Dealers for
the purposes set forth in the Prospectus in Auctions currently is/are
, telephone number ( ) .
7. Our taxpayer identification number is .
8. This Letter is not a commitment by us to purchase any shares of
Flex APS.
9. The descriptions of Auction Procedures set forth in Appendix A to
the Prospectus are incorporated by reference herein and, in case of any
conflict between this Letter and any such description, such description
shall control.
10. This Letter supersedes any version of this Letter delivered by us
with respect to the Flex APS and dated earlier than the date hereof.
Dated:
(Name of Purchaser)
By:
Printed Name:
Title:
Mailing Address of Purchaser:
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<PAGE> 49
FORD HOLDINGS, INC.
5,000 SHARES -- PREFERRED STOCK, ISSUABLE IN SERIES
(LIQUIDATION PREFERENCE -- $100,000 PER SHARE)
-------------------------
Ford Holdings, Inc. (the "Company") from time to time may issue in one or
more series Preferred Stock (as defined herein) on terms to be determined at
time of sale. The accompanying Prospectus Supplement (the "Prospectus
Supplement") sets forth specifically with regard to the series of Preferred
Stock in respect of which this Prospectus is being delivered:
- the specific designation;
- the aggregate number of shares offered;
- the dividend rate or method of calculation thereof;
- the dividend periods or the method of calculation thereof;
- the application of any auction and/or remarketing procedures;
- any other specific terms of such series;
- whether the shares of such series will be represented by Depositary
Shares; and
- any underwriter or agent, if any, for the Preferred Stock being offered
and its compensation.
The Preferred Stock may be sold by the Company directly to purchasers,
through agents designated from time to time, through underwriting syndicates led
by one or more managing underwriters or through one or more underwriters acting
alone. If the Company, directly or through agents, solicits offers to purchase
the Preferred Stock, the Company reserves the sole right to accept and, together
with its agents, to reject in whole or part, any proposed purchase of Preferred
Stock. See "Plan of Distribution".
If any agent of the Company, or any underwriter, is involved in the sale of
the Preferred Stock offered hereby, the name of such agent or underwriter and
any applicable commissions or discounts will be set forth in, or may be
calculated from, the Prospectus Supplement, and the net proceeds to the Company
from such sale will be the purchase price of such Preferred Stock less such
commissions or discounts and the other attributable issuance and distribution
expenses. The aggregate net proceeds to the Company from the sale of all the
Preferred Stock will be the public offering or purchase price of the Preferred
Stock sold less the aggregate of such commissions and discounts and other
expenses of issuance and distribution. See "Plan of Distribution" for possible
indemnification arrangements for agents or underwriters.
This Prospectus may not be used to consummate sales of Preferred Stock
unless accompanied by a Prospectus Supplement.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Prospectus is December 12, 1994
<PAGE> 50
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison St., 14th Floor, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such reports and other information also are available
for inspection at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. The information so omitted may be
obtained from the Commission's principal office in Washington, D.C. upon payment
of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the year ended December 31, 1993 (the
"1993 10-K Report"), the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1994, June 30, 1994 and September 30, 1994 (the "1994
10-Q Reports") and the Company's Current Report on Form 8-K dated August 3, 1994
filed pursuant to Section 13 of the Exchange Act.
In addition, all reports filed pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of securities offered by the accompanying
Prospectus Supplement shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom this Prospectus is delivered, on the written or
oral request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents).
Written or telephonic requests should be directed to Ford Holdings, Inc., The
American Road, Dearborn, Michigan 48121, Attention: Treasurer (Telephone
313-322-3000).
------------------------
THIS PROSPECTUS CONTAINS BRIEF SUMMARIES OF CERTAIN MORE DETAILED
INFORMATION CONTAINED IN DOCUMENTS INCORPORATED HEREIN BY REFERENCE. SUCH
SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THE DETAILED INFORMATION CONTAINED
IN THE INCORPORATED DOCUMENTS.
2
<PAGE> 51
THE COMPANY
The Company was incorporated in Delaware in September 1989 for the
principal purpose of acquiring, owning and managing certain assets of Ford. The
Company's primary activities consist of consumer and commercial financing
operations, insurance underwriting and equipment leasing. These activities are
conducted through its principal wholly owned subsidiaries, Associates First
Capital Corporation and its subsidiaries ("The Associates"), The American Road
Insurance Company and its subsidiaries ("American Road"), USL Capital
Corporation and its subsidiaries ("USL Capital"), Ford Motor Land Development
Corporation and its subsidiaries ("Ford Land") and Ford Leasing Development
Company and its subsidiaries ("Ford Leasing"). As a holding company, the Company
has no employees of its own and American Road, Ford Land and Ford Leasing have
no employees of their own; their operations are conducted by employees of Ford,
Ford Motor Credit Company ("Ford Credit"), a wholly owned subsidiary of Ford,
and other Ford subsidiaries pursuant to management service agreements. See Item
13, "Certain Relationships and Related Transactions" of the 1993 10-K Report and
Note 16 of the Notes to Financial Statements included in the 1993 10-K Report.
The Associates, formerly a subsidiary of Paramount Communications Inc., was
acquired by the Company on October 31, 1989. The Associates' primary business
activities are consumer finance, commercial finance and insurance underwriting.
The Associates conducts its operations primarily through its principal operating
subsidiary, Associates Corporation of North America ("ACONA").
American Road is principally engaged in underwriting insurance with respect
to coverages for physical damage on vehicles financed through Ford Credit,
credit life and credit disability insurance in connection with retail vehicle
financing and extended service plan products covering vehicle repairs on retail
contracts. In addition, Ford Life Insurance Company, a wholly owned subsidiary
of American Road, offers single premium deferred annuities.
The principal business of USL Capital is the leasing and financing of
office and other business and commercial equipment, the leasing and management
of rail cars and commercial auto fleets, the leasing and financing of commercial
aircraft and industrial and energy facilities, and equipment financing for state
and local governments.
Ford Land's principal business is real estate development and Ford
Leasing's principal business is the leasing of dealership facilities to
franchised Ford vehicle dealers.
All the outstanding Common Stock of the Company, representing 75% of the
combined voting power of all classes of capital stock of the Company, is owned,
directly or indirectly, by Ford. The balance of the capital stock, consisting of
shares of Flexible Rate Auction Preferred Stock (Exchange) ("Flex APS"), Series
A Cumulative Preferred Stock ("Series A Preferred Stock"), Series B Cumulative
Preferred Stock ("Series B Preferred Stock"), Series C Cumulative Preferred
Stock ("Series C Preferred Stock") and Series D Cumulative Preferred Stock
("Series D Preferred Stock"), accounts for the remaining 25% of the total voting
power; none of such shares of preferred stock is held, directly or indirectly,
by Ford.
The Company intends to pay dividends on the Preferred Stock primarily from
cash dividends received from its subsidiaries. The ability of the subsidiaries
to pay dividends to the Company is dependent upon the subsidiaries'
profitability, regulatory requirements, and other factors, and is subject to
restrictive covenants in their debt instruments. Such restrictions include a
limitation on the payment of cash dividends by ACONA on its common stock in any
year to not more than 50% of consolidated net earnings for such year, subject to
certain exceptions, plus increases in contributed capital and extraordinary
gains. In addition, insurance regulatory requirements of the State of Michigan
restrict payment of dividends by American Road. See Note 14 of the Notes to
Financial Statements included in the 1993 10-K Report.
The principal executive office of the Company is located at The American
Road, Dearborn, Michigan 48121, and its telephone number is (313) 322-3000.
3
<PAGE> 52
SELECTED FINANCIAL DATA OF THE COMPANY AND SUBSIDIARIES
The following table sets forth selected consolidated financial information
regarding the operating results and financial position of the Company and its
subsidiaries. The amounts shown for the years ended or at December 31, 1989
through 1993 and for the nine months ended or at September 30, 1994 and 1993
represent the consolidated operating results and financial position of the
subsidiaries of the Company then owned, directly or indirectly, by Ford. The
reorganizations of these subsidiaries, which occurred in October 1989, have been
accounted for at historical cost in a manner similar to a pooling-of-interests
combination. This table includes The Associates' results for the two-month
period ended December 31, 1989 and for the entirety of all subsequent periods.
The unaudited pro forma adjustments for 1989 reflect the estimated interest
expense, net of related income taxes, that the Company would have incurred on
the zero coupon note issued in connection with the transfer from Ford to the
Company of USL Capital's domestic operations as if such transfer had occurred on
November 1, 1987, the date USL Capital was acquired by Ford. The unaudited pro
forma net income for 1989 does not purport to represent what the Company's net
income actually would have been had the zero coupon note in fact been issued on
November 1, 1987.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OR AT SEPTEMBER 30 YEARS ENDED OR AT DECEMBER 31
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
INFORMATION
Total revenue.............................. $ 4,295 $ 3,925 $ 5,292 $ 4,817 $ 4,814 $ 4,361 $ 2,018
Interest expense........................... 1,439 1,304 1,751 1,658 1,718 1,563 383
Insurance claims........................... 326 387 498 567 664 672 530
Other expenses............................. 1,845 1,635 2,212 2,004 1,840 1,670 819
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and cumulative
effects of changes in accounting
principles............................... 685 599 831 588 592 456 286
Provision for income taxes and minority
interest................................. 250 236 320 231 208 186 88
-------- -------- -------- -------- -------- -------- --------
Net income before cumulative effects of
changes in accounting principles......... 435 363 511 357 384 270 198
Cumulative effects of changes in accounting
principles............................... -- -- -- 26 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income................................. $ 435 $ 363 $ 511 $ 383 $ 384 $ 270 $ 198
======= ======= ======= ======= ======= =======
Pro forma adjustments (Unaudited):
Interest on zero coupon note............... 25
Related taxes.............................. 8
--------
Pro forma net income (Unaudited)........... $ 181
=======
Dividends paid on preferred stock.......... $ 66 $ 51 $ 73 $ 48 $ 48 $ 59 $ 2
CONSOLIDATED BALANCE SHEET INFORMATION
Cash and securities........................ $ 5,840 $ 5,022 $ 5,100 $ 3,659 $ 2,981 $ 3,016 $ 3,110
Finance receivables, net................... 27,745 23,737 24,568 20,750 18,362 13,465 11,461
Investments in leases, net................. 5,637 5,142 5,415 4,607 3,718 3,161 2,929
Total assets............................... 42,636 37,415 38,599 32,731 28,780 23,564 21,757
Unearned insurance premiums................ 896 858 865 936 1,190 1,529 1,820
Debt....................................... 32,499 28,838 29,570 25,767 22,930 18,215 16,077
Stockholders' equity....................... 4,694 4,166 4,291 3,498 2,897 2,289 2,103
</TABLE>
4
<PAGE> 53
FINANCIAL REVIEW
OVERVIEW
The Company's net income in the third quarter of 1994 was $160 million, up
$24 million from the $136 million earned in the third quarter of 1993. The
increase resulted primarily from improved earnings at The Associates and USL
Capital, offset partially by lower earnings at American Road.
Consolidated results reflect the acquisition-related costs of purchasing
The Associates, including interest expense, goodwill, and adjustments to record
the fair value of net assets acquired. These adjustments will vary over time as
the acquired assets and liabilities liquidate.
RESULTS OF OPERATIONS
THIRD QUARTER 1994 COMPARED WITH THIRD QUARTER 1993
The Associates earned $151 million in the third quarter of 1994, compared
with $121 million a year ago. The increase reflected higher levels of earning
assets and improved net interest margins.
USL Capital earned $27 million in the third quarter of 1994, compared with
$16 million a year ago. The increase reflected primarily higher levels of
earning assets and lower operating costs. Results for USL Capital in the third
quarter of 1993 include a $6 million one-time charge to the provision for income
taxes to reflect restatement of deferred tax balances resulting from the August
1993 enactment of the Omnibus Budget Reconciliation Act in the U.S.
American Road earned $14 million in the third quarter of 1994, compared
with $27 million in the same period in 1993. The decrease reflected reduced
investment income from capital gains. Premiums written by American Road were $82
million in the third quarter of 1994, compared with $83 million a year ago.
FIRST NINE MONTHS 1994 COMPARED WITH FIRST NINE MONTHS 1993
The Company's net income in the first nine months of 1994 was $435 million,
up $72 million from the $363 million earned in the first nine months of 1993.
The increase resulted primarily from improved earnings at The Associates, USL
Capital and Ford Land, offset by lower earnings at American Road.
The Associates earned $400 million in the first nine months of 1994,
compared with $343 million a year ago. The increase reflected higher levels of
earning assets and improved net interest margins.
USL Capital's net income in the first nine months of 1994 was $75 million,
compared with $53 million a year ago. The increase reflected higher levels of
earning assets, lower operating costs and the non-recurrence of the unfavorable
one-time tax adjustment in 1993 for increased U.S. tax rates.
American Road earned $44 million in the first nine months of 1994, compared
with $67 million a year ago. The decrease reflected reduced investment income
from capital gains, partially offset by improved underwriting experience in
extended service plans. Premiums written by American Road were $241 million in
the first nine months of 1994, compared with $228 million a year ago. Ford Land
earned $8 million in the first nine months of 1994, up $8 million from the same
period in 1993. The improvement resulted primarily from a gain on sale of real
estate development property.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments in securities totaled $5.8 billion at
September 30, 1994, up $740 million from December 31, 1993. The increase
reflected primarily higher net receipts from annuity contracts available for
investment by American Road.
5
<PAGE> 54
Net receivables and lease investments were $34.3 billion at September 30,
1994, up $3.4 billion from December 31, 1993. The increase reflected continued
growth in earning assets at The Associates. In September 1994, The Associates
acquired the credit card portfolio and certain other assets of Amoco Oil
Company. The fair value of assets acquired totaled $426 million. The transaction
was accounted for as a purchase.
Total debt was $32.5 billion at September 30, 1994, up $2.9 billion from
December 31, 1993. The increase resulted primarily from higher debt levels
required to finance growth in earning assets at The Associates.
The liability for annuity contracts was $2.5 billion at September 30, 1994,
up $875 million from December 31, 1993. The increase reflected continued growth
in single premium deferred annuities offered by Ford Life Insurance Company, a
wholly owned subsidiary of American Road. The volume of annuity contracts, which
are sold primarily through banks and brokerage firms, is expected to continue to
grow in the future.
In August 1994, the Company sold 2,000 shares of its Series D Preferred
Stock having an aggregate liquidation preference of $200 million.
At September 30, 1994, the Company had approximately $10.3 billion of
support facilities, all of which were contractually committed; less than 2% of
these facilities were in use at that date.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratio of "earnings" to "combined fixed charges and preferred stock
dividends" for the Company and its subsidiaries was as follows for each of the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31
- ---------------- -------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1.4 1.4 1.4 1.3 1.3 1.2 1.6
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" include earnings before income taxes
and cumulative effects of changes in accounting principles, plus adjusted fixed
charges. "Combined fixed charges and preferred stock dividends" consist of
interest on borrowed funds, amortization of debt discount, premium, and issuance
expense, one third of all rental expense (the portion deemed representative of
the interest factor) and dividends paid on preferred stock. Preferred stock
dividend requirements have been increased to an amount representing the pre-tax
earnings which would be required to cover such dividends based on the Company's
effective income tax rates for the respective periods.
USE OF PROCEEDS
Except as may be otherwise set forth in the Prospectus Supplement
accompanying this Prospectus, it is anticipated that the net proceeds from the
sale of the Preferred Stock will be used for general corporate purposes,
including financing operations of the Company or its subsidiaries. Additional
equity financing, as well as short-term and long-term debt financing, may be
undertaken at such times, and through such means, as the Company deems
appropriate.
DESCRIPTION OF PREFERRED STOCK
GENERAL
As of the date of this Prospectus, except as otherwise set forth in the
Prospectus Supplement, the authorized capital stock of the Company consists of
10,000 shares of Common Stock, par value $1.00 per share ("Common Stock") and
100,000 shares of preferred stock, par value $1.00 per share ("Preferred
Stock"), issuable from time to time in series with such designations,
preferences and rights as are determined by the Board of Directors of the
Company (the "Board of Directors"). At December 1, 1994, there were outstanding
1,099 shares of Common Stock and 16,597.9718
6
<PAGE> 55
shares of Preferred Stock, 8,000 of which consisted of Flex APS, 2,864.9489
consisted of Series A Preferred Stock, 1,731.7872 consisted of Series B
Preferred Stock, 2,001.1632 consisted of Series C Preferred Stock and 2,000.0725
consisted of Series D Preferred Stock. On August 18, 1994, the Board of
Directors of the Company authorized the issuance of up to 82,899.5 shares of
Preferred Stock in series and authorized the Certificate of Designations
Committee of the Board of Directors (the "Committee") to establish and designate
series and to fix the number of shares and the relative rights, preferences and
limitations of the respective series of Preferred Stock (except for the voting
rights and liquidation preference of Preferred Stock which the Board of
Directors has fixed). The shares of Preferred Stock offered hereby, when issued
and sold, will be fully paid and nonassessable.
The following description of the terms of Preferred Stock sets forth
certain general terms and provisions of the shares of Preferred Stock offered
hereby to which any Prospectus Supplement may relate. Certain terms of any
series of Preferred Stock offered hereby and by any Prospectus Supplement will
be described in the Prospectus Supplement relating to such series. If so
indicated in the Prospectus Supplement, the terms of any such series may differ
from the terms set forth below.
The number of shares and all of the terms and conditions of the relative
rights, preferences and limitations of the respective series of Preferred Stock
as established by the Committee will be set forth in the Prospectus Supplement
accompanying this Prospectus relating to the particular series of Preferred
Stock offered thereby. The terms of a particular series of Preferred Stock may
differ, among other things, in (1) the number of shares that constitute such
series, (2) the dividend rate (or the method of calculation thereof) on the
shares of such series, (3) the dividend periods or the method of calculation
thereof, (4) the voting rights of the shares of such series (if different than
set forth herein), (5) the rights of the holders of shares of such series upon
the liquidation, dissolution or winding up of the Company (if different than set
forth herein), (6) whether or not the shares of the series will be subject to
auction and/or remarketing procedures, (7) the terms, if any, for redemption of
the shares of such series, (8) whether or not the shares of the series may be
issued pursuant to a preferred stock purchase contract, and (9) the other rights
and privileges and any qualifications, limitations or restrictions of such
rights or privileges of such series.
In addition, as described under "Description of Depositary Shares" below,
the Company, at its option, may elect to offer depositary shares ("Depositary
Shares") evidenced by depositary receipts, each representing a fraction (to be
specified in the Prospectus Supplement relating to the particular series of
Preferred Stock) of a share of the particular series of Preferred Stock issued
and deposited with a depositary, in lieu of offering full shares of such series
of Preferred Stock.
When issued, each series of Preferred Stock will rank on a parity with each
other series of Preferred Stock, the Flex APS, the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock as to dividends and upon liquidation. Subject to the terms of
any issued series of Preferred Stock, the remaining shares of undesignated
Preferred Stock may be issued by the Company in one or more series, at any time
or from time to time, with such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, as the Board of Directors or any duly authorized
committee thereof shall determine, all without further action of the
stockholders, including holders of such series of Preferred Stock, of the
Company.
The transfer agent, dividend disbursing agent and registrar, which may be
the Company, for any series of Preferred Stock will be set forth in the
Prospectus Supplement relating to such series.
The following statements are brief summaries of certain provisions that may
be contained in the Certificate of Designations designating and establishing the
terms of a series of Preferred Stock, do not purport to be complete and are
qualified in their entirety by reference to such Certificate of Designations, a
draft form of which has been filed as an exhibit to the Registration Statement,
and by reference to the Company's Certificate of Incorporation. The resolutions
to be set forth in the Certificate of Designations will be adopted by the Board
of Directors or the Committee prior to the
7
<PAGE> 56
issuance of a series of Preferred Stock, and such Certificate of Designations
will be filed with the Secretary of State of the State of Delaware as soon
thereafter as reasonably practicable. In the event the Company elects to issue
Depositary Shares, each representing a fraction of a share of a particular
series of Preferred Stock, subject to the terms of the Deposit Agreement (as
hereinafter defined), each such Depositary Share will be entitled, in proportion
to the applicable fraction of a share of Preferred Stock represented by such
Depositary Share, to all the rights and preferences of the Preferred Stock
represented thereby (including dividends, voting, and liquidation rights). See
"Description of Depositary Shares".
DIVIDENDS
Holders of shares of a series of Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors or a duly authorized
committee thereof out of funds of the Company legally available for payment,
cumulative cash dividends at an annual rate set forth in, or determined or
calculated in accordance with the method or formula set forth in, and on the
dates, for the periods and otherwise in the manner set forth in, the Certificate
of Designations of such series of Preferred Stock, all as described in the
Prospectus Supplement relating to such series of Preferred Stock. Unless
otherwise provided in such Certificate of Designations and described in such
Prospectus Supplement, dividends on such series of Preferred Stock will be
payable in arrears to holders of record as they appear on the stock records of
the Company at the close of business on such record dates, not exceeding 60 days
preceding the payment dates thereof, as shall be fixed by the Board of Directors
or the Committee. Unless otherwise provided in such Certificate of Designations
and described in such Prospectus Supplement, dividends will be cumulative from
the date of original issue of such series, whether or not in any dividend period
or periods there shall be funds of the Company legally available for the payment
of such dividends. Accumulations of dividends on shares of any series of
Preferred Stock will not bear interest.
So long as any shares of a series of Preferred Stock are outstanding, the
Company may not declare, pay or set apart for payment any dividend (other than a
dividend in shares of, or options, warrants or rights to subscribe for or
purchase shares of, Common Stock or Junior Stock (as defined below)) or other
distribution in respect of its Common Stock or any other stock of the Company
ranking junior to the shares of such series of Preferred Stock as to dividends
or upon liquidation ("Junior Stock"), or call for redemption, redeem, purchase
or otherwise acquire for consideration any shares of its Common Stock or Junior
Stock (except by conversion into or exchange for other shares of Common Stock or
Junior Stock) unless full cumulative dividends on all shares of such series of
Preferred Stock for all past dividend periods shall have been declared and paid
(or declared and a sum sufficient for the payment of the dividends set apart for
payment). No dividends may be declared or paid or set apart for payment on any
shares of such series of Preferred Stock unless full cumulative dividends have
been or contemporaneously are declared and paid on each of the shares of such
series of Preferred Stock and the shares of all other Preferred Stock (including
the Flex APS, the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock) ranking on a parity
as to dividends with such series of Preferred Stock ("Parity Preferred") through
the most recent applicable dividend payment date for such shares. In addition,
the Company may not purchase or otherwise acquire any shares of such series of
Preferred Stock during any period when dividend payments on any outstanding
shares of such series of Preferred Stock or Parity Preferred are in arrears.
RIGHTS ON LIQUIDATION OR CASH-OUT MERGER
Except as may be otherwise set forth in the Prospectus Supplement, upon the
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of a series of Preferred Stock will be entitled to
receive, out of assets of the Company available for distribution to stockholders
after satisfying claims of creditors but before any payment or distribution of
assets is made to holders of Common Stock or another stock of the Company
ranking junior to such series
8
<PAGE> 57
of Preferred Stock upon liquidation ("Junior Liquidation Stock"), a liquidating
distribution in the amount of $100,000 per share of such series of Preferred
Stock, plus an amount per share equal to accumulated and unpaid dividends
thereon (whether or not declared) to and including the date of final
dissolution. If upon the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the assets of the Company available for
distribution to the holders of such series of Preferred Stock and all other
Preferred Stock (including the Flex APS, the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock) ranking, upon liquidation, on a parity with such series of
Preferred Stock are insufficient to pay the full amount of the liquidating
distribution to which they are entitled, then the holders of such series of
Preferred Stock and such other Preferred Stock will share ratably in any such
distribution. Unless and until payment in full has been made to the holders of
such series of Preferred Stock of the liquidating distributions to which they
are entitled, no dividends or distributions will be made to the holders of the
Common Stock or Junior Liquidation Stock, no payment or delivery or commitment
to make payment or delivery of any money or assets to an affiliate of the
Company will be made and no purchase, redemption or other acquisition for any
consideration by the Company will be made in respect of the Common Stock or
Junior Liquidation Stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock (in
their capacities as such holders) will have no right or claim to any of the
remaining assets of the Company.
In any merger or consolidation of the Company with or into any other
corporation (including any affiliated corporation), or any merger or
consolidation of any other corporation (including any affiliated corporation)
with or into the Company, which merger or consolidation by its terms provides
for the payment of only cash to holders of a series of Preferred Stock, each
holder of such series of Preferred Stock will be entitled to receive an amount
equal to the liquidation preference of the shares of Preferred Stock held by
such holder, plus an amount equal to accumulated and unpaid dividends on such
shares to the date of payment thereof, and no more, in exchange for such shares
of Preferred Stock (a "cash-out merger transaction").
Neither the sale, lease or exchange (for cash, stock, securities or other
consideration) of all or substantially all of the property and assets of the
Company, nor the merger or consolidation of the Company with or into any other
corporation, nor the merger or consolidation of any other corporation with or
into the Company, shall be deemed to be a dissolution, liquidation or winding
up, voluntary or involuntary; provided, however, that a cash-out merger
transaction will be deemed to be a liquidation of the Company solely for
purposes of determining the rights of the holders of Preferred Stock in respect
of such cash-out merger transaction.
VOTING RIGHTS
Except as may be otherwise set forth in the Prospectus Supplement, holders
of Preferred Stock shall have the following voting rights:
Election of Directors. Holders of record of a series of Preferred Stock and
Voting Preferred (as defined below) will have the right, voting as a single
class together with all Parity Preferred, to elect a number of directors of the
Company (the "Regular Preferred Directors") which is equal to the smallest whole
number that is not less than 25% of the directors of the Company. Holders of all
such stock will vote in such elections on the basis of one vote per $100,000
liquidation preference and not cumulatively and the holder or holders of
one-third of the shares of such stock then outstanding, present in person or by
proxy, will constitute a quorum for the election of directors by them.
Other Matters. On all matters other than the election of directors as to
which stockholders generally have a vote, each share of a series of Preferred
Stock and Voting Preferred will be entitled to such number of votes as
determined below and each share of Common Stock will be entitled to one vote.
The shares of such series of Preferred Stock will vote together as a single
class with all shares of Common Stock and all other shares of Preferred Stock
(including the Flex APS, the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock and the
9
<PAGE> 58
Series D Preferred Stock) having the same voting rights as conferred upon such
series of Preferred Stock in the Certificate of Designations thereof as
described in this paragraph and the next preceding paragraph (the "Voting
Preferred"). Holders of such series of Preferred Stock and Voting Preferred will
be entitled to the number of votes determined pursuant to the following formula
per $100,000 liquidation preference:
X = [(Y divided by .75) minus Y] divided by Z
X: number of votes per share of such series of Preferred Stock and Voting
Preferred per $100,000 liquidation preference.
Y: number of shares of outstanding Common Stock on the applicable record
date.
Z: amount equal to (I) number of shares of such series of Preferred Stock
outstanding on the applicable record date plus (II) sum of the
liquidation preference of all outstanding Voting Preferred on the
applicable record date divided by 100,000.
The Company will mail or cause its agent to mail to registered holders of the
Preferred Stock notice of any meeting of stockholders not less than 20 days nor
more than 60 days prior to the date fixed for such meeting.
Based on the current number of directors on the Board of Directors of the
Company, the holders of a series of Preferred Stock, Voting Preferred and Parity
Preferred will be entitled to nominate and elect two directors, and assuming all
of the shares of Preferred Stock offered hereby are issued and outstanding and
based on the number of outstanding shares of Common Stock, Flex APS, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock as of December 1, 1994, each share of such series of Preferred
Stock (and each share of Flex APS, Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock) will be entitled
to 0.0169615 votes on matters other than elections of directors as to which
stockholders generally have a vote.
Right to Elect Two Additional Directors. In addition, during any period
(referred to herein as a "Default Period") when dividend payments on any shares
of a series of Preferred Stock or Parity Preferred for such number of dividend
periods or portions thereof (or the equivalent thereof in the case of Parity
Preferred), which in the aggregate contain at least 540 days, shall not have
been paid or declared and a sum sufficient for the payment thereof set aside for
payment, then in any such case the number of directors of the Company will
automatically be increased by two additional directors and the holders of record
of such series of Preferred Stock and Parity Preferred will possess full voting
powers (to the exclusion of the holders of all other series and classes of
capital stock of the Company), voting as a single class, to elect such two
directors (the "Special Preferred Directors").
The Default Period and voting rights created by the occurrence of the
circumstances described in the next preceding paragraph will continue unless and
until all accumulated and unpaid dividends on such series of Preferred Stock and
Parity Preferred then outstanding shall have been paid or sufficient funds for
the payment thereof shall have been set apart, at which time the voting rights
described in the next preceding paragraph will cease, subject always, however,
to the revesting of such voting power in the holders of such series of Preferred
Stock and Parity Preferred upon the further occurrence of any of the
circumstances described in the next preceding paragraph.
Within five days following the accrual of any right of the holders of a
series of Preferred Stock and Parity Preferred to elect directors upon the
occurrence of a Default Period as described above, the Company will mail or
cause to be mailed to the holders of such series of Preferred Stock and Parity
Preferred notice of a special meeting of stockholders for a date not less than
20 days nor more than 60 days after the date of such notice. If the Company does
not mail or cause to be mailed notice of such meeting as provided in the next
preceding sentence, a meeting may be called by any holder of such series of
Preferred Stock or Parity Preferred. The date on which such right accrued will
be the record date for determining the holders of stock entitled to notice of
and to vote at the
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<PAGE> 59
special meeting. Holders of all such stock will vote in such elections on the
basis of one vote per $100,000 liquidation preference and not cumulatively, and
the holder or holders of one-third of the shares of such stock then outstanding,
present in person or by proxy, will constitute a quorum for the election of
directors by them. At any such meeting or adjournment thereof in the absence of
a quorum, a majority of the holders of such stock present in person or by proxy
will have the power to adjourn the meeting for the election of directors without
notice, other than an announcement at the meeting, until a quorum is present.
The term of office of all persons who are directors of the Company at the
time of such meeting will continue, notwithstanding the election of Special
Preferred Directors at such meeting by the holders of such series of Preferred
Stock and Parity Preferred. The Regular Preferred Directors and the Special
Preferred Directors, together with the incumbent directors elected by the
holders of the Common Stock, will constitute the duly elected directors of the
Company.
Simultaneously with the expiration of the Default Period, the term of
office of the Special Preferred Directors elected by the holders of such series
of Preferred Stock and Parity Preferred at the special meeting referred to above
will terminate, the number of directors of the Company will automatically be
decreased by two, only the Regular Preferred Directors and the incumbent
directors otherwise elected by the holders of the Common Stock will constitute
the duly elected directors of the Company, and the right of the holders of such
series of Preferred Stock and Parity Preferred to elect directors during a
Default Period as provided above will cease.
Removal of Directors. Except as provided in the next preceding paragraph,
Regular Preferred Directors and Special Preferred Directors will (subject to the
provisions of any applicable law) be subject to removal only by the vote of the
holders of a majority of the outstanding shares of a series of Preferred Stock,
Voting Preferred and Parity Preferred in the case of Regular Preferred Directors
and a majority of the outstanding shares of such series of Preferred Stock and
Parity Preferred in the case of Special Preferred Directors, in each case,
voting together as a single class. Any vacancy in the Board of Directors
occurring by reason of such removal or otherwise may be filled by vote of a
majority of the outstanding shares of such series of Preferred Stock, Voting
Preferred and Parity Preferred in respect of any Regular Preferred Director and
by a vote of a majority of the outstanding shares of such series of Preferred
Stock and Parity Preferred in respect of any Special Preferred Director, in each
case, voting together as a single class, in person or by proxy at a special
meeting of stockholders called and held in accordance with the provisions set
forth above, and, if not so filled, such vacancy will (subject to the provisions
of any applicable law) be filled by a vote of a majority of the remaining
Regular Preferred Directors and any Special Preferred Directors.
Right to Vote in Certain Events. Without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of a series of
Preferred Stock voting in person or by proxy at a special meeting for the
purpose, or the unanimous written consent of the holders of the outstanding
shares of such series of Preferred Stock acting without such a meeting (subject
to the provisions of any applicable law), the Company may not amend, alter or
repeal any provisions of the Certificate of Designations or the Certificate of
Incorporation so as to affect adversely the preferences, special rights or
powers of the shares of such series of Preferred Stock. Any increase in the
authorized number of any series of capital stock ranking on a parity with such
series of Preferred Stock with respect to the payment of dividends or the
distribution of assets, or creation, authorization or issuance of any securities
convertible into, or warrants, options or similar rights to purchase, acquire or
receive, shares of such capital stock or reclassification of any authorized
capital stock of the Company into any share ranking on a parity with such series
of Preferred Stock with respect to the payment of dividends or the distribution
of assets shall be deemed not to affect adversely the preferences, special
rights or powers of the shares of such series of Preferred Stock.
In addition, without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of a series of Preferred Stock and Parity
Preferred, voting together as a single class, in person or by proxy at a special
meeting for the purpose, or the unanimous written consent of the
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<PAGE> 60
holders of the outstanding shares of such series of Preferred Stock and Parity
Preferred acting without such a meeting (subject to the provisions of any
applicable law), the Company may not create, authorize or issue shares of any
class or series of capital stock ranking senior to the shares of such series of
Preferred Stock and Parity Preferred with respect to the payment of dividends or
the distribution of assets, or create, authorize or issue any securities
convertible into, or warrants, options or similar rights to purchase, acquire or
receive, shares of capital stock ranking senior to the shares of such series of
Preferred Stock and Parity Preferred with respect to the payment of dividends or
the distribution of assets or reclassify any authorized capital stock of the
Company into any shares ranking senior to the shares of such series of Preferred
Stock and Parity Preferred with respect to the payment of dividends or the
distribution of assets.
Without the affirmative vote of the holders of a majority of the
outstanding shares of a series of Preferred Stock, Voting Preferred and Parity
Preferred, voting together as a single class, in person or by proxy at a special
meeting for the purpose, or the unanimous written consent of the holders of the
outstanding shares of such series of Preferred Stock, Voting Preferred and
Parity Preferred acting without such a meeting (subject to the provisions of any
applicable law), the Company may not sell, lease or convey all or substantially
all of the assets of the Company, or consolidate or merge with or into any other
corporation unless, in the case of a consolidation or merger, each holder of
shares of such series of Preferred Stock, Voting Preferred and Parity Preferred
shall receive, upon such consolidation or merger, an amount in cash equal to the
liquidation preference, premium, if any, and accumulated and unpaid dividends
through the date of payment of such shares of such series of Preferred Stock,
Voting Preferred and Parity Preferred in exchange for such shares of such series
of Preferred Stock, Voting Preferred and Parity Preferred. As discussed under
"Rights on Liquidation or Cash-Out Merger" above, a cash-out merger transaction
shall be deemed to be a liquidation solely for purposes of determining the
rights of the holders of such series of Preferred Stock in respect of such
cash-out merger transaction.
No Right to Vote in Certain Events. With respect to any right of the
holders of shares of a series of Preferred Stock to vote on any matter, whether
such right is created by the Certificate of Designations thereof, by applicable
law or otherwise, no holder of any share of such series of Preferred Stock will
be entitled to vote and no share of such series of Preferred Stock will be
deemed to be outstanding for the purpose of voting or determining the number of
shares required to constitute a quorum, if prior to or concurrently with a
determination of shares entitled to vote or of shares deemed outstanding for
quorum purposes, as the case may be, such share is held beneficially or of
record by the Company or any affiliate of the Company.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may, at its option, elect to offer fractional shares of
Preferred Stock, rather than full shares of Preferred Stock. In the event such
option is exercised, the Company will issue receipts for Depositary Shares, each
of which will represent a fraction (to be set forth in the Prospectus Supplement
relating to a particular series of Preferred Stock) of a share of a particular
series of Preferred Stock as described below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between the Company and a bank or trust company selected by the Company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000 (the "Depositary"). Subject to the terms of the
Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a share of Preferred Stock represented
by such Depositary Share, to all the rights and preferences of the Preferred
Stock represented thereby (including dividend, voting and liquidation rights).
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<PAGE> 61
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement (the "Depositary Receipts"). Depositary
Receipts will be distributed to those persons purchasing the fractional shares
of the related series of Preferred Stock in accordance with the terms of the
offering described in the related Prospectus Supplement. Copies of the forms of
Deposit Agreement and Depositary Receipt are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and the following
summary is qualified in its entirety by reference to such exhibits.
Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of the Company, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts but
not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at the Company's expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the related series of Preferred Stock to
the record holders of Depositary Shares relating to such series of Preferred
Stock in proportion to the number of such Depositary Shares owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to the Depositary;
provided, however, that in case the Company or the Depositary withholds from any
cash dividend or other cash distribution in respect of such series of Preferred
Stock represented by the Depositary Receipts held by any holder an amount on
account of taxes, the amount made available for distribution or distributed in
respect of Depositary Shares represented by such Depositary Receipts subject to
such withholding will be reduced accordingly.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
the Depositary, unless the Depositary determines that it is not feasible to make
such distribution, in which case the Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders or adopt such method as it deems equitable or practicable for the
purpose of effecting such distribution.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Depositary, the holder of the Depositary Shares evidenced thereby is
entitled to delivery at such office to or upon his order, of the number of whole
shares of the related series of Preferred Stock and any money or other property
represented by such Depositary Shares. Holders of Depositary Shares will be
entitled to receive whole shares of the related series of Preferred Stock on the
basis set forth in the related Prospectus Supplement for such series of
Preferred Stock, but holders of such whole shares of Preferred Stock will not
thereafter be entitled to receive Depositary Shares therefor. If the Depositary
Receipts delivered by the holder evidence a number of Depositary Shares in
excess of the number of Depositary Shares representing the number of whole
shares of the related series of Preferred Stock to be withdrawn, the Depositary
will deliver to such holder at the same time a new Depositary Receipt evidencing
such excess number of Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a series of
Preferred Stock are entitled to vote, or upon receipt of any consent to
corporate action without a meeting, the Depositary will mail the information
contained in such notice of meeting or such consent to the record holders of
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<PAGE> 62
the Depositary Shares relating to such series of Preferred Stock. Each record
holder of such Depositary Shares on the record date (which will be the same date
as the record date for such series of Preferred Stock) will be entitled to
instruct the Depositary as to the exercise of the voting rights pertaining to
the amount of such series of Preferred Stock represented by such holder's
Depositary Shares. The Depositary will endeavor, insofar as practicable, to vote
or to give or to withhold consent with respect to the amount of such series of
Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by the Depositary in order to enable the Depositary to do
so. The Depositary will abstain from voting shares of such series of Preferred
Stock to the extent it does not receive specific instructions from the holders
of Depositary Shares representing such series of Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may be amended at any time by agreement
between the Company and the Depositary. However, any amendment which materially
and adversely alters the rights of the holders of Depositary Shares will not be
effective unless such amendment has been approved by the holders of at least a
majority of the Depositary Shares then outstanding.
The Deposit Agreement may be terminated by the Company upon not less than
60 days' notice whereupon the Depositary shall deliver or make available to each
holder of Depositary Receipts, upon surrender of the Depositary Receipts held by
such holder, such number of whole or fractional shares of the related series of
Preferred Stock represented by such receipts. The Deposit Agreement will
automatically terminate if (i) there has been a final distribution in respect of
the related series of Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution has been
distributed to the holders of Depositary Receipts or (ii) each share of the
related series of Preferred Stock shall have been exchanged for cash in a
cash-out merger transaction.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay the fees and expenses of the Depositary in connection with the
performance of its duties under the Deposit Agreement. Holders of Depositary
Receipts will pay transfer and other taxes and governmental charges and such
other charges as are expressly provided in the Deposit Agreement to be for their
accounts.
MISCELLANEOUS
The Depositary will furnish to holders of Depositary Shares any reports and
communications from the Company which are received by the Depositary.
Neither the Company nor the Depositary will be liable if it is prevented
from or delayed in, by law or any circumstance beyond its control, performing
its obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performing their
duties thereunder without negligence or wilful misconduct, and the Company and
the Depositary will not be obligated to prosecute or defend any legal proceeding
in respect of any Depositary Shares or series of Preferred Stock unless
satisfactory indemnity is furnished. The Company and the Depositary may rely on
advice of counsel or accountants, or information provided by persons presenting
Preferred Stock for deposit, holders of Depositary Shares or other persons
believed to be authorized or competent and on documents believed to be genuine.
In the event the Depositary shall receive conflicting claims, requests or
instructions from any holders of Depositary Receipts, on the one hand, and the
Company, on the other hand, the
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<PAGE> 63
Depositary shall be entitled to act on such claims, requests or instructions
received from the Company.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice
of its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary, which successor Depositary must be appointed within 60
days after delivery of the notice of resignation or removal and must be a bank
or trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
PLAN OF DISTRIBUTION
Offers to purchase Preferred Stock are being considered by the Company on a
continuing basis. The Company may sell the Preferred Stock offered hereby to
underwriters or through agents or directly to purchasers. The Prospectus
Supplement will set forth the terms of the offering of any series of Preferred
Stock to which such Prospectus Supplement relates, including the name or names
of any underwriters or agents with whom the Company has entered into
arrangements with respect to the sale of such series of Preferred Stock, the
public offering or purchase price of such series of Preferred Stock and the net
proceeds to the Company from such sale, any underwriting discounts and other
items constituting underwriters' compensation, any discounts and commissions
allowed or paid to dealers, if any, any commissions allowed or paid to agents,
and the securities exchanges, if any, on which such series of Preferred Stock
will be listed. Dealer trading may take place in the Preferred Stock, including
Preferred Stock not listed on any securities exchange.
The Preferred Stock offered hereby may be purchased to be re-offered to the
public through underwriting syndicates led by one or more managing underwriters,
or through one or more underwriters acting alone. The underwriter or
underwriters with respect to an underwritten offering of a series of Preferred
Stock offered hereby will be named in the Prospectus Supplement relating to such
offering and, if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover page of such Prospectus Supplement.
Unless otherwise set forth in the Prospectus Supplement, the obligations of the
underwriters to purchase such series of Preferred Stock will be subject to
certain conditions precedent and each of the underwriters with respect to a sale
of such series of Preferred Stock will be obligated to purchase all of the
shares of such series of Preferred Stock if any are purchased. The initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
Any series of Preferred Stock offered hereby may be offered and sold by the
Company directly or through agents designated by the Company from time to time.
Any agent involved in the offer and sale of such series of Preferred Stock in
respect of which this Prospectus is being delivered will be named, and any
commissions payable by the Company to such agent will be set forth, in the
Prospectus Supplement relating to such series. Unless otherwise indicated in the
Prospectus Supplement relating to such series, any such agent will be acting on
a best efforts basis for the period of its appointment.
Any underwriter or agent participating in the distribution of a series of
Preferred Stock offered hereby may be deemed to be an underwriter, as that term
is defined in the Securities Act, of such series of Preferred Stock so offered
and sold and any discounts or commissions received by them from the Company and
any profit realized by them on the sale or resale of such series of Preferred
Stock may be deemed to be underwriting discounts and commissions under the
Securities Act.
Underwriters, agents and their controlling persons may be entitled, under
agreements entered into with the Company, to indemnification by the Company
against certain civil liabilities, including liabilities under the Securities
Act.
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<PAGE> 64
LEGAL OPINIONS
Except as may be otherwise specified in the Prospectus Supplement
accompanying this Prospectus, the legality of any series of Preferred Stock
offered hereby will be passed on for the Company by J.M. Rintamaki, Secretary of
the Company and of Ford and an Assistant General Counsel of Ford, and for any
underwriters or agents by Shearman & Sterling, 599 Lexington Avenue, New York,
N.Y. Except as may be otherwise specified in the Prospectus Supplement
accompanying this Prospectus, any tax matters with respect to any series of
Preferred Stock offered hereby will be passed on for the Company by Burton B.
Smoliar, an Associate General Counsel of Ford. Mr. Rintamaki and Mr. Smoliar are
full-time employees of Ford and own, and hold options to purchase, shares of
Common Stock of Ford, and Mr. Rintamaki owns depositary shares, each
representing 1/1,000 of a share of Series A Cumulative Convertible Preferred
Stock of Ford. Shearman & Sterling act as counsel to the Compensation and Option
Committee and the Audit Committee of the Board of Directors of Ford and
occasionally act as counsel to Ford and its subsidiaries in connection with
certain transactions.
EXPERTS
The financial statements of the Company which are incorporated in this
Prospectus by reference to the 1993 10-K Report have been audited by Coopers &
Lybrand, independent certified public accountants, to the extent indicated in
their report therein, and have been so incorporated in reliance on the report,
which includes an explanatory paragraph indicating that the Company changed its
methods of accounting for postretirement benefits other than pensions and income
taxes in 1992, of that firm given on their authority as experts in accounting
and auditing.
With respect to the unaudited interim financial information of the Company
for the periods ending March 31, 1994, June 30, 1994 and September 30, 1994,
incorporated in this Prospectus by reference to the 1994 10-Q Reports, Coopers &
Lybrand L.L.P. have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their reports included in the 1994 10-Q Reports state that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures applied.
The accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their reports on the unaudited interim financial information
because such reports do not constitute "reports" or a "part" of the registration
statement prepared or certified by the accountants within the meaning of
Sections 7 and 11 of the Securities Act.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS, OR THAT THE INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........... S-3
Capitalization.......................... S-11
Use of Proceeds......................... S-11
Description of New Auction Preferred
Stock................................. S-12
The Auction............................. S-24
Tax Considerations...................... S-34
Legal Opinions.......................... S-36
Underwriting............................ S-36
Settlement Procedures................... A-1
Auction Procedures...................... B-1
Purchaser's Letter...................... C-1
PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
The Company............................. 3
Selected Financial Data of the Company
and Subsidiaries...................... 4
Financial Review........................ 5
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends............................. 6
Use of Proceeds......................... 6
Description of Preferred Stock.......... 6
Description of Depositary Shares........ 12
Plan of Distribution.................... 15
Legal Opinions.......................... 16
Experts................................. 16
</TABLE>
Ford Holdings, Inc.
2,150 SHARES
FLEXIBLE RATE
AUCTION PREFERRED STOCK
(PAR VALUE $1.00 PER SHARE,
LIQUIDATION PREFERENCE
$100,000 PER SHARE)
750 SHARES OF SERIES L
750 SHARES OF SERIES M
650 SHARES OF SERIES N
[FORD LOGO]
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
DECEMBER 12, 1994
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