-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D4ijwDaSLGEtAh9hD1f9lnFgpa2SywbdsAQLdEvhm79UjiIndUQ1ujIBS1ZZBto5 AFhfeRRs/fltOD0HZUIf7A== 0000354964-96-000030.txt : 19961115 0000354964-96-000030.hdr.sgml : 19961115 ACCESSION NUMBER: 0000354964-96-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOUSEHOLD INTERNATIONAL INC CENTRAL INDEX KEY: 0000354964 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 363121988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08198 FILM NUMBER: 96662275 BUSINESS ADDRESS: STREET 1: 2700 SANDERS RD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 BUSINESS PHONE: 8475645000 MAIL ADDRESS: STREET 1: 2700 SANDERS ROAD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 10-Q 1 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 1-8198 ------ HOUSEHOLD INTERNATIONAL, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 36-3121988 - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 2700 Sanders Road, Prospect Heights, Illinois 60070 - ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 564-5000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At October 31, 1996, there were 96,983,565 shares of registrant's common stock outstanding. 2 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES Table of Contents Page PART I. Financial Information ---- Item 1. Financial Statements Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 1996 and 1995. . . . . . . . . 2 Condensed Consolidated Balance Sheets - September 30, 1996 (Unaudited) and December 31, 1995. . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 1996 and 1995. . . . . . . . . . . . 4 Financial Highlights . . . . . . . . . . . . . . . 5 Notes to Interim Condensed Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . 11 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 21 Signature. . . . . . . . . . . . . . . . . . . . . 22 3 Part 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - ------------------------------------------------------- All dollar amounts except per share data are stated in millions.
- ------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------ Finance income . . . . . . . . . . . . . . . . . . . . . . . $755.6 $752.3 $2,136.4 $2,147.5 Interest income from noninsurance investment securities. . . 12.1 19.8 71.4 104.9 Interest expense . . . . . . . . . . . . . . . . . . . . . . 384.7 404.1 1,121.8 1,181.6 --------------------------------------- Net interest margin. . . . . . . . . . . . . . . . . . . . . 383.0 368.0 1,086.0 1,070.8 Provision for credit losses on owned receivables . . . . . . 169.5 188.2 537.3 569.7 --------------------------------------- Net interest margin after provision for credit losses. . . . 213.5 179.8 548.7 501.1 --------------------------------------- Securitization income. . . . . . . . . . . . . . . . . . . . 282.0 201.1 841.9 633.4 Insurance premiums and contract revenues . . . . . . . . . . 63.6 87.8 185.9 262.2 Investment income. . . . . . . . . . . . . . . . . . . . . . 34.8 145.5 128.0 423.3 Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 62.1 48.3 165.3 139.1 Other income . . . . . . . . . . . . . . . . . . . . . . . . 31.5 58.0 195.4 189.4 --------------------------------------- Total other revenues . . . . . . . . . . . . . . . . . . . . 474.0 540.7 1,516.5 1,647.4 --------------------------------------- Salaries and fringe benefits . . . . . . . . . . . . . . . . 131.4 134.1 392.3 420.9 Occupancy and equipment expense. . . . . . . . . . . . . . . 48.3 53.5 163.6 170.1 Other marketing expenses . . . . . . . . . . . . . . . . . . 132.3 86.9 374.5 268.1 Other servicing and administrative expenses. . . . . . . . . 104.7 129.8 377.7 370.8 Policyholders' benefits. . . . . . . . . . . . . . . . . . . 57.2 133.7 183.6 416.6 --------------------------------------- Total costs and expenses . . . . . . . . . . . . . . . . . . 473.9 538.0 1,491.7 1,646.5 --------------------------------------- Income before income taxes . . . . . . . . . . . . . . . . . 213.6 182.5 573.5 502.0 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 73.7 63.9 198.5 181.1 --------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . $139.9 $118.6 $ 375.0 $ 320.9 ======================================= Earnings per common share: Net income . . . . . . . . . . . . . . . . . . . . . . . . $139.9 $118.6 $ 375.0 $ 320.9 Preferred dividends. . . . . . . . . . . . . . . . . . . . (4.2) (8.4) (12.5) (22.2) --------------------------------------- Earnings available to common shareholders. . . . . . . . . $135.7 $110.2 $ 362.5 $ 298.7 ======================================= Average common and common equivalent shares. . . . . . . . 98.2 99.9 98.4 99.1 --------------------------------------- Fully diluted earnings per common share. . . . . . . . . . $ 1.38 $ 1.10 $ 3.68 $ 3.01 --------------------------------------- Primary earnings per common share. . . . . . . . . . . . . 1.38 1.11 3.68 3.02 --------------------------------------- Dividends declared per common share. . . . . . . . . . . . . .39 .34 1.07 .97 ---------------------------------------
See notes to interim condensed consolidated financial statements. 4 Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS - ------------------------------------- In millions.
- -------------------------------------------------------------------------------- September 30, December 31, 1996 1995 - -------------------------------------------------------------------------------- ASSETS (Unaudited) - ------ Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 289.6 $ 270.4 Investment securities. . . . . . . . . . . . . . . . 2,312.9 4,639.5 Receivables, net . . . . . . . . . . . . . . . . . . 24,361.9 21,844.1 Acquired intangibles . . . . . . . . . . . . . . . . 985.1 578.5 Property and equipment . . . . . . . . . . . . . . . 339.9 391.7 Real estate owned. . . . . . . . . . . . . . . . . . 137.6 136.5 Other assets . . . . . . . . . . . . . . . . . . . . 1,469.7 1,358.1 ------------------------- Total assets . . . . . . . . . . . . . . . . . . . . $29,896.7 $29,218.8 ========================= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Debt: Deposits . . . . . . . . . . . . . . . . . . . . . $ 2,220.5 $ 4,708.8 Commercial paper, bank and other borrowings. . . . 6,485.2 6,659.4 Senior and senior subordinated debt (with original maturities over one year). . . . . . . . . . . . 15,285.5 11,227.9 ------------------------- Total debt . . . . . . . . . . . . . . . . . . . . . 23,991.2 22,596.1 Insurance policy and claim reserves. . . . . . . . . 1,172.9 2,229.3 Other liabilities. . . . . . . . . . . . . . . . . . 1,567.9 1,422.5 ------------------------- Total liabilities. . . . . . . . . . . . . . . . . . 26,732.0 26,247.9 ------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts* . . . . . . . . . 175.0 75.0 ------------------------- Preferred stock. . . . . . . . . . . . . . . . . . . 205.0 205.0 ------------------------- Common shareholders' equity: Common stock . . . . . . . . . . . . . . . . . . . 115.2 115.2 Additional paid-in capital . . . . . . . . . . . . 388.4 383.4 Retained earnings. . . . . . . . . . . . . . . . . 2,955.2 2,696.6 Foreign currency translation adjustments . . . . . (129.4) (127.1) Unrealized gain (loss) on investments, net . . . . (32.3) 94.3 Common stock in treasury . . . . . . . . . . . . . (512.4) (471.5) ------------------------- Total common shareholders' equity. . . . . . . . . . 2,784.7 2,690.9 ------------------------- Common and preferred shareholders' equity. . . . . . 2,989.7 2,895.9 ------------------------- Total liabilities and shareholders' equity . . . . . $29,896.7 $29,218.8 =========================
* As described in note 7 to the condensed financial statements, the sole asset of the trusts are Junior Subordinated Deferrable Interest Notes issued by Household International, Inc. in June 1996 and June 1995, bearing interest at 8.70 and 8.25 percent, and with principal balances of $103.1 and $77.3 million, respectively. See notes to interim condensed consolidated financial statements. 5 Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ----------------------------------------------------------- In millions.
- -------------------------------------------------------------------------------------------------- Nine months ended September 30 1996 1995 - -------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 375.0 $ 320.9 Adjustments to reconcile net income to net cash provided by operations: Provision for credit losses on owned receivables. . . . . . . . . . . 537.3 569.7 Insurance policy and claim reserves . . . . . . . . . . . . . . . . . 57.0 378.4 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 178.4 211.8 Net realized gains from sales of assets . . . . . . . . . . . . . . . (119.0) (114.4) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203.9 (145.6) ------------------------ Cash provided by operations . . . . . . . . . . . . . . . . . . . . . . 1,232.6 1,220.8 ------------------------ INVESTMENTS IN OPERATIONS Investment securities: Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,880.9) (3,841.7) Matured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684.7 1,166.4 Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,262.9 2,868.1 Short-term investment securities, net change. . . . . . . . . . . . . . 252.2 468.9 Receivables, excluding Visa*/MasterCard*: Originated or purchased . . . . . . . . . . . . . . . . . . . . . . . (10,549.0) (9,423.8) Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,284.5 5,309.2 Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,208.7 2,801.7 Visa/MasterCard receivables: Originated or collected, net. . . . . . . . . . . . . . . . . . . . . (15,839.7) (14,939.8) Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,434.0) - Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,838.1 14,048.6 Disposition of consumer banking operations: Assets sold, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 472.3 155.0 Deposits and other liabilities sold . . . . . . . . . . . . . . . . . (2,809.8) (3,356.6) (Acquisition) disposition of portfolios, net. . . . . . . . . . . . . . (620.1) 204.9 Properties and equipment purchased. . . . . . . . . . . . . . . . . . . (58.1) (58.1) Properties and equipment sold . . . . . . . . . . . . . . . . . . . . . 11.4 9.7 ------------------------ Cash decrease from investments in operations. . . . . . . . . . . . . . (5,176.8) (4,587.5) ------------------------ FINANCING AND CAPITAL TRANSACTIONS Short-term debt and demand deposits, net change . . . . . . . . . . . . (43.4) 1,970.0 Time certificates, net change . . . . . . . . . . . . . . . . . . . . . 299.1 796.5 Senior and senior subordinated debt issued. . . . . . . . . . . . . . . 6,759.0 2,641.4 Senior and senior subordinated debt retired . . . . . . . . . . . . . . (2,706.0) (1,909.7) Policyholders' benefits paid. . . . . . . . . . . . . . . . . . . . . . (484.0) (774.0) Cash received from policyholders. . . . . . . . . . . . . . . . . . . . 192.4 669.4 Shareholders' dividends . . . . . . . . . . . . . . . . . . . . . . . . (116.4) (116.8) Purchase of treasury stock. . . . . . . . . . . . . . . . . . . . . . . (48.9) - Issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . . 11.4 23.4 Issuance of company obligated mandatorily redeemable preferred securities of subsidiary trusts . . . . . . . . . . . . . . 100.0 75.0 Repurchase of preferred stock . . . . . . . . . . . . . . . . . . . . . - (115.0) ------------------------ Cash increase from financing and capital transactions . . . . . . . . . 3,963.2 3,260.2 ------------------------ Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . .2 23.0 ------------------------ Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . 19.2 (83.5) Cash at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 270.4 541.2 ------------------------ Cash at September 30. . . . . . . . . . . . . . . . . . . . . . . . . . $ 289.6 $ 457.7 ======================== Supplemental cash flow information: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,116.8 $ 1,124.6 ------------------------ Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . 220.4 216.8 ------------------------
See notes to interim condensed consolidated financial statements. *VISA and MasterCard are registered trademarks of VISA USA, Inc. and MasterCard International, Incorporated respectively. 6 Household International, Inc. and Subsidiaries FINANCIAL HIGHLIGHTS - -------------------- All dollar amounts are stated in millions.
- --------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . $ 139.9 $ 118.6 $ 375.0 $ 320.9 -------------------------------------------- Revenues . . . . . . . . . . . . . . . . . . . . . . 1,241.7 1,312.8 3,724.3 3,899.8 -------------------------------------------- Return on average common shareholders' equity . . . . . . . . . . . . . . . . . 19.8% 17.5% 17.8% 16.6% -------------------------------------------- Return on average owned assets 1.87 1.35 1.71 1.22 -------------------------------------------- Managed basis efficiency ratio, normalized . . . 39.9 43.3 41.5 48.8 -------------------------------------------- All dollar amounts are stated in millions. - --------------------------------------------------------------------------------------------------- September 30, December 31, 1996 1995 - --------------------------------------------------------------------------------------------------- Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,896.7 $29,218.8 --------------------------------- Total shareholders' equity as a percent of owned assets . . 10.59% 10.17% --------------------------------- Total shareholders' equity as a percent of managed assets . 6.69 6.74 --------------------------------- Annualized. Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" had no significant impact on the return on average common shareholders' equity for the periods presented. Ratio of operating expenses to managed net interest margin and other revenues less policyholders' benefits. The normalized efficiency ratio excludes certain nonrecurring items. The managed basis efficiency ratio, including nonrecurring items, was 42.4 percent for the first nine months of 1996, and 42.8 and 47.3 percent in the third quarter and first nine months of 1995, respectively. There were no nonrecurring items in the third quarter of 1996. Includes company obligated mandatorily redeemable preferred securities of subsidiary trusts.
See notes to interim condensed consolidated financial statements. 7 Household International, Inc. and Subsidiaries NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited condensed consolidated financial statements of Household International, Inc. and its subsidiaries (the "company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's annual report on Form 10-K for the year ended December 31, 1995. 2. INVESTMENT SECURITIES --------------------- Investment securities consisted of the following:
--------------------------------------------------------------------------------- In millions. September 30, 1996 December 31, 1995 --------------------------------------------------------------------------------- Amortized Carrying Amortized Carrying Cost Value Cost Value --------------------------------------------------------------------------------- AVAILABLE-FOR-SALE INVESTMENTS Marketable equity securities . . . $ 229.0 $ 226.9 $ 321.6 $ 327.1 Corporate debt securities. . . . . 944.1 910.5 1,433.2 1,560.0 Government debt securities . . . . 166.2 160.1 140.2 142.1 Mortgage-backed securities . . . . 291.1 279.5 1,046.5 1,053.7 Policy loans . . . . . . . . . . . - - 821.4 821.4 Other. . . . . . . . . . . . . . . 706.0 706.0 689.7 690.9 -------------------------------------------- Subtotal . . . . . . . . . . . . . 2,336.4 2,283.0 4,452.6 4,595.2 -------------------------------------------- Accrued investment income. . . . . 29.9 29.9 44.3 44.3 -------------------------------------------- Total investment securities. . . . $2,366.3 $2,312.9 $4,496.9 $4,639.5 ============================================
For available-for-sale investments, carrying value equals fair value, in accordance with the Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." 8 3. RECEIVABLES ----------- Receivables consisted of the following:
--------------------------------------------------------------------------------------------- September 30, December 31, In millions. 1996 1995 --------------------------------------------------------------------------------------------- First mortgage . . . . . . . . . . . . . . . . . . . . . . $ 1,652.9 $ 2,066.9 Home equity. . . . . . . . . . . . . . . . . . . . . . . . 4,662.0 4,148.2 Visa/MasterCard. . . . . . . . . . . . . . . . . . . . . . 7,702.2 5,512.0 Merchant participation . . . . . . . . . . . . . . . . . . 4,443.7 3,696.2 Other unsecured. . . . . . . . . . . . . . . . . . . . . . 4,631.3 5,019.2 Commercial . . . . . . . . . . . . . . . . . . . . . . . . 1,045.3 1,289.6 ------------------------------- Total owned receivables . . . . . . . . . . . . . . . . . 24,137.4 21,732.1 Accrued finance charges. . . . . . . . . . . . . . . . . . 392.6 381.6 Credit loss reserve for owned receivables. . . . . . . . . (862.5) (720.4) Unearned credit insurance premiums and claims reserves . . (169.6) (159.9) Amounts due and deferred from receivables sales. . . . . . 1,529.4 1,067.7 Reserve for receivables serviced with limited recourse . . (665.4) (457.0) ------------------------------- Total owned receivables, net . . . . . . . . . . . . . . . 24,361.9 21,844.1 Receivables serviced with limited recourse . . . . . . . . 17,438.8 14,884.6 ------------------------------- Total managed receivables, net . . . . . . . . . . . . . . $41,800.7 $36,728.7 ===============================
The outstanding balance of receivables serviced with limited recourse consisted of the following:
--------------------------------------------------------------------------------------------- September 30, December 31, In millions. 1996 1995 --------------------------------------------------------------------------------------------- Home equity. . . . . . . . . . . . . . . . . . . . . . . . $ 3,961.6 $ 4,661.9 Visa/MasterCard. . . . . . . . . . . . . . . . . . . . . . 9,245.3 7,831.1 Merchant participation . . . . . . . . . . . . . . . . . . 604.4 750.0 Other unsecured. . . . . . . . . . . . . . . . . . . . . . 3,627.5 1,641.6 ------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $17,438.8 $14,884.6 ===============================
The combination of receivables owned and receivables serviced with limited recourse, which the company considers its managed portfolio, is shown below:
--------------------------------------------------------------------------------------------- September 30, December 31, In millions. 1996 1995 --------------------------------------------------------------------------------------------- First mortgage . . . . . . . . . . . . . . . . . . . $ 1,652.9 4.0% $ 2,066.9 5.7% Home equity. . . . . . . . . . . . . . . . . . . . . 8,623.6 20.7 8,810.1 24.1 Visa/MasterCard. . . . . . . . . . . . . . . . . . . 16,947.5 40.8 13,343.1 36.4 Merchant participation . . . . . . . . . . . . . . . 5,048.1 12.1 4,446.2 12.1 Other unsecured. . . . . . . . . . . . . . . . . . . 8,258.8 19.9 6,660.8 18.2 Commercial . . . . . . . . . . . . . . . . . . . . . 1,045.3 2.5 1,289.6 3.5 -------------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . $41,576.2 100.0% $36,616.7 100.0% ======================================
9 The amounts due and deferred from receivables sales of $1,529.4 million at September 30, 1996 included unamortized excess servicing assets and funds established pursuant to the recourse provisions and holdback reserves for certain sales totaling $1,520.9 million. The amounts due and deferred also included customer payments not yet remitted by the securitization trustee to the company. In addition, the company has made guarantees relating to certain securitizations of $90.2 million plus unpaid interest and has subordinated interests in certain transactions, which are recorded as receivables, for $213.9 million at September 30, 1996. The company has an agreement with a "AAA"- rated third party who will indemnify the company for up to $21.2 million in losses relating to certain securitization transactions. The company maintains credit loss reserves pursuant to the recourse provisions for receivables serviced with limited recourse which are based on estimated probable losses under such provisions. These reserves totaled $665.4 million at September 30, 1996 and represent the company's best estimate of probable losses on receivables serviced with limited recourse. See Note 4, "Credit Loss Reserves" for an analysis of credit loss reserves for receivables. See "Management's Discussion and Analysis" on pages 19 and 20 for additional information related to the credit quality of receivables. Effective January 1, 1996 other unsecured receivables in the United States and Canadian consumer finance operations are charged off if an account is nine months contractually delinquent and minimum payments have not been received in six months. In any event, these receivables are charged off when the accounts are 18 months contractually delinquent. Previously, such accounts were charged off when they were nine months contractually delinquent. Delinquency statistics will continue to be reported on a contractual basis for these receivables. Procedures for secured and credit card receivables were unaffected. The implementation of this new procedure did not have a material impact on the company's financial statements for the first nine months of 1996. 4. CREDIT LOSS RESERVES -------------------- An analysis of credit loss reserves for the nine months ended September 30 was as follows:
-------------------------------------------------------------------------------------------- In millions. 1996 1995 -------------------------------------------------------------------------------------------- Credit loss reserves for owned receivables at January 1. . . . . . . . $ 720.4 $ 546.0 Provision for credit losses - owned receivables. . . . . . . . . . . . 537.3 569.7 Owned receivables charged off. . . . . . . . . . . . . . . . . . . . . (561.3) (563.9) Recoveries on owned receivables. . . . . . . . . . . . . . . . . . . . 91.6 96.6 Credit loss reserves on receivables purchased, net . . . . . . . . . . 87.4 4.7 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.9) 14.7 ------------------- TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT SEPTEMBER 30 . . . 862.5 667.8 ------------------- Credit loss reserves for receivables serviced with limited recourse at January 1. . . . . . . . . . . . . . . . . . . . 457.0 336.5 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 663.2 297.2 Chargeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (475.3) (300.4) Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.3 13.0 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.8) 2.9 ------------------- TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH LIMITED RECOURSE AT SEPTEMBER 30 . . . . . . . . . . . . . . . . . . 665.4 349.2 ------------------- TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT SEPTEMBER 30 . . $1,527.9 $1,017.0 ===================
5. INCOME TAXES ------------ Effective tax rates for the third quarter of 1996 and 1995 of 34.5 and 35.0 percent, respectively, and for the nine months ended September 30, 1996 and 1995 of 34.6 and 36.1 percent, respectively, differ from the statutory federal income tax rates for the respective periods primarily because of the effects of (a) domestic and foreign loss carry forwards, (b) amortization and write-offs of intangible assets, (c) state and local income taxes, (d) reduction of noncurrent tax requirements and (e) leveraged lease tax benefits. 10 6. EARNINGS PER COMMON SHARE ------------------------- Computations of earnings per common share for the nine months ended September 30 were as follows:
----------------------------------------------------------------------------------------- 1996 1995 ------------------ ------------------ Fully Fully In millions, except per share data. Primary Diluted Primary Diluted ------------------------------------------------------------------------------------------- Earnings: Net income . . . . . . . . . . . . . . . . . . $375.0 $375.0 $320.9 $320.9 Preferred dividends. . . . . . . . . . . . . . (12.5) (12.5) (22.3) (22.2) ---------------------------------------- Net income available to common shareholders. . . $362.5 $362.5 $298.6 $298.7 ======================================== Average shares: Common . . . . . . . . . . . . . . . . . . . . 97.1 97.1 97.4 97.4 Common equivalents . . . . . . . . . . . . . . 1.3 1.3 1.4 1.7 ---------------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . 98.4 98.4 98.8 99.1 ======================================== Earnings per common share. . . . . . . . . . . . $ 3.68 $ 3.68 $ 3.02 $ 3.01 ========================================
Common share equivalents assume exercise of stock options, if dilutive. The fully diluted earnings per share computation for 1995 also assumes conversion of dilutive convertible preferred stock into common equivalents. 7. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS ----------------------------------------- In June 1996 Household Capital Trust II ("HCT II"), a wholly-owned subsidiary of the company, issued 4 million 8.70 percent Trust Preferred Securities ("preferred securities") at $25 per preferred security. The sole asset of HCT II is $103.1 million of 8.70 percent Junior Subordinated Deferrable Interest Notes issued by the company. The junior subordinated notes held by HCT II mature on June 30, 2036 and are redeemable by the company in whole or in part beginning on June 30, 2001, at which time the HCT II preferred securities are callable. Net proceeds from the issuance of preferred securities were used for general corporate purposes. In June 1995 Household Capital Trust I ("HCT I"), a wholly-owned subsidiary of the company, issued 3 million 8.25 percent preferred securities at $25 per preferred security. The sole asset of HCT I is $77.3 million of 8.25 percent Junior Subordinated Deferrable Interest Notes issued by the company. The junior subordinated notes held by HCT I mature on June 30, 2025 and are redeemable by the company in whole or in part beginning June 30, 2000, at which time the HCT I preferred securities are callable. HCT I may elect to extend the maturity of its preferred securities to June 30, 2044. The obligations of the company with respect to the junior subordinated notes, when considered together with certain undertakings of the company with respect to HCT I and HCT II, constitute full and unconditional guarantees by the company of HCT I's and HCT II's obligations under the respective preferred securities. The preferred securities are classified in the company's balance sheets as company obligated mandatorily redeemable preferred securities of subsidiary trusts (representing the minority interest in the trusts) at their face and redemption amount of $175 million at September 30, 1996. The preferred securities have a liquidation value of $25 per preferred security. Dividends on the preferred securities are cumulative, payable quarterly in arrears, and are deferable at the company's option for up to five years from date of issuance. The company cannot pay dividends on its preferred and common stocks during such deferments. Dividends on the preferred securities have been classified as interest expense in the statements of income. 11 8. NON-RECURRING ITEMS ------------------- During the second quarter of 1996, the company recorded approximately $78 million of pretax nonrecurring charges related to the rationalization of certain office space, the settlement of litigation and other similar matters. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATIONS SUMMARY ------------------ Net income for the third quarter and first nine months of 1996 was $139.9 and $375.0 million, up 18 and 17 percent from the respective 1995 periods. Earnings growth in the company's core businesses exceeded these rates of increase, as 1995 net income included earnings from businesses that were sold or exited. Fully diluted earnings per share were $1.38 per share in the third quarter and $3.68 per share for the first nine months of 1996, up from $1.10 and $3.01 per share in the same periods in 1995. The company's annualized return on average common shareholders' equity for the third quarter and first nine months of 1996 was 19.8 and 17.8 percent, respectively, compared to 17.5 and 16.6 percent in the respective year-ago periods. The annualized return on average owned assets improved to 1.87 and 1.71 percent in the third quarter and first nine months of 1996, respectively, up from 1.35 and 1.22 percent in the same year-ago periods. - The following is a summary of the operating results of the company's businesses for the third quarter and first nine months of 1996 compared to the corresponding prior year periods: The domestic consumer finance business increased earnings in the third quarter and first nine months of 1996 as operations continued to benefit from solid receivables growth. This growth led to higher net interest margin, partially offset by higher credit losses, and to improved efficiency. Earnings for the Visa*/MasterCard* business increased from the prior year periods due to higher net interest margin and fee income, partially offset by higher credit costs resulting primarily from increased personal bankruptcy filings. This business continued to benefit from the company's association with the General Motors credit card ("GM Card") program. Additionally, the Union Privilege Visa/MasterCard portfolio acquired in June 1996 began to contribute to earnings in the third quarter of 1996. The private-label credit card business reported higher earnings in the third quarter and first nine months compared to the year-ago periods due to portfolio growth. Net income increased in the United Kingdom operation primarily due to improved efficiency, as well as higher net interest margin and insurance premiums, driven by growth in other unsecured and Visa/MasterCard receivables, including the GM Card from Vauxhall. The Canadian operation had higher profits in the third quarter and first nine months of 1996 compared to the year-ago periods, primarily as a result of improved efficiency. Net interest margin for the first nine months of 1996 benefited from wider spreads and a shift in product mix toward unsecured receivables, but was offset by lower asset levels compared to a year ago. The commercial business reported higher earnings in the third quarter and first nine months compared to last year. Earnings in the third quarter benefited from increased gains on the disposition of assets and, in the first nine months, also benefited from lower credit costs. *VISA and MasterCard are registered trademarks of VISA USA, Inc. and MasterCard International, Incorporated respectively. 13 - The company recorded approximately $49 million, after tax, of nonrecurring charges related to litigation, rationalization of office space and other matters in the second quarter of 1996. - The company's normalized managed basis efficiency ratio was 39.9 and 41.5 percent for the third quarter and first nine months of 1996, respectively, compared to 43.3 and 48.8 percent in 1995. The efficiency ratio is the ratio of operating expenses to managed net interest margin and other revenues less policyholders' benefits (operating expenses include salaries and fringe benefits, occupancy and equipment expense, other marketing expenses, and other servicing and administrative expenses). The normalized efficiency ratio excludes nonrecurring gains and losses and charges. There were no nonrecurring items in the third quarter of 1996. The improvement in the managed ratio over the prior year periods was primarily due to lower expenses resulting from sales of less-efficient businesses during 1995. - During the third quarter of 1996, legislation was passed by the Congress of the United States requiring the company's thrift subsidiary to pay a one-time premium to the Savings Association Insurance Fund based upon qualifying deposits the thrift subsidiary held at March 31, 1995, the effective date of the legislation. Although a portion of the deposits were under contract for sale at that time and the majority were sold subsequent to the effective date of the legislation, the thrift subsidiary is still required to pay the assessment on those deposits. The company accrued for the one-time premium in connection with the completion of its exit from the consumer banking business in the second quarter of 1996. Thus, third quarter earnings have not been impacted by this assessment. BALANCE SHEET REVIEW -------------------- - Owned consumer receivables were $23.1 billion at September 30, 1996, up from $22.5 billion at June 30, 1996 and $21.2 billion at September 30, 1995. The increase from the prior quarter was attributable to the acquisition of approximately $400 million of other unsecured receivables related to expanding the lending relationship to AFL-CIO members. The increase from the prior year was due to the acquisition of the AFL-CIO's $3.4 billion Union Privilege Visa/MasterCard portfolio in June 1996. Changes in owned receivables from period to period may vary depending on the timing and significance of securitization transactions. In the third quarter of 1996, the company securitized and sold, excluding replenishment of certificate holder interests, approximately $1.4 billion of other unsecured receivables. - The following table summarizes managed consumer receivables (owned and serviced with limited recourse) at September 30, 1996 and the percentage increase in those balances from June 30, 1996 (annualized) and September 30, 1995:
----------------------------------------------------------------------------------- September 30, Quarter-over-Quarter Year-over-Year 1996 Growth (Annualized) Growth Managed consumer receivables ----------------------------------------------------------------------------------- Credit cards . . . . . . $21,995.6 4% 39% ------------------------------------------------- Other unsecured . . . . . . . 8,258.8 53 32 ------------------------------------------------- Core products . . . . . . 38,878.0 14 26 ------------------------------------------------- Includes Visa/MasterCard and merchant participation receivables. Includes home equity receivables. Home equity receivables were up slightly compared to the prior quarter, but down somewhat compared to the prior year period. /TABLE 14 - The company increased its managed credit loss reserves from $1,017.0 million at September 30, 1995 to $1,527.9 million at September 30, 1996. Credit loss reserves as a percent of managed receivables increased to 3.67 percent, compared to 3.59 percent at June 30, 1996 and 2.87 percent at September 30, 1995 due to the uncertainty about the trend in personal bankruptcies and the shift in its product mix to unsecured receivables. Reserves as a percent of nonperforming managed receivables were 126.6 percent at September 30, 1996, compared to 133.4 percent at June 30, 1996 and 105.2 percent at September 30, 1995. Consumer two-months-and-over contractual delinquency ("delinquency") as a percent of managed consumer receivables was 3.75 percent, compared to 3.43 percent at June 30, 1996 and 3.26 percent at September 30, 1995. The annualized total consumer managed chargeoff ratio in the third quarter of 1996 was 3.52 percent, compared to 3.33 percent in the prior quarter and 2.97 percent in the year-ago quarter. - The ratio of common and preferred shareholders' equity (including trust originated securities) to total owned assets was 10.59 percent compared to 10.17 percent at December 31, 1995. The ratio of total shareholders' equity to managed assets was 6.69 percent compared to 6.74 percent at December 31, 1995. - In October 1996 the company entered into an agreement with Barnett Banks, Inc. ("Barnett") to service without recourse Barnett's existing $1.0 billion credit card portfolio in Barnett's core market of Florida and Georgia. As these receivables will be serviced without recourse, they will not be included in the company's total managed assets. Additionally, the company will purchase approximately $780 million of credit card receivables, the majority of which are held by customers outside of Barnett's core market. The transaction is expected to close in the fourth quarter of 1996. 15 FUNDING AND LIQUIDITY - --------------------- The major use of cash by the company's subsidiaries is the origination or purchase of receivables or investment securities. The main sources of cash for the company's subsidiaries are the collection and sales of receivable balances; maturities or sales of investment securities; proceeds from the issuance of debt and deposits; and cash provided by operations. The following describes major changes in the company's funding base from December 31, 1995 to September 30, 1996: - Deposits decreased 53 percent from $4.7 billion to $2.2 billion primarily due to the sale of the company's Illinois consumer banking operations in the second quarter. - Senior and senior subordinated debt (with original maturities over one year) increased 37 percent from $11.2 billion to $15.3 billion to replace the deposits sold and to fund the company's purchase of the $3.4 billion AFL-CIO Visa/MasterCard portfolio. - The company issued $100 million of company obligated mandatorily redeemable preferred securities of subsidiary trusts in the second quarter of 1996. - The company had securitized home equity, Visa/MasterCard, merchant participation and other unsecured receivables outstanding of $17.4 and $14.9 billion at September 30, 1996 and December 31, 1995. During the three months and nine months ended September 30, 1996 the company securitized approximately $1.4 and $4.8 billion of receivables, respectively. The composition of these securitizations by type is as follows (in millions):
-------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 1996 1996 -------------------------------------------------------------------- Home Equity . . . . . . . . . $ - $ 840 Visa/MasterCard . . . . . . . - 1,736 Other unsecured . . . . . . . 1,388 2,228 --------------------------- Total . . . . . . . . . . . . $1,388 $4,804 ===========================
The market for securities backed by receivables is a reliable, efficient and cost-effective source of funds, which the company plans to continue to utilize in the future. The current ratings of the company's debt and preferred stock securities by the nationally recognized statistical rating organizations which provide such ratings, including any recent action taken by such organizations, are set forth in an exhibit to this report which has been filed with the Securities and Exchange Commission. 16 PRO FORMA MANAGED INCOME DATA ----------------------------- Securitizations and sales of consumer receivables have been, and will continue to be, an important source of liquidity for the company. The company continues to service the securitized receivables after such receivables are sold and retains a limited recourse obligation. Securitizations impact the classification of revenues and expenses in the income statement. Amounts related to receivables serviced, including net interest margin, fee income and provision for credit losses on receivables serviced with limited recourse are reported as a net amount in securitization income in the company's statements of income. Management monitors the company's operations on a managed basis as well as on the historical owned basis reflected in its statements of income. The managed basis assumes that the receivables securitized and sold are instead still held in the portfolio. Pro forma statements of income on a managed basis for the third quarter and nine months ended September 30, 1996 and 1995 are presented below. For purposes of this analysis, the results do not reflect the differences between the company's accounting policies for owned receivables and receivables serviced with limited recourse. Accordingly, net income on the pro forma managed basis equals net income on a historical owned basis. Pro Forma Managed Statements of Income
----------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended All dollar amounts are September 30, September 30, stated in millions. 1996 1995 1996 1995 ----------------------------------------------------------------------------------------------------------------- Finance income . . . . . . . $ 1,360.1 13.04%* $ 1,165.8 12.75%* $ 3,829.6 12.69%* $ 3,423.7 12.43%* Interest income from noninsurance investment securities . . . . . . . . 12.1 .12 19.8 .21 71.4 .24 104.9 .38 Interest expense . . . . . . 639.2 6.13 592.5 6.48 1,831.1 6.07 1,782.9 6.47 ----------------------------------------------------------------------------------- Net interest margin. . . . . 733.0 7.03 593.1 6.48 2,069.9 6.86 1,745.7 6.34 Provision for credit losses 414.5 357.3 1,200.5 866.9 ----------------------------------------------------------------------------------- Net interest margin after provision for credit losses 318.5 235.8 869.4 878.8 ----------------------------------------------------------------------------------- Insurance premiums and contract revenues. . . . . 63.6 87.8 185.9 262.2 Investment income. . . . . . 34.8 145.5 128.0 423.3 Fee income . . . . . . . . . 239.1 193.4 686.5 394.8 Other income . . . . . . . . 31.5 58.0 195.4 189.4 ----------------------------------------------------------------------------------- Total other revenues . . . . 369.0 484.7 1,195.8 1,269.7 ----------------------------------------------------------------------------------- Salaries and fringe benefits 131.4 134.1 392.3 420.9 Occupancy and equipment expense . . . . . . . . . . 48.3 53.5 163.6 170.1 Other marketing expenses . . 132.3 86.9 374.5 268.1 Other servicing and administrative expenses. . 104.7 129.8 377.7 370.8 Policyholders' benefits. . . . . . . . . 57.2 133.7 183.6 416.6 ----------------------------------------------------------------------------------- Total costs and expenses . . 473.9 538.0 1,491.7 1,646.5 ----------------------------------------------------------------------------------- Income before taxes. . . . . 213.6 182.5 573.5 502.0 Income taxes . . . . . . . . 73.7 63.9 198.5 181.1 ----------------------------------------------------------------------------------- Net income . . . . . . . . . $ 139.9 $ 118.6 $ 375.0 $ 320.9 =================================================================================== Average managed receivables. . . . . . . . $40,896.6 $35,193.5 $38,577.4 $34,263.3 Average noninsurance investments. . . . . . . . 829.3 1,390.9 1,670.2 2,450.6 ----------------------------------------------------------------------------------- Average managed interest earning assets . . . . . . $41,725.9 $36,584.4 $40,247.6 $36,713.9 =================================================================================== *As a percent, annualized, of average managed interest-earning assets (excluding insurance investments). /TABLE 17 The following discussion on revenues, where applicable, and provision for credit losses includes comparisons to amounts reported on the company's historical statements of income ("Owned Basis") as well as on the above pro forma statements of income ("Managed Basis"). Net interest margin ------------------- Net interest margin on an Owned Basis was $383.0 and $1,086.0 million for the third quarter and first nine months of 1996, up from $368.0 and $1,070.8 million, respectively, in the prior year periods. Owned receivable growth was offset by a higher proportion of merchant participation receivables, which earned narrower spreads compared to the prior year. Net interest margin on a Managed Basis was $733.0 and $2,069.9 million for the third quarter and first nine months of 1996, up 24 and 19 percent, respectively, compared to the same year-ago periods. Net interest margin as a percent of average managed interest-earning assets, annualized, was 7.03 percent compared to 6.64 percent in the previous quarter and 6.48 percent in the year-ago quarter. The net interest margin percentage on a Managed Basis in the second quarter of 1996 was affected by temporary investments that were used to fund the disposition of consumer banking deposits, as well as the acquisition of the AFL-CIO Visa/MasterCard portfolio in June 1996. Excluding the impact of these temporary investments, net interest margin as a percent of average managed interest-earning assets, annualized, was 7.04 percent in the second quarter of 1996. Approximately one-half of the increase over the year-ago quarter was due to the continued shift in product mix toward unsecured receivables, with the remainder of the increase primarily due to improved pricing. Provision for credit losses --------------------------- The provision for credit losses for receivables on an Owned Basis for the third quarter and first nine months of 1996 totaled $169.5 and $537.3 million, down 10 and 6 percent from $188.2 and $569.7 million in the comparable prior year periods. The provision as a percent of average owned receivables, annualized, was 2.98 percent in the third quarter of 1996 compared to 3.43 percent in the third quarter of 1995. The level of provision for credit losses on an Owned Basis may vary from quarter to quarter, depending on the amount of securitizations and sales of receivables in a particular period. The provision for credit losses for receivables on a Managed Basis totaled $414.5 and $1,200.5 million in the third quarter and first nine months of 1996, up 16 percent from $357.3 million and 38 percent from $866.9 million in the comparable periods of 1995. As a percent of average managed receivables, annualized, the provision increased to 4.15 percent from 3.37 percent in the first nine months of 1995. The Managed Basis provision includes the over-the-life reserve requirement on securitized receivables. These provisions are impacted by the type and amount of receivables securitized in a given period and substantially offset the income recorded on the securitization transactions, as discussed below. In the third quarter of 1996, the company securitized approximately $1.4 billion of other unsecured receivables, compared to approximately $1.0 billion of such receivables a year ago. For the first nine months of 1996, the company securitized approximately $4.8 billion of other unsecured, Visa/MasterCard and home equity receivables compared to approximately $2.4 billion of the same types of receivables in 1995. See the credit quality section for further discussion of factors affecting the provision for credit losses. Other revenues -------------- Securitization income on an Owned Basis consists of income associated with the securitizations and sales of receivables with limited recourse, including net interest income, fee and other income and provision for credit losses related to those receivables. The 40 percent increase in securitization income on an Owned Basis compared to the third quarter of 1995 was primarily due to the 41 percent increase in average securitized receivables. Securitization income for the first nine months of 1996 increased 33 percent compared to a year ago primarily due to the 29 percent increase in average securitized receivables. In addition, securitization income for the first nine months of 1996 was favorably impacted by wider spreads resulting from the growth in securitized Visa/MasterCard and other unsecured receivables. The components of securitization income are reclassified to the applicable lines in the statements of income on a Managed Basis. 18 Insurance premiums and contract revenues decreased from the third quarter and first nine months of 1995 due to the sale of the individual life and annuity lines of business in the fourth quarter of 1995. Insurance premiums and contract revenues of the specialty and credit business improved from the third quarter and first nine months of 1995 due to growth in the company's domestic and United Kingdom receivable base. Investment income in the third quarter and first nine months of 1996 was below the year-ago periods primarily due to the sale of the individual life and annuity lines of business in the fourth quarter of 1995. Fee income on an Owned Basis includes revenues from fee-based products such as credit cards and consumer banking deposits. Fee income was $62.1 and $165.3 million in the third quarter and first nine months of 1996, up from $48.3 and $139.1 million in the comparable periods of the prior year primarily due to higher interchange and other fees as a result of the increase in the amount of owned credit card receivables compared to the prior year. Fee income on a Managed Basis, which in addition to the items discussed above includes fees and other income related to receivables serviced with limited recourse, increased to $239.1 and $686.5 million in the third quarter and first nine months of 1996 from $193.4 and $394.8 million in the same periods in 1995. The increase was due to higher interchange and other fee income resulting from growth in the managed credit card portfolio and increased transaction volume. In addition, fee income in the third quarter and first nine months of 1996 included higher income associated with the securitization and sale of a larger amount of receivables compared to a year ago. Income recorded on these securitization transactions was substantially offset by the over-the-life reserve for estimated credit losses on the securitized receivables, as previously discussed. Other income decreased compared to the third quarter of 1995, as the 1995 amount included the premium received on the sales of the company's banking operations in Ohio and Indiana. The increase in other income in the first nine months of 1996 compared to the year-ago period is due to receipt of a higher premium on the sale of the consumer banking operations in Illinois in June 1996 compared to the premiums received on the sales of the company's banking operations in the second and third quarters of 1995. Expenses -------- Operating expenses for the third quarter and first nine months of 1996 were $416.7 and $1,308.1 million, respectively, up 3 and 6 percent from $404.3 and $1,229.9 million, respectively, in the comparable prior year periods. As previously discussed, during the first nine months of 1996, the company recorded approximately $78 million of nonrecurring charges related to the rationalization of certain office space, the settlement of litigation and other similar matters. Salaries and fringe benefits were $131.4 and $392.3 million compared to $134.1 and $420.9 million in the third quarter and first nine months of 1995. The improvement was primarily due to fewer employees compared to the prior year resulting from actions taken throughout 1995 and 1996 to improve the operating efficiency of certain businesses and to exit others. Occupancy and equipment expense decreased compared to the third quarter and first nine months of 1995. The decrease in occupancy and equipment expense is due to lower ongoing expenses resulting from initiatives undertaken in 1995 and 1996, including the sales of businesses and reductions in office space. Other marketing expenses for the third quarter and first nine months of 1996 totaled $132.3 and $374.5 million, up from $86.9 and $268.1 million in the comparable prior year periods. The increase resulted from higher expenses related to the credit card portfolio. Other servicing and administrative expenses were lower than the third quarter of 1995 primarily due to the sales of businesses in 1995, partially offset by increased expenses associated with portfolio growth in the company's retained businesses. These expenses increased on a year-to-date basis as the reduction attributable to businesses sold in 1995 was more than offset by the nonrecurring charges recorded in the second quarter of 1996 related to the settlement of litigation and other matters, and higher portfolio expenses as mentioned above. 19 Policyholders' benefits were lower than the prior year periods due to the sale of the individual life and annuity lines of business in the fourth quarter of 1995. Policyholders' benefits of the retained specialty and credit business were essentially flat compared to the year-ago periods. CREDIT LOSS RESERVES -------------------- The company's credit portfolios and credit management policies are divided into two distinct components - consumer and commercial. For consumer products, credit policies focus on product type and specific portfolio risk factors. The consumer credit portfolio is diversified by product and geographic location. The commercial credit portfolio is monitored on an individual transaction basis and is also evaluated based on overall risk factors. See Note 3, "Receivables" in the accompanying financial statements for receivables by product type. Total managed credit loss reserves, which include reserves for recourse obligations for receivables sold, were as follows (in millions):
------------------------------------------------------------------------------------------- September 30, June 30, December 31, September 30, 1996 1996 1995 1995 ------------------------------------------------------------------------------------------- Owned . . . . . . . . . . . . . . $ 862.5 $ 858.3 $ 720.4 $ 667.8 Serviced with limited recourse. . 665.4 592.8 457.0 349.2 ----------------------------------------------------- Total . . . . . . . . . . . . . . $1,527.9 $1,451.1 $1,177.4 $1,017.0 =====================================================
Managed credit loss reserves were up 5 percent from June 30, 1996 and up 50 percent from September 30, 1995. Managed credit loss reserves as a percent of nonperforming managed receivables were 126.6 percent, compared to 133.4 percent at June 30, 1996 and 105.2 percent at September 30, 1995. Total owned and managed credit loss reserves as a percent of receivables were as follows:
------------------------------------------------------------------------------------------- September 30, June 30, December 31, September 30, 1996 1996 1995 1995 ------------------------------------------------------------------------------------------- Owned . . . . . . . . . . . . . . 3.57% 3.64% 3.31% 2.94% Managed . . . . . . . . . . . . . 3.67 3.59 3.22 2.87 -------------------------------------------------
The level of reserves for consumer credit losses is based on delinquency and chargeoff experience by product and judgmental factors. The level of reserves for commercial credit losses is based on a regular review process for all commercial credits and management's evaluation of probable future losses in the portfolio as a whole given its geographic and industry diversification and historical loss experience. Management also evaluates the potential impact of existing and anticipated national and regional economic conditions on the managed receivable portfolio when establishing consumer and commercial credit loss reserves. While management allocates all reserves among the company's various products, all reserves are considered to be available to cover total loan losses. See Note 4, "Credit Loss Reserves" in the accompanying financial statements for analyses of reserves. 20 CREDIT QUALITY -------------- Delinquency and chargeoff levels in the consumer portfolio were higher compared to the prior and year-ago quarters. Delinquency and chargeoff levels are monitored on a managed basis which includes both receivables owned and receivables serviced with limited recourse. The latter portfolio is included since it is subjected to underwriting standards comparable to the owned portfolio, is managed by operating personnel without regard to portfolio ownership and results in a similar credit loss exposure for the company. Delinquency ----------- Two-Months-and-Over Contractual Delinquency (as a percent of managed consumer receivables):
------------------------------------------------------------------------------- 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 ------------------------------------------------------------------------------- First mortgage . . . . . . 3.82% 3.64% 3.28% 3.29% 2.16% Home equity. . . . . . . . 3.55 3.35 3.20 3.24 3.14 Visa/MasterCard. . . . . . 2.54 2.05 2.42 2.22 2.29 Merchant participation*. . 4.80 4.54 4.74 4.51 4.25 Other unsecured. . . . . . 5.79 5.95 5.71 5.60 5.10 ------------------------------------------------- Total* . . . . . . . . . . 3.75% 3.43% 3.60% 3.46% 3.26% =================================================
* In the second quarter of 1996, the chargeoff policy for different components of the merchant participation portfolio was standardized. For comparability of quarterly trends, second and third quarter 1996 amounts exclude the impact of this change. Including the impact of this change, merchant participation and total delinquency was 5.43 and 3.83 percent, respectively, for the third quarter of 1996 and 5.04 and 3.49 percent, respectively, for the second quarter of 1996. Delinquency as a percent of managed consumer receivables increased from the prior quarter and a year ago. The increase in delinquency from June 30, 1996 is due to the aging of the AFL-CIO Visa/MasterCard portfolio. This portfolio had an insignificant amount of delinquency when it was acquired in June 1996 and is maturing as expected. The company's remaining portfolios experienced delinquency performance in line with management's expectations and industry trends. The increase in the delinquency ratio compared to a year ago was primarily due to seasoning of the portfolios, the company's continued shift in product mix away from traditional first mortgages and toward unsecured products, and a slower consumer payment pattern, including higher personal bankruptcies. 21 Net Chargeoffs of Consumer Receivables -------------------------------------- Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average managed consumer receivables):
------------------------------------------------------------------------------------- Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter 1996 1996 1996 1995 1995 ------------------------------------------------------------------------------------- First mortgage . . . . . . . . . .50% .46% .51% .47% .32% Home equity. . . . . . . . . . . .98 .89 .89 .95 1.12 Visa/MasterCard. . . . . . . . . 4.71 4.86 4.44 4.67 4.24 Merchant participation*. . . . . 3.54 3.82 4.51 5.14 4.63 Other unsecured. . . . . . . . . 4.35 3.58 3.91 3.46 3.45 ------------------------------------------------ Total* . . . . . . . . . . . . . 3.52% 3.33% 3.24% 3.28% 2.97% ================================================
* In the second quarter of 1996, the chargeoff policy for different components of the merchant participation portfolio was standardized. For comparability of quarterly trends, second and third quarter 1996 amounts exclude the impact of this change. Including the impact of this change, merchant participation and total net chargeoffs were 2.89 and 3.44 percent, respectively, for the third quarter of 1996 and 1.69 and 3.07 percent, respectively, for the second quarter of 1996. Net chargeoffs as a percent of average managed consumer receivables for the third quarter of 1996 increased compared to both the prior and year-ago periods. Although the company's chargeoff ratio for the third and second quarters of 1996 benefited from the acquisition of the AFL-CIO portfolio, it increased in the third quarter due to higher levels of personal bankruptcies in the Visa/MasterCard portfolio. The remainder of the increase was attributable to continued seasoning of other unsecured receivables. The increase in net chargeoffs is in line with management's expectations and industry trends. Approximately 90 percent of the year-over-year increase in the total chargeoff ratio was due to increased personal bankruptcy filings in the Visa/MasterCard portfolio. The remaining increase was primarily due to seasoning of the other unsecured portfolio. Nonperforming Assets -------------------- Nonperforming assets consisted of the following:
--------------------------------------------------------------------------------------------- In millions. 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 --------------------------------------------------------------------------------------------- Nonaccrual managed receivables. . . . $ 741.1 $ 713.9 $ 740.1 $ 768.5 $ 711.0 Accruing managed consumer receivables 90 or more days delinquent* . . . . 446.1 353.6 269.2 267.2 233.6 Renegotiated commercial loans . . . . 19.9 19.9 20.4 21.2 22.0 ----------------------------------------------------- Total nonperforming managed receivables . . . . . . . . . . . . 1,207.1 1,087.4 1,029.7 1,056.9 966.6 Real estate owned . . . . . . . . . . 137.6 131.9 123.1 136.5 148.7 ----------------------------------------------------- Total nonperforming assets. . . . . . $1,344.7 $1,219.3 $1,152.8 $1,193.4 $1,115.3 ===================================================== Managed credit loss reserves as a percent of nonperforming managed receivables* . . . . . . . 126.6% 133.4% 125.4% 111.4% 105.2% -----------------------------------------------------
* In the second quarter of 1996, the chargeoff policy for different components of the merchant participation portfolio was standardized. For comparability of quarterly trends, second and third quarter 1996 amounts exclude the impact of this change. Including the impact of this change, accruing managed consumer receivables 90 or more days delinquent were $479.0 and $378.5 million at September 30 and June 30, 1996, respectively. Managed credit loss reserves as a percent of nonperforming managed receivables, including the impact of this change were 123.2 and 130.4 percent at September 30 and June 30, 1996, respectively. 22 Part II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 3(i) Restated Certificate of Incorporation of Household International, as amended. 10.9 Executive Employment Agreement between the Company and W.F. Aldinger. 10.11 Executive Employment Agreement between the Company and J.W. Saunders. 10.12 Executive Employment Agreement between the Company and R.F. Elliott. 10.13 Executive Employment Agreement between the Company and D.A. Schoenholz. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 21 List of Household International subsidiaries. 27 Financial Data Schedule. 99.1 Debt and Preferred Stock Securities Ratings. (b) Reports on Form 8-K During the third quarter of 1996, the Registrant filed a Current Report on Form 8-K with respect to the declaration by the Board of Directors of Household International, Inc., on July 9, 1996, of a dividend of one preferred share purchase right for each outstanding share of common stock, par value $1.00 per share of the company, payable on July 29, 1996, to stockholders of record on that date. 23 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOUSEHOLD INTERNATIONAL, INC. ----------------------------- (Registrant) Date: November 13, 1996 By: /s/ David A. Schoenholz ----------------- ---------------------------- David A. Schoenholz, Executive Vice President - Chief Financial Officer and on behalf of Household International, Inc. 24 Exhibit Index ------------- 3(i) Restated Certificate of Incorporation of Household International, as amended. 10.9 Executive Employment Agreement between the Company and W.F. Aldinger. 10.11 Executive Employment Agreement between the Company and J.W. Saunders. 10.12 Executive Employment Agreement between the Company and R.F. Elliott. 10.13 Executive Employment Agreement between the Company and D.A. Schoenholz. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 21 List of Household International subsidiaries. 27 Financial Data Schedule. 99.1 Debt and Preferred Stock Securities Ratings. EX-3.I 2 1 HOUSEHOLD INTERNATIONAL, INC. RESTATED CERTIFICATE OF INCORPORATION INDEX PAGE DATE DESCRIPTION - ---- -------- ----------- 2 9/4/81 Restated Certificate of Incorporation 12 7/25/84 Certificate of Change of Address of Registered Office and of Registered Agent 14 5/13/87 Certificate of Amendment (Article VII) 16 8/5/91 Certificate of Designation, Preferences and Rights of 9-1/2% Cumulative Preferred Stock, Series 1991-A 21 10/14/92 Certificate of Designation, Preferences and Rights of 8-1/4% Cumulative Preferred Stock, Series 1992-A 26 5/12/93 Certificate of Amendment (Article IV) 27 9/1/93 Certificate of Designation, Preferences and Rights of 7.35% Cumulative Preferred Stock, Series 1993-A 32 7/9/96 Certificate of Designations of Series A Junior Participating Preferred Stock 2 RESTATED CERTIFICATE OF INCORPORATION OF HOUSEHOLD INTERNATIONAL, INC. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of Household International, Inc. in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Corporation's certificate of incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. The original Certificate of Incorporation was filed with the Secretary of State of Delaware on February 20, 1981. ARTICLE I The name of the corporation is Household International, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is 100 West Tenth Street, Wilmington, Delaware 19899. The name of its registered agent at such address is The Corporation Trust Company, in the county of New Castle. ARTICLE III The Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The total number of shares that may be issued by the Corporation is 75,655,004 of which 8,155,004 shares shall be Preferred Stock without par value and 67,500,000 shares shall be Common Stock of the par value of $1 per share. The 8,155,004 shares of Preferred Stock may be issued from time to time in one or more series, which may have such designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions (authorizing resolutions) providing for the issue of such shares adopted by the Board of Directors. Without otherwise limiting the generality of the foregoing provision, the Board of Directors is expressly authorized to provide, with respect to each such series, that: (a) the shares of such series shall be subject to redemption (including redemption through a sinking fund or analogous fund) at such time or times and at such price or prices as shall be stated in the authorizing resolutions; (b) the holders of the shares of such series shall be entitled to receive dividends at such rates, on such conditions and at such times, payable in preference, or in such relation, to the dividends payable on any other class or classes or of any other series of stock of the Corporation, and cumulative or non- cumulative, all as shall be stated in the authorizing resolutions; (c) the holders of the shares of such series shall be entitled to such rights upon the dissolution, or upon any distribution of the assets, of the Corporation as shall be stated in the authorizing resolutions; (d) the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock, or of any series thereof, of the Corporation at such price or prices or at such rate or rates and with such adjustments, all as shall be stated in the authorizing resolutions; 3 (e) the shares of such series shall have such voting powers, full or limited, or no voting powers, as shall be stated in the authorizing resolutions. The following is a statement of the powers, preferences, and rights, and the qualifications, limitations or restrictions thereof, in respect of the Preferred Stock, except such thereof as the Board of Directors is herein authorized to provide for, and in respect of the Common Stock: (1) Except as otherwise provided in authorizing resolutions creating series of Preferred Stock, each share of Preferred Stock shall rank on a parity with each other share of Preferred Stock, regardless of series, in preference to the Common Stock, with respect to the payment of dividends at the respectively designated rates. No dividend shall be declared or paid on the shares of any particular series of Preferred Stock unless at the same time a dividend in like proportion to the respectively designated dividend rates shall be declared or paid on the shares of each other series of Preferred Stock then issued and outstanding ranking prior to or on a parity with such particular series with respect to the payment of dividends. Except as otherwise provided in the authorizing resolutions creating additional series of Preferred Stock, each share of Preferred Stock shall rank on a parity with each other share of Preferred Stock, regardless of series, in preference to the Common Stock, with respect to the distribution of assets according to the amounts to which the shares of the respective series are thereupon entitled. (2) The holders of shares of the Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any funds legally available for that purpose, dividends in cash at such respective rates, payable on such dates in each year and in respect of such dividend periods, all as stated in the authorizing resolutions, before any dividends shall be declared or paid or set apart for payment upon the Common Stock. Dividends on the shares of each series of the Preferred Stock shall be cumulative or non-cumulative and, if cumulative, shall be cumulative from such date, all as stated in the authorizing resolutions. At any time after all dividends shall have been paid, as above provided, on the Preferred Stock of all series then outstanding and after, or concurrently with, the declaration and setting aside of a sum for the payment of full dividends on the Preferred Stock of each series then outstanding for the then current dividend period established for such series, then, but not prior thereto, such dividends (payable either in cash, stock, or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock out of any remaining assets legally available for the declaration of dividends and the Preferred Stock shall not be entitled to participate in any such dividends whether payable in cash, stock, or otherwise. No Preferred Stock or Common Stock may be purchased by the Corporation if any Preferred Stock dividends are in arrears, and no Preferred Stock may be redeemed in such case unless all issued and outstanding shares of Preferred Stock are redeemed. (3) The whole or any part of the Preferred Stock, of any one or more series, redeemable pursuant to provisions stated in the respective authorizing resolutions, at the time outstanding, may, at the option of the Board of Directors, be redeemed, in accordance with such authorizing resolutions, at any time or from time to time, by the payment or by making provision for payment of such price or prices per share in the case of every such redemption as shall be stated in such authorizing resolutions, and, in every case, a sum equal to accrued and unpaid dividends, if any, with respect to each such share to be so redeemed, at the rate of the dividends fixed therefor, to the date fixed for redemption. In case of redemption of a part only of any series of the Preferred Stock at the time outstanding, such redemption shall be made by lot or pro rata in such manner as may be prescribed by resolution of the Board of Directors. The Board of Directors shall have full power and authority, subject to the limitations and provisions herein contained and stated in the respective 4 authorizing resolutions, to prescribe the manner in which and the terms and conditions upon which Preferred Stock shall be redeemed from time to time. Notice of the Corporation's intention to redeem Preferred Stock, specifying the date of redemption, shall be published in newspapers of general circulation in New York, New York, and Chicago, Illinois, and shall be mailed not less than forty-five nor more than ninety days before the redemption date to the holders of record of such stock to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, and, if less than all the shares owned by any such stockholder are then to be redeemed, the notice shall specify the number of shares thereof which are to be redeemed. If notice shall be given as aforesaid and the funds necessary to redeem such stock shall have been set aside by the Corporation (other than by the trust deposit hereinafter provided for) separate and apart from its other funds for the benefit of the holders of the shares called for redemption, such stock shall be redeemed upon such date of redemption and shall cease to be outstanding; the right to receive dividends thereon shall cease to accrue from and after such date of redemption and all rights of holders of the Preferred Stock so called for redemption shall forthwith on such redemption date cease and terminate except only the right of the holders thereof, upon presentation and surrender of their respective certificates representing said shares, to receive the redemption price therefor but without interest, and the right of conversion, if any. Anything herein contained to the contrary notwithstanding, if notice shall be given as aforesaid and before the redemption date an amount sufficient to redeem the shares so called for redemption shall be deposited in trust to be applied to such redemption with a bank or with bankers authorized to conduct banking business or with a trust company, in the Borough of Manhattan, City of New York, or in the City of Chicago, having a combined capital and surplus of at least $5,000,000, then, from and after the date of such deposit, such shares shall be deemed to be redeemed and to cease to be outstanding, and all rights of the holders of the shares called for redemption, as stockholders of the Corporation, shall cease except (i) the right, upon presentation and surrender of their respective certificates representing said shares, to receive from such bank or bankers or trust company on or after such redemption date the moneys so deposited in trust, but without interest, and (ii) the right of conversion, if any. The Corporation shall be entitled to any interest payable on the funds so deposited. Any redemption funds unclaimed at the end of six years shall be repaid to the Corporation, after which holders of the redeemed shares shall look only to the Corporation for payment of the redemption price, but without interest thereon. (4) In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of the Preferred Stock shall be entitled to be paid or to have set apart for payment such sum or sums per share as shall be stated in the respective authorizing resolutions, together in each case with a sum equal to accrued and unpaid dividends, if any, at the rate of the dividends fixed therefor, to the date fixed for payment of such price or prices, before any distribution or payment shall be made to the holders of the Common Stock. No consolidation or merger of the Corporation with another corporation or corporations and no sale by the Corporation of its assets as an entirety or substantially as an entirety shall be deemed to be a liquidation, dissolution, or winding up of the Corporation within the meaning of this subdivision (4). (5) The Corporation shall not, without the consent (expressed either in writing or by affirmative vote at a meeting called for that purpose) of the holders of two-thirds of the then outstanding Preferred Stock of all series, other than series in respect of which the authorizing resolutions expressly provide that such consent shall not be required: (i) consolidate or merge with another corporation or corporations or sell its assets as an entirety or 5 substantially as an entirety, provided, however, that the purchase for cash, stock, or otherwise by the Corporation of all or any part of the assets, stock or other securities of another corporation or corporations shall not be deemed to be a consolidation or merger; (ii) issue Preferred Stock of any series if there shall be cumulative dividends in arrears on outstanding Preferred Stock, irrespective of series; (iii) increase the authorized amount of the Preferred Stock, or create or issue any class of stock ranking prior to or on a parity with the Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; (iv) adopt any amendment to the Certificate of Incorporation of the Corporation which adversely alters any preference, power, or special right of the Preferred Stock, or of the holders thereof; provided, however, that if any such amendment would adversely alter any preference, power, or special right of one or more but not all of the series of the Preferred Stock or of the holders thereof, then the consent (expressed as above provided) only of the holders of two-thirds of the then outstanding shares of all series so affected, voting as a class, other than series in respect of which the authorizing resolutions expressly provide that such consent shall not be required, shall be required for the adoption of such amendment. (6) In the event that any four quarterly cumulative dividends, whether consecutive or not, upon the Preferred Stock, or any series thereof, shall be in arrears, the holders of Preferred Stock of all series, other than series in respect of which the right is expressly withheld by the authorizing resolutions, shall have the right, at the next meeting of stockholders called for the election of directors, to elect one- third of the members of the Board of Directors out of the number fixed by the by-laws, and the holders of such Preferred Stock shall continue to have such right until all unpaid dividends upon the Preferred Stock shall have been paid in full. In the event that any eight quarterly cumulative dividends, whether consecutive or not, upon the Preferred Stock, or any series thereof, shall be in arrears, the holders of Preferred Stock of all series, other than series in respect of which the right is expressly withheld by the authorizing resolutions, shall have the right, at the next meeting of stockholders called for the election of directors, to elect a majority of the members of the Board of Directors out of the numbers fixed by the by-laws, and the holders of such Preferred Stock shall continue to have such right until all unpaid dividends upon the Preferred Stock shall have been paid in full. (7) The holders of the Common Stock shall be entitled to vote at all meetings of the stockholders and, subject to the rights of holders of Preferred Stock to elect directors in accordance with the provisions of the foregoing subdivision (6), shall be entitled to one vote for each share of Common Stock held. ARTICLE V There is hereby created a series of Preferred Stock of the Corporation, such series to be within the class of Preferred Stock authorized by Article IV hereof; to be designated $6.25 Cumulative Convertible Voting Preferred Stock (the "$6.25 Preferred Stock"); to consist of 3,454,635 shares; to have the powers, preferences and rights and the qualifications, limitations and restrictions set forth in, and to be subject to all of the terms and provisions of, Article IV hereof (except to the extent that the same may be inconsistent with this Article V); and to have the following additional powers, preferences, rights, qualifications, limitations, restrictions, terms and provisions: (a) $6.25 per share is fixed as the amount per annum at which the holders of $6.25 Preferred Stock shall be entitled to receive dividends when and as declared by the Board of Directors, 6 such dividends to be paid only from retained earnings of the Corporation; and such dividends shall be cumulative and shall accrue, whether or not earned or declared, from the Issue Date (as hereinafter defined), and shall be payable quarterly on the fifteenth day of January, April, July and October in each year to holders of record on the respective business days next preceding the first days of those months (and the quarterly dividend periods shall commence on the first days of those months); provided, however, that as to any shares of $6.25 Preferred Stock issued less than 60 days prior to a dividend payment date, the dividend that would otherwise be payable on such dividend payment date will be payable on the next succeeding dividend payment date; and provided, further, that no dividend shall be declared or paid if (i) the Corporation is insolvent or would be rendered insolvent by payment of such dividend or (ii) the payment of such dividend would impair the Corporation's capital (i.e., the fair market value of the remaining assets of the Corporation would be less than the sum of its liabilities and the liquidation value of any classes and series of its Preferred Stock ranking prior to or on a parity with the $6.25 Preferred Stock). The "Issue Date" shall mean the day on which occurs the merger of Wallace-Murray Corporation, a Delaware corporation, into Household Acquisition Corporation Second, a Delaware corporation, or other subsidiary of the Corporation. An "Anniversary Date" shall mean any anniversary date of the Issue Date. (b) The shares of $6.25 Preferred Stock shall be subject to redemption at the option of the Corporation at any time, and from time to time, in whole or in part, at the redemption price of $50 per share plus the amount of accrued and unpaid dividends, if any, thereon to the date fixed for redemption; provided, however, that no such optional redemption shall be made unless (i) the date fixed for redemption is on or after the fifth Anniversary Date, and (ii) at all times during the twelve-month period terminating on the date on which notice of such redemption is first given, the annualized rate of dividends in respect of the outstanding shares of Common Stock of the Corporation shall have equalled or exceeded the quotient obtained by dividing $6.25 by the conversion rate specified in paragraph (d) hereof (as said conversion rate may have been adjusted pursuant to the provisions of said paragraph). As used herein, the term "annualized rate of dividends" shall mean, as of any particular time, the aggregate per share amount of regular cash dividends (excluding special and extraordinary dividends) paid on shares of the Common Stock of the Corporation generally, in respect of the most recently completed twelve-month period. (c) The amount to which shares of $6.25 Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $50 per share, plus the amount of accrued and unpaid dividends, if any, thereon to the date fixed for payment, and no more. (d) The shares of $6.25 Preferred Stock shall be convertible at any time after issue at the option of the record holder thereof, in the manner hereinafter provided, into fully paid and nonassessable shares of Common Stock of the Corporation at the rate of 1.923 shares (adjusted to 2.327 shares as of close of business on April 7, 1989 and 4.654 shares as of close of business on October 15, 1993) of Common Stock for each share of $6.25 Preferred Stock; provided, however, that as to any shares of $6.25 Preferred Stock which shall have been called for redemption, the right of conversion shall terminate at the close of business on the fifth full business day prior to the date fixed for redemption. No payment or adjustment shall be made for dividends accrued on any shares of $6.25 Preferred Stock that shall be converted or for dividends on any shares of Common Stock that shall be issuable upon such conversion, but all dividends accrued and unpaid on such shares of $6.25 Preferred Stock up to the dividend payment date immediately preceding the date of conversion shall be payable to the converting shareholder, and no dividend shall be paid upon the shares of Common Stock until the same shall be paid or sufficient funds set apart for the payment thereof. The conversion rate provided for above shall be subject to the following adjustments: 7 (i) In case the Corporation shall declare and pay to the holders of the shares of Common Stock a dividend in shares of Common Stock, the conversion rate in effect immediately prior to the time fixed for the determination of shareholders entitled to such dividend shall be proportionately increased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one- thousandth of a share of Common Stock), such adjustment to become effective immediately after the time fixed for such determination. (ii) In case the Corporation shall subdivide the outstanding shares of Common Stock into a greater number of shares of Common Stock or combine the outstanding shares of Common Stock into a smaller number of shares of Common Stock, the conversion rate in effective immediately prior to such subdivision or combination, as the case may be, shall be proportionately increased or decreased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one-thousandth of a share of Common Stock), as the case may require, such increase or decrease, as the case may be, to become effective when such subdivision or combination becomes effective. (iii) In case of any reclassification or change of outstanding shares of Common Stock of the class issuable upon conversion of the shares of $6.25 Preferred Stock, or in case of any consolidation or merger of the Corporation with or into another corporation, or in case of any sale or conveyance to another corporation of all or substantially all of the property of the Corporation, the holder of each share of $6.25 Preferred Stock then outstanding shall have the right thereafter, so long as his conversion right hereunder shall exist, to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Corporation into which such shares of $6.25 Preferred Stock might have been converted immediately prior to such reclassification, change, consolidation, merger, sale or conveyance, and shall have no other conversion rights under these provisions; provided, however, that effective provision shall be made, in the Articles or Certificate of Incorporation of the resulting, surviving, or successor corporation or otherwise, so that the provisions set forth herein for the protection of the conversion rights of the shares of $6.25 Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of the shares of $6.25 Preferred Stock remaining outstanding or other convertible preferred shares received by the holders in place thereof; and provided, further, that any such resulting, surviving, or successor corporation shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares, securities, or property as the holders of the shares of $6.25 Preferred Stock remaining outstanding, or other convertible preferred shares received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provision for the protection of the conversion right as above provided. In case securities or property other than shares of Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this paragraph shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares of Common Stock (whether with or without par value) shall not be deemed to be a reclassification of the Common Stock of the Corporation for the purposes of this subparagraph (iii). (iv) Unless the holders of shares of the $6.25 Preferred Stock shall be issued subscription rights or warrants on a reasonably equivalent basis, in case the Corporation shall issue to the holders of shares of any class of its capital stock subscription rights or warrants 8 entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Average Market Price (as hereinafter defined) at the time fixed for determination of shareholders entitled to such subscription rights or warrants, the conversion rate in effect immediately prior to the time of said determination shall be increased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one-thousandth of a share of Common Stock) by multiplying said rate by a fraction of which the numerator shall be the sum of the number of shares of Common Stock outstanding at the time of such determination and the number of additional shares of Common Stock so offered for subscription or purchase, and of which the denominator shall be the sum of the number of shares of Common Stock outstanding at the time of such determination and the number of shares of Common Stock which the aggregate subscription price of the total number of shares so offered would purchase at the Average Market Price, such adjustment to become effective immediately after the time fixed for such determination; provided, however, that if such subscription rights or warrants shall have a term not exceeding 45 days and if any such subscription rights or warrants expire unexercised, then the conversion rate will be readjusted, effective immediately after the expiration of such term, to the conversion rate which would have obtained if such unexercised subscription rights or warrants had not been issued. For the purposes of any computation under this subparagraph (iv) or subparagraph (v), the "Average Market Price" per share of Common Stock for any time shall be the average of the daily closing prices for the 30 consecutive business days commencing 45 business days before the time in question. The closing price for each day shall be the last sales price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as recorded on the New York Stock Exchange (or, if the Common Stock is not regularly traded on the New York Stock Exchange, on the principal market or system on which trades in the Common Stock are recorded). (v) Unless the holders of shares of the $6.25 Preferred Stock shall be distributed evidences of indebtedness or other assets on a reasonably equivalent basis, in case the Corporation shall distribute to the holders of the shares of Common Stock evidences of indebtedness of the Corporation or other assets of the Corporation (other than cash dividends to the extent paid from retained earnings, dividends in shares of Common Stock or subscription rights or warrants entitling them to subscribe for or purchase shares of Common Stock, but including securities convertible into capital stock of the Corporation), the conversion rate in effect immediately prior to the time fixed for determination of shareholders entitled to such distribution shall be increased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one-thousandth of a share of Common Stock) by multiplying said rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the time of such determination, and of which the denominator shall be the difference between the number of shares of Common Stock outstanding at the time of such determination and a number of shares of Common Stock having an aggregate Average Market Price at the time of such determination equal to the fair value (as determined by the Board of Directors of the Corporation in good faith) of the evidences of indebtedness or other assets so distributed, such adjustment to become effective immediately after the time fixed for such determination. Except as provided in the foregoing subparagraphs (i) through (v), there shall be no adjustments to the conversion rate set forth above. In order to convert shares of $6.25 Preferred Stock into shares of Common Stock, the holder thereof shall surrender the certificate or certificates for shares of $6.25 Preferred Stock, duly endorsed to the Corporation or in blank, at the office of 9 any Transfer Agent for the shares of $6.25 Preferred Stock (or such other place as may be designated by the Corporation), and shall give written notice to the Corporation at said office that he elects to convert the same and shall state in writing therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, deliver at said office to such holder of shares of $6.25 Preferred Stock or to his nominee or nominees, a certificate or certificates for the number of full shares of Common Stock to which he shall be entitled as aforesaid and shall make appropriate payment in cash for any fractional shares. Shares of $6.25 Preferred Stock shall be deemed to have been converted as of the date of the surrender of such shares for conversion as provided above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. No fractions of shares of Common Stock shall be issued upon conversion, but in lieu thereof the Corporation shall adjust such fractional interest by payment to the holders of an amount in cash equal (computed to the nearest cent) to the same fraction of the closing price (as defined in subparagraph (iv) above) on the business day immediately preceding such conversion. A number of authorized shares of Common Stock sufficient to provide for the conversion of the shares of $6.25 Preferred Stock outstanding upon the bases hereinbefore provided shall at all times be reserved for such conversion. (e) There shall be a sinking fund (the "Sinking Fund") for the benefit of the shares of $6.25 Preferred Stock. For the purposes of the Sinking Fund, out of any net assets of the Corporation legally available therefor (but only from retained earnings and subject to the provisions of the last sentence of paragraph (2) of Article IV of the Certificate of Incorporation), before any dividends, in cash or property, shall be paid or declared, or any distribution ordered or made on the Common Stock of the Corporation, and before any shares of Common Stock of the Corporation shall be purchased, redeemed, or otherwise acquired for value by the Corporation or any subsidiary, the Corporation shall have paid or set aside in cash annually on the day prior to each Anniversary Date commencing with the tenth Anniversary Date, so long as there shall be outstanding any shares of $6.25 Preferred Stock, an amount sufficient to redeem, on the day prior to each such Anniversary Date prior to the thirtieth, 4% of the number of shares of $6.25 Preferred Stock issued on the Issue Date (or such lesser number as remains outstanding) and, on the day prior to the thirtieth Anniversary Date, all such shares of $6.25 Preferred Stock as remain outstanding, at a price of $50 per share plus the amount of accrued and unpaid dividends, if any, thereon to the date so fixed for redemption; provided, however, that there shall be allowed to the Corporation as a credit thereagainst any shares of $6.25 Preferred Stock which the Corporation may have acquired (as a result of the conversion of such shares or otherwise, which it may have redeemed pursuant to paragraph (b) hereof, or which it may have redeemed pursuant to this paragraph (e) (otherwise than through the operation of the Sinking Fund), which have not theretofore been used for the purpose of any such credit or any credit against a redemption of $6.25 Preferred Stock at the Corporation's election as hereinafter in this paragraph (e) provided for and which shares shall have been set aside by the Corporation for the purpose of the Sinking Fund; and provided, further, that no monies shall be paid or set aside for the Sinking Fund if at the day prior to any such Anniversary Date the Corporation is in arrears in respect of a sinking fund obligation under any other series of Preferred Stock ranking prior to or on a parity with the $6.25 Preferred Stock except to the extent that, in the case of any series ranking on a parity with the $6.25 Preferred Stock, provision is made for the payment or setting aside of monies for the Sinking Fund and for the sinking funds of such other series in proportion to the respective aggregate amounts then required to be paid or set aside therefor; and provided, further, that no monies shall be paid or set aside for the Sinking Fund if (i) the Corporation is insolvent or would be rendered insolvent by the payment or setting aside of such monies or (ii) the payment or setting aside 10 of such monies would impair the Corporation's capital (i.e., the fair market value of the remaining assets of the Corporation would be less than the sum of its liabilities and the liquidation value of classes and series of its Preferred Stock ranking prior to or on a parity with the $6.25 Preferred Stock). The Sinking Fund shall be cumulative so that if on the day prior to any such Anniversary Date, the net assets of the Corporation legally available therefor or the retained earnings of the Corporation shall be insufficient to permit any such amount be paid or set aside in full, or if for any other reason such amount shall not have been paid or set aside in full, the amount of the deficiency shall be paid or set aside, but without interest, before any dividend, in cash or property, shall be paid or declared, or any other distribution ordered or made, on the Common Stock of the Corporation, and before any shares of Common Stock of the Corporation shall be purchased, redeemed or otherwise acquired for value by the Corporation or by any subsidiary of the Corporation. The Corporation may elect to redeem, on any Sinking Fund redemption date, up to an additional 4% of the number of shares of $6.25 Preferred Stock issued on the Issue Date, at a price of $50 per share plus the amount of accrued and unpaid dividends, if any, thereon to the date fixed for redemption; provided, however, that there shall be allowed to the Corporation as a credit thereagainst any shares of $6.25 Preferred Stock which the Corporation may have acquired or redeemed otherwise than pursuant to paragraph (b) above and this paragraph (e) which have not theretofore been used for the purpose of any such credit or for the purpose of any credit against a redemption of $6.25 Preferred Stock pursuant to the Sinking Fund. Such optional right shall not be cumulative and, if unexercised in a particular year, may not be carried forward to subsequent years. (f) The holders of $6.25 Preferred Stock shall be entitled to vote at all meetings of the stockholders, and at each such meeting shall be entitled to one vote for each share held. (g) To the extent that the Board of Directors is authorized to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, in respect of additional series of Preferred Stock, none of the preferences or rights of any such additional series as fixed by the Board of Directors shall be prior or superior in any respect to those of the $6.25 Preferred Stock. Without limiting the rights conferred by paragraph (5) of Article IV of the Certificate of Incorporation of the Corporation, the Corporation shall not, without the consent of the holders of two-thirds of the then outstanding shares of $6.25 Preferred Stock, adopt any amendment to the Certificate of Incorporation of the Corporation or take other action, whether by the Board of Directors or stockholders, which adversely alters the preferences, powers and special rights conferred by the provisions of paragraphs (b), d(iv), d(v) or (e) hereof. ARTICLE VI In furtherance, and not in limitation, of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized: (1) To make, alter, amend and rescind the by-laws of the Corporation. (2) To determine from time to time, whether and to what extent, and at what times and places, and under what conditions and regulations the accounts and books of the Corporation (other than the stock ledger) or any of them shall be open to inspection of the stockholders; and no stockholder shall have any right to inspect any account, book or document of the Corporation, except as conferred by statute, unless authorized by a resolution of the stockholders then entitled to vote thereon or the Board of Directors. IN WITNESS WHEREOF, said Household International, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by D. C. Clark, its President, and 11 attested by J. D. Pinkerton, its Secretary, this 4th day of September, 1981. Household International, Inc. By: /s/ D. C. Clark --------------- President [SEAL] Attest: By: /s/ J. D. Pinkerton ------------------- Secretary A:\WP51\IC9481.WP 12 CERTIFICATE OF CHANGE OF ADDRESS OF REGISTERED OFFICE AND OF REGISTERED AGENT PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE To: DEPARTMENT OF STATE Division of Corporations Townsend Building Federal Street Dover, Delaware 19903 Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code, the undersigned Agent for service of process, in order to change the address of the registered office of the corporations for which it is registered agent, hereby certifies that: 1. The name of the agent is: The Corporate Trust Company 2. The address of the old registered office was: 100 West Tenth Street Wilmington, Delaware 19801 3. The address to which the registered office is to be changed is: Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 The new address will be effective on July 30, 1984. 4. The names of the corporation represented by said agent are set forth on the list annexed to this certificate and made a part hereof by reference. IN WITNESS WHEREOF, said agent has caused this certificate to be signed on its behalf by its Vice-President and Assistant Secretary this 25th day of July, 1984. THE CORPORATION TRUST COMPANY (Name of Registered Agent) By: Virginia Colwell ---------------- (Vice-President) Attest: Mick Nurman - --------------------- (Assistant Secretary) 13 PAGE 796 STATE OF DELAWARE - DIVISION OF CORPORATIONS CHANGE OF ADDRESS FILING FOR CORPORATION TRUST AS OF JULY 27, 1984 DOMESTIC 0908612 HOUSEHOLD INTERNATIONAL, INC. 02/21/1981 D DE A:\WP51\IC72584.WP 14 HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Restated Certificate of Incorporation, as heretofore amended, of said Corporation has been further amended by inserting the following as Article VII: ARTICLE VII (1) Elimination of Certain Liability of Directors. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or successor provision, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or amendment to this Section shall not adversely affect any right or protection of a director of the Corporation for any act or occurrence taking place prior to such repeal or amendment. (2) Indemnification and Insurance. (a) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition upon delivery to the Corporation of an undertaking to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to agents of the Corporation with the same scope and effect as the foregoing indemnification of directors, officers, and employees. 15 (b) If a claim under paragraph (a) of this Section is not paid in full by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law and paragraph (a) of this Section for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (c) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, bylaw, agreement, contract, vote of stockholders or disinterested directors, or otherwise. (d) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section, the Delaware General Corporation Law, or otherwise. SECOND: That the aforesaid amendment of the Restated Certificate of Incorporation of said Corporation, set forth in Paragraph FIRST hereinabove, has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by D. C. Clark, its Chairman of the Board and Chief Executive Officer, and J. D. Pinkerton, its Senior Vice President - Administration and Secretary, this 13th day of May, 1987. HOUSEHOLD INTERNATIONAL, INC. [SEAL] By: /s/ D. C. Clark ------------------------- Chairman of the Board and Chief Executive Officer Attest: /s/ J. D. Pinkerton - ---------------------------- Senior Vice President - Administration and Secretary A:\WP51\IC51387.WP 16 HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware 9-1/2% Cumulative Preferred Stock, Series 1991-A (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolutions were duly adopted by the Board of Directors of the Corporation and by the Preferred Stock Committee of the Board of Directors, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and pursuant to authority conferred upon the Preferred Stock Committee by the resolutions of the Board of Directors set forth herein and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors has adopted the following resolutions designating a Preferred Stock Committee of the Board of Directors and authorizing the Preferred Stock Committee to act on behalf of the Board of Directors (within certain limitations) in connection with the designation, issuance and sale of shares in one or more series of Preferred Stock of the Corporation: "RESOLVED, that a Preferred Stock Committee of the Board of Directors is hereby designated which shall have and may exercise, to the fullest extent permitted by law, the full power and authority of the Board of Directors with respect to the issuance and sale of one or more new series of the Corporation's Preferred Stock without par value (each such series herein referred to as the "New Preferred Stock"), including, without limitation, establishing the purchase price therefor, and fixing the designations and any of the preferences, powers, rights (other than voting powers or voting rights which shall be fixed by the Board of Directors) and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, of such shares of each series of New Preferred Stock, and fixing the number of shares of each series of New Preferred Stock. "FURTHER RESOLVED, that the Committee is authorized to take such additional actions and adopt such additional resolutions as it deems necessary or appropriate for the purpose of authorizing and implementing the issuance, offer, and sale for cash of New Preferred Stock, including, without limiting the generality of the foregoing, the authorization and execution of agreements (including underwriting agreements) relating to the offer and sale of New Preferred Stock, authorization and approval of listing applications (including amendments or supplements thereto) for the listing of such New Preferred Stock on a stock exchange, approval of forms of stock certificates and authorization of issuance of New Preferred Stock in uncertificated form, any actions which may be necessary to qualify the offering and sale of New Preferred Stock under Blue Sky Laws of the various states, any necessary filings with the Secretary of State of Delaware and other jurisdictions, and the appointment of a transfer agent. "FURTHER RESOLVED, that notwithstanding the foregoing resolutions, the Preferred Stock Committee may not authorize the sale of New Preferred Stock for more than $250 million cash consideration in the aggregate, and the power and authority of the Preferred Stock Committee set forth in the preceding resolutions shall expire on September 12, 1991. "FURTHER RESOLVED, that the members of the Preferred Stock Committee shall be D. C. Clark, E. P. Hoffman, and G. P. Osler. In the absence of Mr. Osler, A. E. Rasmussen is designated as an alternate member of the Preferred Stock Committee to serve in his place." 17 2. The Board of Directors has adopted the following resolution pertaining to the voting rights for series of Preferred Stock authorized for issuance by the Preferred Stock Committee of the Board of Directors: "RESOLVED, that notwithstanding the resolution of the Board of Directors adopted on October 17, 1989, the holders of the Corporation's Flexible Rate Auction Preferred Stock, Series A, and Flexible Rate Auction Preferred Stock, Series B, and any other series of Preferred Stock which on or after July 10, 1990, is authorized by the Preferred Stock Committee of the Board of Directors to be issued and sold pursuant to authority granted to the Preferred Stock Committee by the Board of Directors (each such series herein referred to as the "New Preferred Stock") shall have no voting rights, and their consent shall not be required for taking any corporate action, except as otherwise set forth herein, except as otherwise required by law, and except as otherwise provided by the Board of Directors with respect to any particular series of New Preferred Stock. The consent of the holders of the New Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of paragraph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (5)") shall not be required, except with respect to the creation or issuance of any class of stock ranking prior to or on a parity with the Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; but the other provisions of Paragraph (5) shall be applicable to the New Preferred Stock. The holders of the New Preferred Stock shall have no right to elect directors pursuant to paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (6)"), such right hereby being expressly withheld. In the event that any six quarterly cumulative dividends (which shall be deemed to include dividends in respect of a number of non-quarterly dividend periods containing not less than 540 days), whether consecutive or not, upon the New Preferred Stock shall be in arrears, the holders of the New Preferred Stock shall have the right, voting separately as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the New Preferred Stock either as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and upon which like voting rights have been conferred (which shall include the Corporation's 9-1/2% Cumulative Preferred Stock, Series 1989-A) and are then exercisable, at the next meeting of stockholders called for the election of directors, to elect two members of the Board of Directors. The right of such holders of such shares of the New Preferred Stock, voting separately as a class, to elect (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity) members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on such shares of the New Preferred Stock shall have been paid in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent failure to pay dividends of the character above mentioned. Upon any termination of the right of the holders of the New Preferred Stock as a class to elect directors as herein provided, the term of office of all directors so elected shall terminate immediately. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in 18 such holders as provided in this resolution shall have expired, the number of directors shall thereupon be such number as may be provided for in the Corporation's Bylaws irrespective of any increase made pursuant to the provisions of this resolution. Until all unpaid dividends on the New Preferred Stock shall have been paid in full, and in order to permit the holders of the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, and any other series of Preferred Stock issued by the Corporation having the voting rights set forth in Paragraph (6) to exercise fully the right to elect directors as granted by and provided in paragraph (6), the number of directors constituting the whole Board of Directors of the Corporation shall not be less than seven. If, upon any such arrearage in dividends, the number of directors constituting the whole Board of Directors shall be less than seven, the size of the Board of Directors shall, immediately prior to the next meeting of stockholders called for the election of directors, automatically be increased by such number as shall be necessary to cause the number of directors constituting the whole Board of Directors to be no less than seven. To the extent that the Board of Directors is authorized to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof in respect of additional series of Preferred Stock, none of the preferences or rights of any such additional series as fixed by the Board of Directors shall rank prior to the New Preferred Stock as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, without the consent of the holders of two-thirds of the outstanding shares of such series of New Preferred Stock voting as a class. The foregoing voting provisions shall not apply to any series of New Preferred Stock if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of New Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption. On any item in which the holders of New Preferred Stock are entitled to vote, such holders shall be entitled to one vote for each share held." 3. The Preferred Stock Committee of the Board of Directors has adopted the following resolution pursuant to authority conferred upon the Preferred Stock Committee of the Board of Directors by the resolution of the Board of Directors set forth in paragraph 1 above of this Certificate of Designation, Preferences and Rights: "RESOLVED, that the issue of a series of Preferred Stock without par value of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: 9-1/2% Cumulative Preferred Stock, Series 1991-A (1) Number of Shares and Designation. 550,000 shares of Preferred Stock without par value of the Corporation are hereby constituted as a series of Preferred Stock without par value and designated as 9-1/2% Cumulative Preferred Stock, Series 1991-A (hereinafter called the "9-1/2% Preferred Stock"). (2) Dividends. The holders of shares of the 9-1/2% Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the 19 Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable quarterly in arrears, when and as declared by the Board of Directors of the Corporation, on the fifteenth day of January, April, July and October in each year to holders of record on the respective business days next preceding the first days of those months (and the quarterly dividend periods shall commence on the first days of those months). Dividends on the 9-1/2% Preferred Stock for quarterly dividend periods will be payable at the rate of 9-1/2% per annum from the date of original issue applied to the amount of $100 per share of 9-1/2% Preferred Stock. The amount of dividends payable on each share of 9-1/2% Preferred Stock for each full quarterly dividend period shall be computed by dividing the dividend rate by four and applying the dividend rate to the amount of $100 per share. The amount of dividends payable for any dividend period shorter or longer than a full quarterly dividend period shall be computed on the basis of 30-day months, a 360-day year and the actual number of days elapsed in the period. (3) Liquidation Preference. The amount to which shares of 9-1/2% Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $100 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, and no more. (4) Redemption. The shares of 9-1/2% Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation on or after August 13, 1996, at $100 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, and no more. (5) Shares to be Retired. All shares of 9-1/2% Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of 9-1/2% Preferred Stock. (6) Conversion or Exchange. The holders of shares of 9-1/2% Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Ranking. The 9-1/2% Preferred Stock shall rank on a parity with the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series A, Flexible Rate Auction Preferred Stock, Series B, and 11- 1/4% Enhanced Rate Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series A, Flexible Rate Auction Preferred Stock, Series B and 11-1/4% Enhanced Rate Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by David D. Wesselink, Vice President and Treasurer of the 20 Corporation, and attested by Susan Casey, Assistant Secretary, this 5th day of August, 1991. HOUSEHOLD INTERNATIONAL, INC. By: /s/ D. D. Wesselink ---------------------------- Vice President and Treasurer Attest: /s/ S. E. Casey - ------------------- Assistant Secretary A:\WP51\IC8591.WP 21 HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware 8-1/4% Cumulative Preferred Stock, Series 1992-A (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolutions were duly adopted by the Board of Directors of the Corporation and by the Preferred Stock Committee of the Board of Directors, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and pursuant to authority conferred upon the Preferred Stock Committee by the resolutions of the Board of Directors set forth herein and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors has adopted the following resolutions designating a Preferred Stock Committee of the Board of Directors and authorizing the Preferred Stock Committee to act on behalf of the Board of Directors (within certain limitations) in connection with the designation, issuance and sale of shares in one or more series of Preferred Stock of the Corporation: "RESOLVED, that a Preferred Stock Committee of the Board of Directors is hereby designated which shall have and may exercise, to the fullest extent permitted by law, the full power and authority of the Board of Directors with respect to the issuance and sale of one or more new series of the Corporation's Preferred Stock without par value (each such series herein referred to as the "New Preferred Stock"), including, without limitation, establishing the purchase price therefor, and fixing the designations and any of the preferences, powers, rights (other than voting powers or voting rights which shall be fixed by the Board of Directors) and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, of such shares of each series of New Preferred Stock, and fixing the number of shares of each series of New Preferred Stock. "FURTHER RESOLVED, that the Preferred Stock Committee is authorized to take such additional actions and adopt such additional resolutions as it deems necessary or appropriate for the purpose of authorizing and implementing the issuance, offer, and sale for cash of New Preferred Stock, including, without limiting the generality of the foregoing, the authorization and execution of agreements (including underwriting agreements) relating to the offer and sale of New Preferred Stock, authorization and approval of listing applications (including amendments or supplements thereto) for the listing of such New Preferred Stock on a stock exchange, approval of forms of stock certificates and authorization of issuance of New Preferred Stock in uncertificated form, any actions which may be necessary to qualify the offering and sale of New Preferred Stock under Blue Sky Laws of the various states, any necessary filings with the Secretary of State of Delaware and other jurisdictions, and the appointment of a transfer agent. "FURTHER RESOLVED, that notwithstanding the foregoing resolutions, the Preferred Stock Committee may not authorize the sale of New Preferred Stock for more than $150 million cash consideration in the aggregate, and the power and authority of the Preferred Stock Committee set forth in the preceding resolutions shall expire on December 31, 1994, unless extended by further action of the Board of Directors of the Corporation. "FURTHER RESOLVED, that the members of the Preferred Stock Committee shall be D. C. Clark, E. P. Hoffman, and 22 G. P. Osler. In the absence of Mr. Osler, A. E. Rasmussen is designated as an alternate member of the Preferred Stock Committee to serve in his place." 2. The Board of Directors has adopted the following resolution pertaining to the voting rights for series of Preferred Stock authorized for issuance by the Preferred Stock Committee of the Board of Directors: "RESOLVED, that holders of each series of the Corporation's New Preferred Stock which is authorized by the Preferred Stock Committee of the Board of Directors shall have no voting rights, and their consent shall not be required for taking any corporate action, except as otherwise set forth herein, or as otherwise required by law, and except as otherwise provided by the Board of Directors with respect to any particular series of New Preferred Stock. The consent of the holders of the New Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of paragraph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (5)") shall not be required, except with respect to the creation or issuance of any class of stock ranking prior to or on a parity with the New Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; but the other provisions of Paragraph (5) shall be applicable to the New Preferred Stock. The holders of the New Preferred Stock shall have no right to elect directors pursuant to paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (6)"), such right hereby being expressly withheld. In the event that any six quarterly cumulative dividends, whether consecutive or not, upon the New Preferred Stock shall be in arrears, the holders of the New Preferred Stock shall have the right, voting separately as a class with holders of shares of any one or more other series of Preferred Stock of the Corporation ranking on a parity with the New Preferred Stock either as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and upon which like voting rights have been conferred and are then exercisable, at the next meeting of stockholders called for the election of directors, to elect two members of the Board of Directors. The right of such holders of such shares of the New Preferred Stock, voting separately as a class, to elect (together with the holders of shares of any one or more other series of Preferred Stock of the Corporation ranking on such a parity) members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on such shares of the New Preferred Stock shall have been paid in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent failure to pay dividends of the character above mentioned. Upon any termination of the right of the holders of the New Preferred Stock as a class to elect directors as herein provided, the term of office of all directors so elected shall terminate immediately. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall thereupon be such number as may be provided for in the Corporation's Bylaws irrespective of any increase made pursuant to the provisions of this resolution. 23 Until all unpaid dividends on the New Preferred Stock shall have been paid in full, and in order to permit the holders of the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, and any other series of Preferred Stock issued by the Corporation having the voting rights set forth in Paragraph (6) to exercise fully the right to elect directors as granted by and provided in Paragraph (6), the number of directors constituting the whole Board of Directors of the Corporation shall not be less than seven. If, upon any such arrearage in dividends, the number of directors constituting the whole Board of Directors shall be less than seven, the size of the Board of Directors shall, immediately prior to the next meeting of stockholders called for the election of directors, automatically be increased by such number as shall be necessary to cause the number of directors constituting the whole Board of Directors to be no less than seven. To the extent that the Board of Directors is authorized to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof in respect of additional series of Preferred Stock, none of the preferences or rights of any such additional series as fixed by the Board of Directors shall rank prior to the New Preferred Stock as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, without the consent of the holders of two-thirds of the outstanding shares of such series of New Preferred Stock voting as a class. The foregoing voting provisions shall not apply to any series of New Preferred Stock if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of New Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption. On any item in which the holders of New Preferred Stock are entitled to vote, such holders shall be entitled to one vote for each share held." 3. The Preferred Stock Committee of the Board of Directors has adopted the following resolution pursuant to authority conferred upon the Preferred Stock Committee of the Board of Directors by the resolution of the Board of Directors set forth in paragraph 1 above of this Certificate of Designation, Preferences and Rights: "RESOLVED, that the issue of a series of Preferred Stock without par value of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: 8-1/4% Cumulative Preferred Stock, Series 1992-A (1) Number of Shares and Designation. 50,000 shares of Preferred Stock without par value of the Corporation are hereby constituted as a series of Preferred Stock without par value and designated as 8-1/4% Cumulative Preferred Stock, Series 1992-A (hereinafter called the "8-1/4% Preferred Stock"). (2) Dividends. The holders of shares of the 8-1/4% Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable quarterly in arrears, when and as declared by the Board of Directors of the Corporation, on the fifteenth day of January, April, 24 July and October in each year to holders of record on the respective business days next preceding the first days of those months (and the quarterly dividend periods shall commence on the first days of those months). Dividends on the 8-1/4% Preferred Stock for quarterly dividend periods will be payable at the rate of 8-1/4% per annum from the date of original issue applied to the amount of $1,000 per share of 8-1/4% Preferred Stock. The amount of dividends payable on each share of 8-1/4% Preferred Stock for each full quarterly dividend period shall be computed by dividing the dividend rate by four and applying the dividend rate to the amount of $1,000 per share. The amount of dividends payable for any dividend period shorter or longer than a full quarterly dividend period shall be computed on the basis of 30-day months, a 360-day year and the actual number of days elapsed in the period. (3) Liquidation Preference. The amount to which shares of 8-1/4% Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, and no more. (4) Redemption. The shares of 8-1/4% Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation on or after October 15, 2002, at $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, and no more. (5) Shares to be Retired. All shares of 8-1/4% Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of 8-1/4% Preferred Stock. (6) Conversion or Exchange. The holders of shares of 8-1/4% Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Ranking. The 8-1/4% Preferred Stock shall rank on a parity with the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock and 9-1/2% Cumulative Preferred Stock, Series 1991-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock and 9-1/2% Cumulative Preferred Stock, Series 1991-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by J. Richard Hull, Senior Vice President-Secretary of the 25 Corporation, and attested by John W. Blenke, Assistant Secretary, this 14th day of October, 1992. HOUSEHOLD INTERNATIONAL, INC. By: /s/ J. Richard Hull ---------------------- Senior Vice President- Secretary Attest: /s/ John W. Blenke - ------------------- Assistant Secretary A:\WP51\IC101492.WP 26 HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Restated Certificate of Incorporation, as heretofore amended, of said Corporation has been further amended by deleting, in its entirety, the first paragraph of Article IV thereof and inserting the following as the new first paragraph of Article IV: The total number of shares that may be issued by the Corporation is 158,155,004 of which 8,155,004 shares shall be Preferred Stock without par value and 150,000,000 shares shall be Common Stock of the par value of $1 per share. SECOND: That the aforesaid amendment of the Restated Certificate of Incorporation of said Corporation, set forth in Paragraph FIRST hereinabove, has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by D. C. Clark, its Chairman of the Board and Chief Executive Officer and J. W. Blenke, Assistant General Counsel and Assistant Secretary, this 12th day of May, 1993. HOUSEHOLD INTERNATIONAL, INC. [SEAL] By: /s/ D. C. Clark ------------------------- Chairman of the Board and Chief Executive Officer Attest: /s/ J. W. Blenke - ----------------------------- Assistant General Counsel and Assistant Secretary A:\WP51\IC51293.WP 27 HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware 7.35% Cumulative Preferred Stock, Series 1993-A (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolutions were duly adopted by the Board of Directors of the Corporation and by the Offering Committee of the Board of Directors, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and pursuant to authority conferred upon the Offering Committee by the resolutions of the Board of Directors set forth herein and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors on May 12, 1993 has adopted the following resolutions designating an Offering Committee of the Board of Directors and authorizing the Offering Committee to act on behalf of the Board of Directors (within certain limitations) in connection with the designation, issuance and sale of shares in one or more series of Preferred Stock, without par value, of the Corporation: "FURTHER RESOLVED, that an Offering Committee of the Board of Directors is hereby designated which shall have and may exercise, to the fullest extent permitted by law, the full power and authority of the Board of Directors with respect to the issuance and sale of (i) the Common Stock, (ii) the Debt Securities or (iii) one or more new series of the Corporation's Preferred Stock, including, without limitation, establishing the purchase price therefore, and fixing the designations and any of the preferences, powers, rights (other than voting powers or voting rights which shall be fixed by the Board of Directors) and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, of such shares of each series of Preferred Stock; and "FURTHER RESOLVED, that notwithstanding the foregoing resolutions, the power and authority of the Offering Committee set forth in the preceding resolution shall expire on June 30, 1995, unless extended by further action of the Board of Directors of the Corporation; and "FURTHER RESOLVED, that the members of the Offering Committee shall be D. C. Clark, A. E. Rasmussen and G. P. Osler. In the absence of any of the named directors, any current director of the Corporation is designated as an alternate member of the Offering Committee to serve in such named director's place; and "FURTHER RESOLVED, that the Offering Committee is authorized to take such additional actions and adopt such additional resolutions as it deems necessary or appropriate for the purpose of authorizing and implementing the issuance, offer, and sale for cash of Preferred Stock, including, without limiting the generality of the foregoing, the authorization and execution of agreements (including underwriting agreements) relating to the offer and sale of Preferred Stock, approval of forms of stock certificates and authorization of issuance of Preferred Stock in uncertificated form, any actions which may be necessary to qualify the offering and sale of Preferred Stock under Blue Sky Laws of the various states, any necessary filings with the Secretary of State of Delaware and other jurisdictions, and the appointment of a transfer agent; and "FURTHER RESOLVED, that the Offering Committee is hereby empowered, in connection with the issuance and sale of any new series of the Corporation's Preferred Stock, to 28 authorize the issuance and sale of depositary shares and depositary receipts for such depositary shares with respect to any such series of Preferred Stock, and to authorize the appointment of a depositary, registrar, and transfer agent for such depositary shares and depositary receipts, the execution of a depositary agreement, and any additional agreements or actions in connection therewith as the Offering Committee deems necessary or appropriate." 2. The Board of Directors, on May 12, 1993, has adopted the following resolution pertaining to the voting rights for series of Preferred Stock, without par value, authorized for issuance by the Offering Committee of the Board of Directors: "FURTHER RESOLVED, that holders of each series of the Corporation's Preferred Stock which is authorized by the Offering Committee of the Board of Directors shall have no voting rights, and their consent shall not be required for taking any corporate action, except as otherwise set forth herein or as otherwise required by law, and except as otherwise provided by the Board of Directors with respect to any particular series of Preferred Stock: The consent of the holders of the Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of paragraph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (5)") shall not be required, except with respect to the creation or issuance of any class of stock ranking prior to or on a parity with the Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; but the other provisions of Paragraph (5) shall be applicable to the Preferred Stock. The holders of the Preferred Stock shall have no right to elect directors pursuant to paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (6)"), such right hereby being expressly withheld. In the event that any six quarterly cumulative dividends, whether consecutive or not, upon the Preferred Stock shall be in arrears, the holders of the Preferred Stock shall have the right, voting separately as a class with holders of shares of any one or more other series of preferred stock of the Corporation ranking on a parity with the Preferred Stock either as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and upon which like voting rights have been conferred and are then exercisable, at the next meeting of stockholders called for the election of directors, to elect two members of the Board of Directors. The right of such holders of such shares of the Preferred Stock, voting separately as a class, to elect (together with the holders of shares of any one or more other series of preferred stock of the Corporation ranking on such a parity) members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on such shares of the Preferred Stock shall have been paid in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent failure to pay dividends of the character above mentioned. Upon any termination of the right of the holders of the Preferred Stock as a class to elect directors as herein provided, the term of office of all directors so elected shall terminate immediately. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall thereupon be such number as may be provided for in the Corporation's Bylaws 29 irrespective of any increase made pursuant to the provisions of this resolution. Until all unpaid dividends on the Preferred Stock shall have been paid in full, and in order to permit the holders of the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, and any other series of preferred stock issued by the Corporation having the voting rights set forth in Paragraph (6) to exercise fully the right to elect directors as granted by and provided in Paragraph (6), the number of directors constituting the whole Board of Directors of the Corporation shall not be less than seven. If, upon any such arrearage in dividends the number of directors constituting the whole Board of Directors shall be less than seven, the size of the Board of Directors shall, immediately prior to the next meeting of stockholders called for the election of directors, automatically be increased by such number as shall be necessary to cause the number of directors constituting the whole Board of Directors to be no less than seven. To the extent that the Board of Directors is authorized to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof in respect of additional series of preferred stock, none of the preferences or rights of any such additional series as fixed by the Board of Directors shall rank prior to the Preferred Stock as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, without the consent of the holders of two-thirds of the outstanding shares of such series of Preferred Stock voting as a class. The foregoing voting provisions shall not apply to any series of Preferred Stock, if at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption. On any item in which the holders of Preferred Stock are entitled to vote, such holders shall be entitled to one vote for each share held." 3. The Offering Committee of the Board of Directors has on August 30, 1993 adopted the following resolution pursuant to authority conferred upon the Offering Committee of the Board of Directors by the resolutions of the Board of Directors set forth in paragraph 1 above of this Certificate of Designation, Preferences and Rights: "RESOLVED, that the issue of a series of Preferred Stock without par value of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: 7.35% Cumulative Preferred Stock, Series 1993-A (1) Number of Shares and Designation. 100,000 shares of Preferred Stock without par value of the Corporation are hereby constituted as a series of Preferred Stock without par value and designated as 7.35% Cumulative Preferred Stock, Series 1993-A (hereinafter called the "7.35% Preferred Stock"). (2) Dividends. The holders of shares of the 7.35% Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable quarterly in 30 arrears, when and as declared by the Board of Directors of the Corporation, on the fifteenth day of January, April, July and October in each year to holders of record on the respective business days next preceding the first days of those months (and the quarterly dividend periods shall commence on the first days of those months). Dividends on the 7.35% Preferred Stock for quarterly dividend periods will be payable at the rate of 7.35% per annum from the date of original issue applied to the amount of $1,000 per share of 7.35% Preferred Stock. The amount of dividends payable on each share of 7.35% Preferred Stock for each full quarterly dividend period shall be computed by dividing the dividend rate by four and applying the dividend rate to the amount of $1,000 per share. The amount of dividends payable for any dividend period shorter or longer than a full quarterly dividend period shall be computed on the basis of 30-day months, a 360-day year and the actual number of days elapsed in the period. (3) Liquidation Preference. The amount to which shares of 7.35% Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, and no more. (4) Redemption. The shares of 7.35% Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation on or after October 15, 1998 at $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, and no more. (5) Shares to be Retired. All shares of 7.35% Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of 7.35% Preferred Stock. (6) Conversion or Exchange. The holders of shares of 7.35% Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Ranking. The 7.35% Preferred Stock shall rank on a parity with the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1991-A and 8-1/4% Cumulative Preferred Stock, Series 1992-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1991-A and 8-1/4% Cumulative Preferred Stock, Series 1992-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by J. Richard Hull, Senior Vice President-Secretary and General Counsel of the Corporation, and attested by John W. Blenke, 31 Assistant General Counsel and Assistant Secretary, this 1st day of September, 1993. HOUSEHOLD INTERNATIONAL, INC. By: /s/ J. Richard Hull ---------------------- Senior Vice President- Secretary and General Counsel Attest: /s/ John W. Blenke - ----------------------------- Assistant General Counsel and Assistant Secretary 32 CERTIFICATE OF DESIGNATIONS of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of HOUSEHOLD INTERNATIONAL, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on July 9, 1996: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Restated Certificate of Incorporation, the Board hereby creates a series of Preferred Stock, without par value (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: FURTHER RESOLVED, that pursuant to the authority granted to and vested in the Board in accordance with the provisions of the Restated Certificate of Incorporation, the consent of the holders of Series A Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of para- graph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (5)") shall not be required; but the other provisions of Paragraph (5) shall be applicable to the Series A Preferred Stock. The holders of the Series A Preferred Stock shall have no right to elect directors per paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation, such right hereby being expressly withheld: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 150,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $1.00 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in 33 shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issu- ance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment here- inafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of 34 which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (D) The consent of the holders of Series A Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of paragraph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph 5") shall not be required, ; but the other provisions of Paragraph (5) shall be applicable to the Series A Preferred Stock. The holders of the Series A Preferred Stock shall have no right to elect directors pursuant to paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation, such right hereby being expressly withheld. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dis- solution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend 35 rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corpo- ration, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the de- nominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of 36 shares of Series A Preferred Stock shall be adjusted by mul- tiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. Section 10. Amendment. The Certificate of Incor- poration of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chief Executive Officer or Chief Financial Officer and attested by its Secretary this 9th day of July, 1996. /s/ William F. Aldinger -------------------------- Chief Executive Officer or Chief Financial Officer Attest: /s/ Paul R. Shay - ---------------- Secretary U:\LAW\EDGAR\IC7996.WP EX-10.9 3 1 July 9, 1996 Mr. William F. Aldinger 2700 Sanders Road Prospect Heights, IL 60070 Dear Bill: SUBJECT: Amendment and Restatement of Employment Agreement Dated February 13, 1995 - ----------------------------------------------------------- We wish you to remain in the employ of Household International, Inc. ("Household" or the "Corporation") and to provide you with fair and equitable treatment along with a competitive compensation package. Also, we wish to assure your continued attention to your duties without any possible distraction arising out of uncertain personal circumstances in a change in control environment. We recognize that in the event of a Change in Control of Household (as such term is defined herein) it is likely that your duties and responsibilities would be substantially altered. 1. At present you are employed by Household as Chairman and Chief Executive Officer. In that capacity you are entitled to the following: a. A minimum annual salary of $700,000; b. An annual bonus having a targeted value equal to 100% of your annualized salary as of the end of the period in which the bonus is earned. The amount of bonus for any year that you actually receive, if any, will depend on the achievement of the corporate goals and your individual goals established for that year and the terms of the Household International Corporate Executive Bonus Plan, and any successor or substitute plan or plans (the "Bonus Plan"). Your bonus will be prorated based on the number of elapsed months in the performance period in the case of death, permanent and total disability, or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan; c. An annual grant of stock options under the Household International 1996 Long-Term Executive Incentive Compensation Plan, and any successor or substitute plan or plans (the "Long-Term Plan"), having a targeted value of 40% of your then annual salary at the time of the grant. Stock options will be valued at their economic value at the date of grant; and d. Other compensation, benefits and perquisites as described in, and in accordance with, Household's compensation, benefit and perquisite plans (the "Plans"). 2. Subject to termination as provided herein, the term of this Agreement shall be for 18 whole calendar months, shall commence on the date hereof, and shall be "evergreen"; that is shall continue monthly as an 18 month term, unless the Corporation gives to you not less than 17 whole calendar months notice that the term as monthly continued shall not be so continued; provided further, that in no event shall the term be continued beyond your sixty-fifth birthday. 3. During your employment with Household you will devote your reasonably full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 4. In consideration of your employment with Household, it is mutually agreed that: 2 a. In the event your employment with Household is terminated during the term of this Agreement by Household for any reason other than: i. willful and deliberate misconduct which is detrimental in a significant way to the interests of the Corporation; ii. death; iii. inability, for reasons of disability, reasonably to perform your duties for 6 consecutive calendar months; or, b. In the event that during the term of this Agreement you resign your position with Household because within 6 whole calendar months of your resignation one or more of the following events occurred to you: i. your annual salary was reduced; ii. your annual target bonus or the targeted value of stock options calculated as provided in paragraph 1c was reduced and compensation equivalent in aggregate value was not substituted; iii. your benefits under the Household Retirement Income Plan or any successor tax qualified defined benefit plan were reduced for reasons other than to maintain its tax qualified status and such reductions were not supplemented in the Household Supplemental Retirement Income Plan ("HSRIP"); or your benefits under HSRIP were reduced; iv. your other benefits or perquisites were reduced and such reductions were not uniformally applied with respect to all similarly situated employees; v. you were reassigned to a geographical area outside of the Chicago, Illinois metropolitan area; vi. any successor to the Corporation by acquisition of stock or substantially all of the assets, by merger or otherwise, failed to expressly adopt or otherwise repudiated this Employment Agreement; or vii. you received written notice that your employment contract was not renewed; Household shall be required, and hereby agrees, to make promptly a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any of the aforesaid reductions) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. This payment shall be in addition to all other compensation and benefits accrued to the date of termination of employment. 5. It is further mutually agreed that: a. should your employment be terminated pursuant to the provisions of paragraph 4a, or b. should you resign your position for any reason at any time within sixty (60) whole calendar months following a Change in Control of Household, Household or its successor shall pay to you the amounts (including the lump sum payment) described in paragraph 4 3 regardless of whether you are otherwise entitled to them under paragraph 4. In addition, Household or its successor shall promptly make a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any reduction) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. For purposes of this Agreement, a Change in Control of Household shall be deemed to occur when and if: A. any "person" (as the term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934) other than a trustee or other fiduciary of securities held under an employee benefit plan of Household becomes the beneficial owner, directly or indirectly, of securities of Household representing 20% or more of the combined voting power of Household's then outstanding securities; or B. persons who were directors of Household as of the effective date hereof, or successor directors nominated by those directors or by such successor directors cease to constitute a majority of the Board of Directors of Household or its successor by merger, consolidation or sale of assets. 6. You are not required to mitigate the amount of any payments to be made by Household pursuant to this Agreement by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you as the result of self-employment or your employment by another employer after the date of termination of your employment with Household. 7. This Agreement was entered into prior to March 29, 1995, which was the date that regulations were proposed by the Federal Deposit Insurance Corporation (the "FDIC") limiting golden parachute and indemnification payments by insured depository institutions and their holding companies. At that March date the Agreement provided for a lump sum payment equal to 600% of your annual salary. In view of the foregoing, if the lump sum payments under paragraphs 4 and 5 are otherwise limited by the FDIC regulations, any limits on "golden parachute" payments resulting from regulations issued by the FDIC should not reduce the lump sum payments under this Agreement below the lesser of 600% of your then annual salary (prior to any reduction) or the lump sum amounts calculated under paragraphs 4 and 5. 8. Except as provided below, it is the intent and desire of Household that the salary, bonuses and other benefits provided for herein shall be paid to you without any diminution by reason of the assessment of any "golden parachute" excise tax pursuant to the Internal Revenue Code of 1986, as from time to time amended, (hereinafter the "Code"), or state law. Accordingly, in the event that any excise tax is assessed against you pursuant to the provisions of sections 280G and 4999 of the Code (or successor provisions) or comparable provisions of state law, whether with respect to any payments made to you pursuant to the provisions of this Agreement or payments otherwise arising out of your employment relationship, Household or any successor, upon notification of such assessment, shall promptly pay to you such amount as is necessary to provide you with the same after-tax benefit that you would have received had there been no "golden parachute" excise tax. For this purpose, Household or its successor shall assume that you are taxed at the highest individual federal and state income tax rates (without regard to Section 1(g) of the Code or successor provisions thereto). 4 However, if any part or all of the amounts to be paid to you constitute "parachute payments" within the meaning of section 280G(b)(2)(A) of the Code, and a reduction of the amount by 10% or less would totally avoid the imposition of any excise tax, such amounts shall be reduced so that the aggregate present value of the amounts constituting such parachute payments will be equal to 299% of your "annualized includible compensation for the base period," as such term is defined in section 280G(d)(1) of the Code. For the purpose of this subparagraph, present value shall be determined in accordance with section 280G(d)(4) of the Code. 9. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement and you obtain a final judgment in your favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or your claim is settled by Household or its successor prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by you in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing your claim will be promptly paid by Household or its successor with interest thereon at the highest statutory rate of your state of domicile for interest on judgments against private parties from the date of payment thereof by you to the date of reimbursement to you by Household or its successor. 10. You agree that you will not, without prior written consent of the Board of Directors of Household, during the term of or after the termination of your employment under this Agreement, directly or indirectly, disclose to any individual, corporation, or other entity (other than Household, or any subsidiary or affiliate thereof, or its officers, directors, or employees entitled to such information, or any other person or entity to whom such information is regularly disclosed in the normal course of Household's business), or use for your own benefit or for the benefit of such individual, corporation or other entity, any information whether or not reduced to written or other tangible form, which: a. is not generally known to the public or in the industry; b. has been treated by Household as confidential or proprietary; and c. is of competitive advantage to Household and in the confidentiality of which Household has a legally protectible interest, (such information being referred to herein as "Confidential Information"). Confidential Information which becomes generally known to the public or in the industry, or in the confidentiality of which Household ceases to have a legally protectible interest, shall cease to be subject to the restrictions of this paragraph. 11. The provisions of this Agreement shall be construed, to the extent possible, so as to guarantee their enforceability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained in it. 12. This Agreement is an Amendment and Restatement of the Employment Agreement dated February 13, 1995, between 5 you and Household and supersedes said Agreement, in furtherance of the objectives authorized and deemed by the Board of Directors of Household to serve the best interests of the Corporation. 13. Any successor to the Corporation, by acquisition of stock or substantially all of the assets, by merger or otherwise, shall be required to adopt and abide by the terms of this Agreement. This Agreement, and any rights to receive payments hereunder, may not be transferred, assigned or alienated by you. 14. All benefits under this Agreement shall be general obligations of the Corporation which shall not require the segregation of any funds or property. Notwithstanding the foregoing, in the discretion of the Corporation, the Corporation may establish a grantor trust or other vehicle to assist it in meeting its obligations hereunder, but any such trust or other vehicle shall not create a funded account or security interest for you. 15. This Agreement may only be amended or terminated by written agreement, signed by both of the parties. Our signatures below indicate our mutual agreement and acceptance of the foregoing terms and provisions, all as of the date first above set forth. Sincerely, HOUSEHOLD INTERNATIONAL, INC. By: /s/ Raymond C. Tower -------------------- Raymond C. Tower Chairman of the Compensation Committee /s/ William F. Aldinger ----------------------- William F. Aldinger U:\LAW\EDGAR\IEX109.AS1 EX-10.11 4 1 July 9, 1996 Mr. Joseph W. Saunders Household Credit Services, Inc. 1441 Schilling Place Salinas, CA 93901 Dear Joe: SUBJECT: Amendment and Restatement of Employment Agreement Dated July 11, 1994 - ----------------------------------------------------------- We wish you to remain in the employ of Household International, Inc. ("Household" or the "Corporation") and to provide you with fair and equitable treatment along with a competitive compensation package. Also, we wish to assure your continued attention to your duties without any possible distraction arising out of uncertain personal circumstances in a change in control environment. We recognize that in the event of a Change in Control of Household (as such term is defined herein) it is likely that your duties and responsibilities would be substantially altered. 1. At present you are employed by Household as Group Executive. In that capacity you are entitled to the following: a. A minimum annual salary of $400,000; b. An annual bonus having a targeted value equal to 90% of your annualized salary as of the end of the period in which the bonus is earned. The amount of bonus for any year that you actually receive, if any, will depend on the achievement of the corporate goals and your individual goals established for that year and the terms of the Household International Corporate Executive Bonus Plan, and any successor or substitute plan or plans (the "Bonus Plan"). Your bonus will be prorated based on the number of elapsed months in the performance period in the case of death, permanent and total disability, or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan; c. An annual grant of stock options under the Household International 1996 Long-Term Executive Incentive Compensation Plan, and any successor or substitute plan or plans (the "Long-Term Plan"), having a targeted value of 25% of your then annual salary at the time of the grant. The performance unit awards granted in prior years will continue to be earned over a three year cycle, which will be prorated on the number of elapsed months in the performance period in the case of death, permanent and total disability or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan. Stock options will be valued at their economic value at the date of grant; and d. A one-time grant on February 1, 1994, of Performance Share Awards which will vest at 25% on the third anniversary of the date of grant if a performance unit award payment is made with respect to the award granted for the three-year cycle 1994-1996, 25% on the fourth anniversary if a performance unit award payment is made with respect to the award granted for the three-year cycle 1995-1997, and 50% on the fifth anniversary if a performance unit award payment is made with respect to the award granted for the three-year cycle 1996-98. In the event that your employment is terminated pursuant to the provisions of paragraph 4a or if you resign pursuant to the provisions of paragraph 4b(i), 4b(vi), 2 4b(vii) or 5c, you will receive 100% of the shares represented by the Performance Share Award on your last day of employment regardless of whether you have completed the vesting period or the performance condition has been met; and e. Other compensation, benefits and perquisites as described in, and in accordance with, Household's compensation, benefit and perquisite plans (the "Plans"). 2. Subject to termination as provided herein, the term of this Agreement shall be for 18 whole calendar months, shall commence on the date hereof, and shall be "evergreen"; that is shall continue monthly as an 18 month term, unless the Corporation gives to you not less than 17 whole calendar months notice that the term as monthly continued shall not be so continued; provided further, that in no event shall the term be continued beyond your sixty-fifth birthday. 3. During your employment with Household you will devote your reasonably full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 4. In consideration of your employment with Household, it is mutually agreed that: a. In the event your employment with Household is terminated during the term of this Agreement by Household for any reason other than: i. willful and deliberate misconduct which is detrimental in a significant way to the interests of the Corporation; ii. death; iii. inability, for reasons of disability, reasonably to perform your duties for 6 consecutive calendar months; or, b. In the event that during the term of this Agreement you resign your position with Household because within 6 whole calendar months of your resignation one or more of the following events occurred to you: i. your annual salary was reduced; ii. your annual target bonus or the targeted value of stock options calculated as provided in paragraph 1c was reduced and compensation equivalent in aggregate value was not substituted; iii. your benefits under the Household Retirement Income Plan or any successor tax qualified defined benefit plan were reduced for reasons other than to maintain its tax qualified status and such reductions were not supplemented in the Household Supplemental Retirement Income Plan ("HSRIP"); or your benefits under HSRIP were reduced; iv. your other benefits or perquisites were reduced and such reductions were not uniformally applied with respect to all similarly situated employees; v. you were reassigned to a geographical area outside of the Salinas, California area; vi. any successor to the Corporation by acquisition of stock or substantially all of the assets, by merger or otherwise, failed to expressly adopt or otherwise repudiated this Employment Agreement; or 3 vii. you received written notice that your employment contract was not renewed; Household shall be required, and hereby agrees, to make promptly a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any of the aforesaid reductions) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. This payment shall be in addition to all other compensation and benefits accrued to the date of termination of employment. Also, the Compensation Committee of Household's Board of Directors has determined that you will be entitled to receive a portion of your performance unit awards for the performance period in which your employment terminates. Such portion will be determined on the basis of the portion of the performance period elapsed as of your date of termination over the total performance period, and it will be assumed that individual and corporate target levels have been met. 5. It is further mutually agreed that: a. should your employment be terminated pursuant to the provisions of paragraph 4a, or b. should you resign your position pursuant to the provisions of paragraph 4b, or c. should you resign your position because you are assigned to a position of lesser rank or status than you had immediately prior to the Change in Control at any time within sixty (60) whole calendar months following a Change in Control of Household, Household or its successor shall pay to you the amounts (including the lump sum payment) described in paragraph 4 regardless of whether you are otherwise entitled to them under paragraph 4. In addition, Household or its successor shall promptly make a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any reduction) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. Because of the performance history of Household and your performance with us, we hereby agree to an irrebuttable presumption that a reduction in compensation shall be deemed to have occurred in any year (within five years following a Change in Control) in which you do not receive at least: i. a bonus payment under the Bonus Plan, and ii. an award of stock options under the Long-Term Plan for years in which awards were payable under the Long-Term Plan as it existed prior to the Change in Control, both at corporate and individual target levels as those plans existed prior to the Change in Control (or compensation, benefits and perquisites equivalent in aggregate value) and should you choose to resign, payments shall be made to you as outlined earlier in this paragraph 5. For purposes of this Agreement, a Change in Control of Household shall be deemed to occur when and if: 4 A. any "person" (as the term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934) other than a trustee or other fiduciary of securities held under an employee benefit plan of Household becomes the beneficial owner, directly or indirectly, of securities of Household representing 20% or more of the combined voting power of Household's then outstanding securities; or B. persons who were directors of Household as of the effective date hereof, or successor directors nominated by those directors or by such successor directors cease to constitute a majority of the Board of Directors of Household or its successor by merger, consolidation or sale of assets. 6. You are not required to mitigate the amount of any payments to be made by Household pursuant to this Agreement by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you as the result of self-employment or your employment by another employer after the date of termination of your employment with Household. 7. This Agreement was entered into prior to March 29, 1995, which was the date that regulations were proposed by the Federal Deposit Insurance Corporation (the "FDIC") limiting golden parachute and indemnification payments by insured depository institutions and their holding companies. At that March date the Agreement provided for a lump sum payment equal to 582% of your annual salary. In view of the foregoing, if the lump sum payments under paragraphs 4 and 5 are otherwise limited by the FDIC regulations, any limits on "golden parachute" payments resulting from regulations issued by the FDIC should not reduce the lump sum payments under this Agreement below the lesser of 582% of your then annual salary (prior to any reduction) or the lump sum amounts calculated under paragraphs 4 and 5. 8. Except as provided below, it is the intent and desire of Household that the salary, bonuses and other benefits provided for herein shall be paid to you without any diminution by reason of the assessment of any "golden parachute" excise tax pursuant to the Internal Revenue Code of 1986, as from time to time amended, (hereinafter the "Code"), or state law. Accordingly, in the event that any excise tax is assessed against you pursuant to the provisions of sections 280G and 4999 of the Code (or successor provisions) or comparable provisions of state law, whether with respect to any payments made to you pursuant to the provisions of this Agreement or payments otherwise arising out of your employment relationship, Household or any successor, upon notification of such assessment, shall promptly pay to you such amount as is necessary to provide you with the same after-tax benefit that you would have received had there been no "golden parachute" excise tax. For this purpose, Household or its successor shall assume that you are taxed at the highest individual federal and state income tax rates (without regard to Section 1(g) of the Code or successor provisions thereto). However, if any part or all of the amounts to be paid to you constitute "parachute payments" within the meaning of section 280G(b)(2)(A) of the Code, and a reduction of the amount by 10% or less would totally avoid the imposition of any excise tax, such amounts shall be reduced so that the aggregate present value of the amounts constituting such parachute payments will be equal to 299% of your "annualized includible compensation for the base period," as such term is defined in section 280G(d)(1) of the Code. For the purpose of this subparagraph, present value shall be determined in accordance with section 280G(d)(4) of the Code. 5 9. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement and you obtain a final judgment in your favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or your claim is settled by Household or its successor prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by you in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing your claim will be promptly paid by Household or its successor with interest thereon at the highest statutory rate of your state of domicile for interest on judgments against private parties from the date of payment thereof by you to the date of reimbursement to you by Household or its successor. 10. You agree that you will not, without prior written consent of the Chief Executive Officer or the General Counsel of Household, during the term of or after the termination of your employment under this Agreement, directly or indirectly, disclose to any individual, corporation, or other entity (other than Household, or any subsidiary or affiliate thereof, or its officers, directors, or employees entitled to such information, or any other person or entity to whom such information is regularly disclosed in the normal course of Household's business), or use for your own benefit or for the benefit of such individual, corporation or other entity, any information whether or not reduced to written or other tangible form, which: a. is not generally known to the public or in the industry; b. has been treated by Household as confidential or proprietary; and c. is of competitive advantage to Household and in the confidentiality of which Household has a legally protectible interest, (such information being referred to herein as "Confidential Information"). Confidential Information which becomes generally known to the public or in the industry, or in the confidentiality of which Household ceases to have a legally protectible interest, shall cease to be subject to the restrictions of this paragraph. 11. The provisions of this Agreement shall be construed, to the extent possible, so as to guarantee their enforceability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained in it. 12. This Agreement is an Amendment and Restatement of the Employment Agreement dated July 11, 1994, between you and Household and supersedes said Agreement. This Agreement also supersedes the Employment Agreement dated April 22, 1994, the Employment Agreement dated May 28, 1993, the Employment Agreement dated May 1, 1991, and the Employment Agreement dated August 16, 1990, between you and Household, all in furtherance of the objectives authorized and deemed by the Board of Directors of Household to serve the best interests of the Corporation. 13. Any successor to the Corporation, by acquisition of stock or substantially all of the assets, by merger or otherwise, shall be required to adopt and abide by the 6 terms of this Agreement. This Agreement, and any rights to receive payments hereunder, may not be transferred, assigned or alienated by you. 14. All benefits under this Agreement shall be general obligations of the Corporation which shall not require the segregation of any funds or property. Notwithstanding the foregoing, in the discretion of the Corporation, the Corporation may establish a grantor trust or other vehicle to assist it in meeting its obligations hereunder, but any such trust or other vehicle shall not create a funded account or security interest for you. 15. This Agreement may only be amended or terminated by written agreement, signed by both of the parties. Our signatures below indicate our mutual agreement and acceptance of the foregoing terms and provisions, all as of the date first above set forth. Sincerely, HOUSEHOLD INTERNATIONAL, INC. By: /s/ William F. Aldinger ----------------------- William F. Aldinger Chief Executive Officer /s/ Joseph W. Saunders ---------------------- Joseph W. Saunders U:\LAW\EDGAR\IEX1011.AS1 EX-10.12 5 1 July 9, 1996 Mr. Robert F. Elliott 2700 Sanders Road Prospect Heights, IL 60070 Dear Bob: SUBJECT: Amendment and Restatement of Employment Agreement Dated July 11, 1994 - ----------------------------------------------------------- We wish you to remain in the employ of Household International, Inc. ("Household" or the "Corporation") and to provide you with fair and equitable treatment along with a competitive compensation package. Also, we wish to assure your continued attention to your duties without any possible distraction arising out of uncertain personal circumstances in a change in control environment. We recognize that in the event of a Change in Control of Household (as such term is defined herein) it is likely that your duties and responsibilities would be substantially altered. 1. At present you are employed by Household as Group Executive. In that capacity you are entitled to the following: a. A minimum annual salary of $400,000; b. An annual bonus having a targeted value equal to 90% of your annualized salary as of the end of the period in which the bonus is earned. The amount of bonus for any year that you actually receive, if any, will depend on the achievement of the corporate goals and your individual goals established for that year and the terms of the Household International Corporate Executive Bonus Plan, and any successor or substitute plan or plans (the "Bonus Plan"). Your bonus will be prorated based on the number of elapsed months in the performance period in the case of death, permanent and total disability, or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan; c. An annual grant of stock options under the Household International 1996 Long-Term Executive Incentive Compensation Plan, and any successor or substitute plan or plans (the "Long-Term Plan"), having a targeted value of 25% of your then annual salary at the time of the grant. The performance unit awards granted in prior years will continue to be earned over a three year cycle, which will be prorated on the number of elapsed months in the performance period in the case of death, permanent and total disability or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan. Stock options will be valued at their economic value at the date of grant; and d. A one-time grant on February 1, 1994, of Performance Share Awards which will vest at 25% on the third anniversary of the date of grant if a performance unit award payment is made with respect to the award granted for the three-year cycle 1994-1996, 25% on the fourth anniversary if a performance unit award payment is made with respect to the award granted for the three-year cycle 1995-1997, and 50% on the fifth anniversary if a performance unit award payment is made with respect to the award granted for the three-year cycle 1996-98. In the event that your employment is terminated pursuant to the provisions of paragraph 4a or if you resign pursuant 2 to the provisions of paragraph 4b(i), 4b(vi), 4b(vii) or 5c, you will receive 100% of the shares represented by the Performance Share Award on your last day of employment regardless of whether you have completed the vesting period or the performance condition has been met; and e. Other compensation, benefits and perquisites as described in, and in accordance with, Household's compensation, benefit and perquisite plans (the "Plans"). 2. Subject to termination as provided herein, the term of this Agreement shall be for 18 whole calendar months, shall commence on the date hereof, and shall be "evergreen"; that is shall continue monthly as an 18 month term, unless the Corporation gives to you not less than 17 whole calendar months notice that the term as monthly continued shall not be so continued; provided further, that in no event shall the term be continued beyond your sixty-fifth birthday. 3. During your employment with Household you will devote your reasonably full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 4. In consideration of your employment with Household, it is mutually agreed that: a. In the event your employment with Household is terminated during the term of this Agreement by Household for any reason other than: i. willful and deliberate misconduct which is detrimental in a significant way to the interests of the Corporation; ii. death; iii. inability, for reasons of disability, reasonably to perform your duties for 6 consecutive calendar months; or, b. In the event that during the term of this Agreement you resign your position with Household because within 6 whole calendar months of your resignation one or more of the following events occurred to you: i. your annual salary was reduced; ii. your annual target bonus or the targeted value of stock options calculated as provided in paragraph 1c was reduced and compensation equivalent in aggregate value was not substituted; iii. your benefits under the Household Retirement Income Plan or any successor tax qualified defined benefit plan were reduced for reasons other than to maintain its tax qualified status and such reductions were not supplemented in the Household Supplemental Retirement Income Plan ("HSRIP"); or your benefits under HSRIP were reduced; iv. your other benefits or perquisites were reduced and such reductions were not uniformally applied with respect to all similarly situated employees; v. you were reassigned to a geographical area outside of the Chicago, Illinois metropolitan area; vi. any successor to the Corporation by acquisition of stock or substantially all of the assets, by merger or otherwise, failed to 3 expressly adopt or otherwise repudiated this Employment Agreement; or vii. you received written notice that your employment contract was not renewed; Household shall be required, and hereby agrees, to make promptly a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any of the aforesaid reductions) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. This payment shall be in addition to all other compensation and benefits accrued to the date of termination of employment. Also, the Compensation Committee of Household's Board of Directors has determined that you will be entitled to receive a portion of your performance unit awards for the performance period in which your employment terminates. Such portion will be determined on the basis of the portion of the performance period elapsed as of your date of termination over the total performance period, and it will be assumed that individual and corporate target levels have been met. 5. It is further mutually agreed that: a. should your employment be terminated pursuant to the provisions of paragraph 4a, or b. should you resign your position pursuant to the provisions of paragraph 4b, or c. should you resign your position because you are assigned to a position of lesser rank or status than you had immediately prior to the Change in Control at any time within sixty (60) whole calendar months following a Change in Control of Household, Household or its successor shall pay to you the amounts (including the lump sum payment) described in paragraph 4 regardless of whether you are otherwise entitled to them under paragraph 4. In addition, Household or its successor shall promptly make a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any reduction) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. Because of the performance history of Household and your performance with us, we hereby agree to an irrebuttable presumption that a reduction in compensation shall be deemed to have occurred in any year (within five years following a Change in Control) in which you do not receive at least: i. a bonus payment under the Bonus Plan, and ii. an award of stock options under the Long-Term Plan for years in which awards were payable under the Long-Term Plan as it existed prior to the Change in Control, both at corporate and individual target levels as those plans existed prior to the Change in Control (or compensation, benefits and perquisites equivalent in aggregate value) and should you choose to resign, payments shall be made to you as outlined earlier in this paragraph 5. 4 For purposes of this Agreement, a Change in Control of Household shall be deemed to occur when and if: A. any "person" (as the term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934) other than a trustee or other fiduciary of securities held under an employee benefit plan of Household becomes the beneficial owner, directly or indirectly, of securities of Household representing 20% or more of the combined voting power of Household's then outstanding securities; or B. persons who were directors of Household as of the effective date hereof, or successor directors nominated by those directors or by such successor directors cease to constitute a majority of the Board of Directors of Household or its successor by merger, consolidation or sale of assets. 6. You are not required to mitigate the amount of any payments to be made by Household pursuant to this Agreement by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you as the result of self-employment or your employment by another employer after the date of termination of your employment with Household. 7. This Agreement was entered into prior to March 29, 1995, which was the date that regulations were proposed by the Federal Deposit Insurance Corporation (the "FDIC") limiting golden parachute and indemnification payments by insured depository institutions and their holding companies. At that March date the Agreement provided for a lump sum payment equal to 879% of your annual salary. In view of the foregoing, if the lump sum payments under paragraphs 4 and 5 are otherwise limited by the FDIC regulations, any limits on "golden parachute" payments resulting from regulations issued by the FDIC should not reduce the lump sum payments under this Agreement below the lesser of 879% of your then annual salary (prior to any reduction) or the lump sum amounts calculated under paragraphs 4 and 5. 8. Except as provided below, it is the intent and desire of Household that the salary, bonuses and other benefits provided for herein shall be paid to you without any diminution by reason of the assessment of any "golden parachute" excise tax pursuant to the Internal Revenue Code of 1986, as from time to time amended, (hereinafter the "Code"), or state law. Accordingly, in the event that any excise tax is assessed against you pursuant to the provisions of sections 280G and 4999 of the Code (or successor provisions) or comparable provisions of state law, whether with respect to any payments made to you pursuant to the provisions of this Agreement or payments otherwise arising out of your employment relationship, Household or any successor, upon notification of such assessment, shall promptly pay to you such amount as is necessary to provide you with the same after-tax benefit that you would have received had there been no "golden parachute" excise tax. For this purpose, Household or its successor shall assume that you are taxed at the highest individual federal and state income tax rates (without regard to Section 1(g) of the Code or successor provisions thereto). However, if any part or all of the amounts to be paid to you constitute "parachute payments" within the meaning of section 280G(b)(2)(A) of the Code, and a reduction of the amount by 10% or less would totally avoid the imposition of any excise tax, such amounts shall be reduced so that the aggregate present value of the amounts constituting such parachute payments will be equal to 299% of your "annualized includible compensation for the base period," as such term is defined in section 280G(d)(1) of the Code. For the purpose of this subparagraph, present value shall be 5 determined in accordance with section 280G(d)(4) of the Code. 9. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement and you obtain a final judgment in your favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or your claim is settled by Household or its successor prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by you in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing your claim will be promptly paid by Household or its successor with interest thereon at the highest statutory rate of your state of domicile for interest on judgments against private parties from the date of payment thereof by you to the date of reimbursement to you by Household or its successor. 10. You agree that you will not, without prior written consent of the Chief Executive Officer or the General Counsel of Household, during the term of or after the termination of your employment under this Agreement, directly or indirectly, disclose to any individual, corporation, or other entity (other than Household, or any subsidiary or affiliate thereof, or its officers, directors, or employees entitled to such information, or any other person or entity to whom such information is regularly disclosed in the normal course of Household's business), or use for your own benefit or for the benefit of such individual, corporation or other entity, any information whether or not reduced to written or other tangible form, which: a. is not generally known to the public or in the industry; b. has been treated by Household as confidential or proprietary; and c. is of competitive advantage to Household and in the confidentiality of which Household has a legally protectible interest, (such information being referred to herein as "Confidential Information"). Confidential Information which becomes generally known to the public or in the industry, or in the confidentiality of which Household ceases to have a legally protectible interest, shall cease to be subject to the restrictions of this paragraph. 11. The provisions of this Agreement shall be construed, to the extent possible, so as to guarantee their enforceability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained in it. 12. This Agreement is an Amendment and Restatement of the Employment Agreement dated July 11, 1994, between you and Household and supersedes said Agreement. This Agreement also supersedes the Employment Agreement dated April 22, 1994, the Employment Agreement dated May 28, 1993, the Employment Agreement dated May 1, 1991, and the Employment Agreement dated August 16, 1990, between you and Household, all in furtherance of the objectives authorized and deemed by the Board of Directors of Household to serve the best interests of the Corporation. 6 13. Any successor to the Corporation, by acquisition of stock or substantially all of the assets, by merger or otherwise, shall be required to adopt and abide by the terms of this Agreement. This Agreement, and any rights to receive payments hereunder, may not be transferred, assigned or alienated by you. 14. All benefits under this Agreement shall be general obligations of the Corporation which shall not require the segregation of any funds or property. Notwithstanding the foregoing, in the discretion of the Corporation, the Corporation may establish a grantor trust or other vehicle to assist it in meeting its obligations hereunder, but any such trust or other vehicle shall not create a funded account or security interest for you. 15. This Agreement may only be amended or terminated by written agreement, signed by both of the parties. Our signatures below indicate our mutual agreement and acceptance of the foregoing terms and provisions, all as of the date first above set forth. Sincerely, HOUSEHOLD INTERNATIONAL, INC. By: /s/ William F. Aldinger ----------------------- William F. Aldinger Chief Executive Officer /s/ Robert F. Elliott --------------------- Robert F. Elliott U:\LAW\EDGAR\IEX1012.AS1 EX-10.13 6 1 July 9, 1996 Mr. David A. Schoenholz 2700 Sanders Road Prospect Heights, IL 60070 Dear Dave: SUBJECT: Amendment and Restatement of Employment Agreement Dated July 11, 1994 - ----------------------------------------------------------- We wish you to remain in the employ of Household International, Inc. ("Household" or the "Corporation") and to provide you with fair and equitable treatment along with a competitive compensation package. Also, we wish to assure your continued attention to your duties without any possible distraction arising out of uncertain personal circumstances in a change in control environment. We recognize that in the event of a Change in Control of Household (as such term is defined herein) it is likely that your duties and responsibilities would be substantially altered. 1. At present you are employed by Household as Executive Vice President. In that capacity you are entitled to the following: a. A minimum annual salary of $300,000; b. An annual bonus having a targeted value equal to 80% of your annualized salary as of the end of the period in which the bonus is earned. The amount of bonus for any year that you actually receive, if any, will depend on the achievement of the corporate goals and your individual goals established for that year and the terms of the Household International Corporate Executive Bonus Plan, and any successor or substitute plan or plans (the "Bonus Plan"). Your bonus will be prorated based on the number of elapsed months in the performance period in the case of death, permanent and total disability, or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan; c. An annual grant of stock options under the Household International 1996 Long-Term Executive Incentive Compensation Plan, and any successor or substitute plan or plans (the "Long-Term Plan"), having a targeted value of 25% of your then annual salary at the time of the grant. The performance unit awards granted in prior years will continue to be earned over a three year cycle, which will be prorated on the number of elapsed months in the performance period in the case of death, permanent and total disability or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan. Stock options will be valued at their economic value at the date of grant; and d. Other compensation, benefits and perquisites as described in, and in accordance with, Household's compensation, benefit and perquisite plans (the "Plans"). 2. Subject to termination as provided herein, the term of this Agreement shall be for 18 whole calendar months, shall commence on the date hereof, and shall be "evergreen"; that is shall continue monthly as an 18 month term, unless the Corporation gives to you not less than 17 whole calendar months notice that the term as monthly continued shall not be so continued; provided 2 further, that in no event shall the term be continued beyond your sixty-fifth birthday. 3. During your employment with Household you will devote your reasonably full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 4. In consideration of your employment with Household, it is mutually agreed that: a. In the event your employment with Household is terminated during the term of this Agreement by Household for any reason other than: i. willful and deliberate misconduct which is detrimental in a significant way to the interests of the Corporation; ii. death; iii. inability, for reasons of disability, reasonably to perform your duties for 6 consecutive calendar months; or, b. In the event that during the term of this Agreement you resign your position with Household because within 6 whole calendar months of your resignation one or more of the following events occurred to you: i. your annual salary was reduced; ii. your annual target bonus or the targeted value of stock options calculated as provided in paragraph 1c was reduced and compensation equivalent in aggregate value was not substituted; iii. your benefits under the Household Retirement Income Plan or any successor tax qualified defined benefit plan were reduced for reasons other than to maintain its tax qualified status and such reductions were not supplemented in the Household Supplemental Retirement Income Plan ("HSRIP"); or your benefits under HSRIP were reduced; iv. your other benefits or perquisites were reduced and such reductions were not uniformally applied with respect to all similarly situated employees; v. you were reassigned to a geographical area outside of the Chicago, Illinois metropolitan area; vi. any successor to the Corporation by acquisition of stock or substantially all of the assets, by merger or otherwise, failed to expressly adopt or otherwise repudiated this Employment Agreement; or vii. you received written notice that your employment contract was not renewed; Household shall be required, and hereby agrees, to make promptly a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any of the aforesaid reductions) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. This payment shall be in addition to all other compensation and benefits accrued to the date of termination of employment. Also, the Compensation Committee of Household's Board of Directors 3 has determined that you will be entitled to receive a portion of your performance unit awards for the performance period in which your employment terminates. Such portion will be determined on the basis of the portion of the performance period elapsed as of your date of termination over the total performance period, and it will be assumed that individual and corporate target levels have been met. 5. It is further mutually agreed that: a. should your employment be terminated pursuant to the provisions of paragraph 4a, or b. should you resign your position pursuant to the provisions of paragraph 4b, or c. should you resign your position because you are assigned to a position of lesser rank or status than you had immediately prior to the Change in Control at any time within sixty (60) whole calendar months following a Change in Control of Household, Household or its successor shall pay to you the amounts (including the lump sum payment) described in paragraph 4 regardless of whether you are otherwise entitled to them under paragraph 4. In addition, Household or its successor shall promptly make a lump sum cash payment to you in an amount equal to 200% of your then annual salary (prior to any reduction) plus 200% of the average of the last two years' bonuses; provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. Because of the performance history of Household and your performance with us, we hereby agree to an irrebuttable presumption that a reduction in compensation shall be deemed to have occurred in any year (within five years following a Change in Control) in which you do not receive at least: i. a bonus payment under the Bonus Plan, and ii. an award of stock options under the Long-Term Plan for years in which awards were payable under the Long-Term Plan as it existed prior to the Change in Control, both at corporate and individual target levels as those plans existed prior to the Change in Control (or compensation, benefits and perquisites equivalent in aggregate value) and should you choose to resign, payments shall be made to you as outlined earlier in this paragraph 5. For purposes of this Agreement, a Change in Control of Household shall be deemed to occur when and if: A. any "person" (as the term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934) other than a trustee or other fiduciary of securities held under an employee benefit plan of Household becomes the beneficial owner, directly or indirectly, of securities of Household representing 20% or more of the combined voting power of Household's then outstanding securities; or B. persons who were directors of Household as of the effective date hereof, or successor directors nominated by those directors or by such successor directors cease to constitute a majority of the Board of Directors of Household or its successor by merger, consolidation or sale of assets. 4 6. You are not required to mitigate the amount of any payments to be made by Household pursuant to this Agreement by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you as the result of self-employment or your employment by another employer after the date of termination of your employment with Household. 7. This Agreement was entered into prior to March 29, 1995, which was the date that regulations were proposed by the Federal Deposit Insurance Corporation (the "FDIC") limiting golden parachute and indemnification payments by insured depository institutions and their holding companies. At that March date the Agreement provided for a lump sum payment equal to 560% of your annual salary. In view of the foregoing, if the lump sum payments under paragraphs 4 and 5 are otherwise limited by the FDIC regulations, any limits on "golden parachute" payments resulting from regulations issued by the FDIC should not reduce the lump sum payments under this Agreement below the lesser of 560% of your then annual salary (prior to any reduction) or the lump sum amounts calculated under paragraphs 4 and 5. 8. Except as provided below, it is the intent and desire of Household that the salary, bonuses and other benefits provided for herein shall be paid to you without any diminution by reason of the assessment of any "golden parachute" excise tax pursuant to the Internal Revenue Code of 1986, as from time to time amended, (hereinafter the "Code"), or state law. Accordingly, in the event that any excise tax is assessed against you pursuant to the provisions of sections 280G and 4999 of the Code (or successor provisions) or comparable provisions of state law, whether with respect to any payments made to you pursuant to the provisions of this Agreement or payments otherwise arising out of your employment relationship, Household or any successor, upon notification of such assessment, shall promptly pay to you such amount as is necessary to provide you with the same after-tax benefit that you would have received had there been no "golden parachute" excise tax. For this purpose, Household or its successor shall assume that you are taxed at the highest individual federal and state income tax rates (without regard to Section 1(g) of the Code or successor provisions thereto). However, if any part or all of the amounts to be paid to you constitute "parachute payments" within the meaning of section 280G(b)(2)(A) of the Code, and a reduction of the amount by 10% or less would totally avoid the imposition of any excise tax, such amounts shall be reduced so that the aggregate present value of the amounts constituting such parachute payments will be equal to 299% of your "annualized includible compensation for the base period," as such term is defined in section 280G(d)(1) of the Code. For the purpose of this subparagraph, present value shall be determined in accordance with section 280G(d)(4) of the Code. 9. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement and you obtain a final judgment in your favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or your claim is settled by Household or its successor prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by you in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing your claim will be promptly paid by Household or its successor with interest thereon at the highest statutory rate of your state of domicile for interest on judgments against private parties from the date of payment thereof 5 by you to the date of reimbursement to you by Household or its successor. 10. You agree that you will not, without prior written consent of the Chief Executive Officer or the General Counsel of Household, during the term of or after the termination of your employment under this Agreement, directly or indirectly, disclose to any individual, corporation, or other entity (other than Household, or any subsidiary or affiliate thereof, or its officers, directors, or employees entitled to such information, or any other person or entity to whom such information is regularly disclosed in the normal course of Household's business), or use for your own benefit or for the benefit of such individual, corporation or other entity, any information whether or not reduced to written or other tangible form, which: a. is not generally known to the public or in the industry; b. has been treated by Household as confidential or proprietary; and c. is of competitive advantage to Household and in the confidentiality of which Household has a legally protectible interest, (such information being referred to herein as "Confidential Information"). Confidential Information which becomes generally known to the public or in the industry, or in the confidentiality of which Household ceases to have a legally protectible interest, shall cease to be subject to the restrictions of this paragraph. 11. The provisions of this Agreement shall be construed, to the extent possible, so as to guarantee their enforceability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained in it. 12. This Agreement is an Amendment and Restatement of the Employment Agreement dated July 11, 1994, between you and Household and supersedes said Agreement. This Agreement also supersedes the Employment Agreement dated January 3, 1994, the Employment Agreement dated May 28, 1993, the Employment Agreement dated December 1, 1989, the Senior Executive Employment Agreement dated January 1, 1988, and the Supplemental Employment Agreement dated January 1, 1988, between you and Household, all in furtherance of the objectives authorized and deemed by the Board of Directors of Household to serve the best interests of the Corporation. 13. Any successor to the Corporation, by acquisition of stock or substantially all of the assets, by merger or otherwise, shall be required to adopt and abide by the terms of this Agreement. This Agreement, and any rights to receive payments hereunder, may not be transferred, assigned or alienated by you. 14. All benefits under this Agreement shall be general obligations of the Corporation which shall not require the segregation of any funds or property. Notwithstanding the foregoing, in the discretion of the Corporation, the Corporation may establish a grantor trust or other vehicle to assist it in meeting its obligations hereunder, but any such trust or other vehicle shall not create a funded account or security interest for you. 6 15. This Agreement may only be amended or terminated by written agreement, signed by both of the parties. Our signatures below indicate our mutual agreement and acceptance of the foregoing terms and provisions, all as of the date first above set forth. Sincerely, HOUSEHOLD INTERNATIONAL, INC. By: /s/ William F. Aldinger ----------------------- William F. Aldinger Chief Executive Officer /s/ David A. Schoenholz ----------------------- David A. Schoenholz U:\LAW\EDGAR\IEX1013.AS1 EX-12 7 ---------- EXHIBIT 12 ---------- HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
- -------------------------------------------------------------------------- All dollar amounts are stated in millions. Nine months ended September 30 1996 1995 - -------------------------------------------------------------------------- Net income $ 375.0 $ 320.9 - -------------------------------------------------------------------------- Income taxes 198.5 181.1 - -------------------------------------------------------------------------- Fixed charges: Interest expense 1,124.7 1,186.0 Interest portion of rentals 21.3 25.6 - -------------------------------------------------------------------------- Total fixed charges 1,146.0 1,211.6 - -------------------------------------------------------------------------- Total earnings as defined $1,719.5 $1,713.6 ========================================================================== Ratio of earnings to fixed charges 1.50 1.41 - -------------------------------------------------------------------------- Preferred stock dividends $ 19.2 $ 34.9 - -------------------------------------------------------------------------- Ratio of earnings to combined fixed charges and preferred stock dividends 1.48 1.37 - -------------------------------------------------------------------------- For financial statement purposes, interest expense includes income earned on temporary investment of excess funds, generally resulting from over-subscriptions of commercial paper. Represents one-third of rentals, which approximates the portion representing interest. Preferred stock dividends are grossed up to their pretax equivalent based upon an effective tax rate of 34.6 and 36.1 percent for September 30, 1996 and 1995, respectively.
EX-21 8 1 Exhibit 21 SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC. - --------------------------------------------- As of September 30, 1996, the following subsidiaries were directly or indirectly owned by the Registrant. Certain subsidiaries which in the aggregate do not constitute significant subsidiaries may be omitted. % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Hamilton Investments, Inc. Delaware 100% Craig-Hallum Corporation Delaware 100% Craig-Hallum, Inc. Minnesota 100% Household Bank, f.s.b U.S. 100% HHTS, Inc. Illinois 100% Household Home Title Services, Inc. II Maryland 100% Household Bank (SB), N.A. U.S. 100% Household Affinity Funding Corporation Delaware 100% Household Service Corporation of Illinois, Inc. Illinois 100% Household Insurance Services, Inc. Illinois 100% Housekey Financial Corporation Illinois 100% Associations Service Corporation Indiana 100% Household Mortgage Services, Inc. Delaware 100% Security Investment Corporation Maryland 100% Household Capital Corporation Delaware 100% Household Commercial Canada Inc. Canada 100% Household Finance Corporation Delaware 100% HFC Auto Credit Corp. Delaware 100% HFC Funding Corporation Delaware 100% HFC Revolving Corporation Delaware 100% HFS Funding Corporation Delaware 100% Household Bank (Nevada), N.A. U.S. 100% Household Card Funding Corporation Delaware 100% Household Receivables Funding Corporation Nevada 100% Household Receivables Funding Delaware 100% Corporation II Household Receivables Funding, Inc. Delaware 100% Household Capital Markets, Inc. Delaware 100% Household Card Services, Inc. Nevada 100% Household Bank (Illinois), N.A. U.S. 100% Household Consumer Loan Corporation Nevada 100% Household Corporation Delaware 100% Household Credit Services, Inc. Delaware 100% Household Credit Services of Mexico, Inc. Delaware 100% 2 % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Household Finance Receivables Corporation IIDelaware 100% Household Financial Services, Inc. Delaware 100% Household Group, Inc. Delaware 100% AHLIC Investment Holdings Corporation Delaware 100% Household Insurance Agency, Inc. Michigan 100% Household Insurance Company Michigan 100% Household Life Insurance Co. of Arizona Arizona 100% Household Life Insurance Company Michigan 100% Prospect Life Insurance Company Arizona 100% Cal-Pacific Services, Inc. California 100% Household Business Services, Inc. Delaware 100% Household Commercial Financial Delaware 100% Services, Inc. Business Realty Inc. Delaware 100% Business Lakeview, Inc. Delaware 100% Capital Graphics, Inc. Delaware 100% Color Prelude Inc. Delaware 100% HCFS Business Equipment Corporation Delaware 100% HCFS Corporate Finance Venture, Inc. Delaware 100% HFC Commercial Realty, Inc. Delaware 100% G.C. Center, Inc. Delaware 100% Cast Iron Building Corporation Delaware 100% Com Realty, Inc. Delaware 100% Lighthouse Property Corporation Delaware 100% MRP General, Inc. Delaware 100% Household OPEB I, Inc. Illinois 100% Land of Lincoln Builders, Inc. Illinois 100% PPSG Corporation Delaware 100% Steward's Glenn Corporation Delaware 100% HFC Leasing, Inc. Delaware 100% First HFC Leasing Corporation Delaware 100% Second HFC Leasing Corporation Delaware 100% Valley Properties Corporation Tennessee 100% Fifth HFC Leasing Corporation Delaware 100% Sixth HFC Leasing Corporation Delaware 100% Seventh HFC Leasing Corporation Delaware 100% Eighth HFC Leasing Corporation Delaware 100% Tenth HFC Leasing Corporation Delaware 100% Eleventh HFC Leasing Corporation Delaware 100% Thirteenth HFC Leasing Corporation Delaware 100% Fourteenth HFC Leasing Corporation Delaware 100% Seventeenth HFC Leasing Corporation Delaware 100% Nineteenth HFC Leasing Corporation Delaware 100% Twenty-second HFC Leasing Corporation Delaware 100% Twenty-sixth HFC Leasing Corporation Delaware 100% 3 % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Beaver Valley, Inc. Delaware 100% Hull 752 Corporation Delaware 100% Hull 753 Corporation Delaware 100% Third HFC Leasing Corporation Delaware 100% Macray Corporation California 100% Fourth HFC Leasing Corporation Delaware 100% Pargen Corporation California 100% Fifteenth HFC Leasing Corporation Delaware 100% Hull Fifty Corporation Delaware 100% Household Capital Investment Corporation Delaware 100% B&K Corporation Michigan 94% Household Commercial of California, Inc. California 100% Household Real Estate Equities, Inc. Delaware 100% SPG General, Inc. Delaware 100% OLC, Inc. Rhode Island 100% OPI, Inc. Virginia 100% Household Finance Consumer Discount CompanyPennsylvania 100% Overseas Leasing Two FSC, Ltd. Bermuda 99% Household Finance Corporation II Delaware 100% Household Finance Corporation of Alabama Alabama 100% Household Finance Corporation of CaliforniaDelaware 100% Household Finance Corporation of Nevada Delaware 100% Household Finance Realty Corporation of Delaware 100% New York Household Finance Industrial Loan Company Iowa 100% of Iowa Household Finance Realty Corporation of Delaware 100% Nevada Household Finance Corporation III Delaware 100% Amstelveen FSC, Ltd. Bermuda 99% HFC Agency of Connecticut, Inc. Connecticut 100% HFC Agency of Michigan, Inc. Michigan 100% Night Watch FSC, Ltd. Bermuda 99% Household Realty Corporation Delaware 100% Overseas Leasing One FSC, Ltd. Bermuda 100% Overseas Leasing Four FSC, Ltd. Bermuda 99% Overseas Leasing Five FSC, Ltd. Bermuda 99% Household Retail Services, Inc. Delaware 100% HRSI Funding, Inc. Nevada 100% Household Financial Center Inc. Tennessee 100% Household Industrial Finance Company Minnesota 100% Household Industrial Loan Co. of Kentucky Kentucky 100% Household Insurance Agency, Inc. Nevada 100% Household Recovery Services Corporation Delaware 100% 4 % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Household Relocation Management, Inc. Illinois 100% Mortgage One Corporation Delaware 100% Mortgage Two Corporation Delaware 100% Sixty-First HFC Leasing Corporation Delaware 100% Household Receivables Acquisition Company Delaware 100% Household Financial Group, Ltd. Delaware 100% Household Global Funding, Inc. Delaware 78% Household International (U.K.) Limited England 100% D.L.R.S. Limited Cheshire 100% HFC Bank plc England 100% Hamilton Financial Planning Services Limited England 100% Hamilton Insurance Company Limited England 100% Hamilton Life Assurance Co. Limited England 100% HFC Pension Plan Limited England 100% Household Funding Limited England 100% Household Investments Limited England/Wales 100% Household Leasing Limited England 100% Household Management Corporation Limited England/Wales 100% Household Overseas Limited England 100% Household International Netherlands, B.V. Netherlands 100% Household Financial Corporation Limited Ontario 100% Household Finance Corporation of Canada Canada 100% Household Realty Corporation Limited Ontario 100% Household Trust Company Canada 100% Merchant Retail Services Limited Ontario 100% Household Reinsurance Ltd. Bermuda 100% U:\LAW\EDGAR\IEX21.WP1 (10/31/96) EX-27 9
5 THE FOLLOWING SUMMARY FINANCIAL INFORMATION OF THE COMPANY AND ITS SUBSIDIARIES IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND FINANCIAL STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES & EXCHANGE COMMISSION. 1,000 9-MOS DEC-31-1996 SEP-30-1996 289,600 2,312,900 24,137,400 1,527,900 0 0 766,600 426,700 29,896,700 0 15,285,500 115,200 0 205,000 2,844,500 29,896,700 0 3,724,300 0 1,491,700 0 537,300 1,121,800 573,500 198,500 375,000 0 0 0 375,000 3.68 3.68 FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S BALANCE SHEETS WERE NON-CLASSIFIED.
EX-99.1 10 EXHIBIT 99.1 ------------ HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES DEBT AND PREFERRED STOCK SECURITIES RATINGS
- -------------------------------------------------------------------------------------------------------------- Duff & Standard Moody's Fitch Phelps & Poor's Investors Investors Credit Thomson Corporation Service Services Rating Co. BankWatch - -------------------------------------------------------------------------------------------------------------- At September 30, 1996 - -------------------------------------------------------------------------------------------------------------- Household International, Inc. Senior A A3 A A A Commercial paper A-1 P-2 F-1 Duff 1 TBW-1 Preferred stock A- baa1 A- A- BBB+ - -------------------------------------------------------------------------------------------------------------- Household Finance Corporation Senior A A2 A+ A+ A+ Senior subordinated A- A3 A A A Commercial paper A-1 P-1 F-1 Duff 1+ TBW-1 Preferred stock A- a3 A- A- A- - -------------------------------------------------------------------------------------------------------------- Household Bank, f.s.b. Senior A A2 A A NR Subordinated A- A3 A- A- A Certificates of deposit (long/short term) A/A-1 A2/P-1 A/F-1 A/Duff 1 TBW-1 Thrift notes A-1 P-1 F-1 Duff 1 TBW-1 - --------------------------------------------------------------------------------------------------------------
In October 1996 Moody's Investors Service ("Moody's") revised its outlook for The long-term debt obligations of the company and its subsidiaries from neutral to negative reflecting management's strategic repositioning toward unsecured receivable origination and the sale of its retail consumer deposit branches. Moody's outlook for the ratings of commercial paper and short-term obligations Issued by the company and its subsidiaries was unaffected. -----END PRIVACY-ENHANCED MESSAGE-----